<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 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 /x/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 25 /x/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 23
THE PBHG FUNDS, INC.
(FORMERLY THE ADVISORS' INNER CIRCLE FUND II, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
32 SOUTH STREET
BALTIMORE, MARYLAND 21202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 443-0051
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:
immediately upon filing pursuant to paragraph (b)
- --------
on May 1, 1996 pursuant to paragraph (b)
- --------
60 days after filing pursuant to paragraph (a)
- --------
on [date] pursuant to paragraph (a) of Rule 485
- --------
x 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 30, 1997.
<PAGE>
THE PBHG FUNDS, INC.
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
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 Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
(PBHG Class Shares)
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 25
PART A. Item No. and Captions Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Expense Summary
Information
4. General Description The Fund and the Portfolios;
of Registrant Investment Objectives 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 and Sub-Adviser; General
Information--The Administrator and
Sub-Administrator; General Information
- The Transfer Agent and Sub-
Transfer Agents; General Information--
The Distributor
6. Capital Stock and Other General Information--Voting Rights;
Securities General Information--Dividends and
Distributions; Taxes
7. Purchase of Securities How to Purchase Fund Shares; How to
Being Offered 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 The Fund
and History
13. Investment Objectives Description of Permitted Investments;
and Policie Investment Limitations; Description of
Shares
14. Management of the Directors and Officers of the Fund; The
Registrant Administrator
15. Control Persons and Directors and Officers of the Fund
Principal Holders of
Securities
<PAGE>
16. Investment Advisory The Adviser and Sub-Adviser; The
and Other Services Administrator and Sub-Administrator;
The Distributor
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Description of Shares
Securities
19. Purchase, Redemption, Purchase and Redemption of Shares;
and Pricing of Determination of Net Asset Value
Securities Being Offered
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Computation of Yield; Calculation of
Quotations Total Return
23. Financial Statements Financial Statements
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
PROSPECTUS DATED DECEMBER 16, 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"):
o PBHG Large Cap Value Fund
o PBHG Mid-Cap Value Fund
o PBHG Strategic Small Company 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 December 16, 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
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
diversified portfolios of securities. This summary provides basic information
about the PBHG Large Cap Value Fund ("Large Cap Value Fund"), PBHG Mid-Cap Value
Fund ("Mid-Cap Value Fund"), and PBHG Strategic Small Company Fund ("Small
Company Fund") (each a "Portfolio" and, together, 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 Large Cap Value Fund seeks long-term growth of capital and income. Current
income is a secondary objective. The Mid-Cap Value Fund seeks long-term capital
appreciation. The Small Company Fund seeks growth of capital. There can be no
assurance that a Portfolio will achieve its investment objective(s).
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Summary.................................... How to Purchase Fund Shares.......
Expense Summary............................ Shareholder Services..............
Financial Highlights....................... How to Redeem Fund Shares.........
The Fund and the Portfolios................ Share Price.......................
Investment Objectives and Policies......... Performance Advertising...........
General Investment Policies and Strategies. Taxes.............................
Risk Factors............................... General Information...............
Investment Limitations..................... Glossary of Permitted Investments.
- --------------------------------------------------------------------------------
-2-
<PAGE>
What Are The Risks Involved With An Investment In The Portfolios? Each
Portfolio invests in securities that fluctuate in value, and investors should
expect each Portfolio's net asset value per share to fluctuate. Each Portfolio
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, because the Small Company Fund invests
extensively in the securities of small capitalization companies and the Mid-Cap
Value Fund invests in the securities of medium capitalization companies, both
Portfolios may experience greater price volatility than investment companies
that invest primarily in more established, larger capitalized companies. Each of
the Portfolios may invest in equity securities of non-U.S. issuers, which are
subject to certain risks not typically associated with domestic securities. Such
risks include changes in currency rates and in exchange control regulations,
costs associated with conversions between various currencies, 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 supervision of
securities markets, changes in taxes on income on securities, and possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits. See "Investment Objectives and Policies" and "Glossary of Permitted
Investments."
Who Is The Adviser? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. Newbold's Asset Management, Inc. serves as
the investment sub-adviser to each Portfolio. Pilgrim Baxter & Associates, Ltd.
and Newbold's Asset Management, Inc. are collectively referred herein as
("Advisers"). See "Expense Summary," "The Adviser" and "The Sub-Adviser."
Who Are The Administrator And Sub-Administrator? PBHG Fund Services serves
as the administrator of the Fund, and SEI Fund Resources, an affiliate of the
Fund's distributor, serves as sub-administrator of the Fund. See "The
Administrator and Sub-Administrator."
Who Are The Transfer Agent And Sub-Transfer Agents? DST Systems, Inc.
serves as the transfer agent, dividend disbursing agent and shareholder
servicing agent of the Fund. The Fund may also pay amounts to certain third
parties that provide sub-transfer agency and other administrative services
relating to the Fund to persons who beneficially own interests in the Fund. See
"The Transfer Agent And Sub-Transfer Agents."
Who is the Distributor? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."
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
investment 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"). 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 for each Portfolio.
Redemption orders placed with the Transfer Agent prior to 4:00 p.m., Eastern
time for each Portfolio 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. Purchases and
redemptions also may be made through certain broker-dealers and other financial
institutions. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder 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 of the Portfolios.
SHAREHOLDER TRANSACTION EXPENSES
================================================================================
Large Cap Mid-Cap Small Company Fund
Value Fund Value Fund
- --------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None None
- --------------------------------------------------------------------------------
Sales Load Imposed on Reinvested None None None
Dividends
Deferred Sales Load None None None
Redemption Fees (1) None None None
Exchange Fees None None None
================================================================================
(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 expense reimbursements
or fee waivers)
================================================================================
Large Cap Mid-Cap Small Company
Value Fund Value Fund Fund
- --------------------------------------------------------------------------------
Advisory Fees (2) .85% .85% .85%
12b-1 Fees None None None
Other Expenses (after expense .65% .65% .65%
reimbursement) (3)
Total Operating Expenses (net of fee 1.50% 1.50% 1.50%
waiver or expense reimbursement, if any)
================================================================================
(2) The Adviser and Sub-Adviser have agreed to waive or limit their Advisory
Fees or assume other expenses in an amount that operates to limit total
operating expenses for each Portfolio to not more than 1.50% of the average
daily net assets of each Portfolio. Such waiver of Advisory and Sub-Advisory
Fees and possible assumptions of Other Expenses by the Adviser and Sub-Adviser
is subject to a possible reimbursement by the Portfolios in future years if such
reimbursement can be achieved within the foregoing annual expense limit. Absent
fee waivers and assumptions of fund expenses, the expected Advisory Fees and
Total Operating Expenses for each Portfolio would be ___%, ___% and ____%,
respectively, based on average assets of at least $50 million during each
Portfolio's first year of operation. See "Expense Limitation Agreements."
(3) "Other Expenses" is based on estimated amounts for the current fiscal year.
See "The Administrator and Sub-Administrator."
-4-
<PAGE>
EXAMPLE
================================================================================
Portfolio 1 year 3 year
================================================================================
An investor in a Portfolio Large Cap Value Fund $15 $47
would pay the following
expenses on a $1,000 Mid-Cap Value Fund $15 $47
investment assuming (1)
5% annual return, and (2) Small Company Fund $15 $47
redemption at the end of
each time period.
================================================================================
This example is based upon estimated other expenses of each 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 purposes 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 each Portfolio. See "The Adviser," "The
Sub-Adviser" and "The Administrator and Sub-Administrator."
THE FUND AND THE PORTFOLIOS
The Fund is an open-end investment company that currently offers shares in
thirteen separate series. This Prospectus relates solely to the PBHG Class
Shares for the Large Cap Value Fund, Mid-Cap Value Fund and the Small Company
Fund. Each share of each Portfolio represents an undivided 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 determines. 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 0.25% of the average daily net assets attributable
to its shares. The Trust Class Shares are not currently available for theses
Portfolios. 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
Large Cap Value Fund
The Large Cap Value Fund seeks long-term growth of capital and income. Current
income is a secondary objective. 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 large
capitalization companies which, in advisers' opinion, are undervalued or
overlooked by the market. Such large companies have market capitalizations in
excess of $1 billion at the time of purchase.
In selecting investments for the Portfolio, the Advisers emphasize fundamental
investment value and consider the following factors, among others, in
identifying and analyzing a security's fundamental value: the relationship of a
company's potential earning power to the current market price of its stock;
continuing dividend income and the potential for increasing dividend growth; a
strong balance sheet with low financial leverage; low price/earnings ratio
relative to either that company's historical results or the current ratios for
other similar companies; and potential for favorable business developments. The
Portfolio may invest in equity securities of companies that are considered to be
financially sound and attractive investments based on their long-term operating
history, but which may be experiencing temporary earnings declines due to
adverse economic conditions that may be company or industry specific or due to
unfavorable publicity. The Portfolio may invest in such companies when the
Advisers believe that those companies will react
-5-
<PAGE>
positively to changing economic conditions or that such companies have taken or
are expected to take actions designed to return their earnings to historical
levels or otherwise increase the market price of their securities.
The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total asset
in securities of foreign issuers, including American Depository Receipts
("ADRs"), and may also invest up to 15% of its net assets in restricted or
illiquid securities. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions. For temporary or defensive purposes, the Portfolio may invest
in money market securities or short-term bonds without limitation. The Portfolio
may purchase securities on a when-issued or delayed delivery basis.
The utilization of a valuation approach may result in investment selections that
may be out-of-favor or counter to those of other investors. However, such an
approach may also produce significant capital appreciation. See "Glossary of
Permitted Investment" in this Prospectus for a fuller description of the
Portfolio's securities and their risks.
Mid-Cap Value Fund
The Mid-Cap Value 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, as previously defined herein, of
medium capitalization companies that, in the Advisers' opinion, are undervalued
or overlooked by the market. Such mid-cap companies have market capitalizations
or annual revenues of up to $5 billion at the time of purchase. (The Portfolio
may continue to hold securities of companies whose market capitalization or
revenues grow above that level if such companies continue to satisfy the other
investment policies of the Portfolio.)
In selecting investments for the Portfolio, the Advisers emphasize fundamental
investment value and consider the following factors, among others, in
identifying and analyzing a security's value and capital appreciation potential:
the relationship of a company's potential earnings power to its current stock
price; low price/earnings ratio; strong competitive advantages, including a
recognized brand or trade name or niche market position; sufficient resources
for expansion; capability of management; and favorable overall business
prospects. The Portfolio may invest in equity securities of companies that are
considered to be financially sound and attractive investments based on their
operating history, but which may be experiencing temporary earnings declines due
to adverse economic conditions that may be company or industry specific or due
to unfavorable publicity. The Portfolio may invest in such companies when the
Advisers believe that those companies will react positively to changing economic
conditions or that such companies have taken or are expected to take actions
designed to improve their financial fundamentals or to otherwise increase the
market price of their securities.
The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total asset
in securities of foreign issuers, including ADRs, and may also invest up to 15%
of its net assets in restricted or illiquid securities. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and for temporary or
defensive purposes, may invest in money market securities or short-term bonds
without limitation. The Portfolio may purchase securities on a when-issued or
delayed delivery basis.
The utilization of a valuation approach may result in investment selections that
may be out-of-favor or counter to those of other investors. However, such an
approach may also produce significant capital appreciation. See "Glossary of
Permitted Investment" in this Prospectus for a fuller description of the
Portfolio's securities and their risks.
Small Company Fund
The Small Company Fund seeks growth of capital. Under normal market conditions,
the Portfolio will invest at least 65% of its total assets in a diversified
portfolio of equity securities (as previously defined herein) of small
capitalization companies. Such small companies have market capitalizations or
annual revenues of up to $750 million at the time of purchase. (The Portfolio
may continue to hold securities of companies whose market capitalization or
revenues grow above that level if such companies continue to satisfy the other
investment policies of the Portfolio.)
In selecting investments for the Portfolio, the Advisers may emphasize
securities poised for rapid and dynamic growth ("growth securities") or
securities that are undervalued or overlooked by the market ("value securities")
depending on the Advisers' view of
-6-
<PAGE>
current economic or market conditions and their long-term investment outlook.
The Portfolio is flexibly and strategically managed so that depending on the
Advisers' views of economic or market conditions they will adjust the mix of
growth and value securities held by the Portfolio. Consequently, at times it may
be more heavily invested in growth securities and at other times it may be more
heavily invested in value securities.
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 ADRs), and may invest up to 15% of its net assets in
restricted or illiquid securities. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary or defensive
purposes, may invest in money market securities or short-term bonds without
limitation. The Portfolio may purchase securities on a when-issued or delayed
delivery basis. See "Glossary of Permitted Investments" in this Prospectus for a
fuller description of the Portfolio's securities and their risks.
There can be no assurance that any Portfolio will be able to achieve its
investment objective.
GENERAL INVESTMENT POLICIES AND STRATEGIES
Investment Process: Large Cap Value Fund, Mid-Cap Value Fund And Small Company
Fund
The Adviser's investment process in managing the growth securities portion of
the Small Company Fund is both quantitative and fundamental, and is extremely
focused on quality earnings growth. In seeking to identify investment
opportunities, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for the
Small Company Fund and that possess certain quality characteristics. Using
proprietary software and research models, which incorporate important attributes
of successful growth, (such as positive earnings surprises, upward earnings
estimate revisions, and accelerating sales and earnings growth), the Adviser
creates a universe of growing companies. Then, using fundamental research, the
Adviser evaluates each company's earnings quality and assesses the
sustainability of the company's current growth trends. Through this highly
disciplined process, the Adviser seeks to construct investments for the Small
Company Fund that possesses strong growth characteristics. Because the universe
of companies will undoubtedly experience volatility in stock price, it is
important that shareholders in the Small Company Fund maintain a long-term
investment perspective.
The Sub-Adviser's investment process, like that of the Adviser, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the Large Cap Value, Mid-Cap Value and Small Company Funds the
Sub-Adviser first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investing (such as consistency of dividend payment, balance
sheet strength and, low stock price relative to its assets, earnings, cash flow
and business franchise), the Sub-Adviser screens more than 8,000 possible
companies and creates an initial universe of statistically attractive value
companies. Following the creation of this universe of possible investments, the
Sub-Adviser uses its strong fundamental research capabilities to carefully
identify securities that are currently out of favor but which have the potential
to achieve significant appreciation as the marketplace recognizes their
fundamental value. Once constructed, portfolios are continually monitored for
change. The Sub-Adviser follows a disciplined valuation approach that requires
it to sell any portfolio security that becomes overvalued relative to the
market. Sales of portfolio securities are primarily triggered by the relative
change in a company's price/earnings ratio. Adverse changes in other key value
elements are, of course, factors that would also trigger a sale.
Of course, there can be no assurance that use of these techniques will be
successful.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rates for each Portfolio will not exceed 100%.
-7-
<PAGE>
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 Advisers determine 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 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 statistical
rating organization ("NRSRO"); repurchase agreements involving such securities;
and, to the extent permitted by applicable law and each Portfolio's investment
restrictions, shares of other investment companies investing solely in money
market securities). To the extent a 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 each
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Small Company Fund and Mid-Cap Value Fund each invests
extensively in small capitalization and medium capitalization companies,
respectively. While the Advisers intend to invest in small and medium
capitalization companies that have strong balance sheets and favorable business
prospects, any investment in small and medium capitalization companies involves
greater risk and price volatility than that customarily associated with
investments in larger, more established companies. This increased risk may be
due to the greater business risks of 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 established companies.
Over-The-Counter Market
The Portfolios may invest in over-the-counter stocks. In contrast to the
securities exchanges, the over-the-counter market is not a centralized facility
which limits trading activity to securities of companies which initially satisfy
certain defined standards. Generally, the volume of trading in an unlisted or
over-the-counter common stock is less than the volume of trading in a listed
stock. This means that the depth of market liquidity of some stocks in which the
Portfolios invest may not be as great as that of other securities 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
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and currencies.
Foreign issuers may also be subject to less government regulation than U.S.
companies. Moreover, the dividends and interest payable on foreign securities
may be subject to foreign withholding taxes, thus reducing the net amount of
income available for distribution to a 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 each
Portfolio, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
-8-
<PAGE>
INVESTMENT LIMITATIONS
The investment objectives of each Portfolio, the investment limitations set
forth below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of each Portfolio. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. 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 conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (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, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
3. Borrow money except for temporary or for emergency purposes and then only in
an amount not exceeding 10% of the value of each Portfolio's 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.
The foregoing percentages will apply at the time of the purchase of a security.
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 Business Day. Shares of each 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
Purchase 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.
Neither the Fund not the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instruction or upon telephone
instructions that it reasonably 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 instructions.
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 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 and] Sub-Adviser may from
time to time recommend to the Board of Directors of the Fund that a Portfolio
that invest extensively in such companies, such as the Small Company Fund,
indefinitely discontinue the sale of their shares to new investors (other than
directors, officers and employees
-9-
<PAGE>
of the Adviser, Sub-Adviser and its affiliated companies). In such event, the
Board of Directors would determine 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 accounts
and $2,000 for IRAs. There is no minimum for subsequent purchases except for
those (1) using the Systematic Investment Plan or (2) electing to purchase
additional shares by phone. 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 and by Telephone Purchase Authorization must be at
least $25 and $1,000, respectively.
