AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1997.
1933 ACT REGISTRATION NO. 2-99810
1940 ACT REGISTRATION NO. 811-4391
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 30 /x/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 28
THE PBHG FUNDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
32 SOUTH STREET
BALTIMORE, MARYLAND 21202
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 443-0051
HAROLD J. BAXTER
PILGRIM BAXTER & ASSOCIATES, LTD.
1255 DRUMMERS LANE
SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
JANE A. KANTER, ESQ. JOHN M. ZERR, ESQ.
KATTEN MUCHIN & ZAVIS GENERAL COUNSEL
1025 THOMAS JEFFERSON STREET, N.W. PILGRIM BAXTER & ASSOCIATES, LTD.
EAST LOBBY, SUITE 700 1255 DRUMMERS LANE
WASHINGTON, D.C. 20007 SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
It is proposed that this filing will become effective:
/X/ immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of common stock is being registered by this
Registration Statement. Registrant's Rule 24f-2 Notice for its most recent
fiscal year will be filed on or before May 30, 1997.
<PAGE>
THE PBHG FUNDS, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus for the PBHG Class Shares
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
THE PBHG FUNDS, INC.
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 30
<TABLE>
<S> <C> <C>
PART A. Item No. and Captions Caption in Prospectus
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant The Fund and the Portfolios; Investment
Objectives and Policies; General
Investment Policies and Strategies; Risk
Factors; Investment Limitations; General
Information -- The Fund
5. Management of the Fund General Information -- Directors of the
Fund; General Information -- The
Adviser and Sub-Advisers; General
Information -- The Administrator and
Sub-Administrator; General Information
-- The Transfer Agent and Sub-Transfer
Agents; General Information -- The
Distributor
6. Capital Stock and Other Securities General Information -- Voting Rights;
General Information -- Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Fund Shares; How to
Redeem Fund Shares; Determination of
Net Asset Value
8. Redemption or Repurchase How to Purchase Fund Shares; How to
Redeem Fund Shares; Determination of
Net Asset Value
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Registrant Directors and Officers of the Fund; The
Administrator
15. Control Persons and Principal Holders of Directors and Officers of the Fund
Securities
16. Investment Advisory and Other Services The Adviser and Sub-Advisers; The
Administrator and Sub-Administrator;
The Distributor
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield; Calculation of
Total Return
23. Financial Statements Financial Statements
PART C Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of this
Registration Statement.
</TABLE>
This Amendment does not delete, amend, or supersede any information contained in
the Registration Statement or in any previously filed post-effective amendment
to the Registration Statement including, in particular, any prospectuses or
statements of additional information contained therein (whether effective or
not), except to the extent specifically provided herein.
<PAGE>
THE PBHG FUNDS, INC.
PBHG CLASS SHARES
PROSPECTUS DATED MAY 20, 1997
The PBHG Funds, Inc. (the "Fund") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers PBHG Class shares of each of the following
portfolios (each a "Portfolio" and, together, the "Portfolios"):
<TABLE>
<CAPTION>
PBHG GROWTH FUNDS PBHG VALUE FUNDS
----------------- ----------------
<S> <C>
o PBHG GROWTH FUND o PBHG LARGE CAP VALUE FUND
o PBHG EMERGING GROWTH FUND o PBHG MID-CAP VALUE FUND
o PBHG LARGE CAP GROWTH FUND o PBHG SMALL CAP VALUE FUND
o PBHG SELECT EQUITY FUND
o PBHG CORE GROWTH FUND PBHG SPECIALTY FUNDS
o PBHG LIMITED FUND --------------------
o PBHG LARGE CAP 20 FUND o PBHG INTERNATIONAL FUND
o PBHG CASH RESERVES FUND
o PBHG TECHNOLOGY & COMMUNICATIONS FUND
o PBHG STRATEGIC SMALL COMPANY FUND
</TABLE>
This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated May 20, 1997, has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-800-433-0051. This Prospectus is also available on the
Fund's Web site at http://www.pbhgfunds.com. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding the Fund and other registrants that file electronically
with the Securities and Exchange Commission. The Statement of Additional
Information is incorporated by reference into this Prospectus.
AN INVESTMENT IN THE PBHG CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
All classes of shares of the PBHG Limited Fund are currently closed to new
investments. All classes of shares of the PBHG Select Equity Fund are currently
closed to new investors, other than plans that are qualified under Section
401(a), 401(k) or 403(b) of the Internal Revenue Code of 1986, as amended
("Qualified Plans"). The PBHG Class shares of the PBHG Select Equity Fund will
remain open to existing shareholders of the PBHG Select Equity Fund and to
Qualified Plans. Existing PBHG Class shareholders of the PBHG Select Equity Fund
may continue to make investments in the PBHG Select Equity Fund and may also
open additional accounts in the PBHG Select Equity Fund, provided any new
account is registered in the same name or has the same social security number or
taxpayer identification number as the existing shareholder's account. The
decision to close the PBHG Limited Fund and PBHG Select Equity Fund does not
affect the status of any other Portfolio or class of shares of the Fund.
Mutual Fund Shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, the Federal Reserve
Board, or any other agency and are subject to investment risk, including the
possible loss of principal.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
Summary ............................................ How to Purchase Fund Shares................
Expense Summary..................................... Shareholder Services.......................
Financial Highlights................................ How to Redeem Fund Shares..................
The Fund and the Portfolios......................... Determination of Net Asset Value...........
Investment Objectives and Policies.................. Performance Advertising....................
General Investment Policies and Strategies.......... Taxes......................................
Risk Factors........................................ General Information........................
Investment Limitations.............................. Glossary of Permitted Investments..........
</TABLE>
SUMMARY
The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
diversified portfolios of securities. This Prospectus provides basic information
about the 14 separate series of the Fund: PBHG Growth Fund (the "Growth Fund"),
PBHG Emerging Growth Fund (the "Emerging Growth Fund"), PBHG Large Cap Growth
Fund (the "Large Cap Growth Fund"), PBHG Select Equity Fund (the "Select Equity
Fund"), PBHG Core Growth Fund (the "Core Growth Fund"), PBHG Limited Fund (the
"Limited Fund"), PBHG Large Cap 20 Fund (the "Large Cap 20 Fund"), PBHG Large
Cap Value Fund (the "Large Cap Value Fund"), PBHG Mid-Cap Value Fund (the "Mid-
Cap Value Fund), PBHG Small Cap Value Fund (the "Small Cap Value Fund"), PBHG
International Fund (the "International Fund"), PBHG Cash Reserves Fund (the
"Cash Reserves Fund"), PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), and PBHG Strategic Small Company Fund (the "Strategic
Small Company Fund").
Who is the Adviser and each of the Sub-Advisers? Pilgrim Baxter &
Associates, Ltd. ("Adviser") serves as the investment adviser to each Portfolio.
Newbold's Asset Management, Inc. ("Newbold's") serves as the sub-adviser to the
Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company
Funds. Murray Johnstone International Limited ("Murray Johnstone") serves as the
sub-adviser to the International Fund. Wellington Management Company, LLP
("Wellington") serves as the sub-adviser to the Cash Reserves Fund. See "The
Adviser," "Newbold's," "Murray Johnstone," and "Wellington" under the caption
"General Information."
Who is the Administrator and Sub-Administrator? PBHG Fund Services, a
wholly-owned subsidiary of the Adviser, serves as the administrator of the Fund,
and SEI Fund Resources, an affiliate of the Fund's distributor, serves as
sub-administrator of the Fund. See "The Administrator and Sub-Administrator"
under the caption "General Information."
Who is the Transfer Agent and Sub-Transfer Agent? DST Systems, Inc.
serves as the transfer agent, dividend disbursing agent and shareholder
servicing agent of the Fund (the "Transfer Agent"). The Fund may also pay
amounts to certain third parties that provide sub-transfer agency and other
administrative services relating to the Fund to persons who beneficially own
interests in the Fund. See "The Transfer Agent and Sub-Transfer Agents" under
the caption "General Information."
Who Is the Distributor? SEI Financial Services Company provides the
Fund with distribution services. See "The Distributor" under the caption
"General Information."
Is There a Sales Load? No, PBHG Class shares of each Portfolio are
offered on a no-load basis.
Is There a Minimum Investment? Each Portfolio (except the Limited Fund
and Strategic Small Company Fund) has a minimum initial investment of $2,500 for
regular accounts and $2,000 for IRAs. The Limited Fund and Strategic Small
Company Fund each have a minimum initial investment of $5,000 for regular
accounts and $2,000 for IRAs. Each Portfolio, however, has a minimum initial
investment of $500 for both regular accounts and IRAs provided a Systematic
Investment Plan is established by the investor with a minimum investment of $25
per month at the same time that the initial investment is made.
-2-
<PAGE>
How Do I Purchase and Redeem Shares? Purchases and redemptions may be
made through the Transfer Agent on any day on which the New York Stock Exchange
is open for business ("Business Day"). However, shares of the Cash Reserves Fund
cannot be purchased by Federal Reserve wire on federal holidays restricting wire
transfers. A purchase order will be effective as of the Business Day received by
the Transfer Agent if the Transfer Agent receives sufficient information to
execute the order and receives payment by check or readily available funds prior
to 2:00 p.m., Eastern time for the Cash Reserves Fund and 4:00 p.m., Eastern
time for each of the other Portfolios. Redemption orders placed with the
Transfer Agent prior to 2:00 p.m., Eastern time for the Cash Reserves Fund and
4:00 p.m., Eastern time for each of the other Portfolios on any Business Day
will be effective that day. The purchase and redemption price for shares is the
net asset value per share determined as of the end of the day the order is
effective. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
EXPENSE SUMMARY
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in PBHG Class shares.
Annual Operating Expenses (as a percentage of average net assets after
applicable fee waivers)
<TABLE>
<CAPTION>
Total Operating Expenses (net of
Advisory 12b-1 Other reimbursement after fee waiver or
Fees(1) Fees Expenses(1)(2) expense reimbursement, if any)(3)
<S> <C> <C> <C> <C>
Growth Fund .85% None .40% 1.25%
Emerging Growth Fund .85% None .43% 1.28%
Large Cap Growth Fund .75% None .48% 1.23%
Select Equity Fund .85% None .41% 1.26%
Core Growth Fund .85% None .51% 1.36%
Limited Fund 1.00% None .42% 1.42%
Large Cap 20 Fund .85% None .65% 1.50%
Large Cap Value Fund .65% None .85% 1.50%
Mid-Cap Value Fund .85% None .65% 1.50%
Small Cap Value Fund 1.00% None .50% 1.50%
International Fund 1.00% None 1.22% 2.22%
Cash Reserves Fund .30% None .38% .68%
Technology & Communications Fund .85% None .48% 1.33%
Strategic Small Company Fund 1.00% None .50% 1.50%
</TABLE>
(1) For the Large Cap 20, Large Cap Value, Mid-Cap Value, Small Cap Value
and Strategic Small Company Funds, "Advisory Fees" and "Other Expenses"
are based on estimated amounts for the current fiscal year. Estimated
Advisory Fees and Other Expenses are shown for each of those Portfolios
because they have been in existence for less than six months. For the
fiscal period ended March 31, 1997, the actual Advisory Fees and Total
Expenses as a percentage of the average net assets of the Large Cap
Value Fund would have been 0.85% and 1.74%, respectively, absent
waivers of fees and expenses. On March 6, 1997, the Board of Directors
of the Fund voted to reduce the Advisory Fees for the Large Cap Value
Fund from 0.85% to 0.65% of average net assets, effective May 1, 1997.
(2) A wire redemption charge, currently $10.00, is deducted from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. A charge of $12.00 may be imposed annually on accounts
that fall below the minimum account size as a result of shareholder
redemptions. See "How to Redeem Shares -- Minimum Account Size" for the
minimum account size of each Portfolio.
(3) The Adviser has agreed to waive or limit its Advisory Fees or assume
Other Expenses in an amount that operates to limit annual operating
expenses of the Core Growth, Limited, Large Cap 20, Large Cap Value,
Mid-Cap Value, Small Cap Value and Strategic Small Company Funds to no
more than 1.50% of the average daily net assets of each such Portfolio.
In addition, the Adviser has agreed to waive or limit its Advisory Fees
or assume Other Expenses in an amount that operates to limit the annual
operating expenses of the International Fund to no more than 2.25% of
the average daily net assets of that Portfolio. Each such waiver of
Advisory Fees or assumptions of Other Expenses by the Adviser is
subject to a possible reimbursement by each Portfolio in future years
if such reimbursement can be achieved within the foregoing annual
expense limits. Nevertheless, it is not expected that the Adviser will
need to waive or limit its Advisory Fees or to assume Other Expenses
for each of those Portfolios during the current fiscal year, assuming
the average assets of each of those Portfolios is at least $50 million.
-3-
<PAGE>
EXAMPLE An investor in a Portfolio would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return, and (2) redemption
at the end of each time period.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Fund $13 $40 $69 $151
Emerging Growth Fund $13 $41 $70 $155
Large Cap Growth Fund $13 $39 $68 $149
Select Equity Fund $13 $40 $69 $152
Core Growth Fund $14 $43 $74 $164
Limited Fund $14 $45 N/A N/A
Large Cap 20 Fund $15 $47 N/A N/A
Large Cap Value Fund $15 $47 N/A N/A
Mid-Cap Value Fund $15 $47 N/A N/A
Small Cap Value Fund $15 $47 N/A N/A
International Fund $23 $69 $119 $255
Cash Reserves Fund $7 $22 $38 $85
Technology &
$14 $42 $73 $160
Communications Fund
Strategic Small Company Fund $15 $47 N/A N/A
</TABLE>
The example is based upon estimated total operating expenses for the Portfolios,
as set forth in the "Annual Operating Expenses" table above. The example should
not be considered a representation of past or future expenses. Actual expenses
may be greater or less than those shown. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in PBHG Class shares of each
Portfolio. See "The Adviser" and "The Administrator and Sub-Administrator" under
the caption "General Information."
FINANCIAL HIGHLIGHTS
The following information for the fiscal period ended March 31, 1997 has been
audited by Coopers & Lybrand L.L.P., the Fund's current independent accountants.
The information for the fiscal periods ended March 31, 1994, 1995 and 1996 was
audited by Arthur Andersen LLP, the Fund's former independent public
accountants. Arthur Andersen LLP served as the Fund's independent public
accountants from August 1993 to November, 1996. The information with respect to
the Growth Fund for the periods from April 1, 1989 to March 31, 1993, was
audited by the Fund's independent public accountants that preceded Arthur
Andersen LLP for those periods. The information for the periods prior to April
1, 1989, is unaudited. The Fund's audited financial statements are incorporated
by reference into the Fund's Statement of Additional Information under
"Financial Information." The following tables should be read in conjunction with
the Fund's financial statements and notes thereto. Additional information about
each Portfolio's performance is contained in the Fund's Annual Report, which may
be obtained (without charge) by calling 1-800-433-0051. No information with
respect to the Mid-Cap Value Fund and the Small Cap Value Fund is included in
the following table because these Portfolios commenced operation after March 31,
1997.
-4-
<PAGE>
FOR A PBHG CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
Realized and Net
Net Asset Net Unrealized Distributions Asset Net Assets
Value Investment Gains or from Net Distributions Value End of
Beginning Income Losses Investment from Capital End of Total Period
of Period (Loss) on Securities Income Gains Period Return (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $25.30 $(0.10) $(4.14) - - $21.06 (16.76)% $4,634,138
- ------------------------------------------------------------------------------------------------------------------------------------
1996 16.70 (0.06) 8.66 - - 25.30 51.50% 3,298,925
- ------------------------------------------------------------------------------------------------------------------------------------
1995 14.67 (0.05) 2.09 - $(0.01) 16.70 13.92% 1,014,832
- ------------------------------------------------------------------------------------------------------------------------------------
1994 10.83 (0.03) 4.06 - (0.19) 14.67 37.28% 319,059
- ------------------------------------------------------------------------------------------------------------------------------------
1993 10.37 (0.16) 3.07 - (2.45) 10.83 34.47% 6,069
- ------------------------------------------------------------------------------------------------------------------------------------
1992 11.51 (0.06) 1.35 - (2.43) 10.37 13.78% 7,339
- ------------------------------------------------------------------------------------------------------------------------------------
1991 10.86 (0.01) 1.45 - (0.79) 11.51 16.94% 10,356
- ------------------------------------------------------------------------------------------------------------------------------------
1990 10.84 (0.05) 2.92 $(0.04) (2.81) 10.86 27.11% 18,849
- ------------------------------------------------------------------------------------------------------------------------------------
1989 10.44 0.02 0.41 - (0.03) 10.84 3.98% 23,494
- ------------------------------------------------------------------------------------------------------------------------------------
1988 16.78 0.01 (2.11) - (4.24) 10.44 (13.10)% 28,407
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $23.07 $(0.11) $(2.87) - $(0.83) $19.26 (13.71)% $1,195,620
- ------------------------------------------------------------------------------------------------------------------------------------
1996 16.10 (0.07) 8.03 - (0.99) 23.07 50.16% 689,705
- ------------------------------------------------------------------------------------------------------------------------------------
1995(1,2) 14.59 (0.01) 1.56 - (0.04) 16.10 10.64%+ 411,866
- ------------------------------------------------------------------------------------------------------------------------------------
1994(1) 13.22 (0.03) 2.38 - (0.98) 14.59 19.64% 113,329
- ------------------------------------------------------------------------------------------------------------------------------------
1993(3) 10.00 (0.03) 3.25 - - 13.22 32.20%c+ 34,517
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $14.53 $(0.05) $(0.21) - $(0.01) $14.26 (1.77)% $119,971
- ------------------------------------------------------------------------------------------------------------------------------------
1996(4) 10.00 (0.03) 4.97 - (0.41) 14.53 50.47%* 53,759
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Select Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $17.27 $(0.13) $(1.03) - $(0.20) $15.91 (6.94)% $372,486
- ------------------------------------------------------------------------------------------------------------------------------------
1996(4) 10.00 (0.05) 7.68 - (0.36) 17.27 77.75%* 202,796
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Core Growth Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $11.82 $(0.09) $(1.39) - - $10.34 (12.52)% $283,995
- ------------------------------------------------------------------------------------------------------------------------------------
1996(5) 10.00 - 1.82 - - 11.82 18.20%+ 31,092
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Limited Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997(6) $10.00 $0.02 $(0.93) $(0.03) $(0.01) $9.05 (9.15)%+ $137,520
<PAGE>
Ratio of
Net
Ratio of Investment
Net Ratio of Income
Ratio of Investment Expenses (Loss) to
Expenses Income to Average Average
to (Loss) to Net Assets Net Assets Portfolio Average
Average Average (Excluding (Excluding Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate Paid++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth Fund
- ----------------------------------------------------------------------------------------------------------------
1997 1.25% (0.69)% 1.25% (0.69)% 64.89% $0.0493
- ----------------------------------------------------------------------------------------------------------------
1996 1.48% (0.79)% 1.48% (0.79)% 44.64% N/A
- ----------------------------------------------------------------------------------------------------------------
1995 1.50% (0.69)% 1.50% (0.69)% 118.75% N/A
- ----------------------------------------------------------------------------------------------------------------
1994 1.55% (0.78)% 1.59% (0.82)% 94.28% N/A
- ----------------------------------------------------------------------------------------------------------------
1993 2.39% (1.69)% 3.04% (2.34)% 209.24% N/A
- ----------------------------------------------------------------------------------------------------------------
1992 1.52% (0.55)% 2.00% (1.03)% 114.54% N/A
- ----------------------------------------------------------------------------------------------------------------
1991 1.50% (0.09)% 1.75% (0.34)% 228.02% N/A
- ----------------------------------------------------------------------------------------------------------------
1990 1.32% (0.35)% 1.32% (0.35)% 219.41% N/A
- ----------------------------------------------------------------------------------------------------------------
1989 1.19% 0.20% 1.19% 0.20% 175.01% N/A
- ----------------------------------------------------------------------------------------------------------------
1988 1.21% 0.02% 1.21% 0.02% 208.41% N/A
- ----------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth Fund
- ----------------------------------------------------------------------------------------------------------------
1997 1.28% (0.36)% 1.28% (0.36)% 47.75% $0.0328
- ----------------------------------------------------------------------------------------------------------------
1996 1.47% (0.42)% 1.47% (0.42)% 97.05% N/A
- ----------------------------------------------------------------------------------------------------------------
1995(1,2) 1.50%* (0.08)%* 1.50%* (0.08)%* 27.50% N/A
- ----------------------------------------------------------------------------------------------------------------
1994(1) 1.45% (0.77)% 1.45% (0.77)% 95.75% N/A
- ----------------------------------------------------------------------------------------------------------------
1993(3) 1.50%* (0.72)%* 1.54%* (0.76)%* 71.18% N/A
- ----------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth Fund
- ----------------------------------------------------------------------------------------------------------------
1997 1.23% (0.47)% 1.23% (0.47)% 51.70% $0.0547
- ----------------------------------------------------------------------------------------------------------------
1996(4) 1.50%* (0.66)%* 2.07%* (1.23)%* 116.75% N/A
- ----------------------------------------------------------------------------------------------------------------
PBHG Select Equity Fund
- ----------------------------------------------------------------------------------------------------------------
1997 1.26% (0.76)% 1.26% (0.76)% 71.70% $0.0443
- ----------------------------------------------------------------------------------------------------------------
1996(4) 1.50%* (0.74)%* 1.73%* (0.97)%* 206.22% N/A
- ----------------------------------------------------------------------------------------------------------------
PBHG Core Growth Fund
- ----------------------------------------------------------------------------------------------------------------
1997 1.36% (0.77)% 1.36% (0.77)% 46.75% $0.0437
- ----------------------------------------------------------------------------------------------------------------
1996(5) 1.50%* (0.18)%* 2.92%* (1.60)%* 17.00% N/A
- ----------------------------------------------------------------------------------------------------------------
PBHG Limited Fund
- ----------------------------------------------------------------------------------------------------------------
1997(6) 1.42%* 0.33%* 1.42%* 0.33%* 75.46% $0.0304
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Realized and Net
Net Asset Net Unrealized Distributions Asset Net Assets
Value Investment Gains or from Net Distributions Value End of
Beginning Income Losses Investment from Capital End of Total Period
of Period (Loss) on Securities Income Gains Period Return (000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG Large Cap 20 Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997(7) $10.00 $(0.01) $(0.73) $(0.01) - $9.25 (7.40)%+ $69,819
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997(8) $10.00 $0.02 $0.09 - - $10.11 1.10%+ $26,262
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG International Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $10.55 - $0.71 - - $11.26 6.73% $21,265
- ------------------------------------------------------------------------------------------------------------------------------------
1996 9.13 (0.04) 1.46 - - 10.55 15.55% 11,243
- ------------------------------------------------------------------------------------------------------------------------------------
1995(9) 10.00 (0.03) (0.80) - $(0.04) 9.13 (8.33)%+ 15,236
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $1.00 $0.05 - $(0.05) - $1.00 4.89% $341,576
- ------------------------------------------------------------------------------------------------------------------------------------
1996(4) 1.00 0.05 - (0.05) - 1.00 5.24%* 99,001
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Technology & Communications Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997 $12.48 $(0.05) $2.55 - $(0.35) $14.63 19.59% $493,156
- ------------------------------------------------------------------------------------------------------------------------------------
1996(10) 10.00 (0.02) 2.50 - - 12.48 24.82%+ 61,772
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG Strategic Small Company Fund
- ------------------------------------------------------------------------------------------------------------------------------------
1997(8) $10.00 - $(1.14) - - $8.86 (11.40)%+ $61,382
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*****
<PAGE>
<TABLE>
<CAPTION>
Ratio of
Net
Ratio of Investment
Net Ratio of Income
Ratio of Investment Expenses (Loss) to
Expenses Income to Average Average
to (Loss) to Net Assets Net Assets Portfolio Average
Average Average (Excluding (Excluding Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate Paid++
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Large Cap 20 Fund
- ----------------------------------------------------------------------------------------------------------------
1997(7) 1.50%* 0.17%* 1.50%* 0.17%* 43.98% $0.0550
- ---------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value Fund
- ---------------------------------------------------------------------------------------------------------------
1997(8) 1.50%* 1.61%* 1.74%* 1.37%* 0.00% $0.0588
- ---------------------------------------------------------------------------------------------------------------
PBHG International Fund
- ---------------------------------------------------------------------------------------------------------------
1997 2.22% (0.32)% 2.22% (0.32)% 74.82% $0.0287
- ---------------------------------------------------------------------------------------------------------------
1996 2.25% (0.22)% 3.03% (1.00)% 140.26% N/A
- ---------------------------------------------------------------------------------------------------------------
1995(9) 2.25%* (0.43)%* 2.36%* (0.54)%* 81.72% N/A
- ---------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves Fund
- ---------------------------------------------------------------------------------------------------------------
1997 0.68% 4.79% 0.68% 4.79% N/A N/A
- ---------------------------------------------------------------------------------------------------------------
1996(4) 0.70%* 5.05%* 0.88%* 4.87%* N/A N/A
- ---------------------------------------------------------------------------------------------------------------
PBHG Technology & Communications Fund
- ---------------------------------------------------------------------------------------------------------------
1997 1.33% (0.59)% 1.33% (0.59)% 289.91% $0.0365
- ---------------------------------------------------------------------------------------------------------------
1996(10) 1.50%* (0.50)%* 2.00%* (1.00)%* 125.99% N/A
- ---------------------------------------------------------------------------------------------------------------
PBHG Strategic Small Company Fund
- ---------------------------------------------------------------------------------------------------------------
1997(8) 1.50%* 0.18%* 1.50%* 0.18%* 88.88% $0.0562
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Total returns have not been annualized.
++ Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate paid is only required for
reporting periods beginning after September 1, 1995.
(1) The information set forth in this table for the periods prior to June 2,
1994 is the financial data of the Pilgrim Baxter Emerging Growth Fund, a
series of the Advisors' Inner Circle Fund. The PBHG Emerging Growth Fund
acquired the assets and assumed the liabilities of the Pilgrim Baxter
Emerging Growth Fund on June 2, 1994. The PBHG Emerging Growth Fund
retained the October 31 fiscal year end of its predecessor only for fiscal
year 1994. The PBHG Emerging Growth Fund changed its fiscal year end to
March 31, in 1995 and reported financial information for the fiscal period
from November 1, 1994 to March 31, 1995.
(2) Per share calculations were performed using average shares for the period.
(3) The Pilgrim Baxter Emerging Growth Fund, the predecessor series to the
PBHG Emerging Growth Fund, commenced operations on June 15, 1993.
(4) The PBHG Select Equity Fund, the PBHG Large Cap Growth Fund, and the PBHG
Cash Reserves Fund commenced operations on April 5, 1995.
(5) The PBHG Core Growth Fund commenced operations on January 2, 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.
(8) The PBHG Large Cap Value Fund and PBHG Strategic Small Company Fund
commenced operations on January 2, 1997.
(9) The PBHG International Fund commenced operations on June 14, 1994.
(10) The PBHG Technology & Communications Fund commenced operations on October
2, 1995.
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
THE FUND AND THE PORTFOLIOS
The Fund is an open-end management investment company that offers by means of
this Prospectus shares in 14 separate series: Growth Fund, Emerging Growth Fund,
Large Cap Growth Fund, Select Equity Fund, Core Growth Fund, Limited Fund, Large
Cap 20 Fund, Large Cap Value Fund, Mid-Cap Value Fund, Small Cap Value Fund,
International Fund, Cash Reserves Fund, Technology & Communications Fund and
Strategic Small Company Fund. Each share of each Portfolio represents an
undivided interest in that Portfolio. The Fund's shares are currently divided
into two classes of shares (PBHG Class and Trust Class) having such preferences
and special or relative rights and privileges as the Board of Directors
determines. Only the Fund's PBHG Class shares are offered by this Prospectus.
Trust Class shares are generally subject to the same expenses as the PBHG Class
shares but also bear a Rule 12b-1 shareholder servicing fee of up to 0.25% of
the average daily net assets attributable to its shares. Trust Class shares are
currently available for the Growth Fund only and are offered by a separate
prospectus, which is available without charge by calling 1-800-433-0051.
Additional information pertaining to the Fund may be obtained in writing from
the Fund's Transfer Agent at DST Systems, Inc., P.O. Box 419534, Kansas City,
Missouri 64141-6534, or by calling 1-800-433-0051.
INVESTMENT OBJECTIVES AND POLICIES
PBHG GROWTH FUNDS
PBHG Growth Fund
The Growth Fund seeks capital appreciation. The Portfolio will normally be as
fully invested as practicable in common stocks and securities convertible into
common stocks, but also may invest up to 5% of its assets in warrants and rights
to purchase common stocks. In the opinion of the Adviser, there may be times
when the shareholders' interests are best served and the investment objective is
more likely to be achieved by having varying amounts of the Portfolio's assets
invested in convertible securities. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in common stocks and
convertible securities of small and medium sized growth companies (i.e.,
companies with market capitalization or annual revenues of up to $2 billion).
The average market capitalizations or annual revenues of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $2 billion subsequent to purchase,
if the company continues to satisfy the other investment policies of the
Portfolio.
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of a
decline in market price is too great. Because of its policy with respect to the
sales of investments, the Portfolio may from time to time realize short-term
gains or losses. The Portfolio will likely have greater volatility than the
stock market in general, as measured by the Standard & Poor's 500 Stock Index
("S&P 500"). Because the investment techniques employed by the Adviser are
responsive to near-term earnings trends of the companies whose securities are
owned by the Portfolio, portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
-7-
<PAGE>
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.
PBHG Emerging Growth Fund
The Emerging Growth Fund seeks long-term growth of capital. The Portfolio will
normally be as fully invested as practicable in common stocks (including ADRs),
but also may invest in equity securities such as warrants and rights to purchase
common stocks, preferred stocks, and securities convertible into or exchangeable
for common stocks. Under normal market conditions, the Portfolio will invest at
least 65% of its total assets in common stocks of domestic emerging growth
companies that have historically exhibited exceptional or strong growth
characteristics and, in the Adviser's opinion, have an expected trend of
earnings higher than that of the U.S. market as a whole. Such companies
generally have market capitalizations or annual revenues of up to $500 million.
The average market capitalizations or annual revenues of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $500 million subsequent to
purchase, if the company continues to satisfy the other investment policies of
the Portfolio. The Adviser will not consider dividend income when selecting
common stocks for the Portfolio.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
While it has no present intention to do so, the Portfolio reserves the right to
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, to purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities. The Portfolio may invest in restricted securities, but will not
invest more than 5% of its net assets in restricted securities that the Adviser
determines are illiquid based on guidelines approved by the Board of Directors
of the Fund. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG Large Cap Growth Fund
The Large Cap Growth Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign securities). The equity securities in which the Portfolio will invest
are common stocks, warrants and rights to purchase common stocks, preferred
stocks and securities convertible into or exchangeable for common stocks.
Normally, the Portfolio will purchase exchange-traded and over-the-counter
equity securities, including foreign securities traded in the United States. The
Portfolio may invest in convertible debt securities rated investment grade by a
nationally recognized statistical rating organization ("NRSRO") (i.e., within
one of the four highest rating categories).
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion (with a median market capitalization of approximately $2.75
billion). The Adviser also will consider the diversity of industries in choosing
investments for the Portfolio.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks and
stock indices. The Portfolio may also invest up to 15% of its net assets in
illiquid securities, but will not invest more than 5% of its net assets in
restricted securities that the Adviser determines are illiquid based on
guidelines approved by the Board of Directors of the Fund. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" for a fuller
description. The Portfolio may purchase securities on a when-issued or delayed
delivery basis. See "Risk Factors" and "Glossary of Permitted Investments" for
additional information.
-8-
<PAGE>
PBHG Select Equity Fund
The Select Equity Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks,
preferred stocks and securities that are convertible into or exchangeable for
common stocks. The Portfolio may invest in convertible debt securities rated
investment grade by an NRSRO (i.e., within one of the four highest rating
categories). Normally, the Portfolio will purchase exchange-traded and
over-the-counter equity securities, including foreign securities traded in the
United States. The Adviser will consider the diversity of industries in choosing
investments for the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of a limited number of companies that, in the
Adviser's opinion, have a strong earnings growth outlook and potential for
capital appreciation. Normally, the Portfolio's investments will be limited to a
relatively small number of stocks (e.g., no more than 30 stocks) of small,
medium and large capitalization companies. Because the Portfolio focuses on a
small number of stocks, the impact of a change in value of a stock holding may
be magnified.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.
PBHG Core Growth Fund
The Core Growth Fund seeks long-term capital appreciation. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (i.e., common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of companies, without regard to market capitalization, that are
believed by the Adviser to have superior long-term growth prospects and
potential for long-term capital appreciation.
The Adviser seeks to invest in companies poised for rapid growth that have an
historical record of above-average earnings growth, demonstrate the ability to
sustain strong earnings growth, and operate in industries or markets that may be
experiencing increased demand for their products or services. Such companies may
include ones that the Adviser has invested in or believes are good prospects for
certain of its other Portfolios. The Adviser will consider diversity of
industries in choosing investments for the Portfolio and will not limit the
number of small, medium and large capitalization companies in which the
Portfolio will invest.
The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may use high-quality money market investments or short-term bonds to reduce
downside volatility during uncertain or declining market conditions and for
temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" for a
fuller description. The Portfolio may purchase securities on a when-issued or
delayed delivery basis. See "Risk Factors" and "Glossary of Permitted
Investments" for additional information.
-9-
<PAGE>
PBHG Limited Fund
The Limited Fund seeks long-term capital appreciation. Under normal conditions,
the Portfolio will invest primarily in a diversified portfolio of equity
securities (i.e., common stocks, preferred stocks, rights, warrants and
securities convertible into or exchangeable for common stocks) of companies,
with smaller market capitalizations or annual revenues of up to $250 million,
that are believed by the Adviser to have superior long-term growth prospects and
potential for long-term capital appreciation. The average and median market
capitalizations of holdings in the Portfolio may, however, fluctuate over time
as a result of market valuation levels and the availability of specific
investment opportunities. In addition, the Portfolio may continue to hold
securities of companies whose market capitalizations or revenues grow above $250
million subsequent to purchase, if such companies continue to satisfy the other
investment policies of the Portfolio.
The Portfolio seeks to invest in smaller capitalization companies poised for
rapid and dynamic growth. In selecting holdings for the Portfolio, the Adviser
focuses on companies that possess exceptional or strong historical growth
characteristics and whose trend of earnings and stock prices are expected by the
Adviser to grow faster than those of the U.S. stock market as a whole. Dividend
income will not be considered in selecting holdings for the Portfolio.
The securities of smaller companies are usually less actively followed by
analysts and may be undervalued by the market, which can provide significant
opportunities for capital appreciation. However, the securities of such smaller
companies may also involve greater risks and may be subject to more volatile
market movements than securities of larger, more established companies. See
"Risk Factors" for more information about smaller company securities.
The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may also engage in securities lending. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Glossary of
Permitted Investments" for additional information.
PBHG Large Cap 20 Fund
The Large Cap 20 Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks, and
debt securities and preferred stock that are convertible into common stocks. The
Portfolio may invest in convertible debt securities rated investment grade by an
NRSRO (i.e., within one of the four higher rating categories). The Adviser will
consider the diversity of industries in choosing investments for the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of a limited number (i.e., no more than 20
stocks) of large capitalization companies that, in the Adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because the
Portfolio focuses on equity securities of a small number of companies, the
impact of a change in value of a single stock holding may be magnified.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The
-10-
<PAGE>
Portfolio may also engage in securities lending. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" for a fuller
description. The Portfolio may purchase securities on a when-issued or delayed
delivery basis. See "Risk Factors" and "Glossary of Permitted Investments" for
additional information.
PBHG VALUE FUNDS
PBHG Large Cap Value Fund
The Large Cap Value Fund seeks long-term growth of capital and income. Current
income is a secondary objective. Under normal market conditions, the Portfolio
will invest at least 65% of its total assets in a diversified portfolio of
equity securities (i.e., common stocks, preferred stocks, rights, warrants and
securities convertible into or exchangeable for common stocks) of large
capitalization companies which, in the opinion of the Adviser and Newbold's, are
undervalued or overlooked by the market. Such large companies have market
capitalizations in excess of $1 billion at the time of purchase.
