<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1996.
1933 ACT REGISTRATION NO. 2-99810
1940 ACT REGISTRATION NO. 811-4391
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 23 /x/
-
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 21
THE PBHG FUNDS, INC.
(FORMERLY THE ADVISORS' INNER CIRCLE FUND II, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1255 DRUMMERS LANE
SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (610) 341-9000
HAROLD J. BAXTER
1255 DRUMMERS LANE
SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
JANE A. KANTER, ESQUIRE
KATTEN MUCHIN & ZAVIS
1025 THOMAS JEFFERSON STREET, NW
EAST LOBBY, SUITE 700
WASHINGTON, D.C. 20007
It is proposed that this filing will become effective:
X
- - ----- immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
- - -----
- - ----- 60 days after filing pursuant to paragraph (a)
- - ----- on [date] pursuant to paragraph (a) of Rule 485
- - ----- 75 days after filing pursuant to paragraph (a)
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of common stock is being registered by this
Registration Statement. Registrant's Rule 24f-2 Notice for its most recent
fiscal year will be filed on or before May 31, 1996.
Page 1 of . Exhibit List appears on page .
------------- -------
<PAGE>
THE PBHG FUNDS, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
The PBHG Funds, Inc. - PBHG Class Shares
----------------------------------------
Cross Reference Sheet
Part A - Prospectus
The PBHG Funds, Inc. - Trust Class Shares
-----------------------------------------
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
THE PBHG FUNDS, INC.
(PBHG Class Shares)
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 23
<TABLE>
<CAPTION>
PART A. Item No. and Captions Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Expense Summary
4. General Description of Registrant The Fund and the Portfolios;
Investment Objective and Policies;
General Investment Policies and
Strategies; Risk Factors; Investment
Limitations; General Information -- The
Fund
5. Management of the Fund General Information -- Directors of the
Fund; General Information -- The
Adviser; General Information -- The
Sub-Adviser (International Fund);
General Information -- The Sub-Adviser
(Cash Fund); General Information -- The
Administrator; General Information --
The Transfer Agent; General Information
-- The Distributor
6. Capital Stock and Other Securities General Information -- Voting Rights;
General Information -- Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
8. Redemption or Repurchase How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Registrant Directors and Officers of the Fund; The
Administrator
15. Control Persons and Principal Holders of Directors and Officers of the Fund; 5%
Securities and 25% Shareholders
16. Investment Advisory and Other Services The Adviser; The Sub-Advisers; The
Administrator; The Distributor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield; Calculation of
Total Return
23. Financial Statements Financial Statements
</TABLE>
PART C Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE>
THE PBHG FUNDS, INC. PBHG CLASS SHARES
MAY 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 PBHG Class shares of each of the following
portfolios (each a "Portfolio" and, together, the "Portfolios"):
.PBHG GROWTH FUND
.PBHG EMERGING GROWTH FUND
.PBHG CORE GROWTH FUND
.PBHG LARGE CAP GROWTH FUND
.PBHG SELECT EQUITY FUND
.PBHG TECHNOLOGY & COMMUNICATIONS FUND
.PBHG INTERNATIONAL FUND
.PBHG CASH RESERVES FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolios 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 May 1, 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.
AN INVESTMENT IN THE PBHG CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET
FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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
- - --------------------------------------------------------------------------------
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 PBHG Growth Fund (the "Growth Fund"), PBHG Emerging Growth Fund (the
"Emerging Growth Fund"), PBHG Core Growth Fund (the "Core Growth Fund"), PBHG
Large Cap Growth Fund (the "Large Cap Fund"), PBHG Select Equity Fund (the "Se-
lect Equity Fund"), PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), PBHG International Fund (the "International Fund"), and
PBHG Cash Reserves Fund (the "Cash Fund") (each a "Portfolio" and, collective-
ly, the "Portfolios"). This summary is qualified in its entirety by reference
to the more detailed information provided elsewhere in this Prospectus and in
the Statement of Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES, PROGRAM AND POLICIES OF THE
PORTFOLIOS? The Growth Fund seeks capital appreciation, and the Emerging
Growth, Large Cap, Select Equity, Technology & Communications and International
Funds each seek long-term growth of capital. The Core Growth Fund seeks long-
term capital appreciation. The Cash Fund seeks to preserve principal value and
maintain a high degree of liquidity while providing current income. There can
be no assurance that a Portfolio will achieve its investment objective. Each
Portfolio, except the Cash Fund, will invest primarily in a variety of equity
securities in accordance with its particular investment program and policies.
The Growth Fund invests primarily in common stocks of small and medium capital-
ization companies believed by Pilgrim Baxter & Associates, Ltd. (the "Adviser")
to have an outlook for strong earnings growth and the potential for significant
capital appreciation. The Emerging Growth Fund invests primarily in common
stocks of emerging growth companies that have historically exhibited excep-
tional or strong growth characteristics and that, in the Adviser's opinion,
have strong earnings potential relative to the U.S. market as a whole. The Core
Growth Fund invests primarily in a diversified portfolio of equity securities,
without regard to market capitalization, that are believed by the Adviser to
have an outlook for strong earnings growth in and the potential for significant
long-term capital appreciation. The Large Cap Fund invests primarily in growth
common stocks of larger capitalization companies that are perceived by the Ad-
viser to have a strong potential for capital appreciation. The Select Equity
Fund invests primarily in a limited number of common stocks of companies, with-
out regard to market capitalization, that are perceived by the Adviser to have
a strong potential for capital appreciation. The Technology & Communications
Fund invests primarily in common stocks of companies, without regard to market
capitalization, which rely extensively on science and technology in their prod-
uct development or operations, or which are expected to benefit from technolog-
ical improvements and which may be experiencing exceptional growth in sales and
earnings driven by technology-related products and services. The International
Fund invests primarily in equity securities of non-U.S. issuers, without regard
to market capitalization. The Cash Fund invests primarily in the following ob-
ligations denominated in U.S. dollars: commercial paper, bank obligations,
short-term corporate and municipal obligations, U.S. Government and agency se-
curities, and repurchase agreements involving the foregoing instruments.
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary..................................................................... 2
Expense Summary............................................................. 4
Financial Highlights........................................................ 5
The Fund and the Portfolios................................................. 6
Investment Objectives and Policies.......................................... 6
General Investment Policies and Strategies.................................. 10
Risk Factors................................................................ 11
Investment Limitations...................................................... 12
</TABLE>
<TABLE>
<S> <C>
How to Purchase Fund Shares................................................. 13
Shareholder Services........................................................ 14
How to Redeem Fund Shares................................................... 16
Share Price................................................................. 17
Performance Advertising..................................................... 17
Taxes....................................................................... 18
General Information......................................................... 19
Glossary of Permitted Investments........................................... 22
</TABLE>
2
<PAGE>
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? Each Port-
folio, except the Cash Fund, invests in securities that fluctuate in value, and
investors should expect each Portfolio's net asset value per share to fluctu-
ate. The Growth, Emerging Growth, Core Growth, Select Equity and Technology &
Communications Funds may invest 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 Growth and Emerging
Growth Funds invest extensively in securities of small capitalization companies
and, to a lesser extent the Core Growth, Select Equity and Technology & Commu-
nications Funds also invest in small or medium capitalization company stocks
and, therefore, may experience greater price volatility than investment compa-
nies that invest primarily in more established, larger capitalized companies.
Because the Select Equity Fund invests in a relatively small number of stocks,
the impact of a change in value of a stock holding may be magnified. Although
the Technology & Communications Fund will invest in the securities of technol-
ogy companies in many different industries, many of these industries share com-
mon characteristics. Furthermore, equity securities of technology companies may
be subject to greater price volatility than securities of companies in many
other industries. Each of the Portfolios, except the Cash Fund, may invest in,
and the International Fund invests primarily 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. The International Fund may engage in swaps, options and futures
transactions which may pose additional risks. There can be no assurance that
the Cash Fund will be able to maintain a stable net asset value of $1.00 per
share on a continuing basis. See "Investment Objectives and Policies" and
"Glossary of Permitted Investments."
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the invest-
ment adviser to each Portfolio, Murray Johnstone International Limited serves
as the sub-adviser to the International Fund, and Wellington Management Company
serves as the sub-adviser to the Cash Fund. See "Expense Summary," "The Advis-
er," "The Sub-Adviser (International Fund) and "The Sub-Adviser (Cash Fund)."
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, PBHG Class shares of each Portfolio are offered on
a no-load basis.
IS THERE A MINIMUM INVESTMENT? Each Portfolio has a minimum initial invest-
ment of $2,500 for regular accounts and $2,000 for 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"). However, shares of the Cash Fund cannot be
purchased by Federal Reserve wire on federal holidays restricting wire trans-
fers. 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
2:00 p.m., Eastern time for the Cash Fund and 4:00 p.m., Eastern time for each
of the other Portfolios. Redemption orders placed with the Transfer Agent prior
to 2:00 p.m., Eastern time for the Cash Fund and 4:00 p.m., Eastern time for
each of the other Portfolios 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 of-
fers a Systematic Investment Plan and a Systematic Withdrawal Plan. See "Share-
holder Services."
3
<PAGE>
- - -------------------------------------------------------------------------------
EXPENSE SUMMARY
- - -------------------------------------------------------------------------------
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 PBHG Class shares.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
CORE SELECT TECHNOLOGY &
GROWTH EMERGING GROWTH LARGE CAP EQUITY COMMUNICATIONS INTERNATIONAL CASH
FUND GROWTH FUND FUND FUND FUND FUND FUND FUND
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None None None
Deferred Sales Load None None None None None None None None
Redemption Fees(1) None None None None None None None None
Exchange Fees None None None None None None None None
- - ---------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
CORE SELECT TECHNOLOGY &
GROWTH EMERGING GROWTH LARGE CAP EQUITY COMMUNICATIONS INTERNATIONAL CASH
FUND GROWTH FUND FUND FUND FUND FUND FUND FUND
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees(2) .85% .85% .85% .75% .85% .85% .22% .30%
12b-1 Fees None None None None None None None None
Other Expenses(2) .60% .62% .65% .75% .65% .65% 2.03% .40%
- - ------------------------------------------------------------------------------------------------------
Total Operating Expenses
(net of reimbursement
after fee waiver or ex-
pense reimbursement, if
any)(3) 1.45% 1.47% 1.50% 1.50% 1.50% 1.50% 2.25% .70%
- - ------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------
</TABLE>
(2) For the Core Growth, Large Cap, Select Equity, Technology & Communications
and Cash Funds, "Advisory Fees" and "Other Expenses" are based on
estimated amounts for the current fiscal year. The actual Advisory Fees
and Other Expenses as a percentage of net assets of these Portfolios for
the fiscal year ended March 31, 1996 were respectively: (.38%) and 1.88%;
.22% and 1.28%; .63% and .87%; .38% and 1.12%; and .12% and .58%.
Estimated Advisory Fees and Other Expenses are shown for the Core Growth
and Technology & Communications Funds because they have been in existence
less than ten months. Estimated Advisory Fees and Other Expenses are shown
for the Large Cap, Select Equity and Cash Funds because they more
accurately reflect the projected fees to be paid during the current fiscal
year. Advisory Fees for these Portfolios are expected to be higher due to
anticipated increases in the nets assets of each Portfolio resulting in
lesser amounts of the Advisory Fees of each Portfolio being waived or
reimbursed by the Adviser. Other Expenses for these Portfolios are
expected to be lower due to anticipated increases in the nets assets of
each Portfolio resulting in a lower percentage rate of average net assets
being paid to various service providers.
(3) The Adviser and Sub-Adviser to the International Fund have agreed to waive
a portion of their fees and reimburse expenses as disclosed above and in
"General Information--the Adviser." The Adviser and Sub-Adviser to the
International Fund reserve the right to terminate their fee waivers and
reimbursements at any time in their sole discretion. Absent fee waivers
and reimbursements, Advisory Fees and Total Operating Expenses for the
Large Cap, Select Equity, International and Cash Funds would have been
.75% and 2.03%; .85% and 1.72%; 1.00% and 3.03%; and .30% and .88%,
respectively.
EXAMPLE
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
An investor in a Growth Fund $15 $46 $ 79 $174
Portfolio would pay the Emerging Growth Fund $15 $46 $ 80 $176
following expenses on a Core Growth Fund $15 $47 N/A N/A
$1,000 investment Large Cap Fund $15 $47 $ 82 $179
assuming (1) 5% annual Select Equity Fund $15 $47 $ 82 $179
return, and (2) Technology & Communications Fund $15 $47 N/A N/A
redemption at the end International Fund $23 $70 $120 $258
of each time period. Cash Fund $ 7 $22 $ 39 $ 87
- - ------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------
</TABLE>
The example is based upon estimated total operating expenses for the
Portfolios, 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 PBHG Class
shares of each Portfolio. See "The Adviser" and "The Administrator."
4
<PAGE>
- - -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- - -------------------------------------------------------------------------------
The following information, for the fiscal periods ended March 31, 1994, 1995
and 1996, has been audited by Arthur Andersen LLP, the Fund's independent pub-
lic accountants. Arthur Andersen LLP has served as the Fund's independent pub-
lic accountants since August 1993. The information with respect to the Growth
Fund for the periods from April 1, 1989 to March 31, 1993, has been audited by
the Fund's prior independent public accountants for those periods. The infor-
mation for the periods prior to April 1, 1989, is unaudited. The Fund's au-
dited financial statements are included in the Fund's Statement of Additional
Information under "Financial Information." The following tables should be read
in conjunction with the Fund's financial statements and notes thereto. Addi-
tional information about each Portfolio's performance is contained in the
Fund's Annual Report, which may be obtained (without charge) by calling 1-800-
433-0051. For a PBHG Class Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net
Asset Net Realized and Distributions
Value Investment Unrealized from Net Distributions Net Asset
Beginning Income Gains or Losses Investment from Capital Value End Total
of Period (Loss) on Securities Income Gains of Period Return
--------- ---------- --------------- ------------- ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------
PBHG GROWTH FUND
- - ----------------
1996 $16.70 $(0.06) $8.66 -- -- $25.30 51.50%
1995 14.67 (0.05) 2.09 -- $(0.01) 16.70 13.92%
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28%
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47%
1992 11.51 (0.06) 1.35 -- (2.43) 10.37 13.78%
1991 10.86 (0.01) 1.45 -- (0.79) 11.51 16.94%
1990 10.84 (0.05) 2.92 $(0.04) (2.81) 10.86 27.11%
1989** 10.44 0.02 0.41 -- (0.03) 10.84 3.98%
1988** 16.78 0.01 (2.11) -- (4.24) 10.44 (13.10)
1987** 11.52 0.05 5.28 (0.07) -- 16.78 46.57%
- - -------------------------
PBHG EMERGING GROWTH FUND
- - -------------------------
1996 $16.10 $(0.07) $8.03 -- $(0.99) $23.07 50.16%
1995/1/,/2/ 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%
1994/1/ 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64%
1993/3/ 10.00 (0.03) 3.25 -- -- 13.22 32.20%
- - ---------------------
PBHG CORE GROWTH FUND
- - ---------------------
1996/4/ $10.00 $ -- $1.82 -- -- $11.82 18.20%
- - -----------------------
PBHG SELECT EQUITY FUND
- - -----------------------
1996/5/ $10.00 $(0.05) $7.68 -- $(0.36) $17.27 77.75%
- - -------------------
PBHG LARGE CAP FUND
- - -------------------
1996/5/ $10.00 $(0.03) $4.97 -- $(0.41) $14.53 50.47%
- - -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- - -------------------------------------
1996/6/ $10.00 $(0.02) $2.50 -- -- $12.48 24.82%
- - -----------------------
PBHG INTERNATIONAL FUND
- - -----------------------
1996 $ 9.13 $(0.04) $1.46 -- -- $10.55 15.55%
1995/7/ 10.00 (0.03) (0.80) -- $(0.04) 9.13 (8.33)
- - -----------------------
PBHG CASH RESERVES FUND
- - -----------------------
1996/5/ $ 1.00 $ 0.05 -- $(0.05) -- $ 1.00 5.24%
<CAPTION>
Ratio
Ratio of Net
of Net Ratio Investment
Net Investment of Expenses Income (Loss)
Assets Ratio Income to Average to Average
End of Expenses (Loss) Net Assets Net Assets Portfolio
of Period to Average to Average (Excluding (Excluding Turnover
(000) Net Assets Net Assets Waivers) Waivers) Rate
---------- ----------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
- - ----------------
PBHG GROWTH FUND
- - ----------------
1996 $3,298,925 1.48% (0.79)% 1.48% (0.79)% 44.64%
1995 1,014,832 1.50% (0.69)% 1.50% (0.69)% 118.75%
1994 319,059 1.55% (0.78)% 1.59% (0.82)% 94.28%
1993 6,069 2.39% (1.69)% 3.04% (2.34)% 209.24%
1992 7,339 1.52% (0.55)% 2.00% (1.03)% 114.54%
1991 10,356 1.50% (0.09)% 1.75% (0.34)% 228.02%
1990 18,849 1.32% (0.35)% 1.32% (0.35)% 219.41%
1989** 23,494 1.19% 0.20% 1.19% 0.20% 175.01%
1988** 28,407 1.21% 0.02% 1.21% 0.02% 208.41%
1987** 30,154 1.31% 0.36% 1.31% 0.36% 213.99%
- - -------------------------
PBHG EMERGING GROWTH FUND
- - -------------------------
1996 $689,705 1.47% (0.42)% 1.47% (0.42)% 97.05%
1995/1/,/2/ 411,866 1.50%* (0.08)%* 1.50%* (0.08)%* 27.50%
1994/1/ 113,329 1.45% (0.77)% 1.45% (0.77)% 95.75%
1993/3/ 34,517 1.50%* (0.72)%* 1.54%* (0.76)%* 71.18%
- - ---------------------
PBHG CORE GROWTH FUND
- - ---------------------
1996/4/ $31,092 1.50%* (0.18)%* 2.92%* (1.60)%* 17.00%
- - -----------------------
PBHG SELECT EQUITY FUND
- - -----------------------
1996/5/ $202,796 1.50%* (0.74)%* 1.73%* (0.97)%* 206.22%
- - -------------------
PBHG LARGE CAP FUND
- - -------------------
1996/5/ $53,759 1.50%* (0.66)%* 2.07%* (1.23)%* 116.75%
- - -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- - -------------------------------------
1996/6/ $61,772 1.50%* (0.50)%* 2.00%* (1.00)%* 125.99%
- - -----------------------
PBHG INTERNATIONAL FUND
- - -----------------------
1996 $11,243 2.25% (0.22)% 3.03% (1.00)% 140.26%
1995/7/ 15,236 2.25%* (0.43)%* 2.36%* (0.54)%* 81.72%
- - -----------------------
PBHG CASH RESERVES FUND
- - -----------------------
1996/5/ $99,001 0.70%* 5.05 %* 0.88%* 4.87 %* N/A
</TABLE>
* Annualized **Unaudited
+ Total returns have not been annualized
1 The information set forth in this table for the periods prior to June 2, 1994
is the financial data of the Pilgrim Baxter Emerging Growth Fund, a series of
the Advisors' Inner Circle Fund. The PBHG Emerging Growth fund acquired the
assets and assumed the liabilities of the Pilgrim Baxter Emerging Growth
Fund on June 2, 1994. The PBHG Emerging Growth Fund retained the October 31
fiscal year end of its predecessor only for fiscal year 1994. The PBHG
Emerging Growth Fund changed its fiscal year end to March 31 in 1995 and
reported financial information for the fiscal period from November 1, 1994 to
March 31, 1995.
2 Per share calculations were performed using average shares for the period.
3 The Pilgrim Baxter Emerging Growth Fund, the predecessor series to the PBGH
Emerging Growth Fund, commenced operations on June 15, 1993.
4 The PBHG Core Growth Fund commenced operations on January 2, 1992.
5 The PBGH Select Equity Fund, the PBHG Large Cap Growth Fund, and the PBGH
Cash Reserve Fund commenced operations on April 5, 1995.
6 The PBGH Technology & Communications Fund commenced operations on October 2,
1995.
7 The PBGH International Fund commenced operations on June 14, 1994.
Amounts designated as -- enter $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
- - -------------------------------------------------------------------------------
THE FUND AND THE PORTFOLIOS
- - -------------------------------------------------------------------------------
The Fund is an open-end investment company that offers by means of this Pro-
spectus shares in eight separate series (each a "Portfolio" and, collectively,
the "Portfolios"): the Growth Fund, Emerging Growth Fund, Core Growth Fund,
Large Cap Fund, Select Equity Fund, Technology & Communications Fund, Interna-
tional Fund, and Cash Fund. Each share of each Portfolio represents an undi-
vided interest in that Portfolio. The Fund's shares are currently divided into
two classes of shares (PBHG Class and Trust Class) having such preferences and
special or relative rights and privileges as the Board of Directors deter-
mines. Only the Fund's PBHG Class shares are offered by this Prospectus. 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 av-
erage daily net assets attributable to its shares. For certain of the Portfo-
lios, Trust Class shares are offered by separate prospectuses, which are
available without charge by calling 1-800-433-0051. Additional 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.
- - -------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- - -------------------------------------------------------------------------------
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 sized growth companies
(market capitalization or annual revenues up to $2 billion). The average mar-
ket capitalizations or annual revenues of holdings in the Portfolio may, how-
ever, fluctuate over time as a result of market valuation levels and the
availability of specific investment opportunities. In addition, the Portfolio
may continue to hold securities of companies whose market capitalizations or
annual revenues grow above $2 billion subsequent to purchase, if the company
continues to satisfy the other investment policies of the Portfolio.
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 pursuant
to procedures established by the Board. See "Glossary of Permitted Invest-
ments."
EMERGING GROWTH FUND
The Emerging Growth Fund seeks long-term growth of capital. The Portfolio will
normally be as fully invested as practicable in common stocks (including
ADRs), but also may invest in warrants and rights to purchase common stocks
and in debt securities and preferred stocks convertible into common stocks
(collectively, "equity securities"). Under normal market conditions, the Port-
folio will invest at least 65% of its total assets in common stocks of domes-
tic emerging growth companies that have historically exhibited exceptional or
strong growth characteristics and, in the Adviser's opinion, have an expected
trend of earnings higher than that of the U.S. market as a whole. Such compa-
nies generally have market capitalizations or annual revenues of up to $500
million. The average market capi
6
<PAGE>
talizations or annual revenues of holdings in the Portfolio may, however,
fluctuate over time as a result of market valuation levels and the availabil-
ity of specific investment opportunities. In addition, the Portfolio may con-
tinue to hold securities of companies whose market capitalizations or annual
revenues grow above $500 million subsequent to purchase, if the company con-
tinues to satisfy the other investment policies of the Portfolio. The Adviser
will not consider dividend income when selecting common stocks for the Portfo-
lio.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
While it has no present intention to do so, the Portfolio reserves the right
to invest, in the aggregate, up to 10% of its net assets in restricted securi-
ties and securities of foreign issuers traded outside the United States and
Canada and, for hedging purposes only, to purchase and sell options on stocks
or stock indices. The Portfolio may also invest up to 15% of its net assets in
illiquid securities. The Portfolio may invest in restricted securities, but
will not invest more than 5% of its net assets in restricted securities that
the Adviser determines are illiquid based on guidelines approved by the Board
of Directors of the Fund. See "Glossary of Permitted Investments."
CORE GROWTH FUND
The Core Growth Fund seeks long-term capital appreciation. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (i.e., common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of companies, without regard to market capitalization, that are
believed by the Adviser to have superior long-term growth prospects and poten-
tial for long-term capital appreciation.
The Adviser seeks to invest in companies poised for rapid growth that have an
historical record of above-average earnings growth, demonstrate the ability to
sustain strong earnings growth, and operate in industries or markets that may
be experiencing increased demand for their products or services. Such compa-
nies may include ones that the Adviser has invested in or believes are good
prospects for certain of its other Portfolios. The Adviser will consider di-
versity of industries in choosing investments for the Portfolio and will not
limit the number of small, medium and large capitalization companies in which
the Portfolios will invest.
The Portfolio will normally be as fully invested as practicable in common
stocks and investment grade securities convertible into common stocks. The
Portfolio also may invest up to 5% of its assets in warrants and rights to
purchase common stocks. 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 foreign issuers (including American Depository Receipts ("ADRs")
and forward foreign currency exchange contracts, and may invest up to 15% of
its net assets in illiquid securities, but will not invest more than 10% of
its net assets in restricted securities. The Portfolio may also purchase secu-
rities on a when-issued or delayed-delivery basis. See "Glossary of Permitted
Investments."
LARGE CAP FUND
The Large Cap Fund seeks long-term growth of capital. The Portfolio will nor-
mally be substantially invested in equity securities (including ADRs and for-
eign securities). The equity securities in which the Portfolio will invest are
common stocks, warrants and rights to purchase common stocks, and debt securi-
ties and preferred stock convertible into common stocks. Normally, the Portfo-
lio will purchase exchange-traded and over-the-counter equity securities, in-
cluding foreign securities traded in the United States. The Portfolio may in-
vest in convertible debt securities rated investment grade by a nationally
recognized statistical rating organization ("NRSRO") (i.e., within one of the
four highest rating categories).
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion (with a median market capitalization of approximately $2.75 bil-
lion). The Adviser also will consider the diversity of industries in choosing
investments for the Portfolio.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in
7
<PAGE>
restricted securities and securities of foreign issuers traded outside the
United States and Canada and, for hedging purposes only, to purchase and sell
options on stocks and stock indices. The Portfolio may also invest up to 15%
of its net assets in illiquid securities, but will not invest more than 5% of
its net assets in restricted securities that the Adviser determines are illiq-
uid based on guidelines approved by the Board of Directors of the Fund. See
"Glossary of Permitted Investments."
SELECT EQUITY FUND
The Select Equity Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks, and
debt securities and preferred stock that are convertible into common stocks.
The Portfolio may invest in convertible debt securities rated investment grade
by an NRSRO (i.e., within one of the four highest rating categories). Normal-
ly, the Portfolio will purchase exchange-traded and over-the-counter equity
securities, including foreign securities traded in the United States. The Ad-
viser will consider the diversity of industries in choosing investments for
the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of a limited number of companies that, in the
Adviser's opinion, have a strong earnings growth outlook and potential for
capital appreciation. Normally, the Portfolio's investments will be limited to
in a relatively small number of stocks (e.g., no more than 30 stocks) of
small, medium and large capitalization companies. Because the Portfolio fo-
cuses on a small number of stocks, the impact of a change in value of a stock
holding may be magnified.
While it has no present intention to do so, the Portfolio reserves the right
to invest up to 10% of its net assets in restricted securities and securities
of foreign issuers traded outside the United States and Canada and, for hedg-
ing purposes only, to purchase and sell options on stocks or stock indices.
The Portfolio may also invest up to 15% of its net assets in illiquid securi-
ties, but will not invest more than 5% of its net assets in restricted securi-
ties that the Adviser determines are illiquid based on guidelines approved by
the Board of Directors of the Fund. See "Glossary of Permitted Investments."
TECHNOLOGY & COMMUNICATIONS FUND
The Technology & Communications Fund seeks long-term growth of capital. Cur-
rent income is incidental to the Portfolio's objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in com-
mon stocks of companies which rely extensively on technology or communications
in their product development or operations, or which are expected to benefit
from technological advances and improvements, and that may be experiencing ex-
ceptional growth in sales and earnings driven by technology- or communication-
related products and services.
Such technology and communications companies may be in many different indus-
tries or fields, including computer software and hardware, electronic compo-
nents and systems, network and cable broadcasting, telecommunications, mobile
communications, satellite communications, defense and aerospace, transporta-
tion systems, data storage and retrieval, biotechnology and medical, and envi-
ronmental. As a result of this focus, the Portfolio offers investors the sig-
nificant growth potential of companies that may be responsible for break-
through products or technologies or that are positioned to take advantage of
cutting-edge developments.
The Portfolio will normally be fully invested in common stocks (including
ADRs) of such technology and communications companies, but also may invest in
warrants and rights to purchase common stocks and debt securities and pre-
ferred stocks convertible into common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, blue chip firms with established track records in developing and mar-
keting such scientific advances.
Normally, the Portfolio will purchase only securities traded in the U.S. or
Canada on registered exchanges or in the over-the-counter market. The Portfo-
lio may also invest, in the aggregate, up to 10% of its net assets in re-
stricted securities and securities of foreign issuers traded outside the U.S.
and Canada and, for hedging purposes only, may pur-
8
<PAGE>
chase and sell options on stocks or stock indices. The Portfolio also may in-
vest up to 15% of its net assets in illiquid securities.
INTERNATIONAL FUND
The International Fund seeks to provide long-term capital appreciation by in-
vesting primarily in a diversified portfolio of equity securities of non-U.S.
issuers. Country selection is a significant part of the investment process.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in securities of issuers in at least three countries other
than the United States. The Portfolio may, on occasion, invest more than 25%
of its total assets in the securities of issuers whose principal activities
are in specific countries or geographic regions, including emerging markets.
The term "emerging markets" applies to any country which is generally consid-
ered to be an emerging or developing country by the international financial
community. See "Risk Factors" for additional information.
Under normal circumstances, the Portfolio's assets will be fully invested in
the following equity securities of non-U.S. companies: common stocks, securi-
ties convertible into common stocks, preferred stocks, warrants and rights to
subscribe to common stocks. The Portfolio may purchase securities of foreign
issuers sold in foreign markets, on United States registered exchanges, in the
over-the-counter market, or in the form of sponsored or unsponsored ADRs or
Global Depositary Receipts ("GDRs"). The Portfolio's investments in equity se-
curities are not based on company size, and can range from small capitaliza-
tion companies to large, blue chip companies. The Portfolio may invest more
than 25% of its assets in the securities of Japanese issuers.
The Portfolio generally will not hedge its currency exposure, since currency
considerations are an important part of the Portfolio's country and company
selection process. Nevertheless, the Portfolio may on occasion enter into for-
ward foreign currency contracts as a hedge against possible variations in for-
eign exchange rates or to hedge a specific security transaction or portfolio
position. A forward foreign currency contract is a commitment to purchase or
sell a specified currency, at a specified future date, at a specified price.
In addition, when, in the opinion of the Adviser, market conditions so war-
rant, the Portfolio may invest, without limitation, in U.S. or non-U.S. money
market securities and short-term debt securities, including securities issued
or guaranteed by U.S. or non-U.S. governments or the agencies or instrumental-
ities of such governments, and securities issued by supranational agencies.
Such securities will be of comparable quality to U.S. securities rated in one
of the four highest rating categories by an NRSRO.
Under normal market conditions, the Portfolio expects to be fully invested in
the equity securities described above. However, it may invest up to 15% of its
total assets in: swaps, options on securities, non-U.S. indices and curren-
cies, and futures contracts, including stock index futures contracts, and op-
tions on futures contracts. The Portfolio is permitted to acquire floating and
variable rate debt securities, when-issued securities and illiquid and re-
stricted securities. The Portfolio will not invest more than 15% of its net
assets in illiquid securities. The Portfolio may also engage in securities
lending. The Portfolio may invest in common stocks of closed-end investment
companies that invest primarily in international common stocks. If the Portfo-
lio invests in closed-end investment companies, the Portfolio's shareholders
will bear not only their proportionate share of the expenses of the Portfolio
(including fees of the Adviser), but also will indirectly bear similar ex-
penses of the underlying closed-end fund.
CASH FUND
The Cash Fund seeks to preserve principal value and maintain a high degree of
liquidity while providing current income.
Under normal market conditions the Portfolio invests in obligations denomi-
nated in U.S. dollars consisting of: (i) commercial paper issued by U.S. and
foreign issuers rated in one of the two highest rating categories by any two
NRSROs at the time of investment, or, if not rated, determined by the Adviser
or Sub-Adviser of the Cash Fund to be of comparable quality; (ii) obligations
(including certificates of deposit, time deposits, bank notes and bankers' ac-
ceptances) of U.S. savings and loan and thrift institutions, U.S. commercial
banks (including foreign branches of such banks), and U.S. and foreign
branches of foreign banks, provided that such institutions (or, in the case of
a branch, the parent institution) have total assets of $500 million or more as
shown on their last published financial statements at the time of investment;
(iii) short-term corporate obligations of U.S. and foreign issuers with a re-
maining term of not more than one year of issuers with commer
9
<PAGE>
cial paper of comparable priority and security meeting the above ratings; (iv)
U.S. Treasury obligations and obligations issued or guaranteed as to principal
and interest by the agencies or instrumentalities of the U.S. Government; (v)
securities issued by foreign governments, including Canadian and Provincial
Government and Crown Agency Obligations; (vi) short-term obligations issued by
state and local governmental issuers which are rated at the time of investment
by at least two NRSROs in one of the two highest municipal bond rating catego-
ries, and carry yields that are competitive with those of other types of money
market instruments of comparable quality; and (vii) repurchase agreements in-
volving any of the foregoing obligations. The Portfolio complies with regula-
tions of the Securities and Exchange Commission (the "SEC") applicable to
money market funds. These regulations impose certain quality, maturity and di-
versification restraints on investments. Under these regulations, the Portfo-
lio must maintain a dollar-weighted average portfolio maturity of 90 days or
less and generally, may invest only in securities with maturities of 397 days
or less. (See "Glossary of Permitted Investments.") The purchase of single
rated or unrated securities by the Adviser or Sub-Adviser is subject to the
approval or ratification by the Board of Directors.
It is a fundamental policy of the Portfolio to use its best efforts to main-
tain a constant net asset value of $1.00 per share. There can be no assurance
that the Portfolio will be able to maintain a net asset value of $1.00 per
share on a continuing basis.
The Portfolio may invest up to 10% of its net assets in illiquid securities.
However, restricted securities, including Rule 144A securities and Section
4(2) commercial paper, that meet the criteria established by the Board of Di-
rectors of the Fund will be considered liquid. In addition, the Portfolio may
invest in U.S. Treasury STRIPS.
There can be no assurance that any Portfolio will be able to achieve its in-
vestment objective.
- - -------------------------------------------------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- - -------------------------------------------------------------------------------
INVESTMENT PROCESS: GROWTH, EMERGING GROWTH, CORE GROWTH, LARGE CAP, SELECT
EQUITY, TECHNOLOGY & COMMUNICATIONS, AND INTERNATIONAL FUNDS
The Adviser's investment process in managing the assets of the Growth, Emerg-
ing Growth, Large Cap, Select Equity, Technology & Communications and Core
Growth Funds is both quantitative and fundamental, and is extremely focused on
quality earnings growth. In seeking to identify investment opportunities for
these Portfolios, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for each
Portfolio and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of success-
ful growth, such as positive earnings surprises, upward earnings estimate re-
visions, and accelerating sales and earnings growth, the Adviser creates a
universe of growing companies. Then, using fundamental research, the Adviser
evaluates each company's earnings quality and assesses the sustainability of
the company's current growth trends. Through this highly disciplined process,
the Adviser seeks to construct investment portfolios for these Portfolios that
possess strong growth characteristics. The Adviser tries to keep each such
Portfolio fully invested at all times. Because the universe of companies will
undoubtedly experience volatility in stock price, it is important that share-
holders in these Portfolios maintain a long-term investment perspective. Of
course, there can be no assurance that use of these techniques will be suc-
cessful, even over the long term.
Murray Johnstone International Limited ("Murray Johnstone") is the Sub-Adviser
of the International Fund. Murray Johnstone's investment process, like that of
the Adviser, is both quantitative and fundamental. In seeking to identify at-
tractive investment opportunities for the International Fund, Murray Johnstone
starts by determining the countries or geographic regions that, on the basis
of its model criteria, can provide the best investment opportunities for the
Portfolio. Murray Johnstone's criteria for country selection incorporate
twenty factors that are used to score and rank each market. Following the cre-
ation of this investment universe, Murray Johnstone uses its strong fundamen-
tal research capabilities to identify individual companies having superior
growth records and expectations, sound balance sheets and high cash flow gen-
eration. After this identification process, each company's investment value is
evaluated by taking into account such factors as relative price performance,
upward earnings estimate revisions, improving balance sheets and strength of
management. Currency considerations play a part in both country and company
selection. Since the companies in which the International Fund invests may ex-
perience greater price
10
<PAGE>
volatility than a domestic stock portfolio, it is important that shareholders
of the International Fund maintain a long-term investment perspective.
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 fiscal year or pe-
riod ended March 31, 1996 for the Growth Fund, the Emerging Growth Fund, the
Large Cap Fund, the Select Equity Fund, and the International Fund was 44.64%,
97.05%, 116.75%, 206.22%, and 140.26%, respectively. It is expected that under
normal market conditions, the annual portfolio turnover rates for the Core
Growth and Technology & Communications Funds will not exceed 100% and 300%,
respectively.
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or a Sub-Adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets
in cash and money market instruments (consisting of securities issued or guar-
anteed by the U.S. Government, its agencies or instrumentalities; certificates
of deposit, time deposits and bankers' acceptances issued by banks or savings
and loan associations having net assets of at least $500 million as stated on
their most recently published financial statements; commercial paper rated in
one of the two highest rating categories by at least one NRSRO; repurchase
agreements involving such securities; and, to the extent permitted by applica-
ble law and each Portfolio's investment restrictions, shares of other invest-
ment companies investing solely in money market securities). To the extent a
Portfolio is invested in temporary defensive instruments, it will not be pur-
suing its investment objective. See "Glossary of Permitted Investments" and
the Statement of Additional Information.
- - -------------------------------------------------------------------------------
RISK FACTORS
- - -------------------------------------------------------------------------------
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 each
Portfolio (other than the Cash Fund) may be more suitable for long-term in-
vestors who can bear the risk of these fluctuations. The Growth Fund and
Emerging Growth Fund invest extensively in small capitalization companies and,
in certain cases, the Core Growth Fund, Select Equity Fund, and Technology &
Communications Fund invest in securities of issuers with small or medium mar-
ket capitalizations. While the Adviser intends to invest in small and medium
capitalization companies that have strong balance sheets and that the Advis-
er's research indicates should exceed consensus earnings expectations, any in-
vestment in small and medium capitalization companies involves greater risk
and price volatility than that customarily associated with investments in
larger, more established companies. This increased risk may be due to the
greater business risks of small size, limited markets and financial resources,
narrow product lines and frequent lack of management depth. The securities of
small and medium capitalization companies are often traded in the over-the-
counter market, and might not be traded in volumes typical of securities
traded on a national securities exchange. Thus, the securities of small and
medium capitalization companies are likely to be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more es-
tablished companies.
OVER-THE-COUNTER MARKET
The Growth, Emerging Growth, Core Growth, Select Equity and Technology & Com-
munications Funds invest in over-the-counter stocks. In contrast to the secu-
rities 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 Growth, Emerging Growth, Core Growth, Select Equity, and Technol-
ogy & Communications Funds invest may not be as great as that of other securi-
ties and if the Portfolios were to dispose of such a stock, they 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
11
<PAGE>
investing in U.S. companies. These risks and considerations include differ-
ences in accounting, auditing and financial reporting standards, generally
higher commission rates on foreign portfolio transactions, the possibility of
expropriation or confiscatory taxation, adverse changes in investment or ex-
change control regulations, political instability which could affect U.S. in-
vestment in foreign countries and potential restrictions on the flow of inter-
national capital and currencies. Foreign issuers may also be subject to less
government regulation than U.S. companies. Moreover, the dividends and inter-
est payable on foreign securities may be subject to foreign withholding taxes,
thus reducing the net amount of income available for distribution to a Portfo-
lio's shareholders. Further, foreign securities often trade with less fre-
quency and volume than domestic securities and, therefore, may exhibit greater
price volatility. Changes in foreign exchange rates will affect, favorably or
unfavorably, the value of those securities which are denominated or quoted in
currencies other than the U.S. dollar.
The International Fund's investments in emerging markets can be considered
speculative, and therefore may offer higher potential for gains and losses
than developed markets of the world. With respect to any emerging country,
there may be greater potential for nationalization, expropriation or confisca-
tory taxation, political changes, government regulation, social instability or
diplomatic developments (including war) which could affect adversely the econ-
omies of such countries or the value of the International Fund's investments
in those countries. In addition, it may be difficult to obtain and enforce a
judgment in the courts of such countries. Further, the economies of developing
countries generally are heavily dependent upon international trade and, ac-
cordingly, have been and may continue to be adversely affected by trade barri-
ers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade.
INVESTMENTS IN TECHNOLOGY COMPANIES
Equity securities of technology companies have tended to be subject to greater
volatility than securities of companies that are not dependent upon or associ-
ated with technological issues. Although the Technology & Communications Fund
will invest in the securities of technology companies operating in various in-
dustries, many of these industries share common characteristics. Therefore, an
event or issue affecting one such industry may have a significant impact on
these other, related industries and, thus, may affect the value of the Tech-
nology & Communications Fund's investments in technology companies. For exam-
ple, the technology companies in which the Technology & Communication Fund in-
vests may be strongly affected by worldwide scientific or technological devel-
opments and their products and services may be subject to governmental regula-
tion or adversely affected by governmental policies.
For additional information regarding risks and permitted investments for each
Portfolio, see "Glossary of Permitted Investments" and the Statement of Addi-
tional Information.
- - -------------------------------------------------------------------------------
INVESTMENT LIMITATIONS
- - -------------------------------------------------------------------------------
The investment objectives of each Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of each Portfolio. A Portfo-
lio's fundamental policies cannot be changed without the consent of the hold-
ers of a majority of the Portfolio's outstanding shares.
A 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.
With the exception of the Cash Fund, this restriction applies to 75% of each
Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets
of a 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 limita-
12
<PAGE>
tion, supranational organizations 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.
- - -------------------------------------------------------------------------------
HOW TO PURCHASE FUND SHARES
- - -------------------------------------------------------------------------------
You may purchase shares of the Portfolios directly through DST Systems, Inc.
("DST" or the "Transfer Agent"). Purchases of shares of the Portfolios may be
made on any day on which the New York Stock Exchange is open for business
("Business Day"). However, shares of the Cash Fund cannot be purchased or ex-
changed (i) on days when the Federal Reserve is closed or (ii) by Federal Re-
serve wire on federal holidays restricting wire transfers. Shares of each
Portfolio are offered only to residents of states in which such shares are el-
igible for purchase.
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.
You may also purchase shares of each Portfolio through certain broker-dealers
or other financial institutions that are authorized to sell you shares of the
Portfolios. Such financial institutions may charge you a fee for this service
in addition to each Portfolio's public offering price.
Each Portfolio reserves the right to reject any purchase order or to suspend
or modify the continuous offering of its shares. For example, the investment
opportunities for emerging growth and 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 Portfolios that in-
vest extensively in such companies, such as the Growth Fund and the Emerging
Growth Fund, indefinitely discontinue the sale of their shares to new invest-
ors (other than directors, officers and employees of the Portfolio's Adviser
and its affiliated companies). In such event, the Board of Directors would de-
termine whether such discontinuance is in the best interests of the applicable
Portfolio and its shareholders.
MINIMUM INVESTMENT
The minimum initial investment in each Portfolio is $2,500 for regular ac-
counts and $2,000 for IRAs. There is no minimum for subsequent purchases. The
Distributor may waive the minimum at its discretion. No minimum applies to
subsequent purchases effected by dividend reinvestment. As described below,
subsequent purchases through the Fund's Systematic Investment Plan must be at
least $25.
INITIAL PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
payable to--[Name of Portfolio] for $2,500 or more for regular accounts and
$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, Missouri 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 cancellation of such
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
13
<PAGE>
account number. Your name, account number, taxpayer identification number or
Social Security Number, and address must be specified in the wire. In addi-
tion, an Account Application 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 City, N.A.; ABA #10-10-00695;
for Account Number 98705-23469; Further Credit: [Name of Portfolio].
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 Portfolios may be purchased via Automated Clearing House
("ACH"). Investors purchasing via ACH should attach a voided check to the Ac-
count Application.
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 2:00 p.m., Eastern time for the Cash Fund and
4:00 p.m., Eastern time for each of the other Portfolios. Payment may be made
by check or readily available funds. The purchase price of shares of a Portfo-
lio 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 a Portfolio
calculated to three decimal places. The Fund will not issue certificates rep-
resenting shares of the Portfolios.
In order for your purchase order to be effective on the day you place your or-
der with your broker-dealer or other financial institution, such broker-dealer
or financial institution must (i) receive your order before 2:00 p.m. Eastern
time for the Cash Fund and 4:00 p.m. Eastern Time for each other Portfolio and
(ii) promptly transmit the order to the Transfer Agent. See "Determination of
Net Asset Value" below. The broker-dealer or financial institution is respon-
sible for promptly transmitting purchase orders to the Transfer Agent so that
you may receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase
will be canceled, and you could be liable for any losses or fees incurred. 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.
- - -------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- - -------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES AND SERVICES OFFERED
If you have any questions about the Portfolios 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' notice to shareholders. You may, however, discontinue any serv-
ice you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent re-
ceives your notification to discontinue such service(s) at least ten days be-
fore the next scheduled 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 Portfolios 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 Portfolios
despite their fluctuating net asset values through regular purchases of a
fixed dollar amount of shares in the Portfolios. Dollar-cost averaging brings
discipline to your investing. Dollar-cost averaging results in more shares be-
ing purchased when a Portfolio's net asset value is relatively low and fewer
shares being purchased when a Portfolio's net asset value is relatively high,
thereby helping to decrease the average price of your shares.