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 telephoning
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 account number. Your name,
account number, taxpayer identification number or Social Security Number, and
address must be specified in the wire. In addition, 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
described 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 Account
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 order and
receives payment before 4:00 p.m., Eastern time for each Portfolio. Payment may
be made by check or readily available funds. The purchase price of shares of a
Portfolio 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 representing shares of the Portfolios.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 4:00 p.m. Eastern Time
for each Portfolio and (ii)
-10-
<PAGE>
promptly transmit the order to the Transfer Agent. See "Determination 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 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
described 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
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Transfer Agent receives your
notification to discontinue such service(s) at least ten days before 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 quarterly
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 being 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.
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 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
convenient way for you to receive current income while maintaining your
investments 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 systematic
withdrawals will be processed on a regular basis beginning on or about either
the first or fifteenth day of the month, quarter or semi-annual period you
select.
Exchange Privileges
Once payment for your shares has been received (i.e., an account has been
established), you may exchange some or all of your shares for shares other
portfolios of the Fund currently available to the public. However, if you own
shares of any portfolio of the Fund other than the PBHG Cash Reserves Fund, you
are limited to four (4) exchanges annually from such portfolio to the PBHG Cash
Reserves Fund. Exchanges are made at net asset value. The Fund 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 received for an established account by the Transfer
Agent.
The exchange privilege may be exercised only in those states where the shares of
the new Portfolios may legally be sold.
-11-
<PAGE>
Tax-Sheltered Retirement Plans
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) Individual Retirement Accounts ("IRAs"). You may save for your retirement
and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or (b) "rolling-over" to the Fund monies from other IRA
accounts or lump sum distributions from a qualified retirement plan. If you are
between 18 and 70 1/2 years of age, you can use an IRA to invest up to $2,000
per year of your earned income in any of the 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 Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide persons with
self-employed income (and their eligible employees) with many of the same tax
advantages as a Keogh, but with fewer administrative requirements.
(3) 401(a) Keogh and Corporate Retirement Plans. Both a prototype money purchase
pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
(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
available 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
responsibilities.
For further information regarding any of the above retirement plans and
accounts, 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 for each Portfolio 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 purchased 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 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 for each Portfolio and (ii) promptly transmit the order to the
Transfer Agent. See "Determination of Net Asset Value" above. The financial
-12-
<PAGE>
institution is responsible for promptly transmitting redemption orders to the
Transfer Agent so that your shares are redeemed at the same day's net asset
value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
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 Transfer
Agent will be responsible for any loss, liability, cost or expense for acting
upon wire instructions or upon telephone instructions that it reasonably
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 instructions. If
reasonable procedures are not employed, the Fund and the Transfer Agent may be
liable for any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances 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 following
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 guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; 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
reserves the right to redeem shares in any account if, as the result of
redemptions, 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
processed.
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.
-13-
<PAGE>
SHARE PRICE
The net asset value per share of each 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 each Portfolio is listed under PBHG in the mutual fund
section of most major daily newspapers, including the Wall Street Journal.
PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. For each Portfolio, 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 investment.
The total return of each Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the 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.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each 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.
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 investment 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
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
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
servicing 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
administrative action. No attempt has been made to present a detailed
explanation 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
shareholders.
-14-
<PAGE>
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 investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of a
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 distribution
requirement even though the Portfolio has not received any interest payments 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 occur at a
time when the Advisers 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 Portfolio and may be exempt, depending
on the state, when received by a shareholder 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 distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from a 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
following 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 subject
to foreign withholding taxes.
GENERAL INFORMATION
The Fund
The Fund, an open-end management investment company, was originally incorporated
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.
All consideration received by the Fund for shares of any Portfolio 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
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and
-15-
<PAGE>
registering the shares of its Portfolios under federal and state securities
laws, pricing and insurance expenses and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The 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 institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $13.5 billion in assets. In addition to advising
the Portfolios, the Adviser provides advisory services to the Fund's other
portfolios and to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and estates, and other investment
companies. The principal business address of the Adviser is 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to each of the Portfolios under an
investment advisory agreement with the Fund (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser either continuously reviews, supervises and
administers the investment program of each Portfolio, which includes managing
and selecting investments, or oversees the investment management of a Portfolio
by that Portfolio's subadviser, subject to the supervision of, and policies
established by, the Board of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .85% of the average daily net assets of
each Portfolio. The advisory fees paid by each Portfolio are higher than those
paid by most investment companies, although the Adviser believes the fees to be
comparable to those paid by investment companies with similar investment
objectives and policies.
The Sub-Adviser
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the Adviser,
the controlling shareholder of the Sub-Adviser is UAM. The Sub-Adviser currently
has discretionary management authority with respect to over $7 billion in
assets. In addition to advising the Portfolios, the Sub-Adviser provides
advisory services to pension and profit-sharing plans, charitable institutions,
trusts, estates and other investment companies.
The Sub-Adviser serves as the investment sub-adviser for each Portfolio pursuant
to a sub-advisory agreement with the Fund and the Adviser ("Sub-Advisory
Agreement"). Under the Sub-Advisory Agreement, the Sub-Adviser manages the
investments of each of the Portfolios, selects investments and places all orders
for purchases and sales of the Portfolios' 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, the Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at the annual rate equal to __% of each
Portfolio's average daily net assets.
Portfolio Managers
James H. Farrell, CFA, has managed the Large Cap Value Fund and Mid-Cap Value
Fund since their inception. Mr. Farrell joined the Sub-Adviser in September,
1996 and is its Chief Investment Officer. Mr. Farrell also manages another
mutual fund advised by the Sub-Adviser and serves as President of Farrell
Seiwell, Inc., an investment adviser. Prior to joining the Sub-Adviser, he was
an Investment Counselor in a sole proprietorship for two years. From 1983 to
1994, he was a partner at Cashman, Farrell and Associates, an investment
advisory firm.
James H. Farrell, CFA, John F. Force, CFA, and Gary L. Pilgrim, CFA, have
managed the Small Company Fund since its inception. Mr. Force joined the Adviser
in 1993 and is a portfolio manager and equity analyst for the Adviser. He
currently co-manages the PBHG Technology & Communications Fund, another series
of the Fund. Prior to joining the Adviser, Mr. Force was Vice
President/Portfolio Manager at Fiduciary Management Associates from July, 1987
to September, 1992. Mr. Pilgrim has served as the Chief Investment Officer of
the Adviser since 1990 and has been its President since 1993. Mr. Pilgrim
currently manages and/or
-16-
<PAGE>
co-manages several other series of the Fund, including the PBHG Emerging Growth
Fund, the PBHG Growth Fund, the PBHG Large Cap Growth Fund and the PBHG Select
Equity Fund.
Expense Limitation Agreements
In the interest of limiting expenses of the Portfolios, the Adviser and
Sub-Adviser have entered into expense limitation agreements with the Fund
("Expense Limitation Agreements"), with respect to each Portfolio, pursuant to
which the Adviser and Sub-Adviser have agreed to waive or limit their fees and
to assume other expenses of the Portfolios to the extent necessary to limit the
total annual operating expenses (express as a percentage of the Portfolios'
average daily net assets) to 1.50%. Reimbursement by the Portfolios of the
advisory and sub-advisory fees waived or limited and other expenses paid by the
Adviser and Sub-Adviser pursuant to the Expense Limitation Agreements may be
made at a later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expenses rate
of each Portfolio to exceed 1.50%. Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $75 million; (ii) the
Portfolio's total annual expense ratio is less than 1.50%; and (iii) the payment
of such reimbursement was approved by the Board of Directors on a quarterly
basis.
The Administrator and Sub-Administrator
PBHG Fund Services (the "Administrator") 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 0.15% of the average daily net assets of the Fund. The
principal place of business of the Administrator is 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of the Fund, and a fee at the annual rate of 0.025% of the average
daily net assets of each Portfolio with respect to the total average daily net
assets of the Fund in excess of $2.5 billion.
The Transfer Agent and Sub-Transfer Agents
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
persons 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
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the 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 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.
-17-
<PAGE>
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 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 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
circumstances. In addition, a Director may be removed by the remaining Directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the 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
financial statements annually for each 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 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 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 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 distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
Counsel and Independent Public Accountants
Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, LLP
serves as the independent public accountants of the Fund.
Custodian
CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian for the Portfolios.
The Custodian holds cash, securities and other assets of the Fund as required by
the Investment Company Act of 1940, as amended (the "1940 Act").
Miscellaneous
As of the date of this Prospectus, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, as the Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding PBHG Class
Shares of each Portfolio, and may be deemed to be a controlling person of the
Portfolio for purposes of the 1940 Act.
-18-
<PAGE>
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. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, a Portfolio's selection of convertible securities is based,
to a great extent, on the potential for capital appreciation that may exist in
the underlying stock. The value of convertible securities is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
Demand Instruments -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: futures, options
on futures, options (e.g., puts and calls), swap agreements, mortgage-backed
securities (e.g., CMOs, REMICs, IOs and POs), when-issued securities and forward
commitments, floating and variable rate securities, convertible securities,
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPS) and privately
issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere in this
"Glossary of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about the investment policies and limitations applicable to their use.
Equity Securities -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.
Forward Foreign Currency Contracts -- Foreign currency exchange transactions may
be used 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. Such transactions may be conducted on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market, or through
entering into forward currency contracts. A forward foreign currency contract
involves an obligation to purchase or sell a specific currency amount at a
future date, which may be any fixed number of days from the date of the
contract, agreed upon by the parties, at a price set at the time of the
contract. Under normal
-19-
<PAGE>
circumstances, consideration of the prospect for changes in currency exchange
rates will be incorporated into each Portfolio's long-term investment
strategies. However, the Advisers believe that it is important to have the
flexibility to enter into forward foreign currency contracts when it determines
that the best interests of a Portfolio will be served.
When the Advisers believe 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 appropriate 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 marketable
securities with its custodian, or a designated sub-custodian, in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to such
contracts.
Forward contracts may substantially change the Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as the Advisers anticipate. For example, if a
currency's value rose at a time when the Advisers had hedged the Fund by selling
that currency in exchange for dollars, the Fund would be unable to participate
in the currency's appreciation. Similarly, if the Advisers increase the Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss.
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.
Mortgage-Backed Securities -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
Receipts -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
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 Advisers 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.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration. A Portfolio may invest in restricted securities that the Advisers
determine 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
Advisers' implementation of such procedures and guidelines. Under these
-20-
<PAGE>
procedures and guidelines, the Advisers will consider the frequency of trades
and quotes for the security, the number of dealers in, and potential purchasers
for, the securities, dealer undertakings to make a market in the security, and
the nature of the security and of the marketplace trades. The Fund 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
available. Because of the restrictions on the resale of restricted securities,
they may pose liquidity problems for the Portfolios.
Securities Lending -- The Portfolios may lend their investment securities to
qualified institutional investors who need to borrow securities in order to
complete certain transactions, such as covering short sales, avoiding failures
to deliver securities or completing arbitrage operations. The Portfolios will
not loan portfolio securities to the extent that greater than one-third of their
assets at fair market value, would be committed to loans. By lending their
investment securities, the Portfolios attempt to increase their income through
the receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Portfolios.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Securities issued by these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States (e.g., GNMA securities) or supported
by the issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported only by the credit of the instrumentality (e.g.,
Tennessee Valley Authority securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS").
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by a Portfolio may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates which are not
fixed, but which vary with changes in specified market rates or indices, such as
a Federal Reserve composite index. The interest rates on these securities may be
reset daily, weekly, quarterly or some other reset period, and may have a floor
or ceiling on interest rate changes. There is a risk that the current interest
rate on such obligations may not accurately reflect existing market interest
rates. A demand instrument with a demand notice exceeding seven days may be
considered illiquid if there is no secondary market for such securities.
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-delivery
securities are securities subject to settlement on a future date. For fixed
income securities, the interest rate realized on when-issued or delayed-delivery
securities is fixed as of the purchase date and no interest accrues to a
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and will have the effect of leveraging a
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 Custodian, and the Portfolios will maintain liquid assets
in such accounts in an amount at least equal in value to each Portfolio's
commitments to purchase when-issued securities.
-21-
<PAGE>
THE PBHG FUNDS, INC.
PBHG LARGE CAP VALUE FUND
PBHG MID-CAP VALUE FUND
PBHG STRATEGIC SMALL COMPANY FUND
INVESTMENT ADVISER:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates only to
the PBHG Large Cap Value Fund, PBHG Mid-Cap Value Fund and PBHG Strategic Small
Company Fund (individually a "Portfolio" and together the "Portfolios"). It is
intended to provide additional information regarding the activities and
operations of The PBHG Funds, Inc. (the "Fund") and each Portfolio, and should
be read in conjunction with the Portfolios' Prospectus dated December 16, 1996.
The Prospectus for these Portfolios may be obtained without charge by calling
1-800-431-0051.
TABLE OF CONTENTS
THE FUND.................................................................S -
DESCRIPTION OF PERMITTED INVESTMENTS.....................................S -
INVESTMENT LIMITATIONS...................................................S -
THE ADVISER .............................................................S -
THE SUB-ADVISER..........................................................S -
THE ADMINISTRATOR AND SUB-ADMINISTRATOR..................................S -
THE DISTRIBUTOR..........................................................S -
DIRECTORS AND OFFICERS OF THE FUND.......................................S -
COMPUTATION OF YIELD ....................................................S -
CALCULATION OF TOTAL RETURN..............................................S -
PURCHASE AND REDEMPTION OF SHARES........................................S -
DETERMINATION OF NET ASSET VALUE.........................................S -
TAXES....................................................................S -
PORTFOLIO TRANSACTIONS...................................................S -
DESCRIPTION OF SHARES....................................................S -
December 16, 1996
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's PBHG Large
Cap Value Fund, PBHG Mid-Cap Value Fund and PBHG Strategic Small Company Fund
(individually a "Portfolio" and, together the "Portfolios"). Each Portfolio is a
separate series of The PBHG Funds, Inc., 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 Fund also offers shares through means of
separate prospectuses and statements of additional information of the following
ten other portfolios, i.e., PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG
Large Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG
Cash Reserves Fund, PBHG Technology & Communications Fund, PBHG Core Growth
Fund, PBHG Limited Fund and PBHG Large Cap 20 Fund. Each portfolio is a separate
mutual fund, and each share of each portfolio represents an equal proportionate
interest in each Portfolio. See "Description of Shares." No investment in shares
of a portfolio should be made without first reading the portfolio's Prospectus.
Pilgrim Baxter & Associates, Ltd. ("Adviser") serves as the investment adviser
to each Portfolio. Newbold's Asset Management, Inc. ("Sub-Adviser") serves as
the investment sub-adviser to each Portfolio. The Adviser and the Sub-Adviser
are collectively referred herein as the "Advisers."
DESCRIPTION OF PERMITTED INVESTMENTS
Puts, Calls, Straddles, Spreads and Futures Contracts. The Portfolios have no
current intention in the foreseeable future of utilizing puts, calls, straddles,
spreads and futures contracts or any combination thereof.
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 monitors compliance with this requirement). With respect
S - 2
<PAGE>
to all repurchase agreements entered into by a Portfolio, the Fund's custodian
or its 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.
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.
Illiquid Investments are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Directors, the Advisers determine
the liquidity of the Fund's investments and, through reports from the Advisers,
the Board monitors investments in illiquid instruments. In determining the
liquidity of a Portfolio's investments, Advisers may consider various factors
including (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender
features), and (5) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven days, over the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Advisers may determine
some government-stripped fixed-rate mortgage backed securities, loans and other
direct debt instruments, and swap agreements to be illiquid. However, with
respect to over-the-counter options a Portfolio writers, all or a portion of the
value of the underlying instrument may be illiquid depending on the assets held
to cover the option and the nature and terms of any agreement a Portfolio may
have to close out the option before expiration. In the absence of market
quotations, illiquid investments are priced at fair value as determined in good
faith by a committee appointed by the Board of Directors. If, through a change
in values, net assets or other circumstances, a Portfolio was in a position
where more than 10% of its net assets were invested in illiquid securities, it
would seek to take appropriate steps to protect liquidity.
S - 3
<PAGE>
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expense and
a considerable period may elapse between the time it decides to seek
registration and the time a Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
Foreign Currency Transactions. A Portfolio may hold foreign currency deposits
from time to time, and may convert dollars and foreign currencies in the foreign
exchange markets. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged. Currencies maybe exchanged on a
spot (i.e., cash) basis, or by entering into forward contracts to purchase or
sell foreign currencies at a future date and price. Forward contracts generally
are traded in an interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the contract before maturity, or may
hold the contract to maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Advisers expect to enter into settlement hedges in the
normal course of managing the Portfolio's foreign investments. A Portfolio could
also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Advisers.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge", would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for example, by
entering into a forward contract to sell Deutschemark or European Currency Units
in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
S - 4
<PAGE>
Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, each Portfolio will segregate
assets to cover currency forward contracts, if any, whose purpose is essentially
speculative. A Portfolio will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.