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value: the relationship of
a company's potential earnings power to the current market price of its stock;
continuing dividend income and the potential for increasing dividend growth; a
strong balance sheet with low financial leverage; low price/earnings ratio
relative to either that company's historical results or the current ratios for
other similar companies; and potential for favorable business developments. The
Portfolio may invest in equity securities of companies that are considered to be
financially sound and attractive investments based on their long-term operations
which may be experiencing temporary earnings declines due to adverse economic
conditions that may be company or industry specific or due to unfavorable
publicity. The Portfolio may invest in such companies when the Adviser and
Newbold's believe that those companies will react positively to changing
economic conditions or that such companies have taken or are expected to take
actions designed to return their earnings to historical levels or otherwise
increase the market price of their securities.
The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total asset
in securities of foreign issuers, including ADRs, and may also invest up to 15%
of its net assets in restricted or illiquid securities. The Portfolio may also
engage in securities lending. The Portfolio may use high-quality money market
investments or short-term bonds to reduce downside volatility during uncertain
or declining market conditions. For temporary defensive purposes, the Portfolio
may invest in money market securities or short-term bonds without limitation.
See "Temporary Investments" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis.
The use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG Mid-Cap Value Fund
The Mid-Cap Value Fund seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in
common stocks and other equity securities of companies with market
capitalizations in the range of companies represented in the Standard & Poor's
Mid-Cap 400 Index ("S&P 400"), which are considered to be relatively undervalued
based on certain proprietary measures of value.
The current market capitalization of companies represented in the S&P 400 is
typically between $200 million and over $5 billion. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings ratios than the average of those in the S&P 400. Under normal
circumstances, the Portfolio will be structured taking into account the economic
sector weighings of the S&P 400 with the Portfolio's sector weightings normally
within 5% of the sector weightings of that Index.
-11-
<PAGE>
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value and capital
appreciation potential: the relationship of a company's potential earnings power
to its current stock price; current dividend income and the potential for
dividend growth; low price/earnings ratio relative to other similar companies;
strong competitive advantages, including a recognized brand or trade name or
niche market position; sufficient resources for expansion; capability of
management; and favorable overall business prospects. The Portfolio may invest
in securities of companies that are considered to be financially sound and
attractive investments based on their operating history, but which may be
experiencing temporary earnings declines due to adverse economic conditions that
may be company or industry specific or due to unfavorable publicity. The
Portfolio may invest in such companies when the Adviser and Newbold's believe
that those companies will react positively to changing economic conditions or
that such companies have taken or are expected to take actions designed to
improve their financial fundamentals or to otherwise increase the market price
of their securities. The use of a valuation approach may result in investment
selections that may be out-of-favor or counter to those of other investors.
However, such an approach may also produce significant capital appreciation.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities (i.e., common stocks, preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
undervalued medium capitalization issuers. The equity securities in which the
Portfolio invests normally will be traded in the United States or Canada on a
registered securities exchange or established over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers, including ADRs and other similar instruments. The Portfolio may also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of Portfolio's net assets and (ii) the
total market value of securities underlying all futures contracts does not
exceed 50% of the value of the Portfolio's total assets. In addition, the
Portfolio may invest up to 15% of its net assets in restricted or illiquid
securities. This limitation does not include any Rule 144A security that has
been determined to be liquid pursuant to procedures established by the Board.
The Portfolio may also engage in securities lending. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" below for a fuller
description. In addition, the Portfolio may purchase securities on a when-issued
or delayed delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.
PBHG Small Cap Value Fund
The Small Cap Value Fund seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks of small
companies with market capitalizations in the range of companies represented in
the Russell 2000 Index, which are considered to be relatively undervalued based
on certain proprietary measures of value.
The current market capitalization of companies represented in the Russell 2000
Index is typically between $57 million and $610 million. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the average of those in the
Russell 2000 Index. Under normal circumstances, the Portfolio will be structured
taking into account the economic sector weightings of the Russell 2000 Index,
with the Portfolio's sector weightings normally within 5% of the sector
weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value: the relationship of
a company's potential earnings power to its current stock price; current
dividend income and the potential for current dividends; low price/earnings
ratio relative to other similar companies; strong competitive advantages,
including a recognized brand or trade name or niche market position; sufficient
resources for expansion; capability of management; and favorable overall
business prospects. The Portfolio may invest in common stocks of companies that
are considered to be financially sound and attractive investments based on their
operating history, but which may be experiencing temporary earnings declines due
to adverse economic conditions
-12-
<PAGE>
that may be company or industry specific or due to unfavorable publicity. The
Portfolio may invest in such companies when the Adviser and Newbold's believe
that those companies will react positively to changing economic conditions or
that such companies have taken or are expected to take actions designed to
improve their financial fundamentals or to otherwise increase the market price
of their securities. The use of a valuation approach may result in investment
selections that may be out-of-favor or contrary to those of other investors.
However, such an approach may also produce significant capital appreciation.
In addition to the Portfolio's primary investment (i.e., under normal market
conditions, at least 65% of its total assets will be invested in common stocks
of undervalued small capitalization companies), the Portfolio may also invest in
other equity securities (i.e., preferred stocks, warrants and securities
convertible into or exchangeable for common stocks) of such small capitalization
issuers. The Portfolio may also utilize futures contracts (i.e., purchase and
sell futures contracts) to the extent that (i) aggregate initial margin deposits
to establish other than "bona fide hedging" positions do not exceed 5% of the
Portfolio's net assets and (ii) the total market value of securities underlying
all futures contracts does not exceed 50% of the value of the Portfolio's total
assets. In addition, the Portfolio may invest up to 15% of its net assets in
restricted or illiquid securities. This limitation does not include any Rule
144A security that has been determined to be liquid pursuant to procedures
established by the Board. The Portfolio may also engage in securities lending.
The Portfolio may use high-quality money market investments or short-term bonds
to reduce downside volatility during uncertain or declining market conditions
and, for temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" below
for a fuller description.
The securities in which the Portfolio invests normally will be traded in the
United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total asset
in securities of foreign issuers, including ADRs and other similar instruments.
In addition, the Portfolio may purchase securities on a when-issued or delayed
delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.
PBHG SPECIALTY FUNDS
PBHG International Fund
The International Fund seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of non-U.S.
issuers. Country selection is a significant part of the investment process.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in securities of issuers in at least three countries other than
the United States. The Portfolio may invest more than 25% of its total assets in
the securities of issuers whose principal activities are in specific countries
or geographic regions, including emerging markets. The term "emerging markets"
applies to any country which is generally considered to be an emerging or
developing country by the international financial community.
Under normal circumstances, the Portfolio's assets will be fully invested in the
following equity securities of non-U.S. companies: common stocks, securities
convertible into or exchangeable for common stocks, preferred stocks, warrants
and rights to subscribe to common stocks. The Portfolio may purchase securities
of foreign issuers sold in foreign markets, on United States registered
exchanges, in the over-the-counter market, or in the form of sponsored or
unsponsored ADRs or Global Depositary Receipts. The Portfolio's investments in
equity securities are not based on company size and can range from small
capitalization companies to large, established companies.
The Portfolio generally will not hedge its currency exposure, since currency
considerations are an important part of the Portfolio's country and company
selection process. Nevertheless, the Portfolio may on occasion enter into
forward foreign currency contracts as a hedge against possible variations in
foreign exchange rates or to hedge a specific security transaction or portfolio
position. (A forward foreign currency contract is a commitment to purchase or
sell a specified currency, at a specified future date, at a specified price.)
In addition, when, in the opinion of the Adviser or Murray Johnstone, market
conditions so warrant, the Portfolio may invest, without limitation, in U.S. or
non-U.S. money market securities and short-term debt securities, including
securities issued or
-13-
<PAGE>
guaranteed by U.S. or non-U.S. governments or the agencies or instrumentalities
of such governments, and securities issued by supranational agencies. Such
securities will be of comparable quality to U.S. securities rated in one of the
four highest rating categories by an NRSRO.
Under normal market conditions, the Portfolio expects to be fully invested in
the equity securities described above. However, it may invest up to 15% of its
total assets in: swaps, options on securities, non-U.S. indices and currencies,
and futures contracts, including stock index futures contracts, and options on
futures contracts. The Portfolio is permitted to acquire floating and variable
rate debt securities, when-issued securities and illiquid and restricted
securities. The Portfolio will not invest more than 15% of its net assets in
illiquid securities. The Portfolio may invest in common stocks of closed-end
investment companies that invest primarily in international common stocks. If
the Portfolio invests in closed-end investment companies, the Portfolio's
shareholders will bear not only their proportionate share of the expenses of the
Portfolio (including fees of the Adviser), but also will indirectly bear similar
expenses of the underlying closed-end fund. The Portfolio may also engage in
securities lending. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG Cash Reserves Fund
The Cash Reserves Fund seeks to preserve principal value and maintain a high
degree of liquidity while providing current income. Under normal market
conditions the Portfolio invests in obligations denominated in U.S. dollars
consisting of: (i) commercial paper issued by U.S. and foreign issuers rated in
one of the two highest rating categories by any two NRSROs at the time of
investment, or, if not rated, determined by the Adviser or Wellington to be of
comparable quality; (ii) obligations (including certificates of deposit, time
deposits, bank notes and bankers' acceptances) of U.S. savings and loan and
thrift institutions, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have total
assets of $500 million or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations of
U.S. and foreign issuers with a remaining term of not more than one year of
issuers with commercial paper of comparable priority and security meeting the
above ratings; (iv) U.S. Treasury obligations and obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S. government; (v) securities issued by foreign governments, including
Canadian and Provincial Government and Crown Agency Obligations; (vi) short-term
obligations issued by state and local governmental issuers which are rated at
the time of investment by at least two NRSROs in one of the two highest
municipal bond rating categories, and carry yields that are competitive with
those of other types of money market instruments of comparable quality; and
(vii) repurchase agreements involving any of the foregoing obligations. The
Portfolio complies with regulations of the Securities and Exchange Commission
(the "SEC") applicable to money market funds. These regulations impose certain
quality, maturity and diversification restraints on investments. Under these
regulations, the Portfolio must maintain a dollar-weighted average portfolio
maturity of 90 days or less and generally, may invest only in securities with
maturities of 397 days or less. The purchase of single rated or unrated
securities by the Adviser or Wellington is subject to the approval or
ratification by the Board of Directors.
It is a fundamental policy of the Portfolio to use its best efforts to maintain
a constant net asset value of $1.00 per share. There can be no assurance that
the Portfolio will be able to maintain a net asset value of $1.00 per share on a
continuing basis. The Portfolio may invest up to 10% of its net assets in
illiquid securities. However, restricted securities, including Rule 144A
securities and Section 4(2) commercial paper, that meet the criteria established
by the Board of Directors of the Fund will be considered liquid. In addition,
the Portfolio may invest in U.S. Treasury STRIPS. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG Technology & Communications Fund
The Technology & Communications Fund seeks long-term growth of capital. Current
income is incidental to the Portfolio's objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in common
stocks of companies which rely extensively on technology or communications in
their product development or operations, or which are
-14-
<PAGE>
expected to benefit from technological advances and improvements, and that may
be experiencing exceptional growth in sales and earnings driven by technology-
or communication-related products and services.
Such technology and communications companies may be in many different industries
or fields, including computer software and hardware, electronic components and
systems, network and cable broadcasting, telecommunications, mobile
communications, satellite communications, defense and aerospace, transportation
systems, data storage and retrieval, biotechnology and medical, and
environmental. As a result of this focus, the Portfolio offers investors the
significant growth potential of companies that may be responsible for
breakthrough products or technologies or that are positioned to take advantage
of cutting-edge developments.
The Portfolio will normally be fully invested in common stocks (including ADRs)
of such technology and communications companies, but also may invest in warrants
and rights to purchase common stocks and debt securities and preferred stocks
convertible into or exchangeable for common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, established firms with track records in developing and marketing such
scientific advances.
Normally, the Portfolio will purchase only securities traded in the U.S. or
Canada on registered exchanges or in the over-the-counter market. The Portfolio
may also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio also may invest up to 15% of its net assets in illiquid
securities. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG Strategic Small Company Fund
The Strategic Small Company Fund seeks growth of capital. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (as previously defined herein) of
small capitalization companies. Such small companies have market capitalizations
or annual revenues of up to $750 million at the time of purchase. The Portfolio
may continue to hold securities of companies whose market capitalization or
revenues grow above that level if such companies continue to satisfy the other
investment policies of the Portfolio.
In selecting investments for the Portfolio, the Adviser or Newbold's 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 views of the Adviser and Newbold's of current
economic or market conditions and their long-term investment outlook. The
Portfolio is flexibly and strategically managed so that depending on the views
of the Adviser and Newbold's of economic or market conditions they will adjust
the mix of growth and value securities held by the Portfolio. Consequently, at
times it may be more heavily invested in growth securities and at other times it
may be more heavily invested in value securities.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs), and may invest up to 15% of its net assets in
restricted or illiquid securities. The Portfolio may also engage in securities
lending. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL BE ABLE TO ACHIEVE ITS
INVESTMENT OBJECTIVE.
-15-
<PAGE>
GENERAL INVESTMENT POLICIES AND STRATEGIES
Investment Process of the Adviser
The Adviser's investment process is both quantitative and fundamental, and is
extremely focused on quality earnings growth. In seeking to identify investment
opportunities, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for each
Portfolio and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of successful
growth, such as positive earnings surprises, upward earnings estimate revisions,
and accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct investment portfolios that possess strong growth
characteristics. The Adviser tries to keep each Portfolio fully invested at all
times. Because the universe of companies will undoubtedly experience volatility
in stock price, it is important that shareholders in the Portfolios maintain a
long-term investment perspective. Of course, there can be no assurance that use
of these techniques will be successful, even over the long term.
Investment Process of Newbold's
Newbold's investment process, like that of the Adviser, is both quantitative and
fundamental. In seeking to identify attractive investment opportunities,
Newbold's first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investing (such as consistency of dividend payment, balance
sheet strength and, low stock price relative to its assets, earnings, cash flow
and business franchise), Newbold's screens more than 8,000 possible companies
and creates an initial universe of statistically attractive value companies.
Following the creation of this universe of possible investments, Newbold's uses
its strong fundamental research capabilities to carefully identify securities
that are currently out of favor but which have the potential to achieve
significant appreciation as the marketplace recognizes their fundamental value.
Once constructed, portfolios are continually monitored for change. Newbold's
follows a disciplined valuation approach that requires it to sell any portfolio
security that it believes has become overvalued relative to the market. Sales of
portfolio securities are primarily triggered by the relative change in
price/earnings ratio. Adverse changes in other key value elements are, of
course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful, even over the long
term.
Investment Process of Murray Johnstone
The investment process of Murray Johnstone, like that of the Adviser, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the International Fund, Murray Johnstone starts by determining
the countries or geographic regions that, on the basis of its model criteria,
can provide the best investment opportunities for the International Fund. Murray
Johnstone's criteria for country selection incorporates twenty factors that are
used to score and rank each market. Following the creation of this investment
universe, Murray Johnstone uses its strong fundamental research capabilities to
identify individual companies having superior growth records and expectations,
sound balance sheets and high cash flow generation. After this identification
process, each company's investment value is evaluated by taking into account
such factors as relative price performance, upward earnings estimate revisions,
improving balance sheets and strength of management. Currency considerations
play a part in both country and company selection. Since the companies in which
the International Fund invests may experience greater price volatility than a
domestic stock portfolio, it is important that shareholders of the International
Fund maintain a long-term investment perspective. Of course, there can be no
assurance that the use of these techniques will be successful, even over the
long term.
-16-
<PAGE>
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. The portfolio turnover rate for the fiscal year or period
ended March 31, 1997 for each of the Portfolios (except the Mid-Cap Value and
Small Cap Value Funds) is specified in the Financial Highlights table. It is
expected that under normal market conditions, the annual portfolio turnover
rates for the Mid-Cap Value and Small Cap Value Funds will not exceed 400%. High
rates of portfolio turnover necessarily result in correspondingly greater
brokerage and portfolio trading costs, which are paid by the Portfolio. Trading
in fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. In addition, high rates of portfolio
turnover may adversely affect each Portfolio's status as a "regulated investment
company" ("RIC") under Section 851 of the Internal Revenue Code of 1986, as
amended ("Code").
Temporary Defensive Positions
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or a sub-adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets in
cash and money market instruments (consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations having net assets of at least $500 million as stated on their
most recently published financial statements; commercial paper rated in one of
the two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective. See "Glossary of Permitted Investments" and the Statement
of Additional Information for additional information.
RISK FACTORS
Small and Medium Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio (other than the Cash Reserves Fund) may be more suitable for long-term
investors who can bear the risk of these fluctuations. The Growth Fund, Emerging
Growth Fund, Limited Fund, Small Cap Value Fund and Strategic Small Company Fund
invest extensively in small capitalization companies. The Mid-Cap Value Fund
invests extensively in medium capitalization companies. In certain cases, the
Core Growth Fund, Select Equity Fund and Technology & Communications Fund invest
in securities of issuers with small or medium market capitalizations. While the
Adviser and Newbold's intend to invest in small and medium capitalization
companies that have strong balance sheets and favorable business prospects, any
investment in small and medium capitalization companies involves greater risk
and price volatility than that customarily associated with investments in
larger, more established companies. This increased risk may be due to the
greater business risks of their small or medium size, limited markets and
financial resources, narrow product lines and frequent lack of management depth.
The securities of small and medium capitalization companies are often traded in
the over-the-counter market, and might not be traded in volumes typical of
securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.
-17-
<PAGE>
Over-the-Counter Market
Each Portfolio (except the Cash Reserves Fund) may invest in over-the-counter
stocks. In contrast to the securities exchanges, the over-the-counter market is
not a centralized facility which limits trading activity to securities of
companies which initially satisfy certain defined standards. Generally, the
volume of trading in an unlisted or over-the-counter common stock is less than
the volume of trading in a listed stock. This means that the depth of market
liquidity of some stocks in which each Portfolio invests may not be as great as
that of other securities and, if the Portfolios were to dispose of such a stock,
they might have to offer the shares at a discount from recent prices, or sell
the shares in small lots over an extended period of time.
Foreign Securities and Emerging Markets
Each of the Portfolios may invest in foreign securities. Investing in the
securities of foreign issuers involves special risks and considerations not
typically associated with investing in U.S. companies. These risks and
considerations include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability
which could affect U.S. investment in foreign countries and potential
restrictions on the flow of international capital and currencies. Foreign
issuers may also be subject to less government regulation than U.S. companies.
Moreover, the dividends and interest payable on foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Portfolio's shareholders. Further, foreign
securities often trade with less frequency and volume than domestic securities
and, therefore, may exhibit greater price volatility. Changes in foreign
exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
The International Fund's investments in emerging markets may be considered
speculative, and therefore may offer higher potential for gains and losses than
investments in developed markets of the world. With respect to any emerging
country, there may be greater potential for nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) which could affect
adversely the economies of such countries or the value of the International
Fund's investments in those countries. In addition, it may be difficult to
obtain and enforce a judgment in the courts of such countries. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade.
Investments in Technology Companies
Each Portfolio (except the Cash Reserves Fund) may invest in equity securities
of technology companies. Such securities have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Fund will invest primarily in the securities of technology companies operating
in various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related industries and, thus, may affect the value of the
Technology & Communications Fund's investments in technology companies. For
example, the technology companies in which the Technology & Communication Fund
invests may be strongly affected by worldwide scientific or technological
developments and their products and services may be subject to governmental
regulation or adversely affected by governmental policies.
Options and Futures Contracts
Certain of the Portfolios may utilize futures contracts, and may write and
purchase call and put options. The risk of loss in trading futures contracts can
be substantial because of the low margin deposits required and the extremely
high degree of leveraging involved in futures trading. As a result, a relatively
small price movement in a futures contract may cause an immediate and
substantial loss or gain. The primary risks associated with the use of options
and futures contracts are (i) imperfect correlations between the change in
market value of the securities held by the Portfolio and the prices of the
options or futures contracts purchased or sold by the Portfolio; and (ii)
possible lack of a liquid secondary market for an over-the-counter option or
futures
-18-
<PAGE>
contract and the resulting inability to close the over-the-counter option or
futures position prior to its maturity date, which could have an adverse impact
on the Portfolio's ability to execute futures and options strategies.
For additional information regarding permitted investments for each Portfolio
and other risks, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
INVESTMENT LIMITATIONS
The investment objectives of each Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of each Portfolio. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. With the
exception of the Cash Reserves Fund, this restriction applies to 75% of each
Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of each Portfolio's total assets (or
33 1/3% of the value of each of the Growth, Mid-Cap Value and Small Cap Value
Funds' total assets). This borrowing provision is included solely to facilitate
the orderly sale of portfolio securities to accommodate substantial redemption
requests if they should occur and is not for investment purposes. All borrowings
in excess of 5% of the Portfolio's total assets will be repaid before making
investments.
The foregoing percentages apply at the time of the purchase of a security.
HOW TO PURCHASE FUND SHARES
You may purchase shares of each Portfolio directly through DST Systems, Inc.,
the Fund's Transfer Agent. Purchases of shares of each Portfolio may be made on
any Business Day. However, shares of the Cash Reserves Fund cannot be purchased
or exchanged (i) on days when the Federal Reserve is closed or (ii) by Federal
Reserve wire on federal holidays restricting wire transfers. Shares of each
Portfolio are offered only to residents of states in which such shares are
eligible for purchase.
You may place orders by mail, wire or telephone. If market conditions are
extraordinarily active, or if severe weather or other emergencies exist, and you
-19-
<PAGE>
experience difficulties placing orders by telephone, you may wish to consider
placing your order by other means, such as mail or overnight delivery.
You may also purchase shares of each Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolios. Such financial institutions may charge you a fee for this service in
addition to each Portfolio's public offering price.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions, or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
Each Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small or medium capitalization companies may from time to time
be more limited than those in other sectors of the stock market. Therefore, in
order to retain adequate investment flexibility, the Adviser may from time to
time recommend to the Board of Directors of the Fund that a Portfolio, which
invests extensively in such companies, indefinitely discontinue the sale of its
shares to new investors (other than directors, officers and employees of the
Adviser, each of the sub-advisers and their affiliated companies). In such
event, the Board of Directors would determine whether such discontinuance is in
the best interests of the applicable Portfolio and its shareholders. As noted on
the cover page of this Prospectus, sales of shares of the Limited Fund have been
discontinued. Shares of the Select Equity Fund are currently offered only to
existing shareholders of that Portfolio and other persons noted on the cover
page of this Prospectus. New sales of shares of the Limited Fund are closed to
all investors (including current shareholders). Each Portfolio may recommence
offering its shares to new investors in the future, provided that the Board of
Directors determines that doing so would be in the best interest of each
Portfolio and its shareholders.
Minimum Investment
The minimum initial investment in each Portfolio (other than the Limited Fund
and Strategic Small Company Fund) is $2,500 for regular accounts and $2,000 for
IRAs. The minimum initial investment in the Limited Fund and the Strategic Small
Company Fund is $5,000 for regular accounts and $2,000 for IRAs. However,
investors who establish a Systematic Investment Plan, as described below, with a
minimum investment of $25 per month may at the same time open a regular or IRA
account with any Portfolio with a minimum initial investment of $500. There is
no minimum for subsequent investments. The Distributor may waive the minimum
initial investment amount at its discretion. No minimum applies to subsequent
purchases effected by dividend reinvestment. As described below, subsequent
purchases through the Fund's Systematic Investment Plan must be at least $25.
Initial Purchase by Mail
An account may be opened by mailing a check or other negotiable bank draft
payable to The PBHG Funds, Inc. for at least the minimum initial amount
specified above for regular and IRA accounts, and a completed Account
Application to The PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534,
Kansas City, Missouri 64141-6534. The Fund will not accept third-party checks,
i.e., a check not payable to The PBHG Funds, Inc. or a Portfolio for initial or
subsequent investments.
Additional Purchases By Phone (Telephone Purchase)
You may purchase additional shares by telephoning the Transfer Agent at
1-800-433-0051. The minimum telephone purchase is $1,000, and the maximum is
five times the net asset value of shares held by the shareholder on the day
preceding such telephone purchase for which payment has been received. The
telephone purchase will be made at the offering price next computed after the
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, you will be liable for all losses incurred by the
Fund as a result of the cancellation of such purchase.
-20-
<PAGE>
Initial Purchase by Wire
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolios by requesting your
bank to transmit funds by wire. Before making an initial investment by wire, you
must first telephone 1-800-433-0051 to receive an Account Application and be
assigned an account number. The Account Application must be received prior to
receipt of the wire. Your name, account number, taxpayer identification number
or Social Security Number, and address must be specified in the wire. All wires
must be received by 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00
p.m. Eastern time for all other Portfolios to be effective on that day. In
addition, an original Account Application should be promptly forwarded to: The
PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. All wires must be sent as follows: United Missouri Bank of Kansas
City, N.A.; ABA #10-10-00695; for Account Number 98705-23469; Further Credit:
[Name of Portfolio and your assigned account number].
Additional Purchases by Wire
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
Purchase By ACH
If you have made this election, shares of each Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to you initiating an ACH
transaction.
General Information Regarding Purchases
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives sufficient information to execute the order and
receives payment before 2:00 p.m., Eastern time for the Cash Fund and 4:00 p.m.,
Eastern time for all other Portfolios. Payment may be made by check or readily
available funds. The purchase price of shares of a Portfolio is the net asset
value per share next determined after a purchase order is effective. Purchases
will be made in full and fractional shares of a Portfolio calculated to three
decimal places. The Fund will not issue certificates representing shares of the
Portfolios.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 2:00 p.m., Eastern time
for the Cash Fund and 4:00 p.m. Eastern time for all other Portfolios and (ii)
promptly transmit the order to the Transfer Agent. See "Determination of Net
Asset Value" below. The broker-dealer or financial institution is responsible
for promptly transmitting purchase orders to the Transfer Agent so that you may
receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred by the
Fund. The Fund reserves the right to reject a purchase order when the Fund
determines that it is not in the best interests of the Fund or its shareholders
to accept such an order.
-21-
<PAGE>
SHAREHOLDER SERVICES
Shareholder Inquiries and Services Offered
If you have any questions about the Portfolios or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent receives
your notification to discontinue such service(s) at least ten (10) days before
the next scheduled investment or withdrawal date.
Systematic Investment and Systematic Withdrawal Plans
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolios at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolios despite
their fluctuating net asset values through regular purchases of a fixed dollar
amount of shares in the Portfolios. Dollar-cost averaging brings discipline to
your investing. Dollar-cost averaging results in more shares being purchased
when a Portfolio's net asset value is relatively low and fewer shares being
purchased when a Portfolio's net asset value is relatively high, thereby helping
to decrease the average price of your shares. Investors who establish a
Systematic Investment Plan may open an account with a minimum balance of $500.
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction per Portfolio) from your designated
checking or savings account. Your systematic investment in the Portfolio(s)
designated by you will be processed on a regular basis at your option beginning
on or about either the first or fifteenth day of the month or quarter you
select. This Systematic Investment Plan must be established on your account at
least 15 days prior to the intended date of your first systematic investment.
(2) Systematic Withdrawal Plan. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the Portfolio(s). The Systematic Withdrawal Plan permits you to
have payments of $50 or more automatically transferred from your account(s) in
the Portfolio(s) to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $5,000 in any
account using this feature. Your systematic withdrawals will be processed on a
regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.
Exchange Privileges
Once payment for your shares has been received (i.e., an account has been
established) and your payment has been converted to Federal funds, you may
exchange some or all of your shares for shares of the other Portfolios of the
Fund currently available to the public. However, if you own shares of any
Portfolio other than the Cash Reserves Fund, you are limited to four (4)
exchanges annually from such Portfolio to the Cash Reserves Fund. Exchanges are
made at net asset value. The Fund reserves the right to change the terms and
conditions of the exchange privilege discussed herein, or to terminate the
exchange privilege, upon sixty (60) days' notice. Exchanges will be made only
after proper instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Transfer Agent.
-22-
<PAGE>
The exchange privilege may be exercised only in those states where the shares of
the new Portfolio may legally be sold.
Tax-Sheltered Retirement Plans
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) Individual Retirement Accounts ("IRAs"). You may save for your retirement
and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or (b) "rolling-over" to the Fund monies from other IRA
accounts or lump sum distributions from a qualified retirement plan. If you are
between 18 and 70 1/2 years of age, you can use an IRA to invest up to $2,000
per year of your earned income in any of the Portfolios. You may also invest up
to $2,000 per year in a spousal IRA if your spouse has no earned income. There
is a $10.00 annual maintenance fee charged to IRA investors. If you maintain IRA
accounts in more than one Portfolio of the Fund, you will only be charged one
fee. This fee can be prepaid or will be debited from your account if not
received by the announced deadline.
(2) SEP-IRAs. If you are a self-employed person, you can establish a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide persons with
self-employed income (and their eligible employees) with many of the same tax
advantages as a Keogh, but with fewer administrative requirements.
(3) 401(a) Keough and Corporate Retirement Plans. Both a prototype money
purchase pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
(4) 401(k) Plans. Through the establishment of a 401(k) plan by a corporation of
any size, employees can invest a portion of their wages in the Portfolios on a
tax-deferred basis in order to help them meet their retirement needs.
(5) 403(b) Plans. Section 403(b) plans are custodial accounts which are
available to employees of most non-profit organizations and public schools.
Other Special Accounts
The Fund also offers the following special accounts to meet your needs:
(1) Uniform Gift to Minors/Uniform Transfers to Minors. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the Fund
you can build a fund for your children's education or a nest egg for their
future and, at the same time, potentially reduce your own income taxes.
(2) Custodial and Fiduciary Accounts. The Fund provides a convenient means of
establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.
For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
HOW TO REDEEM FUND SHARES
Redemption orders received by the Transfer Agent prior to 2:00 p.m., Eastern
time for the Cash Reserves Fund and 4:00 p.m., Eastern time for each of the
other Portfolios on any Business Day will be effective that day. The redemption
price of shares is the net asset value per share of a Portfolio next determined
after the redemption order is effective. Payment of redemption
-23-
<PAGE>
proceeds will be made as promptly as possible and, in any event, within seven
days after the redemption order is received, provided, however, that redemption
proceeds for shares purchased by check (including certified or cashier's checks)
or by ACH will be forwarded only upon collection of payment for such shares;
collection of payment may take up to 15 days.
You may also redeem shares of each Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 2:00
p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for each
other Portfolio and (ii) promptly transmit the order to the Transfer Agent. See
"Determination of Net Asset Value" below. The financial institution is
responsible for promptly transmitting redemption orders to the Transfer Agent so
that your shares are redeemed at the same day's net asset value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.
By Mail
There is no charge for having a check for redemption proceeds mailed to you.
By Telephone
Redemption orders may be placed by telephone, provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery. The Fund will not accept redemption requests for an
amount greater than $50,000 by telephone instruction. Such redemption requests
must be received in writing and be signature guaranteed.
By Wire
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
a Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
By ACH
The Fund does not charge for ACH transactions; however, proceeds from such
transactions will not be posted to your bank account until the second Business
Day following the transaction. In order to process a redemption by ACH, banking
information must be established on your account at least 15 days prior to
initiating a transaction. A voided check or deposit slip must accompany requests
to establish this option.
Check Writing (Cash Reserves Fund Only)
Check writing service is offered free of charge to shareholders of the Cash
Reserves Fund. If you have an account balance of $5,000 or more, you may redeem
shares by writing checks on your account for $250 or more. To establish this
privilege, please call 1-800-433-0051 to request a signature card. Once you have
signed and returned a signature card, you will receive a supply of checks. A
check may be made payable to any person, and your account will continue to earn
dividends until the check clears.
-24-
<PAGE>
Because of the difficulty of determining in advance the exact value of your
account, you may not use a check to close your account. Your account will be
charged a fee for stopping payment of a check upon your request, or if the check
cannot be honored because of insufficient funds or other valid reasons.
Signature Guarantees
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; and (3) redemption requests that provide that the redemption proceeds
should be sent to an address other than the address of record or to a person
other than the registered shareholder(s) for the account. Signature guarantees
can be obtained from any of the following institutions: a national or state
bank, a trust company, a federal savings and loan association, or a
broker-dealer that is a member of a national securities exchange. The Fund does
not accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $12.00 minimum account charge and reserves the right to redeem
shares in any non-retirement account if, as the result of redemptions, the value
of any account drops below the minimum initial investment amount, specified
above, for each Portfolio. See "Minimum Investment" and "Systematic Investment
and Systematic Withdrawal Plans" for minimum investments. You will be allowed at
least 60 days, after notice from the Fund, to make an additional investment to
bring your account value up to at least the applicable minimum account size
before the annual $12.00 minimum account fee is charged and/or the redemption of
a non-retirement account is processed. The applicable minimum account charge
will be imposed annually on any such account until the account is brought up to
the applicable minimum account size.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio, other than the Cash Reserves
Fund, is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total outstanding
shares of the Portfolio. Net asset value per share is determined daily as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time) on any Business Day. The net asset value per share of each Portfolio,
other than the Cash Reserves Fund, is listed under PBHG in the mutual fund
section of most major daily newspapers, including the Wall Street Journal.
The Cash Reserves Fund values its portfolio securities using the amortized cost
method of valuation, approximating market value. Net asset value per share is
determined daily as of 2:00 p.m., Eastern time on each Business Day.
PERFORMANCE ADVERTISING
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. For Portfolios other than the Cash Reserves Fund,
yield refers to the annualized income generated by an investment in the
Portfolio
-25-
<PAGE>
over a specified 30-day period. The yield is calculated by assuming that the
same amount of income generated by the investment during that period is
generated in each 30-day period over one year and is shown as a percentage of
the investment.
The "current yield" of the Cash Reserves Fund refers to the income generated by
an investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield") is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the current yield because of the compounding effect of this assumed
reinvestment.
The total return of each Portfolio other than the Cash Reserves Fund refers to
the average compounded rate of return on a hypothetical investment for
designated time periods (including but not limited to the period from which the
Portfolio commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period and assuming the
reinvestment of all dividend and capital gain distributions.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
The performance of the Fund's Trust Class shares will be lower than that of the
Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Trust Class shares.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the
Portfolios or their shareholders. Accordingly, you are urged to consult your tax
advisors regarding specific questions as to federal, state and local income
taxes. See the Statement of Additional Information.
Tax Status of the Portfolios
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded RICs as
defined under Subchapter M of the Code. So long as a Portfolio qualifies for
this special tax treatment, it will be relieved of federal income tax on that
part of its net investment income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) which it distributes to
shareholders.
-26-
<PAGE>
Tax Status of Distributions
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of a
Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The
Portfolios will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Portfolios (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments. Each
Portfolio will be required to include as part of its current net investment
income the accrued discount on such obligations for purposes of the distribution
requirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because a Portfolio distributes all of its
net investment income to its shareholders, the Portfolio may have to sell
portfolio securities to distribute such accrued income, which may occur at a
time when the Adviser or sub-adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from a
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. Each Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from a Portfolio is considered tax exempt in your
particular state.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.
Tax Treatment of Transactions
Each sale, exchange or redemption of a Portfolio's shares is a taxable event to
the shareholder.
Income derived by a Portfolio from securities of foreign issuers may be subject
to foreign withholding taxes. The International Fund expects to be able to treat
shareholders as having paid their proportionate share of such foreign taxes.
GENERAL INFORMATION
The Fund
The Fund, an open-end management investment company, was originally incorporated
in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective July 31,
1992, the Fund was reorganized as a Maryland corporation pursuant to an
Agreement and Articles of Merger which was approved by Fund shareholders on July
21, 1992. On September 8, 1993, the Fund's shareholders
-27-
<PAGE>
voted to change the name of the Fund to The Advisors' Inner Circle Fund II, Inc.