14
<PAGE>
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction per Portfolio) from your designated
checking or savings account. Your systematic investment in the Portfolio(s)
designated by you will be processed on a regular basis at your option begin-
ning 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(s). The Systematic Withdrawal Plan permits you to have
payments of $50 or more automatically transferred from your account(s) in the
Portfolio(s) to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. In order to start this Plan, you must have a
minimum balance of $5,000 in any account utilizing this feature. Your system-
atic withdrawals will be processed on a regular basis beginning on or about
either the first or fifteenth day of the month, quarter or semi-annual period
you select.
EXCHANGE PRIVILEGES
Once payment for your shares has been received (i.e., an account has been es-
tablished), you may exchange some or all of your shares for shares of the
other Portfolios of the Fund currently available to the public. However, if
you own shares of any Portfolio other than the Cash Fund, you are limited to
four (4) exchanges annually from such Portfolio to the Cash Fund. Exchanges
are made at net asset value. The Trust reserves the right to change the terms
and conditions of the exchange privilege discussed herein, or to terminate the
exchange privilege, upon sixty days' notice. Exchanges will be made only after
proper instructions in writing or by telephone (an "Exchange Request") are re-
ceived for an established account by the Transfer Agent. The exchange privi-
lege may be exercised only in those states where the shares of the new Portfo-
lio 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.
(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 Portfolios
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.
15
<PAGE>
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 2:00 p.m., Eastern
time for the Cash Fund and 4:00 p.m., Eastern time for each of the other Port-
folios on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of a 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 also redeem shares of each Portfolio through certain broker-dealers
and other financial institutions at which you maintain an account. Such finan-
cial institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 2:00
p.m. Eastern time for the Cash Fund and 4:00 p.m. Eastern Time for each other
Portfolio and (ii) promptly transmit the order to the Transfer Agent. See "De-
termination of Net Asset Value" above. The financial institution is responsi-
ble for promptly transmitting redemption orders to the Transfer Agent so that
your shares are redeemed at the same day's net asset value per share.
You may receive redemption payments in the form of a check or by Federal 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 Transfer Agent will deduct a wire charge, currently $10.00, from the
amount of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares
of a Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
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.
CHECK WRITING (CASH FUND ONLY)
Check writing service is offered free of charge to shareholders of the Cash
Fund. If you have an account balance of $5,000 or more, you may redeem shares
by writing checks on your account for $250 or more. Once you have signed and
returned a signature card, you will receive a supply of checks. A check may be
made payable to any person, and your account will continue to earn dividends
until the check clears.
Because of the difficulty of determining in advance the exact value of your
account, you may not use a check to close
16
<PAGE>
your account. Your account will be charged a fee for stopping payment of a
check upon your request, or if the check cannot be honored because of insuffi-
cient funds or other valid reasons.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guaran-
tees to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; and (3) redemption requests that provide that the redemption pro-
ceeds 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 each Portfolio, other than the Cash Fund, 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 (normally 4:00 p.m., Eastern time) on
any Business Day. The net asset value per share of each Portfolio, other than
the Cash Fund, is listed under PBHG in the mutual fund section of most major
daily newspapers, including the Wall Street Journal.
The Cash Fund values its portfolio securities using the amortized cost method
of valuation, approximating market value. Net asset value per share is deter-
mined daily as of 2:00 p.m., Eastern time on any Business Day.
- - -------------------------------------------------------------------------------
PERFORMANCE ADVERTISING
- - -------------------------------------------------------------------------------
From time to time, each 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. For Portfolios other than the Cash Fund, yield refers
to the annualized income generated by an investment in the Portfolio over a
specified 30-day period. The yield is calculated by assuming that the same
amount of income generated by the investment during that period is generated
in each 30-day period over one year and is shown as a percentage of the in-
vestment.
The "current yield" of the Cash Fund refers to the income generated by an in-
vestment in the Portfolio 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 gener-
ated each week over a 52-week period and is shown as a percentage of the in-
vestment. The "effective yield" (also called "effective compound yield") is
calculated similarly but, when annualized, the income earned by an investment
in the Portfolio is assumed to be reinvested. The effective yield will be
slightly higher than the current yield because of the compounding effect of
this assumed reinvestment.
The total return of each Portfolio other than the Cash Fund refers to the av-
erage compounded rate of return 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 in-
vestment is redeemed at the end of each period and assuming the reinvestment
of all dividend and capital gain distributions.
Each Portfolio may periodically compare its performance to that of other mu-
tual funds tracked by mutual fund rating
17
<PAGE>
services (such as Lipper Analytical Services, Inc.) or by financial and busi-
ness publications and periodicals, broad groups of comparable mutual funds,
unmanaged indices which may assume investment of dividends but generally do
not reflect deductions for administrative and management costs and other in-
vestment alternatives. Each Portfolio may quote services such as Morningstar,
Inc., a service that ranks mutual funds on the basis of risk-adjusted perfor-
mance, and Ibbotson Associates of Chicago, Illinois, which provides historical
returns of the capital markets in the U.S. Each Portfolio may use long-term
performance of these capital markets to demonstrate general long-term risk
versus reward scenarios and could include the value of a hypothetical invest-
ment in any of the capital markets. Each Portfolio may also quote financial
and business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques.
Each 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 volatility attempt to compare historical share price fluctuations
or total returns to a benchmark while measures of benchmark correlation indi-
cate how valid a comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical data and cannot be
calculated precisely.
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 Portfolios or
their shareholders. Accordingly, you are urged to consult your tax advisors
regarding specific questions as to federal, state and local income taxes. See
the Statement of Additional Information.
TAX STATUS OF THE PORTFOLIOS:
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. Each Portfolio intends
to qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended. So long as a Portfolio qualifies for this
special tax treatment, it will be relieved of federal income tax on that part
of its net investment income and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) which it distributes to share-
holders.
TAX STATUS OF DISTRIBUTIONS:
Each 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. Dividends from net invest-
ment income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations. It can be expected that only certain dividends
of a 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
Portfolios 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 Portfolios (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments. Each
Portfolio will be required to include as part of its current net investment
income the accrued discount on such obligations for purposes of the distribu-
tion requirement even though the Portfolio has not received any interest pay-
ments on such obligations during that period. Because a 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 oc-
cur at a time when the Adviser or Sub-Adviser would not have chosen to sell
such securities and which may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a
18
<PAGE>
Portfolio and may be exempt, depending on the state, when received by a share-
holder as income dividends from a 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. Each Portfolio
will inform shareholders annually of the percentage of income and distribu-
tions derived from direct U.S. obligations. You should consult your tax advi-
sor to determine whether any portion of the income dividends received from a
Portfolio is considered tax exempt in your particular state.
Dividends declared by a 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 shareholders on
December 31 of that year, if paid by the Portfolio at any time during the fol-
lowing January.
Each 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 a Portfolio's shares is a taxable event
to the shareholder.
Income derived by a Portfolio from securities of foreign issuers may be sub-
ject to foreign withholding taxes. The International Fund expects to be able
to treat shareholders as having paid their proportionate share of such foreign
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 Portfolio and all assets of such Portfolio belong to that Port-
folio 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 its
Portfolios 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. Each 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 $10 billion in as-
sets. In addition to advising the Portfolios, the Adviser provides advisory
services to pension and profit-sharing plans, charitable institutions, corpo-
rations, individual investors, trusts and estates, and other investment compa-
nies. The principal business address of the Adviser is 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to each Portfolio under an in-
vestment advisory agreement with the Fund (the "Advisory Agreement"). The Ad-
viser makes the investment decisions for the assets of each Portfolio and con-
tinuously reviews, supervises and administers the investment program of each
Portfolio, subject to the supervi-
19
<PAGE>
sion 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 0.85% of each of the Growth, Emerging
Growth, Core Growth, Select Equity, and Technology & Communications Funds' av-
erage daily net assets, 0.75% and 1.00% of the Large Cap and International
Funds' average daily net assets, respectively, and 0.30% of the Cash Fund's
average daily net assets. The investment advisory fees paid by each Portfolio,
other than the Cash Funds are higher than those paid by most investment compa-
nies, although the Adviser believes the fees to be comparable to those paid by
investment companies with similar investment objectives and policies. The Ad-
viser has voluntarily agreed to waive a portion of its fee and reimburse ex-
penses in an amount necessary to limit annual operating expenses to not more
than 1.50% of the average daily net assets of each of the Growth, Emerging
Growth, Core Growth, Large Cap, Select Equity, and Technology & Communications
Funds, and to not more than 0.70% of the average daily net assets of the Cash
Fund. The Adviser and Murray Johnstone have voluntarily agreed to waive a por-
tion of their fee and reimburse expenses in an amount necessary to limit an-
nual operating expenses to not more than 2.25% of the average daily net assets
of the International Fund. The Adviser and Murray Johnstone reserve the right
to terminate their voluntary fee waivers and reimbursements at any time in
their sole discretion. For the fiscal year ended March 31, 1996, the Adviser
received a fee equal to 0.85% of the Growth Fund's average daily net assets,
0.85% of the Emerging Growth Fund's average daily net assets, and 0.22% of the
International Fund's average daily net assets. It is estimated that for the
fiscal year ended March 31, 1997, the Adviser will receive a fee equal to .85%
of the Core Growth Fund's average daily net assets, .75% of the Large Cap
Fund's average daily net assets, .85% of the Select Equity Fund's average
daily net assets, .85% of the Technology & Communications Fund's average daily
net assets and .30% of the Cash Fund's average daily net assets.
Christine M. Baxter, CFA, Portfolio Manager, and Gary L. Pilgrim, CFA, have
managed the Emerging Growth Fund since its inception, and have also managed
the Pilgrim Baxter Emerging Growth Fund, the predecessor series of the Emerg-
ing Growth Fund, since its inception. Ms. Baxter has worked as an equity ana-
lyst and portfolio manager for the Adviser since 1991. Mr. Pilgrim has served
as the Chief Investment Officer for the Adviser for the past six years, and
has been its President since 1993. Mr. Pilgrim also has served as the portfo-
lio manager of the Growth Fund since its inception. Gary L. Pilgrim and James
D. McCall have managed the Large Cap and Select Equity Funds since their in-
ception. James D. McCall has been a Portfolio Manager with the Adviser since
1994. Prior to joining the Adviser, Mr. McCall was a portfolio manager with
First National Bank of Maryland. John F. Force, CFA, and James M. Smith, CFA,
have managed the Technology & Communications Fund since its inception. Messrs.
Force and Smith joined Pilgrim Baxter in 1993, and are Portfolio
Managers/Analysts. Prior to joining Pilgrim Baxter, Mr. Force was Vice Presi-
dent/ Portfolio Manager at Fiduciary Management Associates from July, 1987 to
September, 1992. Prior to joining Pilgrim Baxter, Mr. Smith was Senior Vice
President/ Portfolio Manager at Selected Financial Services. Messrs. McCall
and Pilgrim and Ms. Baxter have jointly managed the Core Growth Fund since its
inception. Mr. McCall serves as lead portfolio manager for the Core Growth
Fund.
THE SUB-ADVISER (INTERNATIONAL FUND)
Murray Johnstone, 11 West Nile Street, Glasgow, Scotland, is a U.S.-registered
investment adviser that was founded in 1989 under the laws of Scotland. Murray
Johnstone is a wholly-owned subsidiary of Murray Johnstone Holdings Limited,
which together have under management approximately $7.0 billion in assets, as
of March 31, 1996, for institutional clients worldwide. Murray Johnstone Hold-
ings Limited, along with its predecessors, has been in business since 1907,
and is an indirect wholly-owned subsidiary of UAM. Murray Johnstone has been
advising open-end investment companies since 1992. For its services provided
pursuant to its investment sub-advisory agreement with the Adviser and the
Fund, Murray Johnstone receives a fee from the Adviser at an annual rate of
0.50% of the International Fund's average daily net assets. Murray Johnstone
receives no fees directly from the International Fund, and may periodically
reduce its sub-advisory fee. See "The Adviser."
Rodger F. Scullion has served as the portfolio manager of the International
Fund since July 3, 1995. Mr. Scullion has been associated with Murray
Johnstone since November, 1992, and serves as its Managing Director, Chief
Execu-
20
<PAGE>
tive Officer and Chief Investment Officer. Prior to that, Mr. Scullion served
as Investment Director of Murray Johnstone Limited.
THE SUB-ADVISER (CASH FUND)
Wellington Management Company ("WMC") serves as the investment sub-adviser for
the Cash Fund pursuant to a sub-advisory agreement with the Fund and the Ad-
viser. Under the sub-advisory agreement, WMC manages the investments of the
Portfolio, selects investments, and places all orders for purchases and sales
of the Portfolio's securities, subject to the general supervision of the Board
of Directors of the Fund and the Adviser.
For the services provided and expenses incurred pursuant to the sub-advisory
agreement, WMC is entitled to receive from the Adviser a fee, computed daily
and paid monthly, at the annual rate equal to 0.075% of the Portfolio's aver-
age daily net assets up to and including $500 million and 0.020% of the Port-
folio's average daily net assets over $500 million, but subject to a minimum
annual fee of $50,000. WMC may, from time to time, waive all or a portion of
its fee from the Adviser.
WMC is a professional investment counseling firm which provides investment
services to investment companies, employee benefit plans, endowments, founda-
tions, and other institutions and individuals. As of December 31, 1995, WMC
had discretionary management authority with respect to approximately $109.2
billion of assets. WMC and its predecessor organizations have provided invest-
ment advisory services to investment companies since 1933 and to investment
counseling clients since 1960. WMC, 75 State Street, Boston, Massachusetts
02109, is a Massachusetts general partnership, of which the following persons
are managing partners: Robert W. Doran, Duncan M. McFarland and John B. Neff.
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 0.20% of the
average daily net assets of each Portfolio, but subject to a minimum annual
fee of $75,000 per Portfolio.
THE TRANSFER AGENT AND SUB-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.
From time to time, the Fund may pay amounts to third parties that provide sub-
transfer agency and other administrative services relating to the Fund to per-
sons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of
the Fund, proxy statements, annual reports, updated Prospectuses, other commu-
nications regarding the Fund, and related services as the Fund or the benefi-
cial owners may reasonably request. In such cases, the Fund will not compen-
sate such third parties at a rate that is greater than the rate the Fund is
currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.
THE DISTRIBUTOR
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. No compensation is paid to the Distributor
for distribution services for the PBHG Class shares of the Portfolios.
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 each Portfolio will vote separately on matters relating solely to it, such
as approval of advisory agreements and changes in fundamental policies, and
mat-
21
<PAGE>
ters 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 generally, such as
the election of Directors or selection of accountants. Shareholders of the
PBHG Class of the Fund will vote separately on matters relating solely to the
PBHG Class and not on matters relating solely to the Trust Class of the Fund.
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 each 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.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
a 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 Portfolios 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.
CUSTODIANS
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadel-
phia, Pennsylvania 19101, serves as the custodian for the Growth, Emerging
Growth, Core Growth, Large Cap, Select Equity, Technology & Communications and
Cash Funds; and The Northern Trust Company, 50 South LaSalle Street, Chicago,
Illinois 60675 serves as the custodian for the International Fund (together,
the "Custodians"). The Custodians hold cash, securities and other assets of
the Fund as required by the Investment Company Act of 1940, as amended (the
"1940 Act").
MISCELLANEOUS
The Fund believes that as of March 31, 1996, Pilgrim Baxter Partners I LP,
1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087-1565, owned of record
or beneficially, at least 25% of the outstanding PBHG Class shares of the Cash
Fund, and may be deemed to be a controlling person of this Portfolio for pur-
poses of the 1940 Act.
- - -------------------------------------------------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- - -------------------------------------------------------------------------------
The following is a description of permitted investments for certain of the
Portfolios:
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
22
<PAGE>
referred to as Continental Depositary Receipts ("CDRs"), are securities, typi-
cally issued by a non-U.S. financial institution, that evidence ownership in-
terests in a security or a pool of securities issued by either a U.S. or for-
eign issuer. ADRs, GDRs and CDRs may be available for investment through
"sponsored" or "unsponsored" facilities. A sponsored facility is established
jointly by the issuer of the security underlying the receipt and a depositary,
whereas an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of
the unsponsored facility. The depositary of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received from
the issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
BANKERS' ACCEPTANCE -- A bill of exchange or time draft drawn on and accepted
by a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATE OF DEPOSIT -- A negotiable interest bearing instrument with a spe-
cific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit gen-
erally carry penalties for early withdrawal.
COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
CONVERTIBLE SECURITIES -- Securities such as rights, bonds, notes and 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.
DEMAND INSTRUMENTS -- Certain instruments may involve a conditional or uncon-
ditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
DERIVATIVES -- Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: futures, op-
tions on futures, options (e.g., puts and calls), swap agreements, mortgage-
backed securities (e.g., CMOs, REMICs, IOs and POs), when-issued securities
and forward commitments, floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (e.g., Receipts and STRIPS)
and privately issued stripped securities (e.g., TGRs, TRs and CATS). See else-
where in this "Glossary of Permitted Investments" for discussions of these
various instruments, and see "Investment Objectives and Policies" for more in-
formation about the investment policies and limitations applicable to their
use.
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from
these securities but will affect a 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 currency exchange market, or through entering into forward cur-
rency contracts to protect against uncertainty in the level of future exchange
rates between a particular foreign currency and the U.S. dollar, or between
foreign currencies in which a Portfolio's portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the par-
ties, at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
incorporated into each Portfolio's long-term investment strategies. How
23
<PAGE>
ever, the Adviser and the sub-advisers believe that it is important to have
the flexibility to enter into forward foreign currency contracts when they de-
termine that the best interests of any Portfolio will be served. The Interna-
tional Fund will convert currency on a spot basis, and investors should be
aware of the costs of currency conversion.
When the Adviser or a sub-adviser believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Portfolio in question may enter into a forward foreign
currency contract to sell, for a fixed amount of U.S. dollars or other appro-
priate currency, the amount of foreign currency approximating the value of
some or all of the Portfolio's securities denominated in such foreign
currency.
At the maturity of a forward foreign currency contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount
of the foreign currency. A Portfolio may realize a gain or loss from currency
transactions.
Generally, a 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 a Portfolio
enters into forward foreign currency contracts to cover activities which are
essentially speculative, the Portfolio will segregate cash or readily market-
able 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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- No Portfolio, except the
International Fund, has a current intention of utilizing futures contracts or
options on futures contracts. The International Fund may enter into contracts
for the purchase or sale of securities, including index contracts on foreign
currencies. A purchase of a futures contract means the acquisition of a con-
tractual right to obtain delivery to the International Fund of the securities
or foreign currency called for by the contract at a specified price during a
specified future month. When a futures contract is sold, the International
Fund incurs a contractual obligation to deliver the securities or foreign cur-
rency underlying the contract at a specified price on a specified date during
a specified future month. The International Fund may sell stock index futures
contracts in anticipation of, or during, a market decline to attempt to offset
the decrease in market value of its common stocks that might otherwise result;
and it may purchase such contracts in order to offset increases in the cost of
common stocks that it intends to purchase. The International Fund may enter
into futures contracts and options thereon to the extent that not more than 5%
of the International Fund its assets are required as futures contract margin
deposits and premiums on options and may engage in futures contracts to the
extent that obligations relating to such futures contracts represent not more
than 20% of International Fund its total assets.
The International Fund may also purchase and write options to buy or sell
futures contracts. The International Fund may write options on futures only on
a covered basis. Options on futures are similar to options on securities ex-
cept that options on futures give the purchaser the right, in return for the
premium paid, to assume a position in a futures contract, rather than actually
to purchase or sell the futures contract, at a specified exercise price at any
time during the period of the option. When the International Fund enters into
a futures transaction it must deliver to the futures commission merchant se-
lected by the International Fund., an amount referred to as "initial margin."
This amount is maintained by the futures commission merchant in a segregated
account at the custodian bank. Thereafter, a "variation margin" may be paid by
the International Fund to, or drawn by the International Fund from, such ac-
count in accordance with controls set for such accounts, depending upon
changes in the price of the underlying securities to the futures contract.
The International Fund will enter into such futures and options on futures
transactions on domestic exchanges and, to the extent such transactions have
been approved by the Commodity Futures Trading Commission, for sale to custom-
ers in the U.S., on foreign exchanges.
In order to avoid leveraging and related risks, when a Portfolio purchases a
futures contract, it will collateralize its position by depositing an amount
of cash or liquid, high grade debt securities equal to the market value of the
futures positions held, less margin deposits, in a segregated account with the
Fund's Custodians.
24
<PAGE>
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.
OPTIONS -- No Portfolio, except the International Fund, has a current inten-
tion of utilizing options on stocks and stock indices. The International Fund
may invest in put and call options for various stocks and stock indices that
are traded on national securities exchanges, from time to time as the Adviser
deems to be appropriate. Options will be used for hedging purposes and will
not be engaged in for speculative purposes. The aggregate value of option po-
sitions may not exceed 10% of the International Fund's net assets as of the
time the International Fund enters into such options.
A put option gives the purchaser of the option the right to sell, and the
writer the obligation to buy, the underlying security at any time during the
option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying secu-
rity at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract.
Although the International Fund will engage in option transactions only as
hedging transactions and not for speculative purposes, there are risks associ-
ated with such investment including the following: (i) the success of a hedg-
ing strategy may depend on the ability of the Adviser or a sub-adviser to pre-
dict movements in the prices of the individual securities, fluctuations in
markets and movements in interest rates; (ii) there may be an imperfect corre-
lation between the changes in market value of the stocks held by the Interna-
tional Fund and the prices of options; (iii) there may not be a liquid second-
ary market for options; and (iv) while the International Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security. When writing options
(other than covered call options), the International Fund must establish and
maintain a segregated account with the Fund's Custodian containing cash or
liquid, high grade debt securities in an amount at least equal to the market
value of the option.
For further information regarding the Portfolios' investment in options, see
the Statement of Additional Information.
RECEIPTS -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are cre-
ated by depositing U.S. Treasury obligations into a special account at a cus-
todian bank. The custodian bank holds the interest and principal payments for
the benefit of the registered owners of the receipts. The custodian bank ar-
ranges for the issuance of the receipts evidencing ownership and maintains the
register.
REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price (in-
cluding principal and interest) on an agreed upon date within a number of days
from the date of purchase. The Fund's Custodians or their 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. Each 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 or a Sub-Adviser will enter into repurchase
agreements on behalf of a Portfolio only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Directors. Repurchase
agreements are considered loans under the 1940 Act, as well as for federal and
state income tax purposes.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS --Investments by the Cash Fund
are subject to limitations imposed under regulations adopted by the SEC. These
regulations generally require the Cash Fund to acquire only U.S. dollar obli-
gations maturing in 397 days or less and to maintain a dollar-weighted average
portfolio maturity of 90 days or less. In addition, the Cash Fund may acquire
only obligations that present minimal credit risks and that are "eligible se-
curities."
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. A 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
25
<PAGE>
implementation of such procedures and guidelines. Under these procedures and
guidelines, the Adviser will consider the frequency of trades and quotes for
the security, the number of dealers in, and potential purchasers for, the se-
curities, dealer undertakings to make a market in the security, and the nature
of the security and of the marketplace trades. The Fund may purchase re-
stricted securities sold in reliance upon the exemption from registration pro-
vided by Rule 144A under the Securities Act of 1933. Restricted securities may
be difficult to value because market quotations may not be readily available.
Because of the restrictions on the resale of restricted securities, they may
pose liquidity problems for the Portfolios.
SECURITIES LENDING -- In order to generate additional income, the Interna-
tional Fund may lend the securities in which it is invested pursuant to agree-
ments requiring that the loan be continuously secured by cash, securities of
the U.S. Government or its agencies or any combination of cash and such secu-
rities as collateral equal at all times to 100% of the market value of the se-
curities lent. The Portfolio will continue to receive interest on the securi-
ties lent while simultaneously earning interest on the investment of cash col-
lateral in U.S. Government securities. Collateral is marked to market daily to
provide a level of collateral at least equal to the value of the securities
lent. There may be risks of delay in recovery of the securities or even loss
of rights in the collateral should the borrower of the securities fail finan-
cially. However, loans will only be made to borrowers deemed by the Adviser or
Murray Johnstone to be of good standing and when, in the judgment of the Ad-
viser or Murray Johnstone, the consideration which can be earned currently
from such securities loans justifies the attendant risk.
SWAPS -- As a way of managing its exposure to different types of investments,
the International Fund may enter into interest rate swaps, currency swaps and
other types of swap agreements such as caps, collars and floors. In a typical
interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount." In return for pay-
ments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps
may also depend on other prices or rates, such as the value of an index or
mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right
to receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
Swap agreements will tend to shift the Portfolio's investments exposure from
one type of investment to another. For example, if the Portfolio agrees to ex-
change payments in dollars for payments in foreign currency, the swap agree-
ment would tend to decrease the Portfolio's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility
of investments and their share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a re-
sult, swaps can be highly volatile and have a considerable impact on the Port-
folio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform and may decline in value if the
counterparty's creditworthiness deteriorates. The Portfolio may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions. Any obligation the Portfolio may
have under these types of arrangements will be covered by setting aside high
quality liquid securities in a segregated account. The Portfolio will enter
into swaps only with counterparties deemed creditworthy by the Adviser.
TIME DEPOSIT -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies such as the
Government National Mortgage Asso-
26
<PAGE>
ciation ("GNMA") have been established as instrumentalities of the United
States Government to supervise and finance certain types of activities. Issues
of these agencies, while not direct obligations of the United States Govern-
ment, are either backed by the full faith and credit of the United States
(e.g., GNMA securities) or supported by the issuing agencies' right to borrow
from the Treasury. The issues of other agencies are supported by the credit of
the instrumentality (e.g., Federal National Mortgage Association securities).
U.S. GOVERNMENT SECURITIES--Bills, notes and bonds issued by the U.S. 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").
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain of the obligations purchased
by the International Fund may carry variable or floating rates of interest,
may involve a conditional or unconditional demand feature and may include
variable amount master demand notes. Such instruments bear interest at rates
which are not fixed, but which vary with changes in specified market rates or
indices, such as a Federal Reserve composite index. The interest rates on
these securities may be reset daily, weekly, quarterly or some other reset pe-
riod, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately re-
flect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary mar-
ket for such securities.
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 -- When-issued and delayed-deliv-
ery securities are securities subject to settlement on a future date. For
fixed income securities, the interest rate realized on when-issued or delayed-
delivery securities is fixed as of the purchase date and no interest accrues
to the Portfolio before settlement. These securities are subject to market
fluctuation due to changes in market interest rates and will have the effect
of leveraging the Portfolio's assets. The Portfolios are permitted to invest
in forward commitments or when-issued securities where such purchases are for
investment and not for leveraging purposes. One or more segregated accounts
will be established with the Fund's Custodian, and the Portfolios will main-
tain liquid assets in such accounts in an amount at least equal in value to
each Portfolio's commitments to purchase when-issued securities.
27
<PAGE>
THE PBHG FUNDS, INC.
(Trust Class Shares)
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 23
<TABLE>
<CAPTION>
PART A. Item No. and Captions Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Expense Summary
4. General Description of Registrant The Fund and the Portfolio; Investment
Objective and Policies; General
Investment Policies and Strategies;
Risk Factors; Investment Limitations;
General Information -- The Fund
5. Management of the Fund General Information -- Directors of the
Fund; General Information -- The
Adviser; General Information -- The
Administrator; General Information --
The Transfer Agent; General Information
-- The Distributor
6. Capital Stock and Other Securities General Information -- Voting Rights;
General Information -- Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
8. Redemption or Repurchase How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Registrant Directors and Officers of the Fund; The
Administrator
15. Control Persons and Principal Holders of Directors and Officers of the Fund; 5%
Securities and 25% Shareholders
16. Investment Advisory and The Adviser; The Administrator; The
Other Services Distributor
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Description of Shares
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield; Calculation of
Total Return
23. Financial Statements Financial Statements
</TABLE>
PART C Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
<PAGE>
THE PBHG FUNDS, INC.
TRUST CLASS SHARES
MAY 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 May 1, 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>
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary..................................................................... 2
Expense Summary............................................................. 3
Financial Highlights........................................................ 4
The Fund and the Portfolio.................................................. 5
Investment Objectives and Policies.......................................... 5
General Investment Policies and Strategies.................................. 5
Risk Factors................................................................ 6
Investment Limitations...................................................... 7
</TABLE>
<TABLE>
<S> <C>
How to Purchase Fund Shares................................................. 7
Shareholder Services........................................................ 9
How to Redeem Fund Shares................................................... 10
Share Price................................................................. 11
Performance Advertising..................................................... 11
Taxes....................................................................... 12
General Information......................................................... 13
Glossary of Permitted Investments........................................... 15
</TABLE>
<PAGE>
SUMMARY
- - --------------------------------------------------------------------------------
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 PORTFOLIO? 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 the 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
<PAGE>
- - -------------------------------------------------------------------------------
EXPENSE SUMMARY
- - -------------------------------------------------------------------------------
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>
GROWTH
FUND
- - --------------------------------------------------
<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>
GROWTH
FUND
- - ------------------------------------------------------------------------------
<S> <C>
Advisory Fees(2) .85%
12b-1 Fees .25%
Other Expenses .60%
- - ------------------------------------------------------------------------------
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 its 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 Trust Class 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.
EXAMPLE
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - -------------------------------------------------------------------------------
<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. $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>
- - -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- - -------------------------------------------------------------------------------
The following information, for the fiscal periods ended March 31, 1994, 1995
and 1996, has been audited by Arthur Andersen LLP, the Fund's independent pub-
lic accountants. Arthur Andersen LLP has served as the Fund's independent pub-
lic accountants since August 1993. The information with respect to the Portfo-
lio for the periods from April 1, 1989 to March 31, 1993, has been audited by
the Fund's prior independent public accountants for those periods. The Fund's
audited financial statements are included in the Fund's Statement of Addi-
tional Information under "Financial Information." The following tables should
be read in conjunction with the Fund's financial statements and notes thereto.
Additional information about the Portfolio's performance is contained in the
Fund's Annual Report, which may be obtained (without charge) by calling 1-800-
433-0051.
For a PBHG Class Share Outstanding Throughout the Period++
<TABLE>
<CAPTION>
Ratio of
Net Net Net Investment
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>
1996 $16.70 $(0.06) 8.66 -- $25.30 51.50% $3,298,925 1.48% (0.79)%
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% .20%
1988* 16.78 0.01 (2.11) -- (4.24) 10.44 (13.10)% 28,407 1.21% .02%
1987* 11.52 0.05 5.28 (0.07) -- 16.78 46.57% 30,154 1.31% .36%
<CAPTION>
Ratio
Ratio of of Net Investment
EXPENSES Income (Loss)
TO AVERAGE to Average
NET ASSETS Net Assets Portfolio
(EXCLUDING (Excluding Turnover
WAIVERS) Waivers) Rate
---------- ----------------- ---------
<S> <C> <C> <C>
1996 1.48% (0.79)% 44.64%
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* 1.19% 0.20% 175.01%
1988* 1.21% 0.02% 208.41%
1987* 1.31% 0.36% 213.99%
</TABLE>
* 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>
- - -------------------------------------------------------------------------------
THE FUND AND THE PORTFOLIO
- - -------------------------------------------------------------------------------
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 0.25% 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.
- - -------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- - -------------------------------------------------------------------------------
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 sized growth companies
(market capitalization or annual revenues up to $2 billion). The average mar-
ket capitalizations or annual revenues of holdings in the Portfolio may, how-
ever, fluctuate over time as a result of market valuation levels and the
availability of specific investment opportunities. In addition, the Portfolio
may continue to hold securities of companies whose market capitalizations or
annual revenues grow above $2 billion subsequent to purchase, if the company
continues to satisfy the other investment policies of the Portfolio.
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 pursuant
to procedures established by the Board of Directors. See "Glossary of Permit-
ted Investments."
There can be no assurance that the Portfolio will be able to achieve its in-
vestment objective.
- - -------------------------------------------------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- - -------------------------------------------------------------------------------
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
5
<PAGE>
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 to keep the Portfolio fully invested at all times. Because the universe
of companies will undoubtedly experience volatility in stock price, it is im-
portant that shareholders in this Portfolio maintain a long-term investment
perspective. Of course, there can be no assurance that use of these techniques
will be successful, even over the long term.
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, 1996 was 44.64%.
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 nationally recognized securities rating organiza-
tion ("NRSRO"); repurchase agreements involving such securities; and, to the
extent permitted by applicable law and the Portfolio's investment restric-
tions, shares of other investment companies investing solely in money market
securities). To the extent the Portfolio is invested in temporary defensive
instruments, it will not be pursuing its investment objective. See "Glossary
of Permitted Investments" and the Statement of Additional Information.
- - -------------------------------------------------------------------------------
RISK FACTORS
- - -------------------------------------------------------------------------------
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
Portfolio 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 investment or exchange control regulations, political
instability which could affect U.S. investment in foreign countries and poten-
tial restrictions on the flow of international capital and
6
<PAGE>
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, favorably 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.
- - -------------------------------------------------------------------------------
INVESTMENT LIMITATIONS
- - -------------------------------------------------------------------------------
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.
- - -------------------------------------------------------------------------------
HOW TO PURCHASE FUND SHARES
- - -------------------------------------------------------------------------------
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
made on any day on which the New York Stock Exchange is open for business
("Business Day"). Shares of the Portfolio are offered only to residents of
states in which such shares are eligible for purchase.
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.
You may also purchase shares of the Portfolio through certain broker-dealers
or other financial institutions that are authorized to sell you shares of the
Portfolio. Such financial institutions may charge you a fee for this service
in addition to the Portfolio's public offering price.
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 exten-
sively in such companies, indefinitely discontinue the sale of its shares to
new investors (other than directors, officers and employees of the Adviser and
its affiliated companies). In such event, the Board of Directors would deter-
mine
7
<PAGE>
whether such discontinuance is in the best interests of the Portfolio and its
shareholders.
MINIMUM INVESTMENT
The minimum initial investment in the Portfolio is $2,500 for regular accounts
and $2,000 for IRAs. The Distributor may waive the minimum at its discretion.
There is no minimum for subsequent purchases. No minimum applies to subsequent
purchases effected by dividend reinvestment. As described below, subsequent
purchases through the Fund's Systematic Investment Plan must be at least $25.
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 cancellation 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 Portfolio 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 City, 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.
In order for your purchase order to be effective on the day you place your or-
der with your broker-dealer or other financial institution, such broker-dealer
or financial institution must (i) receive your order before 4:00 p.m. Eastern
Time and (ii) promptly transmit the order to the Transfer Agent. See "Determi-
nation of Net Asset Value" below. The broker-dealer or financial institution
is responsible for promptly transmitting purchase orders to the Transfer Agent
so that you may receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase
will be canceled, and you could be liable for any losses or fees incurred. The
Fund reserves the right to reject a purchase order when the Fund determines
8
<PAGE>
that it is not in the best interests of the Fund or its shareholders to accept
such order.
- - -------------------------------------------------------------------------------
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' notice to shareholders. You may, however, discontinue any serv-
ice you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent re-
ceives your notification to discontinue such service(s) at least ten days be-
fore the next scheduled 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 es-
tablished), 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
9
<PAGE>
profit sharing plans, and 401(k) and 403(b) plans are available to investors
in the Portfolio.
(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 Portfolio monies from other
IRA accounts or lump sum distributions from a qualified retirement plan. If
you are between 18 and 70 1/2 years of age, you can use an IRA to invest up to
$2,000 per year of your earned income in the Portfolio. You may also invest up
to $250 per year in a spousal IRA if your spouse has no earned income.
(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 Portfolio provides a convenient
means of establishing custodial and fiduciary accounts for investors with fi-
duciary responsibilities.
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 also redeem shares of the Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before
4:00 p.m. Eastern Time and (ii) promptly transmit the order to the Transfer
Agent. See "Determination of Net Asset Value" above. The financial institution
is responsible for promptly transmitting redemption orders to the Transfer
Agent so that your shares are redeemed at the same day's net asset value per
share.
You may receive redemption payments in the form of a check or by Federal Re-
serve or ACH wire transfer.
BY MAIL
There is no charge for having a check for redemption proceeds mailed.
10
<PAGE>
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 transactions.
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 Transfer Agent will deduct a wire charge, currently $10.00, from the
amount of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares
of the Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
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 (normally 4:00 p.m., Eastern time) on any Business Day. The net asset
value per share of the Portfolio is listed under PBHG in the mutual fund sec-
tion 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.
11
<PAGE>
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 volatility attempt to compare historical share price fluctuations
or total returns to a benchmark while measures of benchmark correlation indi-
cate how valid a comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical data and cannot be
calculated precisely.
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. Dividends from net investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by do-
mestic corporations. It can be expected that only certain dividends of the
Portfolio will qualify for that deduction. Any net capital gains will be dis-
tributed 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
12
<PAGE>
though the Portfolio has not received any interest payments on such obliga-
tions during that period. Because the Portfolio distributes all of its net in-
vestment 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 would not have chosen to sell such securities and which may result
in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by 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.
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 $10 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.
13
<PAGE>
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 0.85% 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 Trust
Class of the Portfolio. The Adviser reserves the right to terminate its volun-
tary fee waivers and reimbursements at any time in its sole discretion. For
the fiscal year ended March 31, 1996, the Adviser received a fee equal to
0.85% 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 also served as the Chief Investment Offi-
cer 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 0.20% of the
average daily net assets of the Portfolio.
THE TRANSFER AGENT AND SUB-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.
From time to time, the Fund may pay amounts to third parties that provide sub-
transfer agency and other administrative services relating to the Fund to per-
sons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of
the Fund, proxy statements, annual reports, updated Prospectuses, other commu-
nications regarding the Fund, and related services as the Fund or the benefi-
cial owners may reasonably request. In such cases, the Fund will not compen-
sate such third parties at a rate that is greater than the rate the Fund is
currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in 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 0.25% of the Port-
folio's average daily net assets attributable to Trust Class shares. The
shareholder servicing fee is intended to compensate financial intermediaries,
plan fiduciaries and investment professionals ("Service Providers") for pro-
viding personal services, distribution support services, and/or account main-
tenance services to shareholders of the underlying beneficial owners of Trust
Class shares or to insurance companies or their affiliates for providing simi-
lar services for which they are not otherwise compensated by variable annuity
or variable life insurance contractholders. The Fund, on behalf of the Portfo-
lio, 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 supported by such Service Providers. These payments to Service Providers
are characterized as compensation and are not directly tied to the expenses
incurred by them. The Fund intends to operate the Service Plan in accordance
with its terms and all applicable NASD rules.
14
<PAGE>
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved contracts
under which, as described above, certain companies provide essential management
services to the 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 Portfolio,
such as approval of advisory agreements and changes in fundamental policies,
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 generally, such as
the election of Directors or selection of accountants. Shareholders of the
Trust Class of the Portfolio will vote separately on matters relating solely to
the Trust Class, such as the Rule 12b-1 Service Plan, and not on matters solely
related to the PBHG Class of the Portfolio. As a Maryland corporation, the Fund
is not required to hold annual meetings of shareholders but shareholder ap-
proval will be sought for certain changes in the operation of the Fund and for
the election of Directors under certain circumstances. In addition, a Director
may be removed by the remaining Directors or by shareholders at a special meet-
ing called upon written request of shareholders owning at least 10% of the out-
standing shares of the Fund. In the event that such a meeting is requested, the
Fund will provide appropriate assistance 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 periodic
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.
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 distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least 15 days prior to the distribution. Shareholders may
receive payments for cash distributions in the form of a check or by Federal
Reserve 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 distribution of cap-
ital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
COUNSEL AND INDEPENDENT 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, Philadelphia,
Pennsylvania 19101, serves as the custodian for the Portfolio (the "Custodi-
an"). The Custodian holds cash, securities and other assets of the Portfolio 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
"deposi-
15
<PAGE>
tary"), that evidence ownership interests in a security or a pool of securi-
ties issued by a foreign issuer and deposited with the depositary. ADRs in-
clude 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 currency exchange market, or through entering into forward cur-
rency 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 portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the par-
ties, at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
incorporated into 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 in-
terests of the Portfolio 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.
16
<PAGE>
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 guidelines. Under these procedures
and guidelines, the Adviser will consider the frequency of trades and quotes
for the security, the number of dealers in, and potential purchasers for, the
securities, dealer undertakings to make a market in the security, and the na-
ture of the security and of the marketplace trades. The Portfolio may purchase
restricted securities sold in reliance upon the exemption from registration
provided by Rule 144A under the Securities Act of 1933. Restricted securities
may be difficult to value because market quotations may not be readily avail-
able. 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. Gov-
ernment 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.
17
<PAGE>
FUND:
THE PBHG FUNDS, INC.
PORTFOLIOS:
PBHG GROWTH FUND
PBHG EMERGING GROWTH FUND
PBHG CORE GROWTH FUND
PBHG LARGE CAP GROWTH FUND
PBHG SELECT EQUITY FUND
PBHG TECHNOLOGY & COMMUNICATIONS FUND
PBHG INTERNATIONAL 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 Core Growth Fund, PBHG
Large Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG
Technology & Communications 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 May 1, 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 - 15
DIRECTORS AND OFFICERS OF THE FUND........................... S - 16
COMPUTATION OF YIELD......................................... S - 19
CALCULATION OF TOTAL RETURN.................................. S - 21
PURCHASE AND REDEMPTION OF SHARES............................ S - 22
DETERMINATION OF NET ASSET VALUE............................. S - 23
TAXES........................................................ S - 25
PORTFOLIO TRANSACTIONS....................................... S - 27
DESCRIPTION OF SHARES........................................ S - 30
5% AND 25% SHAREHOLDERS...................................... S - 30
INFORMATION ABOUT THE PBHG TECHNOLOGY & COMMUNICATIONS FUND.. S - 33
EXPERTS...................................................... S - 34
FINANCIAL STATEMENTS......................................... S - 34
</TABLE>
May 1, 1996
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's PBHG Growth
Fund, PBHG Emerging Growth Fund, PBHG Core Growth Fund, PBHG Large Cap Growth
Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG Technology &
Communications 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 Core Growth Fund, PBHG Large Cap Growth Fund, PBHG Select Equity
Fund, PBHG Technology & Communications Fund, PBHG International Fund, and PBHG
Cash Reserves Fund, and Trust Class shares of the PBHG 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 compliance with this requirement). With respect
to repurchase agreements entered into by a Portfolio, the
S - 2
<PAGE>
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 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
S - 3
<PAGE>
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 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
S - 4
<PAGE>
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.
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
S - 5
<PAGE>
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 CORE GROWTH, PBHG LARGE CAP GROWTH, PBHG SELECT
EQUITY, PBHG INTERNATIONAL, PBHG TECHNOLOGY & COMMUNICATIONS, AND PBHG CASH
RESERVES FUNDS
Each of the PBHG Emerging Growth, PBHG Core Growth, PBHG Large Cap Growth, PBHG
Select Equity, PBHG International, PBHG Technology & Communications, 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 (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
S - 6
<PAGE>
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.
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.
S - 7
<PAGE>
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 CORE GROWTH, PBHG LARGE CAP GROWTH, PBHG SELECT
EQUITY, PBHG INTERNATIONAL, PBHG TECHNOLOGY & COMMUNICATIONS, AND PBHG CASH
RESERVES FUNDS
Each of the PBHG Emerging Growth, PBHG Core Growth, PBHG Large Cap Growth, PBHG
Select Equity, PBHG International, PBHG Technology & Communications, 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 of Directors, 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 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.
S - 8
<PAGE>
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 each 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 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 and periods ended March 31, 1994, 1995 and 1996, the
Portfolios paid the following advisory fees:
S - 9
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
Fees Paid Fees Waived
-----------------------------------------------------------------------------
Portfolio 1994 1995 1996 1994 1995 1996
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth + $ 362,516 $ 4,883,694 $ 15,198,342 $29,276 $ 0 $ 0
- - ---------------------------------------------------------------------------------------------------
PBHG Emerging $214,910/1/ $726,696/2/ $ 4,784,791 $ 0 $ 0 $ 0
Growth ++
- - ---------------------------------------------------------------------------------------------------
PBHG Core Growth + * * ($ 10,712)/3/ * * $ 33,489
- - ---------------------------------------------------------------------------------------------------
PBHG Large Cap * * $ 33,161/4/ * * $ 82,513
Growth +
- - ---------------------------------------------------------------------------------------------------
PBHG Select Equity + * * $ 461,555/5/ * * $162,473
- - ---------------------------------------------------------------------------------------------------
PBHG Technology & * * $ 58,490/6/ * * $ 70,782
Communications +
- - ---------------------------------------------------------------------------------------------------
PBHG International * $ 98,194/7/ $ 25,795 * $12,025 $ 88,733
+
- - ---------------------------------------------------------------------------------------------------
PBHG Cash Reserves + * * $ 66,035/8/ * * $ 99,136
===================================================================================================
</TABLE>
* Not in operation during the period.
+ Fiscal year ended March 31.
++ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 2, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
/1/ For the period from June 3, 1994 (commencement of operations) through
October 31, 1994.
/2/ For the period from November 1, 1994 through March 31, 1995.
/3/ For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
/4/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/5/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/6/ For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
/7/ For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
/8/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
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 Core Growth, PBHG Large Cap Growth, PBHG Select Equity, and PBHG
Technology & Communications 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 Fund, 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 each
Portfolio'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 securi ties 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
S - 11
<PAGE>
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 Portfolio 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 Portfolio (a) by the
Portfolio 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 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 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 as defined in the 1940 Act.
