MESSAGE TO SHAREHOLDERS
Dear Fellow Shareholders:
We are pleased to send you The PBHG Funds, Inc. (the "Fund") Annual Report for
the year ended March 31, 1997. The Fund has continued to make strides towards
meeting more of our shareholders' needs. In order to give our shareholders the
opportunity to diversify their individual investment portfolios, we've added
several new funds to the PBHG Fund Family. PBHG Fund Services, Administrator to
the Fund, has been successful in decreasing Fund expenses, while increasing
services. We also have a number of initiatives for 1997 that are intended to
further enhance the overall satisfaction of our shareholders.
THE PBHG FUNDS' GROWTH
During the fiscal year ended March 31, 1997, the Fund grew to $7.8 billion from
$4.4 billion on April 1, 1996. The Fund's Adviser, Pilgrim Baxter & Associates,
Ltd. added 26 new employees during the year and now has a total staff of 62. The
PBHGFund's Shareholder Servicing Department -- employees dedicated to our Fund
investors -- currently has 121 professionals, up from 60 just one year ago.
PBHG Fund Services will continue to plan for and respond to future growth as the
investment offerings and benefits to our shareholders expand. A new Voice
Response System, a much improved Internet Site (with account lookup and the
ability to complete transactions), and a focus on enhancing the facilities and
training for all of our shareholder representatives is just a short list of some
of the initiatives that PBHG Fund Services has planned for 1997.
CHALLENGING ENVIRONMENT This fiscal year was a year of many challenges for both
the investment professionals and the administrative and operational
professionals within our organization. Our investment team has experienced a
shift in market sentiment in which smaller, growth companies have gone largely
unrewarded for their earnings accomplishments. It has been a period during
which investors replaced small companies in their equity portfolios with
larger, blue chip type stocks. As explained later in this report, we have seen
this type of environment before and realize the importance of remaining
committed to our discipline. This commitment has enabled us to compile a
long-term track record of significant outperformance over the last eleven-plus
years. Therefore, we confidently follow our disciplined investment process and
take advantage of buying opportunities where available in the current
environment.
DIVERSIFICATION OF PRODUCT OFFERING AND
DISTRIBUTION CHANNELS
Throughout this year, the Fund continued to explore, develop and offer to our
shareholders a number of new fund offerings. The PBHG Limited Fund and PBHG
Large Cap 20 Fund were two new growth products made available during the year.
Most notably however, this year the Fund, through our affiliation with Newbold's
Asset Management, Inc., offered shareholders a number of "value" style
investment options. By so doing, the Fund is now able to provide a Fund
investment option that allows for diversification across investment growth and
value equity styles. This is a first step along the path of our development from
a growth style, niche fund company to becoming a full service mutual fund
family. We will continue to explore other products of interest to our
shareholders and, where appropriate, make additions to our Fund family.
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MESSAGE TO SHAREHOLDERS
As always, we appreciate your investment in and commitment to The PBHG Funds,
Inc. We realize that in a challenging investment environment like the one we are
currently experiencing it may be difficult to remain loyal to your long-term
investment goals and objectives. We do urge investors to stay focused on
long-term performance, just as we do in our investment approach. Again, we have
experienced similar market environments and have learned that a disciplined
investment process, coupled with a long-term investment horizon compensate for
the short-term volatility associated with aggressive equity investing.
Sincerely,
/S/ SIGNATURE
HAROLD J. BAXTER
Chairman
The PBHG Funds, Inc.
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PBHG FAMILY OF FUNDS
PBHG AGGRESSIVE GROWTH FUNDS
PBHG GROWTH FUND
The PBHG Growth Fund seeks capital appreciation by investing primarily in
common stocks of small- and medium-sized U.S. growth companies. These are
companies that, in the opinion of Pilgrim Baxter, have an outlook for
strong growth in earnings and potential for significant capital
appreciation. This Fund is aggressive and should be considered a long-term
investment.
PBHG EMERGING GROWTH FUND
The PBHG Emerging Growth Fund seeks long-term growth of capital by
investing primarily in common stocks of emerging U.S. companies. This Fund
is aggressive and should be considered a long-term investment.
PBHG LARGE CAP GROWTH FUND
The PBHG Large Cap Growth Fund seeks long-term growth of capital by
investing primarily in equity securities of large, established companies.
Many of these companies were followed by the PBHG Growth and Emerging
Growth Funds until their cap sizes grew too large for those Funds. The
Fund's net asset value may be less volatile than those of our smaller cap
Funds.
PBHG SELECT EQUITY FUND
The PBHG Select Equity Fund seeks long-term growth of capital by investing
at least 65% of its portfolio in a limited number of companies (normally no
more than 30) across the domestic equity market capitalizations spectrum
that, in the Adviser's opinion, have a strong earnings growth outlook and
potential for capital appreciation. This Fund is aggressive and should be
considered a long-term investment.
PBHG CORE GROWTH FUND
The PBHG Core Growth Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of small-,
medium- and large-capitalization companies. The companies selected are
believed to offer the potential for strong earnings growth and significant
capital appreciation. This Fund is aggressive and should be considered a
long-term investment.
PBHG LIMITED FUND
The PBHG Limited Fund seeks long-term capital appreciation. The Portfolio
invests primarily in a diversified portfolio of equity securities with
market capitalizations or annual revenues of up to $250 million that are
believed to have an outlook for strong earnings growth and the potential
for significant long-term capital appreciation. This Fund is aggressive and
should be considered a long-term investment.
PBHG LARGE CAP 20 FUND
The PBHG Large Cap 20 Fund seeks long-term growth of capital by investing
at least 65% of its portfolio in a limited number (no more than 20) of
large capitalization companies that, in the Adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. The
concentrated strategy of this Fund is expected to produce above-average
volatility.
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PBHG FAMILY OF FUNDS
PBHG VALUE FUNDS
PBHG LARGE CAP VALUE FUND
The PBHG Large Cap Value Fund seeks long-term growth of capital and income.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in a diversified portfolio of equity securities of large
capitalization companies which, in the Adviser's opinion, are undervalued
or overlooked by the market. (The PBHG Large Cap Value Fund is sub-advised
by Newbold's Asset Management, Inc.)
PBHG SPECIALTY FUNDS
PBHG INTERNATIONAL FUND
The PBHG International Fund seeks to provide long-term capital appreciation
by investing primarily in a diversified portfolio of equity securities of
non-U.S. issuers. The Fund is aggressive and should be considered a
long-term investment. (The PBHG International Fund is sub-advised by Murray
Johnstone International, Ltd. "Murray Johnstone".)
PBHG CASH RESERVES FUND
The PBHG Cash Reserves Fund seeks to preserve principal and maintain a high
degree of liquidity while providing current income. (The PBHG Cash Reserves
Fund is sub-advised by Wellington Management Company.)
PBHG TECHNOLOGY & COMMUNICATIONS FUND
The PBHG Technology & Communications Fund seeks long-term growth of capital
by investing primarily in common stocks of companies that rely extensively
on science, technology and communications in their product development or
operations, or which are expected to benefit from technology- or
communications-related advances. This Fund is aggressive and should be
considered a long-term investment.
PBHG STRATEGIC SMALL COMPANY FUND
The PBHG Strategic Small Company Fund seeks growth of capital. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
a diversified portfolio of equity securities of small capitalization
companies. In selecting investments for the Portfolio, the Advisers
(Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.)
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 current economic or
market conditions and their long-term investment outlook.
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PBHG PORTFOLIO MANAGERS
[PHOTO OF GARY L. PILGRIM, CFA]
Gary L. Pilgrim, CFA
MANAGER
PBHG Growth Fund
CO-MANAGER
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Core Growth Fund
As President and Chief Investment Officer of Pilgrim Baxter & Associates, Ltd.,
Gary Pilgrim is responsible for the investment direction of all institutional
and mutual fund portfolios, and for overseeing day-to-day operations in trading
and account control. Gary is a member of Pilgrim Baxter's Board of Directors and
President of The PBHG Funds, Inc. He has been involved in growth stock investing
throughout his 27-year career. He began his career at the Philadelphia National
Bank in the late 1960s, where he served initially as an analyst, later as
Director of Research, and, ultimately, as Chief Investment Officer. He is an
M.B.A. graduate from Drexel University with a B.S.B.A. from the University of
Tulsa. Gary is a Chartered Financial Analyst and a member of the Financial
Analysts of Philadelphia, Inc.
[PHOTO OF CHRISTINE M. BAXTER, CFA]
Christine M. Baxter, CFA
MANAGER
PBHG Limited Fund
CO-MANAGER
PBHG Emerging Growth Fund
PBHG Core Growth Fund
In addition to managing PBHG mutual funds, Christine Baxter is responsible for
research on the smallest companies in the Pilgrim Baxter universe. Christine
joined Pilgrim Baxter & Associates, Ltd. in 1991. Her previous responsibilities
included equity/quantitative analysis and the construction of the Pilgrim Baxter
micro-cap universe. She is a graduate of the University of Pennsylvania. While
at Penn, she interned in the equity area at First Boston Corporation. Christine
is a Chartered Financial Analyst and a member of the Financial Analysts of
Philadelphia, Inc.
[PHOTO OF JAMES A. FARRELL, CFA]
James A. Farrell, CFA
MANAGER
PBHG Large Cap Value Fund
James Farrell is the Chief Investment Officer of Newbold's Asset Management,
Inc., having joined that firm in September 1996. He manages the PBHG Large Cap
Value Fund and several institutional accounts. Prior to joining Newbold's, 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. Jim received his MBA from Drexel University and holds a B.S.M.E.
Cum Laude from Tufts University. He is a Chartered Financial Analyst and a
member of the Philadelphia Society of Security Analysts.
5
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PBHG PORTFOLIO MANAGERS
[PHOTO OF JOHN S. FORCE, CFA]
John S. Force, CFA
CO-MANAGER
PBHG Technology & Communications Fund
In addition to co-managing the PBHG Technology & Communications Fund, John Force
is an analyst and manager of small cap portfolios for institutional investors.
He joined Pilgrim Baxter from Fiduciary Management Associates, where he was
Vice-President/Portfolio Manager responsible for managing a small cap mutual
fund and analyzing the health care and consumer stock sectors. John's eighteen
years of portfolio management experience include bank-pooled equity funds,
endowments, pensions, and profit-sharing portfolios. As a research analyst, he
has covered a broad spectrum of industries. He is an M.B.A. graduate from the
University of Toledo and has a B.S. in Finance and Accounting from Miami
University of Ohio. John is a Chartered Financial Analyst and a member of the
Financial Analysts of Philadelphia, Inc.
[PHOTO OF GARY D. HAUBOLD, CFA]
Gary D. Haubold, CFA
CO-MANAGER
PBHG Strategic Small Company Fund
Gary Haubold joined Newbold's Asset Management, Inc. in January 1997. Prior to
joining Newbold's, Gary managed the MAS Small Cap and Mid Cap Funds for Miller,
Anderson & Sherrerd. From 1986 to 1993 he was with Wood, Stuthers & Winthrop, an
investment advisory firm. An M.B.A. graduate from the Wharton School of
Business, University of Pennsylvania, he holds an B.S. in Civil/Structural
Engineering from Rice University. Gary is a Chartered Financial Analyst.
[PHOTO OF JOHN C. KEOGH]
John C. Keogh
MANAGER
PBHG Cash Reserves Fund
John Keogh is a Senior Vice President and Partner of Wellington Management
Company, sub-adviser to the PBHG Cash Reserves Fund. As a member of Wellington
Management's Fixed Income Group, John chairs the Short Duration Bond Strategy
Group, which develops guidelines for portfolio managers on investing client
assets in short maturity portfolios. John manages approximately $10 billion in
money market portfolios for various clients of the firm, and he has the
distinction of managing the first dollar-denominated money market fund ever
offered by a Japanese entity in Japan. Prior to joining Wellington Management
Company in 1983, he worked in the investment division of Connecticut National
Bank. John holds a B.A. in Economics from Tufts University.
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<PAGE>
PBHG PORTFOLIO MANAGERS
[PHOTO OF JAMES D. MCCALL, CFA]
James D. McCall, CFA
MANAGER
PBHG Large Cap 20 Fund
CO-MANAGER
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Core Growth Fund
In addition to his responsibilities with the PBHG Core Growth, Large Cap Growth,
Large Cap 20 and Select Equity Funds, Jim McCall manages institutional
investment accounts. Jim previously worked at The First National Bank of
Maryland where he was Vice President/Portfolio Manager responsible for managing
a growth mutual fund that invested across all capitalizations. Prior to that,
Jim was employed by Provident Mutual Management, Co., where he managed a similar
growth mutual fund. Before entering the investment field a decade ago, Jim spent
10 years as a hospital pharmacist. He received his M.B.A. and M.S. in Pharmacy
from the University of Utah and holds a B.S. from the Philadelphia College of
Pharmacy & Science. Jim is a Chartered Financial Analyst.
[PHOTO OF RODGER SCULLION, MSI]
Rodger Scullion, MSI
MANAGER
PBHG International Fund
Rodger Scullion is Managing Director and Chief Investment Officer of Murray
Johnstone International, Ltd. (MJI) in Glasgow, Scotland. In addition to the
PBHG International Fund, for which he assumed responsibility in June 1995,
Rodger handles other investment vehicles for all types of investors, including a
closed-end fund with over $600 million in assets. Rodger joined MJI fourteen
years ago, and in that time has had primary responsibility for the investments
in markets outside the U.S. Prior to MJI, he spent eleven years with an
international fund management group in Glasgow, where his investment arena
included the U.S., Europe, U.K., Southeast Asia and Japan. Rodger is a Member of
the Securities Institute (MSI) in Scotland.
[PHOTO OF JAMES M. SMITH, CFA]
James M. Smith, CFA
CO-MANAGER
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
Jim Smith serves as portfolio manager and analyst for institutional small cap
portfolios at Pilgrim Baxter & Associates, Ltd., as well as co-manager of the
PBHG Technology & Communications Fund and PBHG Strategic Small Company Fund. Jim
has over twenty years of investment experience in equity portfolio management
and research. Most recently, he was employed by Selected Financial Services as
Senior Vice-President/Portfolio Manager for a small cap growth mutual fund.
Jim's prior service includes employment by Sears Investment Management Company
as Vice President responsible for emerging growth and venture capital
portfolios. He is a graduate of Washington & Lee University, where he was
inducted into Phi Beta Kappa, and he earned his M.B.A. from Northwestern
University. Jim is a Chartered Financial Analyst.
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF GARY L. PILGRIM, CFA]
Gary L. Pilgrim, CFA
Dear Fellow Shareholder:
The U.S. equity market has challenged investors employing all investment styles
during the last twelve months, but it has been particularly confounding to
growth managers. In order to better explain our performance numbers, I believe
that it is helpful to review the market activity over the past year.
Our fiscal year started off with many companies reporting very strong earnings
for the March quarter, and growth stocks performed well heading into the second
calendar quarter. However, June ushered in a host of earnings disappointments
from some bellwether companies and reintroduced the specter of inflation,
roiling the markets throughout the Summer. With investors already jittery, the
November elections served as additional impetus for investors to opt out of
higher growth, small capitalization names for the perceived stability of larger
capitalization, more mature blue-chip stocks. Unfortunately, such moves tend to
be self-fulfilling -- as investor support for smaller cap growth stocks dried
up, those equities met many investors' expectations of declines while buoying
big capitalization stocks at the same time.
PERFORMANCE COMPARISONS
The chart below shows how dramatically market sentiment -- and dollars --
shifted to support the largest, slower growth companies that make up the Dow
Jones Industrial Average over the riskier, higher growth companies in the NASDAQ
Composite Index and the Russell 2000 Growth Index.
COMPARATIVE MARKET INDEXES
FOR THE ONE-YEAR PERIOD ENDED MARCH 31, 1997
NASDAQ COMPOSITE 11.31% DOW JONES INDUSTRIAL AVERAGE 21.53%
RUSSELL 2000 GROWTH -5.82% S&P 500 19.88%
THE NASDAQ COMPOSITE INDEX is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all
domestic over-the-counter stocks (approximately 5,500) except those traded
on exchanges and those having only one market maker.
THE RUSSELL 2000 GROWTH INDEX is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Russell 2000 Index is generally considered to be
representative of the small capitalization segment of the market.
THE DOW JONES INDUSTRIAL AVERAGE is a price-weighted average of 30
actively traded blue-chip stocks, primarily industrials.
THE S&P 500 INDEX is an unmanaged index generally considered to be
representative of the large capitalization segment of the U.S. market.
Even these comparisons mask much of the battle growth stock investors have waged
since last May. Most market watchers understand that the Dow Jones Industrial
Average is made up of only 30 stocks, and that it can therefore be an inadequate
representation of the market's overall performance; however, fewer investors
understand how the NASDAQ Composite Index is composed. That Composite includes
over 5,500 issues which trade on the NASDAQ Stock Market, and therefore is the
most often used proxy for growth stock performance. However, the four largest
companies (by market capitalization) which trade on the NASDAQ accounted for 22%
of the performance of the entire index last year. And the one hundred largest
companies, known as the NASDAQ 100 Index, accounted for nearly 50% of the
performance of the NASDAQ Composite Index late last year. What that means to
investors is that the "market" performance numbers listed in the papers and
quoted on radio and television often reflect very little of what is happening
with the remaining thousands -- the majority -- of stocks in the market.
8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
In fact, recent declines in the universe of companies we track, closely mirror
the stock price declines of companies in the overall NASDAQ stock market. But at
the same time, the Pilgrim Baxter universe of companies far outpaces the Nasdaq
market in terms of earnings growth rates and the percentage of companies
surprising us on the upside each quarter. So, while investing in high growth
rate companies -- the neighborhood in which we live -- has recently been under
siege, The PBHG Funds, Inc. continue to hold what we believe to be the best
companies available within our discipline.
The most difficult challenge we faced as managers over the past year is that our
style of investing in the highest growth companies has simply been out of favor.
We have continued to find very strong companies in our traditional growth
industries: technology, health care, consumer and service. And, those companies,
for the most part, have continued to perform very well. Unfortunately, the
market, which at times rewards even moderate growth, has offered very little
support for these companies which have been experiencing record quarters of
growth. As a result, many of the companies which we follow closely have seen
their stock prices cut in half while their growth rates have remained just as
strong, and in some cases improved. These declines in stock prices, and in our
Funds, are further accentuated due to the highs they reached a year ago. The
last up cycle was above average for growth stocks and for our Funds, leaving
both exposed to greater losses during periods of market volatility.
THE PILGRIM BAXTER DISCIPLINE
Our investment philosophy and methodology remain the same through both up and
down cycles. We continue to seek and invest in the highest quality, fastest
growing companies we can find. As long-time managers following this style, we
are pleased to report that we believe there is currently no shortage of very
good companies, quality managements and strong ideas in which to invest.
As we've explained before, we continue to find most of our investments in the
technology, health care, consumer and services sectors -- those industries in
which company and stock price performance have been most remarkable over the
last several years. As a result, we often find our portfolios highly
concentrated in particular sectors of the market at different times. We like to
hold large positions in industries while their growth curves are the steepest --
either due to technological improvement, an undersupply of key products, or
perhaps consolidation among competitors. This concentration can contribute to
very favorable returns while the companies scale the growth curve and there
aren't enough shares to go around Wall Street. But, the ride down tends to be
equally steep, once investors get a hint that the growth may be slowing.
Unfortunately, that reaction of "sell now, ask questions later" often infects an
entire industry, even though only a few companies may actually be slowing. Such
was the case with networking stocks and the technology sector these past few
months. A few of the bellwether networking names -- companies which make all of
the infrastructure for the ever-enlarging Internet, intranets and local area
networks -- stumbled during recent quarters. These shortfalls sent investors
fleeing from technology stocks across the board, even though fundamentals in the
sector were strong. It is during capricious shifts in sentiment such as these
that our concentration in sectors of the market makes us vulnerable.
THE CYCLES OF THE MARKET
Although this past year challenged us as the market seemingly ignored high
quality growth companies and strong earnings, we take some heart in the fact
that it is a pattern through which we have invested and thrived before. We know
from experience that these periods of underperformance are often well rewarded
by significant outperformance in the months and years ahead.
These volatile months are in fact the exact periods in which we, as managers,
can do some of our most opportunistic buying. Many of the companies we already
own, or would like to have in our portfolios, are well off their highs and, by
many measures, downright bargains. We like to view the current market in terms
of our PBHG Fund investors potentially getting far more "growth" for their
dollar than they were a year ago. We believe that when the market again
recognizes and begins to reward the earnings growth these companies have
produced, that "growth" should go a long way in turning underperformance into
significant outperformance. As difficult as it may seem to shareholders who
watch the ups and downs of the stock and mutual fund tables, down periods are
also opportunities for investors to consider increasing their investment
holdings. While this may seem counterintuitive to your wallet, as an informed
9
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MANAGEMENT DISCUSSION AND ANALYSIS
investor, you know the potential value of adding to your position when prices
are down. The chart below outlines the potential benefits of "dollar cost
averaging" which may help investors take advantage of market volatility by
buying fewer shares when prices are high and a greater number when prices are
lower. The PBHG Systematic Investment Plan lets investors take advantage of
dollar cost averaging.
<TABLE>
<CAPTION>
DOLLAR COST AVERAGING AT WORK
DOLLAR COST AVERAGING VS. LUMP SUM PURCHASE
AMOUNT SHARE # SHARES AMOUNT SHARE # SHARES
INVESTED PRICE PURCHASED INVESTED PRICE PURCHASED
<S> <C> <C> <C> <C> <C> <C> <C>
January $100 $10 10.00 $1,200 $10 120
February $100 $11 9.09
March $100 $9 11.11
April $100 $6 16.67
May $100 $7 14.29
June $100 $12 8.33
July $100 $8 12.50
August $100 $7 14.29
September $100 $9 11.11
October $100 $9 11.11
November $100 $11 9.09
December $100 $10 10.00
TOTAL AMOUNT INVESTED $1,200.00 VS. $1,200.00
TOTAL # SHARES PURCHASED 137.59 VS. 120.00
AVERAGE COST PER SHARE $ 8.72 VS. $ 10.00
</TABLE>
A program of regular investment cannot assure a profit nor protect against a
loss in a declining market and, since such a program involves continuous
investment regardless of fluctuating share values, investors should consider
their financial ability to continue the program through all market cycles.
Many of you, our shareholders, have expressed concern over the past few months
wondering if the PBHG investment strategy or method has changed. While the
simple answer to the question is no, the fact that our investors are asking that
question gives us some encouragement. It tells us that our shareholders
understand our discipline of buying shares in companies with strong growth in
earnings. And, in some fashion that question is a stamp of approval from our
shareholders, sort of an "I liked what you were doing before, are you still
doing it now?" The answer is yes. It's important to understand that it is the
market that has changed since this time last year. We at The PBHG Funds are
still doing the same thing we did last year, five years ago and ten years ago.
It is periods such as this which may test your belief in the growth strategy.
But, after revisiting why you invested with The PBHG Funds in the first place
exceptional long-term growth -- we expect you will feel confident that downturns
can be overcome with long-term outperformance.
/S/ SIGNATURE
GARY L. PILGRIM
Chief Investment Officer
Pilgrim Baxter & Associates, Ltd.
10
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PBHG GROWTH FUND
OBJECTIVE: Capital appreciation.
INVESTS IN: Small to medium sized growth companies.
STRATEGY: While the Fund is currently making the majority of purchase
selections in the $500 million to $2.5 billion range, the weighted average
capitalization of the Fund has increased from a year ago. This is attributable
to the higher valuation levels of a rising market, and the Adviser's decision
to maintain positions in some companies exceeding $2 billion in market
capitalization as long as they continue to meet the Adviser's high-growth
criteria.
-------------------------------------------------------------------------------
PBHG GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year
Return Return Return Return
- --------------------------------------------------------------------------------
PBHG Growth Fund-PBHG Class -16.76% 12.84% 21.54% 15.02%
- --------------------------------------------------------------------------------
PBHG Growth Fund-Trust Class 2 -16.88% 12.78% 21.50% 15.00%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GROWTH
FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, THE LIPPER CAPITAL APPRECIATION
FUNDS AVERAGE, AND THE LIPPER MID-CAP FUNDS AVERAGE
[LINE GRAPH]
Lipper Capital Lipper
PBHG Growth Fund Russell 2000 Appreciation Funds Mid-Cap
PBHG Class Growth Index 3 Average 4 Funds Average 5
12/31/85 10,000 10,000 10,000 10,000
3/86 11,510 11,481 11,619 11,652
3/87 16,870 13,175 13,728 14,830
3/88 14,665 10,888 12,365 13,118
3/89 15,249 11,991 14,046 14,908
3/90 19,383 13,057 16,024 17,437
3/91 22,667 14,462 17,744 20,921
3/92 25,781 17,206 20,865 25,252
3/93 34,668 17,726 23,631 28,550
3/94 47,592 19,628 25,751 31,294
3/95 54,217 21,057 27,633 34,188
3/96 82,139 27,660 35,780 44,452
3/97 68,372 26,051 37,984 46,652
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The performance shown for the Trust Class prior to its inception on August 19,
1996, is based on the performance and expenses of the PBHG Class. Subsequent
to August 19, 1996, the performance is that of the Trust Class and reflects
the expenses specific to the Trust Class, which will cause its returns to
be less than those of the PBHG Class. The aggregate total return of the PBHG
Trust Class since its inception was -17.27%.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Capital Appreciation Funds Average is an equally weighted
benchmark composed of mutual funds with the investment objective of maximum
capital appreciation. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
5 The Lipper Mid-Cap Funds Average is an equally weighted benchmark composed of
mutual funds, each of which limits its investments, by prospectus or
portfolio practice, to companies with average market capitalizations
and/or revenues between $800 and the average market capitalization of the
Wilshire 4500 Index. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
PERFORMANCE
For the year ended March 31, 1997 the Fund's total return was -16.8% versus the
Russell 2000 Growth Index of -5.8% and the Lipper Capital Appreciation Funds
average of 4.1%. The Fund's performance characteristics changed dramatically as
the year progressed, going from an 11.6% gain in the first half of the fiscal
year to a -25.4% loss in the second half. Smaller growth company sentiment
turned decidedly negative as the Russell 2000 Growth Index return of -10.3%
compared poorly with an 11.3% gain by the S&P 500. This is, by far, the most
abrupt change in relative performance in memory. We believe investor anxiety
regarding the direction of interest rates against a back drop of high valuation
for smaller growth companies resulted in this flight to larger companies as a
safer haven for nervous investors.