On May 2, 1994, the Fund's shareholders voted to change the name of the Fund to
The PBHG Funds, Inc. The Fund currently has an authorized capitalization of 9.2
billion shares of common stock with a par value of $0.001 per share. All
consideration received by the Fund for shares of any Portfolio and all assets of
such Portfolio belong to that Portfolio and would be subject to liabilities
related thereto. The Fund reserves the right to create and issue shares of
additional portfolios.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of its
Portfolios under federal and state securities laws, pricing and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses. Each Portfolio's expense ratios are disclosed under
"Financial Highlights" in this Prospectus.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to approximately $12 billion in assets. In addition to
advising the Portfolios, the Adviser provides advisory services to pension and
profit-sharing plans, charitable institutions, corporations, individual
investors, trusts and estates, and other investment companies. The principal
business address of the Adviser is 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087.
The Adviser serves as the investment adviser to each Portfolio under an
investment advisory agreement with the Fund (the "Advisory Agreement"). The
Adviser makes the investment decisions for the assets of each Portfolio and
continuously reviews, supervises and administers the investment program of each
Portfolio, subject to the supervision of, and policies established by, the Board
of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of: 0.85% of each of the Growth, Emerging
Growth, Select Equity, Core Growth, Large Cap 20, Mid-Cap Value and Technology &
Communications Funds' average daily net assets; 0.75% of the Large Cap Growth
Fund's average daily net assets; 0.65% of the Large Cap Value Fund's average
daily net assets; 1.00% of each of the Limited, Small Cap Value, International
and Strategic Small Company Funds' average daily net assets; and 0.30% of the
Cash Reserves Fund's average daily net assets. On March 6, 1997, the Board of
Directors approved a reduction in the annual rate of the advisory fee applicable
to the Large Cap Value Fund from 0.85% of its average daily net assets to 0.65%
of its average daily net assets, effective May 1, 1997. The investment advisory
fees paid by certain of the Portfolio are higher than those paid by most
investment companies, although the Adviser believes the fees to be comparable to
those paid by investment companies with similar investment objectives and
policies.
In the interest of limiting the expenses of the Portfolios, the Adviser has
voluntarily entered into expense limitation agreements with the Fund ("Expense
Limitation Agreements") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses to not more than 1.50% of the average
daily net assets of each of the Core Growth, Limited, Large Cap 20, Large Cap
Value, Mid-Cap Value, Small Cap Value and Strategic Small Company Funds, and to
not more than 2.25% of the average daily net assets of 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 expense rate
of each Portfolio to exceed 1.50% (or 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% (or 2.25% for the International Fund); and (iii) the
payment of such reimbursement was approved by the Board of Directors on a
quarterly basis.
-28-
<PAGE>
For the fiscal year ended March 31, 1997, the Adviser received a fee equal to
0.85% of the Growth Fund's average daily net assets, 0.85% of the Emerging
Growth Fund's average daily net assets, 0.75% of the Large Cap Growth Fund's
average daily net assets, 0.85% of the Select Equity Fund's average daily net
assets, 0.85% of the Core Growth Fund's average daily net assets, 1.00% of the
Limited Fund's average daily net assets, 0.85% of the Large Cap 20 Fund's
average daily net assets, 0.61% of the Large Cap Value Fund's average daily net
assets, 1.00% of the International Fund's average daily net assets, 0.30% of the
Cash Reserves Fund's average daily net assets, 0.85% of the Technology &
Communications Fund's average daily net assets and 1.00% of the Strategic Small
Company Fund's average daily net assets.
Christine M. Baxter, CFA, Portfolio Manager, has managed the Emerging Growth and
Limited Funds since their inception. Ms. Baxter has worked as an equity analyst
and portfolio manager for the Adviser since 1991. Gary L. Pilgrim, CFA has
served as the portfolio manager of the Growth Fund since its inception. Mr.
Pilgrim has served as the Chief Investment Officer for the Adviser for the past
six years, and has been its President since 1993. James D. McCall, CFA, managed
the Large Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds from
their inception until March 1997 and has co-managed each of those Portfolios
since March 1997. Mr. McCall has been a portfolio manager with the Adviser since
1994. Prior to joining the Adviser, Mr. McCall was a portfolio manager with
First National Bank of Maryland. Ellen A. McGee, CFA, has co-managed the Large
Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds since March 1997.
Ms. McGee joined the Adviser in March 1997 and is a portfolio manager/analyst.
Prior to joining the Adviser, Ms. McGee was Vice President and Senior Portfolio
Manager with First Union Capital Management from August 1995 until March 1997,
Vice President and Portfolio Manager with NationsBank Private Client Group from
May 1994 until August 1995, and Vice President and Senior Institutional
Portfolio Manager with First National Bank of Maryland from April 1991 until May
1994. John F. Force, CFA, has co-managed the Technology & Communications Fund
since its inception. Mr. Force joined the Adviser in 1993, and is a portfolio
manager/analyst. Prior to joining the Adviser, Mr. Force was Vice
President/Portfolio Manager at Fiduciary Management Associates from July, 1987
to September, 1992. James M. Smith, CFA, has served as co- manager of both the
Technology and Communications Fund and the Strategic Small Company Fund since
their inception. Mr. Smith has over twenty years of investment experience in
equity portfolio management and research. Mr. Smith joined the Adviser in 1993.
Prior to joining the Adviser, Mr. Smith was Senior Vice President/Portfolio
Manager at Selected Financial Services, a registered investment advisory firm.
Newbold's Asset Management, Inc.
Newbold's, 950 Haverford Road, Bryn Mawr, Pennsylvania, is a registered
investment adviser that was formed in 1940. As with the Adviser, the controlling
shareholder of Newbold's is UAM. Newbold's currently has discretionary
management authority with respect to over $4 billion in assets. In addition to
sub-advising certain of the Portfolios, Newbold's provides advisory services to
pension and profit-sharing plans, charitable institutions, trusts, estates and
other investment companies. Newbold's serves as the investment sub-adviser for
the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company
Funds pursuant to sub-advisory agreements with the Fund and the Adviser
("Sub-Advisory Agreements"). Under each Sub-Advisory Agreement, Newbold's
manages the investments of each of those Portfolios, selects investments and
places all orders for purchases and sales of each Portfolio's securities,
subject to the general supervision of the Board of Directors of the Fund and the
Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreements for the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic
Small Company Funds, Newbold's is entitled to receive from the Adviser a
sub-advisory fee with respect to the average daily net assets each Portfolio
that is computed daily and paid monthly at an annual rates of 0.40%, 0.50%.
0.65% and 0.30%, respectively. On March 6, 1997, the Board of Directors approved
a reduction in the annual rate of the sub-advisory fee with respect to the
average daily net assets of the Large Cap Value Fund from 0.50% to 0.40%,
effective May 1, 1997.
James H. Farrell, CFA, has managed the Large Cap Value Fund since its inception.
Mr. Farrell joined Newbold's in September 1996 and is its Chief Investment
Officer. Mr. Farrell also manages another mutual fund advised by Newbold's and
until recently served as President of Farrell Seiwell, Inc., a registered
investment adviser. 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.
Gary D. Haubold, CFA, has managed the Mid-Cap Value and Small Cap Value Funds
and co-managed the Strategic Small Company Fund since each Portfolio's
inception. Mr. Haubold joined Newbold's in January 1997. Prior to joining
Newbold's, Mr. Haubold was employed by Miller Anderson & Sherrerd ("MAS")from
1993 until January 6, 1997. At MAS, Mr. Haubold served as the co-manager of the
Mid-Cap Value Portfolio of the MAS Fund from its inception on December 30, 1994
through January 6, 1997 and the co- manager of the Small Cap Value Portfolio of
the MAS Fund from December 31, 1994 through January 6, 1997. Mr. Haubold
-29-
<PAGE>
was the person primarily responsible for the day-to-day management of those two
mutual funds during the periods noted. Prior to joining MAS, Mr. Haubold was
Senior Vice President of Wood, Struthers & Winthrop.
Murray Johnstone International, Ltd.
Murray Johnstone, 11 West Nile Street, Glasgow, Scotland, is a U.S. registered
investment adviser that was founded in 1989 under the laws of Scotland. Murray
Johnstone is a wholly-owned subsidiary of Murray Johnstone Holdings Limited,
which together have under management approximately $7 billion in assets, as of
March 31, 1997, for institutional clients worldwide. Murray Johnstone Holdings
Limited, along with its predecessors, has been in business since 1907, and is an
indirect wholly-owned subsidiary of UAM. Murray Johnstone has been advising
open-end investment companies since 1992. For its services provided pursuant to
its investment sub-advisory agreement with the Adviser and the Fund, Murray
Johnstone receives a fee from the Adviser at an annual rate of 0.50% of the
International Fund's average daily net assets. Murray Johnstone receives no fees
directly from the International Fund.
Rodger F. Scullion, MSI, has served as the portfolio manager of the
International Fund since July 3, 1995. Mr. Scullion has been associated with
Murray Johnstone since November, 1992, and serves as its Managing Director,
Chief Executive Officer and Chief Investment Officer. Prior to that, Mr.
Scullion served as Investment Director of Murray Johnstone Limited.
Wellington Management Company, LLP
Wellington serves as the investment sub-adviser for the Cash Reserves Fund
pursuant to a sub-advisory agreement with the Fund and the Adviser. Under the
sub-advisory agreement, Wellington manages the investments of the Portfolio,
selects investments, and places all orders for purchases and sales of the
Portfolio's securities, subject to the general supervision of the Board of
Directors of the Fund and the Adviser.
For the services provided and expenses incurred pursuant to the sub-advisory
agreement, Wellington is entitled to receive from the Adviser a fee, computed
daily and paid monthly, at the annual rate equal to 0.075% of the Portfolio's
average daily net assets up to and including $500 million and 0.020% of the
Portfolio's average daily net assets over $500 million, but subject to a minimum
annual fee of $50,000.
Wellington is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of March 31, 1997,
Wellington had discretionary management authority with respect to approximately
$136 billion of assets. Wellington and its predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington, 75 State Street, Boston,
Massachusetts 02109, is a Massachusetts general partnership, of which the
following persons are managing partners: Robert W. Doran, Duncan M. McFarland
and John R. Ryan.
The Administrator and Sub-Administrator
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 is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Fund. The principal place of business of the
Administrator is 1255 Drummers Lane, Suite 300, Wayne, PA 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of the Fund and the PBHG Insurance Series Fund, Inc. taken together,
and a fee at the annual rate of 0.025% of the average daily net assets of each
Portfolio with respect to the total average daily net assets of the Fund and the
PBHG Insurance Series Fund, Inc. taken together in excess of $2.5 billion.
-30-
<PAGE>
The Transfer Agent and Sub-Transfer Agents
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.
The Distributor
SEI Financial Services Company (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly-owned subsidiary of SEI, provides the Fund with
distribution services. No compensation is paid to the Distributor for
distribution services for the PBHG Class shares of the Portfolios.
Directors of the Fund
The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected series. Shareholders of all series of the Fund will
vote together in matters affecting the Fund generally, such as the election of
Directors or selection of independent accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Trust Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of directors under certain
circumstances. In addition, a director may be removed by the remaining directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
Reporting
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
Shareholder Inquiries
You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419534, Kansas City, Missouri 64141-6534, or by calling 1-800-433-0051.
-31-
<PAGE>
Dividends and Distributions
Substantially all of the net investment income (exclusive of capital gains) of a
Portfolio (except the Cash Reserves Fund) is distributed in the form of annual
dividends. If any capital gain is realized, substantially all of it will be
distributed by each Portfolio at least annually. The Cash Reserves Fund accrues
dividends daily and pays them monthly to shareholders.
Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least 15 days prior to the distribution. Shareholders may
receive payments for cash distributions in the form of a check or by Federal
Reserve wire or ACH transfer.
Dividends and distributions of the Portfolios are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
Counsel and Independent Accountants
Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand L.L.P.
serves as the independent accountants of the Fund.
Custodians
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, serves as the custodian for the Fund and each Portfolio
other than the International Fund. The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois 60675 serves as the custodian for the International
Fund (together, the "Custodians"). The Custodians hold cash, securities and
other assets of the Fund as required by the Investment Company Act of 1940, as
amended (the "1940 Act").
Miscellaneous
As of March 31, 1997, Pilgrim Baxter Partners I LP, 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087-1565, owned of record or beneficially, at least
25% of the outstanding PBHG Class shares of the Cash Reserves Fund, and may be
deemed to be a controlling person of this Portfolio for purposes of the 1940
Act. As of May 1, 1997, SEI Financial Services Company, One Freedom Valley Road,
Oaks, Pennsylvania 19456, owned of record or beneficially, at least 25% of the
outstanding PBHG Class Shares of the Mid-Cap Value Fund and Small Cap Value Fund
as each Portfolio's initial shareholder and, as a result, may be deemed to be a
controlling person of those Portfolios for purposes of the 1940 Act.
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of permitted investments for certain of the
Portfolios:
American Depositary Receipts and Global Depositary Receipts ("GDRs") -- ADRs are
securities, typically issued by a U.S. financial institution (a "depositary"),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer and deposited with the depositary. ADRs include American
Depositary Shares and New York Shares. GDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership interests in a security
or a pool of securities issued by either a U.S. or foreign issuer. ADRs, GDRs
and CDRs may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently
-32-
<PAGE>
is under no obligation to distribute shareholder communications received from
the issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
Certificate of Deposit -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, the Portfolio's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.
Demand Instruments -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: futures, options
on futures, options (e.g., puts and calls), swap agreements, mortgage-backed
securities (e.g., CMOs, REMICs, IOs and POs), when-issued securities and forward
commitments, floating and variable rate securities, convertible securities,
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPS) and privately
issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere in this
"Glossary of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about the investment policies and limitations applicable to their use.
Equity Securities -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.
Forward Foreign Currency Contracts -- Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar, or between foreign
currencies in which a Portfolio's portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
incorporated into each Portfolio's long-term investment strategies. However, the
Adviser and the sub-advisers believe that it is important to have the
flexibility to enter into forward foreign currency contracts when they determine
that the best interests of any Portfolio will be served. The International Fund
will convert currency on a spot basis, and investors should be aware of the
costs of currency conversion. When the Adviser or a sub-adviser believes that
the currency of a particular country may suffer a significant decline against
the U.S. dollar or against another currency, the Portfolio in question may enter
into a forward foreign currency contract to sell, for a fixed amount of U.S.
dollars or other appropriate currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency.
-33-
<PAGE>
At the maturity of a forward foreign currency contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. A Portfolio may realize a gain or loss from currency
transactions.
Generally, a Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to hedge
a specific security transaction or portfolio position. If a Portfolio enters
into forward foreign currency contracts to cover activities which are
essentially speculative, the Portfolio will segregate cash or readily marketable
securities with its custodian, or a designated sub-custodian, in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to such
contracts.
Futures Contracts and Options on Futures Contracts -- No Portfolio, except the
International Fund, Mid-Cap Value Fund and Small Cap Value Fund, has a current
intention of utilizing futures contracts. The International Fund, Mid-Cap Value
Fund and Small Cap Value Fund may enter into futures contracts for the purchase
or sale of securities, including, for the International Fund, index contracts on
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery of the securities or foreign currency,
called for by the contract at a specified price during a specified future month.
When a futures contract is sold, the Portfolio incurs a contractual obligation
to deliver the securities or foreign currency underlying the contract at a
specified price on a specified date during a specified future month. Each of the
specified Portfolios may sell stock index futures contracts in anticipation of,
or during, a market decline to attempt to offset the decrease in market value of
its common stocks that might otherwise result; and it may purchase such
contracts in order to offset increases in the cost of common stocks that it
intends to purchase. Each of the specified Portfolios may enter into futures
contracts, and with respect to the International Fund options thereon, to the
extent that (i) aggregate initial margin deposits to establish positions other
than "bona fide hedging" positions (and premiums paid for unexpired options on
futures contracts) do not exceed 5% of the Portfolio's net assets and (ii) the
total market value of obligations underlying all futures contracts does not
exceed 20% of the value of the International Fund's total assets or 50% of the
value of each of the other specified Portfolio's total assets.
The International Fund may also purchase and write options to buy or sell
futures contracts. The International Fund may write options on futures only on a
covered basis. Options on futures are similar to options on securities except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract, rather than actually to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option.
Each Portfolio will maintain assets sufficient to meet its obligations under
such futures contracts in a segregated margin account with the custodian bank or
will otherwise comply with the SEC's position on asset coverage. The prices of
futures contracts are volatile and are influenced by, among other things, actual
and anticipated changes in the market and interest rates.
Illiquid Securities -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
Mortgage-Backed Securities -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.
Options -- No Portfolio, except the International Fund, has a current intention
of utilizing options on stocks and stock indices. The International Fund may
invest in put and call options for various stocks and stock indices that are
traded on national securities exchanges, from time to time as the Adviser deems
to be appropriate. Options will be used for hedging purposes and will not be
engaged in for speculative purposes. The aggregate value of option positions may
not exceed 10% of the International Fund's net assets as of the time the
International Fund enters into such options.
-34-
<PAGE>
A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
Although the International Fund will engage in option transactions only as
hedging transactions and not for speculative purposes, there are risks
associated with such investment including the following: (i) the success of a
hedging strategy may depend on the ability of the Adviser or a sub-adviser to
predict movements in the prices of the individual securities, fluctuations in
markets and movements in interest rates; (ii) there may be an imperfect
correlation between the changes in market value of the stocks held by the
International Fund and the prices of options; (iii) there may not be a liquid
secondary market for options; and (iv) while the International Fund will receive
a premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security. When writing options (other
than covered call options), the International Fund must establish and maintain a
segregated account with the Fund's Custodian containing cash or other liquid
assets in an amount at least equal to the market value of the option.
Receipts -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Fund's Custodians or their agents will hold
the security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. The Adviser or a sub-adviser will enter into
repurchase agreements on behalf of a Portfolio only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on guidelines established and periodically reviewed by the Directors.
Repurchase agreements are considered loans under the 1940 Act, as well as for
federal and state income tax purposes.
Restraints on Investments by Money Market Funds -- Investments by the Cash
Reserves Fund are subject to limitations imposed under regulations adopted by
the SEC. These regulations generally require the Cash Reserves Fund to acquire
only U.S. dollar obligations maturing in 397 days or less and to maintain a
dollar-weighted average portfolio maturity of 90 days or less. In addition, the
Cash Reserves Fund may acquire only obligations that present minimal credit
risks and that are "eligible securities."
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. A Portfolio may invest in restricted
securities that the Adviser determines are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Fund. The
Board of Directors will periodically review such procedures and guidelines and
will monitor the Adviser's implementation of such procedures and guidelines.
Under these procedures and guidelines, the Adviser will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. The Fund
may purchase restricted securities sold in reliance upon the exemption from
registration provided by Rule 144A under the 1933 Act. Restricted securities may
be difficult to value because market quotations may not be readily available.
Because of the restrictions on the resale of restricted securities, they may
pose liquidity problems for the Portfolios.
Securities Lending -- In order to generate additional income, certain of the
Portfolios may lend the securities in which they are invested pursuant to
agreements requiring that the loan be continuously secured by cash, securities
of the U.S. Government or its agencies or any combination of cash and such
securities as collateral equal at all times to 100% of the market value of the
securities lent. Each Portfolio will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of cash
collateral in U.S. Government securities. Collateral is marked to market daily
to provide a level of collateral at least equal to the value of the securities
lent. There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed
-35-
<PAGE>
by the Adviser or sub-advisers to be of good standing and when, in the judgment
of the Adviser or sub-advisers, the consideration which can be earned currently
from such securities loans justifies the attendant risk.
Swaps -- As a way of managing its exposure to different types of investments,
the International Fund may enter into interest rate swaps, currency swaps and
other types of swap agreements such as caps, collars and floors. In a typical
interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount." In return for
payments equal to a fixed rate times the same amount, for a specific period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Portfolio's investments exposure from one
type of investment to another. For example, if the Portfolio agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Portfolio's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of investments
and their share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and have a considerable impact on the
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform and may decline in value if the counterparty's
creditworthiness deteriorates. The Portfolio may also suffer losses if it is
unable to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Portfolio may have under these types
of arrangements will be covered by setting aside high quality liquid securities
in a segregated account. The Portfolio will enter into swaps only with
counterparties deemed creditworthy by the Adviser.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Federal
National Mortgage Association securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive all of
the principal ("principal-only" or "PO class"). The yield to maturity on IO
classes and PO classes is extremely sensitive to the rate
-36-
<PAGE>
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the portfolio yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, a Portfolio may
fail to fully recoup its initial investment in these securities, even if the
security is in one of the highest rating categories.
Variable and Floating Rate Instruments -- Certain of the obligations purchased
by the International Fund may carry variable or floating rates of interest, may
involve a conditional or unconditional demand feature and may include variable
amount master demand notes. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices,
such as a Federal Reserve composite index. The interest rates on these
securities may be reset daily, weekly, quarterly or some other reset period, and
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice exceeding seven
days may be considered illiquid if there is no secondary market for such
securities.
When-Issued and Delayed-Delivery Securities -- When-issued and delayed-delivery
securities are securities subject to settlement on a future date. For fixed
income securities, the interest rate realized on when-issued or delayed-delivery
securities is fixed as of the purchase date and no interest accrues to the
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and will have the effect of leveraging
the Portfolio's assets. The Portfolios are permitted to invest in forward
commitments or when-issued securities where such purchases are for investment
and not for leveraging purposes. One or more segregated accounts will be
established with the Custodian, and the Portfolios will maintain liquid assets
in such accounts in an amount at least equal in value to each Portfolio's
commitments to purchase when-issued securities.
-37-
<PAGE>
Fund:
THE PBHG FUNDS, INC.
Portfolios:
PBHG GROWTH FUND
PBHG EMERGING GROWTH FUND
PBHG LARGE CAP GROWTH FUND
PBHG SELECT EQUITY FUND
PBHG CORE GROWTH FUND
PBHG LIMITED FUND
PBHG LARGE CAP 20 FUND
PBHG LARGE CAP VALUE FUND
PBHG MID-CAP VALUE FUND
PBHG SMALL CAP VALUE FUND
PBHG INTERNATIONAL FUND
PBHG CASH RESERVES FUND
PBHG TECHNOLOGY & COMMUNICATIONS FUND
PBHG STRATEGIC SMALL COMPANY FUND
Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates only to
each of the Portfolios listed above. It is intended to provide additional
information regarding the activities and operations of The PBHG Funds, Inc. (the
"Fund" or "Registrant") and the Portfolios. The Statement of Additional
Information should be read in conjunction with the Prospectus for the
Portfolios' PBHG Class shares dated May 1, 1997 and with the Prospectus for the
Portfolios' Trust Class shares dated May 1, 1997. The Prospectuses for the
Portfolios may be obtained by calling 1-800-433-0051.
TABLE OF CONTENTS
THE FUND.............................................................. S -
DESCRIPTION OF PERMITTED INVESTMENTS.................................. S -
INVESTMENT LIMITATIONS................................................ S -
THE ADVISER........................................................... S -
THE SUB-ADVISERS...................................................... S -
THE ADMINISTRATOR AND SUB-ADMINISTRATOR............................... S -
THE DISTRIBUTOR....................................................... S -
DIRECTORS AND OFFICERS OF THE FUND.................................... S -
COMPUTATION OF YIELD ................................................. S -
CALCULATION OF TOTAL RETURN........................................... S -
PURCHASE AND REDEMPTION OF SHARES..................................... S -
DETERMINATION OF NET ASSET VALUE...................................... S -
TAXES................................................................. S -
PORTFOLIO TRANSACTIONS................................................ S -
DESCRIPTION OF SHARES................................................. S -
5% AND 25% SHAREHOLDERS............................................... S -
INFORMATION ABOUT THE PBHG TECHNOLOGY & COMMUNICATIONS FUND........... S -
EXPERTS............................................................... S -
FINANCIAL STATEMENTS.................................................. S -
May 20, 1997
<PAGE>
THE FUND
This Statement of Additional Information relates to the Fund and each of its
Portfolios. Each Portfolio is a separate series of The PBHG Funds, Inc. (the
"Fund"), which was originally incorporated in Delaware on August 2, 1985 under
the name PBHG Growth Fund, Inc. and commenced business shortly thereafter as an
open-end diversified management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). On July 21, 1992, shareholders of the
Fund approved an Agreement and Articles of Merger pursuant to which the Fund was
reorganized and merged into a new Maryland corporation, also named PBHG Growth
Fund, Inc. On September 8, 1993, the shareholders of the Fund voted to change
the name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994,
the shareholders voted to change the Fund's name to The PBHG Funds, Inc. The
articles of incorporation permit the Fund to offer separate classes of shares of
each Portfolio. Shareholders may purchase shares through two separate classes,
i.e., PBHG Class and Trust Class shares, which provide for differences in
distribution costs, voting rights and dividends. Except for these differences,
each PBHG Class share and each Trust Class share of each Portfolio represents an
equal proportionate interest in that Portfolio. See "Description of Shares."
Currently only the PBHG Growth Fund offers Trust Class shares. This Statement of
Additional Information relates to both classes of shares of the Fund. No
investment in shares of a Portfolio should be made without first reading the
Portfolio's Prospectus. Capitalized terms not defined herein are defined in each
Prospectus offering shares of the Portfolios.
DESCRIPTION OF PERMITTED INVESTMENTS
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by the
Portfolios will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. With
respect to all repurchase agreements entered into by a Portfolio, the Fund's
custodians or their agents must take possession of the underlying collateral.
However, if the seller defaults, the Portfolio could realize a loss on the sale
of the underlying security to the extent that the proceeds of the sale,
including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Portfolio may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the Portfolio
S - 2
<PAGE>
is treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate.
Investment Company Shares
Investment Company Shares that each Portfolio may invest in are limited to
shares of money market mutual funds, except as set forth under "Investment
Limitations" below. Since such mutual funds pay management fees and other
expenses, shareholders of the Portfolios would indirectly pay both Portfolio
expenses and the expenses of underlying funds with respect to Portfolio assets
invested therein. Applicable regulations prohibit a Portfolio from acquiring the
securities of other investment companies that are not "part of the same group of
investment companies" if, as a result of such acquisition; (i) the Portfolio
owns more than 3% of the total voting stock of the company; (ii) more than 5% of
the Portfolio's total assets are invested in securities of any one investment
company; or (iii) more than 10% of the total assets of the Portfolio are
invested in securities (other than treasury stock) issued by all investment
companies. Each Portfolio has no current intention, in the foreseeable future,
of investing more than 5% of its assets in investment company securities.
Illiquid Investments
Illiquid Investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Adviser or Sub-Advisers determine the liquidity of the Fund's investments and,
through reports from the Adviser or Sub-Advisers, the Board monitors investments
in illiquid instruments. In determining the liquidity of a Portfolio's
investments, the Adviser or Sub-Advisers may consider various factors including:
(i) the frequency of trades and quotations; (ii) the number of dealers and
prospective purchasers in the marketplace; (iii) dealer undertakings to make a
market; (iv) the nature of the security (including any demand or tender
features); and (v) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Adviser or
Sub-Advisers may determine some government-stripped fixed-rate mortgage backed
securities, loans and other direct debt instruments, and swap agreements to be
illiquid. However, with respect to over-the-counter options a Portfolio writes,
all or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and terms of any
agreement a Portfolio may have to close out the option before expiration. In the
absence of market quotations, illiquid investments are priced at fair value as
determined in good faith by a committee appointed by the Board of Directors. If,
through a change in values, net assets or other circumstances, a Portfolio was
in a position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
Restricted Securities
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act"), or in a registered
S - 3
<PAGE>
public offering. Where registration is required, a Portfolio may be obligated to
pay all or part of the registration expense and a considerable period may elapse
between the time it decides to seek registration and the time a Portfolio may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, a Portfolio
might obtain a less favorable price than prevailed when it decided to seek
registration of the security. Moreover, investing in Rule 144A securities (i.e.,
securities that qualify for resale under Rule 144A under the Securities Act of
1933) would have the effect of increasing the level of a Portfolio's illiquidity
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities.
Foreign Currency Transactions
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies maybe exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Adviser or the applicable Sub-Advisers may enter into
settlement hedges in the normal course of managing the Portfolio's foreign
investments. A Portfolio may also enter into forward contracts to purchase or
sell a foreign currency in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific investments
have not yet been selected by the Adviser or the Sub-Advisers.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge", would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for example, by
entering into a forward contract to sell Deutschemark or European Currency Units
in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple
S - 4
<PAGE>
hedge into U.S. dollars. Proxy hedges may result in losses if the currency used
to hedge does not perform similarly to the currency in which the hedged
securities are denominated.
Under certain conditions, guidelines of the Securities Exchange Commission
("SEC") require mutual funds to set aside appropriate liquid assets in a
segregated account to cover currency forward contracts. As required by SEC
guidelines, each Portfolio will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. A Portfolio will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the skill of the
Adviser or the applicable Sub-Adviser in analyzing and predicting currency
values. Forward contracts may substantially change a Portfolio's investment
exposure to changes in currency exchange rates, and could result in losses to a
Portfolio if currencies do not perform as the Adviser or the applicable
Sub-Adviser anticipates. For example, if a currency's value rose at a time when
the Adviser or Sub-Adviser had hedged a Portfolio by selling that currency in
exchange for dollars, a Portfolio would be unable to participate in the
currency's appreciation. If the Adviser or a Sub-Adviser hedges a Portfolio's
currency exposure through proxy hedges, the Portfolio could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Adviser or the applicable
Sub-Adviser increases a Portfolio's exposure to a foreign currency and that
currency's value declines, the Portfolio will realize a loss. There is no
assurance that the use of forward currency contracts by the Adviser or the
Sub-Advisers will be advantageous to a Portfolio or that it will hedge at an
appropriate time.
Futures Contracts
A futures contract is a bilateral agreement to buy or sell a security (or
deliver a cash settlement price, in the case of a contract relating to an index
or otherwise not calling for physical delivery at the end of trading in the
contracts) for a set price in the future. Futures contracts are designated by
boards of trade which have been designated "contracts markets" by the
Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain that
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded. By using futures contracts as a risk management
technique, given the greater liquidity in the futures market than in the cash
market, it may be possible to accomplish certain results more quickly and with
lower transaction costs.
S - 5
<PAGE>
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, a
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous to that Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect each of the Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (i) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (ii) if purchased for other than "bona fide hedging"
purposes, the sum of the amounts of initial margin deposits on a Portfolio's
existing futures contracts and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of that Portfolio's total
assets. In instances involving the purchase of futures contracts by a Portfolio,
an amount of cash or other liquid assets, equal to the cost of such futures
contracts (less any related
S - 6
<PAGE>
margin deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts is unleveraged. In
instances involving the sale of futures contracts by a Portfolio, the securities
underlying such futures contracts or options will at all times be maintained by
that Portfolio or, in the case of index futures contracts, the Portfolio will
own securities the price changes of which are, in the opinion of its Adviser
expected to replicate substantially the movement of the index upon which the
futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
Options
No Portfolio, except for the International Fund, has a current intention, in the
foreseeable future of utilizing options. The types of options transactions that
each Portfolio is permitted to utilize and that the International Fund may
currently utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, a Portfolio will give
up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." A Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from a Portfolio's securities
portfolio, that Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
S - 7
<PAGE>
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by such Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
Securities Index Options. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by a Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
S - 8
<PAGE>
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Such Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
S - 9
<PAGE>
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when a Portfolio has sold futures
to hedge its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in that Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although a Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange. There is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If a Portfolio is unable to effect a
closing purchase transaction, that Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter
S - 10
<PAGE>
into closing transactions with respect to options traded over-the-counter. The
Portfolio will engage in such transactions only with firms of sufficient credit
so as to minimize these risks. Such options and the securities used as "cover"
for such options may be considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Portfolio's shareholders. Such
majority is defined in the 1940 Act as the lesser of (i) 67% or more of the
voting securities of the Portfolio present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Portfolio.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. With respect to 75% of its assets, purchase more than 10% of the outstanding
voting securities of any one issuer.
2. Pledge any of its assets, except that the Portfolio may pledge assets having
a value of not more than 10% of its total assets in order to (i) secure
permitted borrowings, or (ii) as may be necessary in connection with the
Portfolio's use of options and futures contracts.
3. Purchase or write puts, calls or combinations thereof, except that the
Portfolio may invest in and commit its assets to writing and purchasing only put
and call options that are listed on a national securities exchange and issued by
the Options Clearing Corporation to the extent permitted by the Prospectus and
this Statement of Additional Information. In order to comply with the securities
laws of several states, the Portfolio (as a matter of operating policy) will not
write a covered call option if, as a result, the aggregate market value of all
portfolio securities covering call options or subject to put options for that
Portfolio exceeds 25% of the market value of that Portfolio's net assets.
4. Make loans except by the purchase of bonds or other debt obligations of types
commonly offered publicly or privately and purchased by financial institutions,
including investment in repurchase
S - 11
<PAGE>
agreements, provided that the Portfolio will not make any investment in
repurchase agreements maturing in more than seven days if such investments,
together with any other illiquid securities held by the Portfolio, would exceed
15% of the value of its net assets.
5. Invest in the securities of other open-end investment companies, or invest in
the securities of closed-end investment companies except through purchase in the
open market in a transaction involving no commission or profit to a sponsor or
dealer (other than the customary broker's commission) or as part of a merger,
consolidation or other acquisition.
6. Engage in the underwriting of securities of other issuers, except that the
Portfolio may sell an investment position even though it may be deemed to be an
underwriter as that term is defined in the 1933 Act.
7. Purchase or sell real estate, commodities or commodity contracts, except that
the Portfolio may enter into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (taken at market
value at the time of entering into the futures contracts) would be committed to
margin deposits on such futures contracts and premiums paid for unexpired
options on such futures contracts; provided that, in the case of an option that
is "in-the-money" at the time of purchase, the "in-the-money" amount, as defined
under Commodity Futures Trading Commission regulations, may be excluded in
computing such 5% limit.
8. Invest in interests in oil, gas or other mineral exploration or development
programs.
All Other Portfolios
Each of the other Portfolios may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets (or with respect to the
PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund, 33 1/3 of the value
of the total assets of each such Portfolio). This borrowing provision is
included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not for
investment purposes. All borrowings in excess of 5% of the Portfolio's total
assets will be repaid before making investments.
4. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements as described in the Portfolio's
prospectus and this Statement of Additional Information. In addition, the PBHG
Limited Fund, the PBHG Large Cap 20 Fund, the PBHG Large Cap Value Fund, the
PBHG Mid-Cap Value Fund, the PBHG Small Cap Value Fund, the PBHG International
Fund and the PBHG
S - 12
<PAGE>
Strategic Small Company Fund may each lend its portfolio securities in an amount
not exceeding one-third the value of its total assets.
5. Pledge, mortgage or hypothecate assets, except: (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings; or
(ii) in connection with permitted transactions regarding options and futures
contracts and, except for the PBHG Mid-Cap Value Fund and the PBHG Small Cap
Value Fund, in aggregate amounts not to exceed 10% of total assets taken at
current value at the time of the occurrence of such pledge, mortgage or
hypothecation.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this shall
not prevent a Portfolio from: (i) investing in readily marketable securities of
issuers which can invest in real estate or commodities, institutions that issue
mortgages, or real estate investment trusts which deal in real estate or
interests therein, pursuant to the Portfolio's investment objective and
policies; and (ii) entering into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (taken at market
value at the time of entering into the futures contracts) would be committed to
margin deposits on such futures contracts and premiums paid for unexpired
options on such futures contracts; provided that, in the case of an option that
is "in-the-money" at the time of purchase, the "in-the-money" amount, as defined
under the Commodity Futures Trading Commission regulations, may be excluded in
computing the 5% limit. Each Portfolio (as a matter of operating policy) will
utilize only listed futures contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may: (i) obtain short-term
credits as necessary for the clearance of security transactions; and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowing money or pledging, mortgaging or hypothecating assets,
as described in each Portfolio's limitation on borrowing money and each
Portfolio's limitation on permitted borrowings and each Portfolio's limitation
on pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and, except for the PBHG Mid-Cap Value Fund and the PBHG Small Cap
Value Fund, invest in oil, gas or mineral leases.
12. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more
S - 13
<PAGE>
than 5% of the total assets of the Portfolio would be invested in the securities
of such issuer. With the execution of the PBHG Cash Reserves Fund, this
restriction applies to 75% of each Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Portfolio's
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. Invest in the securities of foreign issuers if, at the time of acquisition,
more than 15% of the value of the Portfolio's total assets would be invested in
such securities.
2. Make short sales or purchase securities on margin; but it may obtain such
short-term credits as are necessary for the clearance of purchases and sales of
securities.
3. Purchase or hold the securities of an issuer if, at the time thereof, any
such purchase or holding would cause more than 15% of the Portfolio's net assets
to be invested in illiquid securities. This limitation does not include any Rule
144A security that has been determined by, or pursuant to procedures established
by, the Board, based on trading markets for such security, to be liquid.
All Other Portfolios
Each of the other Portfolios may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board of Directors, based on trading markets for such security, to be
liquid.
S - 14
<PAGE>
2. Purchase puts, calls, straddles, spreads, and any combination thereof, except
to the extent permitted by the 1940 Act or the rules or regulations thereunder.
The foregoing percentages will apply at the time of each purchase of a security.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement with respect to each Portfolio (the "Advisory Agreement"). The
Advisory Agreement provides certain limitations on the Adviser's liability, but
also provides that the Adviser shall not be protected against any liability to
the Fund or each of its Portfolios or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement obligates the Adviser to: (i) provide a program of
continuous investment management for the Fund in accordance with the Fund's
investment objectives, policies and limitations; (ii) make investment decisions
for the Fund; and (iii) place orders to purchase and sell securities for the
Fund, subject to the supervision of the Board of Directors. The Advisory
Agreement provides that the Adviser is not responsible for other expenses of
operating the Fund. (See the Prospectuses for a description of expenses borne by
the Fund.)
For the fiscal years and periods ended March 31, 1995, 1996, and 1997 the
Portfolios paid or waived the following advisory fees:
<TABLE>
<CAPTION>
===================================================================================================================================
Fees Paid Fees Waived
======================================================================================================
Portfolio 1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $4,883,694 $15,198,342 $44,149,035 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth+ $ 941,606(1) $ 4,784,791 $10,774,907 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth * $ 33,161(2) $ 930,649 * $ 82,513 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Select Equity * $ 461,555(2) $ 4,101,441 * $162,473 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Core Growth * ($ 10,712)(3) $ 2,918,000 * $ 33,489 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Limited * * $ 1,415,935(4) * * $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap 20 * * $ 183,335(5) * * $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value * * $ 32,059(6) * * $ 8,931
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Mid-Cap Value * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Small Cap Value * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG International $ 98,194(7) $ 25,795 $ 176,992 $ 12,025 $ 88,733 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves * $ 66,035(2) $ 678,965 * $ 99,136 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Technology & * $ 58,490(8) $ 2,970,000 * $ 70,782 $ 0
Communications
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Strategic Small Company * * $ 153,886(6) * * $ 0
===================================================================================================================================
</TABLE>
S-15
<PAGE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 2, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
(1) For the period from June 3, 1994 through March 31, 1995.
(2) For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
(3) For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
(4) For the period from July 1, 1996 (commencement of operations) through
March 31, 1997.
(5) For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
(6) For the period from January 2, 1997 (commencement of operations) through
March 31, 1997.
(7) For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
(8) For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
In the interest of limiting the expenses of each Portfolio, the Adviser has
entered into separate expense limitation agreements with the Fund ("Expense
Limitation Agreement") with respect to the PBHG Core Growth Fund, the PBHG
Limited Fund, the PBHG Large Cap 20 Fund, the PBHG Large Cap Value Fund, the
PBHG Mid-Cap Value Fund, the PBHG Small Cap Value Fund, the PBHG International
Fund and the PBHG Strategic Small Company Fund. Pursuant to each Expense
Limitation Agreement the Adviser has agreed to waive or limit its fees and to
assume other expenses of each of the above referenced Portfolios to the extent
necessary to limit the total annual operating expenses (expressed as a
percentage of each Portfolio's average daily net assets) to 1.50% for all the
Portfolios (except the PBHG International Fund) and 2.25% for the PBHG
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 expense rate of each Portfolio to exceed 1.50% (or
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% (or 2.25% for the
International Fund); and (iii) the payment of such reimbursement was approved by
the Board of Directors on a quarterly basis.
In addition, the Adviser has voluntarily agreed (without entering expense
limitation agreements) to waive its advisory fees and to assume other expenses
in an amount that operates to limit the total expenses of each other Portfolio
to 1.50%. Except as provided for in the Expense Limitation Agreement described
above, reimbursement by each relevant Portfolio of amounts previously waived or
assumed by the Adviser is not permitted.
S - 16
<PAGE>
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated (i) at
any time without penalty by the Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to the Adviser or (ii) by the Adviser at any time
without penalty upon 60 days' written notice to the Fund. The Advisory Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act).
THE SUB-ADVISERS
Newbold's Asset Management, Inc.
The Fund, on behalf of PBHG Mid-Cap Value Fund, PBHG Large Cap Value Fund, PBHG
Small Cap Value Fund and PBHG Strategic Small Company Fund, and the Adviser have
entered into sub-advisory agreements ("Sub-Advisory Agreement") with Newbold's
Asset Management, Inc. ("Newbold's"). Each Sub-Advisory Agreement provides
certain limitations on Newbold's liability, but also provides that Newbold's
shall not be protected against any liability to the Fund or its shareholders by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
Each Sub-Advisory Agreement obligates Newbold's to: (i) manage the investment
operations of the relevant Portfolio and the composition of the Portfolio's
investment portfolios, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objective, policies and
limitation; (ii) provide supervision of the Portfolio's investments and to
determine from time to time what investment and securities will be purchased,
retained or sold by the Portfolio and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
The continuance of each Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Portfolio and
(ii) by the affirmative vote of a majority of the Directors who are not parties
to the agreement or interested persons of any such party by votes cast in person
at a meeting called for such purpose. Each Sub-Advisory Agreement may be
terminated (i) by the Fund, without the payment of any penalty, by the vote of a
majority of the Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the relevant Portfolio, (ii) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other parties, or (iii) by Newbold's at any
time, without the payment of any penalty, on 90 days' written notice to the
other parties. Each Sub-Advisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
S - 17
<PAGE>
Murray Johnstone International Ltd.
The Fund, on behalf of the PBHG International Fund, and the Adviser have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement") with Murray
Johnstone International Ltd. ("Murray Johnstone"). The Sub-Advisory Agreement
provides certain limitations on Murray Johnstone's liability, but also provides
that Murray Johnstone shall not be protected against any liability to the Fund
or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from a breach of
fiduciary duty with respect to the receipt of compensation for services
thereunder.
The Sub-Advisory Agreement obligates Murray Johnstone to: (i) manage the
investment operations of the PBHG International Fund and the composition of the
Portfolio's portfolio, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objectives, policies and
limitations; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
The continuance of the Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Sub-Advisory Agreement may be terminated
(i) by the Portfolio at any time, without the payment of any penalty, by the
vote of a majority of Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the Portfolio, (ii) by the Adviser at any time,
without the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the other parties, or (iii) by Murray Johnstone at any
time, without the payment of any penalty, on 90 days' written notice to the
other parties. The Sub-Advisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
Wellington Management Company, LLP
The Fund, on behalf of the PBHG Cash Reserves Fund, and the Adviser have entered
into a sub- advisory agreement (the "Sub-Advisory Agreement") with Wellington
Management Company, LLP ("Wellington"). The Sub-Advisory Agreement provides
certain limitations on Wellington's liability, but also provides that Wellington
shall not be protected against any liability to the Portfolio or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from a breach of fiduciary duty
with respect to the receipt of compensation for services thereunder.
The Sub-Advisory Agreement obligates Wellington to: (i) manage the investment
operations of the PBHG Cash Reserves Fund and the composition of the Portfolio's
portfolio, including the purchase, retention and disposition thereof in
accordance with the Portfolio's investment objectives, policies and
S - 18
<PAGE>
restrictions; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement or as the Board of Directors
or the Adviser may direct from time to time, in conformity with federal
securities laws.
The Sub-Advisory Agreement will continue in effect for a period of more than two
years from the date thereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that this
Agreement may be terminated with respect to the Fund (i) by the Fund at any
time, without the payment of any penalty, by the vote of a majority of Directors
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, (ii) by the Adviser at any time, without the payment of any penalty,
on not more than 60 days' nor less than 30 days' written notice to the other
parties, or (iii) by Wellington at any time, without the payment of any penalty,
on 90 days' written notice to the other parties. The Sub-Advisory Agreement
shall terminate automatically and immediately in the event of its assignment as
defined in the 1940 Act.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July 1,
1996 pursuant to which the Administrator oversees the administration of the
Fund's and each Portfolio's business and affairs, including services performed
by various third parties. The Administrator, a wholly-owned subsidiary of the
Adviser, was organized as a Pennsylvania business trust and has its principal
place of business at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087.
The Administrator is entitled to a fee from the Fund, which is calculated daily
and paid monthly at an annual rate of 0.15% of the average daily net assets of
each Portfolio. The Administrative Agreement provides that the Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Administrator in the performance of its duties.
The Administrative Agreement shall remain in effect until December 31, 1998, and
shall thereafter continue in successive periods of one year, unless terminated
by either party upon not less than 90 days' prior written notice to the other
party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement on July 1, 1996 pursuant
to which the Sub-Administrator assists the Administrator in connection with the
administration of the business and affairs of the Fund. Prior to July 1, 1996,
the Sub-Administrator served as the administrator of the Fund. The
Sub-Administrator is an indirect wholly-owned subsidiary of SEI Investment
Company ("SEI"). The Sub-Administrator was organized as a Delaware business
trust, and has its principal business offices at One Freedom Valley Road, Oaks,
Pennsylvania 19456. The Sub-Administrative Services Agreement provides that the
Sub-Administrator shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
the Sub-Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part
S - 19
<PAGE>
of the Sub-Administrator in the performance of its duties. The
Sub-Administrative Agreement shall remain in effect until December 31, 1998, and
shall continue in successive periods of one year, unless terminated by either
party upon not less than 90 days' prior written notice to the other party.
Under the Sub-Administrative Services Agreement, the Sub-Administrator is
entitled to a fee from the Administrator, which is calculated daily and paid
monthly, (i) an annual rate of 0.07.% of the average daily net assets of each
Portfolio with respect to the first $2.5 billion of the total average daily net
assets of the Fund and the PBHG Insurance Series Fund, Inc. taken together and
(ii) an annual rate of .025% of the average daily net assets of each Portfolio
with respect to the total average daily net assets of the Fund in excess of $2.5
billion and the PBHG Insurance Series Fund, Inc. taken together.
For the fiscal years and periods ended March 31, 1995, 1996 and 1997 the
Portfolios paid the following administration fees:
<TABLE>
<CAPTION>
===================================================================================================================================
Fees Paid Fees Waived
-----------------------------------------------------------------------------------------------------
Portfolio 1995 1996 1997++ 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $1,200,047 $3,576,064 $8,325,330 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth+ 221,554(1) $1,125,834 $2,026,934 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth * $ 69,887(2) $ 194,580 * $6,148 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Select Equity * $ 158,422(2) $ 762,481 * $6,148 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Core Growth * $ 12,092(3) $ 527,363 * $6,148 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Limited * * $ 212,390(4) * * $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap 20 * * $ 32,353(5) * * $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value * * $ 5,658(6) * * $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Mid-Cap Value * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Small Cap Value * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG International $ 59,384(7) $ 74,949 $ 40,069 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves * $ 117,204(2) $ 354,921 * $6,148 $ 0
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Technology & * $ 35,898(8) $ 537,851 * $6,148 $ 0
Communications
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Strategic Small Company * * $ 23,083(6) * * $ 0
===================================================================================================================================
</TABLE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
++ From January 1, 1996 to June 30, 1996, SEI Fund Resources served as the
Fund's Administrator. From July 1, 1996 to March 31, 1997, PBHG Fund
Services served as the Fund's Administrator.
(1) For the period from June 3, 1994 through March 31, 1995.
S - 20
<PAGE>
(2) For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
(3) For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
(4) For the period from July 1, 1996 (commencement of operations) through March
31, 1997.
(5) For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
(6) For the period from January 1, 1997 (commencement of operations) through
March 31, 1997.
(7) For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
(8) For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement"). The Distributor is not entitled to receive any compensation for the
distribution services it provides with respect to either class of shares.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than 60 days' written notice by either party or upon assignment by the
Distributor.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 under 1940 Act to
enable the Trust Class Shares of each Portfolio to directly and indirectly bear
certain expenses relating to the distribution of such Shares. Pursuant to such
Service Plan, the Fund shall be entitled to pay to financial intermediaries,
plan fiduciaries, and investment professionals ("Service Providers") a
shareholder servicing fee at the aggregate annual rate of up to 0.25% of each
Portfolio's average daily net assets attributable to Trust Class Shares. The
shareholder servicing fee is intended to compensate Service Providers for
providing to shareholders or the underlying beneficial owners of Trust Class
Shares: (i) personal support services; (ii) distribution assistance and
distribution support services; and (iii) account maintenance services. In
addition, insurance companies or their affiliates may be paid a shareholder
servicing fee described for providing similar services to variable annuity or
variable life insurance contract holders ("Contract Holders") or their
participants for which such insurance companies are not otherwise compensated by
Contract Holders or participants.
The Distributor shall prepare and deliver written reports to the Board of
Directors of the Fund on a regular basis (at least quarterly) setting forth the
payments made to Service Providers pursuant to the Service Plan, and the
purposes for which such expenditures were made, as well as any supplemental
reports as the Board of Directors may from time to time reasonably request.
Except to the extent that the Administrator, Sub-Administrator or Adviser may
benefit through increased fees from an increase in the net assets of the Fund
which may have resulted in part from the expenditures, no interested person of
the Fund nor any Director of the Fund who is not an interested person of the
Fund had a direct or indirect financial interest in the operation of the Plan or
any related agreement.
No compensation was paid to the Distributor for distribution services for the
fiscal years ended March 31, 1995, March 31, 1996 and March 31, 1997. For the
fiscal year ended March 31, 1997,
S - 21
<PAGE>
$8,871 was paid to Service Providers pursuant to the Service Plan for the Trust
Class Shares of the PBHG Growth Fund.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and the principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
age of each Director and officer is indicated in the parenthesis.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Director,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Chief
Financial Officer and Director, The Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Director, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Trustee, the Administrator since May 1996 and Chief Executive Officer, Newbold's
Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010, since June
1996.
JETTIE M. EDWARDS (50) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Director,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Trustee,
Provident Investment Counsel Trust (investment company) since 1992 and EQ
Advisors Trust (investment company) since March 1997.
ALBERT A. MILLER (63) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Merchandise executive, Cherry and Webb Stores since 1996. Principal and
Treasurer, JK Equipment Exporters since 1995. Director, PBHG Insurance Series
Fund, Inc. (investment company) since 1997. Advisor and Secretary, The
Underwoman Shoppes Inc. (retail clothing stores) since 1980. Merchandising Group
Vice President, R.H. Macy & Co. 1958-1995 (retired).
GARY L. PILGRIM (56) - President - President, Chief Investment Officer,
Treasurer and Director, the Adviser since 1982. Trustee, the Administrator since
May 1996. President, PBHG Insurance Series Fund, Inc. (investment company) since
1997. Director, Newbold's since June 1996.
SANDRA K. ORLOW (43) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1983. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997.
- -------------------
* Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund as that term is defined in the 1940 Act.
S - 22
<PAGE>
KEVIN P. ROBINS (36) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992. Vice President and Assistant
Secretary, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (38) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1994. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (31) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1995. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
BARBARA A. NUGENT (40) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Vice President and Assistant
Secretary, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Associate, Drinker, Biddle & Reath (law firm), 1994-1996. Assistant Vice
President, Delaware Service Company, Inc. (transfer agent), 1988-1993.
STEPHEN G. MEYER (31) - Treasurer, Chief Financial Officer and Controller - Vice
President and Chief Financial Officer, SEI since November 1996. Vice President
and Controller - Director of Internal Audit and Risk Management at SEI,
1992-1996. Chief Financial Officer and Controller, PBHG Insurance Series Fund,
Inc. (investment company) since 1997.
MICHAEL J. HARRINGTON (28) - Vice President - Director of Fund Services,
the Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994. Assistant Vice President, PBHG Insurance Series Fund,
Inc. (investment company) since 1997.
LEE T. CUMMINGS (33) - Vice President - Director of Mutual Fund Operations, the
Adviser since 1996. Treasurer, the Administrator since May 1996. Vice President,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Investment
Accounting Officer, Delaware Group of Funds, 1994-1996. Vice President,
Fund/Plan Services, Inc., 1992-1994.
BRIAN F. BEREZNAK (35) - Vice President - Trustee and President, the
Administrator since May 1996, Chief Operating Officer, the Adviser from 1989
through December 31, 1996. Director, Newbold's since June 1996. Vice President
and Assistant Secretary, PBHG Insurance Series Fund, Inc. (investment company)
since 1997.
S - 23
<PAGE>
JOHN M. ZERR (35) - Vice President and Secretary - General Counsel and
Secretary, the Adviser since November 1996. Vice President, PBHG Insurance
Series Fund, Inc. (investment company) since 1997. Vice President and Assistant
Secretary, Delaware Management Company, Inc. and the Delaware Group of Funds,
1995-1996. Associate, Ballard Spahr Andrews & Ingersoll (law firm), 1987-1995.
DARLENE DEREMER (41) - Vice President - President, DeRemer Associates (financial
consulting), 155 South Street, Wrentham, MA 02093 since 1987. Vice President,
PBHG Insurance Series Fund, Inc. (investment company) since 1997.
JANE A. KANTER (48) - Vice President and Assistant Secretary - Partner, Katten
Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East Lobby - Suite 700,
Washington, D.C. 20007 (law firm) since 1994. Partner, Freedman Levy Kroll &
Simonds (law firm), 1987-1994. Secretary, PBHG Insurance Series Fund, Inc. since
1997.
As of the date of this Statement of Additional Information, the Directors and
officers of the Fund as a group owned less than 1% of the outstanding shares of
both classes of shares of each Portfolio.
Each current Director of the Fund who is not an "interested person" of the Fund
received the following compensation during the fiscal year ending March 31,
1997:
<TABLE>
<CAPTION>
===============================================================================================================================
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated from the Fund and
Name of Person, Compensation From as Part of Fund Annual Benefits Fund Complex Paid
Position The Fund* Expenses Upon Retirement to Directors*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Bartholdson, $19,333 N/A N/A $22,333 for services
Director on one Board
- -------------------------------------------------------------------------------------------------------------------------------
Harold J. Baxter, $ 0 N/A N/A $0
Director*
- -------------------------------------------------------------------------------------------------------------------------------
Jettie M. Edwards, $19,333 N/A N/A $22,333 for services
Director on one Board
- -------------------------------------------------------------------------------------------------------------------------------
Albert A. Miller, $19,333 N/A N/A $22,333 for services
Director on one Board
===============================================================================================================================
</TABLE>
- ----------------------
* The Fund and Fund Complex are expected to pay in the aggregate
approximately $47,000 to each Director who is not an "interested person" of
the Registrant for the fiscal year ending March 31, 1998.
** Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
Each Director is expected to receive $30,500 for services to the Fund for the
fiscal year ending March 31, 1998.
S - 24
<PAGE>
COMPUTATION OF YIELD
From time to time the PBHG Cash Reserves Fund may advertise its "current yield"
and "effective compound yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
PBHG Cash Reserves Fund refers to the income generated by an investment in the
PBHG Cash Reserves Fund over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the PBHG Cash Reserves Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the PBHG Cash Reserves Fund will be calculated daily based
upon the seven days ending on the date of calculation ("base period"). The yield
is computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the PBHG Cash Reserves Fund is determined by computing the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = ((Base Period Return + 1) 365/7) - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The yield of the PBHG Cash Reserves Fund fluctuates, and the annualization of a
week's dividend is not a representation by the Fund as to what an investment in
the PBHG Cash Reserves Fund will actually yield in the future. Actual yields
will depend on such variables as asset quality, average asset maturity, the type
of instruments the PBHG Cash Reserves Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the PBHG Cash Reserves
Fund and other factors.
Yields are one basis upon which investors may compare the PBHG Cash Reserves
Fund with other money market funds; however, yields of other money market funds
and other investment vehicles may not be comparable because of the factors set
forth above and differences in the methods used in valuing portfolio
instruments.
For the 7-day period ended March 31, 1997, the yield for the PBHG Cash Reserves
Fund was 5.10% and the 7-day effective yield was 4.99%.
S - 25
<PAGE>
CALCULATION OF TOTAL RETURN
From time to time, each of the Portfolios may advertise its total returns. The
total return refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including, but not limited to, the
period from which the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period.
Based on the foregoing, the average annual total returns for each of the
Portfolios (other than the Cash Reserves Fund) from its inception through March
31, 1997 and for the one, five and ten year periods ended March 31, 1997, and
the aggregate total returns for the Portfolios since inception, were as follows:
<TABLE>
<CAPTION>
===================================================================================================================================
Aggregate
Average Annual Total Return Total Return
Portfolio -----------------------------------------------------------------------------------------
Since Since
One Year Five Year Ten Year Inception Inception
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PBHG Growth(1) -16.76% 21.54% 15.02% 18.58% 583.75%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth(2) -13.71% * * 24.08% 126.72%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth(3) - 1.77% * * 21.49% 47.27%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Select Equity(4) - 6.49% * * 28.48% 64.61%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Core Growth(5) -12.52% * * 2.70% 3.40%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Limited(6) * * * -9.15%** -9.15%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap 20(7) * * * -7.40%** -7.40%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value(8) * * * 1.10%** 1.10%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Mid-Cap Value * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Small Cap Value * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG International(9) 6.73% * * 4.49% 13.06%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Technology & Communications(10) 19.59% * * 30.52% 49.27%
- -----------------------------------------------------------------------------------------------------------------------------------
PBHG Strategic Small Company(11) * * * -11.40%** -11.40%
===================================================================================================================================
</TABLE>
* Not in operation during the period.
** Not annualized since each Portfolio has been in operations for less than
ten months.
(1) The PBHG Growth Fund commenced operations on December 19, 1985. The Trust
Class shares of this Portfolio commenced operations on August 19, 1996.
(2) The PBHG Emerging Growth Fund commenced operations with its predecessor on
June 15, 1993.
(3) The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
(4) The PBHG Select Equity Fund commenced operations on April 5, 1995.
(5) The PBHG Core Growth Fund commenced operations on January 2, 1996.
S - 26
<PAGE>
(6) The PBHG Limited Fund commenced operations on July 1, 1996.
(7) The PBHG Large Cap 20 Fund commenced operations on December 1, 1996.
(8) The PBHG Large Cap Value Fund commenced operations on January 1, 1997.
(9) The PBHG International Fund commenced operations on June 14, 1994.
(10) The PBHG Technology & Growth Fund commenced operations on October 2, 1995.
(11) The PBHG Strategic Small Company Fund commenced operations on January 1,
1997.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of the
Portfolios are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Fund also
reserves the right to suspend sales of shares of a Portfolio for any period
during which the New York Stock Exchange, the Adviser, the Administrator,
Sub-Administrator, the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of each Portfolio are valued by the Sub-Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the mean
between the most recent bid and asked prices. In the event a listed security is
traded on more than one exchange, it is valued at the last sale price on the
exchange on which it is principally traded. If there are no transactions in a
security during the day, it is valued at the mean between the most recent bid
and asked prices. However, debt securities (other than short-term obligations),
including listed issues, are valued on the basis of valuations furnished by a
pricing service which utilizes electronic data processing techniques to
determine valuations for normal institutional size trading units of debt
securities, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations are valued at amortized cost. Securities for which market
S - 27
<PAGE>
quotations are not readily available and other assets held by the Fund, if any,
are valued at their fair value as determined in good faith by the Board of
Directors.
The net asset value per share of the PBHG Cash Reserves Fund is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price the Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of the PBHG Cash Reserves
Fund may tend to be higher than a like computation made by a company with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by the PBHG Cash Reserves Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
PBHG Cash Reserves Fund would be able to obtain a somewhat higher yield than
would result from investment in a company utilizing solely market values, and
existing investors in the Portfolio would experience a lower yield. The converse
would apply in a period of rising interest rates.
The use of amortized cost valuation by the PBHG Cash Reserves Fund and the
maintenance of the Portfolio's net asset value at $1.00 are permitted by
regulations set forth in Rule 2a-7 under the 1940 Act, provided that certain
conditions are met. Under Rule 2a-7 as amended, a money market portfolio must
maintain a dollar-weighted average maturity in the Fund of 90 days or less and
not purchase any instrument having a remaining maturity of more than 397 days.
In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized security rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The Directors must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of a Portfolio's assets may be invested in such securities in the
aggregate, and (ii) any investment in such securities of one issuer is limited
to the greater of 1% of the Portfolio's total assets or $1 million. The
regulations also require the Directors to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Portfolio. However, there is no assurance that the Fund will be able to meet
this objective. The Fund's procedures include the determination of the extent of
deviation, if any, of the Portfolio's current net asset value per unit
calculated using available market quotations from the Portfolio's amortized cost
price per share at such intervals as the Directors deem appropriate and
reasonable in light of market conditions and periodic reviews of the amount of
the deviation and the methods used to calculate such deviation. In the event
that such deviation exceeds 1/2 of 1%, the Directors are required to consider
promptly what action, if
S - 28
<PAGE>
any, should be initiated. If the Directors believe that the extent of any
deviation may result in material dilution or other unfair results to
shareholders, the Directors are required to take such corrective action as they
deem appropriate to eliminate or reduce such dilution or unfair results to the
extent reasonably practicable. In addition, if any Portfolio incurs a
significant loss or liability, the Directors have the authority to reduce pro
rata the number of shares of that Portfolio in each shareholder's account and to
offset each shareholder's pro rata portion of such loss or liability from the
shareholder's accrued but unpaid dividends or from future dividends.
TAXES
The following is only a summary of certain income tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
S - 29
<PAGE>
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts.
In certain cases, a Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed
to provide a correct taxpayer identification number, (ii) is subject to backup
withholding by the Internal Revenue Service, or (iii) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
State Taxes
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state and local taxes.
Foreign Taxes
Dividends and interest received by the PBHG International Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Portfolio's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by foreign investors. If the PBHG
International Fund meets the Distribution Requirement and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, the Portfolio will be eligible
to file an election with the Internal Revenue Service that will enable
Shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Portfolio.
Pursuant to the election, the Portfolio will treat those taxes as dividends paid
to its Shareholders. Each Shareholder will be required to include a
proportionate share of those taxes in gross income as income received from a
foreign source and must treat the amount so included as if the Shareholder had
paid the foreign tax directly. The Shareholder may then either deduct the taxes
deemed paid by him or her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the Shareholder's federal income tax. If the Portfolio makes the
election, it will report annually to its Shareholders the respective amounts per
share of the Portfolio's income from sources within, and taxes paid to, foreign
countries and U.S. possessions.
S - 30
<PAGE>
The PBHG International Fund's transactions in foreign currencies and forward
foreign currency contracts will be subject to special provisions of the Code
that, among other things, may affect the character of gains and losses realized
by the Portfolio (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Portfolio and defer Portfolio
losses. These rules could therefore affect character, amount and timing of
distributions to shareholders. These provisions also may require the Portfolio
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed out) which may cause the Portfolio to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the 90% and 98% distribution requirements for avoiding
income and excise taxes. The Portfolio will monitor its transactions, will make
the appropriate tax elections, and will make the appropriate entries in its
books and records when it acquires any foreign currency, option, futures
contract, forward contract, or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Portfolio as a regulated
investment company and minimize the imposition of income and excise taxes.
PORTFOLIO TRANSACTIONS
The Adviser or Sub-Advisers are authorized to select brokers and dealers to
effect securities transactions for the Portfolios. The Adviser or Sub-Advisers
will seek to obtain the most favorable net results by taking into account
various factors, including price, commission, if any, size of the transactions
and difficulty of executions, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved. While the
Adviser or Sub-Advisers generally seek reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. The Adviser or Sub-Advisers seek to select brokers or
dealers that offer the Portfolios best price and execution or other services
which are of benefit to the Portfolios. Certain brokers or dealers assist their
clients in the purchase of shares from the Distributor and charge a fee for this
service in addition to a Portfolio's public offering price. In the case of
securities traded in the over-the-counter market, the Adviser or Sub-Advisers
expect normally to seek to select primary market makers.
The Adviser or Sub-Advisers may, consistent with the interests of the
Portfolios, select brokers on the basis of the research services they provide to
the Adviser or Sub-Advisers. Such services may include analyses of the business
or prospects of a company, industry or economic sector, or statistical and
pricing services. Information so received by the Adviser will be in addition to
and not in lieu of the services required to be performed by the Adviser under
the Advisory Agreement. If, in the judgment of the Adviser or Sub-Adviser, a
Portfolio or other accounts managed by the Adviser or Sub-Adviser will be
benefitted by supplemental research services, the Adviser or Sub-Advisers are
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser or Sub-Advisers will not necessarily be reduced as a result of the
receipt of such information, and such services may not be used exclusively, or
at all,
S - 31
<PAGE>
with respect to the Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser or Sub-Advisers will find all of such services
of value in advising the Portfolios.
It is expected that the Portfolios may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolios on an exchange if a written contract
is in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Adviser or Sub-Advisers may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such broker-
dealer's payment of certain of the Portfolio's or the Fund's expenses. In
addition, the Adviser or Sub-Adviser may place orders for the purchase or sale
of Portfolio securities with qualified broker-dealers that refer prospective
shareholders to the Portfolios. The Directors, including those who are not
"interested persons" of the Fund, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Advisers may consider
sales of the Portfolio's shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the Portfolio.
The Fund's Board of Directors has adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by the
Portfolio. The Code of Ethics allows trades to be made in securities that may be
held by the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
For the fiscal year and periods ended March 31, 1997, 1996, and 1995, the
Portfolios paid brokerage fees as follows:
S-32
<TABLE>
<CAPTION>
=================================================================================================================================
Percentage of
Total Amount Total Amount
of Brokerage of Brokerage
Total Amount Total Amount Total Amount of Commissions Commissions
of Brokerage of Brokerage Brokerage Paid to the Paid to the
Commissions Commissions Commissions Distributor Distributor
Fund Paid in 1997 Paid in 1996 Paid in 1995 in 1997++ in 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Growth $4,696,917 $1,546,204 $ 802,803 $ 262,068 6%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Emerging Growth+ $ 408,039 $ 702,027 $ 101,235(1) $ 107,839 26%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Growth $ 138,111 $ 50,907(2) * $ 6,768 5%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Select Equity $ 329,054 $ 204,485(2) * $ 21,840 7%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Core Growth $ 306,218 $ 21,334(3) * $ 17,609 6%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Limited Fund $ 80,602(4) * * $ 23,147 29%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap 20 $ 67,122(5) * * $ 3,003 4%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Large Cap Value $ 40,128(6) * * $ 428 1%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Mid-Cap Value * * * * *
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Small Cap Value * * * * *
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG International $ 110,586 $ 152,429 $ 87,658(7) $ 0 0%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Cash Reserves $ 0 0(2) * $ 0 0%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Technology &
Communications $ 646,233 $ 39,559(8) * $ 24,434 4%
- ---------------------------------------------------------------------------------------------------------------------------------
PBHG Strategic $ 162,617(6) * * $ 1,516 9%
Small Company
=================================================================================================================================
</TABLE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the
liabilities of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The
PBHG Emerging Growth Fund retained the October 31 fiscal year of its
predecessor only for fiscal 1994. The PBHG Emerging Growth Fund changed its
fiscal year end to March 31 in 1995.
++ These commissions were paid to the Distributor in connection with
repurchase agreement transactions.
(1) For the period from June 3, 1994 through March 31, 1995.
(2) For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
(3) For the period from January 2, 1996 (commencement of operations) through
March 31, 1996.
(4) For the period from July 1, 1996 (commencement of operations) through March
31, 1997.
(5) For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
(6) For the period from January 2, 1997 (commencement of operations) through
March 31, 1997.
S - 33
<PAGE>
(7) For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
(8) For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
[Please confirm the percentages stated in the last column.]
Consistent with the Rules of Fair Practice of the NASD and subject to seeking
best execution and such other policies as the Board of Directors may determine,
the Adviser may consider sales of Fund shares as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
DESCRIPTION OF SHARES
The Fund is authorized to issue an unlimited number of shares of each Portfolio
and to create additional portfolios of the Fund. Each share of a Portfolio
represents an equal proportionate interest in that Portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Portfolio available for distribution to shareholders. Shareholders
have no preemptive rights. All consideration received by the Fund for shares of
any Portfolio and all assets in which such consideration is invested would
belong to that Portfolio and would be subject to the liabilities related
thereto.
5% AND 25% SHAREHOLDERS
As of March 31, 1997, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolios. The Fund believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency or custodial clients.
PBHG Core Growth Fund - PBHG Class
Charles Schwab & Co., Inc. 20.49%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 15.28%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S - 34
<PAGE>
PBHG Emerging Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 21.94%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 14.45%
P.O. Box 3909
Church Street Station
New York, New York 10008-3908
PBHG Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 23.76%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 9.69%
P.O. 3908
Church Street Station
New York, New York 10008-3908
PBHG Growth Fund - Trust Class
The Travelers Insurance Company 49.50%
ATTN: Roger Ferland
1 Tower Square
Hartford, CT 06183-9001
Sisters of Mercy 31.02%
2300 Adeline Drive
Burlingame, CA 94010-5599
Fleet National Bank TTEE 19.48%
FBO Davies Medical Pen
ATTN: 00003733800
P.O. Box 92800
Rochester, New York 14692-8900
S - 35
<PAGE>
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 25.68%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 16.30%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Limited Fund
Charles Schwab & Co., Inc. 9.20%
Reinvest Account
ATTN: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Northern Trust TR 9.91%
FBO J. Paul Getty Trust
P.O. Box 92956
Chicago, IL 60675-2956
PBHG Large Cap 20 Fund
Charles Schwab & Co., Inc. 14.94%
Reinvest Account
ATTN: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 13.18%
for the Exclusive Ben. of Our Cust.
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S - 36
<PAGE>
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 25.08%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 18.47%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Large Cap Value Fund
Charles Schwab & Co., Inc. 6.92%
Reinvest Account
ATTN: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 9.27%
for the Exclusive Ben. of Our Cust.
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 14.38%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 7.12%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S - 37
<PAGE>
PBHG Strategic Small Company Fund
Charles Schwab & Co., Inc. 15.52%
Reinvest Account
ATTN: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 16.66%
for the Exclusive Ben. of Our Cust.
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Technology & Communications Fund - PBHG Class
Charles Schwab & Co., Inc. 29.32%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 17.02%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Cash Reserves Fund - PBHG Class
Pilgrim Baxter Partners I LP 36.74%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
Pilgrim Baxter Partners II LP 7.85%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. located at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania, serves as the independent accountants for the Fund. Coopers &
Lybrand L.L.P. provides audit services, tax return preparation and assistance
and consultation in connection with review of SEC filings.
S - 38
<PAGE>
The audited financial statements for the fiscal year ended March 31, 1997 and
the report of the independent accountants for that year are included in the
Fund's Annual Report to Shareholders dated March 31, 1997. The Annual Report,
except for pages one through ten thereof, is incorporated herein by reference
and made a part of this document. These financial statements have been audited
by Coopers & Lybrand L.L.P. and have been included in the Prospectus and
incorporated by reference into the Statement of Additional Information in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in auditing and accounting.