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 and periods ended March 31, 1994, 1995 and 1996, the
Portfolios paid the following administration fees:
<TABLE>
<CAPTION>
==================================================================================================================
Fees Paid Fees Waived
-----------------------------------------------------------------------------------------
Portfolio 1994 1995 1996 1994 1995 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth + $153,125/1/ $ 1,200,047 $ 3,576,064 $ 0 $ 0 $ 0
- - ------------------------------------------------------------------------------------------------------------------
PBHG Emerging $ 50,567/2/ $ 170,987/3/ $ 1,125,834 $ 0 $ 0 $ 0
Growth ++
- - ------------------------------------------------------------------------------------------------------------------
PBHG Core Growth + * * $ 12,092/4/ * * $ 6,148
- - ------------------------------------------------------------------------------------------------------------------
PBHG Large Cap * * $ 69,887/5/ * * $ 6,148
Growth +
- - ------------------------------------------------------------------------------------------------------------------
PBHG Select Equity + * * $ 158,422/6/ * * $ 6,148
- - ------------------------------------------------------------------------------------------------------------------
PBHG Technology & * * $ 35,898/7/ * * $ 6,148
Communications +
- - ------------------------------------------------------------------------------------------------------------------
PBHG International * $ 59,384/8/ $ 74,949 * $ 0 $ 0
+
- - ------------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves + * * $ 117,204/9/ * * $ 6,148
==================================================================================================================
</TABLE>
* Not in operation during the period.
+ Fiscal year ended March 31.
++ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
/1/ 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 Asset Management Company
("Capstone") during the fiscal year ended March 31, 1994 totalled $18,465.
Prior to September 10, 1993, the administrator of the Fund was Capstone.
/2/ For the period from June 3, 1994 (commencement of operations) through
October 31, 1994.
/3/ For the period from November 1, 1994 through March 31, 1995.
/4/ For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
/5/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/6/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/7/ For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
/8/ For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
/9/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
S - 14
<PAGE>
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 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 (the "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 0.25% 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 may benefit 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 Plan or related agreement.
S - 15
<PAGE>
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, nor
the fiscal years ended March 31, 1995 and March 31, 1996. 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. No compensation was paid by the PBHG Emerging Growth Fund to the
Distributor for distribution services for the period from June 3, 1994
(commencement of operations) through October 31, 1994, the fiscal year end of
its predecessor fund, the Pilgrim Baxter Emerging Growth Fund, nor the fiscal
years ended March 31, 1995 and March 31, 1996.
No compensation was paid by the PBHG Core Growth Fund to the Distributor for
distribution services for the period from January 2, 1996 (commencement of
operations) through March 31, 1996. No compensation was paid by the PBHG Large
Cap Growth Fund to the Distributor for distribution services for the period from
April 5, 1995 (commencement of operations) through March 31, 1996. No
compensation was paid by the PBHG Select Equity Fund to the Distributor for
distribution services for the period from April 5, 1995 (commencement of
operations) through March 31, 1996. No compensation was paid by the PBHG
Technology & Communications Fund to the Distributor for distribution services
for the period from October 2, 1995 (commencement of operations) through March
31, 1996. No compensation was paid by the PBHG International Fund to the
Distributor for distribution services for the period from June 14, 1994
(commencement of operations) through March 31, 1995, nor the fiscal year ended
March 31, 1996 No compensation was paid by the PBHG Cash Reserves Fund to the
Distributor for distribution services for the period from April 5, 1995
(commencement of operations) through March 31, 1996.
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.
S - 16
<PAGE>
JOHN R. BARTHOLDSON (51+) - 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 (49+)* - 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 (49+) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986; Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (61+)- 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.
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.
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.
S - 17
<PAGE>
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.
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.
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.
+ Age of Director.
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.
S - 18
<PAGE>
The following table lists the current Directors of the Fund who received
compensation for each regular meeting of the Board during the fiscal year ended
March 31, 1996, and the amount of such compensation:
<TABLE>
<CAPTION>
=======================================================================================
Total
Pension or Compensation
Retirement Estimated from
Aggregate Benefits Annual Registrant and
Name of Compensation Accrued as Benefits Fund Complex
Person, From Part of Fund Upon Paid to
Position Registrant Expenses Retirement Directors
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. $6,000 N/A N/A $6,000 for
Bartholdson, services on
Director one Board
- - ---------------------------------------------------------------------------------------
Harold J. $ 0 N/A N/A $ 0
Baxter,
Director*
- - ---------------------------------------------------------------------------------------
Jettie M. $6,000 N/A N/A $6,000 for
Edwards, services on
Director one Board
- - ---------------------------------------------------------------------------------------
Albert A. Miller, $6,000 N/A N/A $6,000 for
Director 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.
Each Director is expected to receive $12,000 for services on one Board
for the fiscal year ending March 31, 1997.
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.
S - 19
<PAGE>
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.
S - 20
<PAGE>
For the 7-day period ended March 31, 1996, the yield for the PBHG Cash Reserves
Fund was 4.70% and the 7-day effective yield was 4.81%.
CALCULATION OF TOTAL RETURN
From time to time, the PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Core
Growth Fund, PBHG Large Cap Growth Fund, PBHG Select Equity Fund, PBHG
International Fund, and PBHG Technology & Communications 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 - 21
<PAGE>
Based on the foregoing, the average annual total returns for the Portfolios from
inception through March 31, 1996 and for the one, five and ten year periods
ended March 31, 1996, and the aggregate total returns for the Portfolios since
inception, were as follows:
<TABLE>
<CAPTION>
==================================================================================================
Aggregate
Average Annual Total Return Total
Portfolio Return
---------------------------------------------------------------
One Year Five Year Ten Year Since Since
Inception Inception
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Growth 51.50% 29.38% 21.72% 22.74%/1/ 721.40%
- - --------------------------------------------------------------------------------------------------
PBHG Emerging Growth 50.16% N/A N/A 41.30%/2/ 162.75%
- - --------------------------------------------------------------------------------------------------
PBHG Core Growth N/A N/A N/A 92.75%/3/ 18.20%
- - --------------------------------------------------------------------------------------------------
PBHG Large Cap Growth N/A N/A N/A 50.47%/4/ 49.92%
- - --------------------------------------------------------------------------------------------------
PBHG Select Equity N/A N/A N/A 77.75%/5/ 76.90%
- - --------------------------------------------------------------------------------------------------
PBHG Technology & Communications N/A N/A N/A 55.24%/6/ 24.82%
- - --------------------------------------------------------------------------------------------------
PBHG International 15.55% N/A N/A 3.27%/7/ 5.93%
==================================================================================================
</TABLE>
/1/ The PBHG Growth Fund commenced operations on December 19, 1985.
/2/ The PBHG Emerging Growth Fund commenced operations with its predecessor on
June 15, 1993.
/3/ The PBHG Core Growth Fund commenced operations on January 2, 1996.
/4/ The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
/5/ The PBHG Select Equity Fund commenced operations on April 5, 1995.
/6/ The PBHG Technolgy & Growth Fund commenced operations on October 2, 1995.
/7/ The PBHG International Fund commenced operations on June 14, 1994.
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.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. 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.
S - 22
<PAGE>
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 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 Core
Growth Fund, PBHG Large Cap Growth Fund, PBHG Select Equity Fund, PBHG
International Fund, and PBHG Technology & Communications 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
S - 23
<PAGE>
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
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.
S - 24
<PAGE>
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 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%
S - 25
<PAGE>
federal excise tax to the extent it fails to distribute by the end of any
calendar year 98% of its ordinary income for that year and 98% of its capital
gain net income (the excess of short-and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of that
calendar year, plus certain other amounts.
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 - 26
<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; furnishing of
analyses and reports
S - 27
<PAGE>
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 - 28
<PAGE>
For the fiscal year and periods ended March 31, 1996, 1995, and 1994, the
Portfolios paid brokerage fees as follows :
<TABLE>
<CAPTION>
===============================================================================================
Total Amount Percentage of
of Brokerage Total Amount
Commissions of Brokerage
Total Amount Total Amount Total Amount Paid to SEI Commissions
of Brokerage of Brokerage Brokerage Financial Paid to SEI
Commissions Commissions Commissions Services in Financial
Fund Paid in 1996 Paid in 1995 Paid in 1994 1996/+//++/ Services in
1996
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Growth+ $ 1,546,204 $ 802,803 $ 162,012 $ 102,795 7%
- - -----------------------------------------------------------------------------------------------
PBHG Emerging $ 702,027 $ 64,058/1/ $ 37,177/2/ $ 50,416 7%
Growth ++
- - -----------------------------------------------------------------------------------------------
PBHG Core $ 21,334/3/ * * 362 2%
Growth +
- - -----------------------------------------------------------------------------------------------
PBHG Large Cap $ 50,907/4/ * * 890 2%
Growth +
- - -----------------------------------------------------------------------------------------------
PBHG Select $ 204,485/5/ * * 4,862 2%
Equity +
- - ------------------------------------------------------------------------------------------------
PBHG $ 39,559/6/ * * 1,458 4%
Technology &
Communications +
- - ------------------------------------------------------------------------------------------------
PBHG $ 152,429 $ 87,658/7/ *
International
+
- - ------------------------------------------------------------------------------------------------
PBHG Cash 0/8/ * * 0 0
Reserves +
=================================================================================================
</TABLE>
* Not in operation during the period.
+ Fiscal year ended March 31.
++ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
+++ These commissions were paid to SEI Financial Services in connection with
repurchase agreement transactions.
/1/ For the period from November 1, 1994 through March 31, 1995.
/2/ For the period from June 3, 1994 (commencement of operations) through
October 31, 1994.
/3/ For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
/4/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/5/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
/6/ For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
/7/ For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
/8/ For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
S - 29
<PAGE>
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 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 March 31, 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. 25.62%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 10.63%
P.O. 3908
Church Street Station
New York, New York 10008-3908
S - 30
<PAGE>
PBHG Emerging Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 20.60%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 12.55%
P.O. Box 3909
Church Street Station
New York, New York 10008-3908
Los Angeles County Employees Retirement 9.52%
Association/Pension Fund
c/o Pilgrim Baxter Greig & Associates
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
PBHG Core Growth Fund - PBHG Class
National Financial Services Corp. 18.88%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Jupiter & Company 7.96%
c/o Investors Bank and Trust
P.O. Box 1537 - Top 57
Boston, MA 02205-15370
Charles Schwab & Co., Inc. 7.69%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 34.97%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 21.67%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 31.13%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 20.47%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Donaldson Lufkin & Jenrette 5.11%
P.O. Box 2052
Jersey City, NJ 07303-2052
S - 31
<PAGE>
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 12.05%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 7.74%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Technology & Communications Fund - PBHG Class
National Financial Services Corp. 16.15%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co., Inc. 34.81%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
S - 32
<PAGE>
PBHG Cash Reserves Fund - PBHG Class
Pilgrim Baxter Partners I LP 55.43%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
Pilgrim Baxter Partners II LP 9.86%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
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.
S - 33
<PAGE>
. 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 each of the Portfolios, for the fiscal year ended March 31, 1996,
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 Fund for the fiscal years ended prior to and including the
fiscal year ended March 31, 1993, have been audited by the Fund's prior
independent public accountants. Arthur Andersen LLP has been selected to serve
as the Fund's independent public accountants for the fiscal year ending March
31, 1997.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 1996,
including the financial highlights, appearing in the Annual Report to
Shareholders, are incorporated herein by reference and made a part of this
document.
S - 34
<PAGE>
(ART)
ANNUAL REPORT
PBHG Growth Fund
PBHG Emerging Growth
Fund
PBHG Core
Growth Fund
PBHG Select
Equity Fund
PBHG Large Cap
Growth Fund
March 31, 1996
PBHG Technology &
Communications
Fund
PBHG
International Fund
PBHG Cash
Reserves Fund
<PAGE>
Pilgrim Baxter & Associates believes the best way to earn
superior rates of return is through investment in companies
demonstrating exceptional growth with prospects
- - ----------------------------------------------------
INVESTMENT PHILOSOPHY
- - ----------------------------------------------------
for exceeding consensus earnings expectations. Our
unwavering conviction and dedication to this fundamental
principle is the most important ingredient behind Pilgrim
Baxter's portfolio management success.
------------------------------------------------
Contents
------------------------------------------------
1 Message to Shareholders
------------------------------------------------
3 PBHG Family of Funds
------------------------------------------------
4 A Disciplined Approach to Growth
------------------------------------------------
5 The Pilgrim Baxter Mutual Fund Managers
------------------------------------------------
7 Management Discussion and Analysis ("MD&A")
------------------------------------------------
10 PBHG Growth Fund MD&A
------------------------------------------------
12 PBHG Emerging Growth Fund MD&A
------------------------------------------------
13 PBHG Core Growth Fund MD&A
------------------------------------------------
14 PBHG Select Equity Fund MD&A
------------------------------------------------
16 PBHG Large Cap Growth Fund MD&A
------------------------------------------------
18 PBHG Technology & Communications Fund MD&A
------------------------------------------------
19 PBHG International Fund MD&A
------------------------------------------------
21 PBHG Cash Reserves Fund MD&A
------------------------------------------------
22 Report of Independent Public Accountants
------------------------------------------------
23 Statements of Net Assets
------------------------------------------------
57 Statements of Operations
------------------------------------------------
59 Statements of Changes in Net Assets
------------------------------------------------
61 Financial Highlights
------------------------------------------------
62 Notes to Financial Statements
------------------------------------------------
68 Description of Indexes
------------------------------------------------
69 Notice to Shareholders
------------------------------------------------
<PAGE>
[PICTURE OF "We are committed to giving you a distinctive se-
HAROLD J. BAXTER,
CHAIRMAN OF THE lection of growth funds designed to provide long-
PBHG FUNDS, INC.
APPEARS HERE] term performance, and a range of enhanced serv-
ices designed to promote long-term shareholder
satisfaction."
HAROLD J. BAXTER
Chairman
The PBHG Funds, Inc.
-------------------------------------------------------
Message to Shareholders
-------------------------------------------------------
Dear Fellow Shareholder:
I'm pleased to send you the Annual Report for The PBHG Funds, Inc. for
the fiscal year ended March 31, 1996. These past twelve months have
been generally rewarding for investors, and PBHG shareholders have
benefitted from especially solid performance. The following pages de-
tail the returns and outlooks for each of the PBHG funds.
The year has been unusually active for us in a number of ways, as the
PBHG funds and Pilgrim Baxter & Associates, adviser to the funds, have
experienced significant growth in virtually every area:
NEW & REOPENED FUNDS The introductions of the PBHG Technology &
Communications Fund in October 1995 and the PBHG Core Growth Fund
in January 1996 brought our fund family to seven equity funds and
one money market fund. In addition, on January 2, 1996, we reopened
our flagship fund, the PBHG Growth Fund. Going forward, we will
continue to expand our equity line, to offer you a broader choice
of specialized, no-load funds that can help you pursue your long-
term objectives.
INCREASED ASSETS UNDER MANAGEMENT As of March 31, 1996, we have
grown to a $4.4 billion mutual fund complex, up from $2.5 billion
on September 30, 1995.
EXPANDED PROFESSIONAL STAFF Additional investment specialists have
been added at Pilgrim Baxter & Associates to locate and track in-
creasing numbers of superior growth candidates for our new and
growing funds.
ENHANCED ACCOUNT SERVICING CAPABILITIES We have implemented a
number of new systems and procedures for better service and cost
savings. A state-of-the-art transfer agent now handles
transactions, while improvements in literature distribution and
shareholder information requests management continue to be made. A
combined statement was introduced in April 1996, and we are
currently in the process of consolidating certain mailings by
household, to gain greater efficiencies for the funds.
(Over please)
1
<PAGE>
ADDITIONAL SHAREHOLDER SERVICES To respond to your needs faster, we have
increased phone staff, instituted new procedures and enhanced the Shareholder
Service Line to provide 24-hour account information. As of May 1, 1996, we
expect to be able to offer fund information via the Internet -- and hope to
phase in account information and transaction capabilities later in the year.
We are fully committed to the continued growth of the funds and the firm in
order to better meet the needs of you, our shareholders. Please also keep in
mind that the PBHG funds are particularly well suited to retirement investing,
assuming you have a long-term horizon. According to Ibbotson Associates of
Chicago, stocks have been the only asset class to deliver, over time, real
returns in excess of the inflation rate. The chart below shows how the tax-
deferred compounding in a retirement account can dramatically increase a
fund's returns.
As always, we thank you for choosing The PBHG Funds Inc. as part of your
investment portfolio. We appreciate the faith you have placed in us, and will
strive to continue providing superior investment results and shareholder
services.
Sincerely,
/s/ Harold J. Baxter
Harold J. Baxter
Chairman
The PBHG Funds, Inc.
------------------------------------
Retirement Investing with PBHG
------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <C>
Tax Deferred Taxable
DATE 10,000 10,000
12/31/86 12,393 12,393
12/31/87 13,830 12,868
12/31/88 14,775 13,234
12/31/89 19,104 16,717
12/31/90 17,265 15,108
12/31/91 26,175 22,904
12/31/92 33,606 25,804
12/31/93 49,308 34,846
12/31/94 51,652 32,317
12/31/95 77,657 47,795
03/31/96 82,145 50,557
</TABLE>
Chart assumes a one-time $10,000 investment in a taxable and in a tax deferred
account in the PBHG Growth Fund on the fund's 12/19/85 inception. Returns are
based on actual performance of the PBHG Growth Fund from 12/31/85 to 3/31/96.
The taxable account assumes a 36% tax rate. This is past performance, which is
not indicative of future results. Investment returns and principal value will
vary, and you may have a gain or loss when you sell your shares. Earnings
withdrawn from a tax-deferred investment will be taxed upon withdrawal, and
early withdrawal prior to age 59 1/2 is subject to a 10% penalty.
2
<PAGE>
PBHG GROWTH FUND seeks capital appreciation by investing in common stocks of
small- to medium-sized U.S. growth companies. These are companies that, in the
opinion of Pilgrim Baxter, have an outlook for strong growth in earnings and
potential for significant capital appreciation. This fund is aggressive and
should be considered a long-term investment.
PBHG EMERGING GROWTH FUND seeks long-term growth of capital by investing in
common stocks of emerging U.S. companies. This fund is aggressive and should be
considered a long-term investment.
---------------------------------------------
PBHG Family of Funds
---------------------------------------------
PBHG CORE GROWTH FUND seeks long-term capital appreciation by investing primar-
ily in a diversified portfolio of equity securities of small-, medium- and
large-capitalization companies. The companies selected are believed to offer
the potential for strong earnings growth and significant capital appreciation.
Although this fund should experience greater price stability than a fund that
invests only in small companies, it is aggressive and should be considered a
long-term investment.
PBHG SELECT EQUITY FUND seeks long-term growth of capital by investing in a
limited number of companies (normally no more than 30) across the domestic eq-
uity market capitalization spectrum that, in the adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. This
fund is aggressive and should be considered a long-term investment.
PBHG LARGE CAP GROWTH FUND seeks long-term growth of capital by investing pri-
marily in equity securities of large, established companies. Many of these com-
panies were followed by the Growth Fund and Emerging Growth Fund until their
cap sizes grew too large for those funds. The fund's net asset value may be
less volatile than those of our smaller cap funds.
PBHG TECHNOLOGY & COMMUNICATIONS FUND seeks long-term growth of capital by in-
vesting primarily in common stocks of companies that rely extensively on sci-
ence, technology and communications in their product development or operations,
or which are expected to benefit from technology- or communications-related ad-
vances. The fund is aggressive and should be considered a long-term investment.
PBHG INTERNATIONAL FUND seeks to provide long-term capital appreciation by in-
vesting primarily in a diversified portfolio of equity securities of non-U.S.
issuers. The fund is aggressive and should be considered a long-term invest-
ment. The International Fund is sub-advised by Murray Johnstone International,
Ltd. ("Murray Johnstone").
PBHG CASH RESERVES FUND seeks to preserve principal and maintain a high degree
of liquidity while providing current income. The PBHG Cash Reserves Fund is
sub-advised by Wellington Management Company.
3
<PAGE>
The PBHG Funds, Inc. are advised by Pilgrim Baxter & Associates, Ltd. ("Pilgrim
Baxter"), in Wayne, Pennsylvania. Since 1982, Pilgrim Baxter has been an in-
vestment adviser to some of the country's largest pension plans, foundations
and endowments, and currently manages over $9 billion in assets for individuals
and institutions.
- - ----------------------------------------
A Disciplined Approach to Growth
- - ----------------------------------------
Pilgrim Baxter follows a team approach to manage the domestic equity funds. Led
by Chief Investment Officer Gary Pilgrim, portfolio managers meet regularly to
exchange ideas and share insights. To locate investments, the managers follow a
Four-Step Process that combines a proprietary quantitative ranking system with
fundamental research and stringent analysis. (Murray Johnstone uses an equally
disciplined, though not identical, process for the International Fund.)
THE FOUR-STEP PROCESS
1. The investment team first constructs a universe of companies that have al-
ready demonstrated and continue to show extraordinary earnings growth charac-
teristics. To be included, a company's earnings growth rates must exceed 20%,
while the average company in Pilgrim Baxter's universe has grown in excess of
50% over the past year.
2. Using a proprietary Quantitative Ranking System (QRS), the investment team
ranks companies within that universe and evaluates each company against its own
operating and financial expectations as well as against its peers.
3. Next, the team conducts extensive fundamental research on the companies
qualifying for investment through the QRS. Traditional bottom-up analysis, in-
cluding proprietary research and face-to-face contact with companies, helps
further refine selections.
4. Strict disciplines are followed in making all buy and sell decisions. To
stay in a fund's portfolio, a company must continue its strong earnings growth
trends.
- - --------------------------------------------------------------------------------
Building a Portfolio with our Four-Step Process
- - --------------------------------------------------------------------------------
[ART APPEARS HERE]
4
<PAGE>
"The caliber of our people and the structure of our
organization are our fundamental strengths."
Harold J. Baxter
----------------------------------------
The Pilgrim Baxter Mutual Fund Managers
----------------------------------------
Gary L. Pilgrim, CFA - Manager, Growth Fund/Co-manager Core
Growth, Large Cap Growth, Select Equity and Emerging Growth
Funds
As President and Chief Investment Officer of Pilgrim
Baxter, Gary Pilgrim is responsible for the investment
[PICTURE OF GARY direction of all institutional and mutual fund portfolios,
L. PILGRIM, CFA - and for overseeing day-to-day operations in trading and
MANAGER, GROWTH account control. Gary is a member of Pilgrim Baxter's Board
FUND/CO-MANAGER of Directors and the Executive Committee, and President of
CORE GROWTH, LARGE The PBHG Funds, Inc. He has been involved in growth stock
CAP GROWTH, SELECT investing throughout his 26-year career. He began at
EQUITY AND Philadelphia National Bank in the late 1960s, where he
EMERGING GROWTH served initially as an analyst, later as Director of
FUNDS, APPEARS Research, and, ultimately, as Chief Investment Officer. An
HERE] M.B.A. graduate from Drexel University with a B.S.B.A. from
the University of Tulsa, Gary is a Chartered Financial
Analyst and a member of the Financial Analysts of
Philadelphia, Inc.
Christine M. Baxter, CFA - Co-manager Emerging Growth and
Core Growth Funds
In addition to co-managing the Emerging Growth and Core
Growth Funds, Christine Baxter is responsible for small cap
[PICTURE OF research. Christine joined Pilgrim Baxter & Associates in
CHRISTINE M. BAXTER, 1991. Her previous responsibilities included
CFA - CO-MANAGER equity/quantitative analysis and the construction of the
EMERGING GROWTH Pilgrim Baxter micro cap universe. Christine is a graduate
AND CORE GROWTH of the University of Pennsylvania. While at Penn, she
FUNDS, APPEARS HERE] interned in the equity area at First Boston Corporation.
Christine is a Chartered Financial Analyst and a member of
the Financial Analysts of Philadelphia, Inc.
James D. McCall, CFA - Co-manager Large Cap Growth, Select
Equity and Core Growth Funds
In addition to his responsibilities with the Large Cap
Growth, Select Equity and Core Growth Funds, Jim McCall
[PICTURE OF JAMES manages institutional investment accounts. Jim previously
D. MCCALL, CFA - worked at The First National Bank of Maryland where he was
CO-MANAGER LARGE Vice President/Portfolio Manager responsible for managing a
CAP, SELECT EQUITY growth mutual fund that invested across all
AND CORE GROWTH capitalizations. Prior to that, Jim was employed by
FUNDS, APPEARS HERE] Provident Mutual Management Co. where he managed a similar
growth mutual fund. Before entering the investment field a
decade ago, Jim spent 10 years as a hospital pharmacist. He
is a Chartered Financial Analyst. He received his M.B.A.
and M.S. in Pharmacy from the University of Utah and holds
a B.S. from the Philadelphia College of Pharmacy and
Science.
5
<PAGE>
John S. Force, CFA - Co-manager Technology & Communications
Fund
In addition to co-managing the PBHG Technology & Communica-
tions Fund, John Force is an analyst and manager of small
[PICTURE OF JOHN cap portfolios for institutional investors. He joined
S. FORCE, CFA - Pilgrim Baxter from Fiduciary Management Associates, where
CO-MANAGER he was Vice President/Portfolio Manager responsible for
TECHNOLOGY & managing a small cap mutual fund and analyzing the health
COMMUNICATIONS FUND, care and consumer stock sectors. John's eighteen years of
APPEARS HERE] portfolio management experience include bank pooled equity
funds, endowments, pensions, and profit-sharing
portfolios. As a research analyst, he has covered a broad
spectrum of industries. An M.B.A. graduate from the
University of Toledo with a B. S. in Finance/Accounting
from Miami University of Ohio, John is a Chartered
Financial Analyst and a member of the Financial Analysts
of Philadelphia, Inc.
James M. Smith, CFA - Co-manager Technology &
Communications Fund
Jim Smith serves as a portfolio manager and analyst for
institutional small cap portfolios at Pilgrim Baxter, in
[PICTURE OF JAMES M. addition to his responsibilities as co-manager of the PBHG
SMITH, CFA - CO- Technology & Communications Fund. Jim has over twenty years
MANAGER TECHNOLOGY of investment experience in equity portfolio management and
& COMMUNICATIONS research. Most recently, he was employed by Selected
FUND, APPEARS HERE] Financial Services as Senior Vice President/Portfolio
Manager for a small cap growth mutual fund. Jim's prior
service includes employment by Sears Investment Management
Company as Vice President responsible for emerging growth
and venture capital portfolios. Jim is a Chartered
Financial Analyst and a graduate of Washington & Lee
University, where he was inducted into Phi Beta Kappa. He
earned his M.B.A. from Northwestern University.
Rodger Scullion, MSI, Murray Johnstone International, Ltd.-
Manager International Fund
Rodger Scullion is Managing Director and Chief Investment
Officer of Murray Johnstone International (MJI) in
[PICTURE OF RODGER Glasgow, Scotland. In addition to the PBHG International
SCULLION, MSI, Fund, for which he assumed responsibility in June 1995,
MURRAY JOHNSTONE, Rodger handles other investment vehicles for all types of
LTD., - MANAGER investors, including a closed-end fund with over $600
INTERNATIONAL FUND, million in assets. Rodger joined MJI thirteen years ago,
APPEARS HERE] and in that time has had primary responsibility for
investments in markets all over the world, except the U.S.
Prior to MJI, Rodger spent eleven years with an
international fund management group in Glasgow, where his
investment arena included the U.S., Europe, U.K., South-
east Asia and Japan. Rodger is a Member of the Securities
Institute (MSI) in Scotland.
John C. Keogh, Wellington Management Company--Manager PBHG
Cash Reserves Fund
John Keogh is a Senior Vice President and Partner of
Wellington Management Company which is sub-adviser to the
[PICTURE OF JOHN C. PBHG Cash Reserves Fund. As a member of Wellington
KEOGH, WELLINGTON Management's Fixed Income Group, John chairs the Short
MANAGEMENT COMPANY - Duration Bond Strategy Group, which develops guidelines for
MANAGER PBHG CASH portfolio managers on investing client assets in short
RESERVES FUND, maturity portfolios. John manages approximately $10
APPEARS HERE] billion in money market portfolios for various clients of
the firm, and has the distinction of managing the first
dollar-denominated money market fund ever offered by a
Japanese entity in Japan. John is a 1979 graduate of Tufts
University (BA in Economics). Prior to joining Wellington
Management Company, he worked in the investment division
of Connecticut National Bank.
6
<PAGE>
"We believe companies that meet and exceed their [PICTURE OF GARY L. PILGRIM,
CFA, CHIEF INVESTMENT
earnings growth expectations make superior in- OFFICER, PILGRIM BAXTER &
ASSOCIATES, APPEARS HERE]
vestment vehicles. Our focus is on finding
`earnings engines' and adhering to strict sell
disciplines to manage risk."
GARY L. PILGRIM, CFA
Chief Investment Officer
Pilgrim Baxter & Associates
- - ----------------------------------------
Management Discussion and Analysis
- - ----------------------------------------
Dear Fellow Shareholder:
Continuing the gains of the first half of our fiscal year, the U.S. equity mar-
ket was broadly positive for the full period. As shown below, the environment
slightly favored growth over value-oriented portfolios. However, with the per-
ception of a slowing economy emerging in the second half, larger and more de-
fensive equities began to outperform. The Nasdaq OTC Index, for instance, after
widely outperforming the Dow Jones Industrial Average in the first half,
sharply underperformed in the second half. Among major sectors, finance, tech-
nology and capital goods were quite strong for the full year although technol-
ogy performance slipped in the second half.
As we enter the new fiscal year, the developing consensus has shifted from a
very comfortable "soft landing" scenario to a much more muddled view. Surpris-
ingly strong economic data has recently shaken investor complacency towards
both the bond and equity mar-
- - ----------------------------------------
Performance Comparisons
- - ----------------------------------------
WILSHIRE ASSOCIATES STYLE INDEXES
<TABLE>
<S> <C> <C> <C>
Large Cap Growth +33.1% Large Cap Value +36.3%
MidCap Growth +35.1% MidCap Value +31.6%
Small Cap Growth +32.3% Small Cap Value +27.3%
</TABLE>
(Over please)
7
<PAGE>
kets and stands in some contrast to observations from many companies that busi-
ness conditions are becoming more difficult. We lean towards the view that the
economy is recovering from a weather-induced slowdown and benefiting from the
early delivery of 1995 income tax refunds, but is unlikely to show enough
strength to produce additional restraint from the Federal Reserve. The inci-
dence of earnings disappointments, however, is rising with the slower economy.
Our strategy remains the same: Pay attention to earnings! We continue to be-
lieve that under most circumstances, our search for the strongest relative
earnings performance will uncover companies most likely to achieve sustainable,
exceptional long-term growth. And our long-term portfolio success depends on
this, more than on market timing, economic forecasting or valuation analysis.
Momentum investing: the Pilgrim Baxter point of view
The so-called "momentum approach" to investing receives a lot of press these
days, much of it unfavorable. Momentum investors, a group in which we are often
included, are routinely characterized as ruthless in their selling of stocks
based on minute earnings shortfalls; hyperactive in their portfolio churning in
pursuit of short-term portfolio performance; and reckless in their indifference
to valuation. Recognizing that observers can classify our style as they see fit
and that we run the risk of appearing to "protest too much," we believe a few
comments might be helpful in explaining our approach.
First, we acknowledge and attempt to communicate at every opportunity that our
funds are generally more volatile and less diversified than the average fund.
We want to own the best high-growth companies available, and that objective has
a higher priority than sector diversification.
In our opinion, above-average returns can be achieved by investing in companies
which exhibit exceptional growth rates relative to the market. We attempt to
produce these investment returns through the fundamental performance of our
portfolio companies. Our experience is that great growth companies do not
submit well to valuation tools.
We believe that investors persistently underestimate the return potential
available from companies that accomplish very high growth for an extended peri-
od. A company growing at 25% per annum essentially doubles its earnings every
three years -- that type of performance can quickly overcome questions of valu-
ation. Stocks that go up several-fold over a multi-year period chronically look
"expensive." Our focus on growth over valuation produces portfolios that appear
high on traditional measures of price to earnings, sales or book value. Howev-
er, we view this condition as the entry price to acquire the portfolio charac-
teristics we seek.
Investing in smaller growth companies can be risky. The failure rate is higher
than with larger and more mature companies. The approach we use to find our way
through the uncertain future is very straightforward and based on experience.
Some of the "rules" we follow are:
. Know a lot about your companies through research.
. Be skeptical that companies can quickly cure growth problems.
. As investors, deal promptly with real fundamental change both positive and
negative.
. Understand that staying with a disappointing company involves both absolute
loss and opportunity cost.
8
<PAGE>
. Diversify to control risk.
. Be disciplined in the application of principles that have worked over time.
In this regard we have developed models that guide us to pay particular at-
tention to earnings surprise and earnings estimate revisions.
The result of the above is that we do sell companies that fail to meet expecta-
tions. It is hardly at a frantic pace, however, as the portfolio turnover rates
for the PBHG Growth and Emerging Growth Funds for the latest twelve months were
45% and 97% respectively.
We also find ourselves involved with companies some consider "hot" or "fad-
dish." We believe this is inevitable and a symptom of our relentless search for
the growth companies and industries of today and tomorrow. Keen attention to
current earnings leadership provides excellent direction as to which companies
these will be.
Lastly, it is quite certain that our relative performance standing will ebb and
flow with the market's interest and confidence in growth. We cannot predict if
"momentum" investing, as others practice it, will prove enduringly productive.
However, we are comfortable with the assertion that successfully identifying
companies with sustainable high growth rates will provide competitive returns.
We believe we have the or ganization and disciplines to execute this strategy.
A disciplined approach: key to success
Just as we need to be highly disciplined in our investment process, investors
should practice the techniques proven to help enhance long-term returns and re-
duce overall portfolio risk. Diversification, and investing for the long term,
are paramount. To help you invest effectively and efficiently, we encourage you
to take advantage of the PBHG Systematic Investing Plan, which gives you the
benefits of dollar cost averaging. The chart below demonstrates how systematic
investing can lower your average purchase price per share, since you buy fewer
shares when prices are high and more when prices are lower.
/S/ Gary L. Pilgrim
Gary L. Pilgrim
Chief Investment Officer
Pilgrim Baxter & Associates
----------------------------------------
Dollar Cost Averaging At Work
----------------------------------------
<TABLE>
<CAPTION>
Dollar Cost Averaging Vs. Lump Sum Purchase
- - --------------------------------------------------------------------------------
Number of Number of
Amount Share Shares Amount Share Shares
Invested Price Puchased Invested Price Puchased
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January $ 100.00 10 10.00 $ 1,200.00 10 120.00
February $ 100.00 11 9.09
March $ 100.00 9 11.11
April $ 100.00 6 16.67
May $ 100.00 7 14.29
June $ 100.00 12 8.33
July $ 100.00 8 12.50
August $ 100.00 7 14.29
September $ 100.00 9 11.11
October $ 100.00 9 11.11
November $ 100.00 11 9.09
December $ 100.00 10 10.00
- - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
- - -----------------------------------------------------------
Total Amount Invested $1,200.00 Vs. $1,200.00
Total Number of Shares 137.59 Vs. 120.00
Average Cost Per Share $8.72 Vs. $10.00
- - -----------------------------------------------------------
</TABLE>
A program of regular investment cannot assure a profit nor protect against a
loss in a declining market and, since such a program involves continuous
investment regardless of fluctuating share values, investors should consider
their (financial) ability to continue the program through all market cycles.
9
<PAGE>
----------------------------------------
PBHG Growth Fund
----------------------------------------
OBJECTIVE: Long-term capital appreciation
INVESTS IN: Small to medium, high-growth U.S. companies in any field
STRATEGY: While the fund makes the majority of purchase selections in the $300
million to $1.5 billion range, the weighted average capitalization of the port-
folio has increased from a year ago. This is attributable to the higher valua-
tion levels of a rising market, and our decision to maintain positions in some
companies exceeding $2 billion in market capitalization as long as they meet
our high-growth criteria. However, over 60% of the portfolio's companies have
annual revenues of under $250 million, still comfortably in the small company
category.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Growth
Fund, versus the Wilshire Small Cap Growth Index, the Russell 2000 Growth Index,
and the Lipper Capital Appreciation Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG Growth Fund
from December 31, 1985 through March 31, 1996 as compared with the growth of
$10,000 investments in the Wilshire Small Cap Growth Index, the Russell 2000
Growth Index, and the Lipper Capital Appreciation Average over the same time
period. The plot points are as follows:
<TABLE>
<CAPTION>
12/31/85 3/86 3/87 3/88 3/89 3/90
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund 10,000 11,510 16,870 14,665 15,249 19,383
Wilshire Small Cap Growth Fund 10,000 11,445 13,678 11,658 12,966 14,163
Russell 2000 Growth Index 10,000 11,481 13,175 10,888 11,991 13,057
Lipper Capital Appreciation Average 10,000 11,594 13,858 12,397 14,009 16,009
<CAPTION>
3/91 3/92 3/93 3/94 3/95 3/96
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund 22,667 25,781 34,668 47,592 54,217 82,139
Wilshire Small Cap Growth Index 15,198 18,535 20,697 23,422 26,317 34,820
Russell 2000 Growth Index 14,462 17,206 17,726 19,628 21,057 27,675
Lipper Capital Appreciation Index 17,789 20,993 23,720 25,895 27,669 35,596
</TABLE>
/1/Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
* See Page 68 for a description of the Indexes.
PERFORMANCE
For the year ended March 31, 1996 the fund's total return was 51.5% versus the
Wilshire Small Cap Growth Index of 32.3%. The Russell 2000 Growth Index return
was 31.4% and the Lipper Capital Appreciation Funds Average return was 29%. The
technology sector continued to be the fund's largest, with an aver-age
weighting of 39%, and accounted for slightly more than 50% of the year's re-
turn. The services sector, which increased steadily during the year from 8% to
14%, produced almost 25% of the portfolio return. Of the remaining gain,
consumer stocks accounted for almost half, followed by industrial, financial
and healthcare.
PORTFOLIO HIGHLIGHTS
As mentioned above, a number of portfolio companies, including Ascend Communica-
tions, U.S. Robotics, FORE Systems, PeopleSoft and Gartner Group have exceeded
$2 billion in market capitalization, but remain in our portfolio. A longer
holding period for these exceptional growth companies results in lower
portfolio turnover, postponement of capital gains, and higher after-tax returns
to our shareholders.
Benefitting from telecommunications equipment demand stimulated by use of
Internet and other on-line services, companies serving these markets were among
our best holdings for the year. Of our top five performers, which averaged
almost a 300% gain, Ascend Communications, U.S. Robotics and Cascade
Communications fall into this category. Among our non-technology winners were
Quintiles Transnational (contract pharmaceutical research), Gartner Group
(technology consulting), Corrections Corp of America (prison privatization) and
Input-Output (seismic equipment for energy exploration).
10
<PAGE>
The bottom five performers, which averaged a 55% realized loss to the point of
sale, have a familiar theme: all reported much less than expected earnings. With
few exceptions -- possibly Alliance Semiconductor, for example, which was hurt
by an industry-wide decline in SRAM prices -- the problems were company specific
and reinforce the wisdom of broad diversification in small com-pany portfolios.
Sector weightings reflect the relative attraction of individual stocks within
our large universe of growth companies. As we review the year, notable
weightings changes occurred in healthcare -- up from 11% in June to close the
fiscal year at 17%; services -- up from 8% to 14% year-over-year; and
technology -- presently at 33%, down from 43% in December.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
----------------------- -------------------------
ASCEND COMMUNICATIONS COMPUTRON SOFTWARE
----------------------- -------------------------
U.S. ROBOTICS CYRK
----------------------- -------------------------
QUINTILES TRANSNATIONAL COVENTRY
----------------------- -------------------------
GARTNER GROUP WALL DATA
----------------------- -------------------------
CASCADE COMMUNICATIONS ALLIANCE SEMICONDUCTOR
11
<PAGE>
----------------------------------------
PBHG Emerging Growth Fund
----------------------------------------
OBJECTIVE: Long-term growth of capital
INVESTS IN: Some of the smallest, potentially fastest-growing U.S. companies in
any field
STRATEGY: The fund's strategy is to invest in young, rapidly growing companies
with prospects for continued growth. The portfolio will typically target the
following sectors: technology, healthcare, consumer and service. The fund will
remain diversified over a large number of securities, with no one security ac-
counting for more than 3% of the portfolio.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Emerging
Growth Fund, versus the Wilshire Small Cap Growth Index, the Russell 2000 Growth
Index and the Lipper Small Company Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG Emerging
Growth Fund from June 30, 1993 through March 31, 1996 as compared with the
growth of $10,000 investments in the Wilshire Small Cap Growth Index, the
Russell 2000 Growth Index, and the Lipper Small Company Funds Average over the
same time period. The plot points are as follows:
<TABLE>
<CAPTION>
6/30/93 3/94 3/95 3/96
<S> <C> <C> <C> <C>
PBHG Emerging Growth Fund 10,000 13,100 17,290 25,963
Wilshire Small Cap Growth Index 10,000 10,923 12,273 16,238
Russell 2000 Growth Index 10,000 10,763 11,547 15,176
Lipper Small Company Funds Average 10,000 10,815 11,652 15,293
</TABLE>
/1Past/performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2The/PBHG Emerging Growth Fund commenced operations on June 15, 1993.
* See Page 68 for a description of the Indexes.
PERFORMANCE
For the twelve months ending March 31, 1996, the fund produced a 50.2% return
versus its benchmark, Wilshire Small Cap Growth Index, of 32.3%. Technology-
related companies, with a weighting that varied between 36% and 44%, accounted
for roughly 40% of the portfolio gain. The majority of the remaining gain was
attributed to the healthcare, consumer and service sectors.
PORTFOLIO HIGHLIGHTS
For the year, the fund's five top performing stocks were up an average of 250%,
while the five bottom performing stocks were down an average of 47%. In both
cases the returns were driven by earnings performance.
The fund seeks companies with an ability to sustain superior earnings growth and
to continue to meet or exceed expectations. Sector weightings are a product of
individual stock selection. Though the technology weighting remained relatively
constant, exposure to semiconductor-related issues decreased and other
technology sub-sectors such as software increased. Throughout the year, the
healthcare weighting increased and the consumer weighting decreased slightly.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
----------------------- ----------------------------------
APOLLO GROUP CROP GROWERS CORP.
----------------------- ----------------------------------
QUINTILES TRANSNATIONAL PROFESSIONAL SPORTS CARE MANAGMENT
----------------------- ----------------------------------
TARGET THERAPEUTICS BROOKS AUTOMATION
----------------------- ----------------------------------
SECURITY DYNAMICS SOFTDESK
----------------------- ----------------------------------
APPLIX MICROTEST
12
<PAGE>
----------------------------------------
PBHG Core Growth Fund
----------------------------------------
OBJECTIVE: Long-term capital appreciation
INVESTS IN: A diversified portfolio of small, mid-size and large companies in
all fields that offer attractive capital appreciation opportunities
STRATEGY: The fund's holdings currently range from roughly $200 million to $50
billion in market capitalization, with an average size of $3.7 billion. While
future changes in holdings will create some variability, we do not expect the
company size features of the fund to differ substantially from what they are
presently. Stock selection is exclusively "bottom up", focusing on individual
companies and the strength of their fundamental business characteristics. Sec-
tor exposure is not predetermined, but follows from the selection of the most
attractive individual stocks. As a risk control measure, no sector will be al-
lowed to represent more than 40% of the total fund.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Core
Growth Fund, versus the Russell 3000 Index and the Lipper Growth Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gamins) of a hypothetical investment of $10,000 in the PBHG Core Growth
Fund from December 31, 1995 through March 31, 1996 as compared with the growth
of $10,000 investments in the Russell 3000 Index and the Lipper Growth Funds
Average over the same time period. The plot points are as follows:
<TABLE>
<CAPTION>
12/31/95 1/96 2/96 3/96
<S> <C> <C> <C> <C>
PBHG Core Growth Fund 10,000 10,590 11,450 11,820
Russell 3000 Index 10,000 10,292 10,508 10,542
Lipper Growth Funds Average 10,000 10,215 10,445 10,538
</TABLE>
/1Past/performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2Total/return has not been annualized. The PBHG Core Growth Fund commenced op-
erations on January 2, 1996.
* See Page 68 for a description of the Indexes.
PERFORMANCE
The fund became operational on January 2, 1996, and for the three months ended
March 31, 1996, produced a total return of 18.2% versus a return of 5.42% by its
benchmark, the Russell 3000 Index. The technology sector comprised roughly 26%
of the fund and accounted for 29% of the overall gain. Business services was the
next largest sector at 21%, followed by healthcare at 16%. These two sectors
accounted for 16% and 22%, respectively, of the fund's total return for the
quarter. The only other sector exposure of significance was consumer at 12%,
which accounted for a strong 26% of the overall gain.
PORTFOLIO HIGHLIGHTS
Of the 71 stocks owned during the three month period, 31 advanced more than 10%,
while 14 declined more than 10%. The top five performers were up an average of
56% while the bottom five, two of which were sold, were down an average of 26%.