Successful use of forward currency contracts will depend on the Advisers skill
in analyzing and predicting currency values. Forward contracts may substantially
change a Portfolio's investment exposure to changes in currency exchange rates,
and could result in losses to a Portfolio if currencies do not perform as the
Advisers anticipate. For example, if a currency's value rose at a time when the
Advisers had hedged a Portfolio by selling that currency in exchange for
dollars, a Portfolio would be unable to participate in the currency's
appreciation. If the Advisers hedge currency exposure through proxy hedges, a
Portfolio could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly, if the
Advisers increase a Portfolio's exposure to a foreign currency, and that
currency's value declines, a Portfolio will realize a loss. There is no
assurance that the Advisers' use of forward currency contracts will be
advantageous to a Portfolio or that it will hedge at an appropriate time.
The policies described in this section of the Statement of Additional
Information are non-fundamental policies of a Portfolio.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which (in addition to
those fundamental investment restrictions set forth 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 are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of the Portfolio.
Each Portfolio 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
S - 5
<PAGE>
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.
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 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.
S - 6
<PAGE>
11. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
12. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the
total assets of the Portfolio would be invested in the securities of such
issuer. This restriction applies to 75% of each Portfolio's total assets.
13. 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
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (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, automobile finance, bank
finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the
same industry.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
Each Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A
restricted security that has been determined by, or pursuant to procedures
established by, the Board, based on trading markets for such security, to
be liquid. However, certain state securities regulators have required that
the Portfolio not invest more than 10% of its net assets in restricted
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. Purchase securities of other investment companies, except to the extent
such purchase is limited to shares of money market open-end investment
companies and the Adviser will waive its fee on that portion of the assets
placed in such money market open-end investment companies.
3. 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
S - 7
<PAGE>
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.
4. Purchase or sell 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.
5. Invest (i) more than 5% of its net assets in warrants or (ii) more than 2%
of its net assets in warrants that are not traded on the New York Stock
Exchange or the American Stock Exchange.
The foregoing percentages will apply at the time of the purchase of a security,
except with respect to the limitation on investing in illiquid securities.
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 each of
its Portfolios 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 each Portfolio in accordance with the
Portfolio's investment objectives, policies and limitations; (2) make investment
decisions for each Portfolio; and (3) place orders to purchase and sell
securities for each Portfolio, 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.
The Adviser is entitled to a fee which is calculated daily and paid monthly at
an annual rate of 0.85% of the average net assets of each of the Portfolios.
With respect to each Portfolio, the annual fees of the Adviser will be reduced
to the extent that the 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 each Portfolio. 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.
S - 8
<PAGE>
The continuance of the Advisory Agreement with respect to each Portfolio after
the first two years must be specifically approved at least annually (i) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of such Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement with respect to each Portfolio may be terminated (i) at any
time without penalty by the Fund upon the vote of a majority of the Directors or
by vote of the majority of the outstanding voting securities of such Portfolio
upon sixty (60) days' written notice to the Adviser or (ii) by the Adviser at
any time without penalty upon sixty (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-ADVISER
The Fund, on behalf of each Portfolio, and the Adviser have entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Newbold's Asset
Management, Inc. ("Newbold's"). The Sub-Advisory Agreement provides certain
limitations on the Sub-Adviser's liability, but also provides that the
Sub-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 Sub-Advisory Agreement obligates Newbold's to: (1) manage the investment
operations of the Portfolios and the composition of the Portfolios' investment
portfolios, including the purchase, retention and disposition thereof in
accordance with the Portfolios' investment objective, policies and limitation;
(2) provide supervision of the Portfolios' investments and to determine from
time to time what investment and securities will be purchased, retained or sold
by the Portfolios 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 Portfolios 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
Portfolios' 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 Sub-Advisory Agreement with respect to each Portfolio
after the first two years must be specifically approved at least annually (i) by
the Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of such Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Sub-Advisory Agreement with respect to each Portfolio may be terminated (i) by
the Fund, without the payment of any penalty, by the vote of a majority of the
Directors of the Fund or by the vote of a majority of the outstanding voting
securities of such Portfolio, (ii) by the Adviser at any time, without the
payment of any penalty, on not more than sixty (60) days' nor less than thirty
(30) days' written notice to the other parties, or (iii) by the Sub-Adviser at
any time, without the payment of any penalty, on ninety (90) days' written
notice to the other
S - 9
<PAGE>
parties. The Sub-Advisory Agreement will also terminate automatically in the
event of its assignment (as defined in the 1940 Act).
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July 1,
1996, pursuant to which the Administrator oversees the administration of the
business and affairs of the Fund, including services provided to it by various
third parties. The Administrator was organized as a Pennsylvania business trust
and has its principal place of business at 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087. Under the Administrative Agreement, the Administrator is
entitled to a fee from the Fund, which is calculated daily and paid monthly, at
an annual rate of 0.15.% of the average daily net assets of each series of the
Fund, including each Portfolio. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall remain in effect
until December 31, 1998 and shall thereafter continue in effect for successive
periods of one year, unless terminated by either party upon not less than ninety
(90) days' prior written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement ("Sub-Administrative
Agreement") on July 1, 1996 pursuant to which the Sub-Administrator assists the
Administrator in connection with the administration of the business and affairs
of the Fund. Prior to July 1, 1996, the Sub-Administrator served as the
administrator of the Fund. The Sub-Administrator is a wholly-owned subsidiary of
SEI Financial Management Company ("SEI Financial"), which is a wholly-owned
subsidiary of SEI Corporation ("SEI"). The Sub-Administrator was organized as a
Delaware business trust, and has its principal business offices at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Under the Sub-Administrative
Agreement, the Sub-Administrator is entitled to a fee from the Administrator,
which is calculated daily and paid monthly, (i) at an annual rate of 0.07.% of
the average daily net assets of each series of the Fund, including the
Portfolios, with respect to the first $2.5 billion of the total average daily
net assets of the Fund; and (ii) at the annual rate of .025% of average daily
net assets of each series of the Fund, including the Portfolios, with respect to
the total average daily net assets of the Fund in excess of $2.5 billion. The
Sub-Administrative Agreement provides that the Sub-Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Sub-Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Sub-Administrator in the performance of its
duties. The Sub-Administrative Agreement shall remain in effect until December
31, 1998 and shall thereafter continue in effect for successive periods of one
year, unless terminated by either party upon not less than ninety (90) days'
prior written notice to the other party.
S - 10
<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") dated July 1, 1996 pursuant to which the Distributor serves as
principal underwriter for the Fund. The Distributor will receive no compensation
for serving in such capacity.
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 sixty (60) days' written notice by either party or upon assignment
by the Distributor.
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.
The age of each Director and officer is indicated in the parenthesis.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, The Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Trustee, the Administrator since May 1996 and Chief Executive Officer, Newbold's
Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010, since June
1996.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co. 1958-1995 (retired).
GARY PILGRIM (55) - President - President, Secretary, Treasurer and Director,
the Adviser since 1982. Trustee, the Administrator since May 1996.
S - 11
<PAGE>
SANDRA K. ORLOW (42) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1983
and SEI Financial since June 1996.
KEVIN P. ROBINS (35) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992 and SEI Financial since June
1996. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (37) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1994
and SEI Financial since June 1996. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (30) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1995
and SEI Financial since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
JOSEPH LYDON (36) - Vice President, Assistant Secretary - Director of Business
Administration, SEI since April, 1995. Vice President of Fund Group, Vice
President of the Advisor - Dreman Value Management, LP, President of Dreman
Financial Services, Inc., 1989-1995.
BARBARA A. NUGENT (40) - Vice President and Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service Company,
Inc., 1988-1993.
STEPHEN G. MEYER (31) - Treasurer, Chief Financial Officer and Controller -
Director - Internal Audit and Risk Management, SEI Corporation since 1992.
Senior Associate, Coopers & Lybrand, LLP (accounting firm), 1990-1992.
MICHAEL HARRINGTON (27) - Assistant Vice President - Mutual Fund Coordinator,
the Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994.
LEE T. CUMMINGS (32) - Vice President - Director of Mutual Fund Operations, the
Adviser since 1996. Treasurer, the Administrator since May 1996. Investment
Accounting Officer, Delaware Group of Funds, 1994-1996. Vice President,
Fund/Plan Services, Inc., 1992-1994. Assistant Vice President, Fund/Plan
Services, Inc., 1990-1992.
BRIAN BEREZNAK (34) - Vice President and Assistant Secretary - Chief Operating
Officer, the Adviser since 1989. Trustee and President, the Administrator since
May 1996.
S - 12
<PAGE>
DARLENE DEREMER (40)- Vice President - President, DeRemer Associates (financial
consulting), 155 South Street, Wrentham, MA 02093 since 1987.
JANE A. KANTER (47) - Secretary - Partner, Katten Muchin & Zavis, 1025 Thomas
Jefferson Street, N.W., East Lobby - Suite 700, Washington, D.C. 20007 (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.
Each current Director of the Fund who is not an "interested person" of the Fund
is expected to receive the following compensation during the fiscal year ending
March 31, 1997:
<TABLE>
<CAPTION>
===========================================================================================================================
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from the Fund
Name of Person, from each of Benefits Upon Paid to
Position Portfolio* Fund Expenses Retirement Directors*
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, less than N/A N/A $12,000 for
Director $1,000 services on
one Board
- ---------------------------------------------------------------------------------------------------------------------------
Harold J. Baxter, N/A N/A N/A N/A
Director**
- ---------------------------------------------------------------------------------------------------------------------------
Jettie M. Edwards, less than N/A N/A $12,000 for
Director $1,000 services on
one Board
- ---------------------------------------------------------------------------------------------------------------------------
Albert A. Miller, less than N/A N/A $12,000 for
Director $1,000 services on
one Board
===========================================================================================================================
</TABLE>
- -------------------
*The Fund is expected to pay approximately $3,000 to each Director who is not an
"interested person" of the Fund for each regular meeting of the Board of
Directors during the fiscal year ending March 31, 1997. Each Portfolio is
expected to pay its proportionate share of the total compensation, based on its
total net assets relative to the total net assets of the Fund.
**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.
As each Portfolio's initial shareholder, SEI Financial, 680 East Swedesford
Road, Wayne, PA 19087-1658, holds all of the outstanding shares, both
beneficially and of record, of each Portfolio as of the date of this Statement
of Additional Information.
S - 13
<PAGE>
COMPUTATION OF YIELD
From time to time, a Portfolio may advertise yield. These figures will be based
on historical earnings and are not intended to indicate future performance. The
yield of a Portfolio 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 income generated by the investment during that period
generated each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
CALCULATION OF TOTAL RETURN
From time to time, a Portfolio may advertise total return. The total return of a
Portfolio 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 Portfolio 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.
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 through the Distributor on any day on
which the New York Stock Exchange is open for business. Currently, the following
holidays are observed by the Fund: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Shares of each Portfolio 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 each Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of each Portfolio's securities is not
S - 14
<PAGE>
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 Sub-Adviser, the Administrator, the Transfer Agent and/or the Custodian are
not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of each Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of 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.
TAXES
The following is only a summary of certain income tax considerations generally
affecting a 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.
S - 15
<PAGE>
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital 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.
S - 16
<PAGE>
PORTFOLIO TRANSACTIONS
The Advisers are authorized to select brokers and dealers to effect securities
transactions for each Portfolio. The 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 Advisers generally seek
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available. The 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 each Portfolio's public offering price. In
the case of securities traded in the over-the-counter market, the Advisers
expect normally to seek to select primary market makers.
The Advisers may, consistent with the interests of the Portfolios, select
brokers on the basis of the research services they provide to the 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 Advisers will be in addition to and not in lieu of the services
required to be performed by the Advisers under the Advisory Agreement and Sub-
Advisory Agreement. If, in the judgment of the Advisers, the Portfolios or other
accounts managed by the Advisers will be benefitted by supplemental research
services, the Advisers are authorized to pay brokerage commissions to a broker
furnishing such services which are in excess of commissions which another broker
may have charged for effecting the same transaction. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. The expenses of the 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 each Portfolio or account
generating the brokerage, and there can be no guarantee that the Advisers will
find all of such services of value in advising the Portfolios.
It is expected 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 Portfolios 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
S - 17
<PAGE>
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 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 Portfolios' 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 Advisers 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.
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 Advisers 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.
S - 18
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibit
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
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(4)
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc.,
a Maryland corporation(6)
1(e) Articles of Incorporation of The PBHG Funds, Inc.(6)
1(f) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc., dated November 12, 1993(7)
1(g) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 5, 1994(8)
1(h) Articles of Amendment of the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 1995(13)
1(i) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 25, 1994(8)
1(j) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 5, 1994(9)
1(k) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 9, 1994(9)
1(l) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. with respect to the Advisers Class
Shares dated December 28, 1995(13)
1(m) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. with respect to the PBHG Mid-Cap Growth
Fund dated December 28, 1995(13)
1(n) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. with respect to an increase in number
of shares dated May 20, 1996(14)
1(o) Articles Supplementary to the Articles of Incorporation of
THE PBHG Funds, Inc. with respect to the PBHG Limited Fund
dated July 1, 1996(14)
1(p) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. with respect to the PBHG Large Cap 20
Fund dated September 6, 1996(14)
1(q) Articles Supplementary to the Articles of Incorporation of
the PBHG Funds, Inc. with respect to the Large Cap Value
Fund, Mid-Cap Value Fund and the Strategic Small Company
Fund dated October 2, 1996
2 By-Laws(6)
3 Voting trust agreement - none
4 Specimen Common Stock Certificate(1)
5(a)(1) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated December, 1995(13)
5(a)(2) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated November __, 1996(14)
5(a)(3) Investment Advisory Agreement dated April 28, 1996 and
Schedule A dated December __, 1996
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(13)
C-1
<PAGE>
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(13)
5(d)(1) Investment Sub-Advisory Agreement between and among PBHG
Funds, Inc., on behalf of PBHG Large Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated December __, 1996
5(d)(2) Investment Sub-Advisory Agreement between and among PBHG
Funds, Inc., on behalf of PBHG Mid-Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated December __, 1996
5(d)(3) Investment Sub-Advisory Agreement between and among PBHG
Funds, Inc., on behalf of PBHG Strategic Small Company Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated December __, 1996
6(a)(1) Distribution Agreement between The PBHG Funds, Inc., and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated September ___, 1996(14)
6(a)(2) Distribution Agreement between The PBHG Funds, Inc., and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated December __, 1996
6(b) Copy of Selling Group Agreement(5)
7 Bonus, profit sharing or pension plans - none
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) Custodian Agreement between The PBHG Funds, Inc., on behalf
of the International Fund, and The Northern Trust Company(7)
8(d) Custodian Agreement between Registrant, on behalf of PBHG
Growth and PBHG Emerging Growth Funds, and CoreStates Bank,
N.A.(8)
8(e) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. dated September __, 1996 and Schedule
A dated September __, 1996(14)
8(f) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. dated September __, 1996 and Schedule
A dated December __, 1996
9(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 1993(7)
9(b)(1) Administrative Services Agreement between The PBHG Funds,
Inc. and PBHG Fund Services dated July 1, 1996 and Exhibit A
dated September__, 1996(14)
9(b)(2) Administrative Services Agreement between The PBHG Funds,
Inc. and PBHG Fund Services dated July 1, 1996 and Exhibit A
dated December__, 1996
9(c)(1) Sub-Administrative Services Agreement between The PBHG Funds
and SEI Fund Resources dated July 1, 1996 and Schedule A
dated September __, 1996(14)
9(c)(2) Sub-Administrative Services Agreement between The PBHG Funds
and SEI Fund Resources dated July 1, 1996 and Schedule A
dated December __, 1996
9(d)(1) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Large Cap 20 Fund and Pilgrim Baxter
& Associates, Ltd. dated November__, 1996(14)
9(d)(2) Expense Limitation Agreement between the PBHG Funds, Inc. on
behalf of PBHG Core Growth Fund and Pilgrim Baxter &
Associates, Ltd. dated September 24, 1996
9(d)(3) Expense Limitation Agreement between the PBHG Funds, Inc. on
behalf of PBHG Limited Fund and Pilgrim Baxter & Associates,
Ltd. dated September 24, 1996
9(d)(4) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Large Cap Value Fund and Newbold's
Asset Management, Inc. dated December __, 1996
9(d)(5) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Mid-Cap Value Fund and Newbold's
Asset Management, Inc. dated December __, 1996
C-2
<PAGE>
9(d)(6) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Strategic Small Company Fund and
Newbold's Asset Management, Inc. dated December __, 1996
9(d)(7) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Large Cap Value Fund and Pilgrim
Baxter & Associates, Ltd. dated December __, 1996
9(d)(8) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter
& Associates, Ltd. dated December __, 1996
9(d)(9) Form of Expense Limitation Agreement between the PBHG Funds,
Inc. on behalf of PBHG Strategic Small Company Fund and
Pilgrim Baxter & Associates, Ltd. dated December __, 1996
10(a) Opinion of Counse(l6)
10(b) Opinion of Counsel with respect to the legality of the
shares of the PBHG Core Growth Fund(13)
10(c) Opinion of Counsel with respect to the legality of the
shares of the PBHG Limited Fund(13)
10(d) Opinion of Counsel with respect to the legality of the
shares of the PBHG Large Cap 20 Fund(14)
10(e) Opinion of Counsel with respect to the legality of the
shares of the PBHG Large Cap Value Fund, PBHG Mid-Cap Value
Fund and PBHG Strategic Small Company Fund
11 Consent of Independent Public Accountants(13)
12 Financial Statements omitted from Part B - none
13 Letter from Philadelphia Life Insurance Company to the
Registrant with respect to the initial capitalization of the
Registrant(2)
14(a) Southwestern Life Insurance Company Defined Benefit Pension
Plan and Trust(1)
14(b) Adoption Agreement for Southwestern Life Insurance Company
Standardized Integrated Defined Benefit Pension Plan and
Trust (with Pairing Provisions)(1)
14(c) Adoption Agreement for Southwestern Life Insurance Company
Standardized Non-Integrated Defined Benefit Pension Plan
and Trust (with Pairing Provisions)(1)
14(d) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Integrated Defined Benefit Pension Plan and
Trust(1)
14(e) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Non-Integrated Defined Benefit Pension
Plan and Trust(1)
14(f) Southwestern Life Insurance Company Combination Profit
Sharing-Money Purchase Plan and Trust(1)
14(g) Adoption Agreement for Southwestern Life Insurance Company
Standardized Money Purchase Plan and Trust (with Pairing
Provisions)(1)
14(h) Adoption Agreement for Southwestern Life Insurance Company
Standardized Profit Sharing Plan and Trust (with Pairing
Provisions)(1)
14(i) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Money Purchase Plan and Trust(1)
14(j) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Profit Sharing Plan and Trust(1)
14(k) Form 5305, Simplified Employee Pension-Individual Retirement
Accounts Contribution Agreement(1)
14(l) Form 5305-A, Individual Retirement Custodial Account(1)
14(m) Southwestern Life Insurance Company Tax Deferred Annuity
Program Custodial Agreement(1)
14(n) 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)
C-3
<PAGE>
16 Schedule for computation of Performance Quotation provided
in the Registration Statement - none for the PBHG Large Cap
Value Fund, PBHG Mid-Cap Value Fund and PBHG Strategic Small
Company Fund
18 Form of Rule 18f-3 Multiple Class Plan dated November,
1995(11)
24(a) Power of Attorney(12)
24(b) Power of Attorney(14)
27 Financial Data Schedule(13)
----------
(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. 3 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(4) Incorporated herein by reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(5) Incorporated herein by reference to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(6) Incorporated herein by reference to Post-Effective Amendment
No. 11 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(7) Incorporated herein by reference to Post-Effective Amendment
No. 12 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(8) Incorporated herein by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(9) Incorporated herein by reference to Post-Effective Amendment
No. 14 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).