S - 39
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Prospectus:
Financial Highlights
Part B - Statement of Additional Information:
Statement of Net Assets as of March 31, 1997
Statements of Operations for the period ended March 31, 1997
Statements of Charges in Net Assets for the period ended March 31, 1997
Financial Highlights for the fiscal year or period ended March 31, 1997
Notes to Financial Statements as of March 31, 1997
(b) Exhibits:
1(a) Certificate of Incorporation(1)
1(b) Certificate of Amendment dated October 28, 1985(2)
1(c) Certificate of Amendment to Certificate of Incorporation(3)
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc., a
Maryland corporation(5)
1(e) Articles of Incorporation of The PBHG Funds, Inc.(5)
1(f) Articles of Amendment to the Articles of Incorporation of The
PBHG Funds, Inc., dated November 12, 1993(6)
1(g) Articles of Amendment to the Articles of Incorporation of The
PBHG Funds, Inc. dated May 5, 1994(7)
1(h) Articles of Amendment of the Articles of Incorporation of The
PBHG Funds, Inc. dated December 28, 1995(12)
1(i) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated May 25, 1994(7)
1(j) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 5, 1994(8)
1(k) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 9, 1994(8)
1(l) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated August 21, 1995
1(m) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 28, 1995(12)
1(n) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 28, 1995(12)
1(o) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated May 20, 1996(13)
1(p) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated July 1, 1996(13)
C-1
<PAGE>
1(q) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated September 6, 1996(13)
1(r) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated October 2, 1996(14)
1(s) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated January 31, 1997(15)
2 By-Laws(5)
3 Voting trust agreement - none
4 Specimen Common Stock Certificate(1)
5(a) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated April 1, 1997
5(b) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the PBHG Cash Reserves Fund, Pilgrim
Baxter & Associates, Ltd. and Wellington Management Company
dated April 4, 1995(12)
5(c) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the International Fund, Pilgrim
Baxter & Associates, Ltd. and Murray Johnstone International
Limited dated June 30, 1995(12)
5(d)(1) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Large Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.
dated December 16, 1996 (as revised effective May 1, 1997)
5(d)(2) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Strategic Small Company Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated December 16, 1996(15)
5(d)(3) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Mid-Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.
dated April 1, 1997
5(d)(4) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Small Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.
dated April 1, 1997
6(a) Distribution Agreement between The PBHG Funds, Inc. and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated April 1, 1997
6(b) Form of Selling Group Agreement(4)
7 Bonus, profit sharing or pension plans - none
8(a) Custodian Agreement between The PBHG Funds, Inc., on behalf of
the International Fund, and The Northern Trust Company
8(b) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. and Schedule A dated April 1, 1997
9(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 1993(6)
C-2
<PAGE>
9(b) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
April 1, 1997
9(c) Sub-Administrative Services Agreement between The PBHG Funds,
Inc. and SEI Fund Resources dated July 1, 1996 and Schedule A
dated April 1, 1997
9(d)(1) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Core Growth Fund and Pilgrim Baxter &
Associates, Ltd. dated September 24, 1996(14)
9(d)(2) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Limited Fund and Pilgrim Baxter & Associates,
Ltd. dated September 24, 1996(14)
9(d)(3) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap 20 Fund and Pilgrim Baxter &
Associates, Ltd. dated November 24, 1996(15)
9(d)(4) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated December 16, 1996(15)
9(d)(5) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Strategic Small Company Fund and Pilgrim Baxter
& Associates, Ltd. dated December 16, 1996(15)
9(d)(6) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG International Fund and Pilgrim Baxter &
Associates, Ltd. dated March 6, 1997
9(d)(7) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 1997
9(d)(8) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Small Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 1997
10(a) Opinion of Counsel(5)
10(b) Opinion of Counsel with respect to the legality of the shares
of the PBHG Core Growth Fund(12)
10(c) Opinion of Counsel with respect to the legality of the shares
of the PBHG Limited Fund(12)
10(d) Opinion of Counsel with respect to the legality of the shares
of the PBHG Large Cap 20 Fund(13)
10(e) Opinion of Counsel with respect to the legality of the shares
of the PBHG Large Cap Value Fund, PBHG Mid-Cap Value Fund and
PBHG Strategic Small Company Fund(14)
10(f) Opinion of Counsel with respect to the legality of the shares
of the PBHG Small Cap Value Fund(15)
11(a) Consent of Independent Public Accountants
11(b) Consent of Coopers & Lybrand L.L.P.
12 Financial Statements omitted from Part B - none
13 Letter from Philadelphia Life Insurance Company to the
Registrant with respect to the initial capitalization of the
Registrant(2)
C-3
<PAGE>
14(a) Southwestern Life Insurance Company Defined Benefit Pension
Plan and Trust(1)
14(b) Adoption Agreement for Southwestern Life Insurance Company
Standardized Integrated Defined Benefit Pension Plan and Trust
(with Pairing Provisions)(1)
14(c) Adoption Agreement for Southwestern Life Insurance Company
Standardized Non-Integrated Defined Benefit Pension Plan and
Trust (with Pairing Provisions)(1)
14(d) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Integrated Defined Benefit Pension Plan and
Trust(1)
14(e) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Non-Integrated Defined Benefit Pension Plan
and Trust(1)
14(f) Southwestern Life Insurance Company Combination Profit
Sharing-Money Purchase Plan and Trust(1)
14(g) Adoption Agreement for Southwestern Life Insurance Company
Standardized Money Purchase Plan and Trust (with Pairing
Provisions)(1)
14(h) Adoption Agreement for Southwestern Life Insurance Company
Standardized Profit Sharing Plan and Trust (with Pairing
Provisions)(1)
14(i) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Money Purchase Plan and Trust(1)
14(j) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Profit Sharing Plan and Trust(1)
14(k) Form 5305, Simplified Employee Pension-Individual Retirement
Accounts Contribution Agreement(1)
14(l) Form 5305-A, Individual Retirement Custodial Account(1)
14(m) Southwestern Life Insurance Company Tax Deferred Annuity
Program Custodial Agreement(1)
14(n) Amendment to Application for Investment Plans under a
403(b)(7) Plan(9)
15 Plan pursuant to Rule 12b-1 with respect to Trust Class
Shares(10)
16 Schedule for computation of Performance Quotation provided in
the Registration Statement
18 Rule 18f-3 Multiple Class Plan dated November 20, 1995 and
Schedule A dated April 1, 1997
24(a) Power of Attorney(11)
24(b) Power of Attorney(13)
27 Financial Data Schedule
------------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(2) Incorporated herein by reference to Pre-Effective Amendment No. 2
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(3) Incorporated herein by reference to Post-Effective Amendment No.
6 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
C-4
<PAGE>
(4) Incorporated herein by reference to Post-Effective Amendment No.
10 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(5) Incorporated herein by reference to Post-Effective Amendment No.
11 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(6) Incorporated herein by reference to Post-Effective Amendment No.
12 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(7) Incorporated herein by reference to Post-Effective Amendment No.
13 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(8) Incorporated herein by reference to Post-Effective Amendment No.
14 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(9) Incorporated herein by reference to Post-Effective Amendment No.
19 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(10) Incorporated herein by reference to Post-Effective Amendment No.
21 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(11) Incorporated herein by reference to Post-Effective Amendment No.
22 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(12) Incorporated herein by reference to Post-Effective Amendment No.
23 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(13) Incorporated herein by reference to Post-Effective Amendment No.
24 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(14) Incorporated herein by reference to Post-Effective Amendment No.
25 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
(15) Incorporated herein by reference to Post-Effective Amendment No.
27 to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
Item 25. Persons Controlled by or under Common Control with Registrant
There are no persons that are controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of March 31, 1997:
Title of Class Number of Record Holders
PBHG Class
PBHG Core Growth Fund 29,028
PBHG Emerging Growth Fund 80,279
PBHG Growth Fund 223,297
C-5
<PAGE>
PBHG Large Cap Growth Fund 10,746
PBHG Large Cap 20 Fund 7,799
PBHG Limited Fund 10,468
PBHG Select Equity Fund 28,687
PBHG Mid-Cap Value Fund 0
PBHG Large Cap Value Fund 2,920
PBHG Small Cap Value Fund 0
PBHG International Fund 3,653
PBHG Strategic Small Company Fund 5,806
PBHG Technology & Communications Fund 34,856
PBHG Cash Reserves Fund 12,222
Trust Class 4
PBHG Growth Fund
Item 27. Indemnification
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940, as amended ("1940 Act"). The By-Laws may provide that the
Corporation shall indemnify its employees and/or agents in any manner and within
such limits as permitted by applicable law. Such indemnification shall be in
addition to any other right or claim to which any director, officer, employee or
agent may otherwise be entitled. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
or employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
The By-Laws of the Registrant include the following:
C-6
<PAGE>
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and
officers, whether serving the Corporation or at its request
any other entity, to the full extent required or permitted by
(i) Maryland law now or hereafter in force, including the
advance of expenses under the procedures and to the full
extent permitted by law, and (ii) the Investment Company Act
of 1940, as amended, and (b) other employees and agents to
such extent as shall be authorized by the Board of Directors
and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to
which those seeking indemnification may be entitled. The Board
of Directors may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered to
adopt, approve and amend from time to time such resolutions or
contracts implementing such provisions nor such further
indemnification arrangement as may be permitted by law."
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended ("1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suite or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the 1940 Act,
as amended, and Release No. IC-11330 issued thereunder.
C-7
<PAGE>
Item 28. Business and Other Connections of the Investment Adviser:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of Pilgrim Baxter &
Associates, Ltd. and Newbold's Asset Management, Inc. is or has been, at any
time during the last two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee are as follows:
<TABLE>
<S> <C> <C>
Name and Position with
Pilgrim Baxter &
Associates, Ltd. Name of Other Company Connection with Other Company
- ---------------------- --------------------- -----------------------------
Harold J. Baxter PBHG Fund Services Trustee
Director, Chairman & Chief
Executive Officer United Asset Management Member, Board of
Corporation Directors
Newbold's Asset Chief Executive Officer
Management, Inc.
Gary L. Pilgrim PBHG Fund Services Trustee
Director, President,
Treasurer & Chief
Investment Officer
Brian F. Bereznak PBHG Fund Services President and Trustee
Chief Operating Officer
(from 1989 through 1996)
Eric C. Schneider Newbold's Asset Chief Financial Officer
Chief Financial Officer Management, Inc.
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C> <C>
Name and Position with
Newbold's Asset
Management, Inc. Name of Other Company Connection with Other Company
- ----------------------- --------------------- -----------------------------
Harold J. Baxter Pilgrim Baxter & Director, Chairman & Chief
Chief Executive Officer Associates, Ltd. Executive Officer
PBHG Fund Trustee
Services
United Asset Member, Board of
Management Directors
Corporation
Brian F. Bereznak Pilgrim Baxter & Chief Operating Officer
Director Associates, Ltd. (from 1989 through 1996)
PBHG Fund President and Trustee
Services
Gary L. Pilgrim Pilgrim Baxter & Director, President, Treasurer &
Director Associates, Ltd. Chief Investment Officer
PBHG Fund Trustee
Services
Timothy M. Havens None None
Chairman
James Farrell Farrell Seiwell, President
Chief Investment Officer Inc.
David W. Jennings Pilgrim Baxter & Director of Client Service
President & Chief Associates, Ltd.
Operating Officer
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer
Chief Financial Officer Associates, Ltd.
</TABLE>
The list required by this Item 28 of officers and directors of Murray
Johnstone International Limited, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Murray Johnstone
International Limited pursuant to the Investment Advisers Act of 1940, as
amended ("Advisers Act"), (SEC File No. 801-34926).
C-9
<PAGE>
The list required by this Item 28 of officers and directors of
Wellington Management, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by Wellington Management pursuant to the
Advisers Act (SEC File No. 801-15908).
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a
principal underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company
("SFS"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds(R) June 1, 1993
Marquis(SM) Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
C-10
<PAGE>
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
High Mark Funds February 15, 1997
Armada Funds March 8, 1997
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal
underwriter named in the answer to Item 21 of Part B.
<TABLE>
<CAPTION>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- ----------------- ------------------------------------ ----------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive -
Officer
Henry H. Greer Director, President & Chief Operating -
Officer
Carmen V. Romeo Director, Executive Vice President & -
Treasurer
Gilbert L. Beebower Executive Vice President -
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- ----------------- ------------------------------------ ----------
<S> <C> <C>
Richard B. Lieb Executive Vice President, President - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jerome Hickey Senior Vice President -
Larry Hutchinson Senior Vice President
David G. Lee Senior Vice President -
Steven Kramer Senior Vice President -
William Madden Senior Vice President -
Jack May Senior Vice President
A. Keith McDowell Senior Vice President -
Dennis J. McGonigle Senior Vice President -
Hartland J. McKeown Senior Vice President -
Barbara J. Moore Senior Vice President -
James V. Morris Senior Vice President -
Steven Onofrio Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel & Vice President
Secretary & Assistant
Secretary
Robert Wagner Senior Vice President -
Patrick K. Walsh Senior Vice President -
Kenneth Zimmer Senior Vice President -
Marc H. Cahn Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
Carolyn McLaurin Vice President & Managing Director -
</TABLE>
C-12
<PAGE>
<TABLE>
<CAPTION>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- ----------------- ------------------------------------ ----------
<S> <C> <C>
Donald Pepin Vice President & Managing Director -
Mark Samuels Vice President & Managing Director -
Wayne M. Withrow Vice President & Managing Director -
Mick Duncan Vice President & Team Leader -
Vicki Malloy Vice President & Team Leader -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary Vice President
& Assistant
Secretary
Ed Daly Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Michael Kantor Vice President -
Samuel King Vice President -
Donald H. Korytowski Vice President -
Robert S. Ludwig Vice President & Team Leader -
W. Kelso Morrill Vice President -
Barbara A. Nugent Vice President & Assistant Secretary Vice President
& Assistant
Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President
& Assistant
Secretary
Larry Pokora Vice President -
Kim Rainey Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
</TABLE>
C-13
<PAGE>
<TABLE>
<CAPTION>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- ----------------- ------------------------------------ ----------
<S> <C> <C>
Kathryn L. Stanton Vice President & Assistant Secretary Vice President
& Assistant
Secretary
William Zawaski Vice President -
James Dougherty Director of Brokerage Services -
</TABLE>
c. None.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the 1940
Act, and the rules promulgated thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodians:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of Registrant's
Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone
1255 Drummers Lane, Suite 300 International Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
C-14
<PAGE>
Wellington Management Company, LLP Newbold's Asset Management,
75 State Street Inc.
Boston, MA 02109 950 Haverford Road
Bryn Mawr, PA 19010
Item 31. Management Services: None.
Item 32. Undertakings
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940
inform the Board of Directors of their desire to communicate with
Shareholders of the Fund, the Directors will inform such
Shareholders as to the approximate number of Shareholders of record
and the approximate costs of mailing or afford said Shareholders
access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director(s)
when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares and in connection with such
meetings to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to Shareholders, upon request and without charge. Registrant
undertakes to file a post-effective amendment, including financial
statements, which need not be audited, within 4-6 months from the
later of the commencement of operations of the PBHG Small Cap Value
Fund and PBHG Mid-Cap Value Fund of the Registrant or the effective
date of Post-Effective Amendment Nos. 27 and 29 to the Registrant's
1933 Act Registration Statement.
C-15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that this
filing meets all of the requirements for effectiveness pursuant to Rule 485(b)
under the Securities Act of 1933 and the Registrant has duly caused this
Post-Effective Amendment No. 30 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Wayne, and
Commonwealth of Pennsylvania on the __ day of May, 1997.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
------------------------------------------
Harold J. Baxter
Chairman and Chief Executive Officer
ATTEST:
/s/ Brian F. Bereznak
- ---------------------------------
Brian F. Bereznak, Vice President
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Harold J. Baxter Chairman and Chief
- -------------------- Executive Officer,
Harold J. Baxter and Director May __, 1997
* Director ------------
- -------------------
John R. Bartholdson
* Director ------------
- -------------------
Jettie M. Edwards
* Director ------------
- -------------------
Albert A. Miller
*
- ------------------- Chief Financial
Stephen G. Meyer Officer and Controller -------------
* By: /s/ Harold J. Baxter May __, 1997
--------------------
Harold J. Baxter
(Attorney-in-Fact)
C-16
<PAGE>
EXHIBIT LIST
Exhibit Number Description
1(l) Articles Supplementary to the Articles of
Incorporation of The PBHG Funds, Inc. dated August
21, 1995
5(a) Investment Advisory Agreement dated April 28, 1995
and Schedule A dated April 1, 1997
5(d)(1) Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Large Cap
Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated December 16,
1996 (as revised effective May 1, 1997)
5(d)(2) Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Strategic
Small Company Fund, Pilgrim Baxter & Associates,
Ltd. and Newbold's Asset Management, Inc. dated
December 16, 1996
5(d)(3) Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Mid-Cap
Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated April 1, 1997
5(d)(4) Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Small Cap
Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated April 1, 1997
6(a) Distribution Agreement between The PBHG Funds, Inc.
and SEI Financial Services Company dated July 1,
1996 and Schedule A dated April 1, 1997
8(a) Custodian Agreement between The PBHG Funds, Inc., on
behalf of the International Fund, and The Northern
Trust Company
8(b) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. and Schedule A dated April 1,
1997
9(b) Administrative Services Agreement between The PBHG
Funds, Inc. and PBHG Fund Services dated July 1,
1996 and Exhibit A dated April 1, 1997
9(c) Sub-Administrative Services Agreement between The
PBHG Funds, Inc. and SEI Fund Resources dated July
1, 1996 and Schedule A dated April 1, 1997
C-17
<PAGE>
9(d)(6) Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG International Fund and
Pilgrim Baxter & Associates, Ltd. dated March 6,
1997
9(d)(7) Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Mid-Cap Value Fund and
Pilgrim Baxter & Associates, Ltd. dated April 1,
1997
9(d)(8) Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Small Cap Value Fund and
Pilgrim Baxter & Associates, Ltd. dated April 1,
1997
11(a) Consent of Arthur Andersen, L.L.P.
11(b) Consent of Coopers & Lybrand, L.L.P.
16 Schedule for computation of Performance Quotation
provided in the Registration Statement
18 Rule 18f-3 Multiple Class Plan dated November 20,
1995 and Schedule A dated April 23, 1997
27 Financial Data Schedule
EXHIBIT 1(l)
ARTICLES SUPPLEMENTARY
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"),
having its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-208.1 of the Maryland General Corporation Law has adopted a
resolution increasing from Two Billion (2,000,000,000) to Three Billion
(3,000,000,000) the aggregate number of shares of stock that the
Corporation is authorized to issue.
SECOND: The Corporation's Board of Directors in accordance
with Section 2-105(c) of the Maryland General Corporation Law has
adopted a resolution classifying the Three Billion (3,000,000,000)
shares of the Corporation's stock, par value one tenth of one cent
($.001), having an aggregate par value of Three Million Dollars
($3,000,000), as set forth below. Immediately prior to the
classification, the Two Billion (2,000,000,000) shares of stock, par
value one tenth of one cent ($.001), having an aggregate par value of
Two Million Dollars ($2,000,000) all of which previously classified
shares of the Corporation's stock were designated as follows:
Designation Number of Shares
PBHG Growth Fund 200 million
PBHG Emerging Growth Fund 200 million
PBHG International Fund 200 million
PBHG Money Market Fund 1 billion
PBHG Select Equity Fund 200 million
PBHG Large Cap Growth Fund 200 million
The Three Billion (3,000,000,000) shares of the Corporation's stock are
classified and designated as follows:
Designation Number of Shares
PBHG Growth Fund 200 million
PBHG Emerging Growth Fund 200 million
PBHG International Fund 200 million
PBHG Cash Reserves Fund 1 billion, 800 million
PBHG Select Equity Fund 200 million
PBHG Large Cap Growth Fund 200 million
PBHG Technology Growth Fund 200 million
<PAGE>
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these
Articles Supplementary to be executed by one of its Vice-Presidents and its
corporate seal to be affixed and attested by its Assistant Secretary on this
17th day of August, 1995.
[CORPORATE SEAL]
THE PBHG FUNDS, INC.
By: /s/ Kathryn L. Stanton
------------------------------
Kathryn L. Stanton
Vice President
Attest: /s/ Allison Koebig
---------------------------------
Allison Koebig
Assistant Secretary
The undersigned, Vice President of THE PBHG FUNDS, INC., who
executed on behalf of said Corporation the foregoing Articles Supplementary to
the Articles of Incorporation of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles Supplementary to the Articles of Incorporation to be the corporate act
of said Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Kathryn L. Stanton
---------------------------------
Kathryn L. Stanton
Vice President
Dated: August 17, 1995
EXHIBIT 5(a)
THE PBHG FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 28, 1995, between Pilgrim
Baxter & Associates (the "Adviser") and The PBHG Funds, Inc. (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992, (the "Articles") and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments, repurchase
agreements, options, futures and other investments and techniques that the
Portfolios will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Portfolios' investments. The Adviser will determine what
portion of the Portfolios' investments shall be invested in securities and other
assets, and what portion, if any, should be held uninvested. The
1
<PAGE>
Adviser shall furnish to the Fund adequate (i) office space, which may be space
within the offices of the Adviser or in such other places as may be agreed upon
from time to time and (ii) office furnishings, facilities and equipment as may
be reasonably required for managing the corporate affairs and conducting the
business of the Fund, including complying with the corporate reporting
requirements of the various states in which the Fund does business, and
conducting correspondence and other communications with the stockholders of the
Fund. The Adviser shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such services. Subject
to the approval of the Board of Directors (including a majority of the Fund's
Directors who are not "interested persons" of the Fund as defined in the 1940
Act) and of the shareholders of the Fund, the Adviser may delegate to a
sub-adviser its duties enumerated in Section 2 hereof. The Adviser shall
continue to supervise the performance of any such sub-adviser and shall report
regularly thereon to the Fund's Board of Directors. The Adviser further agrees
that, in performing its duties hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies
of the Adviser's investment records and ledgers with respect to the Portfolios
as may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of
its affiliates; (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Fund immediately of any material fact known to the Adviser respecting
or relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement
2
<PAGE>
thereto, but that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect.
3. Additional Services. If the Fund so requests, the Adviser shall also maintain
all internal bookkeeping, accounting and auditing services and records in
connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this Section 4, the Adviser shall pay the compensation and expenses of all
its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stock-holders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or
3
<PAGE>
employees of the Adviser to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund with respect to matters
concerning the Fund, or any committees thereof or advisers thereto.
5. Compensation. As compensation for the services provided and expenses assumed
by the Adviser under this Agreement, except for any additional services provided
by the Adviser pursuant to Section 3 hereof, each Portfolio will pay the Adviser
at the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of each Portfolio's
average daily net assets. The "average daily net assets" of a Portfolio shall
mean the average of the values placed on the Portfolio's net assets as of 4:00
p.m. (Eastern time) on each day on which the net asset value of the Portfolio is
determined consistent with the provisions of Rule 22c-1 under the 1940 Act or,
if the Portfolio lawfully determines the value of its net assets as of some
other time on each business day, as of such other time. The value of net assets
of the Portfolio shall always be determined pursuant to the applicable
provisions of the Articles and the Registration Statement. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this Section 5, the value of the net
assets of the Portfolio as last determined shall be deemed to be the value of
its net assets as of the close of regular trading on the New York Stock
Exchange, or as of such other time as the value of the net assets of the
Portfolio's securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month). If the Portfolio determines the value
of the net assets more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 5.
In the event that the Adviser's gross compensation hereunder shall,
when added to the other expenses of a Portfolio, cause the aggregate expenses of
the Portfolio to exceed the maximum expenses permitted under the lowest
applicable expense limitation established pursuant to the statutes or
regulations of any jurisdiction in which the shares of the Portfolio may be
qualified for offer and sale, the total compensation paid or payable to the
Adviser shall be reduced (but not below zero), to the extent necessary to cause
the Portfolio not to exceed such expense limitation. Except to the extent that
such reduction has been reflected in lowered monthly payments to the Adviser,
the Adviser shall refund to the Portfolio the amount by which the total of
payments received by the Adviser are in excess of such expense limitation as
promptly as practicable after the end of such fiscal year, provided that the
Adviser shall not be required to pay the Portfolio an amount greater than the
fee otherwise payable to the Adviser in respect of such year. As used in this
Section 5, "expenses" shall mean those expenses included in the applicable
expense limitation having the broadest specifications thereof, and "expense
limitation" mean a limitation on the maximum annual expenses which may be
incurred by an investment company as determined by applicable law. The words
"lowest applicable expense limitation" shall be deemed to be that which results
in the largest reduction of the Adviser's compensation for any fiscal year of a
Portfolio; provided, however, that nothing in this Agreement shall limit the
Adviser's fees if not required by an applicable statute or regulation referred
to above in this Section 5.
4
<PAGE>
6. Books and Records. The Adviser agrees to maintain such books and records with
respect to its services to the Fund as are required by Section 31 under the 1940
Act, and rules adopted thereunder, and by other applicable legal provisions, and
to preserve such records for the periods and in the manner required by that
Section, and those rules and legal provisions. The Adviser also agrees that
records it maintains and preserves pursuant to Rules 31a-1 and 31a-2 under the
1940 Act as otherwise in connection with its services hereunder are the property
of the Fund and will be surrendered promptly to the Fund upon its request. And
the Adviser further agrees that it will furnish to regulatory authorities having
the requisite authority any information or reports in connection with its
services hereunder which may be requested in order to determine whether the
operations of the Fund are being conducted in accordance with applicable law and
regulations.
7. Standard of Care and Limitation of Liability. The Adviser shall exercise its
best judgment in rendering the services provided by it under this Agreement. The
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Fund or to holders of the Fund's shares to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
8. Services Not Exclusive. It is understood that the services of the Adviser are
not exclusive, and that nothing in this Agreement shall prevent the Adviser from
providing similar services to other investment companies or to other series of
investment companies, or from engaging in other activities, provided such other
services and activities do not, during the term of the Agreement, interfere in a
material manner with the Adviser's ability to meet its obligations to the Fund
hereunder. When the Adviser recommends the purchase or sale of the same security
for a Portfolio, it is understood that in light of its fiduciary duty to the
Portfolio, such transactions will be executed on a basis that is fair and
equitable to the Portfolio. In connection with purchases or sales of portfolio
securities for the account of a Portfolio, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission, provided that portfolio transactions for a Portfolio may be
executed through firms affiliated with the Adviser, in accordance with
applicable legal requirements. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
9. Duration and Termination. This Agreement shall continue until April 28, 1997,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such
5
<PAGE>
approval. Notwithstanding the foregoing, this Agreement may be terminated as to
a Portfolio (a) at any time without penalty by the Fund upon the vote of a
majority of the Directors or by vote of the majority of the Portfolio's
outstanding voting securities, upon sixty (60) days' written notice to the
Adviser or (b) by the Adviser at any time without penalty, upon sixty (60) days'
written notice to the Fund. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
10. Amendments. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of
Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of April 28, 1995.
THE PBHG FUND, INC.
By: /s/
--------------------------------
Title: Vice President
PILGRIM BAXTER & ASSOCIATES
By: /s/
--------------------------------
Title:
6
<PAGE>
Schedule A dated April 1, 1997
to the Investment Advisory Agreement dated
April 28, 1995 between The PBHG
Funds, Inc.
and
Pilgrim Baxter & Associates, Ltd.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth Fund .85%
PBHG Emerging Growth Fund .85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund .75%
PBHG Select Equity Fund .85%
PBHG Cash Reserves Fund .30%
PBHG Technology & Communications Fund .85%
PBHG Core Growth Fund .85%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund .85%
PBHG Large Cap Value Fund* .65%
(effective May 1, 1997)
PBHG Mid-Cap Value Fund .85%
---------
* .85% until May 1, 1997
7
<PAGE>
PBHG Strategic Small Company Fund .85%
PBHG Small Cap Value Fund 1.00%
THE PBHG FUNDS, INC.
By: /s/
-----------------------------------
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/
-----------------------------------
Title:
8
EXHIBIT 5(d)(1)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG LARGE CAP VALUE FUND
AGREEMENT made as of this 2nd day of December, 1996, and revised
effective May 1, 1997, by and among Pilgrim Baxter & Associates, Ltd. (the
"Adviser"), Newbold's Asset Management, Inc. (the "Sub-Adviser") and The PBHG
Funds, Inc., a Maryland corporation (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated April 1, 1997 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Large Cap Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board
of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the
Portfolio's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other
-1-
<PAGE>
applicable federal and state laws and regulations, as each is
amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
-2-
<PAGE>
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on th date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
-3-
<PAGE>
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.40% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by the Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of the Portfolio, (b) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days'
nor less than 30 days' written notice to the other parties, or (c) by
the Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to
-4-
<PAGE>
use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub-Adviser by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
-5-
<PAGE>
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
--------------------------------- ----------------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
---------------------------------
Title:
-6-
EXHIBIT 5(d)(2)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG STRATEGIC SMALL COMPANY FUND
AGREEMENT made as of this 2nd day of December, 1996, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (the
"Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the
"Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28, 1995
and Schedule A dated December 16, 1996 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Strategic Small Company Fund
(the "Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the Sub-Adviser
to provide investment advisory services to the Company in connection with the
management of the Portfolio, and the Sub-Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board of
Directors, the Sub-Adviser shall manage the investment operations of
the Portfolio and the composition of the Portfolio's portfolio,
including the purchase, retention and disposition thereof, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's Prospectus (such Prospectus
and Statement of Additional Information, as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(2) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Company's Articles
of Incorporation and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Directors and will
conform and comply with the requirements of the 1940 Act, the Internal
Revenue Code of 1986, as amended, and all other applicable federal and
state laws and regulations, as each is amended from time to time.
-1-
<PAGE>
(3) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In providing the Portfolio with investment supervision, the
Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial responsibility,
research and investment information and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's other
clients may be a party. It is understood that it is desirable for the
Portfolio that the Sub-Adviser have access to supplemental investment
and market research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher cost to the
Portfolio than may result when allocating brokerage to other brokers
on the basis of seeking the most favorable price and efficient
execution. Therefore, the Sub-Adviser is authorized to place orders
for the purchase and sale of securities for the Portfolio with such
brokers, subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Sub-Adviser in connection with the Sub-Adviser's
services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary
obligations to the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Company's Board of
Directors such periodic and special reports as the Company's Board of
Directors may reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
(6) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Company.
-2-
<PAGE>
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's officers
or employees. It is understood that the Sub-Adviser may obtain certain
administrative services, including, without limitation, services
relating to trade reconciliation and the production of client reports,
from its parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this
Agreement and shall timely furnished to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Portfolio
required by Rule 31a-1 under the 1940 Act. The Sub-Adviser agrees that
all records that it maintains on behalf of the Portfolio are property
of the Portfolio and the Sub-Adviser will surrender promptly to the
Portfolio any of such records upon the Portfolio's request; provided,
however, that the Sub-Adviser may retain a copy of such records. The
Sub-Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of State of
Maryland (such Articles of Incorporation as in effect on the date of
this Agreement and as amended from time to time, are herein called the
"Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on th date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Certified resolutions of the Company's Board of Directors authorizing
the appointment of the Adviser and the Sub-Adviser and approving the
form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities Act of
1933, as amended, on form N-1A (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission")
relating to the Portfolio and shares of the Portfolio's beneficial
shares, and all amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940 Act on
form N-8A as filed with the Commission, and all amendments thereto;
and
(f) Prospectus of the Portfolio.
-3-
<PAGE>
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.30% of the Portfolio's average daily
net assets, less 50% of any fee waivers borne by the Adviser. This fee will
be paid to the Sub-Adviser from the Adviser's advisory fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Adviser's part in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
company or by the vote of a majority of the outstanding voting securities
of the Portfolio, (b) by the Adviser at any time, without the payment of
any penalty, on not more than 60 days' nor less than 30 days' written
notice to the other parties, or (c) by the Sub-Adviser at any time, without
the payment of any penalty, on 90 days' written notice to the other
parties. This Agreement shall terminate automatically and immediately in
the event of its assignment. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the 1940 Act and the rules
and regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's directors, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Company or the public
that refers to the Sub-Adviser or its clients in any way prior to use
thereof and not to use material if the Sub-Adviser reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The Sub-Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Sub-Adviser, its services and its clients. The Adviser agrees
to use its reasonable best efforts to ensure that materials prepared by its
-4-
<PAGE>
employees or agents or its affiliates that refer to the Sub-Adviser or its
clients in any way are consistent with those materials previously approved
by the Sub-Adviser as referenced in the first sentence of this paragraph.
Sales literature may be furnished to the Sub-Adviser by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by the vote of the majority of the outstanding voting securities
of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but such counterparts shall, together, constitute only one
instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
----------------------------------- -------------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
-----------------------------------
Title:
-6-
EXHIBIT 5(d)(3)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG MID-CAP VALUE FUND
AGREEMENT made as of this 1st day of April, 1997, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (the
"Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated April 1, 1997 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Mid-Cap Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board
of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the
Portfolio's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub- Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other
-1-
<PAGE>
applicable federal and state laws and regulations, as each is
amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of a Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
-2-
<PAGE>
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
-3-
<PAGE>
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of .50% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by a Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by a Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of the Portfolio, (b) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days'
nor less than 30 days' written notice to the other parties, or (c) by
the Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
-4-
<PAGE>
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub-Adviser by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of a Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
-5-
<PAGE>
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
---------------------------------- -------------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT INC.
By: /s/
----------------------------------
Title:
-6-
EXHIBIT 5(d)(4)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG SMALL CAP VALUE FUND
AGREEMENT made as of this 23rd day of April, 1997, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (the
"Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated April 1, 1997 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Small Cap Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board
of Directors, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the
Portfolio's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other
-1-
<PAGE>
applicable federal and state laws and regulations, as each is
amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
-2-
<PAGE>
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
-3-
<PAGE>
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.65% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by the Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of the Portfolio, (b) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days'
nor less than 30 days' written notice to the other parties, or (c) by
the Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
-4-
<PAGE>
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the first sentence of this paragraph. Sales literature
may be furnished to the Sub- Adviser by first-class or overnight mail,
facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
-5-
<PAGE>
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
---------------------------------- --------------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
-----------------------------------
Title:
-6-
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
THE PBHG FUNDS, INC.
THIS AGREEMENT is made as of this 1st day of July, 1996 between The PBHG
Funds, Inc. (the "Company"), a Maryland corporation, and SEI Financial Services
Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"), and is authorized to issue shares of common
stock ("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a registration
statement on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Company has adopted a Service Plan Pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") with respect to one of its classes of
shares, i.e., the Trust Class, and may enter into related agreements providing
for the distribution of the Shares of the Funds; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Exhibit A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Distributor.
(a) The Company hereby appoints the Distributor as principal
underwriter and distributor of the Funds of the Company to sell the Shares
of the Funds in jurisdictions wherein the Shares may be legally offered for
sale. The Distributor shall be the exclusive agent for the distribution of
Shares of the Funds; provided, however, that the Company in its absolute
discretion may issue Shares of the Funds otherwise than through the
Distributor in connection with (i) the payment or reinvestment of dividends
or
<PAGE>
distributions, (ii) any merger or consolidation of the Company or a Fund
with any other investment company or trust or any personal holding company,
or the acquisition of the assets of any such entity by the Company or any
Fund, and (iii) any offer of exchange authorized by the Board of Directors
of the Company. Notwithstanding any other provision hereof, the Company may
terminate, suspend, or withdraw the offering of the Shares of a Fund
whenever, in its sole discretion, it deems such action to be desirable.
(b) The Distributor agrees that it will use all reasonable efforts,
consistent with its other business, in connection with the distribution of
Shares of the Company; provided, however, that the Distributor shall not be
prevented from entering into like arrangements with other issuers. The
provisions of this paragraph do not obligate the Distributor to register as
a broker or dealer under the state Blue Sky laws of any jurisdiction when
it determines it would be uneconomical for it to do so or to maintain its
registration in any jurisdiction in which it is now registered nor obligate
the Distributor to sell any particular number of Shares. The Distributor is
currently registered as a broker-dealer or exempt from registration in all
jurisdictions listed in Exhibit B hereto. The Distributor shall promptly
notify the Company in the event it fails to maintain its registration in
any jurisdiction in which it is currently registered. The Distributor shall
sell Shares of the Funds as agent for the Company at prices determined as
hereinafter provided and on the terms set forth herein, all according to
applicable federal and state Blue Sky laws and regulations and the Articles
of Incorporation and ByLaws of the Company. The Distributor may sell Shares
of the Funds to or through qualified brokers, dealers or others and shall
require each such person to conform to the provisions hereof, the
Registration Statement, the then current Prospectus and Statement of
Additional Information, and applicable law. Neither the Distributor nor any
such person shall withhold the placing of purchase orders for Shares so as
to make a profit thereby.