The Technology sector continued as the Fund's largest exposure, finishing the
year roughly unchanged at a 30% weighting. Service sector companies again
increased during the year, rising from 17% to 24%. Healthcare and Consumer
sector weightings each declined by about four percentage points. While still
small at 4.5% each, both Energy and Financials sectors were increased during the
year. The largest share of the negative return came from the Consumer sector
(41%), Healthcare (34%) and Technology sectors (19%).
PORTFOLIO HIGHLIGHTS
After a period such as the one just past, it would be misleading to focus on our
successes. However, of the 59 stocks held for the full year, 27 did produce a
positive return and the top five averaged an approximate 70% gain. While there
were no common business themes to these winners, four were from the Technology
sector.
Broadening the scope of the analysis, the Fund owned a total of 127 stocks
during the course of the year, of which 61% showed declines. The five worst
issues were down on average, 68%. A total of 31 issues dropped by 30% or more
with this group dominated by health care and technology. As is usually the case,
all but four of these 31 companies had unexpectedly weak earnings.
As for patterns among our losers; the well publicized slowing of networking
company fundamentals explains the sharp declines of Fore Systems, Shiva,
Premysis and Cascade while companies providing technology to physicians such as
Medaphis and Medic Computer Systems also stumbled badly. Some specialty
physician practice management companies such as Physician Reliance Network and
American Oncology failed to meet investor expectations as well.
While one could conclude that the number of company problems in the Fund
increased dramatically, we believe that our performance is better explained by
acknowledging at least an average number of company failures, but more
importantly they occurred in an environment of investor sentiment that grew
increasingly apprehensive about the risk of small company investing so that even
companies executing flawlessly on their business plans were sold in sympathy
with those that did not.
- -------------------------
TOP FIVE PERFORMERS*
Electronics For Imaging
McAfee Associates
United States Filter
Comverse Technology
Altera Corp.
- -------------------------
BOTTOM FIVE PERFORMERS*
Citrix Systems
Macromedia
Idexx Laboratories
Medaphis Corp.
Physician Reliance Network
*DURING THE YEAR ENDED MARCH 31, 1997
11
<PAGE>
PBHG EMERGING GROWTH FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Domestic emerging growth companies.
STRATEGY: The Fund's strategy is to invest in young, rapidly growing companies
with prospects for continued growth. The Fund will typically target the
following sectors: Technology, Healthcare, Consumer and Service. The Fund will
remain diversified over a large number of securities, with no one security
accounting for more than 3% of the portfolio.
- --------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date 2
- --------------------------------------------------------------------------------
PBHG Emerging Growth Fund -13.71% 19.58% 24.08%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG EMERGING
GROWTH FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL COMPANY
FUNDS AVERAGE
[LINE GRAPH]
PBHG Emerging Russell 2000 Lipper Small Company
Growth Fund Growth Index 3 Funds Average 4
6/14/93 10,000 10,000 10,000
3/94 13,100 10,763 10,809
3/95 17,290 11,547 11,668
3/96 25,963 15,168 15,399
3/97 22,403 14,285 16,118
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Emerging Growth Fund commenced operations on June 15, 1993.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by
prospectus or portfolio practice, to companies on the basis of the size of the
company. The performance figures are based on changes in net asset value of
the funds in the Index with all capital gains distributions and income
dividends reinvested.
PERFORMANCE
For the year ending March 31, 1997 the Fund's total return was -13.71% versus
the Wilshire Small Cap Growth Index of -2.50%. The Russell 2000 Growth Index
return was -5.82%, and the Lipper Small Company Funds Average was -1.79%.
The Technology sector was responsible for roughly 15% of the decline
in the portfolio with gains in the first half of the period offset by losses
in the second half of the period. Combined, the Consumer and Healthcare
sectors were responsible for the majority of the decline.
Fund performance shifted considerably in the latter part of the fiscal year.
To fully appreciate the magnitude of the shift, consider that for the first
three months of the fiscal year, April 1, through June 30, 1996, the Fund
returned +12.3 only to return -23.2% over the next three fiscal quarters.
Even more telling of this turnaround is the most recent quarter's return of
- -20.5%. Most of this shift can be attributed to the much talked about
"flight to quality." Investors sentiment turned away from small cap, high
valuation growth stocks in favor of blue chip stocks.
The Technology and Consumer sectors remained relatively unchanged over the
period, representing 40% and 12%, of each respective portfolio. We continue
to increase our exposure to the Service sector as we went from 8% to 14% of the
portfolio over the course of the year. Healthcare sector decreased 28% over the
period, representing just 15% of the portfolio as of March 31, 1997 as compared
to 21% one year ago.
PORTFOLIO HIGHLIGHTS
For the year, the Fund's five top performing stocks were up an average of 105%,
while the bottom five were down an average of 71%. In both cases returns were
driven by earnings performance. Those stocks owned thoughout the period produced
an average return of 0.9%, those purchased during the period produced an average
return of -13.5%, and those sold during the period produced an average return of
- -23.2%.
The Fund seeks companies with an ability to sustain superior revenue and
earnings growth. Throughout the period the growth characteristics of the
companies in the portfolio has remained consistent. The position weighted
average earnings per share growth for the last twelve months remains above 60%.
Given this fact, we believe the negative return for the Fund is a result of both
a decline in the valuation of high growth companies, and negative results from
companies that failed to meet growth expectations. The sector distribution is
determined by bottom-up stock picking. Thoughout the period the Technology and
Healthcare sector weightings declined slightly while the Service sector
weighting increased.
- ------------------------
TOP FIVE PERFORMERS*
Eagle USA
II-VI, Inc,
Scopus Technology
Greenwich Air Services
PRI Automation
- ------------------------
BOTTOM FIVE PERFORMERS*
Applix
Microcom
Verilink
Astea
Desktop Data
*DURING THE YEAR ENDED MARCH 31, 1997
12
<PAGE>
PBHG LARGE CAP GROWTH FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Companies, with above $1 billion of market capitalization, that in
the Advisers opinion, have an outlook for strong growth in earnings and
potential for capital appreciation.
STRATEGY: The Fund's larger company focus is intended to provide reduced
short-term volatility while still generating superior returns. At year end, the
Fund's 57 Portfolio holdings ranged from roughly $800 million to $112 billion in
market capitalization, with an average capitalization of $13.2 billion. The
stock selection approach remains focused on the fundamental analysis of
individual companies, the strength of their products and/or services and their
competitive positioning. Sector exposure is determined solely by the selection
of the most attractive individual stocks, although a 40% sector limitation is in
place as a risk control measure.
- --------------------------------------------------------------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap Growth Fund -1.77% 21.49%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
GROWTH FUND, VERSUS THE RUSSELL 1000 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Large Cap Russell 1000 Lipper Growth
Growth Fund Growth Index 3 Funds Average 4
4/4/95 10,000 10,000 10,000
6/95 10,920 10,748 10,744
9/95 13,160 11,724 11,675
12/95 13,382 12,259 11,945
3/96 14,992 12,917 12,604
6/96 16,158 13,739 13,173
9/96 16,871 14,234 13,559
12/96 16,515 15,093 14,268
3/97 14,728 15,175 14,086
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
3 The Russell 1000 Growth Index is an unmanaged index comprised of those
securities in the Russell 1000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Fund's total return for the last 12 months was -1.77%, including a decline
of 10.76% in March. This compares to a 12 month return of the Russell 1000
Growth Index of 17.47%. Dramatic market volatility in recent months coupled with
a negative shift in investor sentiment toward high growth, above average P/E
multiple stocks helped turn a positive return into a negative one. We did
experience some significant disappointments in financial performance by a few of
the Fund's holdings, each of which was subsequently sold. However, for the most
part the Fund's holdings delivered the kind of financial results we anticipated,
but the market did not seem to care.
Once again the Technology sector represented the largest industry exposure,
closing the year at 25% after reaching almost 33% during the Summer. This sector
contributed a return of 5.47% for the year. The next largest sector was the
Healthcare sector which accounted for 23% of the Fund at year end, having
increased steadily from 19% at the beginning of the year. The return from the
Healthcare sector was -1.22%. The Business Services sector was third largest at
roughly 21% and returned -1.59%. Consumer at 17% and Financial Services at 7%
were the only other sectors with meaningful exposure. The contributions from
these two sectors were -3.64% and 1.41%, respectively.
PORTFOLIO HIGHLIGHTS
Of the 82 different stocks owned over the last 12 months, 30 advanced more than
10%, while 31 declined more than 10%. The top five performers were up an average
of 63.1%, while the bottom five, all of which were sold based on weakening
business trends, declined an average of 63.0%.
The top five performers included four technology stocks, including the two
industry bellwethers Intel and Microsoft along with telecommunications
equipment supplier ADC Telecom, Inc. and specialty semiconductor manufacturer
Altera. Intel demonstrated accelerating growth driven by great demand for
faster, more powerful microprocessors, while Microsoft benefited from a
strong product upgrade cycle, e.g. Windows 95 for PC's and Windows NT for
network servers. ADC consistently reported financial results ahead of
expectation as their telephone and cable industry customers sought to improve
the quality and capacity of their communications networks. Altera rebounded
strongly from an oversupply situation a year ago in their specialty niche
of programmable logic devices. The only non-technology name among the top
five performers was Nike which benefited from very strong demand from
consumers for any and all athletic products bearing the "swoosh" trademark.
This position was sold near the end of the period as we anticipate a
deceleration in the company's growth rate going forward.
The bottom five performers all announced disappointing financial results caused
by a variety of factors. Shiva's products for providing remote access to
corporate computer networks were effectively obsoleted by new products from
bigger and stronger competitors. Fore Systems suffered from a slowdown in demand
for their high speed networking products as customers hesitated to buy in
anticipation of a slew of new competing products reaching the market. Sunglass
Hut opened too many stores thereby oversaturating the high priced sunglass
market. Fritz Companies had difficulty digesting a large acquisition in the
transportation logistics market. Lastly, Idexx Laboratories flooded their
distributors with veterinary diagnostic instruments in quantities well in excess
of end-user demand, leading to a substantial sales slowdown.
- ------------------------
TOP FIVE PERFORMERS*
Intel
Nike
Microsoft
ADC Telecommunications
Altera
- ------------------------
BOTTOM FIVE PERFORMERS*
Idexx Laboratories
Fritz Companies
Sunglass Hut International
Fore Systems
Shiva
*DURING THE YEAR ENDED MARCH 31, 1997
13
<PAGE>
PBHG SELECT EQUITY FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Normally no more than 30 common stocks of companies that in the
Adviser's opinion have a strong outlook for capital appreciation.
STRATEGY: The Fund concentrates its investments in what we view as the best
opportunities in our universe of approximately 1,000 companies. At the end of
the period, the Fund held 27 stocks ranging in size from $487 million (Forte
Software) to $112 billion (Intel). The mean market capitalization was $6.9
billion. The Fund's size characteristics may vary dramatically from one time
period to another, reflecting the inherent sensitivity to changes in holdings of
a highly concentrated portfolio. The Fund is currently closed to new investors
to protect its investment objective.
- --------------------------------------------------------------------------------
PBHG SELECT EQUITY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Select Equity Fund -6.94% 28.48%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SELECT
EQUITY FUND, VERSUS THE RUSSELL 3000 GROWTH INDEX, AND THE LIPPER CAPITAL
APPRECIATION FUNDS AVERAGE
[LINE GRAPH]
PBHG Select Russell 3000 Lipper Capital Appreciation
Equity Fund Growth Index 3 Funds Average 4
4/4/95 10,000 10,000 10,000
6/95 11,686 10,757 10,744
9/95 14,546 11,758 11,806
12/95 15,512 12,257 12,119
3/96 17,329 12,920 12,846
6/96 19,606 13,735 13,492
9/96 21,121 14,165 13,762
12/96 19,854 14,938 14,128
3/97 16,123 14,858 13,667
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Select Equity Fund commenced operations on April 5, 1995.
3 The Russell 3000 Growth Index is an unmanaged index comprised of the 3000
largest U.S. securities as determined by total market capitalization
and represents approximately 98% of the investable U.S. equity market. The
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
4 The Lipper Capital Appreciation Funds Average is an equally weighted benchmark
composed of mutual funds with the investment objective of maximum
capital appreciation. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
PERFORMANCE
The Fund's total return for the last 12 months was -6.94%, including a decline
of -18.79% in the last three months. This compares to the 12 month returns of
6.16% for the Lipper Capital Appreciation Funds Average and 16.50% for the
Russell 3000 Index. We believe a negative shift in investor psychology towards
growth stocks began in the summer and intensified significantly in the last
three months of the year. In addition, market sentiment toward the technology
sector particularly networking and software stocks, turned decidedly bearish in
the last three months. Changes in the Fund's holdings were made where warranted
by weakening fundamentals but, for the most part, the Fund's holdings continued
to demonstrate the same desirable high growth characteristics that appealed to
us in the first place.
The Technology sector represented the largest area of exposure in the Fund,
ranging from 36% to 54%, and ending the year at 40%. This sector returned 2.56%
for the year. The second largest sector exposure was in healthcare which
increased steadily from 14% at the beginning of the year to 26% at the end. This
sector declined 1.53% for the year. The Business Services sector varied in
its weighting during the year but ended where it began, at roughly 17%, and
produced a return of -2.15%. The only other sector of consequence was
Consumer which held a fairly steady weighting of about 13% throughout the
period and generated a return of -4.29%. The balance of the Fund included
stocks in the Energy, Financial and Transportation sectors, which
collectively contributed a return of 0.63%.
PORTFOLIO HIGHLIGHTS
Of the 45 stocks owned during the course of the year, 15 advanced more than 10%
while 14 declined more than 10%. The top five performers were up by an average
of 69.7%, while the bottom five declined by an average of 44.3%.
The top five performers included three unrelated technology companies, a company
that operates several radio and television stations, and a health maintenance
organization (HMO). In the case of the best performer, Dell Computer success was
driven by the continuing strong demand for PC's and, in particular, Dell's
low-cost, direct distribution operating model. McAfee Associates' technological
leadership in antivirus software and PeopleSoft's ability to deliver superior
business applications software for the burgeoning client-server computing
environment led to financial results that were consistently ahead of
expectations. Clear Channel Communications took advantage of favorable
regulatory changes to acquire attractive broadcasting properties and also expand
into the billboard advertising markets. All of Clear Channel's acquisitions were
additive to the company's cash flow. Oxford Health Plans, in an otherwise
difficult environment for HMO's, continued to demonstrate great foresight and
creativity in an everchanging healthcare arena.
Among the bottom five performers, only Fore Systems demonstrated a clear
deterioration in business fundamentals (which prompted sale of the position
shortly after year end). Rational and Forte both in the business of providing
software tools for building and testing software programs. Their stocks suffered
from concerns about Microsoft's intentions in their market and the general
compression of P/E multiples among high growth companies. Both companies are
currently under review to determine, for rational specificially, the future
impact of pending acquistions and, for companies, the sustainability of growth
in the high-end software development market. Pediatrix continued in its effort
to consolidate the market for providing neonatal intensive care services, while
Accustaff continued making accretive acquisitions in the temporary help market
with an emphasis on expanding their information technology business. The stocks
of both Pediatrix and Accustaff experienced substantial P/E multiple
compression, despite no apparent change in business fundamentals.
- ----------------------------
TOP FIVE PERFORMERS*
Dell Computer
McAfee Associates
Clear Channel Communications
PeopleSoft
Oxford Health Plans
- ----------------------------
BOTTOM FIVE PERFORMERS*
Fore Systems
Rational Software
Pediatrix Medical Group
Forte Software
Accustaff
*DURING THE YEAR ENDED MARCH 31, 1997
14
<PAGE>
PBHG CORE GROWTH FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: A diversified portfolio of equity securities of companies without
regard to market capitalization.
STRATEGY: At year end the Fund's holdings ranged from roughly $140 million to
$54 billion in market capitalization, with an average size of $3.4 billion.
While future changes in holdings will create some variability, we do not expect
the company size features of the fund to differ substantially from what they are
presently. Stock selection is exclusively "bottom up", focusing on individual
companies and the strength of their fundamental business characteristics. Sector
exposure is not predetermined, but follows from the selection of the most
attractive individual stocks.
- --------------------------------------------------------------------------------
PBHG CORE GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized
Return Inception to Date 2
- --------------------------------------------------------------------------------
PBHG Core Growth Fund -12.52% 2.70%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CORE
GROWTH FUND, VERSUS THE RUSSELL 3000 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Core Russell 3000 Lipper Growth
Growth Fund Growth Index 3 Funds Average 4
12/31/95 10,000 10,000 10,000
3/96 11,820 10,541 10,543
6/96 13,800 11,206 11,020
9/96 14,200 11,557 11,342
12/96 13,280 12,188 11,936
3/97 10,340 12,122 11,783
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Core Growth Fund commenced operations on January 2, 1996.
3 The Russell 3000 Growth Index is an unmanaged index comprised of the 3000
largest U.S. securities as determined by total market capitalization
and represents approximately 98% of the investable U.S. equity market. The
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds in
the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Core Growth Fund's total return for the last 12 months was -12.52%,
including a decline of 22.14% in the last three months. This compares to the 12
month return of 15.00% by the Russel 3000 Growth Index. Since June of 1996, we
believe market psychology has been decidedly negative on growth stocks, with
smaller companies and high P/E companies bearing the brunt of the selling
pressure. With few exceptions, the Fund's holdings have not experienced any
change in the business fundamentals that made them attractive for purchase
initially.
The Technology sector made up roughly 30% of the Fund and contributed to a
return of -1.28% for the year. Business services remained the second largest
sector at 27% and returned -2.05%. Healthcare accounted for 16% and produced a
return of -2.78%, while the Consumer sector represented 13% and returned -5.21%.
The balance of the Fund included relatively minor exposure in Transportation
(+0.62%), Manufacturing (+0.39%), Financial (0.00%), and Energy (+0.31%)
sectors.
PORTFOLIO HIGHLIGHTS
Of the 92 stocks owned during the last 12 months, 26 advanced more than 10%,
while 43 declined more than 10%. The top five performers were up an average of
78.7%, while the bottom five, all of which were sold, declined an average of
63.0%.
The top five performers included three vastly different technology companies,
one water treatment company, and one oil well equipment company. In the case of
Dell Computer, success was driven by its low cost direct distribution model.
With Electronics For Imaging and McAfee Associates, technological leadership in
their respective fast-growing markets of high-speed color printing and antivirus
software led to financial results that were consistently ahead of expectations.
U.S. Filter continued to consolidate the water filtration industry by making
numerous strategic acquisitions that proved highly additive to the company's
earnings. Varco benefited from the increased utilization of deep water drilling
rigs and the resulting demand for replacement parts and services.
The bottom five performers all announced disappointing financial results caused
by a variety of factors. Shiva's remote access products were effectively made
obsolete by products from bigger and stronger competitors; Fore Systems suffered
from a slow down in demand for their networking products as customers hesitated
to buy in the face of a slew of new competitive products hitting the market;
Sunglass Hut opened too many stores thereby over-saturating the high-priced
sunglass market; Fritz Companies had difficulty digesting a large acquisition in
the transportation logistics market; and Idexx Laboratories flooded their
distributors with veterinary diagnostic instruments in quantities well in excess
of end-user demand, leading to a substantial sales slowdown.
- -----------------------------
TOP FIVE PERFORMERS*
Dell Computer
Electronics For Imaging
McAfee Associates
U.S. Filter
Varco Int'l
- ----------------------------
BOTTOM FIVE PERFORMERS*
Idexx Laboratories
Fritz Companies
Sunglass Hut International
Fore Systems
Shiva
*DURING THE YEAR ENDED MARCH 31, 1997
15
<PAGE>
PBHG LIMITED FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: A diversified portfolio of equity securities of companies that are
believed, by the Adviser, to have superior long-term growth prospects and
potential appreciation.
STRATEGY: The Fund invests in companies under $250 million in market
capitalization or annual revenues. The Fund is currently closed to additional
investment by new or existing shareholders in order to protect its investment
objective.
- --------------------------------------------------------------------------------
PBHG LIMITED FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Limited Fund -9.15%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LIMITED
FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL COMPANY FUNDS
AVERAGE
[LINE GRAPH]
PBHG Russell 2000 Lipper Small Company
Limited Fund Growth Index 3 Funds Average 4
6/30/96 10,000 10,000 10,000
7/96 9,950 8,779 9,135
8/96 10,320 9,429 9,698
9/96 11,011 9,914 10,198
10/96 10,570 9,487 9,992
11/96 10,561 9,751 10,282
12/96 11,082 9,941 10,429
1/97 11,273 10,189 10,691
2/97 10,049 9,574 10,244
3/97 9,085 8,898 9,707
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Limited Fund commenced
operations on July 1, 1996.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by prospectus
or portfolio practice, to companies on the basis of the size of the company.
The performance figures are based on changes in net asset value of the Funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
For the nine months ending March 31, 1997 the Fund's total return was -9.15%
versus the Wilshire Small Cap Growth Index of -7.94%. The Russell 2000 Growth
Index aggregate return was -11.02%, and the aggregate total return for the
Lipper Small Company Funds Average was -9.16%. The Technology, Service and
Consumer sectors each contributed to the decline.
PORTFOLIO HIGHLIGHTS
During the Funds first nine months, of the 100 stocks owned in the portfolio, 39
of these produced a positive return and 61 produced a negative return. The Fund
will typically hold between 70 and 110 stocks of small rapidly growing companies
where we believe superior earnings growth is sustainable. The Fund's five top
performing stocks were up an average of 126%, while the bottom five were down an
average of 64%. The position weighted average trailing twelve months earnings
per share growth of securities held in the Fund is above 50%. Currently the
weighted average market capitalization of the portfolio is below $200 million.
The sector weightings are determined through a process of bottom up stock
picking. At the end of the period, Technology was the largest sector
representing 36% of the portfolio with Service the next largest sector at 23% of
the portfolio.
- --------------------
TOP FIVE PERFORMERS*
Scopus Technology
Centennial Technology
Consolidated Graphics
Encad
Gadzooks
- -----------------------
BOTTOM FIVE PERFORMERS*
Inference
Act Networks
Unison
Desktop Data
Concentra
*DURING THE YEAR ENDED MARCH 31, 1997
16
<PAGE>
PBHG LARGE CAP 20 FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: A limited number of larger capitalization companies (no more than
20) that have above-average potential for capital appreciation.
STRATEGY: The Fund can invest in companies with market capitalizations in excess
of $1 billion but is currently focused on those in excess of $5 million. These
companies have a strong earnings growth outlook and potential for capital
appreciation in the opinion of the Adviser.
- --------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap 20 -7.40%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
20 FUND, VERSUS THE RUSSELL TOP 200 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Large Russell Top 200 Lipper Growth
Cap 20 Fund Growth Index 3 Funds Average 4
11/30/96 10,000 10,000 10,000
Dec-96 9,841 9,793 9,855
Jan-97 10,462 10,580 10,361
Feb-97 10,002 10,571 10,209
Mar-97 9,261 10,008 9,727
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Large Cap 20 Fund commenced
operations on December 1, 1996.
3 The Russell Top 200 Growth Index is an unmanaged index comprised of those
securities in the Russell Top 200 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Large Cap 20 Fund commenced operations on December 1, 1996, and in its four
month existence has generated an aggregate total return of -7.40%. While there
is no index that can exactly serve as a benchmark for the performance of a
concentrated portfolio of 20 stocks, we have determined that the Russell Top 200
Growth Index is the most appropriate comparison because of similarity in market
capitalization. This index has had an aggregate total return of -0.73% over the
same time period as the Fund's existence. We expect the short term volatility of
this concentrated Fund to be substantial, as it has been thus far, since a
significant move in just one or two stocks has a major influence on the overall
portfolio performance.
The Technology sector accounted for roughly 40% of the Fund during the period
and returned -2.96%. Healthcare was next at 17% with a return of -1.32%. Both
Consumer and Business Services sectors represented 15% of the Fund and returned
- -1.04% and -1.68% respectively. Financial Services was the only other sector
represented, accounting for 4% of the Fund and returning -0.23%.
PORTFOLIO HIGHLIGHTS
The Fund owned 25 different stocks in the last four months but never more than
20 at any one time. The top five performers were up by an average of 14% for the
four month period, while the bottom 5 declined by an average of 28%. The best
performer was Dell Computer where their low cost, direct distribution operating
model provided market share gains in the strong corporate PC market. Microsoft
benefited from a strong product upgrade cycle, e.g. Windows 95 for desktop PC's
and Windows NT for network servers. Intel demonstrated accelerating growth
driven by great demand for faster, more powerful microprocessors. Nike enjoyed
very strong demand from consumers for any and all athletic products bearing the
"swoosh" trademark. This position was subsequently sold however, as we
anticipate a deceleration in the company's growth rate going forward. Lastly,
HealthSouth continued to deliver better than expected financial results as it
moves ahead in its quest to become the only national provider of specialty
medical services.
The bottom five performers were all in the Technology sector. Three of the five,
Cascade, Ascend, and Cisco were sold when a broadbased weakness in the
networking equipment sector became apparent. No deterioration in business trends
were evident at information technology outsourcer Computer Sciences Corp. or at
computer-aided design software maker Parametric Technology, so these positions
were retained.