The top five performers, representing three different sectors, were all driven
by the perception of improving business fundamentals leading to higher future
earnings. The bottom five performers, all technology sector stocks, were
hindered by the belief that earnings growth rates were in jeopardy because of
new competition entering the market, pricing pressure due to industry
overcapacity, or a slowdown in end-user demand for product. We believe the stock
price declines were not justified for three of these five companies, so we
continue to hold them in anticipation of a rebound.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
---------------------------- -------------------------
ACCUSTAFF C-CUBE MICROSYSTEMS
---------------------------- -------------------------
PMT SERVICES PICTURETEL
---------------------------- -------------------------
CORRECTIONS CORP. OF AMERICA COGNEX
---------------------------- -------------------------
NCS HEALTHCARE GLENAYRE TECHNOLOGIES
---------------------------- -------------------------
U.S. ROBOTICS MAXIM INTEGRATED PRODUCTS
13
<PAGE>
----------------------------------------
PBHG Select Equity Fund
----------------------------------------
OBJECTIVE: Long-term growth of capital
INVESTS IN: 25 to 30 companies of all sizes -- selected from many fields and
sectors -- that show outstanding promise
STRATEGY: The fund concentrates its investments in what we view as the best op-
portunities in our universe of approximately 1000 companies. At the end of the
period, the fund held the maximum number of 30 stocks ranging in size from $730
million (Atlas Air) to $17.4 billion (Computer Associates). The mean market
capitalization was $3.3 billion. The fund's size characteristics may vary dra-
matically from one time period to another, reflecting the inherent sensitivity
to changes in holdings of a highly concentrated portfolio.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Select
Equity Fund, versus the Russell 3000 Index and the Lipper Capital Appreciation
Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG Select Equity
Fund from April 30, 1995 through March 31, 1996 as compared with the growth of
$10,000 investments in the Russell 3000 Index and the Lipper Capital
Appreciation Funds Average over the same time period. The plot points are as
follows:
<TABLE>
<CAPTION>
4/30/95 6/95 9/95 12/95 3/96
<S> <C> <C> <C> <C> <C>
PBHG Select Equity Fund 10,000 11,686 14,546 15,512 17,329
Russell 3000 Index 10,000 10,757 11,758 12,256 12,919
Lipper Capital Appreciation
Funds Average 10,000 10,737 11,750 12,029 12,720
</TABLE>
/1/Pastperformance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2/Total return has not been annualized. The PBHG Select Equity Fund commenced
operations on April 5, 1995.
* See Page 68 for a description of the Indexes.
PERFORMANCE
Since inception on April 5, 1995 through March 31, 1996, the fund's total return
was 76.9%. This compares favorably with the return of 29.2% for the Russell 3000
Index and the return of 27.0% for the Lipper Capital Appreciation Funds Average
over the same time period. The technology sector had the largest representation
in the fund throughout the period, reaching a peak of 51% in September, which
was actively reduced to 37% by period end. Technology accounted for roughly 33%
of the gain in the period. Healthcare was the second largest sector, averaging
19%; it accounted for 26% of the fund's return. The consumer sector followed
with a 13% representation and contributed roughly 12% of the gain. Most of the
remaining gain came from the business services sector, with only modest
contributions from the financial, general manufacturing, basic industry and
transportation sectors.
PORTFOLIO HIGHLIGHTS
A total of 52 different stocks -- but not more than 30 at any one time -- were
held in the fund over the period. No sector was dominant among the best
performers. The top five included two consumer companies (America OnLine and
Tommy Hilfiger), one technology company (PeopleSoft, a maker of human resource
and accounting software for corporate client/server environments), one
healthcare company (Oxford Health, a health maintenance organization with a ma-
jor presence in New York City), and one business services company (Accustaff, a
temporary help firm).
Similar diversity existed among the bottom five performers, which included two
technology companies (Maxim Integrated Products, a manufacturer of specialty
semiconductors, and
14
<PAGE>
Picturetel, a marketer of video-conferencing systems), one healthcare company
(Sun Healthcare, a nursing home operator), one business services company
(ManPower, a temporary help firm), and one consumer company (Broderbund, a maker
of entertainment software).
All of the top five performers benefitted from strong sales and earnings growth
while three of the bottom five performers reported disappointing financial
results and were sold. The other two companies, Picturetel and Maxim, continued
to produce exceptional growth but their share prices were hurt by broad-based
concerns about the technology sector. These positions were retained in
anticipation of a recovery in share prices commensurate with our expectation for
continued strong sales and earnings growth.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
------------------- ----------------------
AMERICA ONLINE SUN HEALTHCARE
------------------- ----------------------
PEOPLESOFT PICTURETEL
------------------- ----------------------
TOMMY HILFIGER MANPOWER
------------------- ----------------------
OXFORD HEALTH MAXIM INTEGRATED
PRODUCTS
------------------- ----------------------
ACCUSTAFF BRODERBUND
15
<PAGE>
----------------------------------------
PBHG Large Cap Growth Fund
----------------------------------------
OBJECTIVE: Long-term growth of capital
INVESTS IN: High-growth companies, with above $1 billion market capitalization,
offering attractive capital appreciation opportunities
STRATEGY: The fund's larger company focus is intended to provide reduced short-
term volatility while still generating superior returns. As currently con-
structed, the fund's 63 holdings range from roughly $1 billion to $60 billion
in market capitalization, with an average capitalization of $6.8 billion. The
stock selection approach remains focused on the fundamental analysis of indi-
vidual companies, the strength of their products and/or services and their com-
petitive positioning. Sector exposure is determined solely by the selection of
the most attractive individual stocks, although a 40% sector limitation is in
place as a risk control measure.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Large Cap
Growth Fund, versus the Wilshire Small Cap Growth Index, the Russell 1000 Growth
Index and the Lipper Growth Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG Large Cap
Growth Fund from April 30, 1995 through March 31, 1996 as compared with the
growth of $10,000 investments in the Russell 1000 Growth Index and the Lipper
Growth Funds Average over the same time period. The plot points are as follows:
<TABLE>
<CAPTION>
4/30/95 6/95 9/95 12/95 3/96
<S> <C> <C> <C> <C> <C>
PBHG Large Cap Growth Fund 10,000 10,920 13,160 13,382 14,992
Russell 1000 Growth Index 10,000 10,748 11,724 12,259 12,917
Lipper Growth Funds Average 10,000 10,738 11,664 11,945 12,587
</TABLE>
/1/Pastperformance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2/Total return has not been annualized. The PBHG Large Cap Growth Fund com-
menced operations on April 5, 1995.
* See Page 68 for a description of the Indexes.
PERFORMANCE
Since inception on April 5, 1995 through March 31, 1996, the fund's total return
was 49.9%, which compares favorably with the return of 29.2% for the Russell
1000 Growth Index over the same time period. The technology sector was the
fund's largest, averaging 32% and ending the period at 27% of the portfolio.
Technology holdings contributed 22% of the period's return with almost all of
the sector's gain coming in the first five months. The healthcare sector was the
biggest contributor to overall performance, accounting for 28% of the total gain
while comprising 19% of the portfolio. The business services sector expanded its
relative position steadily through the period, representing 18% on March 31,
1996; it contributed 12% of the fund's total return, most of which came in the
second half of the period. The consumer sector, at 17% of the fund, was
responsible for 18% of the return. The balance of the overall gain was provided
by modest positions in the financial, basic industry and general manufacturing
sectors.
PORTFOLIO HIGHLIGHTS
The fund's best performers in the period were from diverse industry segments,
which is consistent with our "bottom-up" investment approach. Our ten best
stocks included three companies from different segments of the healthcare
sector, two unrelated consumer companies, two non-competing technology
companies, two very different business services providers, and one diversified
conglomerate. Our top five performers were up an aver-
16
<PAGE>
age of 74%. The bottom five, two of which were sold, were down an average of
23%.
In addition to reporting strong financial results, the fund's top five
performers all demonstrated a strengthening of their respective fundamental
business characteristics suggesting, at a minimum, the sustainability of recent
growth trends. More importantly, it establishes strong potential for
acceleration going forward. The bottom five performers faltered for a variety of
reasons but in only two cases, Sensormatic and LSI Logic, did we feel that
deteriorating fundamentals warranted sale.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
------------------- ----------------------
OXFORD HEALTH BAY NETWORKS
------------------- ----------------------
ACCUSTAFF SENSORMATIC
------------------- ----------------------
THERMO ELECTRON LSI LOGIC
------------------- ----------------------
AMERICA ONLINE ADC TELECOMMUNICATIONS
------------------- ----------------------
MEDTRONIC MICROWAREHOUSE
17
<PAGE>
----------------------------------------
PBHG Technology & Communications Fund
----------------------------------------
OBJECTIVE: Long-term growth of capital
INVESTS IN: Companies in all fields that could create or benefit from advances
in scientific or technological areas
STRATEGY: The fund's strategy is to be invested in technology and related com-
panies exhibiting extraordinary rates of growth in earnings and revenues with
high profitability levels. The average company in the portfolio has grown earn-
ings 66.2% over the past twelve months with a 23.9% return on equity, and we
continue to believe the technology-related area will represent one of the fast-
est growing sectors of the U.S. economy.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG Technology
& Communications Fund, versus the Pacific Stock Exchange High Technology Index,
and the Lipper Science and Technology Funds Average.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG Technology &
Communications Fund from September 30,1995 through March 31, 1996 as compared
with the growth of $10,000 investments in the Pacific Stock Exchange High
Technology Index and the Lipper Science & Technology Funds Average over the same
time period. The plot points are as follows:
<TABLE>
<CAPTION>
9/30/95 10/95 11/95 12/95 1/96 2/96 3/96
<S> <C> <C> <C> <C> <C> <C> <C>
PBHG Technology &
Communications Fund 10,000 10,800 11,720 11,602 11,461 12,562 12,481
Pacific Stock Exchange High
Technology Index 10,000 10,057 10,210 9,919 10,154 10,451 9,899
Lipper Science & Technology
Funds Average 10,000 9,788 9,860 9,430 9,380 9,840 9,484
</TABLE>
/1/Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2/Total return has not been annualized. The PBHG Technology & Communications
Fund commenced operations on October 2, 1995.
* See Page 68 for a description of the Indexes.
PERFORMANCE
The fund became operational October 2, 1995. In its first six months ended March
31, 1996, the fund produced a total return of 24.8% versus -1.01% for its
benchmark, the Pacific Stock Exchange High Technology Index. Software,
internetworking, design manufacturing automation, data communications,
transaction processing and healthcare contract research industries provided the
majority of the positive results. Semiconductors, semiconductor equipment and
hardware (PCs, servers, peripherals) stocks were underperformers over the
period.
PORTFOLIO HIGHLIGHTS
The fund's top five performers from date of initial purchase produced an average
gain in excess of 100% and all experienced better than expected earnings and
subsequent positively revised earnings and growth expectations. Alantec was
acquired by Fore Systems propelling its stock appreciation. The losers, with the
exception of Ultratech Stepper, experienced earnings disappointments and have
been sold out of the portfolio. Ultratech continues to perform fundamentally
well in a suspect industry segment -- semiconductor equipment. Going forward, we
see opportunities in enterprise, application, development tool and design
manufacturing software companies. The corporate computing market has been
shifting from centralized host-based computing systems dominated by the major
hardware suppliers to distributed, client/server systems led by a variety of
internetworking and software vendors.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
------------------- ----------------------
CALIFORNIA AMPLIFIER FTP SOFTWARE
------------------- ----------------------
QUINTILES TRANSNATIONAL VTEL
------------------- ----------------------
ALANTEC DISCRETE LOGIC
------------------- ----------------------
REMEDY ULTRATECH STEPPER
------------------- ----------------------
BUSINESS OBJECTS NETMANAGE
------------------- ----------------------
18
<PAGE>
----------------------------------------
PBHG International Fund
----------------------------------------
OBJECTIVE: Long-term capital appreciation
INVESTS IN: Non-U.S. companies of all sizes in developed and emerging countries
STRATEGY: After being appointed as sub-adviser to the fund in June 1995, Murray
Johnstone made various changes to the portfolio to raise the exposure to larger
and more liquid securities and reduce the country spread and number of hold-
ings. Where smaller companies already in the portfolio were favored, those se-
curities were retained.
[LINE GRAPH APPEARS HERE]
Comparison of Change in the Value of a $10,000 Investment in the PBHG
International Fund, versus the F.T. Actuaries World Index, Non-U.S., in U.S.
Dollars.
A line graph depicting the total growth (including reinvestment of dividends and
capital gains) of a hypothetical investment of $10,000 in the PBHG International
Fund from June 30, 1994 through March 31, 1996 as compared with the growth of a
$10,000 investment of the F.T. Actuaries World Index, Non-U.S., in U.S. Dollars
over the same time period. The plot points are as follows:
<TABLE>
<CAPTION>
6/30/94 3/95 3/96
<S> <C> <C> <C>
PBHG International Fund 10,000 9,203 10,634
F.T. Actuaries World Index
Non-U.S., in U.S. Dollars 10,000 10,007 11,274
</TABLE>
/1/Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their origi-
nal cost.
/2/The PBHG International Fund commenced operations on June 14, 1994.
* See Page 68 for a description of the Indexes.
PERFORMANCE
For the year ended March 31, 1996, the fund produced a return of 15.6% versus
12.7% returned by its benchmark, the F.T. Actuaries World Index, Non-U.S., in
U.S. Dollars. On March 31, 1996, the top five country weightings were Japan,
Hong Kong, France, Italy and Singapore.
PORTFOLIO HIGHLIGHTS
The important feature of the period was the shift in investor sentiment in the
United States following a sustained period of out-performance by Wall Street. In
the fourth quarter of 1995, investors began to increase their exposure to
European, Asian and Latin American markets, which had lagged early in the year.
The larger markets -- the Netherlands, Spain, Switzerland and Hong Kong -- were
the primary beneficiaries of this trend. The fund was well-positioned for these
circumstances, since Spain and Hong Kong were two of the markets on which we had
been focusing and which were overweighted in the portfolio.
While raising the weighting of the Far East, we had also been adding to our
investments in Japan -- after trimming back in the third quarter -- in
anticipation of the recovery of that market in 1996. Although the first quarter
of 1996 was a dull one for the Tokyo market, we have seen progress in the
resolution of the bankrupt housing loan companies, a major problem overshadowing
the financial markets. Once this issue and the bad loans of the banks have been
resolved, the Tokyo market can focus on the positive macro-economic background:
a steadily recovering economy, rising corporate profits and virtually no
inflation.
During the nine month period in which Murray Johnstone has been the fund's sub-
adviser, the top five performers showed an average gain of 92%. The bottom five
performers had an average loss of 19%.
All the best performing stocks were in Europe and were the result of investors
seeking growth in dull markets. Where a stock was dis-
19
<PAGE>
----------------------------------------
PBHG International Fund (continued)
----------------------------------------
covered, its price has risen more than would have been expected due to demand.
The underperforming stocks represented the reverse of the above theme: where
companies failed to deliver expected earnings, the securities were sold.
The portfolio's sector allocations vary within each market. But in general,
European securities are cyclical/interest rate sensitive companies looking for
an easier monetary environment. Strong growth in the Far East is leading us to a
variety of real estate and financials. In Japan, we have been moving away from
defensive companies to cyclicals and manufacturers geared to the recovery of the
economy.
TOP FIVE PERFORMERS BOTTOM FIVE PERFORMERS
-------------------- ----------------------
FRESENIUS -- GERMANY OLIVETTI -- ITALY
-------------------- ----------------------
BULGARI -- ITALY LEGRIS INDUSTRIES --
FRANCE
-------------------- ----------------------
HERMES INTERNATIONAL ARGYLL GROUP -- UK
-- FRANCE
-------------------- ----------------------
GAS NATURAL -- SPAIN AGF -- FRANCE
-------------------- ----------------------
BRE -- POLAND ALLIED IRISH BANKS --
IRELAND
20
<PAGE>
----------------------------------------
PBHG Cash Reserves Fund
----------------------------------------
OBJECTIVE: Capital preservation, liquidity, and current income
INVESTS IN: Money market securities
STRATEGY: The fund's strategy is to be fully invested in a diversified portfo-
lio of short-term, high-quality money market securities.
[BAR GRAPH APPEARS HERE]
Comparison of the 1 year yield, as of March 31, 1996, for the PBHG Cash Reserves
Fund and the Lipper Money Market Average.
A bar graph comparing the 1 year yield, as of March 31, 1996, of the PBHG Cash
Reserves Fund to the Lipper Money Market Average. The plot points are as
follows:
<TABLE>
<S> <C>
PBHG Cash Reserves Fund 5.25
Lipper Money Market Average 5.23
</TABLE>
PERFORMANCE
For the year ended March 31, 1996, the PBHG Cash Reserves Fund yielded 5.25%
compared to 5.23% for the Lipper Money Market Average. The key to the Fund's
investment strategy was managing the average maturity of the portfolio during a
time of changing interest rates, as well as taking advantage of some higher-
yielding sectors of the money market arena.
PORTFOLIO HIGHLIGHTS
The Federal Reserve has moved short-term rates around considerably over the past
15 months. In February 1995, the Federal Reserve raised the Federal Funds rate
by 50 basis points, and then subsequently eased it by 25 basis points in both
July and December, followed by a 25 basis point decrease in January of this
year. These movements came in response to the Federal Reserve's evaluation of
the pace of the economy.
For most of the latter part of 1995, signs of slow economic growth pointed to a
favorable inflation backdrop with ample cushion in real interest rates for the
bank to stimulate growth modestly. At year end, market psychology was positive
as the consumer sector was showing signs of stress, notable when analyzing debt
levels, tax burdens and spending patterns. In addition, the widespread
anticipation of progress toward deficit reduction and a balanced budget were
positive factors in fixed-income markets. Since that time, more mixed economic
signals, have had a negative effect on the fixed-income markets and have reduced
the degree to which the overnight money market securities out-yielded 3-month or
slightly longer securities.
In this environment, we believe that the PBHG Cash Reserves Fund's slightly
longer maturity stance, together with investments in higher-yielding money
market securities such as floating rate notes, will benefit shareholders looking
for safety, liquidity and a slightly higher yield.
21
<PAGE>
As of March 31, 1996
----------------------------------------------------------------------------
Statement of Net Assets The PBHG Funds, Inc.
----------------------------------------------------------------------------
--------------------------------------------------
PBHG Growth Fund
--------------------------------------------------
[GRAPH APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG
Growth Fund. The breakdown is as follows:
Technology: 33%
Consumers: 20%
Health Care: 17%
Service: 14%
Transportation: 1%
Financial: 3%
Industrial/General Manufacturing: 2%
Energy: 1%
Repurchase Agreements: 9%
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
Market
Description Shares Value (000)
- - ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCK-91.1%
APPAREL-2.1%
Nautica Enterprises* 618,650 $ 29,541
Tommy Hilfiger* 837,200 38,406
----------
67,947
- - ----------------------------------------------------------------
AUTOMATED DATA COLLECTION-0.7%
Zebra Technology* 884,500 23,439
- - ----------------------------------------------------------------
BIOTECHNOLOGY-1.0%
Idexx Laboratories* 770,700 32,369
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------
Market
Description Shares Value (000)
- - ----------------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
CLIENT/SERVER SOFTWARE-4.7%
Applix* 332,800 $ 11,648
Arbor Software* 191,700 8,291
Astea
International* 209,100 6,168
Atria Software* 614,600 33,649
Clarify* 302,400 11,869
Computron
Software* 122,700 736
Legato Systems* 440,200 16,618
Peoplesoft* 719,800 41,390
Remedy* 422,750 23,885
----------
154,254
</TABLE>
23
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------
Market
Description Shares Value (000)
-----------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
COMMERCIAL SERVICES-1.7%
Catalina Marketing* 223,800 $ 17,484
Gartner Group, Cl A* 637,800 38,906
----------
56,390
-----------------------------------------------------------
COMMUNICATION SERVICES-1.3%
APAC Teleservices* 158,000 11,258
Sitel* 388,700 17,588
TCA Cable TV 515,100 15,002
----------
43,848
-----------------------------------------------------------
COMPONENTS-1.3%
Coherent* 442,300 18,797
Cyberoptics* 231,500 6,656
Teltrend* 350,100 15,930
----------
41,383
-----------------------------------------------------------
CONNECTORS-0.4%
Cable Design Technologies* 406,500 14,939
-----------------------------------------------------------
CONSUMER PRODUCTS-MISCELLANEOUS-1.2%
Cidco* 780,400 25,168
Oakley* 391,900 14,794
----------
39,962
-----------------------------------------------------------
CONTRACT MANUFACTURING-1.7%
HADCO* 327,900 10,001
Kent Electronics* 480,800 17,008
Sanmina* 937,500 27,891
----------
54,900
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Market
Description Shares Value (000)
-----------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
CONTRACT RESEARCH-1.0%
Quintiles Transnational* 484,200 $ 31,473
-----------------------------------------------------------
CORRECTIONAL SERVICES-1.4%
Corrections of America* 808,400 46,079
-----------------------------------------------------------
DATA COMMUNICATIONS-3.5%
Dialogic* 356,800 15,075
Picturetel* 792,200 24,558
TCSI* 603,800 18,416
US Robotics* 448,900 58,020
----------
116,069
-----------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION-3.1%
Cognex* 1,331,900 34,130
EPIC Design Technology* 109,000 3,331
Filenet* 644,800 37,237
Parametric Technology* 685,000 26,801
----------
101,499
-----------------------------------------------------------
DISTRIBUTED SYSTEMS/SOFTWARE-0.1%
Veritas Software* 58,300 1,887
-----------------------------------------------------------
DRUGS-0.6%
Watson Pharmaceuticals* 502,500 20,100
-----------------------------------------------------------
EDUCATIONAL SERVICES-1.0%
Apollo Group, Cl A* 839,750 32,750
</TABLE>
24
<PAGE>
---------------------------------------
The PBHG Funds, Inc.
---------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
EMPLOYMENT SERVICES-1.6%
Accustaff* 1,419,100 $ 35,832
Alternative Resources* 504,200 16,387
----------
52,219
- - -------------------------------------------------------
ENVIRONMENTAL-3.2%
Ionics* 518,100 21,631
Sanifill* 779,100 29,898
United Waste Systems* 616,600 30,829
US Filter* 811,700 22,728
----------
105,086
- - -------------------------------------------------------
FINANCIAL-MISCELLANEOUS-2.2%
ContiFinancial* 815,000 25,469
The Money Store 1,739,450 48,487
----------
73,956
- - -------------------------------------------------------
GRAPHICS/IMAGE PROCESSING-0.9%
Electronics For Imaging* 721,100 31,368
- - -------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES-1.3%
Access Health Marketing* 557,250 21,594
Medaphis* 419,800 20,360
----------
41,954
- - -------------------------------------------------------
HEALTH CARE-SUPPLIES-0.6%
Gulf South Medical Supply* 151,000 5,700
Physician Sales & Services* 493,000 12,202
Research Medical* 154,800 3,560
----------
21,462
- - -------------------------------------------------------
INFORMATION SYSTEMS-1.3%
Medic Computer Sytems* 550,300 41,685
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
INFORMATION/FINANCIAL SERVICES-0.6%
Fair Isaac 476,700 $ 14,301
Kronos* 284,500 7,255
----------
21,556
- - -------------------------------------------------------
INSURANCE-1.0%
HCC Insurance Holdings* 243,000 13,335
Vesta Insurance Group 609,250 19,876
----------
33,211
- - -------------------------------------------------------
INTERNETWORKING-6.6%
Ascend Communications* 1,557,800 83,929
Cascade Communications* 483,400 43,385
Fore Systems* 814,500 58,237
Premisys Communications* 512,100 16,643
Shiva* 195,700 17,760
----------
219,954
- - -------------------------------------------------------
LEISURE-0.6%
Callaway Golf 793,100 21,215
- - -------------------------------------------------------
LODGING-1.1%
Doubletree* 532,900 14,588
HFS* 463,800 22,552
----------
37,140
- - -------------------------------------------------------
MANAGED CARE-DENTAL-0.6%
Orthodontic Centers of
America* 716,900 21,507
- - -------------------------------------------------------
MEDICAL DEVICES-1.0%
Target Therapeutics* 376,700 22,837
Thermo
Cardiosystems* 168,500 11,416
----------
34,253
</TABLE>
25
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
MEDICAL EQUIPMENT-1.0%
Lunar* 433,400 $ 18,528
Steris* 454,000 13,620
----------
32,148
- - -------------------------------------------------------
MULTI-INDUSTRY-0.4%
Fastenal 307,600 11,843
- - -------------------------------------------------------
NETWORKING SECURITY-0.4%
Security Dynamics
Technology* 224,700 11,909
- - -------------------------------------------------------
NETWORKING SOFTWARE-1.1%
McAfee Associates* 665,150 36,417
- - -------------------------------------------------------
NON-DURABLES-0.9%
Blyth Industries* 866,300 28,804
- - -------------------------------------------------------
PATIENT CARE-HEALTH PLAN-1.4%
Healthsource* 1,204,000 46,655
- - -------------------------------------------------------
PATIENT CARE-HOME-0.9%
American Medical
Response* 861,000 30,566
- - -------------------------------------------------------
PATIENT CARE-HOSPITAL-0.9%
Health Management
Associates, Cl A* 878,600 30,751
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
PHARMACEUTICAL SERVICES-1.8%
Express Scripts, Cl A* 393,800 $ 18,410
Omnicare 763,900 41,155
----------
59,565
- - -------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT-3.4%
American Oncology
Resources* 439,000 18,658
Medpartners/Mullikin* 715,300 20,386
Pediatrix Medical Group* 247,300 8,779
PhyCor* 1,190,075 52,363
Physician Reliance
Network* 329,800 13,068
----------
113,254
- - -------------------------------------------------------
RADIO/TELEVISION-1.7%
Clear Channel
Communications* 714,950 40,395
Emmis Broadcasting* 381,100 14,672
----------
55,067
- - -------------------------------------------------------
RESTAURANTS-2.3%
Boston Chicken* 929,300 31,654
Landry's Seafood
Restaurants* 879,500 16,051
Papa John's International* 598,500 26,708
----------
74,413
- - -------------------------------------------------------
RETAIL-APPAREL-0.6%
Men's Wearhouse* 620,800 19,555
</TABLE>
26
<PAGE>
---------------------------------------
The PBHG Funds, Inc.
---------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
RETAIL-CATALOG-2.4%
CDW Computer Centers* 476,200 $ 24,048
Global DirectMail* 330,300 11,519
Micro Warehouse* 600,000 24,900
MSC Industrial Direct* 585,200 16,898
----------
77,365
- - -------------------------------------------------------
RETAIL-HOME FURNISHINGS-1.3%
Bed Bath & Beyond* 786,000 41,462
- - -------------------------------------------------------
RETAIL-OFFICE PRODUCTS-3.1%
Boise Cascade Office
Products* 298,400 19,508
Corporate Express* 961,400 31,726
Officemax* 1,291,900 31,329
US Office Products* 585,900 18,163
----------
100,726
- - -------------------------------------------------------
RETAIL-SPECIALTY-3.5%
CompUSA* 414,400 22,947
General Nutrition* 1,513,200 37,830
Just For Feet* 166,750 6,941
Sunglass Hut
International* 1,455,600 48,217
----------
115,935
- - -------------------------------------------------------
SEMICONDUCTOR MANUFACTURING-4.9%
Altera* 445,300 24,881
C-Cube Microsystems* 949,700 49,859
DSP Communications* 494,600 12,365
Level One Communications* 482,800 13,398
Maxim Integrated Products* 965,900 29,943
Oak Technology* 963,200 20,709
S3* 907,900 10,838
----------
161,993
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SERVICE/EQUIPMENT-0.9%
Input/Output* 921,800 $ 28,576
- - -------------------------------------------------------
SOFTWARE-GENERAL-2.1%
Desktop Data* 234,250 8,609
Inso* 267,400 12,334
Macro Media* 956,700 40,899
Pure Software* 196,300 6,772
----------
68,614
- - -------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED
RESELLERS-0.9%
Cambridge Technology
Partners* 500,600 28,597
- - -------------------------------------------------------
TELECOMMUNICATION EQUIPMENT-0.3%
Coherent Communications
Systems* 425,100 8,827
- - -------------------------------------------------------
TRANSACTION PROCESSING-2.1%
Concord EFS* 1,530,750 40,564
National Data 879,900 30,027
----------
70,591
- - -------------------------------------------------------
TRANSPORTATION-SURFACE-0.9%
Fritz* 762,600 29,741
- - -------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING-2.5%
Aspect Telecommunications* 837,800 38,329
Comverse Technology* 740,000 17,853
Octel Communications* 574,900 27,739
----------
83,921
----------
Total Common Stock
(Cost $2,074,035,894) 3,003,149
</TABLE>
27
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS-9.1%
Nomura
Securities 5.43%,
dated 03/29/96, matures
04/01/96, repurchase
price $158,415,490
(collateralized by
various FHLMC
obligations, total par
value $349,254,537,
0.00%-782.50%,
09/15/06-05/15/25:
FNMA obligations,
total par value
$651,216,047, 0.00%-
876.787%, 09/25/04-
04/25/24: total
market value
$161,511,717)(A) $158,345 $ 158,345
UBS Securities 5.43%,
dated 03/29/96, matures
04/01/96, repurchase
price $142,501,649
(collateralized by
various FHLMC
obligations, total par
value $125,935,000,
6.00%-7.00%,
07/15/18-12/15/21:
FNMA obligations,
total par value
$62,529,581, 5.625%-
9.844%, 11/25/07-
10/25/22: total
market value
$146,711,902)(A) 142,438 142,438
----------
Total Repurchase Agreements
(Cost $300,782,899) 300,783
----------
Total
Investments-100.2%
(Cost $2,374,818,793) 3,303,932
----------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES-(0.2%)
Other Assets and Liabilities, Net $ (5,007)
- - -------------------------------------------------------
NET ASSETS:
Fund shares (authorized 200 million
shares-$0.001 par value) based on
130,418,049 outstanding shares of
common stock 2,437,595
Accumulated net realized
loss on investments (67,783)
Net unrealized appreciation on
investments 929,113
----------
Total Net Assets-100.0% $3,298,925
==========
Net Asset Value, Offering
Price and Redemption
Price Per Share $ 25.30
==========
</TABLE>
- - -------
* Non-income producing security
(A)-Tri-party repurchase agreement
Cl-Class
FHLMC-Federal Home Loan Mortgage Corporation
FNMA-Federal National Mortgage Association
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
- - -----------------------------------------------------------------------------
The PBHG Funds, Inc.
- - -----------------------------------------------------------------------------
----------------------------------------
PBHG Emerging Growth Fund
----------------------------------------
[GRAPH APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG
Emerging Growth Fund. The breakdown is as follows:
Technology: 40%
Consumers: 12%
Health Care: 21%
Service: 8%
Transportation: 1%
Industrial/General Manufacturing: 3%
Repurchase Agreement: 15%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-86.7%
AUTOMATED DATA COLLECTION-0.5%
Trident International* 165,700 $ 3,148
- - -------------------------------------------------------
CLIENT/SERVER SOFTWARE-13.7%
Advent Software* 212,400 4,195
Applix* 441,100 15,439
Arbor Software* 171,100 7,400
Astea International* 337,700 9,962
Atria Software* 250,400 13,709
Clarify* 232,800 9,137
Datastream Systems* 281,700 6,127
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
CLIENT/SERVER SOFTWARE-CONTINUED
Legato Systems* 309,200 $ 11,672
Project Software
& Development* 444,050 16,987
--------
94,628
- - -------------------------------------------------------
COMMERCIAL SERVICES-1.5%
American List 119,300 3,759
META Group* 115,800 3,271
Motorcar Parts & Accesories* 208,600 3,285
--------
10,315
</TABLE>
29
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Emerging Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
COMMUNICATION SERVICES-0.9%
Sitel* 128,800 $ 5,828
- - -------------------------------------------------------
COMPONENTS-2.8%
Coherent Communications
Systems* 407,700 8,466
Cyberoptics* 296,475 8,524
II-VI* 168,900 2,027
--------
19,017
- - -------------------------------------------------------
CONSUMER PRODUCTS-MISCELLANEOUS-0.7%
Day Runner* 124,200 3,229
USA Detergents* 58,600 1,905
--------
5,134
- - -------------------------------------------------------
CONSUMER SERVICES-1.7%
Veterinary Centers of
America* 423,300 11,429
- - -------------------------------------------------------
CONTRACT MANUFACTURING-1.2%
Altron* 288,200 8,394
- - -------------------------------------------------------
CONTRACT RESEARCH-1.7%
Parexel International* 67,800 2,932
Pharmaceutical Product
Development* 225,200 7,939
Quintiles Transnational* 12,400 806
--------
11,677
- - -------------------------------------------------------
DATA COMMUNICATIONS-1.1%
Microcom* 260,300 7,776
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
DESIGN/MANUFACTURING AUTOMATION-2.6%
EPIC Design Technology* 418,200 $ 12,781
LeCroy* 173,000 2,509
Softdesk* 200,800 2,711
--------
18,001
- - -------------------------------------------------------
DIGITAL MEDIA-3.1%
Data Translation* 443,600 7,319
Pinnacle Systems* 354,400 7,088
Videoserver* 280,000 7,070
--------
21,477
- - -------------------------------------------------------
DISTRIBUTED SYSTEMS/SOFTWARE-1.2%
Veritas Software* 257,800 8,346
- - -------------------------------------------------------
EDUCATIONAL SERVICES-0.5%
Apollo Group, Cl A* 95,700 3,732
- - -------------------------------------------------------
EMPLOYMENT SERVICES-2.5%
Alternative
Resources* 249,400 8,106
On Assignment* 187,900 7,140
Right Management
Consultants* 77,600 2,289
--------
17,535
- - -------------------------------------------------------
ENVIRONMENTAL-0.7%
Superior
Services* 88,100 1,167
Tetra Tech* 172,500 3,838
--------
5,005
</TABLE>
30
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
FOOD & BEVERAGE-0.6%
Pete's Brewing* 232,400 $ 4,358
- - -------------------------------------------------------
GRAPHICS/IMAGE PROCESSING-1.3%
In Focus Systems* 257,700 9,036
- - -------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES-2.9%
ABR Information
Services* 215,050 10,000
Access Health
Marketing* 251,100 9,730
--------
19,730
- - -------------------------------------------------------
HEALTH CARE-SUPPLIES-4.4%
Gulf South
Medical Supply* 365,700 13,805
Maxxim Medical* 229,200 4,326
Physician Sales
& Services* 479,100 11,858
--------
29,989
- - -------------------------------------------------------
INFORMATION SYSTEMS-1.8%
Imnet Systems* 227,300 6,875
PHAMIS* 334,300 5,600
--------
12,475
- - -------------------------------------------------------
INFORMATION/FINANCIAL SERVICES-1.1%
Fair Isaac 49,100 1,473
Kronos* 246,000 6,273
--------
7,746
- - -------------------------------------------------------
MACHINERY/EQUIPMENT-1.4%
Greenwich Air Services 219,100 9,312
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
MANAGED CARE-DENTAL-2.6%
Compdent* 118,200 $ 4,255
Orthodontic Centers of
America* 459,400 13,782
--------
18,037
- - --------------------------------------------------------
MEDICAL DEVICES-3.7%
CNS* 101,100 2,515
CONMED* 233,300 5,716
Daig* 127,500 3,076
Target
Therapeutics* 236,100 14,313
--------
25,620
- - --------------------------------------------------------
NETWORKING SECURITY-2.0%
Security Dynamics
Technology* 262,000 13,886
- - --------------------------------------------------------
PATIENT CARE-HOME-1.2%
Pediatric Services of
America* 336,300 8,534
- - --------------------------------------------------------
PATIENT CARE-LONG TERM-0.7%
NCS HealthCare* 188,900 4,628
- - --------------------------------------------------------
PATIENT CARE-SPECIALIZED-1.7%
Renal Treatment
Centers* 505,800 12,013
- - --------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT-1.0%
Medpartners/Mullikin* 72,100 2,055
OccuSystems* 224,100 5,098
--------
7,153
</TABLE>
31
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Emerging Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
RESTAURANTS-3.2%
Longhorn Steaks* 149,000 $ 3,427
Manhattan Bagel* 166,800 3,878
Papa John's
International* 330,600 14,753
--------
22,058
- - --------------------------------------------------------
RETAIL-CATALOG-0.5%
Wilmar
Industries* 151,300 3,404
- - --------------------------------------------------------
RETAIL-OFFICE PRODUCTS-2.3%
US Office
Products* 506,400 15,698
- - --------------------------------------------------------
RETAIL-SPECIALTY-3.5%
Garden Ridge* 41,600 1,903
Just For Feet* 268,775 11,188
West Marine* 230,600 10,723
--------
23,814
- - --------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-2.5%
Brooks
Automation* 24,500 276
Helix Technology 269,200 7,570
IKOS Systems* 157,300 2,635
Integrated
Measurement
Systems* 65,300 1,020
PRI Automation* 139,100 3,408
Tylan General* 241,900 2,359
--------
17,268
- - --------------------------------------------------------
SEMICONDUCTOR MANUFACTURING-1.1%
DSP Communications* 310,400 7,760
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SOFTWARE-GENERAL-5.9%
Aspen
Technology* 332,600 $ 14,302
Desktop Data* 211,625 7,777
Inso* 284,800 13,136
Visio* 184,600 5,169
--------
40,384
- - -------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED
RESELLERS-1.7%
Brooktrout
Technology* 330,350 11,397
- - -------------------------------------------------------
TECHNOLOGY-MISCELLANEOUS-0.4%
Zoltek* 55,200 2,615
- - -------------------------------------------------------
TRANSACTION PROCESSING-0.3%
Transaction Network
Services* 62,725 2,195
- - -------------------------------------------------------
TRANSPORTATION-SURFACE-1.4%
Eagle USA
Airfreight* 352,700 9,787
- - -------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING-1.1%
Natural
Microsystems* 261,900 7,857
--------
Total Common Stock
(Cost $405,269,703) 598,196
</TABLE>
32
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS-15.0%
Nomura
Securities
5.43%, dated
03/29/96,
matures
04/01/96,
repurchase
price
$103,380,862
(collateralized
by FHLMC
obligations,
total par value
$265,220,462,
0.00%-989.975%,
08/15/97-
03/15/24: FNMA
obligations,
total par value
$882,185,120,
0.00%-985.50%,
09/25/00-
04/25/24: total
market value
$105,401,439)(A) $103,335 $103,335
--------
Total Repurchase Agreements
(Cost $103,334,743) 103,335
--------
Total Investments-101.7%
(Cost $508,604,446) 701,531
--------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES-(1.7%)
Other Assets and
Liabilities, Net $(11,826)
- - -------------------------------------------------------
NET ASSETS:
Fund shares
(authorized 200
million shares-
$0.001 par value)
based on
29,892,327
outstanding shares
of common stock 447,195
Accumulated net
realized gain on
investments 49,583
Net unrealized
appreciation on
investments 192,927
--------
Total Net Assets-
100.0% $689,705
========
Net Asset Value,
Offering Price and
Redemption Price
Per Share $ 23.07
========
</TABLE>
- - -------
* Non-income producing security
(A)-Tri-party repurchase agreement
Cl-Class
FHLMC-Federal Home Loan Mortgage Corporation
FNMA-Federal National Mortgage Association
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
As of March 31, 1996
- - ----------------------------------------------------------------------------
Statement of Net Assets
- - ----------------------------------------------------------------------------
----------------------------------------
PBHG Core Growth Fund
----------------------------------------
[GRAPH APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG Core
Growth Fund. The breakdown is as follows:
Technology: 26%
Consumers: 12%
Health Care: 16%
Service: 21%
Transportation: 3%
Industrial/General Manufacturing: 6%
Energy: 2%
Repurchase Agreement: 14%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-89.7%
APPAREL-1.5%
Mossimo* 6,800 $ 220
Tommy Hilfiger* 5,400 248
-------
468
- - -------------------------------------------------------
AUTO-RELATED-1.8%
Harley-Davidson 14,600 568
- - -------------------------------------------------------
BIOTECHNOLOGY-2.6%
Genzyme--General
Division* 4,100 226
Idexx
Laboratories* 14,000 588
-------
814
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
CLIENT/SERVER SOFTWARE-1.5%
Atria Software* 4,600 $ 252
HNC Software* 3,300 224
-------
476
- - -------------------------------------------------------
COMMERCIAL SERVICES-6.6%
DST Systems* 19,400 594
First Data 7,300 515
Gartner Group,
Cl A* 9,800 597
PMT Services* 14,700 353
-------
2,059
</TABLE>
34
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
COMMUNICATION SERVICES-1.5%
LCI International* 18,700 $ 458
- - -------------------------------------------------------
CONNECTORS-1.9%
Cable Design
Technologies* 16,000 588
- - -------------------------------------------------------
CORRECTIONAL SERVICES-1.5%
Corrections of
America* 8,200 467
- - -------------------------------------------------------
DATA COMMUNICATIONS-2.4%
Picturetel* 18,200 564
US Robotics* 1,400 181
-------
745
- - --------------------------------------------------------
DATABASE SOFTWARE-0.0%
Oracle* 100 5
- - --------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION-
5.8%
Cognex* 23,700 607
Parametric
Technology* 15,300 599
Synopsys* 18,900 605
-------
1,811
- - --------------------------------------------------------
DISTRIBUTED SOFTWARE/HARDWARE & PERIPHERALS-0.1%
Hewlett Packard 200 19
- - --------------------------------------------------------
DRUGS-1.8%
Pfizer 8,200 549
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
EMPLOYMENT SERVICES-1.3%
Accustaff* 16,200 $ 409
- - -------------------------------------------------------
ENVIRONMENTAL-6.6%
Sanifill* 13,700 526
Thermo Electron* 5,200 309
U.S. Filter* 21,700 608
United Waste
Systems* 12,000 600
-------
2,043
- - -------------------------------------------------------
GRAPHICS/IMAGE PROCESSING-2.2%
Electronics for
Imaging* 13,000 566
Xeikon NV ADR* 5,700 110
-------
676
- - -------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES-
0.9%
Access Health
Marketing* 7,500 291
- - -------------------------------------------------------
HEALTH CARE-SUPPLIES-0.9%
Physician Sales
& Services* 11,200 277
- - -------------------------------------------------------
INFORMATION/FINANCIAL SERVICES-1.7%
Paychex 9,200 538
- - -------------------------------------------------------
INTERNETWORKING-6.7%
Ascend
Communications* 8,100 436
Cascade
Communications* 4,700 422
Cisco Systems* 400 19
Fore Systems* 5,400 386
Shiva* 4,200 381
Stratacom* 12,300 450
-------
2,094
</TABLE>
35
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Core Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
LEISURE-1.8%
Regal Cinemas* 15,000 $ 555
- - -------------------------------------------------------
MANAGED CARE-DENTAL-2.3%
Orthodontic Centers of
America* 23,400 702
- - -------------------------------------------------------
MEDICAL DEVICES-1.6%
Target Therapeutics* 8,000 485
- - -------------------------------------------------------
NETWORKING SECURITY-2.3%
Raptor Systems* 5,200 155
Security Dynamics
Technology* 10,400 552
-------
707
- - -------------------------------------------------------
NETWORKING SOFTWARE-1.9%
McAfee Associates* 10,800 591
- - -------------------------------------------------------
NON-DURABLES-1.4%
Blyth Industries* 13,300 442
- - -------------------------------------------------------
PATIENT CARE-HEALTH PLAN-2.2%
Healthsource* 14,900 577
Oxford Health Plans* 1,300 114
-------
691
- - -------------------------------------------------------
PATIENT CARE-SPECIALIZED-1.1%
Healthsouth* 9,800 333
- - -------------------------------------------------------
PHARMACEUTICAL SERVICES-0.5%
NCS HealthCare* 5,800 142
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
PHYSICIAN PRACTICE
MANAGEMENT-3.6%
Pediatrix Medical Group* 15,000 $ 533
PhyCor* 13,200 580
-------
1,113
- - -------------------------------------------------------
PROCESSING TECHNOLOGY-1.9%
Thermedics* 21,000 593
- - -------------------------------------------------------
RADIO/TELEVISION-1.5%
Clear Channel Communications* 8,100 458
- - -------------------------------------------------------
RESTAURANTS-1.9%
Boston Chicken* 17,600 600
- - -------------------------------------------------------
RETAIL-CATALOG-1.7%
CDW Computer Centers* 10,400 525
- - -------------------------------------------------------
RETAIL-OFFICE PRODUCTS-1.5%
Corporate Express* 14,000 462
- - -------------------------------------------------------
RETAIL-SPECIALTY-2.8%
General Nutrition* 11,500 288
Sunglass Hut International* 18,000 596
-------
884
- - -------------------------------------------------------
SEMICONDUCTOR
MANUFACTURING-3.4%
Linear Technology 500 21
Maxim Integrated Products* 19,200 595
Xilinx* 14,300 454
-------
1,070
</TABLE>
36
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SERVICE/EQUIPMENT-1.8%
Input/Output* 17,600 $ 546
- - -------------------------------------------------------
SYSTEM INTEGRATORS/VALUE
ADDED RESELLERS-1.3%
Cambridge Technology
Partners* 7,000 400
- - -------------------------------------------------------
TELECOMMUNICATION
EQUIPMENT-0.7%
ADC Telecommunications* 6,800 235
- - -------------------------------------------------------
TRANSPORTATION-AIR-1.9%
Atlas Air* 15,900 596
- - -------------------------------------------------------
TRANSPORTATION-SURFACE-1.3%
Fritz* 10,400 406
--------
Total Common Stock
(Cost $26,497,046) 27,891
--------
- - -------------------------------------------------------
REPURCHASE AGREEMENTS-14.7%
Lehman Brothers
5.09%, dated 03/29/96,
matures 04/01/96,
repurchase price $4,586,000
(collateralized by U.S.