(13) Incorporated herein by reference to Post-Effective Amendment
No. 23 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
(14) Incorporated herein by reference to Post-Effective Amendment
No. 24 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
C-4
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
There are no persons that are controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of September 4, 1996:
Title of Class Number of Record Holders
PBHG Class
PBHG Growth Fund 227,282
PBHG Emerging Growth Fund 69,201
PBHG International Fund 3,535
PBHG Large Cap Growth Fund 7,314
PBHG Select Equity Fund 27,544
PBHG Cash Reserves Fund 9,374
PBHG Technology & Communications Fund 11,528
PBHG Core Growth Fund 24,191
PBHG Large Cap 20 Fund None
PBHG Large Cap Value Fund None
PBHG Mid-Cap Value Fund None
PBHG Strategic Small Company Fund None
Trust Class
PBHG Growth Fund 8
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
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
C-5
<PAGE>
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 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-6
<PAGE>
Name and Position with
Pilgrim Baxter & Connection
Associates, Ltd. Name of Other Company with Other Company
- ---------------- --------------------- ------------------
Harold J. Baxter PBHG Fund Services Trustee
Director, Chairman &
Chief Executive Officer United Asset Management Member, Board of
Corporation Directors
Newbold's Asset Management, Chief Executive Officer
Inc.
Gary L. Pilgrim
Director, President, PBHG Fund Services Trustee
Secretary, Treasurer &
Chief Investment Office
Brian F. Bereznak PBHG Fund Services President
Chief Operating Officer
Eric C. Schneider Newbold's Asset Management, Chief Financial Officer
Chief Financial Officer Inc.
Business and Other Connections of Sub-Advisers:
Name and Position with
Newbold's Asset Connection
Management, Inc. Name of Other Company with Other Company
- ---------------- --------------------- ------------------
Harold J. Baxter Pilgrim Baxter & Associates Director, Chairman & Chief
Chief Executive Officer Executive Officer
PBHG Fund Services Trustee
United Asset Management Corp. Member, Board of
Directors
Timothy M. Havens None None
Chairman
James Farrell Farrell Seiwell, Inc. President
Chief Investment
Officer
David W. Jennings Pilgrim Baxter & Associates Director of Client Service
President & Chief
Operating Officer
Eric C. Schneider Pilgrim Baxter & Associates Chief Financial Officer
Chief Financial Officer
C-7
<PAGE>
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.
C-8
<PAGE>
Registrant's distributor, SEI Financial Services Company
("SFS"), acts as distributor for:
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
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 (R) June 1, 1993
MarquisSM Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 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
Turner Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and
C-9
<PAGE>
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.
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
Alfred P. West, Jr. Director, Chairman -
& Chief Executive Officer
Henry H. Greer Director, President -
& Chief Executive Officer
Carmen V. Romeo Director, Executive Vice President -
& Treasurer
Gilbert L. Beebower Executive Vice President -
Richard B. Lieb Executive Vice President -
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jerome Hickey Senior Vice President -
David G. Lee Senior Vice President -
Steven Kramer 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 -
Barbara J. Moore Senior Vice President -
James V. Morris Senior Vice President -
Steven Onofrio Senior Vice President -
Kevin P. Robins Senior Vice President, Vice
General Counsel & Secretary President &
Assistant
Secretary
Robert Wagner Senior Vice President -
Patrick K. Walsh Senior Vice President -
Kenneth Zimmer Senior Vice President -
Marc H. Cahn Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
C-10
<PAGE>
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
Carolyn McLaurin Vice President &Managing Director -
Donald Pepin Vice President & Managing Director -
Mark Samuels Vice President & Managing Director -
Wayne M. Withrow Vice President & Managing Director -
Mick Duncan Vice President & Team Leader -
Robert Ludwig Vice President & Team Leader -
Vicki Malloy Vice President & Team Leader -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary -
Ed Daly Vice President -
Jeff Drennen 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 & Team Leader -
Jack May Vice President -
W. Kelso Morrill Vice President -
Barbara A. Nugent Vice President & Assistant Secretary Vice
President &
Assistant
Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice
President &
Assistant
Secretary
Larry Pokora Vice President -
Kim Rainey Vice President -
C-11
<PAGE>
Name and Principal Position and Office with Underwriter Positions and
Business Address Offices with
Registrant
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 -
c. None.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8);
(12); and 31a-1(d), the required books and records are maintained at the
offices of Registrant's Custodian:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI 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 or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone International Limited
1255 Drummers Lane, Suite 300 11 West Nile Street
Wayne, PA 19087 Glasgow, Scotland G12PX
Wellington Management Company Newbold's Asset Management, Inc.
75 State Street 950 Haverford Road
Boston, MA 02109 Bryn Mawr, PA 19010
C-12
<PAGE>
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
Large Cap Value Fund, PBHG Mid-Cap Value Fund and PBHG Strategic Small
Company Fund of the Registrant or the effective date of Post-Effective
Amendment No. 25 to the Registrant's 1933 Act Registration Statement.
C-13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this Post
Effective Amendment No. 25 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 2nd day of October, 1996.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
--------------------
Harold J. Baxter
Chairman and Chief Executive Officer
ATTEST:
/s/ Brian F. Bereznak
- ---------------------
Brian F. Bereznak, Vice President
and Assistant Secretary
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 ____________________
Harold J. Baxter Executive Officer,
and Director
* Director ____________________
John R. Bartholdson
* Director ____________________
Jettie M. Edwards
* Director ____________________
Albert A. Miller
* Chief Financial ____________________
Stephen G. Meyer Officer and Controller
* By: /s/ Harold J. Baxter 10/2/96
--------------------- -----------
Harold J. Baxter Date
(Attorney-in-Fact)
C-14
<PAGE>
EXHIBIT LIST
Exhibit Number Description Sequentially Numbered Pages
- -------------- ----------- ---------------------------
1(q) Articles Supplementary to the
Articles of Incorporation of
The PBHG Funds, Inc. dated
September __, 1996
5(a)(3) Investment Advisory
Agreement dated April 28,
1996 and Schedule A dated
December __, 1996
5(d)(1) Investment Sub-Advisory
Agreement between and
among PBHG Funds, Inc., on
behalf of PBHG Large Cap
Value Fund, Pilgrim Baxter &
Associates, Ltd. and
Newbold's Asset
Management, Inc. dated
December __, 1996
5(d)(2) Investment Sub-Advisory
Agreement between and
among PBHG Funds, Inc., on
behalf of PBHG Mid-Cap Value
Fund, Pilgrim Baxter &
Associates, Ltd. and
Newbold's Asset
Management, Inc. dated
December __, 1996
5(d)(3) Investment Sub-Advisory
Agreement between and
among PBHG Funds, Inc., on
behalf of PBHG Strategic
Small Company Fund, Pilgrim
Baxter & Associates, Ltd. and
Newbold's Asset
Management, Inc. dated
December __, 1996
6(a)(2) Distribution Agreement
between The PBHG Funds,
Inc. and SEI Financial Services
Company dated July 1, 1996
and Exhibit A dated December
__, 1996
C-15
<PAGE>
Exhibit Number Description Sequentially Numbered Pages
- -------------- ----------- ---------------------------
8(f) Custodian Agreement
between The PBHG Funds,
Inc. and CoreStates Bank N.A.
dated September __, 1996
and Schedule A dated
December __, 1996
9(b)(2) Administrative Services Agreement
between The PBHG Funds, Inc., and PBHG
Fund Services dated July 1, 1996 and
Exhibit A dated December__, 1996
9(c)(2) Sub-Administrative Services Agreement
between The PBHG Funds, Inc., and SEI
Fund Resources dated July 1, 1996 and
Schedule A dated December __, 1996
9(d)(2) Expense Limitation Agreement
between the PBHG Funds, Inc.
on behalf of PBHG Core
Growth Fund and Pilgrim
Baxter & Associates, Ltd.
dated September 24, 1996
9(d)(3) Form of Expense Limitation
Agreement between the PBHG
Funds, Inc. on behalf of PBHG
Limited Fund and Pilgrim
Baxter & Associates, Ltd.
dated September 24, 1996
9(d)(4) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Large Cap Value Fund
and Newbold's Asset
Management, Inc. dated
December __, 1996
9(d)(5) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Mid-Cap Value Fund
and Newbold's Asset
Management, Inc. dated
December __, 1996
C-16
<PAGE>
Exhibit Number Description Sequentially Numbered Pages
- -------------- ----------- ---------------------------
9(d)(6) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Strategic Small
Company Fund and Newbold's
Asset Management, Inc. dated
December __, 1996
9(d)(7) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Large Cap Value Fund
and Pilgrim Baxter &
Associates, Ltd. dated
December __, 1996
9(d)(8) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Mid-Cap Value Fund
and Pilgrim Baxter &
Associates, Ltd. dated
December __, 1996
9(d)(9) Form of Expense Limitation
Agreement between The
PBHG Funds, Inc. on behalf of
PBHG Strategic Small
Company Fund and Pilgrim
Baxter & Associates, Ltd.
dated December __, 1996
10(e) Opinion of Counsel with
respect to the legality of the
shares of the PBHG Large Cap
Value Fund, PBHG Mid-Cap
Value Fund and The PBHG
Strategic Small Company
Fund being registered
C-17
<PAGE>
EXHIBIT 1(q)
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 three new
series of shares as the PBHG Large Cap Value Fund, PBHG Mid-Cap Value Fund
and the PBHG Strategic Small Company 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
Seven Billion Six Hundred Million (7,600,000,000), to Eight Billion Eight
Hundred Million (8,800,000,000), 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 Eight Billion Eight Hundred Million
(8,800,000,000) shares of Common Stock, par value one tenth of one cent
($.001) per share, having an aggregate par value of Eight Million Eight
Hundred Thousand Dollars ($8,800,000), as set forth below. Immediately
prior to the classification, the Seven Billion Six Hundred Million
(7,600,000,000) shares of the Corporation's Common Stock, par value one
tenth of one cent ($.001) per share, having an aggregate par value of Seven
Billion Two Hundred Million Dollars ($7,600,000) all of which previously
classified shares of the Corporation's Common Stock were designated as
follows:
<PAGE>
Designation Number of Shares
PBHG Growth Fund PBHG Class Shares 400 million
PBHG Emerging Growth Fund PBHG Class Shares 400 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 200 million
PBHG Class Shares
PBHG Core Growth Fund PBHG Class Shares 200 million
PBHG Limited Fund PBHG Class Shares 200 million
PBHG Large Cap 20 Fund PBHG Class Shares 200 million
PBHG Growth Fund Trust Class Shares 200 million
PBHG Emerging Growth Fund Trust Class Shares 200 million
PBHG International Fund Trust Class Shares 200 million
PBHG Cash Reserves Fund Trust Class Shares 1 billion, 800 million
PBHG Select Equity Fund Trust Class Shares 200 million
PBHG Large Cap Growth Fund Trust Class Shares 200 million
PBHG Technology & Communications Fund 200 million
Trust Class Shares
PBHG Core Growth Fund Trust Class Shares 200 million
PBHG Limited Fund Trust Class Shares 200 million
PBHG Large Cap 20 Fund Trust Class Shares 200 million
The Eight Billion Eight Hundred Million (8,800,000,000) shares of the
Corporation's Common Stock are classified and designated as follow:
Designation Number of Shares
PBHG Growth Fund PBHG Class Shares 400 million
PBHG Emerging Growth Fund PBHG Class Shares 400 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 200 million
PBHG Class Shares
PBHG Core Growth Fund PBHG Class Shares 200 million
PBHG Limited Fund PBHG Class Shares 200 million
PBHG Large Cap 20 Fund PBHG Class Shares 200 million
PBHG Large Cap Value Fund PBHG Class Shares 200 million
PBHG Mid-Cap Value Fund PBHG Class Shares 200 million
PBHG Strategic Small Company Fund 200 million
PBHG Class Shares
-2-
<PAGE>
Designation (cont.) Number of Shares (cont.)
PBHG Growth Fund Trust Class Shares 200 million
PBHG Emerging Growth Fund Trust Class Shares 200 million
PBHG International Fund Trust Class Shares 200 million
PBHG Cash Reserves Fund Trust Class Shares 1 billion, 800 million
PBHG Select Equity Fund Trust Class Shares 200 million
PBHG Large Cap Growth Fund Trust Class Shares 200 million
PBHG Technology & Communications Fund 200 million
Trust Class Shares
PBHG Core Growth Fund Trust Class Shares 200 million
PBHG Limited Fund Trust Class Shares 200 million
PBHG Large Cap Fund Trust Class Shares 200 million
PBHG Large Cap Value Fund Trust Class Shares 200 million
PBHG Mid-Cap Value Fund Trust Class Shares 200 million
PBHG Strategic Small Company Fund 200 million
Trust Class Shares
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 certificates for PBHG Large Cap Value Fund, PBHG
Mid-Cap Value Fund and PBHG Strategic Small Company Fund.
Fifth: 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 Secretary on this 2nd day of October,
1996.
[CORPORATE SEAL]
The PBHG Funds, Inc.
By:__________________________
Brian Bereznak
Vice-President
Attest:____________________________
Jane A. Kanter
Secretary
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
-3-
<PAGE>
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.
---------------------------
Brian Bereznak
Vice-President
Dated: October 2, 1996
-4-
<PAGE>
EXHIBIT 5(a)(3)
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
<PAGE>
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) 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
<PAGE>
thereto, but that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect.
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
<PAGE>
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.
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.
<PAGE>
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 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
<PAGE>
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 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 __, 1996
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%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund .85%
PBHG Large Cap Value Fund .85%
PBHG Mid-Cap Value Fund .85%
PBHG Strategic Small Company Fund .85%
<PAGE>
EXHIBIT 5(d)(1)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG LARGE CAP VALUE FUND
AGREEMENT made as of this ___ day of December, 1996, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (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
and Schedule A dated December __, 1996 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Large Cap Value 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.