- --------------------
TOP FIVE PERFORMERS*
Dell Commuter
Microsoft
Intel
Nike
HealthSouth
- -----------------------
BOTTOM FIVE PERFORMERS*
Cascade Communications
Ascend Communications
Cisco Systems
Computer Sciences Corp.
Parametric Technology
*DURING THE YEAR ENDED MARCH 31, 1997
17
<PAGE>
PBHG LARGE CAP VALUE FUND
OBJECTIVE: Long-term growth of capital and income.
INVESTS IN: A diversified portfolio of equity securities of large capitalization
companies.
STRATEGY: The Fund invests in companies with market capitalizations in excess of
$1 billion which, in the Advisers' opinion, are undervalued or overlooked by the
market. In selecting investments for the Fund, the Advisers emphasize
fundamental investment value and consider factors such as the relationship of a
company's potential earning power to the current market price of its stock;
continuing dividend income and the potential for increased dividend growth; 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.
- --------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap Value 1.10%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
VALUE FUND, VERSUS THE RUSSELL 1000 VALUE INDEX, AND THE LIPPER GROWTH & INCOME
FUNDS AVERAGE
[LINE GRAPH]
PBHG Large Cap Lipper Growth & Income Russell 1000
Value Fund Funds Average 4 Value Index 3
12/31/96 10,000 10,000 10,000
Jan-97 10,240 10,485 10,431
Feb-97 10,430 10,639 10,487
Mar-97 10,110 10,256 10,114
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Large Cap Value Fund commenced
operations on January 2, 1997.
3 The Russell 1000 Value Index is an unmanaged index comprised of those
securities in the Russell 1000 Index with lower price-to-book ratios and
lower forecasted growth values. The Index reflects the reinvestment of
income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
4 The Lipper Growth and Income Funds Average is an equally weighted benchmark
composed mutual funds, each which combines growth of earnings with an income
requirement for level and/or rising dividends. The performance figures are
based on changes in net asset value of the Funds in the Index with all
capital gains distributions and income dividends reinvested.
PERFORMANCE
For its initial quarter ending March 31, 1997, The Fund's aggregate total return
was 1.10% versus 2.45% for the Russell 1000 Value Index, 2.54% for the S&P 500,
and 1.13% for the Lipper Growth and Income Funds Average.
The Fund began its existence on January 2, 1997 and the initial contributions
were received during the strongest month of the quarter as the S&P advanced 6.1%
in January. Investing these contributions in an exceptionally strong market
hindered the Fund's performance as it lagged the Russell 1000 Value Index and
the S&P 500 by 2.35% and 3.73% respectively during the month of January. As the
market advance slowed in February and declined in March, the Fund outperformed
both the Russell 1000 Value Index and the S&P 500 by an average of 70 and 124
basis points respectively in each month.
During the quarter, the stock characteristics which contributed to
performance were very large capitalization, moderate dividend yield, and high
relative price/earnings ratios. If the S&P 500 were separated into five
quintiles, only the quintile composed of the largest stocks outperformed the
S&P 500 Index, whereas all four of the remaining quintiles underperformed.
Similarly, if the S&P 500 were separated into five quintiles by relative
price/earnings ratios, the strongest performance came from the two quintiles
with the highest relative price/earnings ratios, an area off limits to most
svalue portfolios.
PORTFOLIO HIGHLIGHTS
The Fund's heaviest weightings were in the Financial, Energy and Capital Goods
sectors. In the first two months of the quarter, financial stocks outperformed
the market as bank earnings were strong and a number of banks announced programs
to buy back substantial amounts of stock. In March the financial stocks weakened
as fears of an overheating economy and higher interest rates raised concerns
over continued earnings gains. In spite of the weakness in March, the Fund's top
two performers, Nationwide Financial Services and Equitable of Iowa were
financial stocks.
As fears of higher inflation arose in March, the Fund's overweighting in energy
stocks contributed to outperformance in a weak market.
In addition to the two financial stocks, the Fund's top performers included
Dillard Department Stores and two health care stocks, Aetna and MedPartners,
Inc. In the case of the former, the outlook for pricing by health maintenance
organizations improved and MedPartners, a physician practice management company,
recovered from an overly depressed valuation.
On the negative side, the worst performing sectors were Utilities, Capital
Goods, and Basic Materials. The Fund's two poorest performers, Rohm and Haas
(chemicals) and James River (paper), both basic material producers, declined as
a result of lower earnings expectations. Avnet, a capital goods-technology
company, failed to meet earnings expectations and declined in a weak technology
environment. Rounding out the list of the five worst performers were Burlington
Northern Santa Fe Corp. (railroad) with temporarily disappointing earnings due
to adverse weather conditions and NYNEX Corp. (telephone utility) which was
negatively affected by higher interest rates.
Although interest rate concerns may cause some further near term concerns for
financial stocks, the fundamental earnings outlook remains positive for this
sector. Similarly, we believe that selected capital goods producers have
significant growth potential over the coming several years. With the overall
market outlook being somewhat murky, we believe that emphasis on individual
stock selection will be the key to performance in 1997.
- -----------------------------
TOP FIVE PERFORMERS*
Nationwide Financial Services
Equitable of Iowa
Dillard Department Stores
Aetna
MedPartners
- ----------------------------
BOTTOM FIVE PERFORMERS*
Rohm & Haas
James River
Avnet
Burlington Northern Santa Fe
NYNEX
*DURING THE YEAR ENDED MARCH 31, 1997
18
<PAGE>
PBHG INTERNATIONAL FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: Non-U.S. companies.
STRATEGY: The focus of the Fund was on three areas: Europe, the Far East and the
Emerging markets. It was underweighted throughout the year in Japan.
- --------------------------------------------------------------------------------
PBHG INTERNATIONAL FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Inception
1 Year to Date 2
- --------------------------------------------------------------------------------
PBHG International Fund 6.73% 4.49%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG
INTERNATIONAL FUND, VERSUS THE F.T. S&P WORLD INDEX, NON-U.S., IN U.S. DOLLARS
[LINE GRAPH]
PBHG F.T. S&P World Index, Non-U.S.,
International Fund in U.S. Dollars 4
6/30/94 10,000 10,000
3/95 9,203 10,007
3/96 10,634 11,274
3/97 11,350 11,466
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG International Fund commenced operations on June 14, 1994.
3 The F.T. S&P World Index, Non-U.S., in U.S. Dollars consists of 1,749 of the
largest international companies which have been selected based on
market capitalization, ability to be purchased by international investors
and the degree to which the companies reflect the weightings of industries
within their respective countries. The returns of the Index reflect the
reinvestment of income dividends and capital gains distributions.
PERFORMANCE
For the year ended March 31, 1997, the Fund produced a return of 6.7% versus
1.7% returned by its benchmark, the FT S&P World Index, Non- U.S., in U.S.
Dollars. On March 31, 1997 the top five country weightings were Japan, Germany,
UK, France and Switzerland.
PORTFOLIO HIGHLIGHTS
The year was marked by the strong performance of markets in Europe and Latin
America. The nascent recovery in the Japanese economy and stock market faded and
markets elsewhere in the Far East were tainted by problems in Korea and Thailand
and drifted for much of the year.
During the year we increased exposure to the European markets which were looking
attractive on several counts. Firstly, progress towards European Monetary Union
(EMU) led to fiscal discipline -- governments cut spending to reduce their
budget deficits and this allowed interest rates to fall, making equities more
attractive investments. In addition, companies in Europe began to restructure
and rationalize their operations and this enhanced their earnings outlook.
Finally, as economies emerged from recession we considered that earnings
forecasts were too conservative. Indeed, we have seen several earnings surprises
on the upside and this also lifted stock prices. The Fund was overweight in
Italy and Spain through 1996 when the benefits of lower interest rates came
through and in 1997 shifted focus to Germany and Switzerland, where there was
the widest scope for rationalization. Although, underweighted in the UK, market
returns were good reflecting the strong economy and rising currency versus the
U.S. dollar.
Investments in Japan and the Far East saw poor returns during the year. The
modest strengthening of the Japanese economy in early 1996 faded later in the
year. Stocks were sold as earnings expectations fell and the currency weakened
as cash flowed out of Yen assets. Attempts to resolve the problems of the
financial sector which seemed to be making progress early in the year faltered
when several high profile bankruptcies caused the Bank of Japan to pull back
from its firm position on poorly managed institutions. As a result, the market
ended the year down 26.1% in dollars. The Fund remained overweighted in the
market for the year and stock selection outperformed the index but any exposure
was still a negative. Elsewhere in South East Asia returns were mixed. Weak
economies and stock markets in Korea and Thailand and concerns over the handover
of Hong Kong to China caused many investors to reduce their exposure to the
area. In the case of Hong Kong they also took profits out of the market in early
1997 following its strong rise in 1996. We are firm believers that the region
will demonstrate steady growth and investment potential in the year ahead and
will continue with an overweighted exposure.
Investments in the Emerging Markets produced strong returns, reflecting the
recovery from recession following the crisis in Mexico in 1994. In most markets
growth has returned to sustainable levels, inflation is moderate and currencies
are stable. Recently, the prospect of new privatizations, particularly in
Eastern Europe, has rekindled the interest of investors.
During the year, four of the best performing stocks were in Europe and primarily
in sectors sensitive to economic growth: engineering, electronics and motors,
and one dairy producer. The remaining stock was a retailer in Argentina. The
underperforming stocks were split between Japan and Singapore. In Japan the
stocks were a bank and two industrials; the banks still failing to solve their
long-standing problems while the weak economy continued to disappoint industrial
stocks.
The sector allocations within the Fund have moved on in Europe from interest
rate sensitive to cyclical stocks, sensitive to economic recovery. Real estate
companies and financials continue to be the main targets in the Far East with
the exception of Japan where we have introduced more manufacturing stocks which
will benefit from the weaker Yen.
- -----------------------------
TOP FIVE PERFORMERS*
Disco - Argentina
Telecom Italia Mobile - Italy
BMW - Germany
Volkswagen - Germany
Parmalat - Italy
- -----------------------------
BOTTOM FIVE PERFORMERS*
Sanwa Bank - Japan
Nippon Sanso - Japan
Keppel - Singapore
Itochu - Japan
Singapore Land - Singapore
*DURING THE YEAR ENDED MARCH 31, 1997
19
<PAGE>
PBHG CASH RESERVES FUND
OBJECTIVE: Preserve principal value & maintain a high degree of liquidity while
providing current income.
INVESTS IN: Money market securities.
STRATEGY: The Fund's strategy is to be fully invested in a diversified portfolio
of short-term, high-quality money market securities.
PBHG CASH RESERVES FUND
PERFORMANCE
For the twelve months ended March 31, 1997, the PBHG Cash Reserves Fund
portfolio yielded 4.9% compared to 4.8% for the Lipper Money Market Average. The
key to this higher yield was managing the average maturity of the portfolio
during periods when the market anticipated interest rate moves, and taking
advantage of higher yielding sectors.
MARKET HIGHLIGHTS
The Federal Reserve held short term interest rates steady for nearly all of the
past twelve months. With short term rates at 5.25%, yield on longer maturity
instruments moved with the ebbs and flows of market psychology. Signs of
stronger economic growth, even without the shadow of inflation, prompted the Fed
to shift their bias toward raising rates later in the year.
With stronger economic trends throughout the rest of 1996, the credit cycle
remained healthy. Money market funds sailed smoothly through the year without
exposure to credit defaults, until early 1997, when Mercury Finance, a lender in
the higher risk "sub-prime" sector to less creditworthy consumers, faced a
liquidity crisis and was unable to repay its commercial paper investors. The
mutual fund sponsors, which distribute the exposed funds, digested the problem
securities as they have in the past, and no shareholders lost money. Private
investors handled their problems quietly. In all, the company had $500 million
in commercial paper outstanding.
One of the more interesting developments in the year involved the U.S. Treasury.
The Treasury developed plans to issue its first-ever indexed bond, a floating
rate security whose return is tied to changes in the rate of U.S. inflation. On
the surface, although floating rate securities are attractive for money market
mutual funds, we do not believe that these new securities are appropriate
stable-value investments for the PBHG Cash Reserves Fund and will not purchase
them in this Fund.
The Fed became increasingly outspoken by the beginning of 1997, and all but
pre-announced the March 25, 1997 rate increase. The 25 basis point increase at
the end of the Fund's fiscal year was well anticipated by the market.
PORTFOLIO HIGHLIGHTS
For most of the second quarter of 1996, we sought extra yield by maintaining a
longer average maturity in the Fund. However, unusually strong economic data in
the second quarter lead us to believe a Fed rate hike was near. Accordingly, we
shortened maturities in the Fund to 46 days by the end of June. At that time,
the Fund held 88% of its assets in commercial paper, while we looked to boost
yield from the Fund's 7% holding in floating rate notes.
In the second half of the year, while remaining heavily weighted in commercial
paper, we looked for opportunities to lengthen maturities when we felt the
market prices fully discounted the expected Fed actions. In order to maintain
high liquidity and quality, we eliminated illiquid securities in late 1996, and
as a policy will no longer purchase them for the Fund.
During the first quarter of 1997, we reduced our weighting in commercial paper
(down to 73%) in order to take advantage of yield premiums available in
repurchase agreements, which made up 15% of the portfolio at quarter-end. Also,
we shortened the Fund's weighted average maturity during the first quarter in
anticipation of the Fed's widely anticipated rate hike.
In summary, it was a year when short-term interest rates did not vary beyond a
narrow band; consequently, there were few opportunities for money market funds
to differentiate themselves. The PBHG Cash Reserves Fund enjoyed healthy cash
inflows throughout this time, increasing net assets more than threefold. These
asset flows and a favorable investment environment allowed the Fund to
outperform its competitors while closely tracking the minor fluctuations in
short term rates.
20
<PAGE>
PBHG TECHNOLOGY & COMMUNICATIONS FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Companies which rely extensively on the technology or communications
in their product development and operations.
STRATEGY: The Fund's strategy is to be invested in technology and related
companies exhibiting extraordinary rates of growth in earnings and revenue with
high profitability levels. The portfolio's 72 holdings as of year end March 31,
range in market cap from $40 million to $11.9 billion, with the current average
and median market capitalization of $1.55 billion and $587 million.
- --------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Technology & Communications Fund 19.59% 30.52%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG TECHNOLOGY
& COMMUNICATIONS FUND, VERSUS THE PACIFIC STOCK EXCHANGE HIGH TECHNOLOGY INDEX,
AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE
[LINE GRAPH]
Pacific Stock Lipper Science &
PBHG Technology & Exchange High Technology
Communications Fund Technology Index 3 Funds Average 4
9/30/95 10,000 10,000 10,000
12/95 11,602 9,919 9,431
3/96 12,483 9,899 9,473
6/96 14,973 10,245 10,164
9/96 16,644 10,945 10,782
12/96 17,917 11,955 11,334
3/97 14,927 11,955 10,359
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Technology & Communications Fund commenced operations on October 2,
1995.
3 The Pacific Stock Exchange High Technology Index is a price-weighted index of
the top 100 U.S. technology stocks. The Index reflects the reinvestment
of income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
4 The Lipper Science & Technology Funds Average is an equally weighted benchmark
composed of mutual funds, each of which normally invests more than 65% of
its equity portfolio in science and technology stocks. The performance figures
are based on changes in net asset value of the funds in the Index with all
capital gains distributions and income dividends reinvested.
PERFORMANCE
For the twelve months ending March 31, 1997, the Fund produced a 19.59% total
return versus 20.27% for its benchmark, the Pacific Stock Exchange High
Technology Index. The Fund outperformed the average return of a technology fund
of 7.03%, as measured by the Lipper Science and Technology Funds Average.
Information technology services was the best performing subsector over the past
year as the demand for professional consulting, outsourcing, systems integration
and programming services remains extremely robust as a result of corporations
needing outside help with major informations systems' decisions and
implementation. The remaining subsectors had disparate results across the year,
with networking and software industries performing well early in the fiscal
year, giving way to dramatic underperformance later as many companies
experienced weak earnings and revenue results (Premisys, Cascade Communications,
Fore Systems). Semiconductor and semiconductor equipment stocks underperformed
early on, but rallied off the July 1996 technology lows as the inventory
correction and semiconductor capital spending cycles appeared to trough toward
the 1996 calender year end. The Fund was underweighted in these stocks. The
Fund's strategy is to identify the best secular growth opportunities that are
exceeding informed earnings and revenue expectations, and the semiconductor
sector did not fit this criteria for most of the year. The average company in
the portfolio has grown earnings 59.4% over the past 12 months with a 21.5%
return on equity.
PORTFOLIO HIGHLIGHTS
The Fund's top five performers produced an average gain in excess of 100% and
all experienced dramatically better than expected earnings and subsequent
positively revised earnings and growth expectations. Viasoft, a provider of
software and service to automate COBOL application software systems, is a
beneficiary of the "Year 2000" problem. With the exception of Act Networks, the
bottom five performers reported disappointing earnings results and have been
sold out of the Fund.
Going forward, the long term secular demand for technology expenditures is
continuing at a strong pace. Despite recent turbulent declines in stock prices
and many market pundits predicting a dire outlook for the sector, current
capital spending surveys are actually predicting a better capital spending
environment for technology companies in 1997 versus 1996. Most recently, the
networking sector and other software infrastructure -related companies, such as
the database vendors, have been reporting disappointing results. The likely
culprit is a lengthening of the evaluation cycles associated with confusion over
new product cycles and the complexity of new information technology systems, as
opposed to a macroeconomic decline in demand.
A number of fundamental trends should continue to propel various technology
segments. The growing influence of the Internet, the increasing number of
individuals and organizations desirous of connections to various wide area
networks, and the shortage of bandwidth for communications will continue to
drive the demand for networking products. We believe the accelerated demand for
outsourced solutions in information technology will continue to shift resources
into the integrated consulting and service provider companies. Applications
software appears to remain the stimulus for improved business productivity.
While price corrections in technology seem inevitable, we feel the probability
of strong post-corrections recovery remains very high in the technology sector.
- --------------------
TOP FIVE PERFORMERS*
Viasoft
Consolidated Graphics
ADC Telecommunications
Ciber
Electronics For Imaging
- ------------------------
BOTTOM FIVE PERFORMERS*
ACT Networks
TCSI
ASTEA
California Amplifier
Premysis Communications
*DURING THE YEAR ENDED MARCH 31, 1997
21
<PAGE>
================================================================================
PBHG STRATEGIC SMALL COMPANY FUND
OBJECTIVE: Growth of capital.
INVESTS IN: Small companies having a market capitalization or annual revenues of
up to $750 million.
STRATEGY: The Fund invests in securities poised for rapid and dynamic growth
("growth companies") or securities that are undervalued or overlooked by the
market ("value securities") depending on the Advisers' view of current economic
or market conditions and their long-term investment outlook.
- --------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Strategic Small
Company Fund -11.40%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG STRATEGIC
SMALL COMPANY FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL
COMPANY FUNDS AVERAGE
[LINE GRAPH]
PBHG Stategic Russell 2000 Lipper Small
Small Company Growth Company Funds
Fund Index 3 Average 4
12/31/96 10,000 10,000 10,000
Jan-97 10,120 10,250 10,251
Feb-97 9,350 9,631 9,823
Mar-97 8,860 8,951 9,308
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not be annualized. The PBHG Strategic Small Company Fund
commenced operations on January 2, 1997.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by prospectus
or portfolio practice, to companies on the basis of the size of the company.
The performance figures are based on changes in net asset value of the Funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE-GROWTH
Because the Strategic Small Company Fund made its debut in January, 1997, the
Fund has only booked one calendar quarter of financial results. Since inception,
the Fund's aggregate total return was -11.4% at March 31, 1997, versus the
Russell 2000 Index aggregate total return of -5.2% and the Lipper Small Company
Fund Index of -9.5%. The total return for the growth portion of the portfolio
was -21.8%, as early positive results in January were more than erased by a
severe valuation correction in the small growth portion of the Fund in February
and March. The Fund is structured to allow its assets to be proactively
allocated between the growth style employed by Pilgrim Baxter and the value
style utilized by its affiliate, Newbold's Asset Management, Inc. Throughout the
first period of operations, this allocation was established to be a neutral
50/50 based on the flow of funds into the portfolio. During the period, value
performed better than growth, and the balance of these two styles within the
Fund provided some moderating impact during a generally difficult stock market
environment.
PERFORMANCE-VALUE
For the quarter ended March 31, 1997 the Fund's aggregate total return for the
value portion of the portfolio was -0.33% versus the Russell 2000 Index
aggregate total return of -5.17%. Since the Fund's initial launch date was
January 2, 1997, investment returns for the March quarter and fiscal year ending
March 31, 1997 are identical.
While the S&P 500 eked out a modest positive return of 2.68% for the first
calendar quarter, small cap stocks fared poorly. Most of the damage to small
cap investors was inflicted throughout the month of March, as the markets
correctly began anticipating the Fed tightening that didn't actually
occur until the last week of the month. The early stages of a negative change
in monetary policy are always difficult for investors. However, we should note
that market volatility has created a number of unusually interesting
investment opportunities for us and we are eagerly laying the groundwork
for what we anticipate to be more favorable results when the stock market
eventually recovers.
PORTFOLIO HIGHLIGHTS-GROWTH
Looking first at the growth portion of the Fund, the technology sector
represented the most important single exposure. Technology represented 40% of
the assets invested in the growth style, but only 25% of the total portfolio.
Well represented in the category are rapidly growing young software,
telecommunications and semiconductor companies. Another significant growth
sector exposure is Business Services, with many excellent young companies
enjoying success in such diverse activities as business process re-engineering,
temporary staffing, telephone call center management and prison management. Two
major themes of the 1990's are the pervasive spread of technology driven
solutions throughout the economy, and the renewed focus of major enterprises on
their core competencies through the outsourcing of non-core functions. The
growth portfolio is well positioned to take advantage of these opportunities.
While still a very young Fund, early growth company winners include Learning
Tree International (training programs in information technology), United Waste
Systems (waste management), and Eagle USA (freight forwarding.) The most
significant declines and loss realizations occur when a company fails to achieve
its anticipated earnings. During the quarter, Verlink, Clintrials and Medic
Computer were examples of companies eliminated because of earnings
disappointments. We remain convinced that the earnings prospects for our growth
companies are robust, and that investors will be well rewarded for their
ownership.
PORTFOLIO HIGHLIGHTS-VALUE
The small cap value investment process is driven chiefly by bottom-up
considerations, although we do take into account broad macro-economic trends
that influence the outlook for certain industries. Although our value approach
emphasizes stocks with below average valuations, our methodology also includes
additional quality and growth factors such as the expected future growth in
earnings and dividends, the recent pattern of earnings estimate revisions and
subjective judgements regarding the quality of a company's business franchise.
As a result, our portion of the Fund should look similar to the Russell 2000
benchmark in the quality and growth characteristics of its holdings, but the
overall valuation of the Fund should be lower.
For the past quarter, our good relative results were largely produced by
positive stock selection across a broad range of industries. Notable holdings
included Greenwhich Air Services, Southdown, Onbancorp, Amerus Life, Silgan
Holdings, Brylane and Knightsbridge Tankers. At this time, we are most
enthusiastic about the near-term and long-term prospects for the aviation supply
and services industry, where the cyclical upturn bodes well for sales and
earnings over the next 1-3 years. We look forward to reporting further on our
potential investment success in this area as results unfold.