(c) The Distributor shall order Shares of the Funds from the Company
only to the extent that it shall have received purchase orders therefor.
The Distributor will not make, or authorize any brokers, dealers, or others
to make, (i) any short sales of Shares or (ii) any sales of Shares to any
Director or officer of the Company, the Distributor, or any corporation or
association furnishing investment advisory, managerial, or supervisory
services to the Company, or to any such corporation or association, unless
such sales are made in accordance with the Company's then current
Prospectus and Statement of Additional Information.
(d) The Distributor is not authorized by the Company to give any
information or to make any representation other than those contained in the
then current Prospectus, Statement of Additional Information, and Fund
shareholder reports ("Shareholder Reports"), or in supplementary sales
materials specifically approved by the Company. The Distributor may prepare
and distribute sales literature and other material as it may deem
appropriate, provided that such literature and materials have been approved
by the Company prior to their use.
2. Offering Price of Shares. All Shares of each Fund sold under this
Agreement shall be sold at the public offering price per Share in effect at the
time of the sale as described in the Company's then current Prospectus and
Statement of Additional Information; provided,
-2-
<PAGE>
however, that any public offering price for the Shares shall be the net asset
value per Share, as determined in the manner described in the Company's then
current Prospectus and/or Statement of Additional Information. At no time shall
the Company receive less than the full net asset value of the Shares, determined
in the manner set forth in the then current Prospectus and/or Statement of
Additional Information.
3. Registration of Shares. The Company agrees that it will take all actions
necessary to register Shares under the Federal and state Blue Sky securities
laws so that there will be available for sale the number of Shares the
Distributor may reasonably be expected to sell and to pay all fees associated
with said registration.
4. Service Plan Payments.
(a) The Company has adopted a Service Plan pursuant to Rule 12b-1
under 1940 Act to enable the Trust Class Shares of each Fund to directly
and indirectly bear certain expenses relating to the distribution of such
Shares. Pursuant to such Service Plan, the Company shall be entitled to pay
to financial intermediaries, plan fiduciaries, and investment professionals
("Service Providers") a shareholder servicing fee at the aggregate annual
rate of up to 0.25% of each Fund's average daily net assets attributable to
Trust Class Shares. The shareholder servicing fee is intended to compensate
Service Providers for providing to shareholders or the underlying
beneficial owners of Trust Class Shares: (a) personal support services; (b)
distribution assistance and distribution support services; and (c) account
maintenance services. In addition, insurance companies or their affiliates
may be paid the shareholder servicing fee described in this Section 5 for
providing similar services to variable annuity or variable life insurance
contract holders ("Contract Holders") or their participants for which such
insurance companies are not otherwise compensated by Contract Holders or
participants.
(b) The Distributor shall prepare and deliver written reports to the
Board of Directors of the Company on a regular basis (at least quarterly)
setting forth the payments made to Service Providers pursuant to the
Service Plan, and the purposes for which such expenditures were made, as
well as any supplemental reports as the Board of Directors of the Company
may from time to time reasonably request.
5. Payment of Expenses.
(a) Except as otherwise provided herein, the Distributor shall pay, or
arrange for others to pay, all of the following expenses: (i) payments to
sales representatives of the Distributor and at the discretion of the
Distributor to qualified brokers, dealers and others in respect of the sale
of Shares of the Funds; (ii) compensation and expenses of employees of the
Distributor who engage in or support distribution of Shares of the Funds or
render shareholder support services not otherwise provided by the Company's
transfer and shareholder servicing agent; and (iii) the cost of obtaining
such information, analyses, and reports with respect to marketing and
promotional activities as the Company may from time to time reasonably
request.
-3-
<PAGE>
(b) The Company shall pay, or arrange for others to pay, the following
expenses: (i) preparation, printing, and distribution to shareholders of
Prospectuses and Statements of Additional Information; (ii) preparation,
printing, and distribution of Shareholder Reports and other communications
required by law to shareholders; (iii) registration of the Shares of the
Funds under the federal securities laws; (iv) qualification of the Shares
of the Funds for sale in such states as the Distributor and the Company may
approve; (v) maintaining facilities for the issue and transfer of Shares;
(vi) supplying information, prices, and other data to be furnished by the
Company under this Agreement; and (vii) taxes applicable to the sale or
delivery of the Shares of the Funds or certificates therefor.
(c) In connection with the Distributor's distribution of sales
materials, Prospectuses, Statements of Additional Information, and
Shareholder Reports to potential investors in the Company, the Company
shall make available to the Distributor such number of copies of such
materials as the Distributor may reasonably request. The Company shall also
furnish to the Distributor copies of all information, financial statements
and other documents the Distributor may reasonably request for use in
connection with the distribution of Shares of the Company. The Company will
enter into arrangements providing that persons other than the Company will
bear any and all expenses of preparing, printing and providing to the
Distributor, sales materials, Prospectuses, Statements of Additional
Information and Shareholder Reports for distribution to potential investors
in the Company.
6. Compensation. It is understood that the Distributor will not receive any
commissions or other compensation for acting as the Company's principal
underwriter and distributor.
7. Repurchase of Shares. The Distributor as agent and for the account of
the Company may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value determined as set forth in the then
current Prospectus and Statement of Additional Information.
8. Indemnification of Distributor. The Company agrees to indemnify and hold
harmless the Distributor and each of its directors and officers and each person,
if any, who controls the Distributor within the meaning of Section 15 of the
1933 Act against any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
damages, claim, or expense, and any reasonable counsel fees and disbursements
incurred in connection therewith) arising by reason of any person acquiring any
Shares, based upon the ground that the Registration Statement, Prospectuses,
Statements of Additional Information, Shareholder Reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Company does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Company by or on
behalf of the Distributor.
-4-
<PAGE>
In no case (i) is the indemnity of the Company to be deemed to protect the
Distributor against any liability to the Company or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its failure to exercise due care in rendering its services and duties
under this Agreement, or (ii) is the Company to be liable to the Distributor
under the indemnity agreement contained in this section with respect to any
claim made against the Distributor or any person indemnified unless the
Distributor or other person shall have notified the Company in writing of the
claim within a reasonable time after the summons or other first written
notification giving information of the nature of the claim shall have been
served upon the Distributor or such other person (or after the Distributor or
the person shall have received notice of service on any designated agent).
However, failure to notify the Company of any claim shall not relieve the
Company from any liability which it may have to the Distributor or any person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or Directors
in connection with the issuance or sale of any of its Shares.
9. Indemnification of Company. The Distributor covenants and agrees that it
will indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense, and reasonable counsel fees and
disbursements incurred in connection therewith) based upon the 1933 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging (i) a wrongful act or deed of the Distributor or any of its
employees or sales representatives, or (ii) that the Registration Statement,
Prospectuses, Statements of Additional Information, shareholder reports or other
information filed or made public by the Company (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements not
misleading, insofar as any such statements or omissions were made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Company
or any other person indemnified to be deemed to protect the Company or any other
person against any
-5-
<PAGE>
liability to which the Company or such other person would otherwise be subject
by reason of willful misfeasance or bad faith in the performance of its duties
or by reason of its failure to exercise due care in rendering its services and
duties under this Agreement, or (ii) is the Distributor to be liable under its
indemnity agreement contained in this section with respect to any claim made
against the Company or any person indemnified unless the Company or person, as
the case may be, shall have notified the Distributor in writing of the claim
within a reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served upon the
Company or upon any person (or after the Company or such person shall have
received notice of service on any designated agent). However, failure to notify
the Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Company or any person against whom the action
is brought otherwise than on account on its indemnity agreement contained in
this section.
The Distributor shall be entitled to participate, at its own expense, in
the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Company's Shares.
10. Term and Termination.
(a) This Agreement shall become effective as of the date hereof.
Unless sooner terminated as herein provided, this Agreement shall remain in
full force and effect for two (2) years from the effective date and
thereafter for successive periods of one year, but only so long as each
such continuance is specifically approved at least annually (i) either by
vote of a majority of the Board of Directors of the Company or by vote of a
majority of the outstanding voting securities of the company, and (ii) by
vote of a majority of the Directors of the Company who are not interested
persons of the Company and who have no direct or indirect financial
interest in the operation of the Service Plan or in this Agreement or any
other agreement related to the Service Plan (the "Rule 12b-1 Directors"),
cast in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated at any time, without the payment
of any penalty, by the Board of Directors of the Company or a majority of
the Rule 12b-1 Directors, by vote of a majority of the outstanding voting
securities of the Company, or by the Distributor, on not less than ninety
(90) days' written notice to the other party or upon such shorter notice as
may be mutually agreed upon.
-6-
<PAGE>
(c) This Agreement shall automatically terminate in the event of its
assignment.
(d) The indemnification provisions contained in Sections 8 and 9 of
this Agreement shall remain in full force and effect regardless of any
termination of this Agreement.
11. Amendment. No provisions of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge, or
termination is sought. If the Company should at any time deem it necessary or
advisable in the best interests of the Company that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to assent to such
amendment, the Company may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in the Company's Articles of
Incorporation or By-Laws or in its methods of doing business, in order to comply
with any requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
12. Independent Contractor. Distributor shall be an independent contractor
and neither Distributor nor any of its officers, directors, employees, or
representatives is or shall be an employee of the Company in the performance of
Distributor's duties hereunder. Distributor shall be responsible for its own
conduct and the employment, control, and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. Distributor assumes full responsibility for its agents and employees
under applicable statutes and agrees to pay all employee taxes thereunder.
13. Definition of Certain Terms. For purposes of this Agreement the terms
"assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the Distributor or the
Company by the SEC, or such interpretative positions as may be taken by the SEC
or its staff under the 1940 Act.
14. Notice. Any notice under this Agreement shall be deemed to be
sufficient if it is given in writing, addressed and delivered, or mailed
postpaid (a) if to the Distributor, to SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658; and (b) if to the Company, to
Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087-1590, Attention: Michael Harrington.
15. Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect construction or effect.
-7-
<PAGE>
16. Interpretation. Nothing herein contained shall be deemed to require the
Company or the Distributor to take any action contrary to its Articles of
Incorporation or ByLaws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Board of Directors of its responsibility for and control of the conduct of the
affairs of the Company.
17. Governing Law. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania and the applicable provisions of the
1940 Act. To the extent that the applicable laws of the Commonwealth of
Pennsylvania or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
18. Multiple Originals. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: THE PBHG FUNDS, INC.
/s/ By: /s/
- ---------------------------------- -------------------------------
Title: Title:
ATTEST: SEI FINANCIAL SERVICES COMPANY
/s/ By: /s/
- ---------------------------------- -------------------------------
Title: Title:
-8-
<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
-9-
<PAGE>
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April 1, 1997
ATTEST: THE PBHG FUNDS, INC.
/s/ By: /s/
- ---------------------------------- -------------------------------
Title: Title:
ATTEST: SEI FINANCIAL SERVICES COMPANY
/s/ By: /s/
- ---------------------------------- -------------------------------
Title: Title:
-10-
<PAGE>
EXHIBIT B
The Distributor is currently registered as a broker-dealer or exempt from
registration in the following jurisdictions:
All 50 states and Puerto Rico.
-11-
EXHIBIT 8(a)
CUSTODY AGREEMENT
AGREEMENT dated as of June 1, 1994, between THE PBHG FUNDS, INC., a
corporation organized under the laws of the State of Maryland, having its
principal office and place of business at 680 Swedesford Road, Wayne, PA 19087
(the "Company"), and THE NORTHERN TRUST COMPANY (the "Custodian"), an Illinois
Company with its principal place of business at 50 South LaSalle Street,
Chicago, Illinois 60675.
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set
forth, the Company and the Custodian agree as follows:
1. Definitions.
Whenever used in this Agreement or in any Schedules to this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
(a) The "1940 Act" shall mean the Investment Company Act of 1940, and
the Rules and Regulations thereunder, all as amended from time to time.
(b) "Administrator" shall mean the person which performs the
administration functions for the Company.
(c) "Authorized Person" shall be deemed to include the Chairman of the
Board of Directors, the President, and any Vice President, the
Secretary, the Treasurer or any other person, whether or not any such
person is an officer or employee of the Company, duly authorized by the
Board of Directors to give Oral Instructions and Written Instructions
on behalf of the Company and listed in the certification annexed hereto
as Schedule A or such other certification as may be received by the
Custodian from time to time.
(d) "Board of Directors" shall mean the Board of Directors of the
Company.
(e) "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency Securities, its
successor or successors and its nominee or nominees.
(f) "Certificate" shall mean any notice, instruction or other
instrument in writing, authorized or required by this Agreement to be
given to the Custodian, which is actually received by the Custodian and
signed on behalf of the Company by any two Authorized Persons or any
two officers thereof.
1
<PAGE>
(g) "Articles of Incorporation" shall mean the Articles of
Incorporation of the Company dated July 31, 1992, as amended.
(h) "Depository" shall mean The Depository Company, a clearing agency
registered with the Securities and Exchange Commission under Section
17(a) of the Securities Exchange Act of 1934, as amended, its successor
or successors and its nominee or nominees, in which the Custodian is
hereby specifically authorized to make deposits. The term "Depository"
shall further mean and include any other person to be named in a
Certificate authorized to act as a depository under the 1940 Act, its
successor or successors and its nominee or nominees.
(i) "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to interest and
principal by the Government of the United States or agencies or
instrumentalities thereof, commercial paper, bank certificates of
deposit, bankers' acceptances and short-term corporate obligations,
where the purchase or sale of such securities nominally requires
settlement in federal funds on the same day as such purchase or sale,
and repurchase and reverse repurchase agreements with respect to any of
the foregoing types of securities.
(j) "Oral Instructions" shall mean an oral communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person.
(k) "Portfolio" refers to the PBHG International Fund or any such other
separate and distinct investment portfolio as may from time to time be
created and designated by the Company in accordance with the provisions
of the Articles of Incorporation and which the Company and the
Custodian shall have agreed in writing shall be subject to this
Agreement pursuant to the provisions of Section 5(b).
(l) "Prospectus" shall mean the Company's current prospectus and
statement of additional information relating to the registration of the
Company's Shares under the Securities Act of 1933, as amended.
(m) "Shares" refers to the shares of beneficial interest of the
Company.
(n) "Security" or "Securities" shall be deemed to include bonds,
debentures, notes, stocks, shares, evidences of indebtedness, and other
securities, commodity interests and investments from time to time owned
by the Company.
(o) "Sub-Custodian" shall mean and include (i) any branch of the
Custodian, (ii) any branch of a "qualified U.S. bank," as that term is
defined in Rule 17f-5 under the 1940 Act, (iii) any "eligible foreign
custodian," as that term is defined in Rule 17f-5 under the 1940 Act,
approved by the Board of Directors and having a contract with the
Custodian which contract has been approved by the Board of Directors,
and (iv) any securities depository or clearing agency, incorporated or
organized under the laws of a country other than the United States,
which operates the central system for handling of securities
2
<PAGE>
or equivalent book-entries in that country or a transnational system
for the central handling of securities or equivalent book-entries,
which securities depository or clearing agency has been approved by the
Board of Directors; provided, that the Custodian or a Sub-Custodian has
entered into an agreement with such securities depository or clearing
agency.
(p) "Transfer Agent" shall mean the person which performs as the
transfer agent, dividend disbursing agent and shareholder servicing
agent for the Company.
(q) "Written Instructions" shall mean a written communication actually
received by the Custodian from a person reasonably believed by the
Custodian to be an Authorized Person by any system whereby the receiver
of such communication is able to verify through codes or otherwise with
a reasonable degree of certainty the authenticity of the sender of such
communication; however, "Written Instructions" from the Administrator
to the Custodian shall mean an electronic communication transmitted by
fund accountants and their managers (who have been provided an access
code by the Administrator) and actually received by the Custodian.
2. Appointment of Custodian.
(a) The Company hereby constitutes and appoints the Custodian as
custodian of all the Securities and monies owned by or in the
possession of the Company during the period of this Agreement.
(b) The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
3. Appointment and Removal of Sub-Custodians.
(a) The Custodian may appoint one or more Sub-Custodians to act as
Depository or Depositories or as sub-custodian or sub-custodians of
Securities and moneys at any time owned by any Portfolio, upon terms
and conditions as are specified in this Agreement. The Custodian shall
oversee the maintenance of any Securities or moneys of any Portfolio by
any Sub-Custodian.
(b) If, after the initial approval of Sub-Custodians by the Board of
Directors in connection with this Agreement, the Custodian wishes to
appoint other SubCustodians to hold property of the Portfolios, it will
so notify the Company and provide it with information reasonably
necessary to determine any such new SubCustodian's eligibility under
Rule 17f-5 under the 1940 Act, including a copy of the proposed
agreement with such Sub-Custodian. The Company shall within 30 days
after receipt of such notice and information give a written approval or
disapproval of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
3
<PAGE>
(d) If the Custodian intends to remove any Sub-Custodian previously
approved by the Board of Directors, it shall so notify the Company and
move the property of the Portfolio(s) deposited with such Sub-Custodian
to another SubCustodian previously approved by the Board of Directors.
The Custodian shall take such steps as may be required to remove any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5
under the 1940 Act.
(e) The Custodian hereby warrants to the Company that in its opinion,
after due inquiry, the established procedures to be followed by each
Sub-Custodian (that is not being used as a foreign securities
depository or clearing agency) holding property of a Portfolio pursuant
to this Agreement afford protection for such property not materially
different from that afforded by the Custodian's established procedures
with respect to similar property held by it (and its securities
depositories) in Chicago, Illinois.
4. Use of Sub-Custodians.
With respect to property of a Portfolio which is maintained by the
Custodian in the physical custody of a Sub-Custodian pursuant to
Section 3:
(a) The Custodian will identify on its books as belonging to the
particular Portfolio any property held by such Sub-Custodian.
(b) In the event that a Sub-Custodian permits any of the Securities
placed in its care to be held in an eligible foreign securities
depository, such Sub-Custodian will be required by its agreement with
the Custodian to identify on its books such Securities as being held
for the account of the Custodian as a custodian for its customers.
(c) Any Securities held by a Sub-Custodian will be subject only to the
instructions of the Custodian or its agents; and any Securities held in
an eligible foreign securities depository for the account of a
Sub-Custodian will be subject only to the instructions of such
Sub-Custodian.
(d) The Custodian will only deposit property of a Portfolio in an
account with a Sub-Custodian which includes exclusively the assets held
by the Custodian for its customers, and will cause such account to be
designated by such Sub-Custodian as a special custody account for the
exclusive benefit of customers of the Custodian.
5. Compensation.
(a) The Company will compensate the Custodian for its services rendered
under this Agreement in accordance with the fees set forth in the Fee
Schedule annexed hereto as Schedule B and incorporated herein for the
existing Portfolios. Such Fee Schedule does not include out-of-pocket
disbursements of the Custodian for which the Custodian shall be
entitled to bill separately. Out-of-pocket disbursements may include
only the items specified in Schedule B and which may be modified by the
Custodian if the Company consents in writing to the modification.
4
<PAGE>
(b) The parties hereto will agree upon the compensation for acting as
Custodian for any Portfolio hereafter established and designated, and
at the time that the Custodian commences serving as such for said
Portfolio, such agreement shall be reflected in a Fee Schedule for that
Portfolio, dated and signed by an officer of each party hereto, which
shall be attached to Schedule B of this Agreement.
(c) Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule B of this Agreement a revised Fee
Schedule, dated and signed by an officer of each party hereto.
(d) The Custodian will bill the Company for its services to each
Portfolio hereunder as soon as practicable after the end of each
calendar quarter, and said billings will be detailed in accordance with
the Fee Schedule for the Company. The Company will promptly pay to the
Custodian the amount of such billing. The Custodian shall have a lien
on the property in each Portfolio for any compensation or expense
amount owing to the Custodian in connection with such Portfolio from
time to time under this Agreement.
(e) The Custodian (not the Company) will be responsible for the payment
of the compensation of each Sub-Custodian.
6. Custody of Cash and Securities.
(a) Receipt and Holding of Assets. The Company will deliver or cause to
be delivered to the Custodian and the Sub-Custodians all Securities and
monies owned by the Company at any time during the period of this
Agreement and shall specify the Portfolio to which the Securities and
monies are to be specifically allocated. The Custodian will not be
responsible for such Securities and monies until actually received by
it or by a Sub-Custodian. The Company shall instruct the Custodian from
time to time in its sole discretion, by means of Written instructions,
as to the manner in which and in what amounts Securities, and monies of
a Portfolio are to be deposited on behalf of such Portfolio in the
Book-Entry System or the Depository; provided, however, that prior to
the deposit of Securities of a Portfolio in the Book-Entry System or
the Depository, including a deposit in connection with the settlement
of a purchase or sale, the Custodian shall have received a Certificate
specifically approving such deposits by the Custodian or a
Sub-Custodian in the Book-Entry System of the Depository. Securities
and monies of a Portfolio deposited in the Book-Entry System or the
Depository will be represented in accounts which include only assets
held by the Custodian for its customers.
(b) Accounts and Disbursements. The Custodian shall establish and
maintain a separate account for each Portfolio and shall credit to the
separate account all monies received by it or a Sub-Custodian for the
account of such Portfolio and shall disburse, or cause a Sub-Custodian
to disburse, the same only:
1. In payment for Securities purchased for the Portfolio, as
provided in Section 7 hereof;
5
<PAGE>
2. In payment of dividends or distributions with respect to
the Shares of such Portfolio, as provided in Section 9 hereof;
3. In payment of original issue or other taxes with respect to
the Shares of such Portfolio, as provided in Section 10(c)
hereof;
4. In payment for Shares which have been redeemed by such
Portfolio, as provided in Section 10 hereof;
5. In payment of fees and in reimbursement of the expenses and
liabilities of the Custodian attributable to the Company, as
provided in Sections 5 and 14(h) hereof;
6. Pursuant to Written Instructions setting forth the name of
the Portfolio and the name and address of the person to whom
the payment is to be made, the amount to be paid and the
purpose for which payment is to be made.
(c) Fail Float. In the event that any payment made for a Portfolio
under this Section 6 exceeds the funds available in that Portfolio's
account, the Custodian or relevant Sub-Custodian, as the case may be,
may, in its discretion, advance the Company on behalf of that Portfolio
an amount equal to such excess and such advance shall be deemed an
overdraft from the Custodian or such Sub-Custodian to that Portfolio
payable on demand, bearing interest at the rate of interest customarily
charged by the Custodian or such Sub-Custodian on similar overdrafts.
(d) Confirmation and Statements. Promptly after the close of business
on each business day, the Custodian shall furnish the Company with
confirmations and a summary of all transfers to or from the account of
each Portfolio during said day. Such summary shall include without
limitation, as to property acquired for a Portfolio, the identity of
the entity having physical possession of such property. Where
securities purchased by a Portfolio are in a fungible bulk of
securities registered in the name of the custodian (or its nominee) or
shown on the Custodian's account on the books of the Depository, the
Book-Entry System or a Sub-Custodian, the Custodian shall by book entry
or otherwise identify the quantity of those securities belonging to
such Portfolio. At least monthly, the Custodian shall furnish the
Company with a detailed statement of the Securities and monies held by
it and all Sub-Custodians for each Portfolio. In the absence of the
filing in writing with the Custodian by the Company of exceptions or
objections to any such statement within 60 days after the date that a
material defect is reasonably discoverable, the Company shall be deemed
to have approved such statement; and in such case or upon written
approval of the Company of any such statement the Custodian shall, to
the extent permitted by law and provided the Custodian has met the
standard of care in Section 14 hereof, be released, relieved and
discharged with respect to all matters and things set forth in such
statement as though such statement had been settled by the decree of a
court of competent jurisdiction in an action in which the Company and
all persons having any equity interest in the Company were parties.
6
<PAGE>
(e) Registration of Securities and Physical Separation. All Securities
held for a Portfolio which are issued or issuable only in bearer form,
except such Securities as are held in the Book-Entry System, shall be
held by the Custodian or a Sub-Custodian in that form; all other
Securities held for a Portfolio may be registered in the name of that
Portfolio, in the name of any duly appointed registered nominee of the
Custodian of a Sub-Custodian as the Custodian or such Sub-Custodian may
from time to time determine, or in the name of the Book-Entry System or
the Depository or their successor or successors, or their nominee or
nominees. The Company reserves the right to instruct the Custodian as
to the method of registration and safekeeping of the Securities. The
Company agrees to furnish to the Custodian appropriate instruments to
enable the Custodian or any Sub-Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee
or in the name of the Book-Entry System or the Depository, any
Securities which the Custodian or a Sub-Custodian may hold for the
account of a Portfolio and which may from time to time be registered in
the name of a Portfolio. The Custodian shall hold all such Securities
specifically allocated to a Portfolio which are not held in the
Book-Entry System or the Depository in a separate account for such
Portfolio in the name of such Portfolio physically segregated at all
times from those of any other person or persons.
(f) Segregated Accounts. Upon receipt of a Written Instruction, the
Custodian will establish segregated accounts on behalf of a Portfolio
to hold liquid or other assets as it shall be directed by a Written
Instruction and shall increase or decrease the assets in such
Segregated Accounts only as it shall be directed by subsequent Written
Instruction.
(g) Collection of Income and Other Matters Affecting Securities. Unless
otherwise instructed to the contrary by a Written Instruction, the
Custodian, by itself or through the use of the Book-Entry System or the
Depository with respect to Securities therein deposited, shall, or
shall instruct the relevant Sub-Custodian to:
1. Collect all income due or payable with respect to
Securities held for a Portfolio in accordance with this
Agreement;
2. Present for payment and collect the amount payable upon all
Securities which may mature or be called, redeemed or retired,
or otherwise become payable;
3. Surrender Securities in temporary form for derivative
Securities;
4. Execute any necessary declarations or certificates of
ownership under the federal income tax laws or the laws or
regulations of any other taxing authority now or hereafter in
effect; and
5. Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for
the account of each Portfolio all rights and similar
Securities issued with respect to any Securities held by the
Custodian or relevant Sub-Custodian for each Portfolio.
7
<PAGE>
If the Custodian or any Sub-Custodian causes the
account of a Portfolio to be credited on the payable date for
interest, dividends or redemptions, the particular Portfolio
involved will promptly return to the Custodian any such amount
or property so credited upon oral or written notification that
neither the custodian nor the relevant Sub-Custodian can
collect such amount or property in the ordinary course of
business. The Custodian or such Sub-Custodian, as the case may
be, shall have no duty or obligation to institute legal
proceedings, file a claim or proof of claim in any insolvency
proceeding or take any other action with respect to the
collection of such amount or property beyond its ordinary
collection procedures.
(h) Delivery of Securities and Evidence of Authority. Upon receipt of a
Written instruction and not otherwise, except for subparagraphs 5, 6,
7, and 8 of this section 6(h) which may be effected by Oral or Written
instructions, the Custodian, directly or through the use of the
Book-Entry System or the Depository, shall, or shall instruct the
relevant Sub-Custodian to:
1. Execute and deliver or cause to be executed and delivered
to such persons as may be designated in such Written
Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Company as owner of
any Securities may be exercised;
2. Deliver or cause to be delivered any Securities held for a
Portfolio in exchange for other Securities or cash issued or
paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any
corporation, or the exercise of any conversion privilege;
3. Deliver or cause to be delivered any Securities held for a
Portfolio to any protective committee, reorganization
committee or other person in connection with the
reorganization, refinancing, merger, consolidation or
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement in the
separate account for each such Portfolio certificates of
deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
4. Make or cause to be made such transfers or exchanges of the
assets specifically allocated to the separate account of a
Portfolio and take such other steps as shall be stated in
Written Instructions to be for the purpose of effectuating any
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Company;
5. Deliver Securities upon sale of such Securities for the
account of a Portfolio pursuant to Section 7;
6. Deliver Securities upon the receipt of payment in
connection with any repurchase agreement related to such
Securities entered into by a Portfolio;
8
<PAGE>
7. Deliver Securities owned by a Portfolio to the issuer
thereof or its agent when such Securities are called,
redeemed, retired or otherwise become payable; provided,
however, that in any such case the cash or other consideration
is to be delivered to the Custodian or Sub-Custodian, as the
case may be;
8. Deliver Securities for delivery in connection with any
loans of securities made by a Portfolio but only against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Company which may be in the form
of cash or obligations issued by the United States Government,
its agencies or instrumentalities;
9. Deliver Securities for delivery as security in connection
with any borrowings by a Portfolio requiring a pledge of
Portfolio assets, but only against receipt of the amounts
borrowed;
10. Deliver Securities to the Transfer Agent or to the holders
of Shares in connection with distributions in kind, as may be
described from time to time in the Prospectus, in satisfaction
of requests by holders of Shares for repurchase or redemption;
11. Deliver Securities owned by any Portfolio as collateral in
connection with short sales by such Portfolio of common stock
for which such Portfolio owns the stock or owns preferred
stocks or debt securities convertible or exchangeable, without
payment of further consideration, into shares of the common
stock sold short;
12. Deliver Securities owned by any Portfolio for any purpose
expressly permitted by and in accordance with procedures
described in the Prospectus; and
13. Deliver Securities owned by any Portfolio for any other
proper business purpose, but only upon receipt of, in addition
to Written Instructions, a certified copy of a resolution of
the Board of Directors signed by an Authorized Person and
certified by the Secretary of the Company, specifying the
Securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper business purpose, and naming the person or persons
to whom delivery of such Securities shall be made.
(i) Endorsement and Collection of Checks, Etc. The Custodian is hereby
authorized to endorse and collect all checks, drafts or other orders
for the payment of money received by the Custodian for the account of a
Portfolio.
7. Purchase and Sale of Investments of a Portfolio.
(a) Promptly after each purchase of Securities for a Portfolio, the
Company shall deliver to the Custodian (i) with respect to each
purchase of Securities which are not Money Market Securities, a Written
Instruction and (ii) with respect to each purchase of
9
<PAGE>
Money Market Securities, either a Written Instruction or Oral
Instruction, in either case specifying with respect to each purchase:
(1) the name of the Portfolio to which such Securities are to be
specifically allocate; (2) the name of the issuer and the title of the
Securities; (3) the number of shares or the principal amount purchased
and accrued interest, if any; (4) the date of purchase and settlement;
(5) the purchase price per unit; (6) the total amount payable upon such
purchase; (7) the name of the person from whom or the broker through
whom the purchase was made, if any; (8) whether or not such purchase is
to be settled through the Book-Entry System or the Depository; and (9)
the Sub-Custodian to hold such Securities (if not the Custodian) or
whether the Securities purchased are to be deposited in the Book-Entry
System or the Depository. The Custodian or specified Sub-Custodian
shall receive the Securities purchased by or for a Portfolio and upon
receipt thereof shall pay to the broker or other person designated by
the Company out of the monies held for the account of such Portfolio
the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Written or
Oral Instruction.
(b) Promptly after each sale of Securities of a Portfolio, the Company
shall deliver to the Custodian (i) with respect to each sale of
Securities which are not Money Market Securities, a Written
Instruction, and (ii) with respect to each sale of Money Market
Securities, either Written Instructions or Oral Instructions, in either
case specifying with respect to such sale: (1) the name of the
Portfolio to which the Securities sold were specifically allocated; (2)
the name of the issuer and the title of the Securities; (3) the number
of shares or principal amount sold, and accrued interest, if any; (4)
the date of sale; (5) the sale price per unit; (6) the total amount
payable to the Portfolio upon such sale; (7) the name of the broker
through whom or the person to whom the sale was made; and (8) whether
or not such sale is to be settled through the Book-Entry System or the
Depository. The Custodian or relevant Sub-Custodian shall deliver or
cause to be delivered the Securities to the broker or other person
designated by the Company upon receipt of the total amount payable to
such Portfolio upon such sale, provided that the same conforms to the
total amount payable to such Portfolio as set forth in such Written or
Oral Instruction. Subject to the foregoing, the Custodian or relevant
Sub-Custodian may accept payment in such form as shall be satisfactory
to it, and may deliver Securities and arrange for payment in accordance
with the customs prevailing among dealers in Securities.
8. Lending of Securities.
If any Portfolio is permitted by the terms of the Articles of
Incorporation and the Prospectus to lend Securities, then the Board of
Directors may approve a separate written agreement between the Company
and the Custodian authorizing the Custodian to lend such Securities.
Such agreement may provide for the payment of additional reasonable
compensation to the Custodian.
10
<PAGE>
9. Payment of Dividends or Distributions.
(a) The Company shall furnish to the Custodian the vote of the Board of
Directors or the Dividend Committee thereof, as the case may be,
certified by the Secretary of the Company (i) authorizing the
declaration of distributions with respect to a Portfolio on a specified
periodic basis and authorizing the Custodian to rely on Oral or Written
Instructions specifying the date of the declaration of such
distribution, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per Share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date,
or (ii) setting forth the date of declaration of any distribution by a
Portfolio, the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the amount
payable per share to the shareholders of record as of the record date
and the total amount payable to the Transfer Agent on the payment date.
(b) Upon the payment date specified in such vote, Oral Instructions, or
Written Instructions, as the case may be, the Custodian shall pay the
total amount payable to the Transfer Agent out of the monies
specifically allocated to and held for the account of the appropriate
Portfolio.
10. Sale and Redemption of Shares of the Company.
(a) Whenever the Company shall sell any Shares of a Portfolio, the
Company shall deliver or cause to be delivered to the Custodian a
Written Instruction duly specifying:
1. The name of the Portfolio whose Shares were sold;
2. The number of Shares sold, trade date, and price; and
3. The amount of money to be received by the Custodian for the sale
of such Shares.
The Custodian understands and agrees that Written Instructions
may be furnished subsequent to the purchase of Shares of a Portfolio
and that the information contained therein will be derived from the
sales of Shares as reported to the Company by the Transfer Agent.
(b) Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account of the Portfolio
specified in (a)(l) above.
(c) Upon issuance of any Shares of a Portfolio in accordance with the
foregoing provisions of this Section 10, the Custodian shall pay all
original issue or other taxes required to be paid in connection with
such issuance upon the receipt of a Written Instruction specifying the
amount to be paid.
11
<PAGE>
(d) Except as provided hereafter, whenever any Shares of a Portfolio
are redeemed, the Company shall cause the Transfer Agent to promptly
furnish to the Custodian Written Instructions specifying:
1. The name of the Portfolio whose Shares were redeemed;
2. The number of Shares redeemed; and
3. The amount to be paid for the Shares redeemed.
The Custodian further understands that the information contained in
such Written Instructions will be derived from the redemption of Shares as
reported to the Company by the Transfer Agent.
(e) Upon receipt from the Transfer Agent of advice setting of Shares of
a Portfolio being redeemed pursuant to valid instructions described in
the Prospectus, the Custodian shall make payment Agent out of the
monies specifically allocated to and held for the Portfolio specified
in (d)(1) above of the total amount specified Instruction issued
pursuant to paragraph (d) of this Section 10.
11. Indebtedness.
(a) The Company will cause to be delivered to the Custodian
(excluding the Custodian) from which the Company borrows money
Securities as collateral, a notice or undertaking in the form current!
any such bank setting forth the amount which such bank will loan the
Company against delivery of a stated amount of collateral. The Ca
promptly deliver to the Custodian Written Instructions stating with
such borrowing: (1) the name of the Portfolio for which the borrow
made; (2) the name of the bank; (3) the amount and terms of the bc
which may be set forth by incorporating by reference an attached p
note, duly endorsed by the Company, or other loan agreement; (4) date,
if known, on which the loan is to be entered into (the "borrowing
date"); (5) the date, if known, on which the loan becomes due and
payable; (6) the total a to the Company for the separate account of the
Portfolio on the borrow date; (7) the market value of Securities to be
delivered as collateral for s including the name of the issuer, the
title and the number of shares principal amount of any particular
Securities; (8) whether the Custodian is to deliver such collateral
through the Book-Entry System or the Depository; and (9) a statement
that such loan is in conformance with the 1940 Act and Prospectus.