-1-
<PAGE>
(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 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.
-2-
<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 th 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
(f) Prospectus of the Portfolio.
-3-
<PAGE>
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
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
-4-
<PAGE>
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:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
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.
-5-
<PAGE>
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:____________________________ By:______________________________
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By:____________________________
Title:
-6-
<PAGE>
EXHIBIT 5(d)(2)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG MID-CAP VALUE FUND
AGREEMENT made as of this ___ day of December, 1996, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (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
and Schedule A dated December __, 1996 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Mid-Cap Value 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.
-1-
<PAGE>
(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 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.
-2-
<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 th 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
(f) Prospectus of the Portfolio.
-3-
<PAGE>
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
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
-4-
<PAGE>
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:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
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.
-5-
<PAGE>
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:______________________________ By:_______________________________
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By:______________________________
Title:
-6-
<PAGE>
EXHIBIT 5(d)(3)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG STRATEGIC SMALL COMPANY FUND
AGREEMENT made as of this ___ day of December, 1996, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (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
and Schedule A dated December __, 1996 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Strategic Small Company 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.
-1-
<PAGE>
(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 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.
-2-
<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 th 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
(f) Prospectus of the Portfolio.
-3-
<PAGE>
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
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
-4-
<PAGE>
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:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
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.
-5-
<PAGE>
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:______________________________ By:________________________________
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By:______________________________
Title:
-6-
<PAGE>
EXHIBIT 6(a)(2)
DISTRIBUTION AGREEMENT
THE PBHG FUNDS, INC.
THIS AGREEMENT is made as of this 1st day of July, 1996 between The PBHG
Funds, Inc. (the "Company"), a Maryland corporation, and SEI Financial Services
Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"), and is authorized to issue shares of common
stock ("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a registration
statement on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Company has adopted a Service Plan Pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") with respect to one of its classes of
shares, i.e., the Trust Class, and may enter into related agreements providing
for the distribution of the Shares of the Funds; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Exhibit A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Distributor.
(a) The Company hereby appoints the Distributor as principal
underwriter and distributor of the Funds of the Company to sell the
Shares of the Funds in jurisdictions wherein the Shares may be legally
offered for sale. The Distributor shall be the exclusive agent for the
distribution of Shares of the Funds; provided, however, that the
Company in its absolute discretion may issue Shares of the Funds
otherwise than through the Distributor in connection with (i) the
payment or reinvestment of dividends or distributions, (ii) any merger
or consolidation of the Company or a Fund with any other investment
company or trust or any personal holding company, or the acquisition
of the
<PAGE>
assets of any such entity by the Company or any Fund, and (iii) any
offer of exchange authorized by the Board of Directors of the Company.
Notwithstanding any other provision hereof, the Company may terminate,
suspend, or withdraw the offering of the Shares of a Fund whenever, in
its sole discretion, it deems such action to be desirable.
(b) The Distributor agrees that it will use all reasonable
efforts, consistent with its other business, in connection with the
distribution of Shares of the Company; provided, however, that the
Distributor shall not be prevented from entering into like
arrangements with other issuers. The provisions of this paragraph do
not obligate the Distributor to register as a broker or dealer under
the state Blue Sky laws of any jurisdiction when it determines it
would be uneconomical for it to do so or to maintain its registration
in any jurisdiction in which it is now registered nor obligate the
Distributor to sell any particular number of Shares. The Distributor
is currently registered as a broker-dealer or exempt from registration
in all jurisdictions listed in Exhibit B hereto. The Distributor shall
promptly notify the Company in the event it fails to maintain its
registration in any jurisdiction in which it is currently registered.
The Distributor shall sell Shares of the Funds as agent for the
Company at prices determined as hereinafter provided and on the terms
set forth herein, all according to applicable federal and state Blue
Sky laws and regulations and the Articles of Incorporation and ByLaws
of the Company. The Distributor may sell Shares of the Funds to or
through qualified brokers, dealers or others and shall require each
such person to conform to the provisions hereof, the Registration
Statement, the then current Prospectus and Statement of Additional
Information, and applicable law. Neither the Distributor nor any such
person shall withhold the placing of purchase orders for Shares so as
to make a profit thereby.
(c) The Distributor shall order Shares of the Funds from the
Company only to the extent that it shall have received purchase orders
therefor. The Distributor will not make, or authorize any brokers,
dealers, or others to make, (i) any short sales of Shares or (ii) any
sales of Shares to any Director or officer of the Company, the
Distributor, or any corporation or association furnishing investment
advisory, managerial, or supervisory services to the Company, or to
any such corporation or association, unless such sales are made in
accordance with the Company's then current Prospectus and Statement of
Additional Information.
(d) The Distributor is not authorized by the Company to give any
information or to make any representation other than those contained
in the then current Prospectus, Statement of Additional Information,
and Fund shareholder reports ("Shareholder Reports"), or in
supplementary sales materials specifically approved by the Company.
The Distributor may prepare and distribute sales literature and other
material as it may deem appropriate, provided that such literature and
materials have been approved by the Company prior to their use.
2. Offering Price of Shares. All Shares of each Fund sold under this
Agreement shall be sold at the public offering price per Share in effect at the
time of the sale as described in the Company's then current Prospectus and
Statement of Additional Information; provided, however, that any public offering
price for the Shares shall be the net asset value per Share, as
-2-
<PAGE>
determined in the manner described in the Company's then current Prospectus
and/or Statement of Additional Information. At no time shall the Company receive
less than the full net asset value of the Shares, determined in the manner set
forth in the then current Prospectus and/or Statement of Additional Information.
3. Registration of Shares. The Company agrees that it will take all
actions necessary to register Shares under the Federal and state Blue Sky
securities laws so that there will be available for sale the number of Shares
the Distributor may reasonably be expected to sell and to pay all fees
associated with said registration.
4. Service Plan Payments.
(a) The Company has adopted a Service Plan pursuant to Rule 12b-1
under 1940 Act to enable the Trust Class Shares of each Fund to
directly and indirectly bear certain expenses relating to the
distribution of such Shares. Pursuant to such Service Plan, the
Company shall be entitled to pay to financial intermediaries, plan
fiduciaries, and investment professionals ("Service Providers") a
shareholder servicing fee at the aggregate annual rate of up to 0.25%
of each Fund's average daily net assets attributable to Trust Class
Shares. The shareholder servicing fee is intended to compensate
Service Providers for providing to shareholders or the underlying
beneficial owners of Trust Class Shares: (a) personal support
services; (b) distribution assistance and distribution support
services; and (c) account maintenance services. In addition, insurance
companies or their affiliates may be paid the shareholder servicing
fee described in this Section 5 for providing similar services to
variable annuity or variable life insurance contract holders
("Contract Holders") or their participants for which such insurance
companies are not otherwise compensated by Contract Holders or
participants.
(b) The Distributor shall prepare and deliver written reports to
the Board of Directors of the Company on a regular basis (at least
quarterly) setting forth the payments made to Service Providers
pursuant to the Service Plan, and the purposes for which such
expenditures were made, as well as any supplemental reports as the
Board of Directors of the Company may from time to time reasonably
request.
5. Payment of Expenses.
(a) Except as otherwise provided herein, the Distributor shall
pay, or arrange for others to pay, all of the following expenses: (i)
payments to sales representatives of the Distributor and at the
discretion of the Distributor to qualified brokers, dealers and others
in respect of the sale of Shares of the Funds; (ii) compensation and
expenses of employees of the Distributor who engage in or support
distribution of Shares of the Funds or render shareholder support
services not otherwise provided by the Company's transfer and
shareholder servicing agent; and (iii) the cost of obtaining such
information, analyses, and reports with respect to marketing and
promotional activities as the Company may from time to time reasonably
request.
(b) The Company shall pay, or arrange for others to pay, the
following expenses: (i) preparation, printing, and distribution to
shareholders of Prospectuses and
-3-
<PAGE>
Statements of Additional Information; (ii) preparation, printing, and
distribution of Shareholder Reports and other communications required
by law to shareholders; (iii) registration of the Shares of the Funds
under the federal securities laws; (iv) qualification of the Shares of
the Funds for sale in such states as the Distributor and the Company
may approve; (v) maintaining facilities for the issue and transfer of
Shares; (vi) supplying information, prices, and other data to be
furnished by the Company under this Agreement; and (vii) taxes
applicable to the sale or delivery of the Shares of the Funds or
certificates therefor.
(c) In connection with the Distributor's distribution of sales
materials, Prospectuses, Statements of Additional Information, and
Shareholder Reports to potential investors in the Company, the Company
shall make available to the Distributor such number of copies of such
materials as the Distributor may reasonably request. The Company shall
also furnish to the Distributor copies of all information, financial
statements and other documents the Distributor may reasonably request
for use in connection with the distribution of Shares of the Company.
The Company will enter into arrangements providing that persons other
than the Company will bear any and all expenses of preparing, printing
and providing to the Distributor, sales materials, Prospectuses,
Statements of Additional Information and Shareholder Reports for
distribution to potential investors in the Company.
6. Compensation. It is understood that the Distributor will not receive
any commissions or other compensation for acting as the Company's principal
underwriter and distributor.
7. Repurchase of Shares. The Distributor as agent and for the account of
the Company may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value determined as set forth in the then
current Prospectus and Statement of Additional Information.
8. Indemnification of Distributor. The Company agrees to indemnify and
hold harmless the Distributor and each of its directors and officers and each
person, if any, who controls the Distributor within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages or expense (including
the reasonable cost of investigating or defending any alleged loss, liability,
damages, claim, or expense, and any reasonable counsel fees and disbursements
incurred in connection therewith) arising by reason of any person acquiring any
Shares, based upon the ground that the Registration Statement, Prospectuses,
Statements of Additional Information, Shareholder Reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Company does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Company by or on
behalf of the Distributor.
In no case (i) is the indemnity of the Company to be deemed to protect the
Distributor against any liability to the Company or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the
-4-
<PAGE>
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the Company
to be liable to the Distributor under the indemnity agreement contained in this
section with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other person shall have notified the
Company in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Distributor or such other person (or after the
Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Company of any claim shall not
relieve the Company from any liability which it may have to the Distributor or
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Directors
in connection with the issuance or sale of any of its Shares.
9. Indemnification of Company. The Distributor covenants and agrees that
it will indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense, and reasonable counsel fees and
disbursements incurred in connection therewith) based upon the 1933 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging (i) a wrongful act or deed of the Distributor or any of its
employees or sales representatives, or (ii) that the Registration Statement,
Prospectuses, Statements of Additional Information, shareholder reports or other
information filed or made public by the Company (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements not
misleading, insofar as any such statements or omissions were made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Company
or any other person indemnified to be deemed to protect the Company or any other
person against any liability to which the Company or such other person would
otherwise be subject by reason of willful misfeasance or bad faith in the
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the
-5-
<PAGE>
Distributor to be liable under its indemnity agreement contained in this section
with respect to any claim made against the Company or any person indemnified
unless the Company or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Company or upon any person (or after the
Company or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Company or
any person against whom the action is brought otherwise than on account on its
indemnity agreement contained in this section.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Company's Shares.
10. Term and Termination.
(a) This Agreement shall become effective as of the date hereof.
Unless sooner terminated as herein provided, this Agreement shall
remain in full force and effect for two (2) years from the effective
date and thereafter for successive periods of one year, but only so
long as each such continuance is specifically approved at least
annually (i) either by vote of a majority of the Board of Directors of
the Company or by vote of a majority of the outstanding voting
securities of the company, and (ii) by vote of a majority of the
Directors of the Company who are not interested persons of the Company
and who have no direct or indirect financial interest in the operation
of the Service Plan or in this Agreement or any other agreement
related to the Service Plan (the "Rule 12b-1 Directors"), cast in
person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Company or a
majority of the Rule 12b-1 Directors, by vote of a majority of the
outstanding voting securities of the Company, or by the Distributor,
on not less than ninety (90) days' written notice to the other party
or upon such shorter notice as may be mutually agreed upon.
(c) This Agreement shall automatically terminate in the event of
its assignment.
-6-
<PAGE>
(d) The indemnification provisions contained in Sections 8 and 9
of this Agreement shall remain in full force and effect regardless of
any termination of this Agreement.
11. Amendment. 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. If the Company should at any time deem it necessary or
advisable in the best interests of the Company that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to assent to such
amendment, the Company may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in the Company's Articles of
Incorporation or By-Laws or in its methods of doing business, in order to comply
with any requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
12. Independent Contractor. Distributor shall be an independent contractor
and neither Distributor nor any of its officers, directors, employees, or
representatives is or shall be an employee of the Company in the performance of
Distributor's duties hereunder. Distributor shall be responsible for its own
conduct and the employment, control, and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employee taxes thereunder.
13. Definition of Certain Terms. For purposes of this Agreement the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the Distributor or the
Company by the SEC, or such interpretative positions as may be taken by the SEC
or its staff under the 1940 Act.
14. Notice. Any notice under this Agreement shall be deemed to be
sufficient if it is given in writing, addressed and delivered, or mailed
postpaid (a) if to the Distributor, to SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658; and (b) if to the Company, to
Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087-1590, Attention: Michael Harrington.
15. Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect construction or effect.
16. Interpretation. Nothing herein contained shall be deemed to require
the Company or the Distributor to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which
-7-
<PAGE>
it is bound, or to relieve or deprive the Board of Directors of its
responsibility for and control of the conduct of the affairs of the Company.
17. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Pennsylvania and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the Commonwealth of
Pennsylvania or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
18. Multiple Originals. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: THE PBHG FUNDS, INC.
_______________________________ By:___________________________
Title:_________________________ Title:________________________
ATTEST: SEI FINANCIAL SERVICES COMPANY
_______________________________ By:___________________________
Title:_________________________ Title:________________________
-8-
<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
Date: December ___, 1996
-9-
<PAGE>
EXHIBIT B
The Distributor is currently registered as a broker-dealer or exempt from
registration in the following jurisdictions:
[TO BE PROVIDED]
-10-
<PAGE>
EXHIBIT 8(f)
CUSTODIAN AGREEMENT
This Agreement, dated as of the ____ day of September, 1996 by and between
The PBHG Funds, Inc. ("Fund"), a corporation operating as an open-end management
investment company and duly organized under the laws of the State of Maryland,
and CoreStates Bank N.A.;
WITNESSETH
WHEREAS, the Fund desires to deposit cash and securities of certain of its
series ("Portfolios"), which Portfolios shall be set forth in Schedule A hereto
attached, with CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end management investment
company and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have meanings herein specified
unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity as
Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Directors of the Fund to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Board of Directors shall have from time to time authorized to give the
particular class of instructions in question. The Custodian may act upon
telephone or telegraphic instructions without awaiting receipt of written
confirmation, and shall not be liable for the Fund's or its investment adviser's
failure to confirm such instructions in writing.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Fund in accordance with the registry records
maintained by the Fund or agents on its behalf.
SHARES: The term Shares of the Fund shall mean the shares of the Fund.
<PAGE>
SECTION 2. The Fund shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Fund.
SECTION 3. The Fund hereby appoints the Custodian as custodian of cash and
securities of the Portfolios from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the assets
of others and shall be and remain the sole property of the company and the
Custodian shall have only the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Fund's portfolio securities with a U.S. securities
depository or in U.S. Federal book-entry systems pursuant to rules and
regulations of the Securities and Exchange Commission.
SECTION 4. The Fund will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Fund will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule B
hereto attached, and the Custodian will charge fees for specific transactions as
set forth in Schedule C hereto attached, or as shall be set forth in amendments
to such Schedules approved by the Fund and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Fund a daily report of all monies received or paid on
behalf of the Fund.
(b) create, maintain and retain all records relating to its activities and
obligations under this Agreement in such manner as will meet the
obligations of the Fund
- 2 -
<PAGE>
with respect to said Custodian's activities in accordance with
generally accepted accounting principles. All records maintained by
the Custodian in connection with the performance of its duties under
this Agreement will remain the property of the Fund and in the event
of termination of this Agreement will be relinquished to the Fund.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for the Fund
or for the Custodian, and upon statements of accountants, brokers and
other persons believed by it in good faith to be expert in the matters
upon which they are consulted; and for any action taken or suffered in
good faith based upon such advice or statements the Custodian shall
not be liable to anyone;
(b) shall not be liable for anything done or suffered to be done in good
faith in accordance with any request or advice of, or based upon
information furnished by, the Fund or its authorized officers or
agents;
(c) is authorized to accept a certificate of the Secretary or Assistant
Secretary of the Fund, or Proper Instructions, to the effect that a
resolution in the form submitted has been duly adopted by its Board of
Directors or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature, written
(including telegraph or other mechanical) instructions, request,
letter of transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other paper or document
reasonably believed by it to be genuine and to have been signed,
forwarded or presented by the purchaser, Fund or other proper party or
parties.