- -------------------------
TOP FIVE PERFORMERS*
Amerus Life Holdings
Onbancorp
Greenwich Air Services
Silgan Holdings
Living Centers of America
- -----------------------
BOTTOM FIVE PERFORMERS*
Miller Industries
Renaissance Solutions
Veritas
Vanstar
Verilink
*DURING THE YEAR ENDED MARCH 31, 1997
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND DIRECTORS OF
THE PBHG FUNDS, INC.:
We have audited the accompanying statements of net assets of The PBHG
Funds, Inc. (the "Fund") (comprising, respectively, 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 Limited Fund, PBHG
Large Cap 20 Fund, PBHG Large Cap Value Fund, PBHG Strategic Small Company Fund,
PBHG International Fund, and PBHG Cash Reserves Fund) as of March 31, 1997, and
the related statements of operations, statements of changes in net assets and
financial highlights for the year (or period) then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statements of
changes in net assets for the year (or period) ended March 31, 1996 and the
financial highlights of The PBHG Funds, Inc. for each of the four years (or
periods) ended March 31, 1996 were audited by other auditors, whose reports
dated April 26, 1996 and April 25, 1994 expressed unqualified opinions thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatment. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1997, by correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds constituting The PBHG Funds, Inc. as of March
31, 1997 and the results of their operations, changes in their net assets, and
financial highlights for the year (or period) then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 23, 1997
23
<PAGE>
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Growth Fund
Consumer - 13%
TECHNOLOGY - 32%
HEALTHCARE - 15%
SERVICES - 23%
FINANCIAL - 4%
ENERGY - 5%
CASH - 8%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 92.1%
APPAREL -- 2.6%
Nautica Enterprises* 2,089,400 $ 52,496
Tommy Hilfiger* 1,333,100 69,654
- --------------------------------------------------------------------------------
122,150
- --------------------------------------------------------------------------------
APPLICATIONS SOFTWARE/SERVICES -- 0.2%
Citrix Systems* 779,800 10,332
- --------------------------------------------------------------------------------
10,332
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 0.8%
Pure Atria* 2,173,400 37,084
- --------------------------------------------------------------------------------
37,084
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.3%
Biogen* 1,509,500 56,418
Idexx Laboratories* 130,000 1,820
- --------------------------------------------------------------------------------
58,238
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.6%
Clarify* 1,057,500 25,512
Remedy* 1,231,500 47,105
- --------------------------------------------------------------------------------
72,617
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 3.4%
Baan, ADR* 809,700 36,133
Legato Systems* 880,400 14,747
Peoplesoft* 2,647,600 105,904
- --------------------------------------------------------------------------------
156,784
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.0%
Sterling Commerce* 1,645,800 47,728
- --------------------------------------------------------------------------------
47,728
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.3%
Aames Financial 1,209,050 24,483
ContiFinancial* 1,784,100 55,307
Money Store (The) 1,453,400 30,521
- --------------------------------------------------------------------------------
110,311
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CONTRACT MANUFACTURING -- 1.7%
Kent Electronics* 721,000 $ 16,583
Sanmina* 1,344,200 60,153
- --------------------------------------------------------------------------------
76,736
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.0%
Quintiles Transnational* 859,900 46,327
- --------------------------------------------------------------------------------
46,327
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 1.9%
Corrections Corp. of America* 3,671,800 89,041
- --------------------------------------------------------------------------------
89,041
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 0.3%
P-COM* 552,600 14,368
- --------------------------------------------------------------------------------
14,368
- --------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.9%
Cognos* 1,671,000 43,446
- --------------------------------------------------------------------------------
43,446
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 5.1%
Cadence Design Systems* 2,322,000 79,819
Cognex* 996,000 18,924
Parametric Technology* 2,151,900 97,105
Waters* 1,615,000 43,201
- --------------------------------------------------------------------------------
239,049
- --------------------------------------------------------------------------------
DRUGS -- 1.2%
Dura Pharmaceuticals* 1,521,500 54,394
- --------------------------------------------------------------------------------
54,394
- --------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 1.9%
Apollo Group, Cl A* 2,228,000 54,586
Devry* 1,457,800 32,072
- --------------------------------------------------------------------------------
86,658
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.2%
Accustaff* 3,308,565 55,418
- --------------------------------------------------------------------------------
55,418
- --------------------------------------------------------------------------------
ENERGY-EXPLORATION & PRODUCTION -- 3.0%
Chesapeake Energy* 4,896,100 102,206
Global Marine* 1,699,500 36,539
- --------------------------------------------------------------------------------
138,745
- --------------------------------------------------------------------------------
ENERGY-SERVICE/EQUIPMENT -- 1.5%
Tidewater 745,000 34,270
Varco International* 1,395,000 34,875
- --------------------------------------------------------------------------------
69,145
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.7%
Ionics* 1,199,100 55,608
United Waste Systems* 1,410,400 52,537
US Filter* 2,584,300 79,790
USA Waste Services* 799,980 28,399
- --------------------------------------------------------------------------------
216,334
- --------------------------------------------------------------------------------
24
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
GRAPHIC/IMAGE PROCESSING -- 1.9%
Electronics for Imaging* 2,252,800 $ 89,830
- --------------------------------------------------------------------------------
89,830
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 0.4%
HCIA* 1,161,500 19,455
- --------------------------------------------------------------------------------
19,455
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 2.3%
CBT Group* 1,201,500 59,925
Gartner Group, Cl A* 2,183,500 47,218
- --------------------------------------------------------------------------------
107,143
- --------------------------------------------------------------------------------
INFORMATION/FINANCIAL SERVICES -- 1.0%
Transaction Systems Architects* 1,759,600 48,389
- --------------------------------------------------------------------------------
48,389
- --------------------------------------------------------------------------------
INSURANCE -- 2.0%
HCC Insurance Holdings 1,993,900 48,851
Vesta Insurance Group 1,240,350 44,187
- --------------------------------------------------------------------------------
93,038
- --------------------------------------------------------------------------------
LODGING -- 1.9%
Doubletree* 1,279,100 45,408
Prime Hospitality* 2,675,800 41,809
- --------------------------------------------------------------------------------
87,217
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 0.7%
Compdent* 447,400 12,527
Orthodontic Centers of America* 1,551,700 20,948
- --------------------------------------------------------------------------------
33,475
- --------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 1.0%
Catalina Marketing* 1,147,000 46,597
- --------------------------------------------------------------------------------
46,597
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.5%
Thermo Cardiosystems* 1,259,950 24,254
- --------------------------------------------------------------------------------
24,254
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 1.4%
Coherent* 701,100 33,521
Lunar* 904,000 30,962
- --------------------------------------------------------------------------------
64,483
- --------------------------------------------------------------------------------
NETWORKING -- 1.8%
Ascend Communications* 1,240,800 50,563
FORE Systems* 2,233,600 33,504
- --------------------------------------------------------------------------------
84,067
- --------------------------------------------------------------------------------
NETWORKING SECURITY -- 0.7%
Security Dynamics Technologies* 1,295,900 31,750
- --------------------------------------------------------------------------------
31,750
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
NON-DURABLES -- 1.5%
Blyth Industries* 896,300 $ 32,379
Rexall Sundown* 1,366,200 35,009
- --------------------------------------------------------------------------------
67,388
- --------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 1.6%
Oxford Health Plans* 1,247,800 73,152
- --------------------------------------------------------------------------------
73,152
- --------------------------------------------------------------------------------
PATIENT CARE-HOSPITAL -- 1.2%
Health Management Associates, Cl A* 2,331,200 55,366
- --------------------------------------------------------------------------------
55,366
- --------------------------------------------------------------------------------
PATIENT CARE-LONG TERM -- 1.5%
Genesis Health Ventures* 833,600 26,050
Multicare* 2,365,400 44,647
- --------------------------------------------------------------------------------
70,697
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 0.8%
Total Renal Care Holdings* 1,260,000 38,273
- --------------------------------------------------------------------------------
38,273
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.4%
Express Scripts* 1,028,800 36,780
Omnicare 1,295,500 30,444
- --------------------------------------------------------------------------------
67,224
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.9%
Pediatrix Medical Group* 650,700 21,392
PhyCor* 2,522,112 68,728
- --------------------------------------------------------------------------------
90,120
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.9%
Clear Channel Communications* 3,187,800 136,677
- --------------------------------------------------------------------------------
136,677
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.4%
Boston Chicken* 1,280,100 39,043
Papa John's International* 1,071,975 28,273
- --------------------------------------------------------------------------------
67,316
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 2.2%
CDW Computer Centers* 999,200 45,026
Global DirectMail* 997,200 17,326
MSC Industrial Direct* 1,302,400 37,932
- --------------------------------------------------------------------------------
100,284
- --------------------------------------------------------------------------------
RETAIL-GENERAL -- 1.7%
Dollar Tree Stores* 819,100 30,307
Proffitt's* 1,283,800 48,463
- --------------------------------------------------------------------------------
78,770
- --------------------------------------------------------------------------------
RETAIL-HOME FURNISHINGS -- 1.3%
Bed Bath & Beyond* 2,543,500 61,521
- --------------------------------------------------------------------------------
61,521
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 0.8%
US Office Products* 1,440,500 35,652
- --------------------------------------------------------------------------------
35,652
- --------------------------------------------------------------------------------
25
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 1.3%
General Nutrition* 2,872,900 $ 58,176
- --------------------------------------------------------------------------------
58,176
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.6%
Altera* 2,644,000 113,692
DSP Communications* 2,110,200 20,311
Linear Technology 749,600 33,170
Microchip Technology* 3,151,650 94,550
- --------------------------------------------------------------------------------
261,723
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 2.6%
McAfee Associates* 1,808,787 80,039
Saville Systems ADR* 1,411,200 40,572
- --------------------------------------------------------------------------------
120,611
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.1%
Cambridge Technology Partners* 2,301,900 53,231
- --------------------------------------------------------------------------------
53,231
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 1.9%
ADC Telecommunications* 2,364,000 63,533
Adtran* 900,700 22,518
- --------------------------------------------------------------------------------
86,051
- --------------------------------------------------------------------------------
TELEMARKETING -- 2.1%
Apac Teleservices* 1,741,300 45,274
Sitel* 2,590,100 34,643
TeleTech Holdings* 833,000 16,452
- --------------------------------------------------------------------------------
96,369
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.6%
Concord EFS* 1,984,225 37,204
National Data 1,733,300 61,316
PMT Services* 1,955,600 21,512
- --------------------------------------------------------------------------------
120,032
- --------------------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 1.5%
Aspect Telecommunications* 745,100 14,529
Comverse Technology* 1,352,500 53,424
- --------------------------------------------------------------------------------
67,953
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $4,192,078) 4,281,189
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.3%
Greenwich
6.61%, dated 03/31/97, matures 04/01/97,
repurchase price $276,489,951
(collateralized by FNMA obligations,
total par value $314,320,011,
6.00%-9.50%, 06/01/02 - 04/01/26:
total market value $281,969,031) (A) $276,439 276,439
J.P. Morgan
6.61%, dated 03/31/97, matures
04/01/97, repurchase price
$61,017,574 (collateralized
by GNMA obligations, total par
value $72,690,888,
6.00%-7.50%, 07/15/22 - 02/20/27:
total market value $62,250,877) (A) 61,006 61,006
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $337,445) $ 337,445
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.4%
(COST $4,529,523) $4,618,634
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.6%
Other Assets and Liabilities, Net 28,495
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized 400 million
shares -- $0.001 par value) based on 220,051,159
outstanding shares of common stock 4,854,615
Fund Shares of Trust Class (authorized
200 million shares --$0.001 par value)
based on 617,612 outstanding shares of
common stock 15,843
Accumulated net realized loss on investments (312,440)
Net unrealized appreciation on investments 89,111
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $4,647,129
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE -- PBHG CLASS $21.06
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE -- TRUST CLASS $21.03
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Emerging Growth Fund
CONSUMER - 12%
TECHNOLOGY - 40%
HEALTHCARE - 15%
SERVICES - 14%
FINANCIAL - 1%
ENERGY - 1%
INDUSTRIAL - 2%
TRANSPORTATION - 3%
CASH - 12%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 88.3%
APPAREL -- 3.5%
North Face* 404,000 $ 6,717
St. John Knits 459,700 19,882
Wolverine World Wide 408,000 14,892
- --------------------------------------------------------------------------------
41,491
- --------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 1.0%
Eltron International* 224,700 4,410
Trident International* 360,300 7,116
- --------------------------------------------------------------------------------
11,526
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 1.2%
Pure Atria* 807,194 13,773
Rational Software* 34,942 721
- --------------------------------------------------------------------------------
14,494
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.7%
Meridian Diagnostics 292,300 3,215
Serologicals* 380,250 5,704
- --------------------------------------------------------------------------------
8,919
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.6%
Clarify* 558,900 13,483
Pegasystems* 296,600 5,969
Scopus Technology* 503,150 15,094
Vantive* 443,300 9,088
- --------------------------------------------------------------------------------
43,634
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 4.1%
Advent Software* 250,900 5,520
Datastream Systems* 335,500 5,368
Documentum* 353,600 6,542
Forte Software* 508,300 11,691
HNC Software* 162,800 4,253
Legato Systems* 727,600 12,187
Unison Software* 467,450 2,980
- --------------------------------------------------------------------------------
48,541
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
COMMERCIAL SERVICES -- 1.3%
Consolidated Graphics* 489,500 $ 14,012
Ultrak* 71,600 1,289
- --------------------------------------------------------------------------------
15,301
- --------------------------------------------------------------------------------
COMMUNICATION SERVICE -- 0.4%
Premiere Technologies* 244,200 4,731
- --------------------------------------------------------------------------------
4,731
- --------------------------------------------------------------------------------
COMPONENTS -- 2.7%
II-VI* 510,600 12,637
Proxim* 324,300 5,432
Smart Modular* 540,600 12,839
WPI Group* 301,100 1,882
- --------------------------------------------------------------------------------
32,790
- --------------------------------------------------------------------------------
CONTRACT DRILLING -- 0.5%
Atwood Oceanic* 101,600 6,312
- --------------------------------------------------------------------------------
6,312
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.9%
Parexel International* 621,600 14,297
Quintiles Transnational* 157,800 8,501
- --------------------------------------------------------------------------------
22,798
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 2.3%
P-COM* 387,600 10,078
VideoServer* 762,000 18,002
- --------------------------------------------------------------------------------
28,080
- --------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.2%
Red Brick Systems* 130,000 1,820
- --------------------------------------------------------------------------------
1,820
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 1.0%
LeCroy* 323,200 8,403
Mechanical Dynamics* 36,600 265
Perceptron* 110,000 2,887
- --------------------------------------------------------------------------------
11,555
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 0.2%
Microtouch Systems* 134,600 2,658
- --------------------------------------------------------------------------------
2,658
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 1.4%
Radisys* 74,000 2,165
Veritas Software* 498,000 14,753
- --------------------------------------------------------------------------------
16,918
- --------------------------------------------------------------------------------
DRUGS -- 1.3%
Jones Medical 89,300 2,143
Medicis Pharmaceutical, Cl A* 444,300 13,218
- --------------------------------------------------------------------------------
15,361
- --------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 1.4%
Apollo Group, Cl A* 660,850 16,191
- --------------------------------------------------------------------------------
16,191
- --------------------------------------------------------------------------------
27
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
OMMON STOCKS -- CONTINUED
EMBEDDED SOFTWARE -- 1.6%
Wind River Systems* 817,350 $19,310
- --------------------------------------------------------------------------------
19,310
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.3%
On Assignment* 165,000 4,166
Romac International* 796,100 14,081
Vincam Group* 328,100 8,982
- --------------------------------------------------------------------------------
27,229
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 0.5%
Regal Cinemas* 226,700 6,121
- --------------------------------------------------------------------------------
6,121
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.3%
Superior Services* 554,400 12,335
Tetra Tech* 215,625 3,154
- --------------------------------------------------------------------------------
15,489
- --------------------------------------------------------------------------------
FINANCE-OTHER -- 0.6%
Sirrom Capital 188,800 6,844
- --------------------------------------------------------------------------------
6,844
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 0.9%
Encad* 375,900 11,230
- --------------------------------------------------------------------------------
11,230
- --------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 1.5%
ABR Information Services* 972,800 17,510
- --------------------------------------------------------------------------------
17,510
- --------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 1.0%
Gulf South Medical Supply* 346,900 6,721
Physician Sales & Service* 418,600 5,285
- --------------------------------------------------------------------------------
12,006
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 0.5%
Impath* 259,200 4,666
Medquist* 69,800 1,536
- --------------------------------------------------------------------------------
6,202
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 2.8%
Computer Management Sciences* 280,600 4,139
Meta Group* 480,200 9,244
Whittman-Hart* 951,600 20,222
- --------------------------------------------------------------------------------
33,605
- --------------------------------------------------------------------------------
LOGISTICS -- 2.6%
Eagle USA Airfreight* 991,500 30,489
- --------------------------------------------------------------------------------
30,489
- --------------------------------------------------------------------------------
MACHINERY/EQUIPMENT -- 0.8%
Greenwich Air Services, Cl A 127,100 3,622
Greenwich Air Services, Cl B* 204,000 5,916
- --------------------------------------------------------------------------------
9,538
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 1.4%
First Commonwealth* 233,500 3,444
Orthodontic Centers of America* 968,800 13,079
- --------------------------------------------------------------------------------
16,523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MANUFACTURING SOFTWARE -- 1.9%
Manugistics* 235,300 $ 8,588
Project Software & Development* 422,950 13,534
- --------------------------------------------------------------------------------
22,122
- --------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 0.8%
Abacus Direct* 463,400 9,847
- --------------------------------------------------------------------------------
9,847
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.1%
Sabratek* 74,700 1,494
- --------------------------------------------------------------------------------
1,494
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.7%
Minimed* 341,300 8,788
- --------------------------------------------------------------------------------
8,788
- --------------------------------------------------------------------------------
NETWORKING -- 0.2%
Act Networks* 214,200 2,517
- --------------------------------------------------------------------------------
2,517
- --------------------------------------------------------------------------------
NETWORKING SECURITY -- 1.5%
Security Dynamics Technologies* 722,300 17,696
- -------------------------------------------------------------------------------
17,696
- --------------------------------------------------------------------------------
NON-DURABLES -- 0.4%
NBTY* 313,900 4,748
- --------------------------------------------------------------------------------
4,748
- --------------------------------------------------------------------------------
PATIENT CARE-HOME -- 1.8%
Pediatric Services of America* 367,200 6,931
Rural/Metro* 486,900 14,850
- --------------------------------------------------------------------------------
21,781
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 2.5%
National Surgery Centers* 508,100 14,735
Renal Treatment Centers* 672,600 15,134
- --------------------------------------------------------------------------------
29,869
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.2%
NCS HealthCare* 657,400 14,874
- --------------------------------------------------------------------------------
14,874
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.0%
OccuSystems* 511,800 11,516
- --------------------------------------------------------------------------------
11,516
- --------------------------------------------------------------------------------
RESTAURANTS -- 3.1%
CKE Restaurants 197,700 4,374
Logan's Roadhouse* 469,550 9,861
Papa John's International* 773,100 20,391
Rare Hospitality International* 182,600 2,374
- --------------------------------------------------------------------------------
37,000
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.2%
Insight Enterprises* 56,100 1,388
Wilmar Industries* 845,100 13,099
- --------------------------------------------------------------------------------
14,487
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 2.0%
Daisytek International* 162,500 5,078
US Office Products* 757,000 18,736
- --------------------------------------------------------------------------------
23,814
- --------------------------------------------------------------------------------
28
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 2.1%
Gadzooks* 22,200 $ 699
Just For Feet* 473,762 8,172
West Marine* 492,800 16,262
- --------------------------------------------------------------------------------
25,133
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 1.2%
IKOS Systems* 605,400 10,367
PRI Automation* 80,600 3,849
- --------------------------------------------------------------------------------
14,216
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 1.1%
DSP Communications* 364,500 3,508
Sipex* 347,000 10,150
- --------------------------------------------------------------------------------
13,658
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 0.9%
Trico Marine Services* 233,900 11,110
- --------------------------------------------------------------------------------
11,110
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 5.2%
Aspen Technology* 787,200 21,451
Desktop Data* 302,025 3,851
Inso* 564,200 21,193
Visio Software* 388,400 15,148
- --------------------------------------------------------------------------------
61,643
- --------------------------------------------------------------------------------
SPECIAL MATERIALS -- 1.1%
Zoltek* 497,800 12,632
- --------------------------------------------------------------------------------
12,632
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 2.2%
Ciber* 377,800 9,539
Pomeroy Computer Resources* 206,900 4,086
Technology Solutions* 464,100 12,821
- --------------------------------------------------------------------------------
26,446
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 3.4%
Remec* 167,000 3,590
Sawtek* 859,000 24,696
Uniphase* 329,000 12,173
Verilink* 58,100 349
- --------------------------------------------------------------------------------
40,808
- --------------------------------------------------------------------------------
TELEMARKETING -- 3.4%
Sitel* 1,020,500 13,649
Sykes Enterprises* 707,100 23,069
Telespectrum Worldwide* 290,800 3,453
- --------------------------------------------------------------------------------
40,171
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
VOICE/CALL TRANSACTION PROCESSING -- 2.8%
Brooktrout Technology* 703,925 $ 10,471
Davox* 302,100 9,365
Natural Microsystems* 695,200 13,817
- --------------------------------------------------------------------------------
33,653
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $1,095,075) 1,055,239
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 11.2%
Greenwich
6.59%, dated 03/31/97,
matures 04/01/97, repurchase
price $90,306,162 (collateralized
by FNMA obligations, total par
value $99,241,760,
6.50%-9.00%, 11/01/02-06/01/26:
total market value $92,098,079) (A) $90,290 90,290
J.P. Morgan
6.59%, dated 03/31/97, matures
04/01/97, repurchase price
$43,853,669 (collateralized by GNMA
obligations, total par value $49,506,187,
6.00%-9.00%, 04/15/16-11/20/26:
total market value $45,440,503) (A) 43,846 43,846
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $134,136) 134,136
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.5%
(COST $1,229,211) 1,189,375
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.5%
Other Assets and Liabilities, Net 6,245
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized 400 million
shares -- $0.001 par value) based on 62,077,268
outstanding shares of common stock 1,286,560
Accumulated net realized loss on investments (51,104)
Net unrealized depreciation on investments (39,836)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $1,195,620
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $19.26
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG CORE GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Core Growth Fund
CONSUMER - 11%
TECHNOLOGY - 30%
INSDUSTRIAL - 5%
SERVICES - 29%
HEALTHCARE - 16%
FINANCIAL - 4%
ENERGY 1%
CASH - 4%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
APPAREL -- 1.1%
Tommy Hilfiger* 57,600 $ 3,010
- --------------------------------------------------------------------------------
3,010
- --------------------------------------------------------------------------------
AUTO-RELATED -- 3.4%
Harley-Davidson 167,300 5,667
Miller Industries* 330,400 3,965
- --------------------------------------------------------------------------------
9,632
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 3.4%
Pure Atria* 260,200 4,440
Rational Software* 258,600 5,334
- --------------------------------------------------------------------------------
9,774
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.4%
Remedy* 73,600 2,815
Scopus Technology* 226,500 6,795
- --------------------------------------------------------------------------------
9,610
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 6.1%
Datastream Systems* 185,200 2,963
Forte Software* 181,900 4,184
HNC Software* 143,900 3,759
Peoplesoft* 162,400 6,496
- --------------------------------------------------------------------------------
17,402
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 3.0%
Computer Sciences* 76,500 4,724
DST Systems* 129,100 3,679
- --------------------------------------------------------------------------------
8,403
- --------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 0.6%
LCI International* 100,000 1,675
- --------------------------------------------------------------------------------
1,675
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 3.8%
Associates First Capital 132,100 5,680
Money Store (The) 247,725 5,202
- --------------------------------------------------------------------------------
10,882
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CONTRACT RESEARCH -- 1.4%
Quintiles Transnational* 72,900 $ 3,927
- --------------------------------------------------------------------------------
3,927
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 1.9%
Corrections Corp. of America* 217,500 5,274
- --------------------------------------------------------------------------------
5,274
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 1.2%
VideoServer* 149,200 3,525
- --------------------------------------------------------------------------------
3,525
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 4.1%
Parametric Technology* 137,600 6,209
Synopsys* 219,541 5,489
- --------------------------------------------------------------------------------
11,698
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 2.2%
Dell Computer* 91,000 6,154
- --------------------------------------------------------------------------------
6,154
- --------------------------------------------------------------------------------
DRUGS -- 3.0%
Dura Pharmaceuticals* 153,800 5,498
Pfizer 35,600 2,995
- --------------------------------------------------------------------------------
8,493
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 1.9%
Regal Cinemas* 196,550 5,307
- --------------------------------------------------------------------------------
5,307
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 8.2%
Thermo Electron* 137,550 4,247
United Waste Systems* 164,500 6,128
US Filter* 218,000 6,731
USA Waste Services* 170,770 6,062
- --------------------------------------------------------------------------------
23,168
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 1.7%
Electronics for Imaging* 119,600 4,769
- --------------------------------------------------------------------------------
4,769
- --------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 2.2%
Gulf South Medical Supply* 175,500 3,400