(b) Upon receipt of the Written Instruction referred to in paragraph
(a) above, the Custodian shall deliver on the borrowing date the
specified collateral and the executed promissory note, if any, against
delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set
forth in the Written Instruction. The Custodian may, at the option of
the lending bank, keep such collateral in its possession, but such
collateral shall be subject to all rights therein given the lending
bank by virtue of any promissory note or loan agreement. The Custodian
shall deliver as additional collateral in the manner directed by the
Company
12
<PAGE>
from time to time such Securities specifically allocated to such
Portfolio as may be specified in Written Instruction to collateralize
further any transaction described in this Section 11. The Company shall
cause all Securities released from collateral status to be returned
directly to the Custodian, and the Custodian shall receive from time to
time such return of collateral as may be tendered to it. In the event
that the Company fails to specify in Written Instruction all of the
information required by this Section 11, the Custodian shall not be
under any obligation to deliver any Securities. Collateral returned to
the Custodian shall be held hereunder as it was prior to being used as
collateral.
12. Corporate Action.
Whenever the Custodian or any Sub-Custodian (other than a foreign
securities depository or clearing agency) receives information
concerning Securities held for a Portfolio which requires discretionary
action by the beneficial owner of the Securities (other than a proxy),
such as subscription rights, bond issues, stock repurchase plans and
rights offerings, or legal notices or other material intended to be
transmitted to Securities holders ("Corporate Actions"), the Custodian
will give the Company notice of such Corporate Actions to the extent
that the Custodian's central corporate actions department has actual
knowledge of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action
is received which bears an expiration date, the Custodian will endeavor
to obtain Written or Oral Instructions from the Company, but if such
Instructions are not received in time for the Custodian to take timely
action, or actual notice of such Corporate Action was received too late
to seek such Instructions, the Custodian is authorized to sell, or
cause a Sub-Custodian to sell, such rights entitlement or fractional
interest and to credit the applicable account with the proceeds and to
take any other action it deems, in good faith, to be appropriate, in
which case, provided it has met the standard of care in Section 14
hereof, it shall be held harmless by the particular Portfolio involved
for any such action.
The Custodian will deliver proxies to the Company or its designated
agent pursuant to special arrangements which may have been agreed to in
writing between the parties hereto. Such proxies shall be executed in
the appropriate nominee name relating to Securities registered in the
name of such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are involved,
proxies will be delivered in accordance with Written or Oral
Instructions from Authorized Persons.
13. Persons Having Access of the Portfolios.
(a) No Company or agent of the Company, and no officer, director,
employee or agent of the Company's investment adviser, of any
sub-investment adviser of the Company, or of the Administrator, shall
have physical access to the assets of the Company held by the Custodian
or any Sub-Custodian or be authorized or permitted to withdraw any
investments of the Company, nor shall the Custodian or any
Sub-Custodian
13
<PAGE>
deliver any assets of the Company to any such person. No officer,
director, employee or agent of the Custodian who holds any similar
position with the Company's investment adviser, with any subinvestment
adviser of the Company or with the Administrator shall have access to
the assets of the Company.
(b) Nothing in this Section 13 shall prohibit any officer, employee or
agent of the Company, or any officer, director, employee or agent of
the investment adviser, of any sub investment adviser of the Company or
of the Administrator, from giving Oral Instructions or Written
Instructions to the Custodian or executing a Certificate so long as it
does not result in delivery of or access to assets of the Company
prohibited by paragraph (a) of this Section 13.
(c) The Custodian represents that it maintains a system that is
reasonably designed to prevent unauthorized persons from having access
to the assets that it holds (by any means) for its customers.
14. Concerning the Custodian.
(a) Scope of Services. The Custodian shall be obligated to perform only
such services as are set forth in this Agreement or expressly contained
in a Certificate, Written Instructions or Oral Instructions given to
the Custodian which are not contrary to the provisions of this
Agreement.
(b) Standard of Care.
1. The Custodian will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
property of the Portfolios. The Custodian shall be liable to
the Company for any loss which shall occur as the result of
the failure of the Custodian or a Sub-Custodian (other than a
foreign securities depository or clearing agency) to exercise
reasonable care with respect to the safekeeping of such
property. The determination of whether the Custodian or
Sub-Custodian has exercised reasonable care shall be made in
light of prevailing standards applicable to professional
custodians in the jurisdiction in which such custodial
services are performed. In the event of any loss to the
Company by reason of the failure of the Custodian or a
Sub-Custodian (other than a foreign securities depository or
clearing agency) to exercise reasonable care, the Custodian
shall be liable to the Company only to the extent of the
Company's direct damages and expenses, which damages, for
purposes of property only, shall be determined based on the
market value of the property which is the subject of the loss
at the date of discovery of such loss and without reference to
any special condition or circumstances.
2. The Custodian will not be responsible for any act,
omission, default or for the solvency of any foreign
securities depository or clearing agency approved by the Board
of Directors pursuant to Section (l)(n) or Section 3 hereof.
14
<PAGE>
3. The Custodian will not be responsible for any act,
omission, default or for the solvency of any broker or agent
(not referred to in paragraph (b)(2) above) which it or a
Sub-Custodian appoints and uses unless such appointment and
use is made or done negligently or in bad faith. In the event
such an appointment and use is made or done negligently or in
bad faith, the Custodian shall be liable to the Company only
for direct damages and expenses (determined in the manner
described in paragraph (b)(l) above) resulting from such
appointment and use and, in the case of any loss due to an
act, omission or default of such agent or broker, only to the
extent that such loss occurs as a result of the failure of the
agent or broker to exercise reasonable care.
4. The Custodian shall be entitled to rely, and may act upon
the advice of counsel (who may be counsel for the Company) on
all matters and shall be without liability for any action
reasonably taken or omitted in good faith and without
negligence pursuant to such advice.
5. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be
genuine and to be signed by two officers of the Company. The
Custodian shall be entitled to rely upon any Written
Instructions or Oral Instructions actually received by the
Custodian pursuant to the applicable Sections of this
Agreement and reasonably believed by the Custodian to be
genuine and to be given by an Authorize Person. The Company
agrees to forward to the Custodian Written Instructions from
an Authorized Person confirming such Oral Instruction in such
manner so that such Written Instructions are received by the
Custodian, whether by hand delivery, telex or otherwise, by
the close of business on the same day that such Oral
Instructions are given to the Custodian. The Company agrees
that the fact that such confirming instructions are not
received by the Custodian shall in no way affect the validity
of the transactions or enforceability of the transactions
hereby authorized by the Company. The Company agrees that the
Custodian shall incur no liability to the Company in (i)
acting upon Oral Instructions given to the Custodian hereunder
concerning such transactions provided such instructions
reasonably appear to have been received from a duly Authorized
Person or (ii) deciding not to act solely upon Oral
Instructions, provided that the Custodian shall be required to
contact the giver of such Oral Instructions and request
written confirmation immediately following any such decision
not to act.
6. The Custodian shall supply the Administrator with such
daily information regarding the cash and securities positions
and activity of each Portfolio as the Custodian and the
Administrator shall from time to time agree. It is understood
that such information will not be audited by Custodian and
Custodian represents that such information will be the best
information then available to the Custodian. The Custodian
shall have no responsibility whatsoever for the pricing of
Portfolio Securities or for the failure of the Administrator
to reconcile differences between the information supplied by
the Custodian and information obtained by the
15
<PAGE>
Administrator from other sources, including but not limited to
pricing vendors and the Company's investment adviser. Subject
to the foregoing, to the extent that any miscalculation by the
Administrator of a Portfolio's net asset value is attributable
to the willful misfeasance, bad faith or negligence of the
Custodian (including any Sub-Custodian other than a foreign
securities depository or clearing agency) in supplying or
omitting to supply the Administrator with information as
aforesaid, the Custodian shall be liable to the Company for
any resulting loss (subject to such de minimis rule of change
in value as the Board of Directors may from time to time
adopt).
(c) Limit of Duties. Without limiting the generality of the foregoing,
the Custodian shall be under no duty or obligation to inquire into, and
shall not be liable for:
1. The validity of the issue of any Securities purchased by
any Portfolio, the legality of the purchase thereof, or the
propriety of the amount specified by the Company for payment
therefor;
2. The legality of the sale of any Securities by any Portfolio
or the propriety of the amount of consideration for which the
same are sold;
3. The legality of the issue or sale of any Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the redemption of any Shares, or the
propriety of the amount to be paid therefor;
5. The legality of the declaration or payment of any
distribution of any Portfolio or;
6. The legality of any borrowing.
(d) The Custodian need not maintain any insurance for the exclusive
benefit of the Company, but hereby warrants that as of the date of this
Agreement it is maintaining a bankers Blanket Bond and hereby agrees to
notify the Company in the event that such bond is cancelled or
otherwise lapses.
(e) Consistent with and without limiting the language contained in
Section 14(b), it is specifically acknowledged that the Custodian shall
have no duty or responsibility to:
1. Question Written Instructions or Oral Instructions or make
any suggestions to the Company or an Authorized Person
regarding such Instructions:
2. Supervise or make recommendations with respect to
investments or the retention of Securities;
16
<PAGE>
3. Subject to Section 14(b)(3) hereof, evaluate or report to
the Company or an Authorized Person regarding the financial
condition of any broker, agent or other party to which
Securities are delivered or payments are made pursuant to this
Agreement; or
4. Review or reconcile trade confirmations received from
brokers.
(f) Amounts Due for Transfer Agent. The Custodian shall not be under
any duty or obligation to take action to effect collection of any
amount due to any Portfolio from the Transfer Agent nor to take any
action to effect payment or distribution by the Transfer Agent of any
amount paid by the Custodian to the Transfer Agent in accordance with
this Agreement.
(g) No Duty to Ascertain Authority. The Custodian shall not be under
any duty or obligation to ascertain whether any Securities at any time
delivered to or held by it for the Company and specifically allocated
to a Portfolio are such as may properly be held by the Company under
the provisions of the Articles of Incorporation and the Prospectus.
(h) Indemnification. The Company agrees to indemnify and hold the
Custodian harmless from all loss, cost, taxes, charges, assessments,
claims, and liabilities (including, without limitation, liabilities
arising under the Securities Act of 1933, the Securities Exchange Act
of 1934 and the 1940 Act and state or foreign securities laws) and
expenses (including reasonable attorneys fees and disbursements)
arising directly or indirectly from any action taken or omitted by the
Custodian (i) at the request or on the direction of or in reliance on
the advice of the Company or in reasonable reliance upon the Prospectus
or (ii) upon a Certificate or Oral or Written Instructions; provided,
that the aforegoing indemnity shall not apply to any loss, cost, tax,
charge, assessment, claim, liability or expense to the extent the same
is attributable to the Custodian's or any Sub-Custodian's (other than a
foreign securities depository or clearing agency) negligence, willful
misconduct, bad faith or reckless disregard of duties and obligations
under this Agreement or any other agreement relating to the custody of
Company property.
(i) The Company on behalf of the particular Portfolio involved agrees
to hold the Custodian harmless from any liability or loss resulting
from the imposition or assessment of any taxes or other governmental
charges on a Portfolio.
(j) Without limiting the foregoing, the Custodian shall not be liable
for any lo.cs which result from:
1. the general risk of investing, or
2. subject to Section 14(b) hereof, investing or holding
property in a particular country including, but not limited
to, losses resulting from nationalization, expropriation or
other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or
17
<PAGE>
fluctuations; and market conditions which prevent the orderly
execution of securities transactions or affect the value of
property held pursuant to this Agreement.
(k) No party shall be liable to the other for any loss due to forces
beyond their control including but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(1) Inspection of Books and Records. The books and records of the
Custodian shall be open to inspection and audit at reasonable times by
officers and auditors employed by the Company and by the appropriate
employees of the Securities and Exchange Commission.
(m) Accounting Control Reports. The Custodian shall provide the Company
with any report obtained by the Custodian on the system of internal
accounting control of the Book-Entry System or the Depository and with
such reports on its own systems of internal accounting control as the
Company may reasonably request from time to time.
15. Term and Termination.
(a) This Agreement shall become effective on the date first set forth
above (the "Effective Date") and shall continue in effect thereafter as
the parties may mutually agree.
(b) Either of the parties hereto may terminate this Agreement with
respect to any Portfolio by giving to the other party a notice in
writing specifying the date of such termination, which, in case the
Company is the terminating party, shall be not less than 60 days after
the date of receipt of such notice or, in case the Custodian is the
terminating party, shall be not less than 90 days after the date of
receipt of such notice. In the event such notice is given by the
Company, it shall be accompanied by a certified vote of the Board of
Directors, electing to terminate this Agreement with respect to any
Portfolio and designating a successor custodian or custodians, which
shall be a person qualified to so act under the 1940 Act.
In the event such notice is given by the Custodian, the
Company shall, on or before the termination date, deliver to the
Custodian a certified vote of the Board of Directors, designating a
successor custodian or custodians. In the absence of such designation
by the Company, the Custodian may designate a successor custodian,
which shall be a person qualified to so act under the 1940 Act. If the
Company fails to designate a successor custodian with respect to any
PortfoLio, the Company shall upon the date specified in the notice of
termination of this Agreement and upon the delivery by the Custodian of
all Securities (other than Securities held in the Book-Entry System
which cannot be delivered to the Company) and monies then owned by such
Portfolio, be deemed to be its own custodian and the Custodian shall
thereby be relieved of all duties and responsibilities pursuant to this
Agreement, other than the duty with respect to Securities held in the
Book-Entry System which cannot be delivered to the Company.
18
<PAGE>
(c) Upon the date set forth in such notice under paragraph (b) of this
Section 15, this Agreement shall terminate to the extent specified in
such notice, and the Custodian shall upon receipt of a notice of
acceptance by the successor custodian on that date deliver directly to
the successor custodian all Securities and monies then held by the
Custodian and specifically allocated to the Portfolio or Portfolios
specified, after deducting all fees, expenses and other amounts for the
payment or reimbursement of which it shall then be entitled with
respect to such Portfolio or Portfolios.
16. Limitation of Liability.
The Company and the Custodian agree that the obligations of
the Company under this Agreement shall not be binding upon any of the
Directors, shareholders, nominees, officers, employees or agents,
whether past, present or future, of the Company individually, but are
binding only upon the assets and property of the Company or of the
appropriate Portfolio(s) thereof, as provided in the Articles of
Incorporation. The execution and delivery of this Agreement have been
authorized by the Directors of the Company, and signed by an authorized
officer of the Company, acting as such, and neither such authorization
by such Directors nor such execution and delivery by such officer shall
be deemed to have been made by any of them or any shareholder of the
Company individually or to impose any liability on any of them or any
shareholder of the Company personally, but shall bind only the assets
and property of the Company or of the appropriate Portfolio(s) thereof
as provided in the Articles of Incorporation.
17. Miscellaneous.
(a) Annexed hereto as Schedule A is a certification signed by two of
the present officers of the Company setting forth the names and the
signatures of the present Authorized Persons. The Company agrees to
furnish to the Custodian a new certification in similar form in the
event that any such present Authorized Person ceases to be such an
Authorized Person or in the event that other or additional Authorized
Persons are elected or appointed. Until such new certification shall be
received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of
the present Authorized Persons as set forth in the last delivered
certification.
(b) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at
its offices at its address stated on the first page hereof or at such
other place as the Custodian may from time to time designate in
writing.
(c) Any notice or other instrument in writing, authorized or required
by this Agreement to be given to the Company, shall be sufficiently
given if addressed to the Company and mailed or delivered to it at its
offices at its address shown on the first page
19
<PAGE>
hereof or at such other place as the Company may from time to time
designate in writing, with a copy to:
Attention: General Counsel
SEI Corporation
680 Swedesford Road
Wayne, PA 19087-1658
(d) This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality
as this Agreement, (i) authorized and approved by a vote of the Board
of Directors, including a majority of the members of the Board of
Directors who are not "interested persons" of the Company (as defined
in the 1940 Act), or (ii) authorized and approved by such other
procedures as may be permitted or required by the 1940 Act.
(e) This Agreement shall extend to and shall be binding upon the
parties hereto, and their respective successors and assigns; provided,
however, that this Agreement shall not be assignable by the Company
without the written consent of the Custodian, or by the Custodian
without the written consent of the Company authorized or approved by a
vote of the Board of Directors, and any attempted assignment without
such written consent shall be null and void.
(f) This Agreement shall be construed in accordance with the laws of
the State of Illinois.
(g) The captions of the Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(h) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective representatives duly authorized as
of the day and year first above written.
THE PBHG FUNDS, INC.
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE NORTHERN TRUST COMPANY
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
21
<PAGE>
Schedule A
Certification of Authorized Persons
Employees of SEI
John Alshefski Stephen Pietrzak
Jeffrey Cohen Carol Keating
Jean Young Rita Silvesri
Employees of Pilgrim Baxter & Associates
Arlene Wolstenhome John Force
Brian Bereznak Bruce Muzina
Gary Pilgrim James Smith
Employees of Supervised Service Company
Douglas Anderson Brian O'Hare
Robert Ciarlelli Frank Salerno
Sal DiRosa Sharon Scheid
Gary Johnson Karen Schultz
Patric Meikel
Employees of Dolphin Partners, L.P.
W. George Greig
Diane Ceurvels
22
<PAGE>
Schedule B
A
Global Custody
Fee Proposal
for
SEI/PILGRIM BAXTER
Assumptions Used:
o 1 fund
o $50.9 million (roughly EAFE weighting)
o 90 security holdings
o 202 purchase/sale transactions per annum
Services Provided:
o Safekeeping of securities
o Settlement of trades
o Foreign exchange services
o Investment and management of excess cash balances
o Interest and dividend collection and payable date crediting
o Tax withholding and reclamation
o Corporate action and proxy handling
o Monthly audited multicurrency accounting and reporting
o Client administration and Investment Manager servicing
o Daily on-line investment manager/fund administrator reporting package
Fee Proposal:
$1,500 per find per annum
14.0 Basis points on the first $50 million
9.0 Basis points on the next $50 million
6.0 Basis points on over $ 100 million
23
<PAGE>
Any non-U.S. futures/options transactions incur a charge of $120 per roundtrip.
U.S. futures/options transactions incur a charge of $60 per roundtrip.
We do not impose additional charges for facsimile, telex, income collection, tax
reclamation, administration or other "miscellaneous" activities. Execution
costs, such as stamp duty, re-registration and delivery/receipt charges would be
passed through at cost if and as applicable.
Full access to The Northern Trust's on-line, customized reporting system, the
Electronic Delivery System (EDS), will be made available to both Pilgrim Baxter
and SKI. The only charge associated with the use of EDS will be based upon
actual computer usage of $20 per Computer Resource Unit (CRU). A CRU is based on
the time used to process data by our computers, the amount of computer storage
used to hold your data records and reports as well as connect time.
Telecommunication charges do apply, however, we provide a toll-free number in
the U.S. for accessing EDS.
January 26, 1994
24
EXHIBIT 8(b)
CUSTODIAN AGREEMENT
This Agreement, dated as of the 17th day of October, 1996 by and between
The PBHG Funds, Inc. ("Fund"), a corporation operating as an open-end management
investment company and duly organized under the laws of the state of Maryland,
and CoreStates Bank N.A.;
WITNESSETH
WHEREAS, the Fund desires to deposit cash and securities of certain of its
series ("Portfolios"), which Portfolios shall be set forth in Schedule A hereto
attached, with CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end management investment
company and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have meanings herein specified
unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity as
Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Directors of the Fund to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Board of Directors shall have from time to time authorized to give the
particular class of instructions in question. The Custodian may act upon
telephone or telegraphic instructions without awaiting receipt of written
confirmation, and shall not be liable for the Fund's or its investment adviser's
failure to confirm such instructions in writing.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Fund in accordance with the registry records
maintained by the Fund or agents on its behalf.
SHARES: The term Shares of the Fund shall mean the shares of the Fund.
<PAGE>
SECTION 2. The Fund shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Fund.
SECTION 3. The Fund hereby appoints the Custodian as custodian of cash and
securities of the Portfolios from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the assets
of others and shall be and remain the sole property of the company and the
Custodian shall have only the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Fund's portfolio securities with a U.S. securities
depository or in U.S. Federal book-entry systems pursuant to rules and
regulations of the Securities and Exchange Commission.
SECTION 4. The Fund will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Fund will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule B
hereto attached, and the Custodian will charge fees for specific transactions as
set forth in Schedule C hereto attached, or as shall be set forth in amendments
to such Schedules approved by the Fund and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Fund a daily report of all monies received or paid
on behalf of the Fund.
(b) create, maintain and retain all records relating to its activities
and obligations under this Agreement in such manner as will meet the
obligations of the Fund with respect to said Custodian's activities in
accordance with generally accepted accounting principles. All records
maintained by the Custodian in connection
- 2 -
<PAGE>
with the performance of its duties under this Agreement will remain the
property of the Fund and in the event of termination of this Agreement will
be relinquished to the Fund.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for the
Fund or for the Custodian, and upon statements of accountants, brokers and
other persons believed by it in good faith to be expert in the matters upon
which they are consulted; and for any action taken or suffered in good
faith based upon such advice or statements the Custodian shall not be
liable to anyone;
(b) shall not be liable for anything done or suffered to be done in
good faith in accordance with any request or advice of, or based upon
information furnished by, the Fund or its authorized officers or agents;
(c) is authorized to accept a certificate of the Secretary or
Assistant Secretary of the Fund, or Proper Instructions, to the effect that
a resolution in the form submitted has been duly adopted by its Board of
Directors or by the Shareholders, as conclusive evidence that such
resolution has been duly adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature,
written (including telegraph or other mechanical) instructions, request,
letter of transmittal, certificate, opinion of counsel, statement,
instrument, report, notice, consent, order, or other paper or document
reasonably believed by it to be genuine and to have been signed, forwarded
or presented by the purchaser, Fund or other proper party or parties.
SECTION 9. The Fund, its successors and assignees hereby indemnify and hold
harmless the Custodian, its successors and assignees, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Fund, its successors and
assignees do hereby fully indemnify and hold harmless the Custodian its
successors and assignees from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may arise from the failure
of the Fund to comply with any law, rule, regulation or order of the United
States, any state or any other jurisdiction, governmental authority, body, or
board
- 3 -
<PAGE>
relating to the sale, registration, qualification of units of beneficial
interest in the Fund, or from the failure of the Fund to perform any duty or
obligation under this Agreement.
Upon written request of the Custodian, the Fund shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to or
any approval of the Shareholders by a supplemental agreement executed by the
Fund and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Fund or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Fund or by the Custodian, the
Directors of the Fund shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the company of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Fund are first
delivered to the Custodian.
- 4 -
<PAGE>
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Amended Articles of Incorporation of the Fund are on
file with the Secretary of State of Maryland, and notice is hereby given that
this instrument is executed on behalf of the Directors of the Fund as Directors
and not individually and that the obligations of this instrument are not binding
upon any of the Directors, officers or Shareholders of the Fund individually,
but binding only upon the assets and property of the Fund.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable Federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
- 5 -
<PAGE>
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assignees; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
THE PBHG FUNDS, INC.
By: /s/
-------------------------------
Title:
----------------------------
Attest:
---------------------------
CORESTATES BANK N.A.
By: /s/
-------------------------------
Title:
----------------------------
Attest:
---------------------------
- 6 -
<PAGE>
SCHEDULE A
PORTFOLIOS OF THE PBHG FUNDS, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Limited Fund
PBHG Cash Reserves Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
-7-
<PAGE>
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April 1, 1997
THE PBHG FUNDS, INC.
By: /s/
--------------------------------
Attest:
----------------------------
CORESTATES BANK N.A.
By: /s/
--------------------------------
Attest:
----------------------------
-8-
<PAGE>
SCHEDULE B
FEE SCHEDULE
1.00 BASIS POINTS ON THE FIRST $2.5 BILLION
.75 BASIS POINTS ON THE NEXT $2.5 BILLION
.50 BASIS POINTS ON THE NEXT $4 BILLION
.40 BASIS POINTS ON THE REMAINDER
Transactions billed separately by Portfolio at the now current rates. Asset
level charges billed as one invoice covering all Portfolios custodied at
CoreStates Bank N.A. Pilgrim Baxter Fund Services will allocate charges back to
individual Portfolios. Transaction charges are subject to change.
-9-
<PAGE>
SCHEDULE C
CUSTODY SERVICES
TRANSACTION FEES
$ 4.00 Per trade and maturity clearing through Depository Trust
Company.
$10.00 Per trade and maturity clearing book-entry through
Federal Reserve.
$15.00 Per trade and maturity for assets requiring physical
settlement.
$10.00 Per trade and maturity clearing through Participants
Trust Company.
$ 4.00 Paydowns on Mortgage Backed securities.
$ 5.50 Fed wire charge on Repo Collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend Re-Investment.
$ 2.50 Fed charge for sale/return of Collateral.
-10-
EXHIBIT 9(b)
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st day of
July, 1996 by and between The PBHG Funds, Inc., a Maryland corporation (the
"Fund"), and PBHG Fund Services, a Pennsylvania business trust (the
"Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to provide
administrative services to the Fund and each of its several series (the
"Portfolios"), which are identified in Schedule A hereto, in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund and the Administrator propose to engage a
sub-administrator (the "Sub-Administrator") to provide certain administrative
services to the Fund and the Portfolios, subject to the approval of the Fund's
Board of Directors;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1. Duties and Responsibilities of the Administrator.
The Administrator shall oversee the administration of the Fund's and each
Portfolio's business and affairs as set forth herein and shall provide certain
services required for effective administration of the Fund and the Portfolios.
In connection therewith, the Administrator shall:
1.1. Office and Other Facilities. Furnish, without cost to the Fund, or
provide and pay the cost of, such office facilities, furnishings, and office
equipment as are necessary for the performance of the Administrator's duties to
the Fund under this Agreement.
1.2. Personnel. Provide, without additional remuneration from or other cost
to the Fund, the services of individuals competent to perform all of the
Administrator's obligations under this Agreement.
1.3. Agents. Assist the Fund in selecting, coordinating the activities of,
supervising and acting as liaison with any other person or agent engaged by the
Fund, including the Fund's depository agent or custodian, consultants, transfer
agent, sub-transfer agents, intermediaries
1
<PAGE>
with respect to mutual fund alliance programs, dividend disbursing agent,
Sub-Administrator, independent accountants, and independent legal counsel. The
Administrator shall also monitor the functions of such persons and agents,
including without limitation the compliance of the Fund and the Fund's
custodians with Rule 17f-5 under the 1940 Act, if appropriate.
1.4. Directors and Officers. Authorize and permit the Administrator's
directors, officers, and employees that may be elected or appointed as directors
or officers of the Fund to serve in such capacities, without remuneration from
or additional cost to the Fund.
1.5. Books and Records. Maintain customary records, on behalf of the Fund,
in connection with the performance of the Administrator's duties under this
Agreement. The Administrator also will monitor and oversee the performance of
the agents specified in Section 1.3. above, to ensure that all financial,
accounting, corporate, and other records required to be maintained and preserved
by the Fund or on its behalf will be maintained in accordance with applicable
laws and regulations.
1.6. Cost Oversight. Monitor and review activities and procedures of the
Fund and its agents identified in Section 1.3. above, in order to identify and
seek to obtain possible service improvements and cost reductions. In connection
therewith, the Administrator shall, on a quarterly basis, prepare and submit to
the Fund a pro forma budget or similar document concerning the estimated costs
of providing the services to the Fund and shall monitor and periodically report
to the Fund's Board of Directors information and analysis about the actual
expenses incurred in providing such services.
1.7. Fund Accounting and Compliance Policies and Procedures. Assist in
developing, reviewing, maintaining, and monitoring the effectiveness of Fund
accounting and compliance policies and procedures, including portfolio valuation
procedures, expense allocation procedures, and personal trading procedures, and
the Fund's Code of Ethics. The Administrator also will assist and coordinate
participation by the Fund and its agents in any audit by its outside auditors or
any examination by federal or state regulatory authorities or any
self-regulatory organization. The Administrator also will oversee and coordinate
the activities of Fund accountants, outside counsel, and other experts in these
audits or examinations.
1.8. Fund Systems. Assist in developing, implementing, and monitoring the
Fund's use of automated systems for the purchase, sale, redemption and transfer
of Fund shares and the payment of Rule 12b-1 service fees to broker-dealers and
others that provide personal services, distribution support services, and/or
account maintenance services to shareholders, and for recording and tracking
such transactions and/or payments. The Administrator also will assist in
developing, implementing, and monitoring the Fund's use of automated
communications systems with brokers, dealers, custodians, and other service
providers, including without limitation trade clearance systems.
1.9. Reports to the Fund. Furnish to or place at the disposal of the Fund
such information, reports, evaluations, analyses, and opinions relating to its
administrative functions and the administrative functions performed by the
Sub-Administrator, as the Fund may, at any time or from time to time, reasonably
request or as the Administrator may deem helpful to the Fund. The Administrator
also will assist in the preparation of agendas and other materials for meetings
of the Fund's Board of Directors and will attend such meetings.
-2-
<PAGE>
1.10. Reports and Filings. Provide appropriate assistance in the
development and/or preparation of all reports and communications by the Fund to
Fund shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal securities
law.
1.11. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Administrator. If any such
inquiry or communication would be more properly answered by one of the agents
listed in Section 1.3. above, the Administrator will coordinate, as needed, the
provision of their response.
2. Allocation of Expenses.
2.1. Expenses Paid by the Administrator.
2.1.1. In General. The Administrator shall bear all of its own
expenses in connection with the performance of its duties under this
Agreement.
2.1.2. Salaries and Fees of Directors and Officers. The Administrator
shall pay all salaries, expenses, and fees, if any, of the directors,
officers, and employees of the Administrator who are directors, officers,
or employees of the Fund.
2.1.3. Waiver or Assumption and Reimbursement of Fund Expenses by the
Administrator. The waiver or assumption and reimbursement by the
Administrator of any expense of the Fund that the Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Administrator to waive, assume, or reimburse the same or any
similar expense of the Fund on any subsequent occasion, unless so required
pursuant to a separate agreement between the Fund and the Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator as provided in this Agreement or any
other agreement between the Fund and the Administrator, and as described in the
Fund's then-current Prospectuses and Statements of Additional Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Administrator, the Fund shall pay the Administrator a fee per
Portfolio at the annual rate of .15% of the average daily net assets of each
Portfolio.
-3-
<PAGE>
3.2. Method of Computation. The Administrator's fee shall accrue on each
calendar day and the sum of the daily fee accruals shall be paid monthly to the
Administrator by the fifth (5th) business day of the next calendar month. The
daily fee accruals shall be computed by multiplying the fraction of one (1) over
the number of calendar days in the year by the applicable annual rates described
in Section 3.1. above, and multiplying this product by the net assets of the
Portfolios, as determined in accordance with the current Prospectuses of the
Fund, as of the close of business on the last preceding business day on which
the Fund was open for business.
3.3. Proration of Fee. If this Agreement becomes effective or terminates
before the end of any month, the fee for the period from the effective date to
the end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
4. Administrator's Use of the Services of Others.
The Administrator may at its own cost employ, retain, or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing the Administrator or the Fund with such information,
advice, or assistance as the Administrator may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Administrator, including consulting, monitoring, and evaluation services
concerning the Fund and the Portfolios.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund, pursuant
to rules or regulations of the Securities and Exchange Commission under Section
31(a) of the 1940 Act, and maintained and preserved by the Administrator on
behalf of the Fund, are the property of the Fund and shall be surrendered by the
Administrator promptly on request by the Fund. The Administrator shall not
disclose or use any record or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized by this Agreement and
applicable law. The Administrator shall keep confidential any information
obtained in connection with its duties hereunder and shall disclose such
information only if the Fund has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities.
6. Reports to the Administrator.
The Fund shall furnish or otherwise make available to the Administrator
such Prospectuses, Statements of Additional Information, financial statements,
proxy statements, reports, and other information relating to the business and
affairs of the Fund, as the Administrator may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
-4-
<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Administrator or
any affiliated person of the Administrator to render corporate administrative
services to other investment companies or to engage in other business
activities; however, so long as this Agreement or any extension, renewal, or
amendment hereof shall remain in effect or until the Administrator shall
otherwise consent, the Administrator shall be the only administrator to the
Fund.
8. Limitation of Liability of the Administrator and Indemnification by
the Fund.
8.1. Limitation of Liability.
8.1.1. Neither the Administrator nor any of its directors, officers,
employees or agents performing services for the Fund, at the direction or
request of the Administrator in connection with the Administrator's
discharge of its obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any act or omission in the course of
or in connection with the Administrator's services hereunder, including any
error of judgment or mistake of law or for any loss suffered by the Fund,
in connection with the matters to which this Agreement relates; provided,
that nothing herein contained shall be construed to protect the
Administrator or any such person against any liability to the Fund or its
shareholders to which the Administrator or such person would otherwise be
subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or their duties on behalf of the Fund.
8.1.2. The Administrator's directors, officers, employees and agents
performing services for the Fund shall be covered by errors and omissions
and directors and officers liability insurance, as appropriate, under a
policy maintained by the Administrator or an affiliate of the
Administrator.
8.1.3. The Administrator may apply to the Board of Directors of the
Fund at any time for instructions and may consult counsel for the Fund or
its own counsel and with accountants and other experts with respect to any
matter arising in connection with the Administrator's duties, and the
Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instruction or with the
opinion of such counsel, accountants, or other experts.
8.1.4. The Administrator shall at all times have the right to mitigate
or cure any and all losses, damages, costs, charges, fees, disbursements,
payments and liabilities to the Fund and its shareholders.
8.2. Indemnification by the Fund.
8.2.1. As long as the Administrator acts in good faith and with due
diligence and without negligence, the Fund shall indemnify the
Administrator and hold it harmless from and against any and all actions,
suits, and claims, whether groundless or otherwise, and from and against
any and all losses, damages (excluding consequential, punitive or other
-5-
<PAGE>
indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund
hereunder. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately
be merited. In order that the indemnification provision contained herein
shall apply, however, it is understood that if in any case the Fund may be
asked to indemnify or hold the Administrator harmless, the Board of
Directors of the Fund shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood
that the Administrator will use all reasonable care to identify and notify
the Board of Directors of the Fund promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Fund, but failure to do so in good faith shall
not affect the rights hereunder.
8.2.3. The Administrator shall secure and maintain a fidelity bond, or
be covered by an affiliate's blanket fidelity bond, in at least the amount
required by Rule 17g-1 under the 1940 Act for joint insurance bonds of
investment companies.
9. Indemnification by the Administrator.
9.1. The Administrator shall indemnify the Fund, its officers and directors
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and all losses,
damages (excluding consequential, punitive or other indirect damages), costs,
charges, reasonable counsel fees and disbursements, payments, expenses, and
liabilities (including reasonable investigation expenses) arising directly or
indirectly out of the administrative services or any other service rendered to
the Fund hereunder and arising or based upon the willful misfeasance, bad faith,
or negligence of the Administrator, its directors, officers, employees, and
agents in the performance of its or their duties on behalf of the Fund. The
indemnity and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Administrator may be asked to indemnify or
hold the Fund, its officers, and directors harmless, the Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund will use all reasonable
care to identify and notify the Administrator promptly concerning any situation
which presents or appears likely to present the probability of such a claim for
indemnification against the Administrator, but failure to do so in good faith
shall not affect the rights hereunder.
-6-
<PAGE>
10. Force Majeure.
In the event the Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Administrator shall not be liable for any and
all losses, damages, costs, charges, counsel fees, payments, expenses or
liability to any other party (whether or not a party to this Agreement)
resulting from such failure to perform its obligations or duties under this
Agreement or otherwise from such causes. This provision, however, shall in no
way excuse the Administrator from being liable to the Fund for any and all
losses, damages, costs, charges, counsel fees, payments and expenses incurred by
the Fund due to the non-performance or delay in performance by the Administrator
of its duties and obligation under this Agreement if such non-performance or
delay in performance could have been reasonably prevented by the Administrator
through back-up systems and other procedures commonly employed by other
administrators in the mutual fund industry, provided that the Administrator
shall have the right, at all times, to mitigate or cure any losses, including by
making adjustments or corrections to any current or former shareholder accounts.