Treasury Note, par value
$4,520,837, 7.00%, 09/30/96:
market value
$4,715,627)(A) $4,584 $ 4,584
--------
Total Repurchase Agreements
(Cost $4,584,064) 4,584
--------
Total Investments-104.4%
(Cost $31,081,110) 32,475
--------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND
LIABILITIES-(4.4%)
Other Assets and Liabilities,
Net $(1,383)
- - -------------------------------------------------------
NET ASSETS:
Fund shares (authorized 200 million
shares-$0.001 par value) based on
2,630,647 outstanding shares
of common stock 29,746
Accumulated net investment loss (5)
Accumulated net realized loss on
investments (43)
Net unrealized appreciation on
investments 1,394
-------
Total Net Assets-100.0% $31,092
=======
Net Asset Value, Offering
Price and Redemption
Price Per Share $ 11.82
=======
</TABLE>
- - -------
*Non-income producing security
(A)-Tri-party repurchase agreement
ADR-American Depository Receipt
Cl-Class
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
----------------------------------------
PBHG Select Equity Fund
----------------------------------------
[PIE CHART APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG
Select Equity Fund. The breakdown is as follows:
Technology: 37%
Consumers: 13%
Health Care: 14%
Service: 14%
Financial: 4%
Transportation: 2%
Energy: 3%
Repurchase Agreements: 13%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-87.0%
APPAREL-2.7%
Tommy Hilfiger* 121,200 $ 5,560
- - -------------------------------------------------------
CLIENT/SERVER SOFTWARE-3.1%
PeopleSoft* 110,000 6,325
- - -------------------------------------------------------
COMMERCIAL SERVICES-2.7%
Gartner Group, Cl A* 90,000 5,490
- - -------------------------------------------------------
CORRECTIONAL SERVICES-3.3%
Corrections of America* 117,500 6,698
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
DATA COMMUNICATIONS-4.8%
Picturetel* 140,900 $ 4,368
US Robotics* 41,100 5,312
--------
9,680
- - -------------------------------------------------------
DESIGN/MANUFACTURING
AUTOMATION-6.2%
Cognex* 162,800 4,172
Parametric Technology* 212,700 8,322
--------
12,494
- - -------------------------------------------------------
EMPLOYMENT SERVICES-3.8%
Accustaff* 302,100 7,628
</TABLE>
38
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
FINANCIAL-MISCELLANEOUS-3.9%
The Money Store 286,125 $ 7,976
- - -------------------------------------------------------
INFORMATION SYSTEMS-1.9%
HBO 41,700 3,930
- - -------------------------------------------------------
INFORMATION/FINANCIAL
SERVICES-0.7%
Paychex 25,000 1,463
- - -------------------------------------------------------
INTERNETWORKING-10.1%
Ascend Communications* 152,300 8,205
Cisco Systems* 179,300 8,315
Fore Systems* 55,000 3,933
--------
20,453
- - -------------------------------------------------------
LODGING-3.6%
HFS* 148,800 7,235
- - -------------------------------------------------------
MEDICAL DEVICES-3.6%
Thermo Cardiosystems* 108,100 7,324
- - -------------------------------------------------------
NETWORKING SOFTWARE-3.4%
McAfee Associates* 127,100 6,959
- - -------------------------------------------------------
PATIENT CARE-HEALTH PLAN-1.7%
Oxford Health Plans* 40,300 3,536
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
PATIENT CARE-SPECIALIZED-2.4%
Healthsouth* 142,000 $ 4,828
- - -------------------------------------------------------
PHYSICIAN PRACTICE
MANAGEMENT-4.7%
PhyCor* 95,000 4,180
Physician Reliance Network* 134,300 5,322
--------
9,502
- - -------------------------------------------------------
RADIO/TELEVISION-3.5%
Clear Channel
Communications* 125,900 7,113
- - -------------------------------------------------------
RESTAURANTS-3.1%
Boston Chicken* 182,900 6,230
- - -------------------------------------------------------
RETAIL-CATALOG-3.9%
Viking Office Products* 140,600 7,821
- - -------------------------------------------------------
SEMICONDUCTOR
MANUFACTURING-6.1%
Altera* 143,700 8,029
Maxim Integrated Products* 142,200 4,408
--------
12,437
- - -------------------------------------------------------
SERVICE/EQUIPMENT-2.8%
Input/Output* 186,000 5,766
</TABLE>
39
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Select Equity Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Shares/Face Market
Description Amount(000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SYSTEM SOFTWARE-2.8%
Computer Associates
International 79,000 $ 5,658
- - -------------------------------------------------------
TRANSPORTATION-AIR-2.2%
Atlas Air* 117,100 4,391
--------
Total Common Stock
(Cost $156,461,747) 176,497
- - -------------------------------------------------------
REPURCHASE AGREEMENTS-13.2%
Nomura Securities 5.43%,
dated 03/29/96, matures
04/01/96, repurchase
price $26,697,267
(collateralized by
various FHLMC
obligations, total par
value $47,550,787,
0.00%-185.496%,
07/15/08-03/15/24:
FNMA obligations,
total par value
$70,322,473, 0.00%-
554.926%, 05/25/06-
03/01/26: total
market value
$27,219,065)(A) $26,685 26,685
--------
Total Repurchase Agreements
(Cost $26,685,357) 26,685
--------
Total Investments-100.2%
(Cost $183,147,104) 203,182
--------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND
LIABILITIES-(0.2%)
Other Assets and Liabilities, Net $ (386)
- - -----------------------------------
NET ASSETS:
Fund shares (authorized 200 million
shares-$0.001 par value) based on
11,746,005 outstanding shares of
common stock 177,430
Accumulated net realized gain on
investments 5,331
Net unrealized appreciation on
investments 20,035
--------
Total Net Assets-100.0% $202,796
========
Net Asset Value, Offering Price and
Redemption Price Per Share $ 17.27
========
</TABLE>
- - -------
* Non-income producing security
(A)-Tri-party repurchase agreement
Cl-Class
FHLMC-Federal Home Loan Mortgage Corporation
FNMA-Federal National Mortgage Association
The accompanying notes are an integral part of the financial statements.
40
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
----------------------------------------
PBHG Large Cap Growth Fund
----------------------------------------
[PIE CHART APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the Large
Cap Growth Fund. The breakdown is as follows:
Technology: 27%
Consumers: 17%
Health Care: 19%
Service: 18%
Financial: 5%
Transportation: 1%
Industrial/General Manufacturing: 2%
Repurchase Agreements: 11%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-89.9%
APPAREL-3.0%
Nike, Cl B 10,900 $ 886
Tommy Hilfiger* 15,900 729
-------
1,615
- - -------------------------------------------------------
AUTO FINANCE-0.6%
Credit Acceptance* 17,500 324
- - -------------------------------------------------------
AUTO-RELATED-1.0%
Harley-Davidson 14,400 560
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
BIOTECHNOLOGY-3.0%
Amgen* 10,900 $ 634
Genzyme-General Division* 9,600 528
Idexx Laboratories* 11,000 462
-------
1,624
- - -------------------------------------------------------
CLIENT/SERVER SOFTWARE-1.4%
PeopleSoft* 13,000 748
- - -------------------------------------------------------
COMMERCIAL SERVICES-6.2%
Computer Sciences* 14,700 1,033
DST Systems* 16,800 515
</TABLE>
41
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - -------------------------------------------------------
PBHG Large Cap Growth Fund (continued)
- - -------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
COMMERCIAL SERVICES-CONTINUED
First Data 13,700 $ 966
Gartner Group, Cl A* 13,600 830
-------
3,344
- - -------------------------------------------------------
COMMUNICATION SERVICES-2.8%
LCI International* 29,600 725
WorldCom* 17,200 791
-------
1,516
- - -------------------------------------------------------
CONSUMER PRODUCTS-
MISCELLANEOUS-0.9%
Gillette 9,300 481
- - -------------------------------------------------------
CONSUMER SERVICES-1.8%
America Online* 17,100 958
- - -------------------------------------------------------
CONTRACT RESEARCH-1.4%
Quintiles Transnational* 11,700 761
- - -------------------------------------------------------
CORRECTIONAL SERVICES-2.0%
Corrections of America* 18,800 1,072
- - -------------------------------------------------------
DATABASE SOFTWARE-1.2%
Informix* 24,800 654
Oracle* 300 14
-------
668
- - -------------------------------------------------------
DESIGN/MANUFACTURING
AUTOMATION-2.0%
Parametric Technology* 27,500 1,076
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
DISTRIBUTED SOFTWARE/HARDWARE
& PERIPHERALS-1.7%
Hewlett Packard 9,600 $ 902
- - -------------------------------------------------------
DRUGS-1.6%
Pfizer 12,800 858
- - -------------------------------------------------------
EMPLOYMENT SERVICES-1.5%
Accustaff* 31,800 803
- - -------------------------------------------------------
ENVIRONMENTAL-1.7%
Thermo Electron* 15,700 934
- - -------------------------------------------------------
FINANCIAL-MISCELLANEOUS-3.0%
First USA 10,900 617
The Money Store 35,100 979
-------
1,596
- - -------------------------------------------------------
HEALTH CARE-SUPPLIES-1.3%
Johnson & Johnson 7,894 728
- - -------------------------------------------------------
INFORMATION SYSTEMS-1.2%
HBO 6,700 631
- - -------------------------------------------------------
INFORMATION/FINANCIAL
SERVICES-2.1%
Paychex 19,200 1,123
- - -------------------------------------------------------
INTERNETWORKING-11.4%
Ascend Communications* 25,000 1,346
Bay Networks* 15,300 470
</TABLE>
42
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
INTERNETWORKING-CONTINUED
Cascade Communications* 12,300 $ 1,104
Cisco Systems* 22,300 1,034
Fore Systems* 12,300 879
Shiva* 7,400 672
Stratacom* 17,100 626
-------
6,131
- - -------------------------------------------------------
LODGING-1.5%
HFS* 17,000 827
- - -------------------------------------------------------
MEDICAL DEVICES-3.3%
Boston Scientific* 15,100 695
Medtronic 18,100 1,079
-------
1,774
- - -------------------------------------------------------
MORTGAGE RELATED-1.5%
MGIC Investment 15,000 818
- - -------------------------------------------------------
MULTI-INDUSTRY-0.9%
Danaher 13,500 500
- - -------------------------------------------------------
PATIENT CARE-HEALTH PLAN-3.0%
Healthsource* 22,500 872
Oxford Health Plans* 8,500 746
-------
1,618
- - -------------------------------------------------------
PATIENT CARE-SPECIALIZED-1.2%
Healthsouth* 18,600 632
- - -------------------------------------------------------
PHARMACEUTICAL SERVICES-1.5%
Omnicare 14,900 803
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
PHYSICIAN PRACTICE
MANAGEMENT-1.8%
PhyCor* 21,600 $ 950
- - -------------------------------------------------------
RADIO/TELEVISION-1.5%
Clear Channel Communications* 13,900 785
- - -------------------------------------------------------
RESTAURANTS-1.5%
Boston Chicken* 23,700 807
- - -------------------------------------------------------
RETAIL-CATALOG-2.5%
Micro Warehouse* 13,000 540
Viking Office Products* 14,100 784
-------
1,324
- - -------------------------------------------------------
RETAIL-OFFICE PRODUCTS-3.0%
Corporate Express* 25,600 845
Staples* 37,500 764
-------
1,609
- - -------------------------------------------------------
RETAIL-SPECIALTY-3.1%
General Nutrition* 28,200 705
Sunglass Hut International* 28,700 951
-------
1,656
- - -------------------------------------------------------
SEMICONDUCTOR
MANUFACTURING-5.7%
Altera* 17,000 950
Atmel* 19,000 485
Linear Technology 25,500 1,064
Xilinx* 17,700 562
-------
3,061
</TABLE>
43
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Large Cap Growth Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SYSTEM SOFTWARE-1.3%
Computer Associates
International 9,600 $ 688
- - -------------------------------------------------------
TELECOMMUNICATION
EQUIPMENT-2.4%
ADC Telecommunications* 21,000 724
Tellabs* 11,700 566
-------
1,290
- - -------------------------------------------------------
TRANSPORTATION-SURFACE-1.4%
Fritz* 18,900 737
-------
Total Common Stock
(Cost $44,765,686) 48,332
-------
- - -------------------------------------------------------
REPURCHASE AGREEMENTS-11.1%
Lehman Brothers 5.09%,
dated 03/29/96, matures
04/01/96, repurchase
price $5,948,414
(collateralized by
U.S. Treasury Note,
par value $5,863,884,
7.00%, 09/30/96:
market value
$6,116,539) (A) $5,946 5,946
-------
Total Repurchase Agreements
(Cost $5,945,892) 5,946
-------
Total Investments-101.0%
(Cost $50,711,578) 54,278
-------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES-(1.0%)
Other Assets and Liabilities, Net $ (519)
- - ----------------------------------
NET ASSETS:
Fund shares (authorized 200 million
shares-$0.001 par value) based on
3,701,084 outstanding shares of
common stock 50,058
Accumulated net realized gain on
investments 135
Net unrealized appreciation on
investments 3,566
-------
Total Net Assets-100.0% $53,759
=======
Net Asset Value, Offering Price and
Redemption Price Per Share $ 14.53
=======
</TABLE>
- - -------
* Non-income producing security
(A)-Tri-party repurchase agreement
Cl-Class
The accompanying notes are an integral part of the financial statements.
44
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
----------------------------------------
PBHG Technology & Communications Fund
----------------------------------------
[PIE CHART APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG
Technology & Communications Fund. The breakdown is as follows:
Technology: 70%
Consumers: 1%
Health Care: 5%
Service: 9%
Financial: 1%
Industrial/General Manufacturing: 2%
Energy: 2%
Repurchase Agreements: 10%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-90.9%
APPLICATION SOFTWARE &
SERVICES-0.0%
Citrix Systems* 600 $ 27
- - -------------------------------------------------------
AUTOMATED DATA COLLECTION-2.5%
Trident International* 50,200 954
Zebra Technology* 22,000 583
-------
1,537
- - -------------------------------------------------------
BIOTECHNOLOGY-1.1%
Genzyme-General Division* 12,000 660
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
CLIENT/SERVER SOFTWARE-9.8%
Astea International* 28,400 $ 838
Baan NV* 15,000 864
Gensym* 6,800 133
Hyperion Software* 23,400 509
PeopleSoft* 22,000 1,265
PowerCerv* 1,800 27
Project Software &
Development* 11,400 436
Red Brick Systems* 400 17
Remedy* 6,000 339
SQA* 700 19
Unison Software* 66,300 1,525
Workgroup Technology* 3,000 65
-------
6,037
</TABLE>
45
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - -------------------------------------------------------
PBHG Technology & Communications Fund (continued)
- - -------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
COMMERCIAL SERVICES-1.9%
CBT Group ADR* 5,000 $ 368
Data Processing Resources* 1,300 36
DST Systems* 10,000 306
IntelliQuest Information Group* 2,400 66
May & Speh* 28,200 317
Meta Group* 600 17
Sterling Commerce* 1,700 52
-------
1,162
- - -------------------------------------------------------
COMMUNICATION SERVICES-1.5%
WorldCom* 20,000 920
- - -------------------------------------------------------
COMPONENTS-1.4%
California Amplifier* 10,000 268
Coherent* 13,700 582
-------
850
- - -------------------------------------------------------
CONNECTORS-0.8%
Cable Design Technologies* 13,500 496
- - -------------------------------------------------------
CONTRACT MANUFACTURING-0.5%
Kent Electronics* 8,200 290
- - -------------------------------------------------------
CONTRACT RESEARCH-0.3%
Pharmaceutical Product
Development* 800 28
Quintiles Transnational* 2,900 189
-------
217
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
DATA COMMUNICATIONS-6.6%
Dialogic* 12,600 $ 532
Microcom* 10,700 320
Picturetel* 26,200 812
TCSI* 11,400 348
Tessco Technologies* 4,800 134
US Robotics* 15,000 1,939
-------
4,085
- - -------------------------------------------------------
DATABASE SOFTWARE-6.7%
Business Objects ADR* 21,000 1,785
Cognos* 42,100 2,389
-------
4,174
- - -------------------------------------------------------
DESIGN AUTOMATION/GRAPHICS-0.0%
Metatools* 1,600 30
- - -------------------------------------------------------
DESIGN/MANUFACTURING
AUTOMATION-9.5%
Cognex* 29,300 751
FileNet* 23,500 1,357
Integrated Systems* 8,900 429
LeCroy* 56,600 821
Parametric Technology* 54,000 2,112
Perceptron* 15,000 388
Visioneer* 1,100 17
-------
5,875
- - -------------------------------------------------------
DISTRIBUTED SOFTWARE/HARDWARE &
PERIPHERALS-1.9%
Sun Microsystems* 15,000 656
Telxon 24,000 510
-------
1,166
</TABLE>
46
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
ENVIRONMENTAL-0.4%
Tetra Tech* 11,100 $ 247
- - -------------------------------------------------------
FINANCIAL-MISCELLANEOUS-0.7%
ContiFinancial* 14,200 444
- - -------------------------------------------------------
GRAPHICS/IMAGE PROCESSING-2.2%
Electronics for Imaging* 25,100 1,092
Engineering Animation* 500 10
Xeikon NV ADR* 13,400 260
-------
1,362
- - -------------------------------------------------------
HEALTH CARE-MANAGEMENT
SERVICES-0.1%
Cohr* 2,500 41
- - -------------------------------------------------------
INFORMATION SYSTEMS-0.5%
Medic Computer Systems* 900 68
Physician Computer Networks* 17,100 233
-------
301
- - -------------------------------------------------------
INTERNETWORKING-10.0%
Bay Networks* 42,300 1,301
Cabletron Systems* 14,700 974
Cisco Systems* 55,000 2,549
Premisys Communications* 11,100 361
Stratacom* 28,000 1,026
-------
6,211
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
MEDICAL DEVICES-2.3%
CONMED* 16,000 $ 392
ESC Medical Systems* 30,900 1,066
-------
1,458
- - -------------------------------------------------------
MEDICAL EQUIPMENT-0.9%
ArthroCare* 800 18
Lunar* 12,300 525
-------
543
- - -------------------------------------------------------
NETWORKING SECURITY-1.4%
Raptor Systems* 700 21
Security Dynamics Technology* 15,800 837
-------
858
- - -------------------------------------------------------
NETWORKING SOFTWARE-2.5%
Cylink* 600 11
McAfee Associates* 27,800 1,522
-------
1,533
- - -------------------------------------------------------
PHARMACEUTICAL SERVICES-0.1%
NCS HealthCare* 1,700 42
- - -------------------------------------------------------
RADIO/TELEVISION-0.7%
Chancellor, Cl A* 1,500 33
Emmis Broadcasting* 9,900 381
-------
414
</TABLE>
47
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - -------------------------------------------------------
PBHG Technology & Communications Fund (continued)
- - -------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
RETAIL-CATALOG-0.7%
Micro Warehouse* 10,600 $ 440
- - -------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.4%
Ultratech Stepper* 12,900 227
- - -------------------------------------------------------
SEMICONDUCTOR
MANUFACTURING-4.3%
Altera* 25,000 1,397
Atmel* 22,900 584
DSP Communications* 7,800 195
Maxim Integrated Products* 15,300 474
-------
2,650
- - -------------------------------------------------------
SERVICE/EQUIPMENT-1.3%
Input/Output* 25,500 791
- - -------------------------------------------------------
SOFTWARE-GENERAL-4.6%
Pure Software* 10,300 355
Rational Software* 12,100 478
Tecnomatix Technologies* 99,000 1,337
Viasoft* 25,000 703
-------
2,873
- - -------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED
RESELLERS-3.1%
Cambridge Technology Partners* 21,500 1,229
Ciber* 12,800 419
Computer Horizons* 6,500 245
-------
1,893
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMON STOCK-CONTINUED
SYSTEM SOFTWARE-0.0%
OrCAD* 800 $ 9
- - -------------------------------------------------------
TELECOMMUNICATION
EQUIPMENT-5.6%
ADC Telecommunications* 25,000 863
Glenayre Technologies* 23,000 880
Omnipoint* 300 8
Premiere Technologies* 900 21
Stanford Telecommunications* 14,500 435
Tellabs* 24,300 1,175
TresCom International* 2,800 41
United States Satellite
Broadcasting* 700 23
-------
3,446
- - -------------------------------------------------------
TRANSACTION PROCESSING-1.8%
Concord EFS* 20,375 540
National Data 17,200 587
-------
1,127
- - -------------------------------------------------------
VOICE/CALL TRANSACTION
PROCESSING-2.8%
Aspect Telecommunications* 20,000 915
Comverse Technology* 33,800 815
-------
1,730
-------
Total Common Stock
(Cost $52,311,501) 56,166
-------
</TABLE>
48
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face Market
Description Amount(000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS-10.7%
Nomura Securities 5.43%,
dated 03/29/96, matures
04/01/96, repurchase
price $6,625,000
(collateralized by
various FHLMC
obligations, total par
value $30,420,410,
0.00%-8.00%,
06/01/22-07/01/22:
FNMA obligations,
total par value
$14,010,129, 8.00%,
08/01/22-04/01/24:
total market value
$6,754,544) (A) $6,662 $ 6,622
-------
Total Repurchase Agreements
(Cost $6,622,102) 6,622
-------
Total Investments-101.6%
(Cost $58,933,603) 62,788
-------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Value (000)
- - -------------------------------------------------------
<S> <C>
OTHER ASSETS AND LIABILITIES-(1.6%)
Other Assets and Liabilities, Net $(1,016)
- - -------------------------------------------------------
NET ASSETS:
Fund shares (authorized 200 million
shares-$0.001 par value) based on
4,951,621 outstanding shares of
common stock 58,185
Accumulated net realized loss on
investments (267)
Net unrealized appreciation on
investments 3,854
-------
Total Net Assets-100.0% $61,772
=======
Net Asset Value, Offering Price and
Redemption Price Per Share $ 12.48
=======
</TABLE>
- - -------
* Non-income producing security
ADR-American Depository Receipt
Cl-Class
FHLMC-Federal Home Loan Mortgage Corporation
FNMA-Federal National Mortgage Association
(A)Tri-party repurchase agreement
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
----------------------------------------
PBHG International Fund
----------------------------------------
[PIE CHART APPEARS HERE]
Pie chart depicting the asset allocation as of March 31, 1996 for the PBHG
International Fund. The breakdown is as follows:
Japan: 31%
United Kingdom: 12%
France: 6%
Hong Kong: 4%
Spain: 6%
Italy: 6%
Singapore: 9%
Australia: 4%
Germany: 4%
Mexico: 3%
Other: 15%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-90.0%
ARGENTINA-1.5%
YPF ADR 8,500 $ 171
- - -------------------------------------------------------
AUSTRALIA-3.6%
Australia & New Zealand
Bank 40,000 191
Newscorp 37,000 217
-------
408
- - -------------------------------------------------------
FRANCE-5.4%
AGF 3,170 88
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-
CONTINUED
FRANCE-CONTINUED
AXA 1,760 $ 108
Hermes International 500 133
Legris Industries* 1,540 79
Lyonnaise des Eaux 970 91
Michelin, Cl B 2,300 110
-------
609
- - -------------------------------------------------------
GERMANY-1.5%
Mannesmann 310 113
Veba 1,250 61
-------
174
</TABLE>
50
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-
CONTINUED
HONG KONG-3.5%
Cheung Kong
Holdings 15,000 $ 106
Peregrine
Investment
Holdings 100,000 161
Swire Pacific,
Cl A 15,000 132
-------
399
- - -------------------------------------------------------
IRELAND-1.1%
Allied Irish
Bank 12,100 62
Framlington
Maghreb Fund* 7,500 62
Framlington
Maghreb Fund
Warrants* 1,500 1
-------
125
- - -------------------------------------------------------
ITALY-5.7%
Assicurazioni
Generali 4,800 107
Bulgari* 9,000 113
Fiat 38,000 120
Olivetti* 69,000 36
Parmalat
Finanziaria 100,000 92
Telecom Italia
Mobile 27,000 49
Telecom Italia
Mobile di Risp 109,200 120
-------
637
- - -------------------------------------------------------
JAPAN-29.7%
Canon 6,000 114
Itochu 27,000 189
Keyence 1,000 120
Matsumoto Kenko* 6,000 199
Mitsubishi
Materials* 32,000 172
Mori Seiki 8,000 169
Nippon Steel 54,000 186
Nissan Motors 19,000 147
NKK* 64,000 185
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-
CONTINUED
JAPAN-CONTINUED
Nomura
Securities 8,000 $ 176
Sanwa Bank 7,000 141
Sekisui House 13,000 163
Sumitomo Bank 8,000 162
Sumitomo Trust &
Banking 11,000 151
Suzuki Motor 16,000 197
TDK 3,000 155
Teijin 34,000 188
Terumo 20,000 223
Tokyo Style 9,000 149
Yamanouchi
Pharmaceutical 7,000 156
-------
3,342
- - -------------------------------------------------------
MALAYSIA-1.8%
Genting 11,000 99
Malayan Banking 11,000 103
-------
202
- - -------------------------------------------------------
MEXICO-2.7%
Cifra ADR* 100,000 134
Interceramica* 40,000 58
Telefonos de
Mexico ADR 3,300 108
-------
300
- - -------------------------------------------------------
NETHERLANDS-2.1%
Aegon 1,200 57
Hollandsche
Beton Groep 540 90
Verenigde
Nederlandse
Uitgevbedri 5,240 87
-------
234
</TABLE>
51
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG International Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-
CONTINUED
NEW ZEALAND-2.0%
Telecom of New
Zealand 50,000 $ 225
- - -------------------------------------------------------
PHILIPPINES-0.0%
Benpres Holdings
GDS* 800 5
- - -------------------------------------------------------
POLAND-2.1%
BRE 5,000 107
Mostostal
Export* 16,000 47
Polifarb Cieszyn 15,000 78
-------
232
- - -------------------------------------------------------
SINGAPORE-8.3%
DBS Land 50,000 192
Hong Kong Land 115,000 276
Keppel 15,500 141
Oversea-Chinese
Banking-F 13,000 175
Singapore Land 20,000 146
-------
930
- - -------------------------------------------------------
SPAIN-5.4%
Banco de
Santander 2,255 107
Dragados Y
Construccion 8,206 112
Gas Natural 1,000 173
Portland
Valderrivas 1,750 108
Vallehermoso 5,740 103
-------
603
- - -------------------------------------------------------
SWITZERLAND-2.0%
Ciba Geigy 85 106
Sandoz
Pharmaceutical 103 121
-------
227
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Market
Description Shares Value (000)
- - -------------------------------------------------------
<S> <C> <C>
FOREIGN COMMON STOCK-
CONTINUED
UNITED KINGDOM-11.6%
3I Group 15,000 $ 99
Abbey National 9,400 81
Argyll Group 20,000 94
Blue Circle
Industries 15,000 78
BTR 20,000 96
Cable & Wireless 16,000 130
Commercial Union 8,000 69
CRH 8,570 75
Glaxo Wellcome 2,500 31
Grand
Metropolitan 17,000 109
Kingfisher 14,000 122
National
Westminster
Bank 6,500 63
Rank
Organisation 11,000 81
Rolls Royce 26,000 86
Smithkline
Beecham, Cl A 3,000 30
Unilever 3,000 56
-------
1,300
-------
Total Foreign Common
Stocks (Cost $9,412,675) 10,123
-------
- - -------------------------------------------------------
FOREIGN PREFERRED STOCKS-2.2%
BRAZIL-0.0%
Brahma 6,432 3
- - -------------------------------------------------------
GERMANY-2.2%
Fresenius 1,400 248
-------
Total Foreign Preferred
Stocks (Cost $70,235) 251
-------
</TABLE>
52
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
TIME DEPOSIT-3.6%
Industrial Bank
of Japan
5.250%,
04/02/96 $ 400 $ 400
-------
Total Time Deposit
(Cost $400,176) 400
-------
Total Investments-95.8%
(Cost $9,883,086) 10,774
-------
- - -------------------------------------------------------
OTHER ASSETS AND LIABILITIES-4.2%
Other Assets and Liabilities,
Net 469
-------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face Market
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
NET ASSETS:
Fund shares
(authorized 200
million shares--
$0.001 par value)
based on 1,065,691
outstanding shares
of common stock $10,728
Accumulated net
investment loss (35)
Accumulated net
realized loss on
investments (323)
Accumulated net
realized loss on
foreign currency
transactions (17)
Net unrealized
appreciation on
investments 891
Net unrealized
depreciation on
foreign currency
transactions (1)
-------
Total Net Assets-
100.0% $11,243
=======
Net Asset Value,
Offering Price and
Redemption Price
Per Share $ 10.55
=======
</TABLE>
- - -------
*Non-income producing security
ADR-American Depository Receipt
Cl-Class
F-Foreign Registry Shares
GDS-Global Depository Shares
The accompanying notes are an integral part of the financial statements.
53
W
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets
- - --------------------------------------------------------------------------------
----------------------------------------
PBHG Cash Reserves Fund
----------------------------------------
[GRAPH APPEARS HERE]
Pie chart depicting the asset allocations as of March 31, 1996 for the PBHG Cash
Reserves Fund. The breakdown is as follows:
Commercial Paper: 75%
Certificates of Deposit: 13%
U.S. Treasury Obligations: 4%
Corporate Obligations: 2%
Bank Notes: 2%
Bankers Acceptances: 1%
Repurchase Agreement: 3%
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER-76.0%
American Home
Products
5.300%,
04/24/96 $2,000 $ 1,993
Asset
Securitization
Cooperation
5.300%,
04/03/96 1,000 1,000
Associates of
North America
5.270%,
05/14/96 2,300 2,286
Beneficial
5.220%,
05/21/96 3,200 3,177
Burlington
Northern Santa
Fe
5.300%,
05/06/96 1,000 995
Caterpillar
5.350%,
04/29/96 2,300 2,290
Centric Funding
5.200%,
05/03/96 2,000 1,991
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER-CONTINUED
Ciesco
5.270%,
04/18/96 $2,200 $ 2,195
Clipper
Receivable
5.300%,
04/15/96 2,500 2,495
Coca-Cola
Enterprises
5.150%,
05/06/96 2,500 2,487
Den Danske
5.270%,
07/31/96 2,500 2,456
Ford Motor
Credit
5.230%,
08/23/96 3,000 2,937
General Electric
Capital
5.600%,
04/03/96 1,500 1,500
5.270%,
05/14/96 1,700 1,689
General Motors
5.310%,
05/15/96 1,600 1,590
</TABLE>
54
<PAGE>
- - --------------------------------------------------------------------------------
The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER-CONTINUED
Glaxo Wellcome
5.100%,
05/28/96 $ 500 $ 496
Harvard
University
5.250%,
05/15/96 3,000 2,981
Hitachi America
5.160%,
07/12/96 1,500 1,478
ING Bank
5.440%,
04/08/96 2,000 1,998
National
Westminster
Bank
5.380%,
04/11/96 2,000 1,997
New Center Asset
Trust
5.310%,
05/08/96 2,000 1,989
PHH
5.190%,
04/12/96 2,000 1,997
PREFCO
5.250%,
04/04/96 1,482 1,481
Prudential
Funding
5.160%,
04/10/96 2,000 1,997
Puerto Rico
Development
Bank
5.250%,
04/02/96 2,000 2,000
Quebec Province
5.080%,
07/22/96 3,000 2,953
Riverwood
Funding
5.050%,
05/10/96 2,000 1,989
San Paolo US
Financial
5.360%,
04/16/96 2,000 1,996
Sears Roebuck
5.210%,
05/22/96 3,200 3,176
Spain, Kingdom
of
5.300%,
04/12/96 3,200 3,192
Suntrust Bank
5.100%,
05/08/96 2,000 1,990
Supervalue
5.550%,
04/16/96 1,000 998
Toshiba America
5.070%,
05/13/96 2,000 1,988
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
COMMERCIAL PAPER-CONTINUED
TransAmerica
Finance
5.530%,
04/03/96 $2,500 $ 2,499
Westpac Banking
5.530%,
04/30/96 2,000 1,991
Zeneca
Wilmington
5.350%,
04/17/96 3,000 2,993
--------
Total Commercial
Paper
(Cost
$75,260,461) 75,260
- - -------------------------------------------------------
CERTIFICATES OF DEPOSIT-13.2%
Bank of New York
5.520%,
05/22/96 2,000 2,000
Bank of Tokyo
5.480%,
05/15/96 2,000 2,000
Chase Manhattan
Delaware
5.770%,
04/15/96 2,000 2,000
First Union
National Bank
5.220%,
05/03/96 3,000 3,000
FNB Maryland
5.750%,
05/01/96 2,000 2,000
NationsBank
5.500%,
06/10/96 2,000 2,000
--------
Total Certificates of
Deposit (Cost $12,999,877) 13,000
- - -------------------------------------------------------
U.S. TREASURY OBLIGATIONS-4.1%
U.S. Treasury
Note
7.500%,
01/31/97 4,000 4,076
--------
Total U.S. Treasury
Obligations
(Cost $4,075,640) 4,076
</TABLE>
55
<PAGE>
As of March 31, 1996
- - --------------------------------------------------------------------------------
Statement of Net Assets The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
- - ----------------------------------------
PBHG Cash Reserves Fund (continued)
- - ----------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
CORPORATE OBLIGATIONS-2.5%
Caterpillar (A)
6.091%,
11/29/96 $ 500 $ 501
Florida Power &
Light
4.850%,
06/24/96 2,000 1,996
--------
Total Corporate Obligations
(Cost $2,497,317) 2,497
- - -------------------------------------------------------
BANK NOTES-2.0%
CoreStates
Capital
5.390%,
12/10/96 (A) 2,000 2,000
--------
Total Bank Notes
(Cost $2,000,000) 2,000
- - -------------------------------------------------------
BANKER'S ACCEPTANCES-0.6%
Bank of Boston
5.350%,
07/29/96 594 584
--------
Total Banker's Acceptances
(Cost $583,807) 584
- - -------------------------------------------------------
REPURCHASE AGREEMENTS-3.4%
Aubrey Lanston
5.50%, dated
03/29/96, matures
04/01/96,
repurchase
price
$3,356,517
(collateralized
by U.S.
Treasury Note,
par value
$3,150,000,
7.50%,
11/15/01:
market value
$3,429,081) 3,355 3,355
--------
Total Repurchase Agreements
(Cost $3,355,000) 3,355
--------
Total Investments-101.8%
(Cost $100,772,102) 100,772
--------
</TABLE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------
Face
Description Amount (000) Value (000)
- - -------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES-(1.8%)
Other Assets and
Liabilities,
Net $ (1,771)
- - -------------------------------------------------------
NET ASSETS:
Fund shares (authorized 1.8
billion shares-$0.001 par
value) based on 99,000,404
outstanding shares of common
stock 99,000
Accumulated net realized gain 1
--------
Total Net Assets-100.0% $ 99,001
========
Net Asset Value, Offering
Price and Redemption Price
Per Share $ 1.00
========
</TABLE>
- - -------
(A) Variable rate instrument. The rate reflected on the Statement of Net Assets
is the rate in effect on March 31, 1996.
The accompanying notes are an integral part of the financial statements.
56
<PAGE>
- - --------------------------------------------------------------------------------
Statements of Operations The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------- ----------- ----------- -----------
PBHG PBHG PBHG
PBHG EMERGING CORE SELECT
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
----------- ----------- ----------- -----------
04/01/95 04/01/95 01/02/96/1/ 04/05/95/2/
to 03/31/96 to 03/31/96 to 03/31/96 to 03/31/96
(000) (000) (000) (000)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 564 $ 186 $ 1 $ 35
Interest 11,692 5,735 36 517
-------- -------- ------ -------
Total Investment Income 12,256 5,921 37 552
-------- -------- ------ -------
EXPENSES:
Investment Advisory Fees 15,198 4,785 23 624
Waiver of Investment
Advisory Fees -- -- (23) (162)
Contribution by Adviser -- -- (10) --
Administrative Fees 3,576 1,126 18 164
Waiver of Administrative
Fee -- -- (6) (6)
Custodian Fees 93 41 2 14
Professional Fees 333 110 1 17
Transfer Agent Fees 5,147 1,657 23 307
Printing Fees 856 312 2 36
Directors' Fees 47 14 -- 2
Registration and Filing
Fees 1,028 185 11 96
Insurance and Other Fees 19 5 1 1
Amortization of Deferred
Organizational Costs -- 3 -- 3
Pricing Fees 49 17 -- 2
-------- -------- ------ -------
Total Expenses 26,346 8,255 42 1,098
-------- -------- ------ -------
NET INVESTMENT LOSS (14,090) (2,334) (5) (546)
-------- -------- ------ -------
Net Realized Gain (Loss)
from Security
Transactions (34,304) 76,215 (43) 8,613
Net Change in Unrealized
Appreciation on
Investments 793,260 149,027 1,394 20,035
-------- -------- ------ -------
NET REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS 758,956 225,242 1,351 28,648
-------- -------- ------ -------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $744,866 $222,908 $1,346 $28,102
======== ======== ====== =======
</TABLE>
/1/ The PBHG Core Growth Fund commenced operations on January 2, 1996.
/2/ The PBHG Select Equity Fund commenced operations on April 5, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
57
<PAGE>
- - --------------------------------------------------------------------------------
Statements of Operations The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------- -------------- ------------- -----------
PBHG PBHG PBHG
LARGE CAP TECHNOLOGY & PBHG CASH
GROWTH COMMUNICATIONS INTERNATIONAL RESERVES
FUND FUND FUND FUND
----------- -------------- ------------- -----------
04/05/95/1/ 10/2/95/2/ 04/01/95 04/05/95/1/
to 03/31/96 to 03/31/96 to 03/31/96 to 03/31/96
(000) (000) (000) (000)
----------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 22 $ -- $ 195 $ --
Interest 105 155 59 3,232
Less: Foreign Taxes
Withheld -- -- (24) --
------ ------ ------ ------
Total Investment Income 127 155 230 3,232
------ ------ ------ ------
EXPENSES:
Investment Advisory Fees 116 129 115 165
Waiver of Investment
Advisory Fees (82) (71) (89) (99)
Administrative Fees 76 42 75 123
Waiver of Administrative
Fee (6) (6) -- (6)
Custodian Fees 8 8 26 13
Professional Fees 4 6 -- 13
Transfer Agent Fees 67 72 86 102
Printing Fees 7 6 4 37
Directors' Fees -- -- -- 1
Registration and Filing
Fees 36 44 21 41
Insurance and Other Fees 1 1 -- 1
Amortization of Deferred
Organizational Costs 3 1 9 2
Pricing Fees -- -- 8 1
------ ------ ------ ------
Total Expenses 230 232 255 394
------ ------ ------ ------
NET INVESTMENT INCOME
(LOSS) (103) (77) (25) 2,838
------ ------ ------ ------
Net Realized Gain (Loss)
from Security
Transactions 950 (184) 348 1
Net Realized Gain on
Foreign Currency
Transactions -- -- 96 --
Net Change in Unrealized
Depreciation on Foreign
Currency and Translation
of Other Assets and
Liabilities in Foreign
Currency -- -- (1) --
Net Change in Unrealized
Appreciation on
Investments 3,566 3,854 1,262 --
------ ------ ------ ------
NET REALIZED AND
UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS 4,516 3,670 1,705 1
------ ------ ------ ------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $4,413 $3,593 $1,680 $2,839
====== ====== ====== ======
</TABLE>
/1/ The PBHG Large Cap Fund and the PBHG Cash Reserves Fund commenced
operations on April 5, 1995.
/2/ The PBHG Technology & Communications Fund commenced operations on
October 2, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
58
<PAGE>
- - --------------------------------------------------------------------------------
Statements of Changes in Net Assets The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------- ------------------------ ------------ ------------
PBHG PBHG PBHG
PBHG EMERGING CORE SELECT
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
----------------------- ------------------------ ------------ ------------
04/01/95 04/01/94 to 04/01/95 to 11/01/94 /1/ 01/02/96 /2/ 04/05/95 /3/
03/31/96 03/31/95 03/31/96 to 3/31/95 to 03/31/96 to 03/31/96
(000) (000) (000) (000) (000) (000)
---------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Loss $ (14,090) $ (4,140) $ (2,334) $ (66) $ (5) $ (546)
Net Realized Gain
(Loss) from Security
Transactions (34,304) (28,033) 76,215 3,106 (43) 8,613
Net Change in
Unrealized
Appreciation on
Investments 793,260 141,836 149,027 24,756 1,394 20,035
---------- ---------- -------- -------- ------- --------
Net Increase in Net
Assets Resulting from
Operations 744,866 109,663 222,908 27,796 1,346 28,102
---------- ---------- -------- -------- ------- --------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net Realized Gains From
Security Transactions -- (487) (27,375) (347) -- (2,736)
---------- ---------- -------- -------- ------- --------
Total Distributions -- (487) (27,375) (347) -- (2,736)
---------- ---------- -------- -------- ------- --------
CAPITAL SHARE
TRANSACTIONS(A):
Shares Issued 1,989,556 1,062,585 300,741 374,186 32,701 283,506
Shares Issued upon
Reinvestment of
Distributions -- 464 26,142 330 -- 2,634
Shares Redeemed (450,329) (476,452) (244,577) (103,428) (2,955) (108,710)
---------- ---------- -------- -------- ------- --------
Increase in Net Assets
Derived from Capital
Share Transactions 1,539,227 586,597 82,306 271,088 29,746 177,430
---------- ---------- -------- -------- ------- --------
Total Increase in Net
Assets 2,284,093 695,773 277,839 298,537 31,092 202,796
---------- ---------- -------- -------- ------- --------
NET ASSETS:
Beginning of Period 1,014,832 319,059 411,866 113,329 -- --
---------- ---------- -------- -------- ------- --------
End of Period $3,298,925 $1,014,832 $689,705 $411,866 $31,092 $202,796
========== ========== ======== ======== ======= ========
(A) SHARES ISSUED AND
REDEEMED:
Shares Issued 91,357 71,046 15,598 24,830 2,888 18,709
Shares Issued upon
Reinvestment of
Distributions -- 31 1,270 23 -- 176
Shares Redeemed (21,718) (32,041) (12,551) (7,048) (257) (7,139)
---------- ---------- -------- -------- ------- --------
Net Increase in Shares
Outstanding 69,639 39,036 4,317 17,805 2,631 11,746
========== ========== ======== ======== ======= ========
</TABLE>
/1/ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 2,
1994. The PBHG Emerging Growth Fund retained the October 31 fiscal
year end of its predecessor only for fiscal year 1994. The PBHG
Emerging Growth Fund changed its fiscal year end to March 31 in 1995
and reported financial information for the fiscal period from
November 1, 1994 to March 31, 1995.
/2/ The PBHG Core Growth Fund commenced operations on January 2, 1996.
/3/ The PBHG Select Equity Fund commenced operations on April 5, 1995.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
59
<PAGE>
- - --------------------------------------------------------------------------------
Statements of Changes in Net Assets The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------ -------------- ------------------------ ------------
PBHG
LARGE PBHG PBHG
CAP TECHNOLOGY & PBHG CASH
GROWTH COMMUNICATIONS INTERNATIONAL RESERVES
FUND FUND FUND FUND
------------ -------------- ------------------------ ------------
04/05/95 /1/ 10/02/95 /2/ 04/01/95 06/14/94 /3/ 04/05/95 /1/
TO 03/31/96 TO 03/31/96 TO 03/31/96 TO 03/31/95 TO 03/31/96
(000) (000) (000) (000) (000)
------------ -------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income
(Loss) $ (103) $ (77) $ (25) $ (47) $ 2,838
Net Realized Gain
(Loss) from Security
Transactions 950 (184) 348 (497) 1
Net Realized Gain
(Loss) on Foreign
Currency Transactions -- -- 96 (359) --
Net Change in
Unrealized
Appreciation
(Depreciation) on
Investments and
Foreign Currency
Transactions 3,566 3,854 1,261 (371) --
------- ------- ------- ------- --------
Net Increase (Decrease)
in Net Assets
Resulting from
Operations 4,413 3,593 1,680 (1,274) 2,839
------- ------- ------- ------- --------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net Investment Income -- (6) -- -- (2,838)
Net Realized Gains from
Security Transactions (712) -- -- (60) --
------- ------- ------- ------- --------
Total Distributions (712) (6) -- (60) (2,838)
------- ------- ------- ------- --------
CAPITAL SHARE
TRANSACTIONS (A):
Shares Issued 74,598 86,263 13,080 18,835 269,541
Shares Issued upon
Reinvestment of
Distributions 592 6 -- 59 2,751
Shares Redeemed (25,132) (28,084) (18,753) (2,324) (173,292)
------- ------- ------- ------- --------
Increase (Decrease) in
Net Assets Derived
from Capital Share
Transactions 50,058 58,185 (5,673) 16,570 99,000
------- ------- ------- ------- --------
Total Increase
(Decrease) in Net
Assets 53,759 61,772 (3,993) 15,236 99,001
------- ------- ------- ------- --------
NET ASSETS:
Beginning of Period -- -- 15,236 -- --
------- ------- ------- ------- --------
End of Period $53,759 $61,772 $11,243 $15,236 $ 99,001
======= ======= ======= ======= ========
(A) SHARES ISSUED AND
REDEEMED:
Shares Issued 5,520 7,440 1,327 1,908 269,541
Shares Issued upon
Reinvestment of
Distributions 46 1 -- 6 2,751
Shares Redeemed (1,865) (2,489) (1,931) (244) (173,291)
------- ------- ------- ------- --------
Net Increase (Decrease)
in Shares Outstanding 3,701 4,952 (604) 1,670 99,001
======= ======= ======= ======= ========
</TABLE>
/1/ The PBHG Large Cap Fund and the PBHG Cash Reserves Fund commenced
operations on April 5, 1995.