Physician Sales & Service* 230,000 2,904
- --------------------------------------------------------------------------------
6,304
- --------------------------------------------------------------------------------
INFORMATION/FINANCIAL SERVICES -- 2.0%
Paychex 137,700 5,663
- --------------------------------------------------------------------------------
5,663
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 1.5%
HBO & Company 91,800 4,360
- --------------------------------------------------------------------------------
4,360
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.7%
Gartner Group, Cl A* 225,800 4,883
- --------------------------------------------------------------------------------
4,883
- --------------------------------------------------------------------------------
LODGING -- 2.6%
HFS* 99,000 5,829
Signature Resorts* 71,300 1,676
- --------------------------------------------------------------------------------
7,505
- --------------------------------------------------------------------------------
30
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
LOGISTICS -- 1.7%
Eagle USA Airfreight* 154,900 $ 4,763
- --------------------------------------------------------------------------------
4,763
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 1.5%
Compdent* 100,000 2,800
Orthodontic Centers of America* 106,800 1,442
- --------------------------------------------------------------------------------
4,242
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 1.4%
Thermo Cardiosystems* 200,000 3,850
- --------------------------------------------------------------------------------
3,850
- --------------------------------------------------------------------------------
NETWORKING -- 1.9%
Ascend Communications* 65,700 2,677
FORE Systems* 186,700 2,800
- --------------------------------------------------------------------------------
5,477
- --------------------------------------------------------------------------------
NON-DURABLES -- 2.0%
Blyth Industries* 157,800 5,701
- --------------------------------------------------------------------------------
5,701
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.9%
HEALTHSOUTH* 286,600 5,481
- --------------------------------------------------------------------------------
5,481
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.6%
Omnicare 199,000 4,677
- --------------------------------------------------------------------------------
4,677
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.8%
PhyCor* 186,100 5,071
- --------------------------------------------------------------------------------
5,071
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.2%
Clear Channel Communications* 144,300 6,187
- --------------------------------------------------------------------------------
6,187
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
Boston Chicken* 144,300 4,401
- --------------------------------------------------------------------------------
4,401
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.6%
CDW Computer Centers* 101,949 4,594
- --------------------------------------------------------------------------------
4,594
- --------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.8%
West Marine* 154,400 5,095
- --------------------------------------------------------------------------------
5,095
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 1.4%
Varco International* 155,600 3,890
- --------------------------------------------------------------------------------
3,890
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 4.2%
Aspen Technology* 235,000 6,404
McAfee Associates* 129,450 5,728
- --------------------------------------------------------------------------------
12,132
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 1.5%
Cambridge Technology Partners* 178,800 $ 4,135
- --------------------------------------------------------------------------------
4,135
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 2.2%
ADC Telecommunications* 230,800 6,203
- --------------------------------------------------------------------------------
6,203
- --------------------------------------------------------------------------------
TELEMARKETING -- 4.0%
Apac Teleservices* 140,000 3,640
Sitel* 222,400 2,975
TeleTech Holdings* 239,600 4,732
- --------------------------------------------------------------------------------
11,347
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 1.9%
First Data 157,400 5,332
- --------------------------------------------------------------------------------
5,332
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $313,724) 273,996
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.7%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $6,677,574 (collateralized
by FNMA obligations, total par value
$7,064,480, 7.50%,
12/01/22-12/01/23:
total market value $6,810,300) (A) $ 6,676 6,676
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $3,936,584 (collateralized
by GNMA obligations, par value
$4,100,000, 6.00%, 03/20/27:
market value $4,034,843) (A) 3,936 3,936
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $10,612) 10,612
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2%
(COST $324,336) 284,608
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.2%)
Other Assets and Liabilities, Net (613)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares-- $0.001 par value)
based on 27,454,089 outstanding shares of
common stock 373,211
Accumulated net realized loss on investments (49,488)
Net unrealized depreciation on investments (39,728)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $283,995
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $10.34
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
31
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG SELECT EQUITY FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Select Equity Fund
CONSUMER - 13%
TECHNOLOGY - 46%
SERVICES - 17%
HEALTHCARE - 21%
CASH - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.6%
APPAREL -- 7.6%
Jones Apparel Group* 173,300 $ 6,434
Tommy Hilfiger* 418,800 21,882
- --------------------------------------------------------------------------------
28,316
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 1.4%
Rational Software* 244,400 5,041
- --------------------------------------------------------------------------------
5,041
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.2%
Remedy* 313,900 12,007
- --------------------------------------------------------------------------------
12,007
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 6.8%
Forte Software* 227,600 5,235
Peoplesoft* 506,600 20,264
- --------------------------------------------------------------------------------
25,499
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 5.2%
Quintiles Transnational* 359,000 19,341
- --------------------------------------------------------------------------------
19,341
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 2.5%
Corrections Corp. of America* 387,200 9,390
- --------------------------------------------------------------------------------
9,390
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 6.0%
PairGain Technologies* 750,000 22,219
- --------------------------------------------------------------------------------
22,219
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 3.1%
Parametric Technology* 256,600 11,579
- --------------------------------------------------------------------------------
11,579
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 5.7%
Dell Computer* 311,700 21,079
- --------------------------------------------------------------------------------
21,079
- --------------------------------------------------------------------------------
DRUGS -- 4.5%
Dura Pharmaceuticals* 467,400 16,709
- --------------------------------------------------------------------------------
16,709
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
EMPLOYMENT SERVICES -- 3.6%
Accustaff* 800,000 $ 13,400
- --------------------------------------------------------------------------------
13,400
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 2.3%
US Filter* 282,900 8,734
- --------------------------------------------------------------------------------
8,734
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 5.0%
HBO & Company 394,400 18,734
- --------------------------------------------------------------------------------
18,734
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 3.2%
Gartner Group, Cl A* 556,700 12,039
- --------------------------------------------------------------------------------
12,039
- --------------------------------------------------------------------------------
LODGING -- 5.7%
HFS* 362,500 21,342
- --------------------------------------------------------------------------------
21,342
- --------------------------------------------------------------------------------
NETWORKING -- 3.1%
Ascend Communications* 155,800 6,349
FORE Systems* 345,700 5,185
- --------------------------------------------------------------------------------
11,534
- --------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 6.3%
Oxford Health Plans* 397,200 23,286
- --------------------------------------------------------------------------------
23,286
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 4.9%
Pediatrix Medical Group* 169,200 5,562
PhyCor* 459,300 12,516
- --------------------------------------------------------------------------------
18,078
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 4.9%
Clear Channel Communications* 426,400 18,282
- --------------------------------------------------------------------------------
18,282
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 2.1%
Intel 57,000 7,930
- --------------------------------------------------------------------------------
7,930
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 8.7%
McAfee Associates* 470,875 20,836
Visio Software* 294,900 11,501
- --------------------------------------------------------------------------------
32,337
- --------------------------------------------------------------------------------
TELEMARKETING -- 0.8%
TeleTech Holdings* 145,800 2,880
- --------------------------------------------------------------------------------
2,880
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $371,321) 359,756
- --------------------------------------------------------------------------------
32
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE AMOUNT MARKET
DESCRIPTION (000) VALUE (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.4%
Greenwich
6.59%, dated 03/31/97, matures
04/01/97, repurchase price
$9,983,084 (collateralized
by FNMA obligations, total
par value $12,219,568,
6.50%-7.00%, 04/01/09-05/01/24:
total market value $10,184,503) (A) $ 9,981 $ 9,981
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $2,746,451 (collateralized
by GNMA obligations, par value
$2,800,000, 6.00%, 02/20/27:
market value $2,804,722) (A) 2,746 2,746
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $12,727) 12,727
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $384,048) 372,483
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other Assets and Liabilities, Net 3
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 23,412,588 outstanding shares
of common stock 417,726
Accumulated net realized loss on investments (33,675)
Net unrealized depreciation on investments (11,565)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $372,486
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $15.91
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LARGE CAP GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap Growth Fund
CONSUMER - 17%
INDUSTRIAL - 3%
TECHNOLOGY - 31%
SERVICES - 18%
FINANCIAL - 7%
HEALTHCARE - 21%
CASH - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
APPAREL -- 3.8%
Jones Apparel Group* 52,300 $ 1,942
Tommy Hilfiger* 50,000 2,613
- --------------------------------------------------------------------------------
4,555
- --------------------------------------------------------------------------------
AUTO-RELATED -- 1.9%
Harley-Davidson 67,400 2,283
- --------------------------------------------------------------------------------
2,283
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 1.9%
Peoplesoft* 56,400 2,256
- --------------------------------------------------------------------------------
2,256
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
Computer Sciences* 37,400 2,309
DST Systems* 43,400 1,237
Sterling Commerce* 52,300 1,517
- --------------------------------------------------------------------------------
5,063
- --------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 1.0%
LCI International* 70,300 1,178
- --------------------------------------------------------------------------------
1,178
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 3.4%
Associates First Capital 77,500 3,333
Money Store (The) 35,100 737
- --------------------------------------------------------------------------------
4,070
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS-MISCELLANEOUS -- 1.7%
Gillette 27,600 2,004
- --------------------------------------------------------------------------------
2,004
- --------------------------------------------------------------------------------
CONSUMER SERVICES -- 3.4%
CUC International* 90,700 2,041
Service Corp. International 68,000 2,023
- --------------------------------------------------------------------------------
4,064
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.7%
Quintiles Transnational* 37,700 2,031
- --------------------------------------------------------------------------------
2,031
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CORRECTIONAL SERVICES -- 0.8%
Corrections Corp. of America* 37,600 $ 912
- --------------------------------------------------------------------------------
912
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 3.3%
Parametric Technology* 55,800 2,518
Synopsys* 55,800 1,395
- --------------------------------------------------------------------------------
3,913
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 2.6%
Dell Computer* 47,000 3,178
- --------------------------------------------------------------------------------
3,178
- --------------------------------------------------------------------------------
DRUGS -- 4.4%
Lilly (Eli) & Co. 20,800 1,711
Merck 21,300 1,795
Pfizer 21,300 1,792
- --------------------------------------------------------------------------------
5,298
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.5%
Accustaff* 84,800 1,420
Manpower 44,200 1,591
- --------------------------------------------------------------------------------
3,011
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.9%
Thermo Electron* 50,900 1,572
United Waste Systems* 43,400 1,617
USA Waste Services* 75,300 2,673
- --------------------------------------------------------------------------------
5,862
- --------------------------------------------------------------------------------
FINANCIAL-MISCELLANEOUS -- 1.9%
First USA 55,200 2,339
- --------------------------------------------------------------------------------
2,339
- --------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 1.8%
Johnson & Johnson 40,688 2,151
- --------------------------------------------------------------------------------
2,151
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 2.3%
HBO & Company 57,500 2,731
- --------------------------------------------------------------------------------
2,731
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.4%
Gartner Group, Cl A* 76,400 1,652
- --------------------------------------------------------------------------------
1,652
- --------------------------------------------------------------------------------
LODGING -- 1.9%
HFS* 38,800 2,284
- --------------------------------------------------------------------------------
2,284
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 2.8%
Boston Scientific* 39,600 2,445
Thermo Cardiosystems* 46,000 886
- --------------------------------------------------------------------------------
3,331
- --------------------------------------------------------------------------------
MORTGAGE RELATED -- 2.0%
MGIC Investment 34,600 2,448
- --------------------------------------------------------------------------------
2,448
- --------------------------------------------------------------------------------
34
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MULTI-INDUSTRY -- 1.3%
Danaher 38,900 $ 1,619
- --------------------------------------------------------------------------------
1,619
- --------------------------------------------------------------------------------
NETWORKING -- 1.5%
Ascend Communications* 20,600 839
FORE Systems* 61,800 927
- --------------------------------------------------------------------------------
1,766
- --------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 2.7%
Oxford Health Plans* 54,300 3,183
- --------------------------------------------------------------------------------
3,183
- --------------------------------------------------------------------------------
PATIENT CARE-HOSPITAL -- 1.9%
Health Management Associates, Cl A* 97,800 2,323
- --------------------------------------------------------------------------------
2,323
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.8%
HEALTHSOUTH* 115,000 2,199
- --------------------------------------------------------------------------------
2,199
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.6%
Omnicare 80,200 1,885
- --------------------------------------------------------------------------------
1,885
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 2.0%
PhyCor* 86,450 2,356
- --------------------------------------------------------------------------------
2,356
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.0%
Clear Channel Communications* 57,000 2,444
- --------------------------------------------------------------------------------
2,444
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
Boston Chicken* 58,600 1,787
- --------------------------------------------------------------------------------
1,787
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 0.8%
Viking Office Products* 48,100 932
- --------------------------------------------------------------------------------
932
- --------------------------------------------------------------------------------
RETAIL-GENERAL -- 1.8%
Dollar General 68,500 2,141
- --------------------------------------------------------------------------------
2,141
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 1.8%
Staples* 110,100 2,216
- --------------------------------------------------------------------------------
2,216
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 2.3%
Applied Materials* 60,300 2,796
- --------------------------------------------------------------------------------
2,796
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.9%
Altera* 62,900 2,705
Intel 19,000 2,643
Linear Technology 38,800 1,717
- --------------------------------------------------------------------------------
7,065
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SOFTWARE-GENERAL -- 2.0%
Microsoft* 26,600 $ 2,439
- --------------------------------------------------------------------------------
2,439
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.4%
Cambridge Technology Partners* 71,400 1,651
- --------------------------------------------------------------------------------
1,651
- --------------------------------------------------------------------------------
SYSTEM SOFTWARE -- 2.0%
BMC Software* 52,200 2,408
- --------------------------------------------------------------------------------
2,408
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 4.1%
ADC Telecommunications* 87,600 2,354
Tellabs* 71,400 2,579
- --------------------------------------------------------------------------------
4,933
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.5%
First Data 89,900 3,045
- --------------------------------------------------------------------------------
3,045
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $113,685) 115,802
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 4.4%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $2,175,824 (collateralized
by FNMA obligation, total par value
$2,350,000, 7.50%, 12/01/23:
total market value $2,222,526) (A) $ 2,175 2,175
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $3,115,274 (collateralized
by GNMA obligation, par value
$3,175,000, 6.00%, 02/20/27:
market value $3,180,354) (A) 3,115 3,115
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $5,290) 5,290
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.9%
(COST $118,975) 121,092
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.9%)
Other Assets and Liabilities, Net (1,121)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class
(authorized 200 million
shares -- $0.001 par value)
based on 8,412,537 outstanding
shares of common stock 123,595
Accumulated net realized loss on investments (5,741)
Net unrealized appreciation on investments 2,117
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $119,971
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $14.26
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG TECHNOLOGY & COMMUNICATIONS FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Technology & Communications Fund
TECHNOLOGY - 83%
SERVICES - 6%
HEALTHCARE - 3%
CASH - 8%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 91.5%
AUTOMATED SOFTWARE QUALITY -- 1.7%
Rational Software* 417,288 $ 8,607
- --------------------------------------------------------------------------------
8,607
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 0.7%
Scopus Technology* 113,650 3,409
- --------------------------------------------------------------------------------
3,409
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 1.2%
Documentum* 191,900 3,550
Unison Software* 343,500 2,190
- --------------------------------------------------------------------------------
5,740
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.8%
Consolidated Graphics* 367,200 10,511
Ultrak* 171,600 3,089
- --------------------------------------------------------------------------------
13,600
- --------------------------------------------------------------------------------
CONTRACT MANUFACTURING -- 1.3%
Sanmina* 144,000 6,444
- --------------------------------------------------------------------------------
6,444
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.2%
Parexel International* 23,000 529
Quintiles Transnational* 104,400 5,625
- --------------------------------------------------------------------------------
6,154
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 4.9%
P-COM* 328,800 8,549
PairGain Technologies* 128,700 3,813
Teledata Communication Limited* 667,100 12,008
- --------------------------------------------------------------------------------
24,370
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DATABASE SOFTWARE -- 2.1%
Cognos* 407,300 $ 10,590
- --------------------------------------------------------------------------------
10,590
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 14.0%
Cadence Design Systems* 541,500 18,614
LeCroy* 254,300 6,612
Mechanical Dynamics* 202,500 1,468
Parametric Technology* 493,300 22,260
Perceptron* 184,000 4,830
Stratasys* 206,400 3,664
Tecnomatix Technologies Limited* 540,800 11,222
- --------------------------------------------------------------------------------
68,670
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS-- 7.7%
Dell Computer* 118,900 8,041
EMC* 210,600 7,476
Network Appliance* 169,600 5,512
Read-Rite* 183,700 4,638
Seagate Technology* 117,700 5,282
Western Digital* 125,000 7,078
- --------------------------------------------------------------------------------
38,027
- --------------------------------------------------------------------------------
DRUGS -- 1.7%
Dura Pharmaceuticals* 234,000 8,365
- --------------------------------------------------------------------------------
8,365
- --------------------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.4%
Wind River Systems* 86,325 2,039
- --------------------------------------------------------------------------------
2,039
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.1%
Accustaff* 315,400 5,283
- --------------------------------------------------------------------------------
5,283
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 6.6%
Electronics for Imaging* 555,800 22,163
Encad* 276,800 8,269
Xionics Document Technologies* 164,200 2,073
- --------------------------------------------------------------------------------
32,505
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 0.5%
Gartner Group, Cl A* 118,600 2,565
- --------------------------------------------------------------------------------
2,565
- --------------------------------------------------------------------------------
NETWORKING -- 3.4%
Act Networks* 224,200 2,634
Ascend Communications* 187,900 7,657
FORE Systems* 415,500 6,232
- --------------------------------------------------------------------------------
16,523
- --------------------------------------------------------------------------------
36
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SEMI-CONDUCTOR EQUIPMENT -- 6.0%
ASM Lithography Holdings* 87,200 $ 6,540
CFM Technologies* 38,600 1,144
Fusion Systems* 170,400 4,047
Kulicke & Soffa Industries* 159,200 3,363
PRI Automation* 93,200 4,450
Quickturn Design Systems* 391,200 6,259
Speedfam International* 110,400 3,643
- --------------------------------------------------------------------------------
29,446
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 8.5%
Altera* 162,000 6,966
ESS Technology* 338,600 8,211
Lattice Semiconductor* 47,600 2,178
Linear Technology 130,400 5,770
Maxim Integrated Products* 79,800 3,860
Microchip Technology* 406,100 12,183
Vitesse Semiconductor* 99,300 2,743
- --------------------------------------------------------------------------------
41,911
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 5.7%
Aspen Technology* 212,800 5,799
Inso* 134,300 5,045
JDA Software Group* 159,400 3,248
McAfee Associates* 202,975 8,982
Saville Systems ADR* 158,000 4,542
- --------------------------------------------------------------------------------
27,616
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 5.3%
Cambridge Technology Partners* 579,200 13,394
Claremont Technology Group* 141,400 3,323
Renaissance Solutions* 167,400 4,227
Technology Solutions* 195,600 5,403
- --------------------------------------------------------------------------------
26,347
- --------------------------------------------------------------------------------
TECHNOLOGY-COMPONENTS -- 1.9%
Adaptec* 254,200 9,088
- --------------------------------------------------------------------------------
9,088
- --------------------------------------------------------------------------------
TECHNOLOGY-CONNECTORS -- 1.3%
Cable Design Technologies* 295,650 6,578
- --------------------------------------------------------------------------------
6,578
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 6.7%
Advanced Fibre Communication* 142,800 4,605
Applied Voice Technology* 21,000 260
Gilat Satellite Networks Limited* 117,500 3,554
Remec* 435,700 9,368
Sawtek* 87,500 2,516
Tellabs* 235,800 8,518
Uniphase* 119,900 4,436
- --------------------------------------------------------------------------------
33,257
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 1.2%
National Data 170,100 6,017
- --------------------------------------------------------------------------------
6,017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
VOICE/CALL TRANSACTION PROCESSING -- 3.6%
Aspect Telecommunications* 281,000 $ 5,480
Comverse Technology* 143,600 5,672
Nice Systems Limited* 328,600 6,736
- --------------------------------------------------------------------------------
17,888
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $503,221) 451,039
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.4%
Greenwich
6.59%, dated 03/31/97,
matures 04/01/97, repurchase
price $41,635,752 (collateralized
by FNMA obligations, total
par value $70,515,903,
5.51%-10.00%, 06/01/97-02/01/27:
total market value $42,460,794) (A) $41,628 41,628
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $41,628) 41,628
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.9%
(COST $544,849) 492,667
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilities, Net 489
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class
(authorized 200 million shares
-- $0.001 par value) based on
33,719,342 outstanding shares
of common stock 539,693
Accumulated net realized gain on investments 5,645
Net unrealized depreciation on investments (52,182)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $493,156
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $14.63
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
37
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LIMITED FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Limited Fund
CONSUMER - 13%
TECHNOLOGY - 40%
SERVICES - 13%
ENERGY - 2%
HEALTHCARE - 17%
CASH - 15%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 84.7%
APPAREL -- 4.8%
Kenneth Cole Productions* 113,200 $ 2,377
North Face* 87,800 1,460
Rocky Shoes* 62,500 836
Vans* 162,400 1,908
- --------------------------------------------------------------------------------
6,581
- --------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 1.6%
Eltron International* 67,700 1,329
Trident International* 45,700 903
- --------------------------------------------------------------------------------
2,232
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.6%
Meridian Diagnostics 111,600 1,228
Serologicals* 63,300 949
- --------------------------------------------------------------------------------
2,177
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.3%
Scopus Technology* 57,700 1,731
- --------------------------------------------------------------------------------
1,731
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 4.5%
Advent Software* 68,600 1,509
Documentum* 30,000 555
Interlink Computer Sciences* 142,800 1,517
Radiant Systems* 163,200 1,469
Unison Software* 175,500 1,119
- --------------------------------------------------------------------------------
6,169
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
Administaff* 23,000 382
Consolidated Graphics* 49,800 1,426
F.Y.I.* 55,000 1,134
Lason* 65,000 1,300
Quickresponse Services* 50,900 1,342
Ultrak* 8,300 149
- --------------------------------------------------------------------------------
5,733
- --------------------------------------------------------------------------------
COMPONENTS -- 5.1%
Ducommun* 31,500 768
II-VI* 77,000 1,906
Proxim* 59,500 997
Smart Modular Technologies* 65,100 1,546
WPI Group* 283,100 1,769
- --------------------------------------------------------------------------------
6,986
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DESIGN/MANUFACTURING AUTOMATION -- 3.8%
LeCroy* 70,400 $ 1,830
Mechanical Dynamics* 123,900 898
Perceptron* 83,200 2,184
Technology Modeling Associates* 30,000 300
- --------------------------------------------------------------------------------
5,212
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE
& PERIPHERALS -- 1.0%
Microtouch Systems* 67,000 1,323
- --------------------------------------------------------------------------------
1,323
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 0.2%
Radisys* 8,500 249
- --------------------------------------------------------------------------------
249
- --------------------------------------------------------------------------------
DRUGS -- 1.1%
Medicis Pharmaceutical, Cl A* 53,550 1,593
- --------------------------------------------------------------------------------
1,593
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.9%
On Assignment* 19,400 490
Romac International* 101,200 1,790
The Vincam Group* 65,300 1,788
- --------------------------------------------------------------------------------
4,068
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.7%
Superior Services* 103,400 2,301
- --------------------------------------------------------------------------------
2,301
- --------------------------------------------------------------------------------
EXPLORATION & PRODUCTION -- 1.8%
Patterson Energy* 88,500 2,445
- --------------------------------------------------------------------------------
2,445
- --------------------------------------------------------------------------------
FOOD & BEVERAGE -- 1.9%
Worthington Foods 133,599 2,605
- --------------------------------------------------------------------------------
2,605
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 2.0%
Encad* 64,800 1,936
Xionics Document Technologies* 60,100 759
- --------------------------------------------------------------------------------
2,695
- --------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 1.2%
Diagnostic Health Services* 212,000 1,669
- --------------------------------------------------------------------------------
1,669
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 3.2%
IMPATH* 152,500 2,745
Medquist* 76,400 1,681