SECTION 9. The Fund, its successors and assignees hereby indemnify and hold
harmless the Custodian, its successors and assignees, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Fund, its successors and
assignees do hereby fully indemnify and hold harmless the Custodian its
successors and assignees from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may
- 3 -
<PAGE>
arise from the failure of the Fund to comply with any law, rule, regulation or
order of the United States, any state or any other jurisdiction, governmental
authority, body, or board relating to the sale, registration, qualification of
units of beneficial interest in the Fund, or from the failure of the Fund to
perform any duty or obligation under this Agreement.
Upon written request of the Custodian, the Fund shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to or
any approval of the Shareholders by a supplemental agreement executed by the
Fund and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Fund or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Fund or by the Custodian, the
Directors of the Fund shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the company of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Fund are first
delivered to the Custodian.
- 4 -
<PAGE>
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Amended Articles of Incorporation of the Fund are on
file with the Secretary of State of Maryland, and notice is hereby given that
this instrument is executed on behalf of the Directors of the Fund as Directors
and not individually and that the obligations of this instrument are not binding
upon any of the Directors, officers or Shareholders of the Fund individually,
but binding only upon the assets and property of the Fund.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Fund Act of 1940, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable
Federal and state tax laws and any other law or administrative rules or
procedures which may be applicable to the Fund.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assignees; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
THE PBHG FUNDS, INC.
By: ____________________________________
Attest: ________________________________
- 5 -
<PAGE>
CORESTATES BANK N.A.
By: ____________________________________
Attest: ________________________________
- 6 -
<PAGE>
SCHEDULE A
PORTFOLIOS OF THE PBHG FUNDS, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Mid-Cap Growth Fund
PBHG Limited Fund
PBHG Cash Reserves Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
Date: December __, 1996
<PAGE>
SCHEDULE B
FEE SCHEDULE
1.00 BASIS POINTS ON THE FIRST $2.5 BILLION
.75 BASIS POINTS ON THE NEXT $2.5 BILLION
.50 BASIS POINTS ON THE NEXT $4 BILLION
.40 BASIS POINTS ON THE REMAINDER
Transactions billed separately by Portfolio at the now current rates. Asset
level charges billed as one invoice covering all Portfolios custodied at
CoreStates Bank N.A. Pilgrim Baxter Fund Services will allocate charges back to
individual Portfolios. Transaction charges are subject to change.
<PAGE>
SCHEDULE C
CUSTODY SERVICES
TRANSACTION FEES
$ 4.00 Per trade and maturity clearing through Depository
Trust Company.
$10.00 Per trade and maturity clearing book-entry through
Federal Reserve.
$15.00 Per trade and maturity for assets requiring
physical settlement.
$10.00 Per trade and maturity clearing through
Participants Trust Company.
$ 4.00 Paydowns on Mortgage Backed securities.
$ 5.50 Fed wire charge on Repo Collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend Re-Investment.
$ 2.50 Fed charge for sale/return of Collateral.
<PAGE>
EXHIBIT 9(b)(2)
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st day of
July, 1996 by and between The PBHG Funds, Inc., a Maryland corporation (the
"Fund"), and PBHG Fund Services, a Pennsylvania business trust (the
"Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to provide
administrative services to the Fund and each of its several series (the
"Portfolios"), which are identified in Schedule A hereto, in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund and the Administrator propose to engage a
sub-administrator (the "Sub-Administrator") to provide certain administrative
services to the Fund and the Portfolios, subject to the approval of the Fund's
Board of Directors;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Duties and Responsibilities of the Administrator.
The Administrator shall oversee the administration of the Fund's and each
Portfolio's business and affairs as set forth herein and shall provide certain
services required for effective administration of the Fund and the Portfolios.
In connection therewith, the Administrator shall:
1.1. Office and Other Facilities. Furnish, without cost to the Fund, or
provide and pay the cost of, such office facilities, furnishings, and office
equipment as are necessary for the performance of the Administrator's duties to
the Fund under this Agreement.
1.2. Personnel. Provide, without additional remuneration from or other cost
to the Fund, the services of individuals competent to perform all of the
Administrator's obligations under this Agreement.
1.3. Agents. Assist the Fund in selecting, coordinating the activities of,
supervising and acting as liaison with any other person or agent engaged by the
Fund, including the Fund's depository agent or custodian, consultants, transfer
agent, sub-transfer agents, intermediaries
<PAGE>
with respect to mutual fund alliance programs, dividend disbursing agent,
Sub-Administrator, independent accountants, and independent legal counsel. The
Administrator shall also monitor the functions of such persons and agents,
including without limitation the compliance of the Fund and the Fund's
custodians with Rule 17f-5 under the 1940 Act, if appropriate.
1.4. Directors and Officers. Authorize and permit the Administrator's
directors, officers, and employees that may be elected or appointed as directors
or officers of the Fund to serve in such capacities, without remuneration from
or additional cost to the Fund.
1.5. Books and Records. Maintain customary records, on behalf of the Fund,
in connection with the performance of the Administrator's duties under this
Agreement. The Administrator also will monitor and oversee the performance of
the agents specified in Section 1.3. above, to ensure that all financial,
accounting, corporate, and other records required to be maintained and preserved
by the Fund or on its behalf will be maintained in accordance with applicable
laws and regulations.
1.6. Cost Oversight. Monitor and review activities and procedures of the
Fund and its agents identified in Section 1.3. above, in order to identify and
seek to obtain possible service improvements and cost reductions. In connection
therewith, the Administrator shall, on a quarterly basis, prepare and submit to
the Fund a pro forma budget or similar document concerning the estimated costs
of providing the services to the Fund and shall monitor and periodically report
to the Fund's Board of Directors information and analysis about the actual
expenses incurred in providing such services.
1.7. Fund Accounting and Compliance Policies and Procedures. Assist in
developing, reviewing, maintaining, and monitoring the effectiveness of Fund
accounting and compliance policies and procedures, including portfolio valuation
procedures, expense allocation procedures, and personal trading procedures, and
the Fund's Code of Ethics. The Administrator also will assist and coordinate
participation by the Fund and its agents in any audit by its outside auditors or
any examination by federal or state regulatory authorities or any
self-regulatory organization. The Administrator also will oversee and coordinate
the activities of Fund accountants, outside counsel, and other experts in these
audits or examinations.
1.8. Fund Systems. Assist in developing, implementing, and monitoring the
Fund's use of automated systems for the purchase, sale, redemption and transfer
of Fund shares and the payment of Rule 12b-1 service fees to broker-dealers and
others that provide personal services, distribution support services, and/or
account maintenance services to shareholders, and for recording and tracking
such transactions and/or payments. The Administrator also will assist in
developing, implementing, and monitoring the Fund's use of automated
communications systems with brokers, dealers, custodians, and other service
providers, including without limitation trade clearance systems.
1.9. Reports to the Fund. Furnish to or place at the disposal of the Fund
such information, reports, evaluations, analyses, and opinions relating to its
administrative functions and the administrative functions performed by the
Sub-Administrator, as the Fund may, at any time or from time to time, reasonably
request or as the Administrator may deem helpful to the
-2-
<PAGE>
Fund. The Administrator also will assist in the preparation of agendas and other
materials for meetings of the Fund's Board of Directors and will attend such
meetings.
1.10. Reports and Filings. Provide appropriate assistance in the
development and/or preparation of all reports and communications by the Fund to
Fund shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal securities
law.
1.11. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Administrator. If any such
inquiry or communication would be more properly answered by one of the agents
listed in Section 1.3. above, the Administrator will coordinate, as needed, the
provision of their response.
2. Allocation of Expenses.
2.1. Expenses Paid by the Administrator.
2.1.1. In General. The Administrator shall bear all of its own
expenses in connection with the performance of its duties under this
Agreement.
2.1.2. Salaries and Fees of Directors and Officers. The Administrator
shall pay all salaries, expenses, and fees, if any, of the directors,
officers, and employees of the Administrator who are directors, officers,
or employees of the Fund.
2.1.3. Waiver or Assumption and Reimbursement of Fund Expenses by the
Administrator. The waiver or assumption and reimbursement by the
Administrator of any expense of the Fund that the Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Administrator to waive, assume, or reimburse the same or any
similar expense of the Fund on any subsequent occasion, unless so required
pursuant to a separate agreement between the Fund and the Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator as provided in this Agreement or any
other agreement between the Fund and the Administrator, and as described in the
Fund's then-current Prospectuses and Statements of Additional Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Administrator, the Fund shall pay the Administrator a fee per
Portfolio at the annual rate of .15% of the average daily net assets of each
Portfolio.
-3-
<PAGE>
3.2. Method of Computation. The Administrator's fee shall accrue on each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Administrator by the fifth (5th) business day of the next calendar month. The
daily fee accruals shall be computed by multiplying the fraction of one (1) over
the number of calendar days in the year by the applicable annual rates described
in Section 3.1. above, and multiplying this product by the net assets of the
Portfolios, as determined in accordance with the current Prospectuses of the
Fund, as of the close of business on the last preceding business day on which
the Fund was open for business.
3.3. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
4. Administrator's Use of the Services of Others.
The Administrator may at its own cost employ, retain, or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing the Administrator or the Fund with such information,
advice, or assistance as the Administrator may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Administrator, including consulting, monitoring, and evaluation services
concerning the Fund and the Portfolios.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the Securities and Exchange Commission under Section
31(a) of the 1940 Act, and maintained and preserved by the Administrator on
behalf of the Fund, are the property of the Fund and shall be surrendered by the
Administrator promptly on request by the Fund. The Administrator shall not
disclose or use any record or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized by this Agreement and
applicable law. The Administrator shall keep confidential any information
obtained in connection with its duties hereunder and shall disclose such
information only if the Fund has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities.
6. Reports to the Administrator.
The Fund shall furnish or otherwise make available to the Administrator
such Prospectuses, Statements of Additional Information, financial statements,
proxy statements, reports, and other information relating to the business and
affairs of the Fund, as the Administrator may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
-4-
<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Administrator or
any affiliated person of the Administrator to render corporate administrative
services to other investment companies or to engage in other business
activities; however, so long as this Agreement or any extension, renewal, or
amendment hereof shall remain in effect or until the Administrator shall
otherwise consent, the Administrator shall be the only administrator to the
Fund.
8. Limitation of Liability of the Administrator and Indemnification by the
Fund.
8.1. Limitation of Liability.
8.1.1. Neither the Administrator nor any of its directors, officers,
employees or agents performing services for the Fund, at the direction or
request of the Administrator in connection with the Administrator's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any act or omission in the course of
or in connection with the Administrator's services hereunder, including any
error of judgment or mistake of law or for any loss suffered by the Fund,
in connection with the matters to which this Agreement relates; provided,
that nothing herein contained shall be construed to protect the
Administrator or any such person against any liability to the Fund or its
shareholders to which the Administrator or such person would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund.
8.1.2. The Administrator's directors, officers, employees and agents
performing services for the Fund shall be covered by errors and omissions
and directors and officers liability insurance, as appropriate, under a
policy maintained by the Administrator or an affiliate of the
Administrator.
8.1.3. The Administrator may apply to the Board of Directors of the
Fund at any time for instructions and may consult counsel for the Fund or
its own counsel and with accountants and other experts with respect to any
matter arising in connection with the Administrator's duties, and the
Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants, or other experts.
8.1.4. The Administrator shall at all times have the right to mitigate
or cure any and all losses, damages, costs, charges, fees, disbursements,
payments and liabilities to the Fund and its shareholders.
8.2. Indemnification by the Fund.
8.2.1. As long as the Administrator acts in good faith and with due
diligence and without negligence, the Fund shall indemnify the
Administrator and hold it harmless from and against any and all actions,
suits, and claims, whether groundless or otherwise, and from and against
any and all losses, damages (excluding consequential, punitive or other
-5-
<PAGE>
indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund
hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately
be merited. In order that the indemnification provision contained herein
shall apply, however, it is understood that if in any case the Fund may be
asked to indemnify or hold the Administrator harmless, the Board of
Directors of the Fund shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood
that the Administrator will use all reasonable care to identify and notify
the Board of Directors of the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Fund, but failure to do so in good faith shall
not affect the rights hereunder.
8.2.3. The Administrator shall secure and maintain a fidelity bond, or
be covered by an affiliate's blanket fidelity bond, in at least the amount
required by Rule 17g-1 under the 1940 Act for joint insurance bonds of
investment companies.
9. Indemnification by the Administrator.
9.1. The Administrator shall indemnify the Fund, its officers and directors
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and all losses,
damages (excluding consequential, punitive or other indirect damages), costs,
charges, reasonable counsel fees and disbursements, payments, expenses, and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of the administrative services or any other service rendered to
the Fund hereunder and arising or based upon the willful misfeasance, bad faith,
or negligence of the Administrator, its directors, officers, employees, and
agents in the performance of its or their duties on behalf of the Fund. The
indemnity and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold the Fund, its officers, and directors harmless, the Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund will use all reasonable
care to identify and notify the Administrator promptly concerning any situation
which presents or appears likely to present the probability of such a claim for
indemnification against the Administrator, but failure to do so in good faith
shall not affect the rights hereunder.
-6-
<PAGE>
10. Force Majeure.
In the event the Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Administrator 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, however, shall in no
way excuse the Administrator from being liable to the Fund for any and all
losses, damages, costs, charges, counsel fees, payments and expenses incurred by
the Fund due to the non-performance or delay in performance by the Administrator
of its duties and obligation under this Agreement if such non-performance or
delay in performance could have been reasonably been prevented by the
Administrator through back-up systems and other procedures commonly employed by
other administrators in the mutual fund industry, provided that the
Administrator shall have the right, at all times, to mitigate or cure any
losses, including by making adjustments or corrections to any current or former
shareholder accounts.
11. Retention of Sub-Administrator.
The Administrator may retain a Sub-Administrator to perform corporate
administrative services to the Fund. The retention of a Sub-Administrator shall
be at the cost and expense of the Administrator. The Administrator shall pay and
shall be solely responsible for the payment of the fees of the Sub-Administrator
for the performance of its services for the Fund.
12. Term of Agreement.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998. Thereafter,
this Agreement shall continue in effect from year to year, subject to the
termination provisions and all other terms and conditions hereof. The
Administrator shall furnish to the Fund, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal, or amendment thereof.
The assignment (as that term is defined in Section 2(a)(4) of the 1940 Act
and rules thereunder) of this Agreement or any rights or obligations thereunder
shall be prohibited by either party without the written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without the
payment of any penalty:
-7-
<PAGE>
(a) for a material breach of this Agreement, upon thirty (30) days
prior written notice to the other parties; provided, that this
Agreement shall not terminate if such material breach is cured within
such thirty (30) day period.
(b) following the initial term of this Agreement, for any reason upon
ninety (90) days' prior written notice to the other parties; provided,
that in the case of termination by the Fund such action shall have
been authorized by resolution of the Board of Directors of the Fund or
by a vote of a majority of the outstanding voting securities of the
Fund or, in the case of termination with respect to a particular
Portfolio, by a resolution of the Board of Directors of the Fund or by
a vote of a majority of the outstanding voting securities of such
Portfolio. In the case of termination by the Administrator, such
termination shall not be effective until the Fund and the
Administrator shall have contracted with one or more persons to serve
as successor Administrator(s) for the Fund and such person(s) shall
have assumed such position.
14. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by resolution of the Board of Directors of the Fund or by a majority
of the outstanding voting securities of the Fund or, in the case of an amendment
to this Agreement with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or a vote of a majority of the outstanding voting
securities of such Portfolio.
15. Miscellaneous.
15.1. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, (i) if to the Administrator, to
Pilgrim Baxter Fund Services, 1255 Drummers Lane Suite 300, Wayne, PA 19087,
Attention: Brian Bereznak, and (ii) if to the Fund, to The PBHG Funds, Inc.,
1255 Drummers Lane Suite 300, Wayne, PA 19087, Attention: Michael Harrington.
15.2. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
15.4. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940
-8-
<PAGE>
Act shall be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States courts or, in the
absence of any controlling decision of any such court by rules, regulations, or
orders of the Securities and Exchange Commission validly issued pursuant to the
1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation,
or order of the Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation, or order.
15.5. Severability. 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 thereby.
15.6. Governing law. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
______________________________ By:_______________________________
Title:________________________ Title:_______________________
ATTEST: PBHG FUND SERVICES
______________________________ By:_______________________________
Title:________________________ Title:_______________________
-9-
<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
Date: December ___, 1996
-10-
<PAGE>
EXHIBIT 9(c)(2)
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the __ day
of September, 1996, by and among The PBHG Funds, Inc., a Maryland corporation
(the "Fund"), PBHG Fund Services, a Pennsylvania business trust (the
"Administrator"), and SEI Fund Resources, a Delaware business trust (the
"Sub-Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator and the Fund have entered into an Administrative
Services Agreement (the "Administrative Services Agreement") pursuant to which
the Administrator will provide administrative services to the Fund and each of
its several series (the "Portfolios"), which are identified in Schedule A to the
Administrative Services Agreement; and
WHEREAS, the Fund and the Administrator desire to retain the
Sub-Administrator to provide certain administrative services to the Fund, and
each of its series (the "Portfolios"), and the Administrator in the manner and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Duties and Responsibilities of the Sub-Administrator.