/2/ The PBHG Technology & Communications Fund commenced operations on October
2, 1995.
/3/ The PBHG International Fund commenced operations on June 14, 1994.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
60
<PAGE>
For the periods ended March 31, 1996
- - --------------------------------------------------------------------------------
Financial Highlights The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
For a Share Outstanding Throughout each Period
<TABLE>
<CAPTION>
Ratio
of Net
Net Realized and Net Net Investment
Asset Net Unrealized Distributions Distributions Asset Assets Ratio Income
Value Investment Gains or from Net from Value End of Expenses (Loss)
Beginning Income (Losses) Investment Capital End Total of Period to Average to Average
of Period (Loss) on Securities Income Gains of Period Return (000) Net Assets Net Assets
--------- ---------- ------------- ------------- ------------- --------- ------ ---------- ----------- ----------
- - ------------------------
PBHG GROWTH FUND
- - ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $16.70 $(0.06) $8.66 -- -- $25.30 51.50% $3,298,925 1.48% (0.79)%
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)%
<CAPTION>
- - ------------------------------------
PBHG EMERGING GROWTH FUND
- - ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $16.10 $(0.07) $8.03 -- $(0.99) $23.07 50.16% $ 689,705 1.47% (0.42)%
1995/1/,/2/ 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+ 411,866 1.50%* (0.08)%*
1994/1/ 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64% 113,329 1.45% (0.77)%
1993/3/ 10.00 (0.03) 3.25 -- -- 13.22 32.20%+ 34,517 1.50%* (0.72)%*
<CAPTION>
- - -------------------------------
PBHG CORE GROWTH FUND
- - -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996/4/ $10.00 $ -- $1.82 -- -- $11.82 18.20%+ $ 31,092 1.50%* (0.18)%*
<CAPTION>
- - -------------------------------
PBHG SELECT EQUITY FUND
- - -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996/5/ $10.00 $(0.05) $7.68 -- $(0.36) $17.27 77.75%* $ 202,796 1.50%* (0.74)%*
<CAPTION>
- - -------------------------------------
PBHG LARGE CAP GROWTH FUND
- - -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996/5/ $10.00 $(0.03) $4.97 -- $(0.41) $14.53 50.47%* $ 53,759 1.50%* (0.66)%*
<CAPTION>
- - -----------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- - -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996/6/ $10.00 $(0.02) $2.50 -- -- $12.48 24.82%+ $ 61,772 1.50%* (0.50)%*
<CAPTION>
- - -------------------------------
PBHG INTERNATIONAL FUND
- - -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $ 9.13 $(0.04) $1.46 -- -- $10.55 15.55% $ 11,243 2.25% (0.22)%
1995/7/ 10.00 (0.03) (0.80) -- $(0.04) 9.13 (8.33)%+ 15,236 2.25%* (0.43)%*
<CAPTION>
- - --------------------------------
PBHG CASH RESERVES FUND
- - --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996/5/ $ 1.00 $ 0.05 -- $(0.05) -- $ 1.00 5.24%* $ 99,001 0.70%* 5.05 %*
<CAPTION>
Ratio
of Net
Investment
Ratio Income
of Expenses (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
----------- ----------- ---------
- - ------------------------
PBHG GROWTH FUND
- - ------------------------
<S> <C> <C> <C>
1996 1.48% (0.79)% 44.64%
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%
<CAPTION>
- - ------------------------------------
PBHG EMERGING GROWTH FUND
- - ------------------------------------
<S> <C> <C> <C>
1996 1.47% (0.42)% 97.05%
1995/1/,/2/ 1.50%* (0.08)%* 27.50%
1994/1/ 1.45% (0.77)% 95.75%
1993/3/ 1.54%* (0.76)%* 71.18%
<CAPTION>
- - -------------------------------
PBHG CORE GROWTH FUND
- - -------------------------------
<S> <C> <C> <C>
1996/4/ 2.92%* (1.60)%* 17.00%
<CAPTION>
- - -------------------------------
PBHG SELECT EQUITY FUND
- - -------------------------------
<S> <C> <C> <C>
1996/5/ 1.73%* (0.97)%* 206.22%
<CAPTION>
- - -------------------------------------
PBHG LARGE CAP GROWTH FUND
- - -------------------------------------
<S> <C> <C> <C>
1996/5/ 2.07%* (1.23)%* 116.75%
<CAPTION>
- - -----------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- - -----------------------------------------------------
<S> <C> <C> <C>
1996/6/ 2.00%* (1.00)%* 125.99%
<CAPTION>
- - -------------------------------
PBHG INTERNATIONAL FUND
- - -------------------------------
<S> <C> <C> <C>
1996 3.03% (1.00)% 140.26%
1995/7/ 2.36%* (0.54)%* 81.72%
<CAPTION>
- - --------------------------------
PBHG CASH RESERVES FUND
- - --------------------------------
<S> <C> <C> <C>
1996/5/ 0.88%* 4.87 %* N/A
</TABLE>
/*/ Annualized
/+/ Total returns have not been annualized
/1/ The information set forth in this table for the periods prior to June 2,
1994 is the financial data of the Pilgrim Baxter Emerging Growth Fund, a
series of the Advisors' Inner Circle Fund. The PBHG Emerging Growth Fund
acquired the assets and assumed the liabilities of the Pilgrim Baxter
Emerging Growth Fund on June 2, 1994. The PBHG Emerging Growth Fund retained
the October 31 fiscal year end of its predecessor only for fiscal year 1994.
The PBHG Emerging Growth Fund changed its fiscal year to end March 31 in
1995 and reported financial information for the fiscal period from November
1, 1994 to March 31, 1995.
/2/ Per share calculations were performed using average shares for the period.
/3/ The Pilgrim Baxter Emerging Growth Fund, the predecessor series to the PBHG
Emerging Growth Fund, commenced operations on June 15, 1993.
/4/ The PBHG Core Growth Fund commenced operations on January 2, 1996.
/5/ The PBHG Select Equity Fund, the PBHG Large Cap Growth Fund, and the PBHG
Cash Reserves Fund commenced operation on April 5, 1995.
/6/ The PBHG Technology & Communications Fund commenced operation on October 2,
1995.
/7/ The PBHG International Fund commenced operations on June 14, 1994.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
61
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
1. ORGANIZATION
The PBHG Funds, Inc. (the "Fund"), a Maryland corporation, is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end man-
agement investment company with nine series: the PBHG Growth Fund (the "Growth
Fund"), the PBHG Emerging Growth Fund (the "Emerging Growth Fund"), the PBHG
Core Growth Fund (the "Core Growth Fund"), the PBHG Select Equity Fund (the
"Select Equity Fund"), the PBHG Large Cap Growth Fund (the "Large Cap Growth
Fund"), the PBHG Technology & Communications Fund (the "Technology & Communica-
tions Fund"), the PBHG International Fund (the "International Fund"), the PBHG
Limited Fund (the "Limited Fund") (collectively referred to as the "Equity
Portfolios"), and the PBHG Cash Reserves Fund (the "Cash Reserves Fund") (each
a "Portfolio" and, collectively, the "Portfolios"). As of March 31, 1996, the
Limited Fund had not commenced operations. Each Portfolio's prospectus provides
a description of the Portfolio's investment objectives, policies and strate-
gies. The assets of each Portfolio are segregated, and a shareholder's interest
is limited to the Portfolio in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios.
SECURITY VALUATION -- Investment securities of the Equity Portfolios which are
listed on a securities exchange for which market quotations are available are
valued at the last quoted sales price on each business day. If there is no such
reported sale, these securities and unlisted securities for which market quota-
tions are readily available are valued at the most recently quoted bid price.
Short-term investments may be valued at amortized cost which approximates mar-
ket value. Foreign securities in the International Fund are valued based upon
quotations from the primary market in which they are traded. The values of in-
vestment securities held by the Cash Reserves Fund are stated at amortized
cost, which approximates market value. Under this valuation method, acquisition
discounts and premiums are accreted and amortized ratably to maturity and are
included in interest income.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are ac-
counted for on the date the securities are purchased or sold (trade date). Div-
idend income and distributions to shareholders are recognized on the ex-divi-
dend date; interest income is recognized on the accrual basis. Costs used in
determining realized capital gains and losses on the sale of investment securi-
ties are those of the specific securities sold adjusted for the accretion and
amortization of acquisition discounts and premiums during the respective hold-
ing periods. Acquisition discounts and premiums are accreted and amortized to
maturity using a method which approximates the effective interest method.
DIVIDENDS -- Dividends from net investment income for the Equity Portfolios are
declared annually, if available. Dividends from net investment income for the
Cash Reserves Fund are declared daily and paid monthly. Distributions of net
realized capital gains are generally made to shareholders annually.
Dividends from net investment income and distributions from net realized capi-
tal gains are determined in accordance with U.S. federal income tax regula-
tions, which may differ from those amounts determined under generally accepted
accounting principals. These book/tax differences are either temporary or per-
manent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain, as ap-
propriate, in the period that the differences arise. Accordingly, the following
perma-
62
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- - --------------------------------------------------------------------------------
nent differences, primarily attributable to certain net operating losses, which
for tax purposes, are not available to offset future income or have been offset
by short-term capital gains, have been reclassified to the following accounts:
<TABLE>
<CAPTION>
ACCUMULATED NET
PAID-IN-CAPITAL REALIZED GAIN
(000) (000)
--------------- ---------------
<S> <C> <C>
Growth Fund $14,090 $ --
Emerging Growth Fund -- 2,334
Select Equity Fund -- 546
Large Cap Growth Fund -- 103
Technology & Communications Fund -- 83
International Fund 154 --
</TABLE>
These reclassifications have no effect on net assets or net asset values per
share.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to continue to qualify
as a regulated investment company for federal income tax purposes, and to dis-
tribute all of its taxable income and net capital gains. Accordingly, no provi-
sion has been made for federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated on
each business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agree-
ments are held by the custodian bank until the respective agreements mature.
Provisions of the repurchase agreements and procedures adopted by Pilgrim Bax-
ter & Associates, Ltd. (the "Adviser") ensure that the market value of the col-
lateral including accrued interest thereon, is sufficient in the event of de-
fault by the counterparty. If the counterparty defaults and the value of the
collateral declines or if the counterparty enters into insolvency proceedings,
realization of the collateral by a Portfolio may be delayed or limited.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, other assets and liabilities at
the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The International Fund does not isolate that portion of gains and losses on in-
vestment securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of such securities.
The International Fund reports gains and losses on foreign currency related to
transactions as realized and unrealized gains and losses for financial report-
ing purposes, whereas such gains and losses are treated as ordinary income or
loss for federal income tax purposes.
OTHER -- Expenses that are directly related to one of the Portfolios are
charged directly to that Portfolio. Other operating expenses are prorated to
the Portfolios on the basis of relative net assets.
All organizational costs incurred with the start up of the Emerging Growth
Fund, the Core Growth Fund, the Select Equity Fund, the Large Cap Growth Fund,
the Technology & Communications Fund, the International
63
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements (continued) The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
Fund and the Cash Reserves Fund are being amortized on a straight line basis
over a period of sixty months. In the event that any of the initial shares of
the Portfolio are redeemed by any holder thereof during the period that the
Portfolio is amortizing its organizational costs the redemption proceeds pay-
able to the holder thereof by the Portfolio will be reduced by the unamortized
organizational costs in the same ratio as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of re-
demption.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser
is paid a monthly fee at an annual rate of 0.85% of the average daily net as-
sets of the Growth, Emerging Growth, Core Growth, Select Equity, and Technology
& Communications Funds, and 0.30%, 0.75% and 1.00% of the average daily net as-
sets of the Cash Reserves, Large Cap Growth and International Funds, respec-
tively. The Adviser has voluntarily agreed to waive a portion of its fee in or-
der to limit operating expenses.
Murray Johnstone International, Ltd. ("Murray Johnstone") serves as the sub-ad-
viser to the International Fund. For its services provided pursuant to its In-
vestment Sub-Advisory Agreement with the Adviser and the Fund, Murray Johnstone
receives a fee from the Adviser at an annual rate of 0.50% of the International
Fund's average daily net assets. Murray Johnstone receives no fees directly
from the International Fund, and may periodically reduce its sub-advisory fee.
Wellington Management Company ("WMC") serves as the sub-adviser to the Cash Re-
serves Fund. For its services provided pursuant to the Investment Sub-Advisory
Agreement with the Adviser and the Fund, WMC is entitled to receive a fee from
the Adviser, computed daily and paid monthly, at an annual rate equal to 0.075%
of the Cash Reserves Fund's average daily net assets up to and including $500
million and 0.020% of the Cash Reserves Fund's average daily net assets over
$500 million, but subject to a minimum annual fee of $50,000. WMC may, from
time to time, waive all or a portion of its fee from the Adviser. WMC receives
no fees directly from the Cash Reserves Fund.
The Fund and SEI Financial Management Corporation (the "Administrator") are
parties to an Administration Agreement under which the Administrator provides
administrative services for an annual fee with respect to each Portfolio equal
to the greater of $75,000 or 0.20% of the average daily net assets of the Port-
folio.
The Fund and SEI Financial Services Company (the "Distributor") are parties to
a Distribution Agreement. The Distributor receives no fees for its distribution
services under this agreement.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent of the Fund. CoreStates Bank, N.A. serves as the
custodian for the Growth Fund, the Emerging Growth Fund, the Core Growth Fund,
the Select Equity Fund, the Large Cap Growth Fund, the Technology & Communica-
tions Fund and the Cash Reserves Fund. The Northern Trust Company serves as the
custodian for the International Fund.
Certain officers and directors of the Fund who are or were officers of the Ad-
viser, Administrator and the Distributor received no compensation from the
Fund.
64
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- - --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments, for the Equity Portfolios for the period ended
March 31, 1996 were as follows:
<TABLE>
<CAPTION>
---------- -------- ------- -------- ------- -------------- -------------
LARGE
EMERGING CORE SELECT CAP TECHNOLOGY &
GROWTH GROWTH GROWTH EQUITY GROWTH COMMUNICATIONS INTERNATIONAL
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
---------- -------- ------- -------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchases $2,109,055 $512,067 $28,357 $299,947 $62,404 $92,619 $14,513
Sales 730,879 453,389 1,817 152,098 15,921 40,124 19,305
</TABLE>
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolios and the total cost of securities for federal income tax pur-
poses at March 31, 1996 is as follows:
<TABLE>
<CAPTION>
---------- -------- ------- -------- ------- -------------- -------------
LARGE
EMERGING CORE SELECT CAP TECHNOLOGY &
GROWTH GROWTH GROWTH EQUITY GROWTH COMMUNICATIONS INTERNATIONAL
FUND FUND FUND FUND FUND FUND FUND
(000) (000) (000) (000) (000) (000) (000)
---------- -------- ------- -------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aggregate gross
unrealized appreciation $ 969,270 $207,184 $ 2,198 $ 24,131 $ 5,064 $ 4,455 $1,209
Aggregate gross
unrealized depreciation (40,266) (14,257) (804) (4,773) (1,498) (1,818) (318)
---------- -------- ------- -------- ------- ------- ------
Net unrealized
appreciation $ 929,004 $192,927 $ 1,394 $ 19,358 $ 3,566 $ 2,637 $ 891
========== ======== ======= ======== ======= ======= ======
Total cost of securities
for federal income tax
purposes $2,374,928 $508,604 $31,081 $183,824 $50,712 $60,151 $9,883
========== ======== ======= ======== ======= ======= ======
</TABLE>
At March 31, 1996, the Growth Fund and International Fund had available
$24,360,957 and $293,514, respectively, of realized capital losses to offset
future net capital gains through the fiscal years ended 2003 and 2004, respec-
tively. The Growth Fund utilized capital loss carryforwards of $8,795,147 in
1996.
Subsequent to October 31, 1995, the Growth Fund recognized net capital losses
of $43,320,269 that have been deferred to 1997 for tax purposes and can be used
to offset future capital gains at March 31, 1997.
65
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements (continued) The PBHG Funds, Inc.
- - --------------------------------------------------------------------------------
5. SHAREHOLDER VOTING RESULTS (UNAUDITED):
A. On April 13, 1995, there was a special meeting of the shareholders of the
Growth Fund, the Emerging Growth Fund and the International Fund to approve a
new advisory agreement between the PBHG Funds, Inc. and PB Newco, Inc. ("PB
Newco"), a Delaware corporation and a wholly-owned subsidiary of United Asset
Management Corporation ("UAM"), pursuant to which PB Newco would act as adviser
with respect to the assets of each of the Funds, effective upon the acquisition
of substantially all the assets of Pilgrim Baxter & Associates, Ltd. ("Pilgrim
Baxter"), the then-existing adviser, by UAM and the contribution of such assets
to PB Newco (the "Acquisition"). PB Newco would carry on the business of Pilgrim
Baxter under Pilgrim Baxter's name after the Acquisition. The following were the
results of the vote:
<TABLE>
<CAPTION>
------------- -------------------- ------------------
GROWTH FUND EMERGING GROWTH FUND INTERNATIONAL FUND
SHARES VOTED: SHARES VOTED: SHARES VOTED:
------------- -------------------- ------------------
<S> <C> <C> <C>
For 30,123,310 10,028,633 1,319,582
Against 1,433,859 500,590 16,065
Abstain 1,408,664 373,686 12,587
</TABLE>
There were no broker non-votes submitted, and no other proposals voted on at
such meeting.
In addition, at the meeting on April 13, 1995, the shareholders of the
International Fund were asked to approve a new Sub-Advisory Agreement among the
Fund, on behalf of the International Fund, PB Newco and Akamai International,
L.P. ("Akamai"), the then-existing sub-adviser to the International Fund,
pursuant to which Akamai would act as sub-adviser with respect to the assets of
the International Fund, effective upon the Acquisition. The following were the
results of the vote:
<TABLE>
<CAPTION>
------------------
INTERNATIONAL FUND
SHARES VOTED:
------------------
<S> <C>
For 1,322,538
Against 15,211
Abstained 10,485
</TABLE>
There were no broker non-votes submitted, and no other proposals voted on at
such meeting.
B. On October 6, 1995, there was a special meeting of the shareholders of the
International Fund to approve the selection of Murray Johnstone as investment
sub-adviser of the International Fund and to approve the new Investment
Sub-Advisory Agreement between Pilgrim Baxter, the Fund, and Murray Johnstone.
The following were the results of the vote:
<TABLE>
<CAPTION>
------------------
INTERNATIONAL FUND
SHARES VOTED:
------------------
<S> <C>
For 469,753
Against 3,939
Abstained 13,068
</TABLE>
There were no broker non-votes submitted, and no other proposals voted on at
such meeting.
66
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
- - --------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
The Cash Reserves Fund invests primarily in a portfolio of money market
instruments maturing in one year or less whose ratings are within the highest
ratings category assigned by a nationally recognized statistical rating agency
or, if not rated, are believed to be of comparable quality. The ability of the
issuers of the securities held by the fund to meet their obligations may be
affected by economic developments in a specific industry, state or region.
The International Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the United States, as a result of,
among other factors, the possibility of future political and economic develop-
ments and the level of governmental supervision and regulation of securities
markets in the respective countries.
67
<PAGE>
March 31, 1996
- - --------------------------------------------------------------------------------
Description of Indexes (unaudited)
- - --------------------------------------------------------------------------------
The F.T. Actuaries World Index, Non-U.S., in U.S. Dollars consists of 1749 of
the largest international companies which have been selected based on market
capitalization, ability to be purchased by international investors and the
degree to which the companies reflect the weightings of industries within their
respective countries. The returns of the Index reflect the reinvestment of
income dividends and capital gains distributions.
The Lipper Capital Appreciation Funds Average is an equally weighted benchmark
composed of mutual funds with the investment objective of maximum capital
appreciation. The performance figures are based on changes in net value of the
funds in the Index with all capital gains distributions and income dividends
reinvested.
The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-term
earnings are expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indexes. The performance figures
are based on changes in net asset value of the funds in the Index with all
capital gains distributions and income dividends reinvested.
The Lipper Science & Technology Funds Average is an equally weighted bench-mark
composed of mutual funds, each of which normally invests more than 65% of its
equity portfolio in science and technology stocks. The performance figures are
based on changes in net asset value of the funds in the Index with all capital
gains distributions and income dividends reinvested.
The Lipper Small Company Funds Average is an equally weighted bench-mark
composed of mutual funds, each of which limits its investments, by prospectus or
portfolio practice, to companies on the basis of the size of the company. The
performance figures are based on changes in net asset value of the funds in the
Index with all capital gains distributions and income dividends reinvested.
The Pacific Stock Exchange High Technology Index is a price-weighted index of
the top 100 U.S. technology stocks. The Index reflects the reinvestment of
income dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.
The Russell 1000 Growth Index is an unmanaged index comprised of those
securities in the Russell 3000 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and capital
gains distributions, if any, but does not reflect fees, brokerage commissions,
or other expenses of investing.
The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and capital
gains distributions, if any, but does not reflect fees, brokerage commissions,
or other expenses of investing.
The Russell 3000 Index is an unmanaged index comprised of the 3000 largest U.S.
securities as determined by total market capitalization and represents
approximately 98% of the investable U.S. equity market. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.
The Wilshire Small Cap Growth Index is a broad-based capitalization-weighted
index of 250 stocks representing nine industry sectors. The returns of the Index
reflect the reinvestment of income dividends and capital gains distributions, if
any, but do not reflect fees, brokerage commissions or other expenses.
68
<PAGE>
- - ----------------------------------------------------------------------
NOTICE TO SHAREHOLDERS OF THE PBHG FUNDS, INC. (unaudited)
- - ----------------------------------------------------------------------
For the shareholders that do not have a March 31, 1996 taxable year end, this
notice is for informational purposes only. For shareholders with a March 31,
1996 taxable year end, please consult your tax advisor as to the pertinence of
this notice.
For the fiscal year ended March 31, 1996, the Funds are designating long-term
capital gains, qualifying dividends and exempt interest income with regard to
distributions paid during the year as follows:
<TABLE>
<CAPTION>
(A) (B)
LONG-TERM ORDINARY (C)
CAPITAL GAIN INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
---- ------------- ------------- -------------
<S> <C> <C> <C>
Growth Fund 0% 0% 0%
Emerging Growth Fund 54% 46% 100%
Core Growth Fund 0% 0% 0%
Select Equity Fund 0% 100% 100%
Large Cap Growth Fund 0% 100% 100%
Technology & Communications Fund 0% 100% 100%
International Fund 0% 0% 0%
Cash Reserves Fund 0% 100% 100%
<CAPTION>
(D) (E) (F)
QUALIFYING TAX EXEMPT FOREIGN
FUND DIVIDENDS(1) INTEREST TAX CREDIT
---- ------------- ------------- -------------
<S> <C> <C> <C>
Growth Fund 0% 0% 0%
Emerging Growth Fund 0% 0% 0%
Core Growth Fund 0% 0% 0%
Select Equity Fund 0% 0% 0%
Large Cap Growth Fund 0% 0% 0%
Technology & Communications Fund 0% 0% 0%
International Fund 0% 0% 0%
Cash Reserves Fund 0% 0% 0%
</TABLE>
- - --------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of the portfolio's total
distributions.
** Items (D) and (E) are based on a percentage of ordinary income
distributions of the portfolio.
69
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibit
(a) Financial Statements:
Part A--Prospectus:
Financial Highlights
Part B--Statement of Additional Information
Portfolio of Investments as of March 31, 1996
Statement of Operations for the period ended March 31, 1996
Statement of Changes in Net Assets for the period ended March 31, 1996
Financial Highlights for the period ended March 31, 1996
Notes to Financial Statements for the period ended March 31, 1996
<TABLE>
<CAPTION>
(b) Exhibits:
<S> <C>
1(a) Certificate of Incorporation/1/
1(b) Certificate of Amendment dated October 28, 1985/2/
1(c) Certificate of Amendment to Certificate of Incorporation/3/
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc., a Maryland
corporation/9/
1(e) Articles of Incorporation of The PBHG Funds, Inc./9/
1(f) Articles of Amendment to the Articles of Incorporation of The PBHG Funds, Inc.,
dated November 12, 1993/10/
1(g) Articles of Amendment to the Articles of Incorporation of The PBHG Funds, Inc.
dated May 5, 1994/7/
1(h) Articles of Amendment of the Articles of Incorporation of The PBHG Funds, Inc.
dated December 28, 1995
1(i) Articles Supplementary to the Articles of Incorporation of The PBHG Funds, Inc.
dated May 25, 1994/7/
1(j) Articles Supplementary to the Articles of Incorporation of The PBHG Funds, Inc.
dated December 5, 1994/8/
1(k) Articles Supplementary to the Articles of Incorporation of The PBHG Funds, Inc.
dated December 9, 1994/8/
1(l) Articles Supplementary to the Articles of Incorporation of The PBHG Funds, Inc.
with respect to the Trust Class Shares dated December 28, 1995
1(m) Articles Supplementary to the Articles of Incorporation of The PBHG Funds, Inc.
with respect to the PBHG Core Growth Fund dated December 28, 1995
2 By-Laws/9/
3 Not Applicable
4 Specimen Common Stock Certificate/1/
5(a) Investment Advisory Agreement dated April 28, 1995 and Schedule A dated
December, 1995
5(b) Investment Sub-Advisory Agreement between and among PBHG Funds, Inc., on
behalf of the PBHG Cash Reserves Fund, Pilgrim Baxter & Associates, Ltd. and
Wellington Management Company dated April 4, 1995
5(c) Investment Sub-Advisory Agreement between and among PBHG Funds, Inc., on
behalf of the International Fund, Pilgrim Baxter & Associates, Ltd. and Murray
Johnstone International Limited dated June 30, 1995
6(a) Distribution Agreement between PBHG Funds, Inc., and SEI Financial Services
Company dated July 16, 1993/9/
6(b) Copy of Selling Group Agreement/4/
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
7 Not Applicable
8(a) Custodian Agreement dated October 28, 1985/2/
8(b) Custodian Agreement between Registrant and The First Jersey National Bank
dated February 12, 1988/3/
8(c) Form of Custodian Agreement between Registrant, on behalf of the PBHG
International Fund, and The Northern Trust Company/8/
8(d) Custodian Agreement between Registrant, on behalf of PBHG Growth and PBHG
Emerging Growth Funds, and CoreStates Bank, N.A./9/
9(a)(1) Administration Agreement between Registrant and SEI Financial Management
Corporation dated September 10, 1993/8/
9(a)(2) Schedule dated April 4, 1995 to the Administration Agreement dated September
10, 1993 between the Registrant and SEI Financial Management Corporation/11/
9(a)(3) Schedule to the Administration Agreement dated September 10, 1993 as
amended and restated August 9, 1994 between the Registrant and SEI Financial
Management Corporation/12/
9(a)(4) Schedule dated October, 1995 to the Administration Agreement dated
September 10, 1993 as amended and restated August 8, 1994 between the
Registrant and SEI Financial Management Corporation
9(a)(5) Schedule dated December, 1995 to the Administration Agreement dated
September 10, 1993 as amended and restated August 8, 1994 between the
Registrant and SEI Financial Management Corporation
9(b)(1) Transfer Agency Agreement between Registrant and Supervised Service
Company dated December 16, 1993/8/
9(b)(2) Form of Sub-Transfer Agency Agreement
10(a) Opinion of Counsel/7/
10(b) Opinion of Counsel with respect to the legality of the shares of the PBHG Core
Growth Fund
11 Consent of Arthur Andersen LLP, Independent Public Accountants
12 Not Applicable
13 Letter from Philadelphia Life Insurance Company to the Registrant with respect
to the initial capitalization of the Registrant/2/
14(a)(1) Southwestern Life Insurance Company Defined Benefit Pension Plan and Trust/1/
14(a)(2) Adoption Agreement for Southwestern Life Insurance Company Standardized
Integrated Defined Benefit Pension Plan and Trust (with Pairing Provisions)/1/
14(a)(3) Adoption Agreement for Southwestern Life Insurance Company Standardized
Non-Integrated Defined Benefit Pension Plan and Trust (with Pairing Provisions)/1/
14(a)(4) Adoption Agreement for Southwestern Life Insurance Company Non-
Standardized Integrated Defined Benefit Pension Plan and Trust/1/
14(a)(5) Adoption Agreement for Southwestern Life Insurance Company Non-
Standardized Non-Integrated Defined Benefit Pension Plan and Trust/1/
14(b)(1) Southwestern Life Insurance Company Combination Profit Sharing-Money
Purchase Plan and Trust/1/
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
14(b)(2) Adoption Agreement for Southwestern Life Insurance Company Standardized
Money Purchase Plan and Trust (with Pairing Provisions)/1/
14(b)(3) Adoption Agreement for Southwestern Life Insurance Company Standardized
Profit Sharing Plan and Trust (with Pairing Provisions)/1/
14(b)(4) Adoption Agreement for Southwestern Life Insurance Company Non-
Standardized Money Purchase Plan and Trust/1/
14(b)(5) Adoption Agreement for Southwestern Life Insurance Company Non-
Standardized Profit Sharing Plan and Trust/1/
14(c) Form 5305, Simplified Employee Pension-Individual Retirement Accounts
Contribution Agreement/1/
14(d) Form 5305-A, Individual Retirement Custodial Account/1/
14(e)(1) Southwestern Life Insurance Company Tax Deferred Annuity Program Custodial
Agreement/1/
14(e)(2) Amendment to Application for Investment Plans under a 403(b)(7) Plan/10/
15 Plan pursuant to Rule 12b-1 with respect to Trust Class Shares/11/
16 Schedule for computation of Performance Quotation provided in the Registration
Statement
18 Form of Rule 18f-3 Multiple Class Plan dated November, 1995/11/
24 Power of Attorney/12/
27 Financial Data Schedule
</TABLE>
- - ----------------------------------
1 Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
2 Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
3 Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
4 Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
5 Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
6 Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
7 Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
8 Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
C-3
<PAGE>
9 Incorporated herein by reference to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
10 Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
11 Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
12 Incorporated herein by reference to Post-Effective Amendment No. 22 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
Item 25. Persons Controlled by or under Common Control with Registrant
See the Prospectus and the Statement of Additional Information regarding
the Registrant's control relationships. The Administrator is a subsidiary of
SEI Corporation, which also controls other corporations engaged in providing
various financial and record keeping services, primarily to bank trust
departments, pension plan sponsors, and investment managers.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
As of March 31, 1996:
Title of Class Number of Record Holders
<S> <C>
Share of Common Stock, par value - $.001
PBHG Growth Fund 195,481
PBHG Emerging Growth Fund 44,393
PBHG Core Growth Fund 4,125
PBHG Large Cap Growth Fund 4,236
PBHG Technology & Communications Fund 5,622
PBHG Select Equity Fund 12,216
PBHG International Fund 4,216
PBHG Cash Reserves Fund 6,639
</TABLE>
Item 27. Indemnification
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
---------------
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification shall be in addition to any
other right or claim to which any director, officer, employee or agent may
otherwise be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
C-4
<PAGE>
employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
---------------
"The Corporation shall indemnify (a) its Directors and officers, whether
serving the Corporation or at its request any other entity, to the full
extent required or permitted by (i) Maryland law now or hereafter in
force, including the advance of expenses under the procedures and to the
full extent permitted by law, and (ii) the Investment Company Act of
1940, as amended, and (b) other employees and agents to such extent as
shall be authorized by the Board of Directors and be permitted by law.
The foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts
implementing such provisions nor such further indemnification arrangement
as may be permitted by law."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
Item 28. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of the Pilgrim Baxter & Associates,
Ltd. is or has been, at any time during the last two fiscal years, engaged for
his own account or in the capacity of director, officer, employee, partner or
trustee are as follows:
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Pilgrim Baxter & Associates Other Company Other Company
- - -------------------------------------- ---------------------- ----------------
<S> <C> <C>
Harold J. Baxter United Asset Member, Board
Director, Chairman & Chief Executive Management Corporation of Directors
Officer
Gary L. Pilgrim - -
Director, President, Secretary,
Treasurer & Chief Investment Officer
Brian F. Bereznak - -
Chief Operating Officer
Eric C. Schneider - -
Chief Financial Officer
</TABLE>
Business and Other Connections of Investment Sub-Adviser:
The list required by this Item 28 of officers and directors of Murray
Johnstone International Limited, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Murray Johnstone
International Limited pursuant to the Investment Advisers Act of 1940 (SEC File
No. 801-34926).
The list required by this Item 28 of officers and directors of Wellington
Management, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Wellington Management pursuant to the Investment
Advisers Act of 1940 (SEC File No. 801-15908).
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a principal
underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts
as distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
</TABLE>
C-6
<PAGE>
<TABLE>
<S> <C>
SEI Liquid Asset Trust November 29, 1982
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds June 1, 1993
Marquis/SM/ Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Insurance Investment Products Trust December 30, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
Conestoga Family of Funds May 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
</TABLE>
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table with respect
to each director, officer or partner of each principal underwriter
named in the answer to Item 21 of Part B.
<TABLE>
<CAPTION>
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer -
Henry H. Greer Director, President & Chief Operating Officer -
Carmen V. Romeo Director, Executive Vice President & Treasurer Treasurer
Gilbert L. Beebower Executive Vice President -
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
<S> <C> <C>
Richard B. Lieb Executive Vice President -
Charles A. Marsh Executive Vice President-Capital Resources -
Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jerome Hickey Senior Vice President -
David G. Lee Senior Vice President -
William Madden Senior Vice President -
A. Keith McDowell Senior Vice President -
Dennis J. McGonigle Senior Vice President -
Hartland J. McKeown Senior Vice President -
James V. Morris Senior Vice President -
Steven Onofrio Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel & Vice
Secretary President &
Assistant
Secretary
Robert Wagner Senior Vice President -
Patrick K. Walsh Senior Vice President -
Kenneth Zimmer Senior Vice President -
Robert Crudup Managing Director -
Vic Galef Managing Director -
Kim Kirk Managing Director -
John Krzeminski Managing Director -
Carolyn McLaurin Managing Director -
Barbara Moore Managing Director -
Donald Pepin Managing Director -
Mark Samuels Managing Director -
Wayne M. Withrow Managing Director -
Mick Duncan Team Leader -
Robert Ludwig Team Leader -
Vicki Malloy Team Leader -
Robert Aller Vice President -
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
<S> <C> <C>
Steve Bendinelli Vice President -
Gordon W. Carpenter Vice President -
Todd B. Cipperman Vice President & Assistant Secretary -
Ed Daly Vice President -
Jeff Drennen Vice President -
Lucinda Duncalfe Vice President -
Kathy Heilig Vice President -
Larry Hutchison Vice President -
Michael Kantor Vice President -
Samuel King Vice President -
Donald H. Korytowski Vice President -
Robert S. Ludwig Vice President -
Jack May Vice President -
W. Kelso Morrill Vice President -
Sandra K. Orlow Vice President & Assistant Secretary Vice
President &
Assistant
Secretary
Larry Pokora Vice President -
Kim Rainey Vice President -
Paul Sachs Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary Vice
President &
Assistant
Secretary
William Zawaski Vice President -
James Dougherty Director of Brokerage Services -
</TABLE>
c. None.
C-9
<PAGE>
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodian:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b)/c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of Registrant's
Administrator:
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Adviser and Sub-Advisers:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone International
1255 Drummers Lane, Suite 300 Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
Wellington Management Company
75 State Street
Boston, MA 02109
Item 31. Management Services: None.
Item 32. Undertakings
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940
inform the Board of Directors of their desire to communicate with
Shareholders of the Fund, the Directors will inform such Shareholders
as to the approximate number of Shareholders of record and the
approximate costs of mailing or afford said Shareholders access to a
list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director(s) when
requested in writing to do so by the holders of at least 10% of
Registrant's outstanding shares and in connection with such meetings
to comply with the provisions of Section 16(c) of the Investment
Company Act of 1940 relating to Shareholder communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment,
including financial statements which need not be audited, within 4-6
months from the later of the commencement of operations of the PBHG
Limited Fund of the Registrant or the effective
C-10
<PAGE>
date of Post-Effective Amendment No. 22 to the Registrant's 1933 Act
Registration Statement.
C-11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that this filing meets
all of the requirements for effectiveness pursuant to Rule 485(b) under the
Securities Act of 1933 and the Registrant has duly caused this Post Effective
Amendment No. 23 to Registration Statement No. 2-99810 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Wayne, and
Commonwealth of Pennsylvania on the 1st day of May, 1996.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
------------------------------------------
Harold J. Baxter
Chairman and Chief Executive Officer
ATTEST:
/s/ Jeffrey A. Cohen
- - --------------------
Jeffrey A. Cohen, Controller and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Harold J. Baxter Chairman and Chief
- - -------------------- Executive Officer, --------------------------------
Harold J. Baxter and Director
* Director
- - -------------------- --------------------------------
John R. Bartholdson
* Director
- - -------------------- --------------------------------
Jettie M. Edwards
* Director
- - -------------------- --------------------------------
Albert A. Miller
* Controller and Chief
- - -------------------- Financial Officer --------------------------------
Jeffrey A. Cohen
* By: /s/ Harold J. Baxter 5/1/96
-------------------- -------------------
Harold J. Baxter Date
(Attorney-in-Fact)
C-12
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit Number Description Sequentially Numbered Pages
- - -------------- ----------- ---------------------------
<S> <C> <C>
1(h) Articles of Amendment of the
Articles of Incorporation of
The PBHG Funds, Inc. dated
December 28, 1995
1(l) Articles Supplementary to the
Articles of Incorporation of
The PBHG Funds, Inc. with
respect to the Trust Class
Shares dated December 28,
1995
1(m) Articles Supplementary to the
Articles of Incorporation of
The PBHG Funds, Inc. with
respect to the PBHG Core
Growth Fund dated December
28, 1995
5(a) Investment Advisory
Agreement between The
PBHG Funds, Inc. and Pilgrim
Baxter & Associates, Ltd.
dated April 28, 1995 and
Schedule A dated December,
1995
5(b) Investment Sub-Advisory
Agreement between and
among The PBHG Funds, Inc.
on behalf of the PBHG Cash
Reserves Fund, Pilgrim Baxter
& Associates, Ltd. and
Wellington Management
Company dated April 4, 1995
5(c) Investment Sub-Advisory
Agreement between and
among The PBHG Funds, Inc.
on behalf of the PBHG Cash
Reserves Fund, Pilgrim Baxter
& Associates, Ltd. and Murray
Johnstone International
Limited dated June 30, 1995
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <S>
Exhibit Number Description Sequentially Numbered Pages
- - -------------- ----------- ---------------------------
9(a)(4) Schedule dated October,
1995 to the Administration
Agreement dated September
10, 1993 as Amended and
Restated August 8, 1994
between The PBHG Funds,
Inc. and SEI Financial
Management Corporation
9(a)(5) Schedule dated December,
1995 to the Administration
Agreement dated September
10, 1993 as Amended and
Restated August 8, 1994
between The PBHG Funds,
Inc. and SEI Financial
Management Corporation
9(b)(2) Form of Sub-Transfer
Agency Agreement
10(b) Opinion of Counsel with
respect to the legality of the
shares of the PBHG Core
Growth Fund being registered
11 Consent of Arthur Andersen
LLP, Independent Public
Accountants
16 Schedule for computation of
performance quotations
provided in the registration
statement
27 Financial Data Schedule
</TABLE>
C-14
<PAGE>
Exhibit 1(h)
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
First: The Corporation's Board of Directors in accordance with Section 2-
-----
605(a)(4) of the Maryland General Corporation Law and Article V Section 5.4
of the Articles of Incorporation, has adopted a resolution changing the
name of the PBHG Mid-Cap Growth Fund, a portfolio of the Fund, to the PBHG
Core Growth Fund.
Second: The Corporation's Board of Directors in accordance with Section 2-
------
105(c) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation has adopted a resolution classifying and
redesignating the Corporation's shares of Common Stock of the PBHG Mid-Cap
Growth Fund as shares of Common Stock of the PBHG Core Growth Fund, subject
to such series of shares having the same voting powers, preferences, other
rights, qualifications, restrictions, limitations and terms and conditions
of redemption, as currently set forth in the Corporation's Articles of
Incorporation.
Third: The Corporation's Board of Directors in accordance with Section 2-
-----
6-05(a)(4) of the Maryland General Corporation Law and Article V Section
5.4 of the Articles of Incorporation, has adopted a resolution classifying
and redesignating the current class of shares of the "Advisers Class
Shares" as the "Trust Class Shares" for each of the Corporation's eight (8)
series, subject to each such class of shares having the same voting powers,
preferences, other rights, qualifications, restrictions, limitations and
terms and conditions of redemption, as currently set forth in Article V
Section 5.5 of the Articles of Incorporation.
Fourth: The Corporation is registered as an open-end investment company
------
under the Investment Company Act of 1940, as amended.
Fifth: Amendment FIRST and SECOND of the Corporation's Articles of
-----
Amendment were approved by the initial sole shareholder of PBHG Mid-Cap
Growth Fund. There are currently no shareholders of the Advisers Class
Shares to approve Amendment THIRD of the Corporation's Articles of
Amendment. Each amendment of the Corporation's Articles of Amendment were
approved by the Corporation's Board of Directors, as noted above.
<PAGE>
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these Articles of
Amendment to be executed in its name and on its behalf by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Assistant
Vice President of this 28th day of December, 1995.
[CORPORATE SEAL]
The PBHG Funds, Inc.
By: /s/ Brian Bereznak
------------------------
Brian Bereznak
Vice President
Attest: /s/ Michael Harrington /s/ Jane A. Kanter
-------------------------- ---------------------------
Michael Harrington Jane A. Kanter
Assistant Vice President Secretary
THE UNDERSIGNED, Vice President of the PBHG Funds, Inc., who executed on
behalf of said Corporation, the foregoing Articles of Amendment, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles of Amendment to be the corporate act of
said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the approval thereof are true in all material respects, under the penalties for
perjury.
/s/ Brian Bereznak
------------------
Brian Bereznak
Vice President
Dated: December 28, 1995
<PAGE>
EXHIBIT 1(1)
ARTICLES SUPPLEMENTARY
To The Articles of Incorporation
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
First: The Corporation's Board of Directors in accordance with Section 2-
-----
105(a) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation, has adopted a resolution adding a new class
of shares as the Advisers Class Shares for each of the Corporation's eight
(8) series and redesignating the current class of shares as the PBHG Class
Shares for each of the Corporation's eight (8) series. All such series and
classes of shares have the same voting powers, preferences, other rights,
qualifications, restrictions, limitations and terms and conditions of
redemption, as currently set forth in Article V Section 5.5 of the Articles
of Incorporation.
Second: The Corporation's Board of Directors in accordance with Section 2-
------
208.1 of the Maryland General Corporation Law and Article V Section 5.1 of
the Articles of Incorporation, has adopted a resolution increasing from
Three Billion Two Hundred Million (3,200,000,000) to Six Billion Four
Hundred Million (6,400,000,000) the aggregate number of shares of Common
Stock that the Corporation is authorized to issue.
Third: The Corporation's Board of Directors in accordance with Section 2-
-----
105(c) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation has adopted a resolution classifying and
redesignating the Corporation's Six Billion Four Hundred Million
(6,400,000,000) shares of Common Stock, par value one tenth of one cent
($.001) per share, having an aggregate par value of Six Million Four
Hundred Thousand Dollars ($6,400,000), as set forth below. Immediately
prior to the classification, the Three Billion Two Hundred Million
(3,200,000,000) shares of the Corporation's stock, par value one tenth of
one cent ($.001) per share, having an aggregate par value of Three Million
Two Hundred Thousand Dollars ($3,200,000) all of which previously
classified shares of the Corporation's Common Stock were designated as
follows:
<PAGE>
Designation Number of Shares
PBHG Growth Fund 200 million
PBHG Emerging Growth Fund 200 million
PBHG International Fund 200 million
PBHG Cash Reserves Fund 1 billion, 800 million
PBHG Select Equity Fund 200 million
PBHG Large Cap Growth Fund 200 million
PBHG Technology Growth Fund 200 million
PBHG Mid-Cap Growth Fund 200 million
The Six Billion Four Hundred Million (6,400,000,000) shares of the
Corporation's Common Stock are classified and designated as follow:
Designation Number of Shares
PBHG Growth Fund PBHG Class Shares 200 million
PBHG Emerging Growth Fund PBHG Class
Shares 200 million
PBHG International Fund PBHG Class
Shares 200 million
PBHG Cash Reserves Fund PBHG Class
Shares 1 billion, 800 million
PBHG Select Equity Fund PBHG Class
Shares 200 million
PBHG Large Cap Growth Fund PBHG
Class Shares 200 million
PBHG Technology & Communications Fund
PBHG Class Shares 200 million
PBHG Mid-Cap Growth Fund PBHG
Class Shares 200 million
PBHG Growth Fund Advisers Class
Shares 200 million
PBHG International Fund Advisers
Class Shares 200 million
PBHG Cash Reserves Fund Advisers
Class Shares 1 billion, 800 million
PBHG Select Equity Fund Advisers
Class Shares 200 million
PBHG Large Cap Growth Fund Advisers
Class Shares 200 million
PBHG Technology & Communications Fund
Advisers Class 200 million
PBHG Mid-Cap Growth Fund Advisers
Class Shares 200 million
<PAGE>
Fourth: The Corporation is registered as an open-end investment company
------
under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these Articles
Supplementary to be executed by one of its Vice Presidents and its corporate
seal to be affixed and attested by its Assistant Vice President of this 28th day
of December, 1995.