- --------------------------------------------------------------------------------
4,426
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 5.9%
Computer Management Sciences* 180,550 2,663
Forrester Research* 103,200 1,883
META Group* 66,200 1,274
Whittman-Hart* 110,800 2,354
- --------------------------------------------------------------------------------
8,174
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 0.8%
First Commonwealth* 74,400 1,097
- --------------------------------------------------------------------------------
1,097
- --------------------------------------------------------------------------------
38
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MARKETING INFORMATION SERVICES -- 1.5%
Abacus Direct* 78,000 $ 1,657
Market Facts 20,000 410
- --------------------------------------------------------------------------------
2,067
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 2.5%
Resmed* 101,400 1,774
Sabratek* 83,600 1,672
- --------------------------------------------------------------------------------
3,446
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.9%
Molecular Dynamics* 80,000 1,180
- --------------------------------------------------------------------------------
1,180
- --------------------------------------------------------------------------------
NETWORKING -- 0.7%
Act Networks* 76,900 904
- --------------------------------------------------------------------------------
904
- --------------------------------------------------------------------------------
PATIENT CARE-HOME -- 3.1%
Lifeline Systems* 104,100 1,770
Pediatric Services of America* 130,200 2,458
- --------------------------------------------------------------------------------
4,228
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.2%
National Surgery Centers* 55,900 1,621
- --------------------------------------------------------------------------------
1,621
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.4%
NCS HealthCare* 82,600 1,869
- --------------------------------------------------------------------------------
1,869
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 0.4%
FPA Medical Management* 30,000 577
- --------------------------------------------------------------------------------
577
- --------------------------------------------------------------------------------
RESTAURANTS -- 3.0%
Logan's Roadhouse* 101,600 2,134
PJ America* 118,000 1,696
Rare Hospitality International* 23,300 303
- --------------------------------------------------------------------------------
4,133
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 2.6%
Insight Enterprises* 77,600 1,921
Wilmar Industries* 104,100 1,614
- --------------------------------------------------------------------------------
3,535
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 0.5%
Daisytek International* 20,900 653
- --------------------------------------------------------------------------------
653
- --------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.8%
Gadzooks* 2,500 79
Hibbet Sporting Goods* 143,500 2,439
- --------------------------------------------------------------------------------
2,518
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 0.9%
IKOS Systems* 71,100 1,218
- --------------------------------------------------------------------------------
1,218
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 0.4%
Key Energy Group* 40,200 573
- --------------------------------------------------------------------------------
573
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SOFTWARE-GENERAL -- 0.6%
Concentra* 78,500 $ 412
Desktop Data* 38,250 488
- --------------------------------------------------------------------------------
900
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 3.1%
Ciber* 46,900 1,184
Pomeroy Computer Resources* 80,000 1,580
Renaissance Solutions* 57,500 1,452
- --------------------------------------------------------------------------------
4,216
- --------------------------------------------------------------------------------
TECHNOLOGY-MISCELLANEOUS -- 1.3%
Engineering Animation* 80,400 1,869
- --------------------------------------------------------------------------------
1,869
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 5.1%
Applied Voice Technology* 158,700 1,964
Electromagnetic Sciences* 83,400 1,553
Remec* 101,200 2,176
Tollgrade Communications* 72,100 1,298
- --------------------------------------------------------------------------------
6,991
- --------------------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 3.3%
Brooktrout Technology* 86,700 1,290
Davox* 49,700 1,541
Natural Microsystems* 83,500 1,660
- --------------------------------------------------------------------------------
4,491
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $129,482) 116,455
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 14.5%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $11,021,175
(collateralized by FNMA obligations,
total par value $11,511,260,
6.00%-9.50%, 09/01/03-02/01/27:
total market value $11,242,909) (A) $ 11,019 11,019
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $8,915,596
(collateralized by GNMA obligation,
par value $9,250,000, 6.00%, 03/20/27:
market value $9,102,999) (A) 8,914 8,914
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $19,933) 19,933
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.2%
(COST $149,415) 136,388
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.8%
Other Assets and Liabilities, Net 1,132
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 15,195,006 outstanding shares
of common stock 150,191
Accumulated net realized gain on investments 356
Net unrealized depreciation on investments (13,027)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $137,520
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $9.05
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
39
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LARGE CAP 20 FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap 20 Fund
CONSUMER - 11%
TECHNOLOGY - 42%
SERVICES - 20%
HEALTHCARE - 17%
FINANCIAL - 4%
CASH - 6%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 93.7%
APPAREL -- 2.6%
Nike, Cl B 29,600 $ 1,835
- --------------------------------------------------------------------------------
1,835
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 5.6%
Peoplesoft* 97,600 3,904
- --------------------------------------------------------------------------------
3,904
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 5.3%
Computer Sciences* 59,300 3,662
- --------------------------------------------------------------------------------
3,662
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 4.5%
Associates First Capital 72,400 3,113
- --------------------------------------------------------------------------------
3,113
- --------------------------------------------------------------------------------
CONSUMER SERVICES -- 4.7%
CUC International* 145,800 3,281
- --------------------------------------------------------------------------------
3,281
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 4.6%
Parametric Technology* 71,700 3,236
- --------------------------------------------------------------------------------
3,236
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 10.5%
Dell Computer* 51,100 3,456
EMC* 109,200 3,877
- --------------------------------------------------------------------------------
7,333
- --------------------------------------------------------------------------------
DRUGS -- 7.8%
Lilly (Eli) & Co. 30,000 2,468
Pfizer 35,600 2,995
- --------------------------------------------------------------------------------
5,463
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 5.0%
Walt Disney 47,800 3,489
- --------------------------------------------------------------------------------
3,489
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.9%
USA Waste Services* 95,500 3,390
- --------------------------------------------------------------------------------
3,390
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
HEALTH CARE-INFORMATION SYSTEMS -- 4.5%
HBO & Company 66,200 $ 3,145
- --------------------------------------------------------------------------------
3,145
- --------------------------------------------------------------------------------
LODGING -- 3.1%
HFS* 37,000 2,178
- --------------------------------------------------------------------------------
2,178
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 5.0%
HEALTHSOUTH* 184,000 3,519
- --------------------------------------------------------------------------------
3,519
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 5.5%
Applied Materials* 82,700 3,835
- --------------------------------------------------------------------------------
3,835
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.5%
Intel 27,500 3,826
- --------------------------------------------------------------------------------
3,826
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 3.8%
Microsoft* 29,200 2,677
- --------------------------------------------------------------------------------
2,677
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 5.3%
Tellabs* 102,600 3,706
- --------------------------------------------------------------------------------
3,706
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 5.5%
First Data 112,300 3,804
- --------------------------------------------------------------------------------
3,804
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $70,232) 65,396
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 9.8%
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $6,887,661 (collateralized
by GNMA obligation, par value
$7,150,000, 6.00%, 03/20/27:
market value $7,036,372) (A) $ 6,886 6,886
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $6,886) 6,886
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.5%
(COST $77,118) 72,282
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.5%)
Other Assets and Liabilities, Net (2,463)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 7,548,091 outstanding shares
of common stock 77,211
Overdistributed net investment income (17)
Accumulated net realized loss on investments (2,539)
Net unrealized depreciation on investments (4,836)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $69,819
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $9.25
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
40
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap Value Fund
CONSUMER - 9%
TECHNOLOGY - 7%
INDUSTRIAL - 4%
MISCELLANEOUS - 2%
HEALTHCARE - 8%
FINANCIAL - 36%
ENERGY - 15%
CAPITAL GOODS - 11%
UTILITIES - 5%
TRANSPORTATION - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 101.0%
AUTO & RELATED -- 2.8%
Borg-Warner Automotive 17,500 $ 746
- --------------------------------------------------------------------------------
746
- --------------------------------------------------------------------------------
CHEMICALS & ALLIED PRODUCTS -- 1.3%
Rohm & Haas 4,600 344
- --------------------------------------------------------------------------------
344
- --------------------------------------------------------------------------------
DIVERSIFIED COMPANIES -- 1.5%
Fluor 7,500 394
- --------------------------------------------------------------------------------
394
- --------------------------------------------------------------------------------
DRUGS & HEALTH CARE -- 8.4%
Aetna 9,600 824
Health Systems International, Cl A* 25,200 709
Medpartners* 31,400 667
- --------------------------------------------------------------------------------
2,200
- --------------------------------------------------------------------------------
ELECTRONICS & INSTRUMENTATION -- 2.2%
Avnet 10,100 569
- --------------------------------------------------------------------------------
569
- --------------------------------------------------------------------------------
FINANCE-INSURANCE -- 10.3%
Allstate 13,400 796
Equitable of Iowa 7,800 390
ITT Hartford Group 11,000 793
Nationwide Financial Services* 15,000 386
Penncorp Financial Group 10,000 320
- --------------------------------------------------------------------------------
2,685
- --------------------------------------------------------------------------------
FINANCE-MONEY CENTER BANKS -- 5.6%
Banc One 15,600 620
Chase Manhattan Bank 9,000 843
- --------------------------------------------------------------------------------
1,463
- --------------------------------------------------------------------------------
FINANCE-OTHER -- 3.2%
Travelers 17,500 838
- --------------------------------------------------------------------------------
838
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
FINANCE-REGIONAL BANKS -- 9.0%
Bank of Boston 8,300 $ 556
CoreStates Financial Group 3,500 166
First Union 10,000 811
Fleet Financial Group 8,000 458
NationsBank 6,900 382
- --------------------------------------------------------------------------------
2,373
- --------------------------------------------------------------------------------
FURNITURE & APPLIANCES -- 1.0%
Black & Decker 8,100 260
- --------------------------------------------------------------------------------
260
- --------------------------------------------------------------------------------
MACHINERY & INSTRUMENTATION -- 10.7%
Agco 19,000 525
Case Equipment 13,100 665
Harnischfeger Industries 20,400 949
Parker Hannifin 15,500 663
- --------------------------------------------------------------------------------
2,802
- --------------------------------------------------------------------------------
NATURAL GAS PIPELINES -- 2.4%
Panenergy 14,800 638
- --------------------------------------------------------------------------------
638
- --------------------------------------------------------------------------------
NON-FERROUS METALS & MINING -- 1.9%
Reynolds Metals 7,900 490
- --------------------------------------------------------------------------------
490
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES -- 5.0%
International Business Machines 5,800 797
Xerox 9,000 512
- --------------------------------------------------------------------------------
1,309
- --------------------------------------------------------------------------------
OIL & GAS SERVICES -- 3.0%
Noble Drilling* 22,800 393
Reading & Bates* 18,000 407
- --------------------------------------------------------------------------------
800
- --------------------------------------------------------------------------------
OILS-DOMESTIC -- 5.7%
Amoco 6,300 546
Atlantic Richfield 1,600 216
USX-Marathon Group 26,200 730
- --------------------------------------------------------------------------------
1,492
- --------------------------------------------------------------------------------
OILS-INTERNATIONAL -- 3.5%
Mobil 3,900 510
Repsol ADR 10,300 420
- --------------------------------------------------------------------------------
930
- --------------------------------------------------------------------------------
PAPER -- 0.7%
James River Corp. of Virginia 6,700 195
- --------------------------------------------------------------------------------
195
- --------------------------------------------------------------------------------
REAL ESTATE/REITS -- 9.2%
Equity Residential Properties Trust 14,900 661
Meditrust 16,600 618
Nationwide Health Properties 22,300 477
Simon DeBartolo Group 22,000 666
- --------------------------------------------------------------------------------
2,422
- --------------------------------------------------------------------------------
41
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-DEPARTMENT STORES -- 1.7%
Dillard Department Stores, Cl A 14,300 $ 451
- --------------------------------------------------------------------------------
451
- --------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.0%
Claire's Stores 15,200 255
- --------------------------------------------------------------------------------
255
- --------------------------------------------------------------------------------
TOBACCO -- 2.6%
RJR Nabisco 21,200 684
- --------------------------------------------------------------------------------
684
- --------------------------------------------------------------------------------
TRANSPORTATION -- 3.0%
Burlington Northern Santa Fe 7,100 525
Southwest Airlines 11,700 259
- --------------------------------------------------------------------------------
784
- --------------------------------------------------------------------------------
UTILITIES-TELEPHONE -- 5.3%
GTE 15,300 713
NYNEX 15,000 684
- --------------------------------------------------------------------------------
1,397
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $27,321) 26,521
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.4%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $1,147,414 (collateralized
by FNMA obligation, par value
$1,180,000, 7.59%, 05/01/25:
market value $1,173,930) (A) $ 1,147 1,147
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,147) 1,147
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 105.4%
(COST $28,468) 27,668
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (5.4%)
Other Assets and Liabilities, Net (1,406)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares --
$0.001 par value) based on
2,596,834 outstanding shares
of common stock 27,002
Undistributed net investment income 60
Net unrealized depreciation on investments (800)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $26,262
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $10.11
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
42
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Strategic Small Company Fund
CONSUMER - 17%
TECHNOLOGY - 30%
INDUSTRIAL - 2%
SERVICES - 9%
HEALTHCARE - 5%
FINANCIAL - 14%
ENERGY - 4%
CAPITAL GOODS - 9%
TRANSPORTATION - 5%
MISCELLANEOUS - 1%
CASH - 4%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 95.8%
AEROSPACE & EQUIPMENT -- 5.4%
Aviation Sales* 20,800 $ 523
Barnes Group 6,300 453
Crane 6,900 216
First Aviation Services* 45,000 427
Greenwich Air Services, Cl A 18,500 527
Hudson General 6,000 224
Mercury Air Group 28,400 209
Moog, Cl A* 4,600 108
Precision Castparts 7,500 382
SPS Technologies* 3,300 223
- --------------------------------------------------------------------------------
3,292
- --------------------------------------------------------------------------------
APPAREL -- 0.6%
St. John Knits 8,800 381
- --------------------------------------------------------------------------------
381
- --------------------------------------------------------------------------------
AUTO & RELATED -- 1.1%
Arvin Industries 19,600 458
Miller Industries* 20,000 240
- --------------------------------------------------------------------------------
698
- --------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 0.4%
Trident International* 12,500 247
- --------------------------------------------------------------------------------
247
- --------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 2.2%
Florida Rock Industries 13,000 426
Lafarge 3,500 80
Lone Star Industries 2,500 97
Medusa 10,100 379
Perini Corp* 13,400 94
Southdown 7,700 264
- --------------------------------------------------------------------------------
1,340
- --------------------------------------------------------------------------------
CHEMICALS & ALLIED PRODUCTS -- 0.3%
Buckeye Cellulose* 3,200 95
Geon 3,900 91
- --------------------------------------------------------------------------------
186
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CLIENT/SERVER HELP DESK -- 1.6%
Clarify* 16,700 $ 403
Pegasystems* 10,700 215
Remedy* 10,000 382
- --------------------------------------------------------------------------------
1,000
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 0.7%
Forte Software* 9,400 216
HNC Software* 8,200 214
- --------------------------------------------------------------------------------
430
- --------------------------------------------------------------------------------
CHEMICALS-SPECIALTY -- 0.2%
Fuller (H.B.) 2,200 107
- --------------------------------------------------------------------------------
107
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.2%
Caribiner International* 7,600 355
Consolidated Graphics* 12,500 358
- --------------------------------------------------------------------------------
713
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.3%
Money Store (The) 9,100 191
- --------------------------------------------------------------------------------
191
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 0.5%
Parexel International* 12,100 278
- --------------------------------------------------------------------------------
278
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 0.5%
Corrections Corp. of America* 12,500 303
- --------------------------------------------------------------------------------
303
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 0.4%
P-COM* 9,900 257
- --------------------------------------------------------------------------------
257
- --------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.5%
Cognos* 12,200 317
- --------------------------------------------------------------------------------
317
- --------------------------------------------------------------------------------
DISTRIBUTION -- 0.8%
Brightpoint* 16,625 270
CHS Electronics* 10,000 204
- --------------------------------------------------------------------------------
474
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 0.8%
Microtouch Systems* 11,900 235
Network Appliance* 8,800 286
- --------------------------------------------------------------------------------
521
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 0.4%
Veritas Software* 8,200 243
- --------------------------------------------------------------------------------
243
- --------------------------------------------------------------------------------
DIVERSIFIED COMPANIES -- 1.1%
Kimball International, Cl B 16,000 608
Norrell 3,600 89
- --------------------------------------------------------------------------------
697
- --------------------------------------------------------------------------------
43
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DRUGS & HEALTH CARE -- 2.8%
Bergen Brunswig, Cl A 2,200 $ 65
Express Scripts, Cl A 2,000 72
Living Centers of America* 600 21
Medicis Pharmaceutical, Cl A* 9,300 277
Physicians Specialty* 90,000 664
Respironics* 10,000 212
Sullivan Dental Products 7,900 116
Watson Pharmaceuticals* 8,500 304
- --------------------------------------------------------------------------------
1,731
- --------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 0.7%
Learning Tree International* 15,100 423
- --------------------------------------------------------------------------------
423
- --------------------------------------------------------------------------------
ELECTRICAL & ELECTRONIC -- 0.4%
Teradyne* 7,700 222
- --------------------------------------------------------------------------------
222
- --------------------------------------------------------------------------------
ELECTRONICS & INSTRUMENTATION -- 3.3%
ADE* 7,000 131
Berg Electronics* 2,500 71
Ducommun* 4,900 119
Genrad* 20,400 316
Oak Technology* 26,000 263
Opti* 13,000 75
Smart Modular* 4,400 104
Stratus Computer* 3,500 108
Tech Data* 3,000 72
Trident Microsystems* 2,000 27
USCS International* 14,000 259
Waters* 6,900 185
Wyle Electronics 2,400 81
Yurie Systems* 18,000 191
- --------------------------------------------------------------------------------
2,002
- --------------------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.9%
Peerless Systems* 21,000 244
Wind River Systems* 14,350 339
- --------------------------------------------------------------------------------
583
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.4%
Accustaff* 15,200 255
Corestaff* 17,400 344
The Vincam Group* 9,500 260
- --------------------------------------------------------------------------------
859
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 0.9%
Flanders* 20,000 190
United Waste Systems* 10,000 372
- --------------------------------------------------------------------------------
562
- --------------------------------------------------------------------------------
FINANCE-INSURANCE -- 1.9%
Amerus Life Holdings, CI A* 29,000 645
Chartwell Re 3,100 85
HCC Insurance Holdings 11,900 292
Mercury General 2,800 171
- --------------------------------------------------------------------------------
1,193
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
FINANCE-INVESTMENT -- 3.6%
Eaton Vance 14,800 $ 655
Everen Capital 9,000 182
Hambrecht and Quist* 15,600 261
Investment Technology Group* 58,000 1,102
- --------------------------------------------------------------------------------
2,200
- --------------------------------------------------------------------------------
FINANCE-OTHER -- 1.4%
Amresco 17,400 291
Homeside* 9,400 139
Sirrom Capital 12,500 453
- --------------------------------------------------------------------------------
883
- --------------------------------------------------------------------------------
FINANCE-REGIONAL BANKS -- 4.9%
AmSouth Bancorp 1,200 58
Astoria Financial 3,000 108
Central Fidelity Banks 14,000 388
Cullen/Frost Bankers 1,000 36
GBC Bancorp 3,300 108
Hamilton Bank Corp* 22,000 380
Hubco 1,000 23
Interwest Bancorp 5,000 161
Mid America Bancorp 1,000 20
N B T Bancorp 6,000 117
Onbancorp 7,700 360
Oriental Financial Group 4,400 111
SouthTrust* 2,000 72
Southwest Bancorp of Texas* 10,000 192
Trans Financial 17,000 382
Trustco Bank 5,000 104
Vectra Banking* 13,000 249
Washington Federal 3,830 87
Westamerica Bancorp 1,000 63
- --------------------------------------------------------------------------------
3,019
- --------------------------------------------------------------------------------
FOOD, HOUSE & PERSONAL PRODUCTS -- 1.8%
Silgan Holdings* 43,000 1,075
- --------------------------------------------------------------------------------
1,075
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 1.4%
Encad* 5,000 149
Electronics for Imaging* 7,300 291
Splash Technologies Holdings* 11,000 275
Xionics Document Technologies* 10,000 126
- --------------------------------------------------------------------------------
841
- --------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 0.4%
ABR Information Services* 13,500 243
- --------------------------------------------------------------------------------
243
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.1%
Forrester Research* 17,000 310
Whittman-Hart* 17,800 378
- --------------------------------------------------------------------------------
688
- --------------------------------------------------------------------------------
44
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
LODGING -- 0.6%
Capstar Hotel* 10,000 $ 280
John Q. Hammons Hotels, Cl A* 12,600 113
- --------------------------------------------------------------------------------
393
- --------------------------------------------------------------------------------
LOGISTICS -- 0.7%
Eagle USA Airfreight* 13,000 400
- --------------------------------------------------------------------------------
400
- --------------------------------------------------------------------------------
MACHINERY & INSTRUMENTATION -- 1.6%
Coltec Industries* 2,600 48
Gleason 300 10
JLG Industries 29,300 575
Omniquip International* 25,000 363
- --------------------------------------------------------------------------------
996
- --------------------------------------------------------------------------------
MANUFACTURING SOFTWARE -- 1.0%
Manugistics* 9,800 358
Project Software & Development* 8,700 278
- --------------------------------------------------------------------------------
636
- --------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 0.5%
Abacus Direct* 14,700 312
- --------------------------------------------------------------------------------
312
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.8%
Acuson* 11,000 257
Sabratek* 12,500 250
- --------------------------------------------------------------------------------
507
- --------------------------------------------------------------------------------
METALS & MINING-- 0.6%
RMI Titanium* 16,900 349
- --------------------------------------------------------------------------------
349
- --------------------------------------------------------------------------------
NETWORKING SECURITY -- 0.3%
Security Dynamics Technologies* 8,800 216
- --------------------------------------------------------------------------------
216
- --------------------------------------------------------------------------------
NON-DURABLES -- 0.4%
NBTY* 17,900 271
- --------------------------------------------------------------------------------
271
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES -- 1.6%
Computer Products* 6,000 88
HMT Technology* 20,000 245
Inacom* 15,900 362
Penn Engineering & Manufacturing* 10,400 201
Technology Modeling Associates* 7,000 70
- --------------------------------------------------------------------------------
966
- --------------------------------------------------------------------------------
OIL & GAS SERVICES -- 2.9%
Atwood Oceanics* 4,500 280
BJ Services* 600 29
Cliffs Drilling* 3,000 178
Dawson Production Services* 78,400 960
Helmerich & Payne 600 28
Rowan Companies* 3,200 72
World Fuel Services 11,800 209
- --------------------------------------------------------------------------------
1,756
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
PAPER -- 0.5%
Albany International 5,400 $ 111
Fort Howard* 3,000 93
Pope and Talbot 5,600 77
- --------------------------------------------------------------------------------
281
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 0.6%
National Surgery Centers* 12,000 348
- --------------------------------------------------------------------------------
348
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 0.4%
NCS HealthCare* 11,900 269
- --------------------------------------------------------------------------------
269
- --------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 1.8%
AHL Services* 20,000 200
Fiserv* 1,000 37
Interim Services* 2,000 78
McClatchy Newspapers, Cl A 15,100 361
National Data 2,000 71
Personnel Group of America* 9,100 179
Wallace Computer Services 5,300 176
- --------------------------------------------------------------------------------
1,102
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 2.1%
American General Hospitality 7,400 202
Cali Realty 3,600 115
Camden Property Trust 1,700 46
Colonial Properties Trust 1,400 41
Federal Realty Investment Trust 2,400 62
Innkeepers USA Trust 2,000 29
Liberty Property Trust 1,300 32
Mid-America Apartment Communities 12,900 361
National Golf Properties 2,900 90
Sovran Self Storage 7,900 243
Urban Shopping Centers 2,300 69
- --------------------------------------------------------------------------------
1,290
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.4%
CDW Computer Centers* 6,400 288
Delia's Inc* 9,500 176
Insight Enterprises* 15,000 371
- --------------------------------------------------------------------------------
835
- --------------------------------------------------------------------------------
RETAIL-FOOD-- 1.1%
CKE Restaurants 16,550 366
Ryan's Family Steak Houses* 20,000 156
Riser Foods, Cl A 4,900 162
- --------------------------------------------------------------------------------
684
- --------------------------------------------------------------------------------
RETAIL-GENERAL -- 0.5%
Dollar Tree Stores* 8,400 311
- --------------------------------------------------------------------------------
311
- --------------------------------------------------------------------------------
45
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 2.6%
Brylane* 10,900 $ 259
Claire's Stores 2,900 49
Duty Free International 3,600 53
Family Dollar Stores 7,300 171
Finish Line* 16,400 365
GT Bicycles* 54,600 485
Pacific Greystone* 2,600 32
Rockshox* 9,000 134
Russ Berrie 1,100 26
- --------------------------------------------------------------------------------
1,574
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 3.1%
Cymer* 8,500 305
Fusion Systems* 22,900 544
PRI Automation* 7,400 353
Speedfam International* 10,000 330
Zygo 15,600 355
- --------------------------------------------------------------------------------
1,887
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 1.3%
ESS Technology* 6,000 146
Microchip Technology* 11,400 342
Vitesse Semiconductor* 11,400 315
- --------------------------------------------------------------------------------
803
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 1.6%
Energy Ventures* 6,500 401
Trico Marine Services* 6,000 285
Varco International* 11,700 293
- --------------------------------------------------------------------------------
979
- --------------------------------------------------------------------------------
SOFTWARE -- 3.0%
Factset Research Systems* 10,100 196
Inso* 1,000 38
Rainbow Technology* 32,000 552
SPSS* 1,800 45
Symantec* 54,000 769
Vanstar* 3,300 27
Xlconnect Solutions* 32,000 192
- --------------------------------------------------------------------------------
1,819
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 1.4%
Aspen Technology* 10,000 272