The Sub-Administrator shall assist the Administrator in connection with the
Administrator's duties and responsibilities to the Fund specified in the
Administrative Services Agreement. In addition, the Sub-Administrator shall
perform or supervise the performance by others of all administrative services in
connection with the operations of the Portfolios, other than those
administrative services to be provided by the Administrator pursuant to the
Administrative Services Agreement. The administrative services to be provided by
the Sub-Administrator pursuant to this Agreement shall include general
administrative services, regulatory reporting services, fund accounting
services, and such services as set forth herein. The duties of the
Sub-Administrator shall be confined to those expressly set forth herein and no
implied duties are assumed by or may be asserted against the Sub-Administrator
hereunder. Without limiting the generality of the foregoing, the
Sub-Administrator shall provide the services described below:
<PAGE>
1.1. General Administrative Services.
1.1.1. Office and Other Facilities. Furnish, without cost to the Fund
or the Administrator, or provide and pay the cost of, such office facilities,
furnishings, and office equipment as are necessary for the performance of the
Sub-Administrator's duties to the Fund under this Agreement.
1.1.2. Personnel. Provide, without additional remuneration from or
other cost to the Fund or the Administrator, the services of individuals
competent to perform all of the Sub-Administrator's duties under this Agreement.
1.1.3. Books and Records. Maintain customary records, on behalf of the
Fund, in connection with the performance of the Sub-Administrator's duties under
this Agreement. In connection with this, the Sub-Administrator shall monitor and
oversee the performance of its agents and the Fund's independent auditors with
respect to all financial, accounting, corporate, and other records required to
be maintained and preserved by the Fund or on its behalf so that such records
will be maintained in accordance with the provisions of rules and regulations of
the Securities and Exchange Commission ("SEC") under Section 31(a) of the 1940
Act.
1.1.4. Reports to the Fund. Assist the Administrator in furnishing to
or placing at the disposal of the Fund such information, reports, evaluations,
analyses, and opinions relating to its duties as the Fund may at any time or
from time to time reasonably request, or as the Administrator may reasonably
deem helpful to the Fund. The Sub-Administrator also shall assist the
Administrator in the preparation of all necessary agendas and related meeting
materials for meetings of the Board of Directors.
1.1.5. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Sub-Administrator. If any such
inquiry or communication would be more properly answered by one of its agents or
those agents of the Fund listed in Section 1 above, the Sub-Administrator will
refer the inquiry to the Administrator to direct to the appropriate party for
response.
1.1.6. Automated Fund Systems. Assist in implementing and monitoring
the Fund's use of automated systems for: (i) the purchase, sale, redemption and
transfer of Fund shares; (ii) the payment of Rule 12b-1 service fees to
broker-dealers and others that provide personal services, distribution support
services, and/or account maintenance services to shareholders; and (iii) the
recording and tracking of such transactions and/or payments. The
Sub-Administrator also shall assist in developing, implementing, and monitoring
the Fund's use of automated communications systems with brokers, dealers,
custodians, and other service providers, including without limitation trade
clearance systems.
-2-
<PAGE>
1.2. Fund Accounting. The Sub-Administrator shall on a continuing basis
perform the fund accounting services and other functions described below.
1.2.1. Financial Statements. Maintain the Fund's general ledger,
including expense accruals and payments, and prepare the Fund's and each
Portfolio's annual and semi-annual financial statements. On a monthly basis,
with respect to each Portfolio, the Sub-Administrator shall prepare and provide
to the Administrator and the Fund monthly reports as mutually agreed to by the
parties (in U.S. dollars) which may include the following items: schedule of
investments; statement of assets and liabilities; statement of operations;
statement of changes in net assets; cash statement; and schedule of capital
gains and losses.
1.2.2. Oversight. Assist in developing, reviewing, maintaining, and
monitoring the effectiveness of Fund accounting policies and procedures, in
light of industry standards and the "Audits of Investment Companies" of the
American Institute of Certified Public Accountants and, in this regard, devote
particular attention to areas where accounting standards may change or develop.
In this capacity, the Sub-Administrator shall assist in the resolution of
recommendations made by the Fund's independent auditors to improve internal
controls and shall implement such recommendations as required by the Board.
1.2.3. Portfolio Valuation and Accounting. Conduct, or monitor and
oversee, portfolio valuation procedures, including without limitation procedures
for the calculation of expenses and the control of disbursements of each
Portfolio. The Sub-Administrator shall calculate, or monitor and oversee the
calculation of, the daily net asset value ("NAV") of each Portfolio in
accordance with the procedures described in the Fund's then-current registration
statement and such other procedures as may be established by the Fund's Board of
Directors. The Sub-Administrator, on a daily basis, shall provide by electronic
transmission or other mutually agreed upon means, such NAV information to: (i)
the investment adviser and sub-adviser for each Portfolio; (ii) the NASD for
reporting to newspapers and other news media; and (iii) all sub-transfer agents
that have entered into agreements with the Fund. In connection with this
responsibility, the Sub-Administrator shall determine or oversee the
determination of the value of each Portfolio's assets, and shall review and
monitor pricing methodologies relating to such valuation, procedures, including:
(i) oversight of any third-party pricing services used by them; (ii)
establishment and maintenance of appropriate "back up" pricing service
arrangements so that the NAV for each Portfolio will be provided to each
required party specified above; (iii) assistance in the review and verification
of daily securities price changes in excess of percentages specified by the
Sub-Administrator (and promptly reported to the Administrator); (iv) review for
"stale" prices; and (v) assistance in determining the resolution of any NAV
calculation errors. Notwithstanding the foregoing, the Sub-Administrator shall
bear no responsibility for incorrect prices provided by a third party pricing
service, provided the Sub-Administrator fulfills its obligation as described
above.
The Sub-Administrator shall also prepare annual Fund and/or Portfolio
expense budgets and the determination of related daily accruals. In addition,
the Sub-Administrator shall: determine the Fund's and each Portfolio's net
income both in terms of U.S. dollars and, if appropriate, foreign currencies;
calculate capital gains and losses and, if appropriate, foreign
-3-
<PAGE>
exchange gains and losses; control all disbursements from the Fund and authorize
such disbursements upon written instructions, which may be continuing
instructions, from the Administrator or such other persons authorized by the
Fund's Board of Directors; calculate various contractual expenses for budget and
accrual purposes; reconcile cash and investment balances of each Portfolio with
the Fund's custodian and provide each Portfolio's investment adviser or, if
applicable, sub-adviser with the beginning cash balance available for investment
purposes in both U.S. dollars and, if appropriate, foreign currency; and
maintain historical tax lots for each security and foreign currency. The
Sub-Administrator shall also for each Portfolio: monitor timely income
collection and tax reclaims; monitor daily expense accruals and the related
calculation of investment advisory fee waivers and/or expense reimbursements (if
any) and notify the Administrator of any proposed adjustments thereto; and
assist in developing and reviewing daily accounting reports for the Portfolios.
1.2.4. Performance Data. Calculate performance data of each Portfolio
for dissemination to information services covering the investment company
industry, including, as appropriate, each Portfolio's average annual total
return, cumulative total return, expense ratio, and portfolio turnover rate. In
connection with this function, the Sub-Administrator shall, as reasonably
requested by the Fund's Board of Directors, develop fund performance and other
databases to facilitate internal and external reporting and shall monitor the
calculation of financial information.
1.2.5. Fund Operations. Participate, as reasonably requested, in the
development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, to effectuate securities and other
transactions on behalf of the Fund and the Portfolios, including, stated
objectives as appropriate, securities lending programs, the establishment and
use of lines of credit on behalf of the Fund and/or inter-Portfolio lending
capabilities, and the establishment and use of inter-Portfolio securities
trading capabilities. In connection with the foregoing, the Sub-Administrator
shall, upon reasonable request, assist in the preparation of any application for
exemptive or no-action relief, if required.
1.2.6. Cash Balances. Participate, as reasonably requested, in the
development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, regarding the management of the
Portfolios' cash balances, including procedures regarding the use of "sweep"
transactions and repurchase agreements, the temporary reinvestment of credits to
cash balances, and the processing of dividends and other disbursements to the
Portfolios. In connection with the foregoing, the Sub-Administrator shall assist
in the preparation of any application for exemptive or no-action relief, if
required. The Sub-Administrator shall also provide the cash availability
throughout each day, as required by each Portfolio's investment adviser or, if
applicable, sub-adviser.
1.3. Oversight of Agents and Service Providers.
1.3.1. In General. Assist the Administrator and Fund counsel in the
preparation, negotiation, and administration of contracts on behalf of the Fund
with third-party service providers, such as the Fund's distributor, custodian,
transfer agent, sub-transfer agents,
-4-
<PAGE>
and intermediaries with respect to mutual fund alliance programs. At the
reasonable request of the Fund or the Administrator, the Sub-Administrator shall
assist in the preparation of reports to the Fund on the performance and service
quality of these service providers, as more fully described in Section 1.3.2.
below. The Sub-Administrator shall review the performance of each Portfolio's
custodian or custodians regarding the timely recording of cash receipts and
disbursements and position reconciliation and shall periodically report to the
Administrator its findings in that regard, as mutually agreed to by the parties.
The Sub-Administrator shall also monitor and review compliance as documented and
reported by each Portfolio's custodian or custodians with Rule 17f-5 under the
1940 Act, as applicable. The Sub-Administrator shall have no responsibility for
supervising the performance of investment adviser or sub-adviser for each
Portfolio.
1.3.2. Service Quality Standards. Assist the Administrator in
establishing service quality standards and developing and implementing
procedures for monitoring and benchmarking the performance of third-party
service providers, such as those specified in Section 1.3.1. above, against
industry standards. Upon reasonable request, the Sub-Administrator shall
provide the Administrator and the Fund's Board of Directors with periodic
reports concerning the results of monitoring of the performance and service
quality of these service quality of these service providers.
1.4. Oversight of Transfer Agent and Dividend Disbursing Agent.
1.4.1. Policies and Procedures. Assist the Administrator in the
development of policies and procedures concerning the transfer agent's
processing of shareholder transactions, including policies and procedures
concerning inactive or dormant accounts and compliance with related escheatment
requirements, telephone exchanges and redemptions, effectuation of transactions
through the use of facsimile transmissions, name and address changes, and the
receipt and maintenance of appropriate legal documentation. The
Sub-Administrator also shall participate in the establishment of policies and
procedures for ensuring that shareholder redemption requests are timely honored,
even in periods of significant or unusual market activity. The Sub-Administrator
also shall assist in the development of controls over, and policies and
procedures governing, the Fund's cash remittance processing, and the processing
of dividend and distribution payments, check writing, wire redemptions and other
disbursements.
1.4.2. Compliance with Service Quality Standards. Assist the
Administrator in establishing service quality standards and developing and
implementing procedures for monitoring and benchmarking the transfer agent's
performance against industry standards in areas such as: compliance with initial
and subsequent investment minimums; accuracy of the establishment of new
accounts, including the establishment of shareholder privileges and dividend
reinvestment options; accuracy of transaction processing, including monetary and
non-monetary transactions; timeliness of problem resolution and correspondence,
including review of shareholder complaints; compliance with document completion
and retention requirements; timeliness and accuracy of confirmations and
periodic shareholder statements; and quality of telephonic communications with
shareholders, including a review of abandon rates, response times, and average
talk time. The Sub-Administrator also shall review and participate in
-5-
<PAGE>
determinations concerning the resolution of "as of" transactions in accordance
with the Fund's policies as approved by the Administrator and the Board of
Directors of the Fund.
1.4.3. Oversight of Shareholder Transactions. Assist the Fund, as
requested, in developing and implementing procedures with respect to omnibus
accounts, in order to ensure that such accounts are properly serviced and that
Fund expenses are allocated appropriately.
1.4.4. Transfer Agent Expenses. Assist the Administrator, as
requested, in reviewing the level and allocation of transfer agent out-of-pocket
expenses charged to the Fund with respect to whether particular expenses are
appropriately charged to the Fund and appropriately allocated among the
Portfolios.
1.5. Reports, Filings, and Communications.
1.5.1. Reports and Filings. Assist in the development, preparation,
and filing of all reports and communications by the Fund to Fund shareholders
and all reports and filings necessary to maintain the registrations and
qualifications of the Fund's shares under federal and state "Blue Sky"
securities laws, including registration statements, prospectuses, statements of
additional information, proxy statements, semi-annual reports for the Fund on
Form N-SAR, all sales reports, and all required notices pursuant to Rule 24f-2
of the 1940 Act. The Sub-Administrator also shall assist with and coordinate
the layout and printing of publicly disseminated prospectuses and the Fund's
semi-annual and annual reports to shareholders.
1.5.2. State Blue Sky Filings. Prepare all reports, applications, and
documents (including reports regarding the sale and redemption of the Fund's
shares as may be required in order to comply with state Blue Sky securities
laws) as may be necessary or desirable to: (i) register and maintain the
registration of the Fund's shares with state securities authorities; and (ii)
monitor the sale of the Fund's shares for compliance with state Blue Sky
securities laws. The Sub-Administrator shall file with the appropriate state
securities authorities all registration statements and reports for the Fund and
the Fund's shares, and all amendments thereto and other filings as may be
necessary or convenient to register the Fund and the Fund's shares and keep such
registration effective with state security authorities so as to enable the Fund
to make a continuous offering of its shares in all 50 states and the District of
Columbia.
1.5.3. Shareholder Communications. Coordinate mailing Fund
prospectuses, notices, proxy statements, proxies and other reports to Fund
shareholders, and supervise and facilitate the solicitation of proxies solicited
by the Fund for all shareholder meetings, including tabulation process for
shareholder meetings.
1.5.4. Tax Returns. Coordinate and supervise the preparation and
filing of all required tax returns for the Fund and monitor the accuracy of all
tax reports sent to shareholders of the Fund.
-6-
<PAGE>
1.6. Legal and Audit Services.
1.6.1. Independent Audits. Assist in the coordination of the Fund
audit process and provide, upon request, account analyses, fiscal year
summaries, and other audit-related schedules. In connection with this
responsibility, the Sub-Administrator shall take all actions to assure that
necessary information is made available to the Fund's independent auditor for
the expression of their opinion, as such may be required by the Fund from time
to time. The Sub-Administrator also shall assist and participate in the
resolution of issues raised in the audit process.
1.6.2. 1940 Act. The Sub-Administrator shall obtain and keep in
effect, at the Fund's expense, fidelity bonds and directors and officers/errors
and omissions insurance policies for the Fund in accordance with the
requirements of Rules 17g-1 and 17d-1(d)(7) under the 1940 Act, as such bonds
and policies are approved by the Fund's Board of Directors. The Sub-
Administrator also shall develop and maintain fund manager "handbooks" to
facilitate compliance by portfolio managers with respect to investment
restrictions. In addition, the Sub-Administrator shall assist the Fund's
Administrator in monitoring the Fund's compliance with provisions of the 1940
Act and the rules and regulations thereunder as well as compliance with each
Portfolio's investment objectives, program, policies and restrictions. In
connection with this responsibility, the Sub-Administrator shall promptly advise
the Fund and the Administrator as to any compliance problems or issues detected.
1.6.3. Tax Compliance. Monitor compliance with the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, applicable to regulated investment companies, including:
portfolio diversification requirements and minimum distribution requirements;
review of expense allocations to individual classes to ensure compliance with
applicable IRS pronouncements regarding preferential dividends; wash sales;
short-short income; qualifying income; asset diversification; and investments in
Passive Foreign Investment Companies. In connection with this responsibility,
the Sub-Administrator shall monitor and advise the Fund and the Portfolios as to
their status as "regulated investment companies" under the Code.
1.6.4. Regulatory Examinations. Assist in the Fund's participation in
regulatory examinations, including examinations by the SEC, the National
Association of Securities Dealers, Inc., and/or state securities regulators. In
connection therewith, the Sub-Administrator, on behalf of the Fund, shall
provide such information as the regulator may reasonably request, and shall
assist and participate in the resolution of any issues raised in connection with
such examinations.
1.7. Disaster Recovery. Employ, monitor and oversee disaster recovery
and related back-up procedures and facilities commonly utilized by others in the
mutual fund industry. In this regard, the Sub-Administrator shall enter into and
maintain in effect with appropriate parties, at no additional expense to the
Fund, one or more agreements making appropriate and reasonable provision for
emergency use of electronic data processing equipment and other
-7-
<PAGE>
equipment and/or facilities necessary for the performance of its duties and
obligations under this Agreement in the event of emergency conditions or
equipment failures.
2. Expenses.
2.1. Expenses Paid by the Sub-Administrator.
2.1.1. In General. The Sub-Administrator shall bear all of its
expenses in connection with the performance of its duties under this Agreement,
except documented out-of-pocket expenses or expenses associated with telephone
support relating to shareholder services.