[CORPORATE SEAL]
The PBHG Funds, Inc.
By: /s/ Brian Bereznak
--------------------------
Brian Bereznak
Vice-President
Attest: Michael Harrington
---------------------------
Michael Harrington
Assistant Vice President
The undersigned, Vice President of THE PBHG FUNDS, INC., who executed on
behalf of said Corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles
Supplementary to the Articles of Incorporation to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Brian Bereznak
------------------------------------
Brian Bereznak
Vice President
Dated: December 28, 1995
<PAGE>
Exhibit 1(m)
ARTICLES SUPPLEMENTARY
To The Articles of Incorporation
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
First: The Corporation's Board of Directors in accordance with Section 2-
-----
105(a) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation, has adopted a resolution adding a new series
of shares as the PBHG Mid-Cap Growth Fund. All such series of shares have
the same voting powers, preferences, other rights, qualifications,
restrictions, limitations and terms and conditions of redemption, as
currently set forth in Article V Section 5.5 of the Articles of
Incorporation.
Second: The Corporation's Board of Directors in accordance with Section 2-
------
208.1 of the Maryland General Corporation Law and Article V Section 5.1 of
the Articles of Incorporation, has adopted a resolution increasing from
Three Billion (3,000,000,000) to Three Billion Two Hundred Million
(3,200,000,000), and a par value of One Tenth of One Cent ($.001) per
share, the aggregate number of shares of Common Stock that the Corporation
is authorized to issue.
Third: The Corporation's Board of Directors in accordance with Section 2-
-----
105(c) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation has adopted a resolution classifying and
redesignating the Corporation's Three Billion Two Hundred Million
(3,200,000,000) shares of Common Stock, par value one tenth of one cent
($.001) per share, having an aggregate par value of Three Million Two
Hundred Thousand Dollars ($3,200,000), as set forth below. Immediately
prior to the classification, the Three Billion (3,000,000,000) shares of
the Corporation's Common Stock, par value one tenth of one cent ($.001) per
share, having an aggregate par value of Three Million Dollars ($3,000,000)
all of which previously classified shares of the Corporation's Common Stock
were designated as follows:
<PAGE>
Designation Number of Shares
PBHG Growth Fund 200 million
PBHG Emerging Growth Fund 200 million
PBHG International Fund 200 million
PBHG Cash Reserves Fund 1 billion, 800 million
PBHG Select Equity Fund 200 million
PBHG Large Cap Growth Fund 200 million
PBHG Technology Growth Fund 200 million
The Three Billion Two Hundred Million (3,200,000,000) shares of the
Corporation's Common Stock are classified and designated as follow:
Designation Number of Shares
PBHG Growth Fund 200 million
PBHG Emerging Growth Fund 200 million
PBHG International Fund 200 million
PBHG Cash Reserves Fund 1 billion, 800 million
PBHG Select Equity Fund 200 million
PBHG Large Cap Growth Fund 200 million
PBHG Technology Growth Fund 200 million
PBHG Mid-Cap Growth Fund 200 million
Fourth: The Corporation's Board of Directors in accordance with Section 2-
------
210 of the Maryland General Corporation Law and Article V Section 5.2 of
the Articles of Incorporation, has adopted a resolution approving the
specimen stock certificate for PBHG Mid-Cap Growth Fund.
Fifth: The Corporation is registered as an open-end investment company
-----
under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these Articles
Supplementary to be executed by one of its Vice Presidents and its corporate
seal to be affixed and attested by its Assistant Vice President of this 28th day
of December, 1995.
[CORPORATE SEAL]
The PBHG Funds, Inc.
By: /s/ Brian Bereznak
---------------------------
Brian Bereznak
Vice-President
Attest: /s/ Michael Harrington
------------------------
Michael Harrington
Assistant Vice President
The undersigned, Vice President of THE PBHG FUNDS, INC., who executed on
behalf of said Corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said Corporation, the foregoing Articles
Supplementary to the Articles of Incorporation to be the corporate act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Brian Bereznak
------------------------------------
Brian Bereznak
Vice President
Dated: December 28, 1995
<PAGE>
Exhibit 5(a)
THE PBHG FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 28, 1995, between Pilgrim Baxter &
Associates (the "Adviser") and The PBHG Funds, Inc. (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992, (the "Articles") and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments, repurchase
agreements, options, futures and other investments and techniques that the
Portfolios will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Portfolios' investments. The Adviser will determine what
portion of the Portfolios' investments shall be invested in securities and other
assets, and what portion, if any, should be held uninvested. The Adviser shall
furnish to the Fund adequate (i) office space, which may be space within the
offices of the Adviser or in such other places as may be agreed upon from time
to time and (ii)
<PAGE>
office furnishings, facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business of the Fund,
including complying with the corporate reporting requirements of the various
states in which the Fund does business, and conducting correspondence and other
communications with the stockholders of the Fund. The Adviser shall employ or
provide and compensate the executive, secretarial and clerical personnel
necessary to provide such services. Subject to the approval of the Board of
Directors (including a majority of the Fund's Directors who are not "interested
persons" of the Fund as defined in the 1940 Act) and of the shareholders of the
Fund, the Adviser may delegate to a sub=adviser its duties enumerated in Section
2 hereof. The Adviser shall continue to supervise the performance of any such
sub-adviser and shall report regularly thereon to the Fund's Board of Directors.
The Adviser further agrees that, in performing its duties hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder, the
Advisers Act, the Internal Revenue Code (the "Code") and all other applicable
federal and state laws and regulations, and with any applicable procedures
adopted by the Directors;
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies of
the Adviser's investment records and ledgers with respect to the Portfolios as
may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of its
affiliates; (1) becomes aware that it is subject to a statutory disqualification
that prevents the Adviser from serving as investment adviser pursuant to this
Agreement; or (2) becomes aware that it is the subject of an administrative
proceeding or enforcement action by the Securities and Exchange Commission
("SEC") or other regulatory authority. The Adviser further agrees to notify the
Fund immediately of any material fact known to the Adviser respecting or
relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement thereto, but that is required to be
disclosed therein, and of any statement contained therein that becomes untrue in
any material respect.
<PAGE>
3. Additional Services. If the Fund so requests, the Adviser shall also
maintain all internal bookkeeping, accounting and auditing services and records
in connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this Section 4, the Adviser shall pay the compensation and expenses
of all its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stock-holders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or employees of the Adviser
to the extent that such expenses relate to attendance at meetings of the Board
of Directors of the Fund with respect to matters concerning the Fund, or any
committees thereof or advisers thereto.
<PAGE>
5. Compensation. As compensation for the services provided and expenses
assumed by the Adviser under this Agreement, except for any additional services
provided by the Adviser pursuant to Section 3 hereof, each Portfolio will pay
the Adviser at the end of each calendar month an advisory fee as set forth in
Schedule A hereto. The advisory fee is computed daily as a percentage of each
Portfolio's average daily net assets. The "average daily net assets" of a
Portfolio shall mean the average of the values placed on the Portfolio's net
assets as of 4:00 p.m. (Eastern time) on each day on which the net asset value
of the Portfolio is determined consistent with the provisions of Rule 22c-1
under the 1940 Act or, if the Portfolio lawfully determines the value of its net
assets as of some other time on each business day, as of such other time. The
value of net assets of the Portfolio shall always be determined pursuant to the
applicable provisions of the Articles and the Registration Statement. If,
pursuant to such provisions, the determination of net asset value is suspended
for any particular business day, then for the purposes of this Section 5, the
value of the net assets of the Portfolio as last determined shall be deemed to
be the value of its net assets as of the close of regular trading on the New
York Stock Exchange, or as of such other time as the value of the net assets of
the Portfolio's securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month). If the Portfolio determines the value
of the net assets more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 5.
In the event that the Adviser's gross compensation hereunder shall, when
added to the other expenses of a Portfolio, cause the aggregate expenses of the
Portfolio to exceed the maximum expenses permitted under the lowest applicable
expense limitation established pursuant to the statutes or regulations of any
jurisdiction in which the shares of the Portfolio may be qualified for offer and
sale, the total compensation paid or payable to the Adviser shall be reduced
(but not below zero), to the extent necessary to cause the Portfolio not to
exceed such expense limitation. Except to the extent that such reduction has
been reflected in lowered monthly payments to the Adviser, the Adviser shall
refund to the Portfolio the amount by which the total of payments received by
the Adviser are in excess of such expense limitation as promptly as practicable
after the end of such fiscal year, provided that the Adviser shall not be
required to pay the Portfolio an amount greater than the fee otherwise payable
to the Adviser in respect of such year. As used in this Section 5, "expenses"
shall mean those expenses included in the applicable expense limitation having
the broadest specifications thereof, and "expense limitation" mean a limitation
on the maximum annual expenses which may be incurred by an investment company as
determined by applicable law. The words "lowest applicable expense limitation"
shall be deemed to be that which results in the largest reduction of the
Adviser's compensation for any fiscal year of a Portfolio; provided, however,
that nothing in this Agreement shall limit the Adviser's fees if not required by
an applicable statute or regulation referred to above in this Section 5.
6. Books and Records. The Adviser agrees to maintain such books and records
with respect to its services to the Fund as are required by Section 31 under the
1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods
<PAGE>
and in the manner required by that Section, and those rules and legal
provisions. The Adviser also agrees that records it maintains and preserves
pursuant to Rules 31a-1 and 31a-2 under the 1940 Act as otherwise in connection
with its services hereunder are the property of the Fund and will be surrendered
promptly to the Fund upon its request. And the Adviser further agrees that it
will furnish to regulatory authorities having the requisite authority any
information or reports in connection with its services hereunder which may be
requested in order to determine whether the operations of the Fund are being
conducted in accordance with applicable law and regulations.
7. Standard of Care and Limitation of Liability. The Adviser shall exercise
its best judgment in rendering the services provided by it under this Agreement.
The Adviser shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund or the holders of the Fund's shares in
connection with the matters to which this Agreement relates, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Fund or to holders of the Fund's shares to
which the Adviser would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or by
reason of the Adviser's reckless disregard of its obligations and duties under
this Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
8. Services Not Exclusive. It is understood that the services of the Adviser
are not exclusive, and that nothing in this Agreement shall prevent the Adviser
from providing similar services to other investment companies or to other series
of investment companies, or from engaging in other activities, provided such
other services and activities do not, during the term of the Agreement,
interfere in a material manner with the Adviser's ability to meet its
obligations to the Fund hereunder. When the Adviser recommends the purchase or
sale of the same security for a Portfolio, it is understood that in light of its
fiduciary duty to the Portfolio, such transactions will be executed on a basis
that is fair and equitable to the Portfolio. In connection with purchases or
sales of portfolio securities for the account of a Portfolio, neither the
Adviser nor any of its directors, officers or employees shall act as a principal
or agent or receive any commission, provided that portfolio transactions for a
Portfolio may be executed through firms affiliated with the Adviser, in
accordance with applicable legal requirements. If the Adviser provides any
advice to its clients concerning the shares of the Fund, the Adviser shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
9. Duration and Termination. This Agreement shall continue until April 28,
1997, and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated as to a Portfolio (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 Portfolio's outstanding voting securities, upon sixty (60) days' written
<PAGE>
notice to the Adviser or (b) by the Adviser at any time without penalty, upon
sixty (60) days' written notice to the Fund. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
10. Amendments. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of Maryland,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act, or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by a
court decision statute, rule or otherwise, the remainder of this Agreement shall
not be affected hereby and, to this extent, the provisions of this Agreement
shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of April 28, 1995.
THE PBHG FUND, INC.
By: __________________________
Title: Vice President
PILGRIM BAXTER & ASSOCIATES
By: __________________________
Title:
<PAGE>
Schedule A dated December , 1995
to the Investment Advisory Agreement dated
April 28, 1995 between
The PBHG Funds, Inc.
and
Pilgrim Baxter & Associates, Ltd.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth Fund .85%
PBHG Emerging Growth Fund .85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund .75%
PBHG Select Equity Fund .85%
PBHG Cash Reserves Fund .30%
PBHG Technology & Communications Fund .85%
PBHG Core Growth Fund .85%
THE PBHG FUND, INC.
By: __________________________
Title: Vice President
PILGRIM BAXTER & ASSOCIATES
By: __________________________
Title:
<PAGE>
Exhibit 5(b)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 4th day of April, 1995, by and among Pilgrim Baxter &
Associates, Ltd., a Pennsylvania partnership (the "Adviser"), Wellington
Management Company, a Massachusetts general partnership (the "Sub-Adviser") and
The PBHG Funds, Inc., a Maryland corporation (the "Corporation").
WHEREAS, the Corporation is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated July 31, 1992 as amended on June 2, 1994 (the "Advisory Agreement") with
the Corporation, pursuant to which the Adviser will act as investment adviser to
the PBHG Cash Reserves Fund (the "Fund"); and
WHEREAS, the Adviser and the Corporation each desire to retain the Sub-
Adviser to provide investment sub-advisory services to the Corporation in
connection with the management of the Fund, and the Sub-Adviser is willing to
render such investment subadvisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Corporation's Board of
Directors, the Sub-Adviser shall manage the investment operations of
the Fund and the composition of the Fund's portfolio, including the
purchase, retention and disposition thereof, in accordance with the
Fund's investment objectives, policies and restrictions as stated in
the Fund's Prospectus (such Prospectus and the Statement of
Additional Information, as currently in effect and as amended or
supplemented from time to time, being herein called the
"Prospectus"), and subject to the following:
(1) The Sub-Adviser shall provide supervision of the Fund's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the Fund,
and what portion of the Fund's assets will be invested or held
uninvested in cash.
(2) In the pertormance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Corporation's Articles of Incorporation (as defined herein) and
the Prospectus and with the instructions and directions of the
Adviser and of the Board of Directors of the Corporation and
will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986, and all other
applicable federal and state laws and regulations, as each is
amended from time to time.
<PAGE>
(3) The Sub-Adviser will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to
brokerage set forth in the Fund's Registration Statement (as
defined herein) and Prospectus or as the Board of Directors or
the Adviser may direct from time to time, in conformity with
federal securities laws. In providing the Fund with investment
sub-advisory services, the SubAdviser will give primary
consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the
Sub-Adviser may consider the financial responsibility, research
and investment information and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's
other clients may be a party. It is understood that it is
desirable for the Fund that the Sub-Adviser have access to
supplemental investment and market research and security and
economic analysis provided by brokers who may execute brokerage
transactions at higher cost to the Fund than may result when
allocating brokerage to other brokers on the basis of seeking
the most favorable price and efficient execution. Therefore,
the Sub-Adviser is authorized to place orders for the purchase
and sale of securities for the Fund with such brokers, subject
to review by the Corporation's Board of Directors from time to
time with respect to the extent and continuation of this
practice. It is understood that the services provided by such
brokers may be useful to the Sub-Adviser in connection with the
Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of
a security to be in the best interest of the Fund as well as
other clients of the Sub-Adviser, the Sub-Adviser, to the
extent permitted by applicable laws and regulations, may, but
shall be under no obligation to, aggregate the securities to be
so purchased or sold in order to obtain the most favorable
price or lower brokerage commissions and efficient execution.
In such event, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will
be made by the Sub-Adviser in the manner it considers to be the
most equitable and consistent with its fiduciary obligation to
the Fund and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall render
to the Board of Directors such periodic and special reports as
the Board of Directors may reasonably request.
-2-
<PAGE>
(5) The Sub-Adviser shall provide the Fund's Custodian on each
business day with information relating to all transactions
concerning the Fund's assets and shall provide the Adviser with
such information upon request of the Adviser.
(6) The investment sub-advisory services provided by the Sub-
Adviser under this Agreement are not to be deemed exclusive and
the SubAdviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Corporation.
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
(c) The Sub-Adviser shall keep the Fund's books and records required to
be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Fund required
by Rule 31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Fund are property of the
Fund and the Sub-Adviser will surrender promptly to the Fund any of
such records upon the Fund's request; provided, however, that the
Sub-Adviser may retain a copy of such records. The Sub-Adviser
further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be maintained
by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Fund pursuant to the Advisory Agreement and shall oversee
and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) The Corporation's Articles of Incorporation, as filed with the
Secretary of State of the State of Maryland (such Articles of
Incorporation, as in effect on the date of this Agreement and as
amended from time to time, herein called the "Articles of
Incorporation");
(b) By-Laws of the Corporation (such By-Laws, as in effect on the date of
this Agreement and as amended from time to time, are herein called
the "ByLaws");
-3-
<PAGE>
(c) Certified resolutions of the Board of Directors authorizing the
appointment of the Adviser and the Sub-Adviser with respect to the
Fund, and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on Form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Fund and shares of the Fund's common stock, and all
amendments thereto;
(e) Notification of Registration of the Corporation under the 1940 Act on
Form N-8A as filed with the Commission, and all amendments thereto;
and
(f) Prospectus of the Fund.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser
agrees to accept as full compensation therefore a sub-advisory fee at an
annual rate of .075% of the average daily net assets of the Portfolio up
to and including $500 million and .020% of the average daily net assets of
the Portfolio over $500 million. The Portfolio is subject to a minimum
annual sub-advisory fee of $50,000. This fee will be computed daily and
paid to the Sub-Adviser monthly.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Fund or the Adviser in connection with performance of
its obligations under this Agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the
period and the amount set forth in Section 36(b)(3) of the 1940 Act), or a
loss resulting from willful misfeasance, bad faith or gross negligence on
the Sub-Adviser's part in the performance of its duties or from reckless
disregard of its obligations and duties under this Agreement, except as
may otherwise be provided under provisions of applicable state law which
cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof 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 of any penalty, by the
vote of a majority of Directors of the Corporation 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 the Sub-Adviser at any time, without the payment of any penalty, on
90 days written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment. As
used in this Section 6, the terms "assignment" and "vote of a majority of
the outstanding voting securities" shall have the respective meanings set
forth in the 1940
-4-
<PAGE>
Act and the rules and regulations thereunder, subject to such exceptions
as may be granted by the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's partners, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the Sub-
Adviser at its principal office all prospectuses, proxy statements,
reports to stockholders, sales literature or other materials prepared for
distribution to stockholders of the Fund, the Corporation or the public
that refer to the Sub-Adviser or its clients in any way prior to use
thereof and not to use material if the Sub-Adviser reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The Sub-Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Sub-Adviser, its services and its clients. The Adviser
agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser by
first class or overnight mail, facsimile transmission equipment or hand
delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Fund.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to
be an original, but such counterparts shall, together, constitute only one
instrument.
-5-
<PAGE>
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: President
To the Sub-Adviser at:
Wellington Management Company
75 State Street
Boston, MA 02109
Attention: Legal Department
To the Corporation or the Fund at:
The PBHG Funds, Inc.
680 East Swedesford Road
Wayne, PA 19087
Attention: President
Any party may change its address for notices or reports hereunder by
giving notice of such change to the other parties in accordance with this
Section 13.
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
15. In the event that there is a change in the partners of the Sub-Adviser,
the Adviser will notify the Adviser and the Corporation within a
reasonable period of time.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
-6-
<PAGE>
PILGRIM BAXTER & ASSOCIATES, LTD. WELLINGTON MANAGEMENT COMPANY
By: /s/ Brian Bereznak By: /s/ Duncan M. McFarland
-------------------------------- --------------------------------
Duncan M. McFarland
Title: Chief Operating Officer Title: President
----------------------------- -----------------------------
THE PBHG FUNDS, INC.
By: /s/ RCH
--------------------------------
Title: Vice President
-----------------------------
-7-
<PAGE>
Exhibit 5(c)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG INTERNATIONAL FUND
AGREEMENT made as of this 30th day of June, 1995, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Murray Johnstone International
Limited (the "Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation
(the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28, 1995
between the Adviser and the Company, the Adviser will act as investment adviser
to the PBHG International Fund (the "Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the Sub-Adviser
to provide investment advisory services to the Company in connection with the
management of the Portfolio, and the Sub-Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board of
Directors, the Sub-Adviser shall manage the investment operations of
the Portfolio 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 as stated in the Portfolio's Prospectus (such Prospectus
and Statement of Additional Information, as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall 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.
(2) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Company's Articles of
Incorporation and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Directors and will
conform and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986, as amended, and all other applicable federal and
state laws and regulations, as each is amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers
<PAGE>
to carry out the policy with respect to brokerage set forth in the
Portfolio's Registration Statement (as defined herein) and Prospectus
or as the Board of Directors or the Adviser may direct from time to
time, in conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will give
primary consideration to securing the most favorable price and
efficient execution. Within the framework of this policy, the Sub-
Adviser may consider the financial responsibility, research and
investment information and other services provided by brokers or
dealers who may effect or be a party to any such transaction or other
transactions to which the Sub-Adviser's other clients may be a party.
It is understood that it is desirable for the Portfolio that the Sub-
Adviser have access to supplemental investment and market research and
security and economic analysis provided by brokers who may execute
brokerage transactions at a higher cost to the Portfolio than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore,
the Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers, subject to
review by the Company's Board of Directors from time to time with
respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to
the Sub-Adviser in connection with the Sub-Adviser's services to other
clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary
obligations to the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Company's Board of
Directors such periodic and special reports as the Company's Board of
Directors may reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(6) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Company.
<PAGE>
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's officers
or employees. It is understood that the Sub-Adviser may obtain
certain administrative services, including, without limitation,
services relating to trade reconciliation and the production of client
reports, from its parent company in carrying out its obligations under
this Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this
Agreement and shall timely furnished to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Portfolio
required by Rule 31a-1 under the 1940 Act. The Sub-Adviser agrees
that all records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender promptly
to the Portfolio any of such records upon the Portfolio's request;
provided, however, that the Sub-Adviser may retain a copy of such
records. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any such records as are
required to be maintained by it pursuant to paragraph 1(a) of this
Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of State of
Maryland (such Articles of Incorporation as in effect on the date of
this Agreement and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the "By-
Laws");
(c) Certified resolutions of the Company's Board of Directors authorizing
the appointment of the Adviser and the Sub-Adviser and approving the
form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Portfolio and shares of the Portfolio's beneficial
shares, and all amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940 Act on
form N-8A as filed with the Commission, and all amendments thereto;
and
<PAGE>
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.50% of the Portfolio's average daily
net assets, less 50% of any fee waivers borne by the Adviser. This fee
will be paid to the Sub-Adviser from the Adviser's advisory fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Adviser's part in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two years
from the date hereof 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 (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
company or by the vote of a majority of the outstanding voting securities
of the 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 the Sub-Adviser at any time, without
the payment of any penalty, on 90 days' written notice to the other
parties. This Agreement shall terminate automatically and immediately in
the event of its assignment. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the 1940 Act and the rules
and regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's directors, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the Sub-
Adviser at its principal office all prospectuses, proxy statements, reports
to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Company or the public
that refers to the Sub-Adviser or its clients in any way prior to use
thereof and not to use material if the Sub-Adviser reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt
<PAGE>
thereof. The Sub-Adviser's right to object to such materials is limited to
the portions of such materials that expressly relate to the Sub-Adviser,
its services and its clients. The Adviser agrees to use its reasonable
best efforts to ensure that materials prepared by its employees or agents
or its affiliates that refer to the Sub-Adviser or its clients in any way
are consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub-Adviser by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by the vote of the majority of the outstanding voting securities
of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be
an original, but such counterparts shall, together, constitute only one
instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
11 West Nile Street
Glasgow, Scotland G1 2PX
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
<PAGE>
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: Gary Pilgrim By: R.B. Carroll
--------------------------- --------------------------
Title: President & CIO Title: Vice President
MURRAY JOHNSTONE INTERNATIONAL
LIMITED
By: Susan E. Mullin
----------------------------
Title: Vice President and Director
<PAGE>
Exhibit 9 (a)(4)
SCHEDULE DATED OCTOBER ___, 1995
TO THE ADMINISTRATION AGREEMENT
DATED SEPTEMBER 10, 1993
AS AMENDED AND RESTATED AUGUST 8, 1994
BETWEEN
THE PBHG FUNDS, INC.
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Company shall pay the
Administrator compensation for services rendered to the PBHG
Technology Growth Fund (the "Portfolio") at a rate equal to .20% of
the Portfolio's average daily net assets when aggregated with the
Company's other portfolios covered by this Agreement, payable on a
monthly basis. There is a minimum annual administration fee of
$75,000 per Portfolio.
<PAGE>
Exhibit 9 (a)(5)
SCHEDULE DATED DECEMBER ___, 1995
TO THE ADMINISTRATION AGREEMENT
DATED SEPTEMBER 10, 1993
AS AMENDED AND RESTATED AUGUST 8, 1994
BETWEEN
THE PBHG FUNDS, INC.
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Company shall pay the
Administrator compensation for services rendered to the PBHG Mid-Cap
Growth Fund (the "Portfolio") at a rate equal to .20% of the
Portfolio's average daily net assets when aggregated with the
Company's other portfolios covered by this Agreement, payable on a
monthly basis. There is a minimum annual administration fee of
$75,000 per Portfolio.
<PAGE>
Exhibit 9(b)(2)
FORM OF SUB-TRANSFER AGENCY AGREEMENT
-------------------------------------
THIS AGREEMENT made effective the ____ day of ________, 1996 by and between
[NAME OF SUB-TRANSFER AGENT] ("Sub-Transfer Agent"), a ___________ corporation,
THE PBHG FUNDS, INC. (the "Fund"), a Maryland corporation, PILGRIM BAXTER &
ASSOCIATES, LTD. (the "Adviser"), a Delaware corporation, DST SYSTEMS, INC. (the
"Transfer Agent"), a Delaware corporation, and SEI FINANCIAL MANAGEMENT
CORPORATION (the "Administrator"), a Delaware corporation.
W I T N E S S E T H:
--------------------
WHEREAS, the Sub-Transfer Agent has agreed to provide participant
accounting, record-keeping and administrative services for certain employee
benefit, profit sharing and tax-qualified defined contribution plans
(collectively the "Plans," or individually, a "Plan"), specified in Exhibit A;
and
WHEREAS, the Fund, an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and each
separate series of the Fund (each a "Portfolio") set forth in Exhibit B,
authorize investment by the Plan and hereby instruct the Transfer Agent and the
Administrator to execute and implement this Agreement; and
WHEREAS, the Transfer Agent provides services as transfer agent, dividend
disbursement agent, and shareholder servicing agent to the Fund; and
WHEREAS, the Adviser, an investment adviser registered under the Investment
Advisers Act of 1940, as amended, provides investment advice to the Fund; and
WHEREAS, the Administrator provides administration and accounting services
to the Fund; and
WHEREAS, it is intended that the Transfer Agent will establish one master
or omnibus account in each Portfolio on its mutual fund shareholder accounting
system to be maintained of record by the Sub-Transfer Agent as the nominee of
the Plans reflecting the aggregate ownership by the Plans of shares of each
Portfolio and all shareholder transactions by the Plans involving such shares
(collectively, the "Accounts" or individually, the "Account"); and
WHEREAS, the Sub-Transfer Agent is registered as a transfer agent under
Section 17A(c)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is qualified to serve as transfer agent or sub-transfer
agent for the Fund for the purposes set forth herein; and
WHEREAS, it is intended that the Sub-Transfer Agent will establish
individual accounts on its defined contribution plan record-keeping system
reflecting all transactions by or on behalf
<PAGE>
of participants and beneficiaries under the Plans which result in purchases or
redemptions by the Plans of shares of the Portfolios; and
WHEREAS, it is intended that the Sub-Transfer Agent will act as the agent
of the Transfer Agent solely for the limited purpose of receiving orders by the
Plans for purchases and redemptions of shares of the Portfolios resulting from
transactions by or on behalf of the Plan participants and beneficiaries,
recording such purchases and redemptions, and making and maintaining the Fund's
shareholder records concerning the Plan participants which are recorded on the
Sub-Transfer Agent's defined contribution plan record-keeping system; and
WHEREAS, it is intended that the Administrator will provide to the Sub-
Transfer Agent those prospectuses, shareholder reports and other information
with respect to the Fund as the Fund is required under the federal securities
laws to provide to Plan participants, and which the Sub-Transfer Agent will
furnish to fiduciaries, participants and beneficiaries under the Plan; and
WHEREAS, on the terms and conditions hereinafter set forth, at the
direction of named fiduciaries of the Plans, the parties have agreed to make
shares of the Fund available as investment options under the Plan and to retain
the Sub-Transfer Agent to perform certain sub-transfer agency and administrative
services on behalf of the Fund, and the Sub-Transfer Agent is willing and able
to furnish such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto, intending to be legally bound, hereby agree and declare as
follows:
Section 1. Appointment as Agent. The Sub-Transfer Agent is hereby
--------------------
appointed as the agent of the Transfer Agent solely for the limited purpose of
receiving orders, in accordance with the Procedures (as defined in Section 2
hereof and set forth in Exhibit C), for the purchase and redemption by the Plans
of shares of the Portfolios and making and maintaining the records of the Fund
relating to such purchases and redemptions of the participants in the Plans.
Such purchases and redemptions shall be based on participant-level transactions
made by or on behalf of participants and beneficiaries under the Plans that are
recorded on the Sub-Transfer Agent's defined contribution plan record-keeping
system. Such records will be deemed to be and are part of the Fund's master
securityholder files, as defined in Rule 17Ad-9(b) under the Exchange Act. For
purposes of this Agreement, "participant-level transactions" shall include:
(a) any authorized direction to invest contributions by or on behalf
of any Plan participant in the Fund in accordance with the terms and
conditions of each Plan and the Fund's Prospectus;
(b) any authorized direction to transfer or exchange existing amounts
held on behalf of any participant or beneficiary by the Plans to the Fund
in accordance with the terms and conditions of each Plan and the Fund's
Prospectus;
(c) any authorized direction to transfer or exchange existing amounts
invested in the Fund on behalf of any participant or beneficiary by the
Plans to any other investment
2
<PAGE>
option offered under the Plans in accordance with the terms and conditions
of each Plan and the Fund's Prospectus; and
(d) any authorized direction to pay loan, withdrawal or distribution
proceeds to a participant or beneficiary by the Plans from the Fund in
accordance with the terms and conditions of each Plan and the Fund's
Prospectus.
The Sub-Transfer Agent shall maintain records on behalf of the Fund for the
Plans and for the participants and beneficiaries thereof reflecting all shares
of the Portfolios purchased and redeemed by the Plans based on participant-level
transactions (including the date and price for all transactions and share
balances) and all re-investment by the Plans of dividends and capital gains
distributions paid by the Fund. The Sub-Transfer Agent shall reconcile on each
Business Day, as defined herein, (i) all transactions by the Plans involving
shares of the Portfolios (including purchases, redemptions and re-investments of
dividends and capital gains distributions) with the corresponding participant-
level transactions on the Sub-Transfer Agent's defined contribution plan record-
keeping system, and (ii) the aggregate position of all Plan participants and
beneficiaries on the Sub-Transfer Agent's defined contribution plan record-
keeping system with a balance in each Account for that Business Day. In
accordance with paragraph (e) of Exhibit C, the Sub-Transfer Agent shall
promptly advise the Transfer Agent and the Adviser of any discrepancies between
the Sub-Transfer Agent's records and any balance in each Account.
Notwithstanding the Sub-Transfer Agent's appointment hereunder as the agent of
the Transfer Agent to receive orders for the purchases and redemptions by the
Plans of shares of the Portfolios, the Sub-Transfer Agent shall have no
authority under this Agreement or otherwise to act as agent for the Transfer
Agent or as sub-transfer agent for the Fund in respect to or in connection with
the distribution of shares of the Portfolios.
Section 2. Procedures. The operating procedures governing the parties'
----------
responsibilities under this Agreement with respect to instructions for the
purchase or redemption of shares of the Fund ("Instructions") and to price
communication are set forth in Exhibit C (the "Procedures"), which is attached
hereto and is specifically made a part of this Agreement. (All terms defined
herein or in Exhibit C shall have the same meaning when used herein or in
Exhibit C.) In all material respects, the Procedures shall be consistent with
the terms of the Fund's Prospectus and Statement of Additional Information
("SAI"), with the requirements of the 1940 Act and the Exchange Act, and with
any other applicable federal or state laws and regulations.
3
<PAGE>
Section 3. Representations and Warranties.
------------------------------
(a) The Sub-Transfer Agent represents and warrants that:
---------------------------------------------------
(i) it has full power and authority to enter into and
perform this Agreement and, when executed and delivered, this
Agreement shall constitute a valid, legal and binding
obligation of the Sub-Transfer Agent, enforceable in
accordance with its terms;
(ii) it is registered and in good standing as a transfer
agent pursuant to Section 17A(c)(2) of the Exchange Act;
(iii) it is duly qualified and duly authorized by each Plan
to act on behalf of the Plan as contemplated by this
Agreement;
(iv) the arrangements provided for in this Agreement will be
disclosed to each Plan through the Sub-Transfer Agent's
representatives; and
(v) it shall promptly notify the Fund in the event that it
is, for any reason, unable to perform any of its obligations
under this Agreement.
(b) The Transfer Agent represents that:
----------------------------------
(i) it has full power and authority to enter into and
perform this Agreement and, when executed and delivered this
Agreement shall constitute a valid, legal and binding
obligation of the Transfer Agent, enforceable in accordance
with its terms;
(ii) it is registered and in good standing as a transfer
agent pursuant to Section 17A of the Exchange Act;
(iii) it is duly qualified and duly authorized to act on
behalf of the Fund as contemplated by this Agreement; and
(iv) it shall promptly notify the Sub-Transfer Agent and the
Fund in the event that it is for any reason unable to perform
any of its obligations under this Agreement.
(c) The Fund represents and warrants that:
-------------------------------------
(i) it has full power and authority to enter into and
perform this Agreement and, when executed and delivered, this
Agreement shall constitute a valid, legal and binding
obligation of the Fund, enforceable in accordance with its
terms;
4
<PAGE>
(ii) it only conducts business on days on which the New York
Stock Exchange is open for trading (previously defined herein
as Business Days). Attached hereto as Exhibit D is a list
setting forth the weekdays on which the Fund does not conduct
business;
(iii) the shares of the Portfolio are registered or otherwise
authorized for issuance and sale in the jurisdictions set
forth in Exhibit E hereto;
(iv) the Registration Statement, Prospectus and SAI of the
Fund comply, in all material respects, with all applicable
federal and state securities laws;
(v) each Portfolio is a series of an investment company
registered under the 1940 Act;
(vi) if selected by any Plan as an investment option for the
Plan's assets, the Fund shall cooperate with the Plan and with
the Sub-Transfer Agent to establish in a timely and orderly
manner necessary relationships;
(vii) the Transfer Agent did not participate in the choice of
the Sub-Transfer Agent as the Transfer Agent's agent or the
Fund's sub-transfer agent and the Transfer Agent shall have no
responsibility or liability for the Sub-Transfer Agent's
actions or omissions unless such actions or omissions arise
out of or result from the Transfer Agent's bad faith,
negligence or willful misconduct; and
(viii) it shall promptly notify the Sub-Transfer Agent and
the other parties hereto in the event that the Fund is, for
any reason, unable to perform any of its obligations under
this Agreement.
(d) The Adviser represents and warrants that:
----------------------------------------
(i) it has full power and authority to enter into and
perform this Agreement and, when executed and delivered, this
Agreement shall constitute a valid, legal and binding
obligation of the Adviser, enforceable in accordance with its
terms;
(ii) it is duly qualified and duly authorized to act on
behalf of the Fund as contemplated by this Agreement; and
(iii) it shall promptly notify the Sub-Transfer Agent and the
Fund in the event that it is, for any reason, unable to
perform any of its obligations under this Agreement.
(e) The Administrator represents and warrants that:
----------------------------------------------
5
<PAGE>
(i) it has full power and authority to enter into and
perform this Agreement and, when executed and delivered, this
Agreement shall constitute a valid, legal and binding
obligation of the Administrator, enforceable in accordance with
its terms;
(ii) it is duly qualified and duly authorized to act on
behalf of the Fund as contemplated by this Agreement; and
(iii) it shall promptly notify the Sub-Transfer Agent and the
Fund in the event that it is, for any reason, unable to perform
any of its obligations under this Agreement.
Section 4. Instructions.
------------
(a) All Instructions received from Plan participants and
transmitted by the Sub-Transfer Agent to the Transfer Agent on any
Business Day will be based only upon Instructions that the Sub-Transfer
Agent has received from an authorized person under each Plan no later
than the time when the net asset value per share ("Share Price") is
determined for the Fund ("Close of Trading"). Such receipt of
Instructions by the Sub-Transfer Agent shall be deemed receipt by the
Transfer Agent and the Fund for Share Price purposes only.
(b) The Transfer Agent and the Fund are obligated hereunder to
accept Instructions only from the Sub-Transfer Agent with respect to the
Plans and the Accounts. Each may refuse to comply with Instructions,
directions or communications from anyone else concerning the Plans and
the Accounts, except as otherwise expressly provided for in Section 7 of
this Agreement.
Section 5. Additional Covenants and Agreements.
-----------------------------------
(a) The Fund covenants that:
-----------------------
(i) any Portfolio selected by the Plans whose shares are not
authorized for issuance and sale in the required
jurisdiction(s) shall immediately take the necessary and
appropriate steps to make such shares eligible for issuance and
sale in such jurisdiction(s), except where registration or
other necessary actions in such jurisdiction(s) would require
an amendment to, or change in, a Portfolio's material
investment policies or techniques or fundamental investment
limitations;
(ii) it shall comply with all federal and state securities,
insurance, Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and tax laws, rules and regulations
applicable to it as a result of the transactions contemplated
by this Agreement;
6
<PAGE>
(iii) the Fund or its representative shall establish the
Accounts on its or its representative's mutual fund shareholder
accounting system, as contemplated by this Agreement, and
maintain the Accounts in accordance with all applicable federal
and state securities laws, and such Accounts shall be in the
name of [the Sub-Transfer Agent (or its nominee) or the trustee
or other designee of the Plans (or their nominees)] as the sole
shareholder of record of shares of the Portfolios owned by the
Plans ("Record Owner").
(b) The Sub-Transfer Agent covenants that:
-------------------------------------
(i) it shall comply with all applicable federal and state
securities, insurance, ERISA, and tax laws, rules and
regulations applicable to its activities contemplated by this
Agreement;
(ii) it shall not, without the written consent of the Fund,
make representations concerning the shares of the Portfolios,
except those contained in the then current Prospectus or SAI
and in the then current printed sales literature approved by
the Fund or its representative;
(iii) the participant-level securityholder records to be made
and maintained by the Sub-Transfer Agent will be made,
maintained and made available in accordance with the
requirements applicable to transfer agents under Section 17A
and Section 17Ad(7)(g) of the Exchange Act and to registered
investment companies under Section 31 of the 1940 Act;
(iv) each participant-level transaction that contributes to,
is a part of, or is included in an Instruction communicated by
the Sub-Transfer Agent to the Transfer Agent will have been
received by the Sub-Transfer Agent before the Close of Trading
on the Business Day immediately preceding the Business Day on
which such Instruction is communicated;
(v) it shall promptly verify all daily and monthly Account
statements provided to it by the Transfer Agent and trade
information made available by the Transfer Agent and shall, in
accordance with Paragraph (e) of Exhibit C hereof, notify the
Transfer Agent and the Adviser of any discrepancies between the
records maintained by the Sub-Transfer Agent and the daily and
monthly statements and trade information provided or made
available to the Sub-Transfer Agent pertaining to the Accounts;
(vi) with respect to the other parties to this Agreement only,
the Sub-Transfer Agent is and shall be responsible for: (A) all
reporting - whether daily, periodic, year-end, annual or
special- to each Plan, participants in the Plan, the federal
and state taxation authorities and the U.S. Department of Labor
and the U.S. Treasury Department; (B) the actual
7
<PAGE>
delivery of all redemption proceeds to participants and
beneficiaries; (C) the collection of all required withholding
of taxes from all redemptions and distributions; and (D) the
payment of all sums withheld from such redemptions and
distributions to the applicable taxation authority; and
(vii) The Sub-Transfer Agent is not providing broker-dealer or
investment advisory services under this Agreement.
(c) The Transfer Agent covenants that:
---------------------------------
(i) it shall comply with all applicable federal and state
securities, insurance, ERISA, and tax laws, rules and
regulations applicable to the activities of the Transfer Agent
contemplated by this Agreement;
(ii) it shall promptly process all Instructions, as
contemplated by this Agreement;
(iii) it shall promptly, in relationship to the Settlement
Date, provide to the Sub-Transfer Agent all necessary
notifications/confirmations as required under federal and state
securities laws;
(iv) it shall establish the Accounts on its mutual fund
shareholder accounting system, as contemplated by this
Agreement, and operate the Accounts in accordance with all
applicable federal and state securities laws; and
(v) except as otherwise provided in Section 5(b)(vi) and
Section 9 of this Agreement, it shall comply with all tax
reporting requirements, if any, with respect to the Accounts or
Record Owner in its capacity as the sole shareholder of record
of the Accounts only.
8
<PAGE>
(d) The Adviser covenants that:
--------------------------
(i) it shall comply with all federal and state securities,
insurance, ERISA, and tax laws, rules and regulations
applicable to it as a result of transactions contemplated by
this Agreement; and
(ii) it shall use its reasonable best efforts to promptly
verify all information provided to it by the Transfer Agent and
it shall promptly notify all necessary parties of any
discrepancies between the information in its records and the
Instructions provided by the Sub-Transfer Agent on behalf of
the Plans and their participants.
(e) The Administrator covenants that:
--------------------------------
(i) it shall comply with all applicable federal and state
securities, insurance, ERISA, and tax laws, rules and
regulations applicable to the activities of the Administrator
contemplated by this Agreement.
Section 6. Payment for Instructions.
------------------------
(a) Payment for Net Purchases. Payment for net purchases of shares
-------------------------
in the Portfolios will be wired by the custodian or trustee for the Plans
to a custodial account designated by the Fund, in accordance with the
Procedures described in Exhibit C.
(b) Payment for Net Redemptions. Payment for net redemptions of
---------------------------
shares in the Fund will be wired from the Fund's custodial account to the
custodian or trustee for the Plan, in accordance with the Procedures
described in Exhibit C.
Section 7. Fund Communications. The Fund or its Administrator shall
-------------------
supply the Sub-Transfer Agent with the following materials and information with
respect to the Fund, which the Sub-Transfer Agent shall furnish or make
available, where appropriate and as required by applicable law, to fiduciaries,
participants and beneficiaries under the Plans:
(a) Fund Prospectuses, Annual Reports and Proxy Materials. The
-----------------------------------------------------
Fund shall supply the Sub-Transfer Agent, upon request, with a reasonably
sufficient quantity of current Prospectuses, and/or profile or summary
prospectuses (as permitted by interpretations or no-action letters issued
by the SEC staff), shareholder reports, and proxy statements and related
materials for the Fund. The Sub-Transfer Agent shall be responsible for
the timely delivery of all Prospectuses, and/or profile or summary
prospectuses, shareholder reports, and proxy statements and related
materials to participants and beneficiaries under the Plans to the extent
necessary to satisfy the U.S. Department of Labor's final regulation under
Section 404(c) of ERISA (29 CFR (S)2550.404c-1), Section 30 of the 1940
Act, Section 14 of the Exchange Act, or other applicable law, or as
specifically required under each Plan or reasonably requested by named
fiduciaries of each Plan.
9
<PAGE>
The cost of preparing, printing and shipping to the Sub-Transfer Agent
Prospectuses, and/or profile summary prospectuses, proxy materials,
shareholder reports and other materials of the Fund shall be paid by the
Fund or its agent; provided, however, that if at any time the Fund or its
agent reasonably deems the usage by the Sub-Transfer Agent or the Plans of
such items to be excessive, it may, prior to the delivery of any quantity
of materials in excess of what is deemed reasonable, request that the Sub-
Transfer Agent or the Plans, as the case may be, satisfactorily demonstrate
the reasonableness of such usage. If the Fund believes the reasonableness
of such usage has not been adequately demonstrated, the Fund may request
that the party responsible for such excess usage pay the cost of printing
(including press time) and delivery of any excess copies of such materials.
Unless the Sub-Transfer Agent or the Plans, as the case may be, agree to
make such payments, the Fund may refuse to supply additional materials and
this section shall not be interpreted as requiring delivery by the Fund of
any copies in excess of the number of copies required by law.
The cost of any distribution to each Plan or its participants of
Prospectuses, and/or profile or summary prospectuses, proxy materials,
shareholder reports and other materials of the Fund shall be paid by either
the Sub-Transfer Agent, the Plan, or the Plan sponsor, as determined by the
Sub-Transfer Agent's agreement with each Plan, and shall not be the
responsibility of the Fund or any other party to this Agreement.