Visio* 8,500 331
Saville Systems ADR* 9,000 259
- --------------------------------------------------------------------------------
862
- --------------------------------------------------------------------------------
SPECIAL MATERIALS -- 0.4%
Zoltek* 9,400 239
- --------------------------------------------------------------------------------
239
- --------------------------------------------------------------------------------
STEEL -- 0.2%
LTV 1,400 18
Oregon Steel Mills 1,200 21
Quanex 4,400 111
- --------------------------------------------------------------------------------
150
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.8%
Cambridge Technology Partners* 13,400 $ 310
Registry* 7,300 259
Renaissance Solutions* 8,200 207
Technology Solutions* 11,200 309
- --------------------------------------------------------------------------------
1,085
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 1.7%
Advanced Fibre Communication* 6,500 210
Remec* 14,400 310
Sawtek* 9,500 273
Uniphase* 7,000 259
Verilink* 1,300 8
- --------------------------------------------------------------------------------
1,060
- --------------------------------------------------------------------------------
TELEMARKETING -- 1.8%
Precision Response* 10,600 250
Sitel* 17,500 234
Snyder Communications* 13,500 317
Sykes Enterprises* 8,500 277
Telespectrum Worldwide* 3,000 36
- --------------------------------------------------------------------------------
1,114
- --------------------------------------------------------------------------------
TEXTILES & APPAREL -- 3.5%
Culp 7,100 122
Pluma* 170,000 2,040
- --------------------------------------------------------------------------------
2,162
- --------------------------------------------------------------------------------
TOBACCO -- 1.4%
Dimon 13,300 306
Glatfelter (PH) 29,100 480
Schweitzer-Manduit International 1,700 51
- --------------------------------------------------------------------------------
837
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 0.3%
Concord EFS* 10,300 193
- --------------------------------------------------------------------------------
193
- --------------------------------------------------------------------------------
TRANSPORTATION -- 4.6%
Air Express International 3,400 108
Coach USA* 11,000 319
Expeditors International of Washington 7,600 182
Halter Marine* 500 8
Knightsbridge Tankers Limited* 34,000 825
Offshore Logistics* 5,000 80
Seacor Holdings* 23,200 1,244
Trinity Industries 900 27
- --------------------------------------------------------------------------------
2,793
- --------------------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 1.8%
Aspect Telecommunications* 15,000 293
Comverse Technology* 8,100 320
Davox* 9,300 288
Natural Microsystems* 11,500 229
- --------------------------------------------------------------------------------
1,130
- --------------------------------------------------------------------------------
46
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
UTILITIES-ELECTRICAL -- 0.0%
Hawaiian Electric Industries 900 $ 30
- --------------------------------------------------------------------------------
30
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $65,108) 58,838
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.5%
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $1,519,083 (collateralized
by GNMA obligation, par value
$1,575,000, 6.00%, 08/20/26:
market value $1,570,280) (A) $ 1,519 $ 1,519
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $1,519) 1,519
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.3%
(COST $66,627) 60,357
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 1.7%
Other Assets and Liabilities, Net 1,025
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 6,925,416 outstanding shares
of common stock 69,672
Undistributed net investment income 28
Accumulated net realized loss on investments (2,048)
Net unrealized depreciation on investments (6,270)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $61,382
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $8.86
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
47
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG INTERNATIONAL FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG International Fund
JAPAN - 23%
UNITED KINGDOM - 11%
GERMANY - 10%
FRANCE - 7%
SWITZERLAND - 7%
AUSTRALIA 5%
SINGAPORE - 5%
HONG KONG - 4%
MALAYSIA - 4%
NETHERLANDS - 4%
ITALY - 3%
SPAIN - 3%
OTHER - 14%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- 91.1%
ARGENTINA -- 1.9%
Banco Frances del Rio ADS 4,500 $ 135
Disco ADR* 4,820 155
Irsa GDR 3,000 112
- --------------------------------------------------------------------------------
402
- --------------------------------------------------------------------------------
AUSTRALIA -- 4.8%
Australia & New Zealand Bank 60,000 380
Commonwealth Bank of Australia 30,000 300
Newscorp 75,000 349
- --------------------------------------------------------------------------------
1,029
- --------------------------------------------------------------------------------
BELGIUM -- 2.0%
Fortis 2,390 425
- --------------------------------------------------------------------------------
425
- --------------------------------------------------------------------------------
CHILE -- 2.3%
Madeco ADR 3,500 94
Quimica Minera ADR 7,000 403
- --------------------------------------------------------------------------------
497
- --------------------------------------------------------------------------------
FRANCE -- 6.8%
AXA 3,576 237
Bancaire 1,930 256
Lyonnaise des Eaux 3,081 316
Michelin, Cl B 2,323 138
SGS-Thomson Microelectronics* 4,700 331
Total, Cl B 2,000 173
- --------------------------------------------------------------------------------
1,451
- --------------------------------------------------------------------------------
GERMANY -- 8.5%
BMW 640 521
Continental 8,430 187
Linde 670 469
Mannesmann 770 293
Volkswagen 620 341
- --------------------------------------------------------------------------------
1,811
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
OREIGN COMMON STOCKS -- CONTINUED
HONG KONG -- 4.3%
Cheung Kong Holdings 30,000 $ 264
Hutchison Whampoa 15,000 113
Peregrine Investment Holdings 165,000 263
Peregrine Investment Holdings Warrants* 16,500 4
Swire Pacific, Cl A 35,000 276
- --------------------------------------------------------------------------------
920
- --------------------------------------------------------------------------------
IRELAND -- 1.0%
Allied Irish Bank 30,103 206
- --------------------------------------------------------------------------------
206
- --------------------------------------------------------------------------------
ITALY -- 3.3%
ENI SPA 40,100 204
Parmalat Finanziaria 177,000 246
Seat 19,838 7
STET 25,800 113
Telecom Italia Mobile 47,000 135
- --------------------------------------------------------------------------------
705
- --------------------------------------------------------------------------------
JAPAN -- 14.9%
Canon Sales 11,000 218
Dai-Ichi Kangyo Bank 17,000 180
Eisai 15,000 257
Fuji Machine Manufacturing 10,000 260
Hitachi 30,000 267
Itochu 33,000 162
Keyence 1,650 188
Matsushita Communications 8,000 186
Mitsubishi Heavy Industries 31,000 202
Murata Manufacturing 7,000 251
Nippon Sanso 48,000 157
Nippon Steel 70,000 192
Nissan Motors 28,000 169
Sanwa Bank 9,000 97
Shin Etsu Chemical 8,000 152
Sumitomo Electric 17,000 231
- --------------------------------------------------------------------------------
3,169
- --------------------------------------------------------------------------------
MALAYSIA -- 3.6%
Hicom Holdings 125,000 325
Malayan Banking 25,000 285
Renong Berhad 85,000 144
- --------------------------------------------------------------------------------
754
- --------------------------------------------------------------------------------
MEXICO -- 2.2%
Cifra ADR* 92,000 129
Grupo Imsa ADR* 7,500 174
Grupo Industrial Durango ADR* 15,000 148
Interceramica* 18,000 25
Interceramica UB rights* 2,248 --
Interceramica ULD rights* 1,818 --
- --------------------------------------------------------------------------------
476
- --------------------------------------------------------------------------------
NETHERLANDS -- 3.6%
Elsevier 6,310 103
Hollandsche Beton Groep 540 123
ING Groep 5,500 217
VNU 15,910 327
- --------------------------------------------------------------------------------
770
- --------------------------------------------------------------------------------
48
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- CONTINUED
NEW ZEALAND -- 1.4%
Carter Holt Harvey 70,000 $ 148
Lion Nathan 60,000 142
- --------------------------------------------------------------------------------
290
- --------------------------------------------------------------------------------
NORWAY -- 1.9%
Norsk Hydro 7,840 393
- --------------------------------------------------------------------------------
393
- --------------------------------------------------------------------------------
PHILIPPINES -- 0.0%
Benpres Holdings GDS* 800 6
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
POLAND -- 1.4%
BRE 5,000 150
Mostostal Export 16,000 49
Polifarb Cieszyn 15,000 98
- --------------------------------------------------------------------------------
297
- --------------------------------------------------------------------------------
SINGAPORE -- 4.7%
City Developments 40,000 355
Hongkong Land Holdings 125,000 290
Keppel 35,000 221
Singapore Land 25,000 128
- --------------------------------------------------------------------------------
994
- --------------------------------------------------------------------------------
SPAIN -- 2.7%
Porsegur Comp Seguridad 16,400 163
Telefonica de Espana 17,420 419
- --------------------------------------------------------------------------------
582
- --------------------------------------------------------------------------------
SWITZERLAND -- 7.4%
Asea Brown Boveri 160 191
Ciba Specialty Chemicals* 384 32
Novartis* 384 474
Winterthur 610 422
Zurich Insurance* 1,420 445
- --------------------------------------------------------------------------------
1,564
- --------------------------------------------------------------------------------
THAILAND -- 1.4%
Bangkok Bank, F 30,000 292
- --------------------------------------------------------------------------------
292
- --------------------------------------------------------------------------------
UNITED KINGDOM -- 11.0%
Abbey National 11,600 142
Argyll Group 21,500 126
BOC Group 8,300 130
British Aerospace 6,600 148
British Airport Authority 15,000 127
British Petroleum 12,586 146
BTR 25,000 110
Cadbury Schweppes 16,800 149
Carlton Communications 14,000 120
Commercial Union 9,500 105
CRH 8,570 85
Glaxo Wellcome 11,800 217
Grand Metropolitan 17,200 139
Kingfisher 10,800 124
Ladbroke 32,900 122
National Westminster 13,200 149
Smurfit (Jefferson) Group 31,470 82
Wolseley 15,800 128
- --------------------------------------------------------------------------------
2,349
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- CONTINUED
Total Foreign Common Stocks
(Cost $17,969) $19,382
- --------------------------------------------------------------------------------
FOREIGN PREFERRED STOCKS -- 1.9%
BRAZIL -- 0.0%
Brahma* 6,432 4
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
GERMANY -- 1.9%
Fresenius 1,700 390
- --------------------------------------------------------------------------------
390
- --------------------------------------------------------------------------------
Total Foreign Preferred Stocks
(Cost $138) 394
- --------------------------------------------------------------------------------
TIME DEPOSITS -- 8.4%
International Bank of Japan
6.313%, 04/01/97 $1,780 1,780
- --------------------------------------------------------------------------------
Total Time Deposits
(Cost $1,780) 1,780
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.4%
(COST $19,887) $21,556
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (1.4%)
Other Assets and Liabilities, Net (291)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares PBHG Class (authorized
200 million shares -- $.001 par value)
based on 1,889,359 outstanding shares
of common stock 19,513
Accumulated net investment loss (45)
Accumulated net realized gain on investments 128
Net unrealized appreciation on investments 1,669
- --------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $21,265
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $11.26
================================================================================
* NON INCOME PRODUCING SECURITY
ADR--AMERICAN DEPOSITORY RECEIPT
ADS--AMERICAN DEPOSITORY SHARE
CL--CLASS
F--FOREIGN REGISTRY SHARES
GDR--GLOBAL DEPOSITORY RECEIPT
GDS--GLOBAL DEPOSITORY SHARE
49
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG CASH RESERVES FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Cash Reserves Fund
COMMERCIAL PAPER - 73%
CORPORATE OBLIGATIONS - 4%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4%
CERTIFICATES OF DEPOSIT - 4%
REPURCHASE AGREEMENTS - 15%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- 73.5%
A1 Credit
6.500%, 04/01/97 $10,000 $10,000
American Brands
5.300%, 05/13/97 (B) 8,000 7,951
American General Finance
5.350%, 06/04/97 8,000 7,924
Apreco
5.320%, 04/21/97 8,000 7,976
Avco Financial Services
6.700%, 04/01/97 10,000 10,000
Bear Stearns Company
5.300%, 05/14/97 8,000 7,949
BHF Finance
5.300%, 04/11/97 7,000 6,990
BT Securities
5.350%, 05/15/97 5,000 4,967
Centric Funding
5.350%, 04/28/97 8,000 7,968
Cie de Saint Gobain
5.310%, 04/28/97 4,000 3,984
CIT Group Holdings
5.350%, 06/30/97 7,000 6,906
Clorox
5.310%, 04/07/97 8,000 7,993
Dean Witter Discover
5.320%, 04/22/97 1,600 1,595
Electricite Defrance
5.350%, 07/07/97 8,500 8,378
Ford Motor Credit
5.360%, 07/09/97 8,000 7,882
General Electric Capital
5.340%, 06/16/97 7,000 6,921
General Motors Acceptance
5.370%, 06/04/97 8,000 7,924
Gillette
6.700%, 04/01/97 10,000 10,000
Hitachi America
5.330%, 05/29/97 5,000 4,957
- --------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMERCIAL PAPER -- CONTINUED
Honeywell
6.700%, 04/01/97 $10,840 $10,840
International Neder US Insurance
6.600%, 04/01/97 10,000 10,000
Kitty Hawk Funding
5.380%, 06/02/97 (B) 7,700 7,629
Merrill Lynch
5.350%, 05/02/97 8,000 7,963
Morgan Stanley Group
5.310%, 05/15/97 8,500 8,445
National Rural Utilities
5.330%, 05/05/97 8,000 7,960
New Center Asset Trust
5.280%, 08/14/97 5,000 4,901
Otter Tail Power
5.340%, 04/08/97 1,500 1,498
PPG Industries
5.310%, 04/08/97 8,000 7,992
Prudential Funding
5.360%, 06/23/97 5,000 4,938
Quebec Province
5.270%, 05/15/97 2,865 2,847
Ranger Funding
5.300%, 04/14/97 (B) 5,000 4,990
Riverwoods Funding
5.310%, 04/08/97 8,000 7,992
Toshiba America
5.370%, 07/30/97 6,630 6,511
Transamerica Finance
5.300%, 04/14/97 8,000 7,985
Unifunding Yankee
5.310%, 05/12/97 2,500 2,485
Washington Gas Light
5.350%, 04/02/97 8,000 7,999
- --------------------------------------------------------------------------------
Total Commercial Paper
(Cost $251,240) 251,240
- --------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 3.8%
Asset Backed Securities Investment Trust 1996-M (A)
5.438%, 10/15/97 5,000 5,000
Bank One (A) (B)
5.300%, 12/24/97 8,000 7,993
- --------------------------------------------------------------------------------
Total Corporate Obligations
(Cost $12,993) 12,993
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.8%
FNMA
5.434%, 04/24/97 2,915 2,905
5.373%, 05/06/97 10,000 9,949
- --------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $12,854) 12,854
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 4.1%
Bank of New York Bank Note
5.840%, 06/03/97 7,000 7,001
National Bank of Canada
5.590%, 07/08/97 5,000 5,000
Southtrust Bank of Alabama (A)
5.521%, 06/17/97 2,000 2,000
- --------------------------------------------------------------------------------
Total Certificates of Deposit
(Cost $14,001) 14,001
- --------------------------------------------------------------------------------
50
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 14.9%
Lanston
6.35%, dated 03/31/97, matures 04/01/97,
repurchase price $50,820,963 (collateralized
by U.S. Treasury Notes, total par value
$49,999,000, 6.25%, 07/31/98-03/31/99;
U.S. Treasury Bill, total par value
$1,896,000, 5.36%, 09/11/97:
total market value $51,849,347) $ 50,812 $50,812
- --------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $50,812) 50,812
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.1%
(COST $341,900) 341,900
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.1%)
Other Assets and Liabilities, Net (324)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
1 billion, 800 million shares -- $0.001
par value) based on 341,576,620
outstanding shares of common stock 341,577
Accumulated net realized loss on investments (1)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $341,576
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $1.00
================================================================================
(A) FLOATING RATE SECURITY. THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON MARCH 31, 1997.
(B) PRIVATE PLACEMENT SECURITY.
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
MTN--MEDIUM TERM NOTE
51
<PAGE>
STATEMENTS OF OPERATIONS (000) THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------- -------- -------- --------
PBHG PBHG PBHG
PBHG EMERGING CORE SELECT
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
-------- -------- -------- --------
04/01/96 04/01/96 04/01/96 04/01/96
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,659 $ 251 $ 188 $ 101
Interest 27,130 11,384 1,839 2,310
Less: Foreign Taxes Withheld -- -- -- --
----------- --------- --------- --------
Total Investment Income 28,789 11,635 2,027 2,411
----------- --------- --------- --------
EXPENSES:
Investment Advisory Fees 44,149 10,775 2,918 4,101
Waiver of Investment Advisory Fees -- -- -- --
Administrative Fees 8,325 2,027 527 762
Transfer Agent Fees 9,496 2,677 913 993
Registration and Filing Fees 1,124 360 128 107
Printing Fees 855 161 77 61
Professional Fees 388 95 27 28
Custodian Fees 216 55 28 16
Insurance and Other Fees 116 23 3 5
Directors' Fees 34 8 1 2
Amortization of Deferred Organizational Costs -- 3 3 3
Distribution Fees 4 9 -- -- --
----------- --------- --------- --------
Total Expenses 64,712 16,184 4,625 6,078
----------- --------- --------- --------
NET INVESTMENT INCOME (LOSS) (35,923) (4,549) (2,598) (3,667)
----------- --------- --------- --------
Net Realized Gain (Loss) from Security Transactions (244,650) (51,106) (49,445) (32,999)
Net Realized Loss on Foreign Currency Transactions -- -- -- --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (840,002) (232,763) (41,122) (31,600)
----------- --------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (1,084,652) (283,869) (90,567) (64,599)
----------- --------- --------- --------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,120,575) $(288,418) $ (93,165) $(68,266)
=========== ========= ========= ========
-------- -------------- -------- --------
PBHG PBHG PBHG
LARGE CAP TECHNOLOGY & PBHG LARGE CAP
GROWTH COMMUNICATIONS LIMITED 20
FUND FUND FUND FUND
-------- -------------- -------- --------
04/01/96 04/01/96 07/01/96 1 12/01/96 2
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- -------------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 238 $ 39 $ 24 $ 38
Interest 706 2,555 2,445 322
Less: Foreign Taxes Withheld -- -- -- --
------- -------- ------- -------
Total Investment Income 944 2,594 2,469 360
------- -------- ------- -------
EXPENSES:
Investment Advisory Fees 931 2,970 1,416 184
Waiver of Investment Advisory Fees -- -- -- --
Administrative Fees 195 538 212 32
Transfer Agent Fees 314 877 248 52
Registration and Filing Fees 31 162 57 36
Printing Fees 22 48 27 8
Professional Fees 13 15 23 6
Custodian Fees 12 21 18 3
Insurance and Other Fees 4 7 2 1
Directors' Fees 1 1 2 --
Amortization of Deferred Organizational Costs 2 2 -- 2
Distribution Fees 4 -- -- -- --
------- -------- ------- -------
Total Expenses 1,525 4,641 2,005 324
------- -------- ------- -------
NET INVESTMENT INCOME (LOSS) (581) (2,047) 464 36
------- -------- ------- -------
Net Realized Gain (Loss) from Security Transactions (5,730) 18,009 641 (2,539)
Net Realized Loss on Foreign Currency Transactions -- -- -- --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (1,449) (56,036) (13,027) (4,836)
------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (7,179) (38,027) (12,386) (7,375)
------- -------- ------- -------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(7,760) $(40,074) $11,922 $(7,339)
======= ======== ======= =======
-------- ------------- ------------- ---------
PBHG PBHG PBHG
LARGE CAP STRATEGIC PBHG CASH
VALUE SMALL COMPANY INTERNATIONAL RESERVES
FUND FUND FUND FUND
-------- ------------- ------------- ---------
01/02/97 3 01/02/97 3 04/01/96 04/01/96
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 73 $ 98 $ 317 $ --
Interest 44 161 50 12,387
Less: Foreign Taxes Withheld -- -- (30) --
------ ------- ------ -------
Total Investment Income 117 259 337 12,387
------ ------- ------ -------
EXPENSES:
Investment Advisory Fees 32 154 177 679
Waiver of Investment Advisory Fees (9) -- -- --
Administrative Fees 6 23 40 355
Transfer Agent Fees 15 33 86 321
Registration and Filing Fees 9 14 17 94
Printing Fees 1 3 3 38
Professional Fees 1 2 1 23
Custodian Fees 1 1 41 23
Insurance and Other Fees 1 1 13 4
Directors' Fees -- -- -- 4
Amortization of Deferred Organizational Costs -- -- 16 2
Distribution Fees 4 -- -- -- --
------ ------- ------ -------
Total Expenses 57 231 394 1,543
------ ------- ------ -------
NET INVESTMENT INCOME (LOSS) 60 28 (57) 10,844
------ ------- ------ -------
Net Realized Gain (Loss) from Security Transactions -- (2,048) 451 (2)
Net Realized Loss on Foreign Currency Transactions -- -- (34) --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- 1 --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (800) (6,270) 778 --
------ ------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (800) (8,318) 1,196 (2)
------ ------- ------ -------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (740) $(8,290) $1,139 $10,842
====== ======= ====== =======
<FN>
1. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
2. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996.
3. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS ON JANUARY 2, 1997.
4. ALL DISTRIBUTION FEES ARE INCURRED IN THE TRUST CLASS.
AMOUNTS DESIGNATED AS "--"ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
52 & 53
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) THE PBHG FUNDS, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------- ---------------------- ----------------------
PBHG PBHG
PBHG EMERGING CORE
GROWTH GROWTH GROWTH
FUND FUND FUND
---------- ---------- ---------- --------- --------- ----------
04/01/96 04/01/95 04/01/96 04/01/95 04/01/96 01/02/96 1
to to to to to to
03/31/97 03/31/96 03/31/97 03/31/96 03/31/97 03/31/96
---------- ---------- ---------- --------- --------- ----------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ (35,923) $ (14,090) $ (4,549) $ (2,334) $ (2,598) $ (5)
Net Realized Gain (Loss) from Security
Transactions (244,650) (34,304) (51,106) 76,215 (49,445) (43)
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (840,002) 793,260 (232,763) 149,027 (41,122) 1,394
---------- ---------- ---------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,120,575) 744,866 (288,418) 222,908 (93,165) 1,346
---------- ---------- ---------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income -- -- -- -- -- --
Net Realized Gains from Security
Transactions -- -- (49,616) (27,375) -- --
---------- ---------- ---------- --------- --------- ---------
Total Distributions -- -- (49,616) (27,375) -- --
---------- ---------- ---------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 5,020,812 1,989,556 1,925,528 300,741 804,054 32,701
Shares Issued upon Reinvestment
of Distributions -- -- 47,297 26,142 -- --
Shares Redeemed (2,567,916) (450,329) (1,128,876) (244,577) (457,986) (2,955)
---------- ---------- ---------- --------- --------- ---------
Total PBHG
Class Transactions 2,452,896 1,539,227 843,949 82,306 346,068 29,746
---------- ---------- ---------- --------- --------- ---------
Trust Class
Shares Issued 15,962 -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed (79) -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Total Trust Class Transactions 15,883 -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Increase (Decrease) in Net Assets Derived
from Capital Share Transactions 2,468,779 1,539,227 843,949 82,306 346,068 29,746
---------- ---------- ---------- --------- --------- ---------
Total Increase (Decrease) in Net Assets 1,348,204 2,284,093 505,915 277,839 252,903 31,092
---------- ---------- ---------- --------- --------- ---------
NET ASSETS:
Beginning Period 3,298,925 1,014,832 689,705 411,866 31,092 --
---------- ---------- ---------- --------- --------- ---------
End of Period $4,647,129 $3,298,925 $1,195,620 $ 689,705 $ 283,995 $ 31,092
========== ========== ========== ========= ========= =========
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 189,736 91,357 77,652 15,598 60,034 2,888
Shares Issued upon Reinvestment
of Distributions -- -- 1,921 1,270 -- --
Shares Redeemed (100,103) (21,718) (47,388) (12,551) (35,211) (257)
---------- ---------- ---------- --------- --------- ---------
Total PBHG Class Share Transactions 89,633 69,639 32,185 4,317 24,823 2,631
---------- ---------- ---------- --------- --------- ---------
Trust Class 3
Shares Issued 621 -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed (3) -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Total Trust Class Share Transactions 618 -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Net Increase (Decrease) in Shares
Outstanding 90,251 69,639 32,185 4,317 24,823 2,631
========== ========== ========== ========= ========= =========
-------------------- -------------------- ----------------------
PBHG PBHG PBHG
SELECT LARGE CAP TECHNOLOGY &
EQUITY GROWTH COMMUNICATIONS
FUND FUND FUND
--------- --------- -------- --------- -------- ---------
04/01/96 04/05/95 2 4/01/96 04/05/95 4 04/01/96 10/02/95 5
to to to to to to
03/31/97 03/31/96 03/31/97 03/31/96 03/31/97 03/31/96
--------- --------- -------- --------- -------- ---------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ (3,667) $ (546) $ (581) $ (103) $ (2,047) $ (77)
Net Realized Gain (Loss) from Security
Transactions (32,999) 8,613 (5,730) 950 18,009 (184)
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (31,600) 20,035 (1,449) 3,566 (56,036) 3,854
--------- --------- -------- ------- -------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations (68,266) 28,102 (7,760) 4,413 (40,074) 3,593
--------- --------- -------- ------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income -- -- -- -- -- (6)
Net Realized Gains from Security
Transactions (6,009) (2,736) (146) (712) (10,050) --
--------- --------- -------- ------- -------- -------
Total Distributions (6,009) (2,736) (146) (712) (10,050) (6)
--------- --------- -------- ------- -------- -------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 828,376 283,506 259,520 74,598 1,278,462 86,263
Shares Issued upon Reinvestment
of Distributions 5,665 2,634 135 592 9,213 6
Shares Redeemed (590,076) (108,710) (185,537) (25,132) (806,167) (28,084)
--------- --------- -------- ------- -------- -------
Total PBHG
Class Transactions 243,965 177,430 74,118 50,058 481,508 58,185
--------- --------- -------- ------- -------- -------
Trust Class
Shares Issued -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Total Trust Class Transactions -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Increase (Decrease) in Net Assets Derived
from Capital Share Transactions 243,965 177,430 74,118 50,058 481,508 58,185
--------- --------- -------- ------- -------- -------
Total Increase (Decrease) in Net Assets 169,690 202,796 66,212 53,759 431,384 61,772
--------- --------- -------- ------- -------- -------
NET ASSETS:
Beginning Period 202,796 -- 53,759 -- 61,772 --
--------- --------- -------- ------- -------- -------
End of Period $ 372,486 $ 202,796 $119,971 $53,759 $493,156 $61,772
========= ========= ======== ======= ======== =======
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 42,146 18,709 16,415 5,520 77,511 7,440
Shares Issued upon Reinvestment
of Distributions 284 176 8 46 525 1
Shares Redeemed (30,763) (7,139) (11,712) (1,865) (49,269) (2,489)
--------- --------- -------- ------- -------- -------
Total PBHG Class Share Transactions 11,667 11,746 4,711 3,701 28,767 4,952
--------- --------- -------- ------- -------- -------
Trust Class3
Shares Issued -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Total Trust Class Share Transactions -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Net Increase (Decrease) in Shares
Outstanding 11,667 11,746 4,711 3,701 28,767 4,952
========= ========= ======== ======= ======== =======
--------- ---------- ---------- --------- ---------------------- --------------------
PBHG PBHG PBHG
PBHG LARGE CAP LARGE CAP STRATEGIC PBHG PBHG
LIMITED 20 VALUE SMALL CO. INTERNATIONAL CASH RESERVES
FUND FUND FUND FUND FUND FUND
--------- --------- ---------- --------- --------- -------- ---------- ---------
07/01/96 6 12/01/96 7 01/02/97 8 01/02/97 8 04/01/96 04/01/95 04/01/96 04/05/95 9
to to to to to to to to
03/31/97 03/31/97 03/31/97 03/31/97 03/31/97 03/31/96 03/31/97 03/31/96
--------- --------- ---------- --------- --------- -------- ---------- ---------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ 464 $ 36 $ 60 $ 28 $ (57) $ (25) $ 10,844 $ 2,838
Net Realized Gain (Loss) from Security
Transactions 641 (2,539) -- (2,048) 451 348 (2) 1
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- (34) 96 -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (13,027) (4,836) (800) (6,270) 779 1,261 -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations (11,922) (7,339) (740) (8,290) 1,139 1,680 10,842 2,839
-------- -------- -------- -------- --------- -------- ---------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (464) (53) -- -- -- -- (10,844) (2,838)
Net Realized Gains from Security
Transactions (285) -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Distributions (749) (53) -- -- -- -- (10,844) (2,838)
-------- -------- -------- -------- --------- -------- ---------- --------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 198,852 109,566 35,206 87,204 39,195 13,080 1,393,768 269,541
Shares Issued upon Reinvestment
of Distributions 720 50 -- -- -- -- 8,942 2,751
Shares Redeemed (49,381) (32,405) (8,204) (17,532) (30,312) (18,753) (1,160,133) (173,292)
-------- -------- -------- -------- --------- -------- ---------- --------
Total PBHG
Class Transactions 150,191 77,211 27,002 69,672 8,883 (5,673) 242,577 99,000
-------- -------- -------- -------- --------- -------- ---------- --------
Trust Class
Shares Issued -- -- -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Trust Class Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Increase (Decrease) in Net Assets
Derived from Capital
Share Transactions 150,191 77,211 27,002 69,672 8,883 (5,673) 242,577 99,000
-------- -------- -------- -------- --------- -------- ---------- --------
Total Increase (Decrease)
in Net Assets 137,520 69,819 26,262 61,382 10,022 (3,993) 242,575 99,001
-------- -------- -------- -------- --------- -------- ---------- --------
NET ASSETS:
Beginning Period -- -- -- -- 11,243 15,236 99,001 --
-------- -------- -------- -------- --------- -------- ---------- --------
End of Period $137,520 $ 69,819 $ 26,262 $ 61,382 $ 21,265 $ 11,243 $341,576 $ 99,001
======== ======== ======== ======== ========= ======== ========== ========
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 19,868 10,798 3,381 8,740 3,602 1,327 1,393,768 269,541
Shares Issued upon Reinvestment
of Distributions 66 5 -- -- -- -- 8,942 2,751
Shares Redeemed (4,739) (3,255) (784) (1,815) (2,778) (1,931) (1,160,133) (173,291)
-------- -------- -------- -------- --------- -------- ---------- --------
Total PBHG Class Share Transactions 15,195 7,548 2,597 6,925 824 (604) 242,577 99,001
-------- -------- -------- -------- --------- -------- ---------- --------
Trust Class3
Shares Issued -- -- -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Trust Class Share Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Net Increase (Decrease) in Shares
Outstanding 15,195 7,548 2,597 6,925 824 (604) 242,577 99,001
======== ======== ======== ======== ========= ======== ========== ========
<FN>
1. THE PBHG CORE GROWTH FUND COMMENCED OPERATIONS ON JANUARY 2, 1996.
4. THE PBHG LARGE CAP GROWTH FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
2. THE PBHG SELECT EQUITY FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
5. THE PBHG TECHNOLOGY & COMMUNICATIONS FUND COMMENCED OPERATIONS ON OCTOBER 2, 1995.
3. THE PBHG GROWTH FUND -- TRUST CLASS COMMENCED OPERATIONS ON AUGUST 19, 1996.
6. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
7. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996. AMOUNTS
DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
8. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS
ON JANUARY 2, 1997.