2.1.2. Waiver or Assumption and Reimbursement of Fund Expenses by the
Sub-Administrator. The waiver or assumption and reimbursement by the
Sub-Administrator of any expense of the Fund that the Sub-Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not obligate
the Sub-Administrator to waive, assume, or reimburse the same or any similar
expense of the Fund on any subsequent occasion, unless so required pursuant to a
separate agreement between the Fund and the Sub-Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator or the Sub-Administrator, as provided in
this Agreement, the Administrative Services Agreement or any other agreement
between the Fund and the Administrator or the Sub-Administrator, and as
described in the Fund's then-current Prospectuses and Statements of Additional
Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Sub-Administrator, the Administrator shall pay the
Sub-Administrator a fee per Portfolio: (i) at the annual rate of .07% of the
average daily assets of each Portfolio with respect to $2.5 billion of the total
average daily net assets of the Fund; and (ii) at the annual rate of .025% of
the average daily net assets of each Portfolios with respect to the total
average daily net assets of the Fund in excess of $2.5 billion.
3.2. Method of Computation. The Sub-Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Sub-Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the applicable annual
rates described in Section 3.1. above, and multiplying this product by the net
assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
-8-
<PAGE>
3.3. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
3.4. Responsibility for Payment. The Sub-Administrator shall not be
entitled to receive any payment for the performance of its services hereunder
from the Fund and shall look solely and exclusively to the Administrator for
payment of all fees for such services.
4. Sub-Administrator's Use of the Services of Others.
The Sub-Administrator may at its own cost employ, retain, or otherwise
avail itself of the services and facilities of other persons or organizations
for the purpose of providing the Sub-Administrator, the Administrator, or the
Fund with such information or assistance as the Sub-Administrator may deem
necessary, appropriate, or convenient for the discharge of its duties hereunder
or otherwise helpful to the Administrator.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the SEC under Section 31(a) of the 1940 Act and
maintained and preserved by the Sub-Administrator on behalf of the Fund, are the
property of the Fund and shall be surrendered by the Sub-Administrator promptly
on request by the Fund. The Sub-Administrator shall not disclose or use any
record or information obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized by this Agreement and applicable law.
The Sub-Administrator shall keep confidential any information obtained in
connection with its duties and shall disclose such information only if the Fund
has authorized such disclosure or if such disclosure is expressly required by
applicable law or federal or state regulatory authorities.
6. Reports to the Sub-Administrator.
The Fund and/or the Administrator shall furnish or otherwise make available
to the Sub-Administrator such Prospectuses, Statements of Additional
Information, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the
Sub-Administrator may, at any time or from time to time, require in order to
discharge its duties under this Agreement.
-9-
<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Sub-Administrator
or any affiliated person of the Sub-Administrator to render similar corporate
administrative services to other investment companies, or to engage in other
business activities.
8. Limitation of Liability of the Sub-Administrator and Indemnification by the
Fund and the Administrator.
8.1. Limitation of Liability of the Sub-Administrator.
8.1.1. Neither the Sub-Administrator nor any of its directors,
officers, employees, or agents performing services for the Fund and the
Administrator at the direction or request of the Sub-Administrator in connection
with the Sub-Administrator's discharge of its duties undertaken or assumed with
respect to this Agreement, shall be liable for any act or omission in the course
of or in connection with the Sub-Administrator's services hereunder, including
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Administrator in connection with the matters to which this Agreement
relates; provided, that nothing herein contained shall be construed to protect
the Sub-Administrator or any such persons against any liability to the Fund or
its shareholders or the Administrator to which the Sub-Administrator or such
persons would otherwise be subject by reason of willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of the Fund or
the Administrator or for failure by the Sub-Administrator or any such persons to
exercise due care in rendering other services to the Fund or the Administrator.
The limitation and liability provisions set forth herein shall indefinitely
survive the termination of this Agreement.
8.1.2. The Sub-Administrator may apply to the Board of Directors of
the Fund or to the Administrator at any time for instructions and may consult
counsel for the Fund or the Administrator or the Sub-Administrator's own counsel
and with accountants and other experts with respect to any matter arising in
connection with the Sub-Administrator's duties, and the Sub-Administrator shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instructions or with the opinion of such counsel,
accountants, or other experts.
8.1.3. The Sub-Administrator shall at all times have the right to
mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments, expenses and liabilities to the Fund, its shareholders
or the Administrator.
8.2. Indemnification by the Fund and the Administrator.
8.2.1. As long as the Sub-Administrator acts in good faith and with
due diligence and without negligence, the Fund and the Administrator shall
indemnify the Sub-Administrator, its directors, officers, employees, and agents
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and
-10-
<PAGE>
all losses, damages (excluding consequential, punitive or other indirect
damages), costs, charges, reasonable counsel fees and disbursements, payments,
expenses, and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of the administrative services or any other service
rendered to the Fund or the Administrator hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Fund or the
Administrator may be asked for indemnification under Section 8.2.1., the Board
of Directors of the Fund or the Administrator shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Sub-Administrator will use all reasonable care to
identify and notify the Board of Directors of the Fund or the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund or the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder. The rights hereunder shall be limited, during each term of this
Agreement, to no more than six (6) months of fees of the Sub-Administrator (as
computed in accordance with Section 3.1 of this Agreement) either (i) payable to
the Sub-Administrator in accordance with Section 3 hereof or (ii) if the
Agreement has been terminated, those fees paid to the Sub-Administrator for the
six (6) month period prior to termination.
9. Indemnification by the Sub-Administrator.
9.1. The Sub-Administrator shall indemnify the Fund, the Administrator, and
their directors, officers, employees, and agents and hold them harmless from and
against any and all actions, suits, and claims, whether groundless or otherwise,
and from and against any and all losses, damages (excluding consequential,
punitive or other indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the administrative
services or any other service rendered to the Fund and the Administrator
hereunder and arising or based upon the willful misfeasance or bad faith of the
Sub-Administrator, its directors, officers, employees, and agents in the
performance of its or their duties on behalf of the Fund and the Administrator.
The indemnity and defense provisions set forth herein shall indefinitely survive
the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Sub-Administrator may be asked for
indemnification under Section 9.1, the Sub-Administrator shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the Fund and the Administrator will use all
reasonable care to identify
-11-
<PAGE>
and notify the Sub-Administrator promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Sub-Administrator, but failure to do so in good
faith shall not affect the rights hereunder. The rights hereunder shall be
limited, during each term of this Agreement, to no more than six (6) months of
fees to the Sub-Administrator (as computed in accordance with Section 3.1 of
this Agreement) either (i) payable to the Sub-Administrator in accordance with
Section 3 hereof or (ii) if the Agreement has been terminated, those fees paid
to the Sub-Administrator for the six (6) month period prior to termination.
10. Force Majeure.
In the event the Sub-Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Sub-Administrator shall not be liable for
any loss, damage, cost, charge, counsel fee, payment, expense 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, however, shall in no way excuse the
Sub-Administrator from being liable to the Administrator or the Fund for any and
all losses, damages, costs, charges, counsel fees, payments and expenses
incurred by the Administrator or the Fund due to the non-performance or delay in
performance by the Sub-Administrator of its duties and obligation under this
Agreement if such non-performance or delay in performance could have been
reasonably been prevented by the Sub-Administrator through back-up systems and
other procedures commonly employed by other administrators and
sub-administrators in the mutual fund industry, provided that the
Sub-Administrator shall have the right, at all times, to mitigate or cure any
losses, including the making of adjustments or corrections to any current or
former shareholder accounts.
11. Term of Agreement.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998. Thereafter,
this Agreement shall continue in effect from year to year, subject to the
termination provisions and all other terms and conditions hereof. The
Sub-Administrator shall furnish to the Fund or the Administrator, promptly upon
a request by the Fund or the Administrator, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal, or amendment thereof.
-12-
<PAGE>
12. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by a resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of such Portfolio.
The assignment (as that term is defined in Section 2(a)(4) of the 1940 Act
and rules thereunder) of this Agreement or any rights or obligations thereunder
shall be prohibited by either party without the written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without the
payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30) days
prior written notice to the breaching party; provided that the
breaching party has not cured the material breach of this Agreement
during such thirty (30) day period.
(b) following the initial term of this Agreement, for any reason upon
ninety (90) days' prior written notice to the other parties; provided,
that in the case of termination by the Fund such action shall have
been authorized by resolution of the Board of Directors of the Fund or
by a vote of a majority of the outstanding voting securities of the
Fund or, in the case of termination with respect to a particular
Portfolio, by a resolution of the Board of Directors of the Fund or by
a vote of a majority of the outstanding voting securities of such
Portfolio. In the case of termination by the Sub-Administrator, such
termination shall not be effective until the Fund and the
Administrator shall have contracted with one or more persons to serve
as successor Sub-Administrator(s) for the Fund and such person(s)
shall have assumed such position.
-13-
<PAGE>
14. Miscellaneous.
14.1. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid: (a) if to the Sub-Administrator, to
SEI Fund Resources, 680 East Swedesford Road, Wayne, PA 19087-1658, Attention:
General Counsel; (b) if to the Administrator, to Pilgrim Baxter Fund Services,
1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590, Attention: Brian Bereznak;
and (c) if to the Fund, to The PBHG Funds, Inc., 1255 Drummers Lane, Suite 300,
Wayne, PA 19087-1590, Attention: Michael Harrington.
14.2. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.3. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
14.4. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation, or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation, or order.
14.5. Severability. 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 thereby.
14.6. Governing Law. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
_________________________________ By:_______________________________
Title:___________________________ Title:____________________________
ATTEST: PBHG FUND SERVICES
_________________________________ By:_______________________________
Title:___________________________ Title:____________________________
ATTEST: SEI FUND RESOURCES
_________________________________ By:_______________________________
Title:___________________________ Title:____________________________
-15-
<PAGE>
SCHEDULE A
The Portfolios of the Fund that will receive services pursuant to this Agreement
are:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Core Growth Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Big 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
Date: December __, 1996
-16-
<PAGE>
EXHIBIT 9(d)(2)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of April 1, 1996, by and between
Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds, Inc. (the
"Fund"), on behalf of the PBHG Core Growth Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Contract (the "Advisory Contract"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Contract is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Contract or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Contract or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed on September 24, 1996.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG CORE GROWTH FUND
________________________________ By:_______________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(3)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of July 1, 1996, by and between
Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds, Inc. (the
"Fund"), on behalf of the PBHG Limited Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Contract (the "Advisory Contract"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Contract is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Contract or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Contract or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed on September 24, 1996.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG LIMITED FUND
________________________________ By:_______________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(4)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Newbold's Asset Management, Inc. (the "Sub-Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Large Cap Value Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Sub-Adviser have entered into an Investment
Sub-Advisory Agreement (the "Sub-Advisory Agreement"), pursuant to which the
Sub-Adviser will render investment advisory services to the Portfolio for
compensation based on the value of the average daily net assets of the
Portfolio; and
WHEREAS, the Fund and the Sub-Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Sub-Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Sub-Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Sub-Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Sub-Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
<PAGE>
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the amount of the waived or reduced investment advisory fee for any
such month is insufficient to pay the Excess Amount, the Sub-Adviser may also
remit to the Portfolio an amount that, together with the waived or reduced
advisory fee, is sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Sub-Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Sub-Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Sub-Adviser shall be entitled to reimbursement by the Portfolio, in whole or in
part as provided below, of the advisory fees waived or reduced and other
payments remitted by the Sub-Adviser to the Portfolio pursuant to Section 1
hereof. The total amount of reimbursement to which the Sub-Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Sub-Adviser and all
other payments remitted by the Sub-Adviser to the Portfolio, pursuant to Section
1 hereof, during any of the previous two (2) fiscal years, less any
reimbursement previously paid by the Portfolio to the Sub-Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Sub-Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Sub-Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Sub-Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Sub-Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Sub-Adviser will
in no event exceed the total Reimbursement Amount.
2
<PAGE>
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses for the
prior fiscal year (including any reimbursement payments hereunder with respect
to such fiscal year) do not exceed the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Sub-Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Sub-Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG LARGE CAP VALUE FUND
________________________________ By:_______________________________
Secretary
ATTEST: NEWBOLD'S ASSET MANAGEMENT, INC.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(5)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Newbold's Asset Management, Inc. (the "Sub-Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Mid-Cap Value Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Sub-Adviser have entered into an Investment
Sub-Advisory Agreement (the "Sub-Advisory Agreement"), pursuant to which the
Sub-Adviser will render investment advisory services to the Portfolio for
compensation based on the value of the average daily net assets of the
Portfolio; and
WHEREAS, the Fund and the Sub-Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Sub-Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Sub-Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Sub-Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Sub-Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
<PAGE>
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the amount of the waived or reduced investment advisory fee for any
such month is insufficient to pay the Excess Amount, the Sub-Adviser may also
remit to the Portfolio an amount that, together with the waived or reduced
advisory fee, is sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Sub-Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Sub-Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Sub-Adviser shall be entitled to reimbursement by the Portfolio, in whole or in
part as provided below, of the advisory fees waived or reduced and other
payments remitted by the Sub-Adviser to the Portfolio pursuant to Section 1
hereof. The total amount of reimbursement to which the Sub-Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Sub-Adviser and all
other payments remitted by the Sub-Adviser to the Portfolio, pursuant to Section
1 hereof, during any of the previous two (2) fiscal years, less any
reimbursement previously paid by the Portfolio to the Sub-Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Sub-Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Sub-Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Sub-Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Sub-Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Sub-Adviser will
in no event exceed the total Reimbursement Amount.
2
<PAGE>
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses for the
prior fiscal year (including any reimbursement payments hereunder with respect
to such fiscal year) do not exceed the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Sub-Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Sub-Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG MID-CAP VALUE FUND
_________________________________ By:________________________________
Secretary
ATTEST: NEWBOLD'S ASSET MANAGEMENT, INC.
_________________________________ By:________________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(6)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Newbold's Asset Management, Inc. (the "Sub-Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Strategic Small Company Fund (the
"Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Sub-Adviser have entered into an Investment
Sub-Advisory Agreement (the "Sub-Advisory Agreement"), pursuant to which the
Sub-Adviser will render investment advisory services to the Portfolio for
compensation based on the value of the average daily net assets of the
Portfolio; and
WHEREAS, the Fund and the Sub-Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Sub-Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Sub-Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Sub-Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Sub-Adviser shall first waive or reduce its investment
management fee for such month by an amount sufficient to reduce the annualized
<PAGE>
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the amount of the waived or reduced investment advisory fee for any
such month is insufficient to pay the Excess Amount, the Sub-Adviser may also
remit to the Portfolio an amount that, together with the waived or reduced
advisory fee, is sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Sub-Adviser to the Portfolio with
respect to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Sub-Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Sub-Adviser shall be entitled to reimbursement by the Portfolio, in whole or in
part as provided below, of the advisory fees waived or reduced and other
payments remitted by the Sub-Adviser to the Portfolio pursuant to Section 1
hereof. The total amount of reimbursement to which the Sub-Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Sub-Adviser and all
other payments remitted by the Sub-Adviser to the Portfolio, pursuant to Section
1 hereof, during any of the previous two (2) fiscal years, less any
reimbursement previously paid by the Portfolio to the Sub-Adviser, pursuant to
Sections 2.2 or 2.3 hereof, with respect to such waivers, reductions, and
payments. The Reimbursement Amount shall not include any additional charges or
fees whatsoever, including, e.g., interest accruable on the Reimbursement
Amount.
2.2 Board Approval. No reimbursement shall be paid to the Sub-Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Sub-Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Sub-Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Sub-Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Sub-Adviser will
in no event exceed the total Reimbursement Amount.
2
<PAGE>
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses for the
prior fiscal year (including any reimbursement payments hereunder with respect
to such fiscal year) do not exceed the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Sub-Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Sub-Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG STRATEGIC SMALL COMPANY FUND
________________________________ By:_______________________________
Secretary
ATTEST: NEWBOLD'S ASSET MANAGEMENT, INC.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(7)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Large Cap Value Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Agreement is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG LARGE CAP VALUE FUND
________________________________ By:_______________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(8)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Mid-Cap Value Fund (the "Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Agreement is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG MID-CAP VALUE FUND
________________________________ By:_______________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 9(d)(9)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Strategic Small Company Fund (the
"Portfolio").
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 company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Agreement is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG SMALL COMPANY FUND
________________________________ By:_______________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
________________________________ By:_______________________________
Secretary
4
<PAGE>
EXHIBIT 10(e)
October __, 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. 25 to its
Registration Statement on Form N-1A (the "Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 23 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 three new separate series of the Fund, the PBHG Large Cap Value
Fund, PBHG Mid-Cap Value Fund and the PBHG Strategic Small Company Fund
(individually a "Portfolio" and, together, the "Portfolios"). The authorized
shares of common stock of the Portfolios are hereinafter referred to as the
"Shares."
We have examined the following: the Fund's Articles of Incorporation; the
Fund's ByLaws; the Fund's Articles Supplementary to the Articles of
Incorporation, dated October 2, 1996, 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 each Portfolio; Post-Effective
Amendment No. 25 to the Registration Statement under the 1933 Act filed on
October 2, 1996; 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.
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 of each Portfolio 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.
<PAGE>
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
"Counsel and Independent Public Accountants" in the Prospectus.
Very truly yours,
KATTEN MUCHIN & ZAVIS