(b) Notice of Dividends and Other Distributions; Reports. The Fund
----------------------------------------------------
or its Administrator shall furnish the Sub-Transfer Agent, or its designee,
notice of any dividends or other distributions payable with respect to a
Portfolio. Dividends and distributions with respect to a Portfolio shall
be automatically reinvested by the Transfer Agent in additional shares of
that Portfolio held by the custodian or trustee for each Plan, and the Fund
shall notify the Sub-Transfer Agent or its designee as to the number of
additional shares so issued.
(c) Fund Performance Information. By the fifth (5th) Business Day of
----------------------------
each calendar month, the Fund shall provide to the Sub-Transfer Agent
performance information for the Portfolios as of the end of the preceding
calendar month, including each Portfolio's total return for the preceding
calendar month and calendar quarter, the calendar year-to-date, and the
prior one-year, three-year, five-year, and ten-year periods, if applicable.
(d) Monthly Statements by the Transfer Agent. By no later than the
----------------------------------------
fifth (5th) Business Day of each calendar month, the Transfer Agent shall
mail to the Sub-Transfer Agent a statement for the preceding calendar month
reflecting the shares of the Portfolios held by the Plans as of the end of
such preceding month and all shareholder-related activities by the Plans in
the Portfolios during such preceding month.
(e) Fund Toll-Free Number. It is understood by the parties that the
---------------------
Sub-Transfer Agent licensed representatives will discuss with participants
and beneficiaries under the Plans the investment objectives and policies of
the Portfolios, solely as set forth in the
10
<PAGE>
Fund's current Prospectus, and the recent investment performance of the
Portfolios based solely on the information supplied by the Fund under
Section 7(c) above. To the extent that participants or beneficiaries under
the Plans request additional information with respect to the Portfolios,
the Fund shall supply a toll-free telephone number which the Plan
participants and beneficiaries may use to request such additional
information from an appropriate representative of the Fund.
(f) Fund Review of Participant Communications Materials. It is
---------------------------------------------------
understood by the parties that, based on the Fund's current Prospectus and
the information supplied by the Fund under Section 7(c) above, the Sub-
Transfer Agent may prepare communications or disclosure materials for
participants and beneficiaries under the Plans which describe the Fund or
Portfolios in the same format as that used for the other investment options
offered under the Plans. The Sub-Transfer Agent shall supply the Fund, or
its designated representative, with copies of such materials concerning the
Fund or Portfolios within a reasonable time period in advance of their
intended distribution to the Plan participants and beneficiaries. The Sub-
Transfer Agent and the Fund shall establish a mutually agreeable time frame
in which such materials shall be reviewed and approved for use by the Fund,
or its designated representative. The Sub-Transfer Agent agrees not to use
any such materials without the prior written approval of the Fund or its
designated representative. Moreover, the Sub-Transfer Agent agrees not to
use such materials until such materials have been submitted to and cleared
by the National Association of Securities Dealers, Inc.
(g) Other Fund Information. The Fund agrees to supply the Sub-
----------------------
Transfer Agent with any material information which it may have that could
have a materially adverse impact on the performance of the Portfolios in
the same manner and time frame in which such information is made available
to the Fund's shareholders.
Section 8. Records of the Sub-Transfer Agent. Upon the reasonable request
---------------------------------
of the Fund or its Transfer Agent, and at the expense of the Fund, and subject
to any confidentiality obligations of the Sub-Transfer Agent, or upon the
request of an appropriate regulatory agency, the Sub-Transfer Agent shall make
available to the Funds, the Transfer Agent, and all necessary regulatory
authorities copies of all records maintained by the Sub-Transfer Agent to ensure
compliance with applicable law. Upon the reasonable request of the Sub-Transfer
Agent and at the expense of the Sub-Transfer Agent, and subject to any
confidentiality obligations of the Fund, the Fund shall make available copies of
all records maintained by the Fund to ensure compliance with applicable law.
Section 9. The Sub-Transfer Agent's Services. The Sub-Transfer Agent
---------------------------------
agrees to provide all sub-transfer agency and administrative services for the
Plans and Plan participants, including but not limited to, those specified below
(the "Plan Services"). Neither the Fund, the Adviser, the Transfer Agent, nor
the Administrator shall be required to provide Plan Services for the benefit of
the Plans or Plan participants, nor shall they be required to maintain separate
accounts or records for Plan participants. Neither The Sub-Transfer Agent nor
its representatives shall make any statements that indicate otherwise to Plan
participants or
11
<PAGE>
representatives of the Plans. The Sub-Transfer Agent shall maintain and
preserve all records as required by applicable federal and state law as well as
all records required by its agreements with the Plan sponsors to be maintained
and preserved in connection with providing the Plan Services, and shall
otherwise comply with all applicable laws, rules and regulations applicable to
the provision of the Plan Services and to it acting as sub-transfer agent of the
Transfer Agent. The Sub-Transfer Agent shall:
(a) maintain separate records for each participant under the Plans,
which records shall reflect the shares purchased and redeemed
(including the date and NAV for all transactions), share balances of
such Plan participants, the name and address of each Plan participant
(including zip codes and tax identification numbers);
(b) disburse or credit to the Plans, and maintain records of, all
proceeds of redemptions of shares of the Portfolios and all dividends
and other distributions not reinvested in shares of the Portfolios;
(c) as required by law or the Plans, prepare and transmit to the Plans
and/or Plan participants periodic statements showing, among other
things, the total number of shares owned by the Plans and/or the Plan
participants as of the statement closing date, purchases and
redemptions of shares by the Plans or the Plan participants during the
period covered by the statement, the NAV of the Portfolios as of the
statement date, the dividends and other distributions paid during the
statement period (whether paid in cash or reinvested in shares), and
such other information as may be required, from time to time, by the
Plans;
(d) transmit net purchase and redemption Instructions on behalf of the
Plans to the Fund's Transfer Agent, and as appropriate to the Adviser,
in accordance with the Procedures described in this Agreement and
Exhibit C;
(e) distribute to each Plan and/or the Plan participants, as
appropriate, copies of the Fund's Prospectus, SAI, proxy materials,
shareholder fund reports and other materials that the Fund is required
by law or otherwise to provide to its current or prospective
shareholders;
(f) maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Plan
Services for the Plans;
(g) prepare, transmit, and file federal and state reports and returns
as agreed upon between The Sub-Transfer Agent and the Plan Sponsor(s),
or as required under this Agreement, with respect to each Account
maintained on behalf of the Plans;
12
<PAGE>
(h) respond to inquiries of Plan participants regarding, among other
things, share prices, account balances, dividend options, dividend
amounts, and dividend payment dates; and
(i) maintain all Account balance information for the Plans.
Section 10. The Sub-Transfer Agent Fees. The Fund anticipates that it
---------------------------
will derive a substantial savings in transfer agency and administrative
expenses, such as a reduction in expenses related to postage, shareholder
communications and recordkeeping, by virtue of having a single shareholder
account per Portfolio for the Plans rather than having each Plan participant as
a shareholder. The Fund shall pay to the Sub-Transfer Agent, as compensation
for the Plan Services to be provided by the Sub-Transfer Agent under this
Agreement, a quarterly fee of .0375% of all Plan assets invested in the
Portfolios specified in Exhibit B. The Sub-Transfer Agent's fee shall be
calculated and paid quarterly by determining the product of 0.000375 multiplied
by the total of all Plan assets invested in the Portfolios specified in Exhibit
B as of the last Business Day of the calendar quarter. The Sub-Transfer Agent
shall notify the Fund in writing of the amount due and payable hereunder, and
shall provide such documentation supporting its calculation as may be reasonably
requested by the Fund. Unless the Fund objects in writing, the Fund shall pay
such fee to the Sub-Transfer Agent within thirty (30) days after receiving
notice from the Sub-Transfer Agent of the amount due and payable. Upon
providing reasonable advance notice to the Sub-Transfer Agent, the Fund or its
duly authorized agents or representatives may review the Sub-Transfer Agent's
books and records during normal business hours for the purpose of verifying the
accuracy of the amounts billed by the Sub-Transfer Agent or the fees paid or
payable by the Fund under this Agreement.
Section 11. Cross-Indemnification of Parties. The Transfer Agent, the
--------------------------------
Fund, the Adviser, and the Administrator, shall not be held responsible and the
Sub-Transfer Agent shall indemnify and hold the Transfer Agent, the Fund, the
Adviser, and the Administrator and their respective officers, directors,
employees, agents, and person, if any, who controls them within the meaning of
the 1940 Act and Securities Act of 1933, as amended, harmless from and against
any and all reasonable losses, damages, (excluding consequential, punitive or
other indirect damages) costs, charges, counsel fees, payments, expenses, and
liability arising out of or attributable to: (i) the Sub-Transfer Agent's lack
of good faith, negligence, reckless disregard or willful misconduct in carrying
out its duties and responsibilities under this Agreement; (ii) any breach by the
Sub-Transfer Agent of any material provision of this Agreement; or (iii) any
breach by the Sub-Transfer Agent of any representation, warranty, or covenant
made in this Agreement. Neither the Sub-Transfer Agent nor its affiliates shall
be held responsible and the Transfer Agent, the Fund, the Adviser, and the
Administrator, shall severally indemnify and hold the Sub-Transfer Agent and its
affiliates and their officers, directors, employees, and agents harmless from
and against any and all reasonable losses, damages, costs, charges, counsel
fees, payments, expenses, and liability arising out of or attributable to: (i)
its lack of good faith, negligence, reckless disregard or willful misconduct in
carrying out its respective duties and responsibilities under this Agreement;
(ii) its breach of any material provision of this Agreement; or (iii) its breach
of any representation, warranty, or covenant made in this Agreement. It is
understood by the parties that the obligations of the Transfer Agent, the Fund,
the Adviser, and
13
<PAGE>
the Administrator, under this Section arise only with respect to each such
party's own acts or failure to act and not with respect to an act or failure to
act of any other party.
In providing services pursuant to this Agreement, each party shall comply
with all applicable federal and state securities laws and regulations and each
party hereto shall fully indemnify the other for any claims or liabilities
suffered by such other party, or its partners, employees or agents (including
reasonable legal fees and other out-of-pocket costs of defending against any
such claim or liability) or incurred in enforcing this right of
indemnification), arising from non-compliance by such party with any such laws
or regulations.
In providing the indemnifications set forth herein, each party agrees to
maintain such insurance coverage as shall be reasonably necessary under the
circumstances.
Section 12. Force Majeure. In the event any party is unable to perform
-------------
its obligations or duties under the terms of this Agreement because of acts of
God, strikes, riots, acts of war, equipment failures, or power failures or
damage or other cause reasonably beyond its control, such party shall not be
liable for any and all losses, damages, costs, charges, counsel fees, payments,
expenses or liability to any other party (whether or not a party to this
Agreement) resulting from such failure to perform its obligations or duties
under this Agreement or otherwise from such causes. This provision shall in no
way excuse any party from any liability that results from that party's failure
to have in place appropriate and reasonable disaster recovery plans designed to
enable that party to perform its obligations and duties under this Agreement.
Section 13. Confidentiality. Subject to the Fund's ownership of certain
---------------
records as set forth in Section 1 of this Agreement, all information, books,
records, and data supplied by one party to another party in connection with the
negotiation or carrying out of this Agreement are and shall remain the property
of the party supplying such information, books, records, or data and shall be
kept confidential by the other party except as may be required by law and except
as the other party also received such information, books, records, or data from
some other source not a party to this Agreement.
Section 14. Governing Law. This Agreement shall be construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania without reference
to choice of law principles.
Section 15. Notices. Every Notice required by this Agreement shall be
-------
deemed given when sent in accordance with the Procedures or, as to any matter
not addressed by the Procedures, a Notice shall be deemed given if sent the next
Business Day by a nationally recognized overnight carrier service that provides
evidence of receipt or if sent the same Business Day by 3:00 p.m. (receiving
party's time) by personal delivery or facsimile transmission, in each case to
such person and to such facsimile number (if applicable) as shall be designated
from time to time by each party pursuant to a written notice. The names and
addresses of the persons to whom notices should be sent are set forth in Exhibit
F.
Section 16. Assignment. No party shall assign any of its rights, powers
----------
or duties under this Agreement without the other parties' prior written consent.
This Agreement shall be
14
<PAGE>
binding upon and inure to the benefit of the parties hereto and their respective
permitted successors and assigns.
Section 17. Amendment or Termination of Agreement. The parties to this
-------------------------------------
Agreement may agree in writing to amend this Agreement at any time in whole or
in part. Any of the parties may terminate this Agreement upon thirty (30) days
written notice to the other parties (which notice may be waived by the other
parties).
This Agreement shall be terminated immediately by any party upon written
notice to the other parties of: (i) a material breach by any party that is not
cured within thirty (30) days after written notice; (ii) the effective date of
the termination of the Sub-Transfer Agent as a service provider to the Plans;
(iii) the discontinuance of the Fund as an investment option offered under the
Plans; (iv) the termination of the Transfer Agent or the Administrator as
service providers to the Fund; (v) the lapse or cessation of full force and
effect of the authorizations, licenses, qualifications or registrations required
to be maintained by any of the parties of this Agreement in connection with the
performance of their respective duties hereunder; (vi) any action to be taken or
service to be provided hereunder that becomes unlawful due to changes in the
laws or for other reasons; and (vii) a good faith determination by the Fund or
the Adviser that shares of any of the Portfolios are not being offered in
conformity with the terms of this Agreement, such Portfolio's then current
Prospectus or SAI or applicable law.
Termination of this Agreement shall not affect the obligations of the
parties to make payments in accordance with the Procedures specified in Exhibit
C or to provide compensation under Section 7 for any Instruction received by the
Transfer Agent (and the Administrator, if appropriate) prior to such termination
and shall not affect the Fund's obligation to maintain the Accounts in the name
of the Plans or any successor trustee or recordkeeper for such Plans. Following
termination of this Agreement, the Fund shall not have any payment obligation to
the Sub-Transfer Agent for the Plan Services contemplated herein. Upon
termination of this Agreement for any reason, purchases of shares of the
Portfolio's pursuant to this Agreement shall no longer be permitted through the
Sub-Transfer Agent.
Section 18. Use of Names. Except as otherwise expressly provided for in
------------
this Agreement, neither the Fund, the Adviser, the Transfer Agent, nor the
Administrator shall use any trademark, trade name, service mark or logo of the
Sub-Transfer Agent, or any variation of any such trademark, trade name, service
mark or logo, without the Sub-Transfer Agent's prior written consent, which
consent may not be unreasonably withheld. Except as otherwise expressly
provided for in this Agreement, the Sub-Transfer Agent shall not use any
trademark, trade name, service mark or logo of the Fund, the Adviser, the
Transfer Agent, or the Administrator, or any variation of any such trademarks,
trade names, service marks, or logos, without the prior written consent of the
Fund, the Adviser, the Transfer Agent, or the Administrator, as appropriate,
which consent may not be unreasonably withheld.
Section 19. Non-Exclusivity. Each of the parties acknowledges and agrees
---------------
that this Agreement and the arrangement described herein are intended to be non-
exclusive and that each of the parties is free to enter into similar agreements
and arrangements with other entities.
15
<PAGE>
Section 20. Records. The parties hereto agree to cooperate in good faith
-------
in providing records to one another pursuant to this Agreement.
(a) Upon the request of the other parties to this Agreement, the Sub-
Transfer Agent shall provide copies of all the historical records
relating to transactions between the Fund and the Plans, written
communications regarding the Fund to or from the Plans and other
materials, in each case (i) as are maintained by the Sub-Transfer
Agent in the ordinary course of its business, and (ii) as may
reasonably be requested to enable the other parties to this Agreement,
or their representatives, including without limitation its auditors or
legal counsel, to (1) monitor and review the Plan Services, (2) comply
with any request of a governmental body or self-regulatory
organization or the Plans, (3) verify compliance by the Sub-Transfer
Agent with the terms of this Agreement, (4) make required regulatory
reports, (5) perform general customer supervision, or (6) as required
by Section 17Ad(7)(g) of the Exchange Act. The Sub-Transfer Agent
agrees that it will permit other parties to this Agreement or such
representatives of them to have reasonable access to its personnel and
records in order to facilitate the monitoring of the quality of the
Plan Services.
(b) Upon the request of the Sub-Transfer Agent, other parties to this
Agreement shall provide copies of all the historical records relating
to transactions between the Fund and the Accounts, written
communications regarding the Fund to or from the Accounts and other
materials, in each case (i) as are maintained by the other parties to
this Agreement, as the case may be, in the ordinary course of their
business and in compliance with applicable law, and (ii) as may
reasonably be requested to enable the Sub-Transfer Agent or its
representatives, including without limitation its auditors or legal
counsel, to (1) comply with any request of a governmental body or
self-regulatory organization of the Plans, (2) verify compliance by
the other parties to this Agreement with the terms of this Agreement,
(3) make required regulatory reports, or (4) perform general customer
supervision.
Section 21. Relationship of Parties: No Joint Venture, Etc.. Except for
-----------------------------------------------
the limited purposes provided in Sections 3 and 9, it is understood and agreed
that all services performed hereunder by the Sub-Transfer Agent shall be as an
independent contractor and not as an employee or agent of the other parties to
this Agreement, and none of the parties shall hold itself out as an agent of any
other party with the authority to bind such party. Neither the execution nor
performance of this Agreement shall be deemed to create a partnership or joint
venture by and among any of the parties hereto.
Section 22. Operations of Funds. In no way shall the provisions of this
-------------------
Agreement limit the authority of any of the parties hereto to take such action
as it may deem appropriate or advisable in connection with all matters relating
to the operation of the Fund and the sale of shares of the Portfolios. In no
way shall the provisions of this Agreement limit the authority of the Sub-
Transfer Agent to take such action as it may deem appropriate or advisable in
16
<PAGE>
connection with all matters relating to the provision of Plan Services or the
shares of funds other than the Portfolios offered to the Plans.
Section 23. Survival. The provisions of Section 10, Section 11, Section
--------
12 and Section 17 of this Agreement shall survive termination of this Agreement.
Section 24. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original and all of which together shall
be deemed one and the same document.
Section 25. Severability. In case any one or more of the provisions
------------
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
17
<PAGE>
Section 26. Entire Agreement. This Agreement, including any Exhibits
----------------
hereto, constitutes the entire agreement between the parties with respect to the
matters dealt with herein, and supersedes all previous agreements, written or
oral with respect to such matters.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duly authorized officers as of the day and
year first above written.
Attest: [name of Sub-Transfer Agent]
_________________________ By:_________________________________________
[Title]
Attest: THE PBHG FUNDS, INC.
_________________________ By:_________________________________________
Title:______________________________________
Attest: PILGRIM BAXTER & ASSOCIATES, LTD.
_________________________ By:_________________________________________
Title:______________________________________
Attest: DST SYSTEMS, INC.
_________________________ By:_________________________________________
Title:______________________________________
Attest: SEI FINANCIAL MANAGEMENT CORPORATION
_________________________ By:_________________________________________
Title:______________________________________
18
<PAGE>
EXHIBIT A
PLANS
-----
1
<PAGE>
EXHIBIT B
---------
PORTFOLIOS
Name of Portfolio CUSIP
----------------- -----
1
<PAGE>
EXHIBIT C
---------
PROCEDURES
----------
(a) On each day the New York Stock Exchange (the "Exchange") is open for
business (each a "Business Day"), the Sub-Transfer Agent may receive
instructions from each Plan specified in Exhibit A for the purchase or
redemption of shares of the Portfolios ("Instructions"), based solely upon each
Plan's receipt of Instructions from Plan participants and beneficiaries prior to
the Close of Trading on that Business Day. Instructions in good order received
by the Sub-Transfer Agent prior to 4:00 p.m. Eastern Time ("ET") on any given
Business Day or earlier if the Exchange closes earlier than 4:00 p.m. ET (the
"Trade Date") and transmitted to the Transfer Agent by 4:00 a.m. ET the Business
Day following the Trade Date ("Trade Date plus One" or "TD+1"), will be executed
at the net asset value per share ("Share Price") of each applicable Portfolio,
determined as of the Close of Trading on the Trade Date.
(b) By no later than 7:00 p.m. ET on each Business Day ("Price
Communication Time"), the Administrator will communicate to the Sub-Transfer
Agent via electronic transmission acceptable to both parties, the Share Price of
each applicable Portfolio, as well as dividend and capital gain information and,
in the case of income funds, the daily accrual for interest rate factor (mil
rate), determined at the Close of Trading on that Business Day. It is
understood and agreed that, in the context of Section 22 of the 1940 Act and the
rules and public interpretations thereunder by the staff of the Securities and
Exchange Commission ("SEC Staff"), receipt by the Sub-Transfer Agent of any
Instructions from the Plans in a timely manner shall be deemed to be receipt by
the Fund of such Instructions solely for pricing purposes and shall cause
purchases and sales for the Plans to be deemed to occur at the Share Price for
such Business Day, except as provided in (d)(iii) below.
(c) As noted in Paragraph (a) above, by 4:00 a.m. ET on TD+1 ("Instruction
Cutoff Time") and after the Sub-Transfer Agent has processed all approved Plan
and/or Plan participant activity, the Sub-Transfer Agent will transmit to the
Transfer Agent via electronic transmission or system-to-system, and to the
Transfer Agent, by an "auto fax" or by a method acceptable to the Sub-Transfer
Agent and the Transfer Agent, a report (the "Instruction Report") detailing the
Instructions that were received by the Sub-Transfer Agent prior to the Fund's
daily determination of Share Price for each Portfolio (i.e., the Close of
Trading) on each Business Day. At the present time, the Sub-Transfer Agent and
the Transfer Agent have agreed that the Sub-Transfer Agent will enter trades
system to system (i.e., by TIP files sent online to the Transfer Agent) by 4:00
a.m. on TD+1.
(i) It is understood by the parties that the Sub-Transfer Agent
may receive Instructions from the Plans in various formats,
including directions in writing, by computer magnetic tape,
diskette or electronic data transmission, the Sub-Transfer
Agent's interactive voice response system, or by any other
accepted method for transmitting defined contribution plan
data that is adopted by the Plans. All Instructions from
the Plans shall be received and
1
<PAGE>
processed by the Sub-Transfer Agent in accordance with its
standard transaction processing procedures that apply to all
investment options offered under the Plans. The Sub-
Transfer Agent shall maintain records sufficient to identify
the date and time of receipt of all Plan or Plan
participant-level transactions involving the Portfolios and
shall make such records available upon reasonable request
for examination by the Fund or its designated representative
or, at the request of the Fund, by appropriate governmental
authorities. Under no circumstances shall the Sub-Transfer
Agent change, alter or manipulate any Instructions received
by it in good order.
(ii) The Instruction Report shall state whether the Instructions
received by the Sub-Transfer Agent from the Plans by the
Close of Trading on such Business Day resulted in the
Accounts being a net purchaser or net seller of shares in
each of the Portfolios and indicate the net dollar value
purchased or net dollar value redeemed by the Accounts in
each of the Portfolios and the date of the transaction. On
Business Days where there are no Instructions, the
Instruction Report will so indicate. Each transmission of
Instructions by the Sub-Transfer Agent of a net purchase or
redemption Instruction relating to a particular Portfolio
and a Business Day shall constitute a representation and
covenant by the Sub-Transfer Agent that each net purchase or
redemption Instruction was based on transactions by the
Plans received by the Sub-Transfer Agent prior to the Close
of Trading (and prior to the time the Share Price for each
Portfolio) was determined on such Business Day, and that
each net purchase or redemption Instruction included all
such Plan transactions so received by the Sub-Transfer
Agent. All Instructions will be communicated in U.S.
dollars.
(iii)As noted above, Instructions communicated by the Sub-
Transfer Agent to the Transfer Agent by mutually acceptable
means on any Business Day by the Instruction Cutoff Time
will be processed by the Transfer Agent at the Share Price
determined for each Portfolio as of the Close of Trading on
the Business Day on which the Sub-Transfer Agent received
those Instructions from the Plans.
(iv) Following the completion of the transmission of any
Instructions by the Sub-Transfer Agent to the Transfer Agent
by the Instruction Cutoff Time, the Sub-Transfer Agent will
be provided with a confirmation file (which includes the
financial activity file and account position file) so that
the Sub-Transfer Agent can promptly
2
<PAGE>
verify that the Instructions were received by the Transfer
Agent and trades were entered correctly.
(v) In the event that an Instruction transmitted by the Sub-
Transfer Agent on any Business Day is not received by the
Transfer Agent by the Instruction Cutoff Time, due to
mechanical difficulties or for any other reason beyond the
Sub-Transfer Agent's reasonable control, such Instruction
shall nonetheless be treated by the Transfer Agent as if it
had been received by the Instruction Cutoff Time, provided
that the Sub-Transfer Agent retransmits such Instruction by
facsimile transmission to the Transfer Agent and such
Instruction is received by the Transfer Agent's Financial
Control personnel no later than 10:00 a.m. ET on TD+1. In
addition, the Sub-Transfer Agent will place a phone call to
a Financial Control representative of the Transfer Agent by
10:00 a.m. ET on TD+1 to advise the Transfer Agent that a
facsimile transmission concerning the Instruction is being
sent. The Transfer Agent may require reasonable assurances
that the Sub-Transfer Agent attempted to transmit such
Instruction in a timely manner. In such circumstance, the
Sub-Transfer Agent shall transmit the Instruction using the
date and reason code applicable to the transaction.
(vi) With respect to all Instructions, the Transfer Agent's
Financial Control representative will manually adjust the
"supersheet" for the prior Business Day to reflect any
Instructions sent by the Sub-Transfer Agent. The Transfer
Agent's Financial Control Representative will send the
manually adjusted "supersheet" to the Adviser. The Adviser
will use its reasonable best efforts to seek to verify the
accuracy of the information it receives on the "supersheet"
from the Transfer Agent by having its personnel
independently verify the Instruction information. If the
Instruction is not located by the Adviser, the Adviser will
notify the Transfer Agent, who will contact, by telephone,
a previously designated contact person at the Sub-Transfer
Agent.
(vii) Following the transmission of any Instructions to the
Transfer Agent, the Sub-Transfer Agent will use its best
efforts to verify, as soon as administratively feasible
after the Instructions have been sent to the Transfer
Agent, that the Sub-Transfer Agent's transmission to
Transfer Agent has been received.
(viii)By no later than 10:00 a.m. on TD+2, and based on the
information transmitted to the Sub-Transfer Agent pursuant
to Paragraph (c)(iv) above, the Sub-Transfer Agent will use
its best
3
<PAGE>
efforts to verify that all Instructions provided to the
Transfer Agent on the previous Business Day were accurately
received and that the trades for each Account were
accurately completed and the Sub-Transfer Agent will use its
best efforts to notify the Transfer Agent and the Adviser of
any discrepancies.
(d) As set forth below, upon the timely receipt from the Sub-Transfer Agent
of the Instruction Report, the Fund will execute the purchase or redemption
transactions (as the case may be) at the Share Price for each Portfolio computed
as of the Close of Trading on the Trade Date.
(i) Except as otherwise provided herein, all purchase and
redemption transactions will settle on TD+1. Settlements
will be through net Federal Wire transfers between the
trustee or custodian for the Plans and a custodial account
designated by the Fund. In the case of Instructions which
constitute a net purchase order, settlement shall occur by
the Sub-Transfer Agent initiating a wire transfer by 1:00
p.m. ET on TD+1 to the custodian for the Fund for receipt by
the custodian by no later than the Close of Business at the
New York Federal Reserve Bank on TD+1, causing the
remittance of the requisite funds to cover such net purchase
order. In the case of Instructions which constitute a net
redemption order, settlement shall occur by the Transfer
Agent instructing the Fund's custodian to initiate a wire
transfer by 1:00 p.m. ET from on TD+1, the Fund's custodial
accounts to the Sub-Transfer Agent for receipt by the Sub-
Transfer Agent by no later than the Close of Business at the
New York Federal Reserve Bank on the Settlement Date,
causing the remittance of the requisite funds to cover such
net redemption order. The Fund reserves the right to (i)
delay settlement of redemptions for up to five (5) Business
Days after receiving a net redemption order in accordance
with Section 22 of the 1940 Act and Rule 22c-1 thereunder,
or (ii) suspend redemptions pursuant to the 1940 Act or as
otherwise required by law. Settlements shall be in U.S.
dollars and a Portfolio may pay redemption proceeds in whole
or in part by a distribution in-kind of readily marketable
securities that it holds in lieu of cash in conformity with
applicable law or regulations.
(ii) The Record Owner will be provided with all written
confirmations required under federal and state securities
laws. In this regard, confirmations will be mailed by the
Transfer Agent to the Record Owner no later than 4:00 p.m.
ET on TD+2.
(iii)On any Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules
will be
4
<PAGE>
suspended for the settlement of Instructions. Instructions
will be settled on the next Business Day on which the
Federal Reserve Wire Transfer System is open. The original
TD+1 settlement date will not apply. Rather, for purposes
of this Paragraph (d)(iii) only, the settlement date will be
the date on which the Instruction settles.
(e) The Sub-Transfer Agent shall use its reasonable best efforts, upon
receipt of any confirmation or statement concerning the Accounts, to promptly
verify the accuracy of the information contained therein against the information
contained in the Sub-Transfer Agent's internal record-keeping system and shall
promptly advise the Transfer Agent and the Adviser in writing of any
discrepancies between such information. The Transfer Agent and the Sub-Transfer
Agent shall cooperate to resolve any such discrepancies as soon as reasonably
practicable.
(f) In the event of any error or delay with respect to the Procedures
outlined in Exhibit C herein: (i) which is caused by the Fund, the Transfer
Agent, the Adviser, or the Administrator, the Administrator or the Transfer
Agent (as appropriate) shall make any adjustments on the Fund's accounting
system necessary to correct such error or delay and the responsible party or
parties shall reimburse the Plan and the Sub-Transfer Agent for any losses or
reasonable costs incurred directly as a result of the error or delay but
specifically excluding any and all consequential punitive or other indirect
damages; or (ii) which is caused by the Sub-Transfer Agent or by any
administrator or representative of the Plan, the Administrator or the Transfer
Agent shall make any adjustment on the Fund's accounting system necessary to
correct such error or delay and the affected party or parties shall be
reimbursed by the Sub-Transfer Agent for any losses or reasonable costs incurred
directly as a result of the error or delay, but specifically excluding any and
all consequential punitive or other indirect damages. In the event of any such
adjustments on the Fund's accounting system, the Sub-Transfer Agent shall make
the corresponding adjustments on its internal record-keeping system. In the
event that errors or delays with respect to the Procedures are contributed to by
more than one party hereto, each party shall be responsible for that portion of
the loss or reasonable cost which results from its error or delay. All parties
agree to provide the other parties prompt notice of any errors or delays of the
type referred to herein and to use reasonable efforts to take such action as may
be appropriate to avoid or mitigate any such costs or losses.
5
<PAGE>
EXHIBIT D
---------
The weekdays on which the Fund is closed for business are: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
6
<PAGE>
EXHIBIT E
---------
The shares of each Portfolio listed in Exhibit B above are registered or
otherwise authorized for issuance and sale in the all fifty (50) states and the
District to Columbia. [This may change as Portfolios are added to Exhibit B.]
1
<PAGE>
EXHIBIT F
---------
Notices
-------
Notices required by this Agreement should be sent as follows:
If to the DST Systems, Inc.
Transfer Agent: 210 W. 10th St.
Kansas City, MO 64105
Attn: Division Manager, Pilgrim Baxter Funds
Phone: (816) 435-6281
Fax: (816) 843-5789
With a copy of non-operational notices to:
DST Systems, Inc.
1055 Broadway, 9th Fl.
Kansas City, MO 64105
Attn: Legal Dept.
Phone: (816) 435-8688
Fax: (816) 435-8630
If to the Fund: SEI Financial Management Corporation
680 E. Swedesford Road
Wayne, PA 19087
Attn: _____________________
Phone: ____________________
Fax: ______________________
With copies to:
Brian Bereznak
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane
Suite 300
Wayne, PA 19087
Phone: ____________________
Fax: ______________________
and
Jane A. Kanter, Esq.
Katten Muchin & Zavis
1025 Thomas Jefferson St., N.W.
East Lobby, Suite 700
Washington, DC 20007
Phone: (202) 625-3781
Fax: (202) 298-7570
1
<PAGE>
If to the Sub-Transfer Agent: [name and address of Sub-Transfer Agent]
2
<PAGE>
EXHIBIT 10(b)
(202) 625-3500
January 11, 1996
Opinion and Consent of Counsel
------------------------------
The PBHG Funds, Inc.
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
Gentlemen:
This opinion is given in connection with the filing by the PBHG Funds,
Inc., a Maryland corporation ("Fund") of Post-Effective Amendment No. 20 to its
Registration Statement on Form N-1A (the "Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 18 under the Investment
Company Act of 1940 ("1940 Act") relating to an indefinite amount of authorized
shares of common stock, at a par value of one tenth of one cent ($.001) per
share, of a new separate series of the Fund, the PBHG Core Growth Fund
("Portfolio"). The authorized shares of common stock of the Portfolio are
hereinafter referred to as the "Shares."
We have examined the following: the Fund's Articles of Incorporation; the
Fund's By-Laws; the Fund's Articles Supplementary to the Articles of
Incorporation, dated December 28, 1995, certifying that, among other things, the
Fund's Board of Directors has adopted a resolution authorizing the establishment
and designation of the shares of common stock of the Portfolio; the Fund's
Articles Supplementary to the Articles of Incorporation, dated December 28,
1995, certifying that, among other things, the Fund's Board of Directors has
adopted a resolution adding a new class of shares for each of the Fund's eight
(8) series and redesignating the current shares as the PBHG Class Shares for
each of the Fund's eight (8) series; the Fund's Articles of Amendment to the
Articles of Incorporation, dated December 28, 1995, certifying that, among other
things, the Fund's Board of Directors has adopted a resolution changing the name
of the PBHG Mid-Cap Growth Fund to the PBHG Core Growth Fund; Post-Effective
Amendment No. 20 to the Registration Statement under the 1933 Act filed on
October 19, 1995; the Fund's Certificate of Incorporation, as filed with the
Secretary of State of the State of Maryland; pertinent provisions of the laws
of the State of Maryland; and such other corporate records, certificates,
documents and statutes that we have deemed relevant in order to render the
opinion expressed herein.
<PAGE>
Gentlemen:
January 11, 1996
Page 2
Based on such examination, we are of the opinion that:
1. The Fund is a Maryland corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and
2. The Shares to be offered for sale by the Fund, when issued in the
manner contemplated by the Registration Statement (including the
post-effective amendments thereto) will be legally issued, fully-
paid and non-assessable.
This letter expresses our opinion as to the Maryland General Corporation
Code governing matters such as the due organization of the Fund and the
authorization and issuance of shares of common stock, but does not extend to the
securities or "Blue Sky" laws of the State of Maryland or to federal securities
or other laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Katten Muchin & Zavis under the caption "Legal
Matters" in the Statement of Additional Information, which is incorporated by
reference into the Prospectus comprising a part of the Registration Statement
(including the post-effective amendments thereto).
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE>
Exhibit 16
This schedule is included to illustrate how yield and total return will be
calculated for the PBHG Funds Inc.
Yield = 2[(((a-b)/(c*d)) Circumflex 6) -1]
PBHG PBHG
Emerging Growth Growth Fund
Fund
a - Total Income 507,680.53 1,566,521.87
b - Expenses 794,376.86 3,526,173.40
c - Shares 29,593,773.159 120,584,162.479
d - NAV 22.79 25.21
Yield -0.51% -0.77%
PBHG PBHG
Large Cap Growth Select Equity
Fund Fund
a - Total Income 26,845.27 95,966.73
b - Expenses 58,719.80 218,667.86
c - Shares 3,312,982.558 10,404,543.452
d - NAV 14.50 17.11
Yield -0.79% -0.83%
PBHG PBHG
Technology & Communications Core Growth
Fund Fund
a - Total Income 42,678.11 18,340.99
b - Expenses 73,140.20 27,359.75
c - Shares 4,804,866.433 1,929,223.961
d - NAV 12.37 11.79
Yield -0.61% -0.48%
<PAGE>
Total Return P(1+T)circumflex n = ERV
One Year or Since Inception
PBHG PBHG
Emerging Growth Growth Fund
Fund
P 1,000.00 1,000.00
n 1.00000 1.00000
ERV 1,501.60 1,515.00
T 50.16% 51.50%
PBHG PBHG
Large Cap Growth Select Equity
Fund Fund
P 1,000.00 1,000.00
n 0.98904 0.98904
ERV 1,497.98 1,766.33
T 50.47% 77.75%
PBHG PBHG
Technology & Communications Core Growth
Fund Fund
P 1,000.00 1,000.00
n 0.49454 0.24317
ERV 1,115.88 1,041.50
T 24.82% 18.20%
PBHG
International Fund
P 1,000.00
n 1.00
ERV 1,155.50
T 15.55%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUNDS, INC.
<SERIES>
<NUMBER> 010
<NAME> PBHG GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 2,374,819
<INVESTMENTS-AT-VALUE> 3,303,932
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,303,932
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,007
<TOTAL-LIABILITIES> 5,007
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,437,595
<SHARES-COMMON-STOCK> 130,418
<SHARES-COMMON-PRIOR> 60,779
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (67,783)
<ACCUM-APPREC-OR-DEPREC> 929,113
<NET-ASSETS> 3,298,925
<DIVIDEND-INCOME> 564
<INTEREST-INCOME> 11,692
<OTHER-INCOME> 0
<EXPENSES-NET> (26,346)
<NET-INVESTMENT-INCOME> (14,090)
<REALIZED-GAINS-CURRENT> (34,304)
<APPREC-INCREASE-CURRENT> 793,260
<NET-CHANGE-FROM-OPS> 744,866
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,975,466
<NUMBER-OF-SHARES-REDEEMED> (450,329)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,284,093
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (33,479)
<GROSS-ADVISORY-FEES> 15,198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26,346
<AVERAGE-NET-ASSETS> 1,785,033
<PER-SHARE-NAV-BEGIN> 16.70
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 8.66
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.30
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUND, INC.
<SERIES>
<NUMBER> 030
<NAME> INTERNATIONAL EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 988
<INVESTMENTS-AT-VALUE> 10,774
<RECEIVABLES> 227
<ASSETS-OTHER> 244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,245
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2
<TOTAL-LIABILITIES> 2
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,728
<SHARES-COMMON-STOCK> 1,066
<SHARES-COMMON-PRIOR> 1,670
<ACCUMULATED-NII-CURRENT> (35)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (340)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 890
<NET-ASSETS> 11,243
<DIVIDEND-INCOME> 171
<INTEREST-INCOME> 59
<OTHER-INCOME> 0
<EXPENSES-NET> 255
<NET-INVESTMENT-INCOME> (25)
<REALIZED-GAINS-CURRENT> 444
<APPREC-INCREASE-CURRENT> 1,261
<NET-CHANGE-FROM-OPS> 1,680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,327
<NUMBER-OF-SHARES-REDEEMED> (1,931)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3,993)
<ACCUMULATED-NII-PRIOR> (947)
<ACCUMULATED-GAINS-PRIOR> (947)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 344
<AVERAGE-NET-ASSETS> 11,418
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 1.46
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUNDS, INC.
<SERIES>
<NUMBER> 050
<NAME> PBHG SELECT EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-05-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 183,147
<INVESTMENTS-AT-VALUE> 203,182
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 203,182
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 386
<TOTAL-LIABILITIES> 386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,430
<SHARES-COMMON-STOCK> 11,746
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (546)
<ACCUMULATED-NET-GAINS> 5,877
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,035
<NET-ASSETS> 202,796
<DIVIDEND-INCOME> 35
<INTEREST-INCOME> 517
<OTHER-INCOME> 0
<EXPENSES-NET> (1,098)
<NET-INVESTMENT-INCOME> (546)
<REALIZED-GAINS-CURRENT> 8,613
<APPREC-INCREASE-CURRENT> 20,035
<NET-CHANGE-FROM-OPS> 28,102
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (2,736)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 283,506
<NUMBER-OF-SHARES-REDEEMED> (108,710)
<SHARES-REINVESTED> 2,634
<NET-CHANGE-IN-ASSETS> 202,796
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,266
<AVERAGE-NET-ASSETS> 74,511
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 7.68
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.27
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUNDS, INC.
<SERIES>
<NUMBER> 060
<NAME> PBHG CASH RESERVE MONEY MARKET
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-05-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 100,772
<INVESTMENTS-AT-VALUE> 100,772
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,772
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,771
<TOTAL-LIABILITIES> 1,771
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,000
<SHARES-COMMON-STOCK> 99,001
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 99,001
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,232
<OTHER-INCOME> 0
<EXPENSES-NET> (394)
<NET-INVESTMENT-INCOME> 2,838
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,839
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,838)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 269,541
<NUMBER-OF-SHARES-REDEEMED> (173,292)
<SHARES-REINVESTED> 2,751
<NET-CHANGE-IN-ASSETS> 99,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 499
<AVERAGE-NET-ASSETS> 56,816
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 070
<NAME> PBHG TECHNOLOGY & COMMUNICATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 58,934
<INVESTMENTS-AT-VALUE> 62,788
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62,788
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,016
<TOTAL-LIABILITIES> 1,016
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,185
<SHARES-COMMON-STOCK> 4,952
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (83)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (184)
<ACCUM-APPREC-OR-DEPREC> 3,854
<NET-ASSETS> 61,772
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 155
<OTHER-INCOME> 0
<EXPENSES-NET> (232)
<NET-INVESTMENT-INCOME> (77)
<REALIZED-GAINS-CURRENT> (184)
<APPREC-INCREASE-CURRENT> 3,854
<NET-CHANGE-FROM-OPS> 3,593
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 86,263
<NUMBER-OF-SHARES-REDEEMED> (28,084)
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 61,772
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 129
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 309
<AVERAGE-NET-ASSETS> 31,202
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 2.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.48
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 080
<NAME> PBHG CORE GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 31,081
<INVESTMENTS-AT-VALUE> 32,475
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,475
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,383
<TOTAL-LIABILITIES> 1,383
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,746
<SHARES-COMMON-STOCK> 2,631
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (5)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (43)
<ACCUM-APPREC-OR-DEPREC> 1,394
<NET-ASSETS> 31,092
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 36
<OTHER-INCOME> 0
<EXPENSES-NET> (42)
<NET-INVESTMENT-INCOME> (5)
<REALIZED-GAINS-CURRENT> (43)
<APPREC-INCREASE-CURRENT> 1,394
<NET-CHANGE-FROM-OPS> 1,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,701
<NUMBER-OF-SHARES-REDEEMED> (2,955)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 31,092
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81
<AVERAGE-NET-ASSETS> 11,481
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.82
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.82
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUNDS, INC.
<SERIES>
<NUMBER> 020
<NAME> PBHG EMERGING GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 508,605
<INVESTMENTS-AT-VALUE> 701,531
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 701,531
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,826
<TOTAL-LIABILITIES> 11,826
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 447,195
<SHARES-COMMON-STOCK> 29,892
<SHARES-COMMON-PRIOR> 25,575
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,334)
<ACCUMULATED-NET-GAINS> 51,917
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 192,927
<NET-ASSETS> 689,705
<DIVIDEND-INCOME> 186
<INTEREST-INCOME> 5,735
<OTHER-INCOME> 0
<EXPENSES-NET> (8,255)
<NET-INVESTMENT-INCOME> (2,334)
<REALIZED-GAINS-CURRENT> 76,215
<APPREC-INCREASE-CURRENT> 149,027
<NET-CHANGE-FROM-OPS> 222,908
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (27,375)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300,741
<NUMBER-OF-SHARES-REDEEMED> (244,577)
<SHARES-REINVESTED> 26,142
<NET-CHANGE-IN-ASSETS> 277,839
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,077
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,785
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,255
<AVERAGE-NET-ASSETS> 561,870
<PER-SHARE-NAV-BEGIN> 16.10
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 8.03
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.99)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.07
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000775180
<NAME> THE PBHG FUND, INC.
<SERIES>
<NUMBER> 040
<NAME> PBHG LARGE CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-05-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 50,712
<INVESTMENTS-AT-VALUE> 54,278
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 54,278
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 519
<TOTAL-LIABILITIES> 519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,058
<SHARES-COMMON-STOCK> 3,701
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (103)
<ACCUMULATED-NET-GAINS> 238
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,566
<NET-ASSETS> 53,759
<DIVIDEND-INCOME> 22
<INTEREST-INCOME> 105
<OTHER-INCOME> 0
<EXPENSES-NET> (230)
<NET-INVESTMENT-INCOME> (103)
<REALIZED-GAINS-CURRENT> 950
<APPREC-INCREASE-CURRENT> 3,566
<NET-CHANGE-FROM-OPS> 4,413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (712)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74,598
<NUMBER-OF-SHARES-REDEEMED> (25,132)
<SHARES-REINVESTED> 592
<NET-CHANGE-IN-ASSETS> 53,759
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 116
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 318
<AVERAGE-NET-ASSETS> 15,672
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 4.97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.41)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.53
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated April 26, 1996 included in the
Post-Effective Amendment No. 23 to the Registration Statement on Form N-1A of
The PBHG Funds, Inc. (No. 2-99810), and to all references to our Firm included
in this Registration Statement File No. 2-99810.
Philadelphia, Pa.,
April 30, 1996