9. THE PBHG CASH RESERVES FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
</FN>
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
54 & 55
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
For a Share Outstanding Throughout each Fiscal Year or Period
NET NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE END OF EXPENSES
BEGINNING INCOME GAINS OR (LOSSES) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG GROWTH FUND
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
1997 $25.30 $(0.10) $(4.14) -- -- $21.06 (16.76)% $4,634,138 1.25%
1996 16.70 (0.06) 8.66 -- -- 25.30 51.50% 3,298,925 1.48%
1995 14.67 (0.05) 2.09 -- $(0.01) 16.70 13.92% 1,014,832 1.50%
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28% 319,059 1.55%
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47% 6,069 2.39%
PBHG TRUST CLASS
1997(1) $25.42 $(0.06) $(4.33) -- -- $21.03 (17.27)%+ $ 12,991 1.53%*
- -------------------------
PBHG EMERGING GROWTH FUND
- -------------------------
PBHG Class
1997 $23.07 $(0.11) $(2.87) -- $(0.83) $19.26 (13.71)% $1,195,620 1.28%
1996 16.10 (0.07) 8.03 -- (0.99) 23.07 50.16% 689,705 1.47%
1995(2,3) 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+ 411,866 1.50%*
1994(2) 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64% 113,329 1.45%
1993(4) 10.00 (0.03) 3.25 -- -- 13.22 32.20%+ 34,517 1.50%*
- ---------------------
PBHG CORE GROWTH FUND
- ---------------------
PBHG CLASS
1997 $11.82 $(0.09) $(1.39) -- -- $10.34 (12.52% $ 283,995 1.36%
1996(5) 10.00 -- 1.82 -- -- 11.82 18.20%+ 31,092 1.50%*
- -----------------------
PBHG SELECT EQUITY FUND
- -----------------------
PBHG CLASS
1997 $17.27 $(0.13) $(1.03) -- $(0.20) $15.91 (6.94)% $ 372,486 1.26%
1996(6) 10.00 (0.05) 7.68 -- (0.36) 17.27 77.75%* 202,796 1.50%*
- --------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------
PBHG CLASS
1997 $14.53 $(0.05) $(0.21) -- $(0.01) $14.26 (1.77)% $ 119,971 1.23%
1996(6) 10.00 (0.03) 4.97 -- (0.41) 14.53 50.47%* 53,759 1.50%*
- -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- -------------------------------------
PBHG CLASS
1997 $12.48 $(0.05) $2.55 -- $(0.35) $14.63 19.59% $ 493,156 1.33%
1996(7) 10.00 (0.02) 2.50 -- -- 12.48 24.82%+ 61,772 1.50%*
- -----------------
PBHG LIMITED FUND
- -----------------
PBHG CLASS
1997(8) $10.00 $0.02 $(0.93) $(0.03) $(0.01) $ 9.05 (9.15)%+ $ 137,520 1.42%*
RATIO
RATIO OF NET
OF NET RATIO INVESTMENT
INVESTMENT OF EXPENSES INCOME (LOSS)
INCOME TO AVERAGE TO AVERAGE
(LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS WAIVERS) WAIVERS) RATE RATE 12
- --------------------------------------------------------------------------------
PBHG GROWTH FUND
- ----------------
<S> <C> <C> <C> <C> <C>
PBHG CLASS
1997 (0.69)% 1.25% (0.69)% 64.89% $0.0493
1996 (0.79)% 1.48% (0.79)% 44.64% n/a
1995 (0.69)% 1.50% (0.69)% 118.75% n/a
1994 (0.78)% 1.59% (0.82)% 94.28% n/a
1993 (1.69)% 3.04% (2.34)% 209.24% n/a
PBHG TRUST CLASS
1997(1) (1.11)%* 1.53%* (1.11)%* 64.89% $0.0493
- -------------------------
PBHG EMERGING GROWTH FUND
- -------------------------
PBHG Class
1997 (0.36)% 1.28% (0.36)% 47.75% $0.0328
1996 (0.42)% 1.47% (0.42)% 97.05% n/a
1995(2,3) (0.08)%* 1.50%* (0.08)%* 27.50% n/a
1994(2) (0.77)% 1.45% (0.77)% 95.75% n/a
1993(4) (0.72)%* 1.54%* (0.76)%* 71.18% n/a
- ---------------------
PBHG CORE GROWTH FUND
- ---------------------
PBHG CLASS
1997 (0.77)% 1.36% (0.77)% 46.75% $0.0437
1996(5) (0.18)%* 2.92%* (1.60)%* 17.00% n/a
- -----------------------
PBHG SELECT EQUITY FUND
- -----------------------
PBHG CLASS
1997 (0.76)% 1.26% (0.76)% 71.70% $0.0443
1996(6) (0.74)%* 1.73%* (0.97)%* 206.22% n/a
- --------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------
PBHG CLASS
1997 (0.47)% 1.23% (0.47)% 51.70% $0.0547
1996(6) (0.66)%* 2.07%* (1.23)%* 116.75% n/a
- -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- -------------------------------------
PBHG CLASS
1997 (0.59)% 1.33% (0.59)% 289.91% $0.0365
1996(7) (0.50)%* 2.00%* (1.00)%* 125.99% n/a
- -----------------
PBHG LIMITED FUND
- -----------------
PBHG CLASS
1997(8) 0.33%* 1.42%* 0.33%* 75.46% $0.0304
<FN>
* ANNUALIZED
+ TOTAL RETURNS HAVE NOT BEEN ANNUALIZED.
1. THE PBHG GROWTH FUND TRUST CLASS COMMENCED OPERATIONS ON AUGUST 19, 1996.
2. THE INFORMATION SET FORTH IN THIS TABLE FOR THE PERIODS PRIOR TO JUNE 2,
1994 IS THE FINANCIAL DATA OF THE PILGRIM BAXTER EMERGING GROWTH FUND, A SERIES
OF THE ADVISORS' INNER CIRCLE FUND. THE PBHG EMERGING GROWTH FUND ACQUIRED THE
ASSETS AND ASSUMED THE LIABILITIES OF THE PILGRIM BAXTER EMERGING GROWTH FUND ON
JUNE 2, 1994. THE PBHG EMERGING GROWTH FUND RETAINED THE OCTOBER 31 FISCAL YEAR
END OF ITS PREDECESSOR ONLY FOR FISCAL YEAR 1994. THE PBHG EMERGING GROWTH FUND
CHANGED ITS FISCAL YEAR END TO MARCH 31, IN 1995 AND REPORTED FINANCIAL
INFORMATION FOR THE FISCAL PERIOD FROM NOVEMBER 1, 1994 TO MARCH 31, 1995.
3. PER SHARE CALCULATIONS WERE PERFORMED USING AVERAGE SHARES FOR THE PERIOD.
4. THE PILGRIM BAXTER EMERGING GROWTH FUND, THE PREDECESSOR SERIES TO THE PBHG
EMERGING GROWTH FUND, COMMENCED OPERATIONS ON JUNE 15, 1993.
5. THE PBHG CORE GROWTH FUND COMMENCED OPERATIONS ON JANUARY 2, 1996.
6. THE PBHG SELECT EQUITY FUND, THE PBHG LARGE CAP GROWTH FUND, AND THE PBHG CASH RESERVES FUND
COMMENCED OPERATIONS ON APRIL 5, 1995.
7. THE PBHG TECHNOLOGY & COMMUNICATIONS FUND COMMENCED OPERATIONS ON OCTOBER 2, 1995.
8. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
9. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996.
10. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS ON
JANUARY 2, 1997.
11. THE PBHG INTERNATIONAL FUND COMMENCED OPERATIONS ON JUNE 14, 1994.
12. AVERAGE COMMISION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995.
</FN>
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
56
<PAGE>
<TABLE>
<CAPTION>
THE PBHG FUNDS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
NET NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE END OF EXPENSES
BEGINNING INCOME GAINS OR (LOSSES) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
1997(9) $10.00 $(0.01) $(0.73) $(0.01) -- $ 9.25 (7.40)%+ $ 69,819 1.50%*
- -------------------------
PBHG LARGE CAP VALUE FUND
- -------------------------
PBHG CLASS
1997(10) $10.00 $ 0.02 $ 0.09 -- -- $10.11 1.10%+ $ 26,262 1.50%*
- ---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ---------------------------------
PBHG CLASS
1997(10) $10.00 -- $(1.14) -- -- $ 8.86 (11.40)%+ $ 61,382 1.50%*
- -----------------------
PBHG INTERNATIONAL FUND
- -----------------------
PBHG CLASS
1997 $10.55 -- $ 0.71 -- -- $11.26 6.73% $ 21,265 2.22%
1996 9.13 $(0.04) 1.46 -- -- 10.55 15.55% 11,243 2.25%
1995(11) 10.00 (0.03) (0.80) -- $(0.04) 9.13 (8.33)%+ 15,236 2.25%*
- -----------------------
PBHG CASH RESERVES FUND
- -----------------------
PBHG CLASS
1997 $1.00 $ 0.05 -- $(0.05) -- $1.00 4.89% $ 341,576 0.68%
1996(6) 1.00 0.05 -- (0.05) -- 1.00 5.24%* 99,001 0.70%*
</TABLE>
RATIO
RATIO OF NET
OF NET RATIO INVESTMENT
INVESTMENT OF EXPENSES INCOME (LOSS)
INCOME TO AVERAGE TO AVERAGE
(LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS WAIVERS) WAIVERS) RATE RATE 12
- --------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ----------------------
PBHG CLASS
1997(9) 0.17%* 1.50%* 0.17%* 43.98% $0.0550
- -------------------------
PBHG LARGE CAP VALUE FUND
- -------------------------
PBHG CLASS
1997(10) 1.61%* 1.74%* 1.37%* 0.00% $0.0588
- ---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ---------------------------------
PBHG CLASS
1997(10) 0.18%* 1.50%* 0.18%* 88.88% $0.0562
- -----------------------
PBHG INTERNATIONAL FUND
- -----------------------
PBHG CLASS
1997 (0.32)% 2.22% (0.32)% 74.82% $0.0287
1996 (0.22)% 3.03% (1.00)% 140.26% n/a
1995(11) (0.43)%* 2.36%* (0.54)%* 81.72% n/a
- -----------------------
PBHG CASH RESERVES FUND
- -----------------------
PBHG CLASS
1997 4.79% 0.68% 4.79% n/a n/a
1996(6) 5.05%* 0.88%* 4.87%* n/a n/a
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
1. ORGANIZATION
The PBHG Funds, Inc. (the "Fund"), a Maryland corporation, is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with fourteen series: the PBHG Growth Fund (the
"Growth Fund"), the PBHG Emerging Growth Fund (the "Emerging Growth Fund"), the
PBHG Core Growth Fund (the "Core Growth Fund"), the PBHG Select Equity Fund (the
"Select Equity Fund"), the PBHG Large Cap Growth Fund (the "Large Cap Growth
Fund"), the PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), the PBHG Limited Fund (the "Limited Fund"), the PBHG
Large Cap 20 Fund (the "Large Cap 20 Fund"), the PBHG Large Cap Value Fund (the
"Large Cap Value Fund"), the PBHG Mid-Cap Value Fund (the "Mid-Cap Value Fund"),
the PBHG Small Cap Value Fund (the "Small Cap Value Fund"), the PBHG Strategic
Small Company Fund ("the Strategic Small Company Fund"), the PBHG International
Fund (the "International Fund"), (collectively referred to as the "Equity
Portfolios"), and the PBHG Cash Reserves Fund (the "Cash Reserves Fund") (each a
"Portfolio" and, collectively, the "Portfolios"). As of March 31, 1997, the
Mid-Cap Value Fund and the Small Cap Value Fund had not commenced operations.
Each Portfolio's prospectus provides a description of the Portfolio's investment
objectives, policies and strategies. The Fund is registered to offer two classes
of shares, PBHG Class and Trust Class. Currently the Trust Class of shares is
only offered by the Growth Fund. The assets of each Portfolio are segregated,
and a shareholder's interest is limited to the Portfolio in which shares are
held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios.
SECURITY VALUATION -- Investment securities of the Equity Portfolios that are
listed on a securities exchange for which market quotations are available are
valued at the last quoted sales price on each business day. If there is no such
reported sale, these securities and unlisted securities for which market
quotations are readily available, are valued at the mean between the most recent
bid and asked prices. Short-term investments may be valued at amortized cost
which approximates market value. Foreign securities in the International Fund
are valued based upon quotations from the primary market in which they are
traded. The values of investment securities held by the Cash Reserves Fund are
stated at amortized cost, which approximates market value. Under this valuation
method, acquisition discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during the respective
holding periods.
DIVIDENDS -- Dividends from net investment income for the Equity Portfolios are
declared annually, if available. Dividends from net investment income for the
Cash Reserves Fund are declared daily and paid monthly. Distributions of net
realized capital gains, for all portfolios, are generally made to shareholders
annually.
Dividends from net investment income and distributions from net realized capital
gains are determined in accordance with U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise. Accordingly, the
following permanent differences as of March 31, 1997, primarily attributable to
certain net operating losses, which for tax purposes, are not available to
offset future income or have been used to offset net short-term capital gains,
have been reclassified to the following accounts:
ACCUMULATED NET
PAID-IN-CAPITAL REALIZED GAIN
(000) (000)
-------------- --------------
Growth Fund $35,930 $--
Emerging Growth Fund 4,584 --
Core Growth Fund 2,603 --
Select Equity Fund 3,669 --
Large Cap Growth Fund 581 --
Technology & Communications Fund -- 2,047
Limited Fund -- 285
International Fund 98 --
In addition, the International Fund had $51,000 of permanent differences
primarily attributable to realized foreign exchange gains and losses, which have
been reclassified from accumulated net realized gain (loss) on foreign currency
transactions to undistributed net investment income.
These reclassifications have no effect on net assets or net asset values per
share.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or continue
to qualify as a regulated investment company for Federal income tax purposes and
to distribute all of its taxable income and net capital gains. Accordingly, no
provision has been made for Federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the market value
of the collateral including accrued interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines, or if the counterparty enters into insolvency
proceedings, realization of the collateral by a Portfolio may be delayed or
limited.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, other assets and
liabilities at the current rate of exchange; and
(II)purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates
of such transactions.
58
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
The International Fund does not isolate that portion of gains and losses on
investment securities that is due to changes in the foreign exchange rates from
that which is due to changes in market prices of such securities.
The International Fund reports gains and losses on foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income or loss for Federal
income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the PBHG
International Fund may enter into forward foreign currency exchange contracts.
Foreign currency exchange contracts are recorded at market value. Certain risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized gains or losses
arising from such transactions are included in net realized gain (loss) from
foreign currency transactions. At March 31, 1997 the International Fund had $766
in unrealized appreciation on such foreign currency contracts.
OTHER -- Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets. Class specific expenses, such as
12b-1 distribution fees, are borne by that class. Income, other expenses and
realized and unrealized gains and losses of a Portfolio are allocated to the
respective class on the basis of the relative net assets each day.
All organizational costs incurred with the start up of the Emerging Growth Fund,
the Core Growth Fund, the Select Equity Fund, the Large Cap Growth Fund, the
Technology & Communications Fund, the Limited Fund, the Large Cap 20 Fund, the
Large Cap Value Fund, the Strategic Small Company Fund, the International Fund
and the Cash Reserves Fund are being amortized on a straight line basis over a
period of sixty months. In the event that any of the initial shares of the
Portfolio are redeemed by any holder thereof during the period that the
Portfolio is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
paid a monthly fee at an annual rate of 0.85% of the average daily net assets of
the Growth, Emerging Growth, Core Growth, Select Equity, Technology &
Communications, Large Cap 20, and Large Cap Value Funds, 0.75% of the average
daily net assets of the Large Cap Growth Fund, 1.00% of the average daily net
assets of the Limited, Strategic Small Company and International Funds, and
0.30% of the average daily net assets of the Cash Reserves Fund.
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into expense limitation agreements with the Fund ("Expense Limitation
Agreements"), with respect to Core Growth, Technology & Communications, Limited,
Large Cap 20, Large Cap Value, Strategic Small Company and International Fund,
pursuant to which the Adviser has agreed to waive or limit its fees and to
assume other expenses of the Portfolios to the extent necessary to limit the
total annual expenses (expressed as a percentate of the Portfolios' average
daily net assets) to 1.50% for the Core Growth, Technology & Communications,
Limited, Large Cap 20, Large Cap Value and Strategic Small Company and 2.25% for
the International Fund. Reimbursement by the Portfolios of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreements may be made at a later date when 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% for the
Core Growth, Technology & Communications, Limited, Large Cap 20, Large Cap
Value, and Strategic Small Company and 2.25% for the International Fund.
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% Core Growth, Technology & Communications, Limited,
Large Cap 20, Large Cap Value and Strategic Small Company and 2.25% for the
International Fund, and (iii) the payment of such reimbursement was approved by
the Board of Directors on a quarterly basis.
Newbold's Asset Management, Inc.("Newbold") serves as the sub-adviser to the
Large Cap Value Fund and the Strategic Small Company Fund. For its services
provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and
the Fund, Newbold receives a fee from the Adviser at an annual rate of 0.50% and
0.30%, respectively, of the average daily net assets of the Large Cap Value Fund
and the Strategic Small Company Fund. Newbold receives no fees directly from the
Large Cap Value Fund or the Strategic Small Company Fund.
Murray Johnstone International, Ltd. ("Murray Johnstone") serves as the
sub-adviser to the International Fund. For its services provided pursuant to its
Investment Sub-Advisory Agreement with the Adviser and the Fund, Murray
Johnstone receives a fee from the Adviser at an annual rate of 0.50% of the
International Fund's average daily net assets. Murray Johnstone receives no fees
directly from the International Fund, and may periodically reduce its
sub-advisory fee.
Wellington Management Company, LLP ("WMC") serves as the sub-adviser to the Cash
Reserves Fund. For its services provided pursuant to the Investment Sub-Advisory
Agreement with the Adviser and the Fund, WMC is entitled to receive a fee from
the Adviser, computed daily and paid monthly, at an annual rate equal to 0.075%
of the Cash Reserves Fund's average daily net assets up to and including $500
million and 0.020% of the Cash Reserves Fund's average daily net assets over
$500 million, but subject to a minimum annual fee of $50,000. WMC may, from time
to time, waive all or a portion of its fee from the Adviser. WMC receives no
fees directly from the Cash Reserves Fund.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of each Portfolio.
SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Investments Company, is the owner of all beneficial interest in SEI Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
MARCH 31, 1997
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 daily
net assets of the Fund in excess of $2.5 billion.
Prior to July 1, 1996, SEI Fund Resources acted as Administrator to the Funds.
For it services prior to July 1, 1996, SEI Fund Resources received an annual fee
with respect to each Portfolio equal to the greater of $75,000 or 0.20% of the
average daily net assets of the Portfolio.
The Fund and SEI Financial Services Company (the "Distributor") are parties to a
Distribution Agreement. The Distributor receives no fees for its distribution
services in connection with distribution of the PBHG Class. The Trust has
adopted a Distribution Plan (the "Plan") on behalf of the Trust Class shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for the payment by the Funds to the Distributor of up to 0.25% of the
average daily net assets of the Trust Class shares. Currently only the Growth
Fund has Trust Class shareholders.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent of 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. CoreStates Bank, N.A. serves as the custodian for the
Growth Fund, the Emerging Growth Fund, the Core Growth Fund, the Select Equity
Fund, the Large Cap Growth Fund, the Technology & Communications Fund, the
Limited Fund, the Large Cap 20 Fund, the Large Cap Value Fund, the Strategic
Small Company Fund, and the Cash Reserves Fund. The Northern Trust Company
serves as the custodian for the International Fund.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor received no
compensation from the Fund.
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments, for the Equity Portfolios for the period ended
March 31, 1997 were as follows:
PURCHASES SALES
(000) (000)
-------- --------
Growth Fund 5,379,666 3,016,974
Emerging Growth Fund 1,237,408 496,496
Core Growth Fund 474,463 137,791
Select Equity Fund 552,545 304,687
Large Cap Growth Fund 130,795 56,145
Technology & Communications Fund 1,303,161 870,260
Limited Fund 220,740 91,899
Large Cap 20 Fund 91,659 18,888
Large Cap Value Fund 27,321 --
Strategic Small Company Fund 107,309 39,951
International Fund 20,317 12,143
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolios and the total cost of securities for Federal income tax
purposes at March 31, 1997 are as follows:
TOTAL COST
NET OF SECURITIES
UNREALIZED FOR FEDERAL
UNREALIZED UNREALIZED APPRECIATION/ INCOME TAX
APPRECIATION DEPRECIATION (DEPRECIATION) PURPOSES
(000) (000) (000) (000)
---------- ---------- ------------ ----------
Growth Fund 665,444 (576,333) 89,111 4,544,061
Emerging Growth
Fund 150,412 (190,248) (39,836) 1,232,514
Core Growth
Fund 20,251 (59,979) (39,728) 324,336
Select Equity
Fund 47,377 (58,942) (11,565) 384,049
Large Cap Growth
Fund 12,802 (10,685) 2,117 118,975
Technology &
Communications
Fund 18,742 (70,924) (52,182) 552,030
Limited Fund 8,787 (21,814) (13,027) 149,714
Large Cap 20
Fund 1,230 (6,066) (4,836) 77,118
Large Cap Value
Fund 471 (1,271) (800) 28,468
Strategic Small
Company Fund 1,691 (7,961) (6,270) 66,627
International Fund 2,556 (887) 1,669 19,918
Subsequent to October 31, 1996, the following Portfolios had recognized net
capital losses that have been deferred to 1998 for tax purposes and can be used
to offset future capital gains at March 31, 1998. The Portfolios also had
capital loss carryforwards at March 31, 1997, that can be used to offset future
capital gains.
POST CAPITAL LOSS CAPITAL LOSS
10/31/96 CARRYOVERS CARRYOVERS
LOSS DEFERRAL EXPIRING 2003 EXPIRING 2005
------------- -------------- --------------
Growth Fund 135,849,361 26,625,248 135,427,740
Emerging Growth Fund -- -- 47,805,236
Core Growth Fund 34,525,185 -- 14,962,879
Select Equity Fund 33,676,908 -- --
Large Cap Growth Fund 1,823,244 -- 3,917,935
Cash Reserves Fund -- -- 1,488
5. CONCENTRATION OF CREDIT RISK
The Cash Reserves Fund invests primarily in a portfolio of money market
instruments maturing in 397 days or less whose ratings are within one of the two
highest ratings categories assigned by a nationally recognized statistical
rating agency, or, if not rated, are believed to be of comparable quality. The
ability of the issuers of the securities held by the portfolio to meet their
obligations may be affected by economic developments in a specific industry,
state or region.
The International Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the United States, as a result of,
among other factors, the possibility of future political and economic
developments and the level of governmental supervision and regulation of
securities markets in the respective countries.
60
<PAGE>
NOTICE TO SHAREHOLDERS (UNAUDITED) THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
FOR SHAREHOLDERS THAT DO NOT HAVE A MARCH 31, 1997 TAXABLE YEAR END, THIS NOTICE
IS FOR INFORMATIONAL PURPOSES ONLY. FOR SHAREHOLDERS WITH A MARCH 31, 1997
TAXABLE YEAR END, PLEASE CONSULT YOUR TAX ADVISER AS TO THE PERTINENCE OF THIS
NOTICE.
FOR THE FISCAL YEAR ENDED MARCH 31, 1997, THE FUNDS ARE DESIGNATING LONG-TERM
CAPITAL GAINS, QUALIFYING DIVIDENDS AND EXEMPT INTEREST INCOME WITH REGARD TO
DISTRIBUTIONS PAID DURING THE YEAR AS FOLLOWS:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth .................................................... 0% 0% 0%
Emerging Growth ........................................... 44% 56% 100%
Core Growth ............................................... 0% 0% 0%
Select Equity ............................................. 0% 100% 100%
Large Cap ................................................. 0% 100% 100%
Technology & Communications ............................... 0% 100% 100%
Limited ................................................... 0% 100% 100%
Large Cap 20 .............................................. 0% 100% 100%
Large Cap Value ........................................... 0% 0% 0%
Strategic Small Company ................................... 0% 0% 0%
International ............................................. 0% 0% 0%
Cash Reserves ............................................. 0% 100% 100%
====================================================================================================================================
(D) (E)
QUALIFYING TAX EXEMPT
PORTFOLIO DIVIDENDS(1) INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
Growth 0% 0%
Emerging Growth .......................................... 0% 0%
Core Growth .............................................. 0% 0%
Select Equity ............................................ 0% 0%
Large Cap ................................................ 0% 0%
Technology & Communications .............................. 0% 0%
Limited .................................................. 4% 0%
Large Cap 20 ............................................. 44% 0%
Large Cap Value .......................................... 0% 0%
Strategic Small Company .................................. 0% 0%
International ............................................ 0% 0%
Cash Reserves ............................................ 0% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.
* Items (A) and (B) are based on a percentage of each portfolio's distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions of each portfolio.
None of the Portfolios qualify in California, Connecticut, or New York to
pass through exempt interest dividends from U.S. government obligations.
</FN>
</TABLE>
61