11. Retention of Sub-Administrator.
The Administrator may retain a Sub-Administrator to perform corporate
administrative services to the Fund. The retention of a Sub-Administrator shall
be at the cost and expense of the Administrator. The Administrator shall pay and
shall be solely responsible for the payment of the fees of the Sub-Administrator
for the performance of its services for the Fund.
12. Term of Agreement.
The term of this Agreement shall begin on the day and year first written
above, and unless sooner terminated as hereinafter provided, shall continue in
effect for an initial period that will expire on December 31, 1998. Thereafter,
this Agreement shall continue in effect from year to year, subject to the
termination provisions and all other terms and conditions hereof. The
Administrator shall furnish to the Fund, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal, or amendment thereof.
The assignment (as that term is defined in Section 2(a)(4) of the 1940 Act
and rules thereunder) of this Agreement or any rights or obligations thereunder
shall be prohibited by either party without the written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon the
parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without the
payment of any penalty:
-7-
<PAGE>
(a) for a material breach of this Agreement, upon thirty (30)
days prior written notice to the other parties; provided, that
this Agreement shall not terminate if such material breach is
cured within such thirty (30) day period.
(b) following the initial term of this Agreement, for any reason
upon ninety (90) days' prior written notice to the other parties;
provided, that in the case of termination by the Fund such action
shall have been authorized by resolution of the Board of
Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund or, in the case of
termination with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of such
Portfolio. In the case of termination by the Administrator, such
termination shall not be effective until the Fund and the
Administrator shall have contracted with one or more persons to
serve as successor Administrator(s) for the Fund and such
person(s) shall have assumed such position.
14. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by resolution of the Board of Directors of the Fund or by a majority
of the outstanding voting securities of the Fund or, in the case of an amendment
to this Agreement with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or a vote of a majority of the outstanding voting
securities of such Portfolio.
15. Miscellaneous.
15.1. Notices. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, (i) if to the Administrator, to
Pilgrim Baxter Fund Services, 1255 Drummers Lane Suite 300, Wayne, PA 19087,
Attention: Brian Bereznak, and (ii) if to the Fund, to The PBHG Funds, Inc.,
1255 Drummers Lane Suite 300, Wayne, PA 19087, Attention: Michael Harrington.
15.2. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3. Interpretation. Nothing herein contained shall be deemed to require
the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
15.4. Definitions. Any question of interpretation of any term or provision
of this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940
-8-
<PAGE>
Act shall be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States courts or, in the
absence of any controlling decision of any such court by rules, regulations, or
orders of the Securities and Exchange Commission validly issued pursuant to the
1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation,
or order of the Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation, or order.
15.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
15.6. Governing law. Except insofar as the 1940 Act or other federal laws
and regulations may be controlling, this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
/s/ By: /s/
- ----------------------------- ------------------------------
Title: Title:
----------------------- ---------------------------
ATTEST: PBHG FUND SERVICES
/s/ By: /s/
- ----------------------------- ------------------------------
Title: Title:
----------------------- ---------------------------
-9-
<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
-10-
<PAGE>
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April 1, 1997
ATTEST: THE PBHG FUNDS, INC.
/s/ By: /s/
- ----------------------------- ------------------------------
Title: Title:
----------------------- ---------------------------
ATTEST: PBHG FUND SERVICES
/s/ By: /s/
- ----------------------------- ------------------------------
Title: Title:
----------------------- ---------------------------
-11-
EXHIBIT 9(c)
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st
day of July, 1996, by and among The PBHG Funds, Inc., a Maryland corporation
(the "Fund"), PBHG Fund Services, a Pennsylvania business trust (the
"Administrator"), and SEI Fund Resources, a Delaware business trust (the
"Sub-Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator and the Fund have entered into an
Administrative Services Agreement (the "Administrative Services Agreement")
pursuant to which the Administrator will provide administrative services to the
Fund and each of its several series (the "Portfolios"), which are identified in
Schedule A to the Administrative Services Agreement; and
WHEREAS, the Fund and the Administrator desire to retain the
Sub-Administrator to provide certain administrative services to the Fund, and
each of its series (the "Portfolios"), and the Administrator in the manner and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Duties and Responsibilities of the Sub-Administrator.
The Sub-Administrator shall assist the Administrator in connection with
the Administrator's duties and responsibilities to the Fund specified in the
Administrative Services Agreement. In addition, the Sub-Administrator shall
perform or supervise the performance by others of all administrative services in
connection with the operations of the Portfolios, other than those
administrative services to be provided by the Administrator pursuant to the
Administrative Services Agreement. The administrative services to be provided by
the Sub- Administrator pursuant to this Agreement shall include general
administrative services, regulatory reporting services, fund accounting
services, and such services as set forth herein. The duties of the
Sub-Administrator shall be confined to those expressly set forth herein and no
implied duties are assumed by or may be asserted against the Sub-Administrator
hereunder. Without limiting the generality of the foregoing, the
Sub-Administrator shall provide the services described below:
<PAGE>
1.1. General Administrative Services.
1.1.1. Office and Other Facilities. Furnish, without cost to
the Fund or the Administrator, or provide and pay the cost of, such office
facilities, furnishings, and office equipment as are necessary for the
performance of the Sub-Administrator's duties to the Fund under this Agreement.
1.1.2. Personnel. Provide, without additional remuneration
from or other cost to the Fund or the Administrator, the services of individuals
competent to perform all of the Sub-Administrator's duties under this Agreement.
1.1.3. Books and Records. Maintain customary records, on
behalf of the Fund, in connection with the performance of the
Sub-Administrator's duties under this Agreement. In connection with this, the
Sub-Administrator shall monitor and oversee the performance of its agents and
the Fund's independent auditors with respect to all financial, accounting,
corporate, and other records required to be maintained and preserved by the Fund
or on its behalf so that such records will be maintained in accordance with the
provisions of rules and regulations of the Securities and Exchange Commission
("SEC") under Section 31(a) of the 1940 Act.
1.1.4. Reports to the Fund. Assist the Administrator in
furnishing to or placing at the disposal of the Fund such information, reports,
evaluations, analyses, and opinions relating to its duties as the Fund may at
any time or from time to time reasonably request, or as the Administrator may
reasonably deem helpful to the Fund. The Sub-Administrator also shall assist the
Administrator in the preparation of all necessary agendas and related meeting
materials for meetings of the Board of Directors.
1.1.5. Shareholder Inquiries. Respond to all inquiries from
Fund shareholders or otherwise answer communications from Fund shareholders if
such inquiries or communications are directed to the Sub-Administrator. If any
such inquiry or communication would be more properly answered by one of its
agents or those agents of the Fund listed in Section 1 above, the
Sub-Administrator will refer the inquiry to the Administrator to direct to the
appropriate party for response.
1.1.6. Automated Fund Systems. Assist in implementing and
monitoring the Fund's use of automated systems for: (i) the purchase, sale,
redemption and transfer of Fund shares; (ii) the payment of Rule 12b-1 service
fees to broker-dealers and others that provide personal services, distribution
support services, and/or account maintenance services to shareholders; and (iii)
the recording and tracking of such transactions and/or payments. The
Sub-Administrator also shall assist in developing, implementing, and monitoring
the Fund's use of automated communications systems with brokers, dealers,
custodians, and other service providers, including without limitation trade
clearance systems.
-2-
<PAGE>
1.2. Fund Accounting. The Sub-Administrator shall on a continuing
basis perform the fund accounting services and other functions described below.
1.2.1. Financial Statements. Maintain the Fund's general
ledger, including expense accruals and payments, and prepare the Fund's and each
Portfolio's annual and semi-annual financial statements. On a monthly basis,
with respect to each Portfolio, the Sub-Administrator shall prepare and provide
to the Administrator and the Fund monthly reports as mutually agreed to by the
parties (in U.S. dollars) which may include the following items: schedule of
investments; statement of assets and liabilities; statement of operations;
statement of changes in net assets; cash statement; and schedule of capital
gains and losses.
1.2.2. Oversight. Assist in developing, reviewing,
maintaining, and monitoring the effectiveness of Fund accounting policies and
procedures, in light of industry standards and the "Audits of Investment
Companies" of the American Institute of Certified Public Accountants and, in
this regard, devote particular attention to areas where accounting standards may
change or develop. In this capacity, the Sub-Administrator shall assist in the
resolution of recommendations made by the Fund's independent auditors to improve
internal controls and shall implement such recommendations as required by the
Board.
1.2.3. Portfolio Valuation and Accounting. Conduct, or monitor
and oversee, portfolio valuation procedures, including without limitation
procedures for the calculation of expenses and the control of disbursements of
each Portfolio. The Sub-Administrator shall calculate, or monitor and oversee
the calculation of, the daily net asset value ("NAV") of each Portfolio in
accordance with the procedures described in the Fund's then-current registration
statement and such other procedures as may be established by the Fund's Board of
Directors. The Sub-Administrator, on a daily basis, shall provide by electronic
transmission or other mutually agreed upon means, such NAV information to: (i)
the investment adviser and sub-adviser for each Portfolio; (ii) the NASD for
reporting to newspapers and other news media; and (iii) all sub-transfer agents
that have entered into agreements with the Fund. In connection with this
responsibility, the Sub-Administrator shall determine or oversee the
determination of the value of each Portfolio's assets, and shall review and
monitor pricing methodologies relating to such valuation, procedures, including:
(i) oversight of any third-party pricing services used by them; (ii)
establishment and maintenance of appropriate "back up" pricing service
arrangements so that the NAV for each Portfolio will be provided to each
required party specified above; (iii) assistance in the review and verification
of daily securities price changes in excess of percentages specified by the
Sub-Administrator (and promptly reported to the Administrator); (iv) review for
"stale" prices; and (v) assistance in determining the resolution of any NAV
calculation errors. Notwithstanding the foregoing, the Sub-Administrator shall
bear no responsibility for incorrect prices provided by a third party pricing
service, provided the Sub-Administrator fulfills its obligation as described
above.
The Sub-Administrator shall also prepare annual Fund and/or Portfolio
expense budgets and the determination of related daily accruals. In addition,
the Sub-Administrator shall: determine the Fund's and each Portfolio's net
income both in terms of U.S. dollars and, if appropriate, foreign currencies;
calculate capital gains and losses and, if appropriate, foreign
-3-
<PAGE>
exchange gains and losses; control all disbursements from the Fund and authorize
such disbursements upon written instructions, which may be continuing
instructions, from the Administrator or such other persons authorized by the
Fund's Board of Directors; calculate various contractual expenses for budget and
accrual purposes; reconcile cash and investment balances of each Portfolio with
the Fund's custodian and provide each Portfolio's investment adviser or, if
applicable, sub-adviser with the beginning cash balance available for investment
purposes in both U.S. dollars and, if appropriate, foreign currency; and
maintain historical tax lots for each security and foreign currency. The
Sub-Administrator shall also for each Portfolio: monitor timely income
collection and tax reclaims; monitor daily expense accruals and the related
calculation of investment advisory fee waivers and/or expense reimbursements (if
any) and notify the Administrator of any proposed adjustments thereto; and
assist in developing and reviewing daily accounting reports for the Portfolios.
1.2.4. Performance Data. Calculate performance data of each
Portfolio for dissemination to information services covering the investment
company industry, including, as appropriate, each Portfolio's average annual
total return, cumulative total return, expense ratio, and portfolio turnover
rate. In connection with this function, the Sub-Administrator shall, as
reasonably requested by the Fund's Board of Directors, develop fund performance
and other databases to facilitate internal and external reporting and shall
monitor the calculation of financial information.
1.2.5. Fund Operations. Participate, as reasonably requested,
in the development of policies and procedures, including operational,
accounting, reporting, and monitoring procedures, to effectuate securities and
other transactions on behalf of the Fund and the Portfolios, including, stated
objectives as appropriate, securities lending programs, the establishment and
use of lines of credit on behalf of the Fund and/or inter-Portfolio lending
capabilities, and the establishment and use of inter-Portfolio securities
trading capabilities. In connection with the foregoing, the Sub-Administrator
shall, upon reasonable request, assist in the preparation of any application for
exemptive or no-action relief, if required.
1.2.6. Cash Balances. Participate, as reasonably requested, in
the development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, regarding the management of the
Portfolios' cash balances, including procedures regarding the use of "sweep"
transactions and repurchase agreements, the temporary reinvestment of credits to
cash balances, and the processing of dividends and other disbursements to the
Portfolios. In connection with the foregoing, the Sub-Administrator shall assist
in the preparation of any application for exemptive or no-action relief, if
required. The Sub-Administrator shall also provide the cash availability
throughout each day, as required by each Portfolio's investment adviser or, if
applicable, sub-adviser.
1.3. Oversight of Agents and Service Providers.
1.3.1. In General. Assist the Administrator and Fund counsel
in the preparation, negotiation, and administration of contracts on behalf of
the Fund with third-party service providers, such as the Fund's distributor,
custodian, transfer agent, sub-transfer agents,
-4-
<PAGE>
and intermediaries with respect to mutual fund alliance programs. At the
reasonable request of the Fund or the Administrator, the Sub-Administrator shall
assist in the preparation of reports to the Fund on the performance and service
quality of these service providers, as more fully described in Section 1.3.2.
below. The Sub-Administrator shall review the performance of each Portfolio's
custodian or custodians regarding the timely recording of cash receipts and
disbursements and position reconciliation and shall periodically report to the
Administrator its findings in that regard, as mutually agreed to by the parties.
The Sub-Administrator shall also monitor and review compliance as documented and
reported by each Portfolio's custodian or custodians with Rule 17f-5 under the
1940 Act, as applicable. The Sub-Administrator shall have no responsibility for
supervising the performance of investment adviser or sub-adviser for each
Portfolio.
1.3.2. Service Quality Standards. Assist the Administrator in
establishing service quality standards and developing and implementing
procedures for monitoring and benchmarking the performance of third-party
service providers, such as those specified in Section 1.3.1. above, against
industry standards. Upon reasonable request, the Sub-Administrator shall
provide the Administrator and the Fund's Board of Directors with periodic
reports concerning the results of monitoring of the performance and service
quality of these service quality of these service providers.
1.4. Oversight of Transfer Agent and Dividend Disbursing Agent.
1.4.1. Policies and Procedures. Assist the Administrator in
the development of policies and procedures concerning the transfer agent's
processing of shareholder transactions, including policies and procedures
concerning inactive or dormant accounts and compliance with related escheatment
requirements, telephone exchanges and redemptions, effectuation of transactions
through the use of facsimile transmissions, name and address changes, and the
receipt and maintenance of appropriate legal documentation. The
Sub-Administrator also shall participate in the establishment of policies and
procedures for ensuring that shareholder redemption requests are timely honored,
even in periods of significant or unusual market activity. The Sub-Administrator
also shall assist in the development of controls over, and policies and
procedures governing, the Fund's cash remittance processing, and the processing
of dividend and distribution payments, check writing, wire redemptions and other
disbursements.
1.4.2. Compliance with Service Quality Standards. Assist the
Administrator in establishing service quality standards and developing and
implementing procedures for monitoring and benchmarking the transfer agent's
performance against industry standards in areas such as: compliance with initial
and subsequent investment minimums; accuracy of the establishment of new
accounts, including the establishment of shareholder privileges and dividend
reinvestment options; accuracy of transaction processing, including monetary and
non-monetary transactions; timeliness of problem resolution and correspondence,
including review of shareholder complaints; compliance with document completion
and retention requirements; timeliness and accuracy of confirmations and
periodic shareholder statements; and quality of telephonic communications with
shareholders, including a review of abandon rates, response times, and average
talk time. The Sub-Administrator also shall review and participate in
-5-
<PAGE>
determinations concerning the resolution of "as of" transactions in accordance
with the Fund's policies as approved by the Administrator and the Board of
Directors of the Fund.
1.4.3. Oversight of Shareholder Transactions. Assist the Fund,
as requested, in developing and implementing procedures with respect to omnibus
accounts, in order to ensure that such accounts are properly serviced and that
Fund expenses are allocated appropriately.
1.4.4. Transfer Agent Expenses. Assist the Administrator, as
requested, in reviewing the level and allocation of transfer agent out-of-pocket
expenses charged to the Fund with respect to whether particular expenses are
appropriately charged to the Fund and appropriately allocated among the
Portfolios.
1.5. Reports, Filings, and Communications.
1.5.1. Reports and Filings. Assist in the development,
preparation, and filing of all reports and communications by the Fund to Fund
shareholders and all reports and filings necessary to maintain the registrations
and qualifications of the Fund's shares under federal and state "Blue Sky"
securities laws, including registration statements, prospectuses, statements of
additional information, proxy statements, semi-annual reports for the Fund on
Form N-SAR, all sales reports, and all required notices pursuant to Rule 24f-2
of the 1940 Act. The Sub-Administrator also shall assist with and coordinate
the layout and printing of publicly disseminated prospectuses and the Fund's
semi-annual and annual reports to shareholders.
1.5.2. State Blue Sky Filings. Prepare all reports,
applications, and documents (including reports regarding the sale and redemption
of the Fund's shares as may be required in order to comply with state Blue Sky
securities laws) as may be necessary or desirable to: (i) register and maintain
the registration of the Fund's shares with state securities authorities; and
(ii) monitor the sale of the Fund's shares for compliance with state Blue Sky
securities laws. The Sub-Administrator shall file with the appropriate state
securities authorities all registration statements and reports for the Fund and
the Fund's shares, and all amendments thereto and other filings as may be
necessary or convenient to register the Fund and the Fund's shares and keep such
registration effective with state security authorities so as to enable the Fund
to make a continuous offering of its shares in all 50 states and the District of
Columbia.
1.5.3. Shareholder Communications. Coordinate mailing Fund
prospectuses, notices, proxy statements, proxies and other reports to Fund
shareholders, and supervise and facilitate the solicitation of proxies solicited
by the Fund for all shareholder meetings, including tabulation process for
shareholder meetings.
1.5.4. Tax Returns. Coordinate and supervise the preparation
and filing of all required tax returns for the Fund and monitor the accuracy of
all tax reports sent to shareholders of the Fund.
-6-
<PAGE>
1.6. Legal and Audit Services.
1.6.1. Independent Audits. Assist in the coordination of the
Fund audit process and provide, upon request, account analyses, fiscal year
summaries, and other audit-related schedules. In connection with this
responsibility, the Sub-Administrator shall take all actions to assure that
necessary information is made available to the Fund's independent auditor for
the expression of their opinion, as such may be required by the Fund from time
to time. The Sub-Administrator also shall assist and participate in the
resolution of issues raised in the audit process.
1.6.2. 1940 Act. The Sub-Administrator shall obtain and keep
in effect, at the Fund's expense, fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund in accordance with
the requirements of Rules 17g-1 and 17d-1(d)(7) under the 1940 Act, as such
bonds and policies are approved by the Fund's Board of Directors. The Sub-
Administrator also shall develop and maintain fund manager "handbooks" to
facilitate compliance by portfolio managers with respect to investment
restrictions. In addition, the Sub-Administrator shall assist the Fund's
Administrator in monitoring the Fund's compliance with provisions of the 1940
Act and the rules and regulations thereunder as well as compliance with each
Portfolio's investment objectives, program, policies and restrictions. In
connection with this responsibility, the Sub-Administrator shall promptly advise
the Fund and the Administrator as to any compliance problems or issues detected.
1.6.3. Tax Compliance. Monitor compliance with the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, applicable to regulated investment companies, including:
portfolio diversification requirements and minimum distribution requirements;
review of expense allocations to individual classes to ensure compliance with
applicable IRS pronouncements regarding preferential dividends; wash sales;
short-short income; qualifying income; asset diversification; and investments in
Passive Foreign Investment Companies. In connection with this responsibility,
the Sub-Administrator shall monitor and advise the Fund and the Portfolios as to
their status as "regulated investment companies" under the Code.
1.6.4. Regulatory Examinations. Assist in the Fund's
participation in regulatory examinations, including examinations by the SEC, the
National Association of Securities Dealers, Inc., and/or state securities
regulators. In connection therewith, the Sub-Administrator, on behalf of the
Fund, shall provide such information as the regulator may reasonably request,
and shall assist and participate in the resolution of any issues raised in
connection with such examinations.
1.7. Disaster Recovery. Employ, monitor and oversee disaster recovery
and related back-up procedures and facilities commonly utilized by others in the
mutual fund industry. In this regard, the Sub-Administrator shall enter into and
maintain in effect with appropriate parties, at no additional expense to the
Fund, one or more agreements making appropriate and reasonable provision for
emergency use of electronic data processing equipment and other
-7-
<PAGE>
equipment and/or facilities necessary for the performance of its duties and
obligations under this Agreement in the event of emergency conditions or
equipment failures.
2. Expenses.
2.1. Expenses Paid by the Sub-Administrator.
2.1.1. In General. The Sub-Administrator shall bear all of its
expenses in connection with the performance of its duties under this Agreement,
except documented out-of-pocket expenses or expenses associated with telephone
support relating to shareholder services.
2.1.2. Waiver or Assumption and Reimbursement of Fund Expenses
by the Sub-Administrator. The waiver or assumption and reimbursement by the
Sub-Administrator of any expense of the Fund that the Sub-Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not obligate
the Sub-Administrator to waive, assume, or reimburse the same or any similar
expense of the Fund on any subsequent occasion, unless so required pursuant to a
separate agreement between the Fund and the Sub-Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator or the Sub-Administrator, as provided in
this Agreement, the Administrative Services Agreement or any other agreement
between the Fund and the Administrator or the Sub-Administrator, and as
described in the Fund's then-current Prospectuses and Statements of Additional
Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Sub-Administrator, the Administrator shall pay the
Sub-Administrator a fee per Portfolio: (i) at the annual rate of .07% of the
average daily assets of each Portfolio with respect to $2.5 billion of the total
average daily net assets of the Fund; and (ii) at the annual rate of .025% of
the average daily net assets of each Portfolios with respect to the total
average daily net assets of the Fund in excess of $2.5 billion.
3.2. Method of Computation. The Sub-Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Sub-Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the applicable annual
rates described in Section 3.1. above, and multiplying this product by the net
assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
-8-
<PAGE>
3.3. Proration of Fee. If this Agreement becomes effective or
terminates before the end of any month, the fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
3.4. Responsibility for Payment. The Sub-Administrator shall not be
entitled to receive any payment for the performance of its services hereunder
from the Fund and shall look solely and exclusively to the Administrator for
payment of all fees for such services.
4. Sub-Administrator's Use of the Services of Others.
The Sub-Administrator may at its own cost employ, retain, or otherwise
avail itself of the services and facilities of other persons or organizations
for the purpose of providing the Sub-Administrator, the Administrator, or the
Fund with such information or assistance as the Sub-Administrator may deem
necessary, appropriate, or convenient for the discharge of its duties hereunder
or otherwise helpful to the Administrator.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund,
pursuant to rules or regulations of the SEC under Section 31(a) of the 1940 Act
and maintained and preserved by the Sub-Administrator on behalf of the Fund, are
the property of the Fund and shall be surrendered by the Sub-Administrator
promptly on request by the Fund. The Sub-Administrator shall not disclose or use
any record or information obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized by this Agreement and applicable law.
The Sub-Administrator shall keep confidential any information obtained in
connection with its duties and shall disclose such information only if the Fund
has authorized such disclosure or if such disclosure is expressly required by
applicable law or federal or state regulatory authorities.
6. Reports to the Sub-Administrator.
The Fund and/or the Administrator shall furnish or otherwise make
available to the Sub-Administrator such Prospectuses, Statements of Additional
Information, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the
Sub-Administrator may, at any time or from time to time, require in order to
discharge its duties under this Agreement.
-9-
<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the
Sub-Administrator or any affiliated person of the Sub-Administrator to render
similar corporate administrative services to other investment companies, or to
engage in other business activities.
8. Limitation of Liability of the Sub-Administrator and Indemnification by
the Fund and the Administrator.
8.1. Limitation of Liability of the Sub-Administrator.
8.1.1. Neither the Sub-Administrator nor any of its directors,
officers, employees, or agents performing services for the Fund and the
Administrator at the direction or request of the Sub-Administrator in connection
with the Sub-Administrator's discharge of its duties undertaken or assumed with
respect to this Agreement, shall be liable for any act or omission in the course
of or in connection with the Sub-Administrator's services hereunder, including
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Administrator in connection with the matters to which this Agreement
relates; provided, that nothing herein contained shall be construed to protect
the Sub-Administrator or any such persons against any liability to the Fund or
its shareholders or the Administrator to which the Sub- Administrator or such
persons would otherwise be subject by reason of willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of the Fund or
the Administrator or for failure by the Sub-Administrator or any such persons to
exercise due care in rendering other services to the Fund or the Administrator.
The limitation and liability provisions set forth herein shall indefinitely
survive the termination of this Agreement.
8.1.2. The Sub-Administrator may apply to the Board of
Directors of the Fund or to the Administrator at any time for instructions and
may consult counsel for the Fund or the Administrator or the Sub-Administrator's
own counsel and with accountants and other experts with respect to any matter
arising in connection with the Sub-Administrator's duties, and the
Sub-Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instructions or with the
opinion of such counsel, accountants, or other experts.
8.1.3. The Sub-Administrator shall at all times have the right
to mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments, expenses and liabilities to the Fund, its shareholders
or the Administrator.
8.2. Indemnification by the Fund and the Administrator.
8.2.1. As long as the Sub-Administrator acts in good faith and
with due diligence and without negligence, the Fund and the Administrator shall
indemnify the Sub-Administrator, its directors, officers, employees, and agents
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and
-10-
<PAGE>
all losses, damages (excluding consequential, punitive or other indirect
damages), costs, charges, reasonable counsel fees and disbursements, payments,
expenses, and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of the administrative services or any other service
rendered to the Fund or the Administrator hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
8.2.2. The rights hereunder shall include the right to
reasonable advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification hereunder may
ultimately be merited. In order that the indemnification provision contained
herein shall apply, however, it is understood that if in any case the Fund or
the Administrator may be asked for indemnification under Section 8.2.1., the
Board of Directors of the Fund or the Administrator shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Sub-Administrator will use all reasonable care to
identify and notify the Board of Directors of the Fund or the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund or the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder. The rights hereunder shall be limited, during each term of this
Agreement, to no more than six (6) months of fees of the Sub-Administrator (as
computed in accordance with Section 3.1 of this Agreement) either (i) payable to
the Sub-Administrator in accordance with Section 3 hereof or (ii) if the
Agreement has been terminated, those fees paid to the Sub-Administrator for the
six (6) month period prior to termination.
9. Indemnification by the Sub-Administrator.
9.1. The Sub-Administrator shall indemnify the Fund, the Administrator,
and their directors, officers, employees, and agents and hold them harmless from
and against any and all actions, suits, and claims, whether groundless or
otherwise, and from and against any and all losses, damages (excluding
consequential, punitive or other indirect damages), costs, charges, reasonable
counsel fees and disbursements, payments, expenses, and liabilities (including
reasonable investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund and the
Administrator hereunder and arising or based upon the willful misfeasance or bad
faith of the Sub-Administrator, its directors, officers, employees, and agents
in the performance of its or their duties on behalf of the Fund and the
Administrator. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Sub-Administrator may
be asked for indemnification under Section 9.1, the Sub-Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund and the Administrator will
use all reasonable care to identify
-11-
<PAGE>
and notify the Sub-Administrator promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Sub-Administrator, but failure to do so in good
faith shall not affect the rights hereunder. The rights hereunder shall be
limited, during each term of this Agreement, to no more than six (6) months of
fees to the Sub-Administrator (as computed in accordance with Section 3.1 of
this Agreement) either (i) payable to the Sub-Administrator in accordance with
Section 3 hereof or (ii) if the Agreement has been terminated, those fees paid
to the Sub-Administrator for the six (6) month period prior to termination.
10. Force Majeure.
In the event the Sub-Administrator is unable to perform its obligations
or duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Sub-Administrator shall not be liable for
any loss, damage, cost, charge, counsel fee, payment, expense or liability to
any other party (whether or not a party to this Agreement) resulting from such
failure to perform its obligations or duties under this Agreement or otherwise
from such causes. This provision, however, shall in no way excuse the
Sub-Administrator from being liable to the Administrator or the Fund for any and
all losses, damages, costs, charges, counsel fees, payments and expenses
incurred by the Administrator or the Fund due to the non-performance or delay in
performance by the Sub-Administrator of its duties and obligation under this
Agreement if such non-performance or delay in performance could have been
reasonably been prevented by the Sub-Administrator through back-up systems and
other procedures commonly employed by other administrators and
sub-administrators in the mutual fund industry, provided that the
Sub-Administrator shall have the right, at all times, to mitigate or cure any
losses, including the making of adjustments or corrections to any current or
former shareholder accounts.
11. Term of Agreement.
The term of this Agreement shall begin on the day and year first
written above, and unless sooner terminated as hereinafter provided, shall
continue in effect for an initial period that will expire on December 31, 1998.
Thereafter, this Agreement shall continue in effect from year to year, subject
to the termination provisions and all other terms and conditions hereof. The
Sub-Administrator shall furnish to the Fund or the Administrator, promptly upon
a request by the Fund or the Administrator, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal, or amendment thereof.
-12-
<PAGE>
12. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by a resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of such Portfolio.
The assignment (as that term is defined in Section 2(a)(4) of the 1940
Act and rules thereunder) of this Agreement or any rights or obligations
thereunder shall be prohibited by either party without the written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30)
days prior written notice to the breaching party; provided
that the breaching party has not cured the material breach of
this Agreement during such thirty (30) day period.
(b) following the initial term of this Agreement, for any
reason upon ninety (90) days' prior written notice to the
other parties; provided, that in the case of termination by
the Fund such action shall have been authorized by resolution
of the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund or,
in the case of termination with respect to a particular
Portfolio, by a resolution of the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting
securities of such Portfolio. In the case of termination by
the Sub-Administrator, such termination shall not be effective
until the Fund and the Administrator shall have contracted
with one or more persons to serve as successor
Sub-Administrator(s) for the Fund and such person(s) shall
have assumed such position.
-13-
<PAGE>
14. Miscellaneous.
14.1. Notices. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid: (a) if to the
Sub-Administrator, to SEI Fund Resources, 680 East Swedesford Road, Wayne, PA
19087-1658, Attention: General Counsel; (b) if to the Administrator, to Pilgrim
Baxter Fund Services, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590,
Attention: Brian Bereznak; and (c) if to the Fund, to The PBHG Funds, Inc., 1255
Drummers Lane, Suite 300, Wayne, PA 19087-1590, Attention: Michael Harrington.
14.2. Captions. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.3. Interpretation. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
14.4. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation, or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation, or order.
14.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
14.6. Governing Law. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
/s/
- ----------------------------------- By: /s/
------------------------------------
Title: Title:
------------------------------ --------------------------------
ATTEST: PBHG FUND SERVICES
/s/
- ------------------------------------ By: /s/
-----------------------------------
Title: Title:
------------------------------ --------------------------------
ATTEST: SEI FUND RESOURCES
/s/
- ------------------------------------ By: /s/
-----------------------------------
Title: Title:
------------------------------ --------------------------------
-15-
<PAGE>
SCHEDULE A
The Portfolios of the Fund that will receive services pursuant to this Agreement
are:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Core Growth Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
-16-
<PAGE>
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April 1, 1997
ATTEST: THE PBHG FUNDS, INC.
/s/
- ----------------------------------- By: /s/
------------------------------------
Title: Title:
------------------------------ --------------------------------
ATTEST: PBHG FUND SERVICES
/s/
- ------------------------------------ By: /s/
-----------------------------------
Title: Title:
------------------------------ --------------------------------
ATTEST: SEI FUND RESOURCES
/s/
- ------------------------------------ By: /s/
-----------------------------------
Title: Title:
------------------------------ --------------------------------
-17-
EXHIBIT 9(d)(6)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of March 6, 1997, by and between
Pilgrim Baxter & Associates, Ltd. ("Adviser) and The PBHG Funds, Inc. (the
"Fund"), on behalf of the PBHG International Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 2.25% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized
<PAGE>
Portfolio Operating Expenses to an amount no higher than the Operating Expense
Limit. If the amount of the waived or reduced investment advisory fee for any
such month is insufficient to pay the Excess Amount, the Adviser may also remit
to the Portfolio an amount that, together with the waived or reduced advisory
fee, is sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Agreement is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG INTERNATIONAL FUND
/s/ By: /s/
- ---------------------------------- --------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- ---------------------------------- --------------------------------
Secretary
4
EXHIBIT 9(d)(7)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of April 1, 1997, by and between
Pilgrim Baxter & Associates, Ltd. and The PBHG Funds, Inc. (the "Fund"), on
behalf of the PBHG Mid-Cap Value Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to the Portfolio for compensation based on the
value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of the Portfolio and its shareholders to maintain the
expenses of the Portfolio at a level below the level to which the Portfolio
would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of
every character incurred by the Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year shall
be 1.50% of the average daily net assets of the Portfolio, or such other rate as
may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
1
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets are
greater than $75 million and in which the Advisory Agreement is still in effect,
the estimated aggregate Portfolio Operating Expenses for the fiscal year are
less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio and its shareholders. The Fund's Board of Directors shall
determine quarterly in advance whether any reimbursement may be paid to the
Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month are less than the
Operating Expense Limit, the Portfolio, only with the prior approval of the
Board, shall pay to the Adviser an amount sufficient to increase the annualized
Portfolio Operating Expenses to an amount no greater than the Operating Expense
Limit, provided that such amount paid to the Adviser will in no event exceed the
total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses for the
prior fiscal year (including any reimbursement
2
<PAGE>
payments hereunder with respect to such fiscal year) do not exceed the Operating
Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the Act, and (ii) have no direct or indirect financial interest in
the operation of this Agreement ("Non-Interested Directors"). Nevertheless, this
Agreement may be terminated by either party hereto, without payment of any
penalty, upon 90 days' prior written notice to the other party at its principal
place of business; provided that, in the case of termination by the Fund, such
action shall be authorized by resolution of a majority of the Non-Interested
Directors of the Fund or by a vote of a majority of the outstanding voting
securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require the
Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or provision of
this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG MID CAP VALUE FUND
/s/ By: /s/
- ----------------------------- ------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- ----------------------------- ------------------------------
Secretary
4
EXHIBIT 9(d)(8)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGR
EMENT
EXPENSE LIMITATION AGREEMENT, effective as of April 1, 1997, by and
between Pilgrim Baxter & Associates, Ltd. and The PBHG Funds, Inc. (the "Fund"),
on behalf of the PBHG Small Cap Value Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses for the
prior fiscal year (including any reimbursement
2
<PAGE>
payments hereunder with respect to such fiscal year) do not exceed the Operating
Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG SMALL CAP VALUE FUND
/s/
__________________________________ By: /s/
Secretary __________________________________
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/
__________________________________ By: /s/
Secretary ___________________________________
4
EXHIBIT 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to all references to our
firm included in Post-Effective Amendment No. 30 to the Registration Statement
on Form N-1A of The PBHG Funds, Inc. (File No. 2-99810).
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
May 15, 1997
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective
Amendment No. 30 to the Registration Statement under the Securities Act of 1933
on Form N-1A (File No. 2-99810) of our report dated April 23, 1997 on our audit
of the financial statements and financial highlights of The PBHG Funds, Inc. in
the Statement of Additional Information. We also consent to the reference to our
Firm under the headings "Financial Highlights" and "Counsel and Independent
Accountants" in the Prospectus and under the heading "Experts" in the Statement
of Additional Information.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 16, 1997
PBHG FUNDS
This schedule is included to illustrate how yield* and total return are
calculated.
Yield = 2 ( (a-b) +1 / 6 / -1)
cd
PBHG LARGE-CAP
VALUE FUND
a = Total Income $ 54,334.25
b = Expenses $ 29,360.77
c = Shares 2,284,251.525
d = NAV $ 10.30
Yield 1.28%
* Funds with positive yields are reflected.
<PAGE>
PBHG FUNDS
March 31, 1997
for year ended March 31, 1997:
Total Return: P (1+T) / n / = ERV
<TABLE>
<CAPTION>
PBHG EMERGING PBHG PBHG PBHG LARGE CAP PBHG SELECT PBHG TECH & PBHG CORE
GROWTH FUND GROWTH FUND INTERNATIONAL FUND GROWTH FUND EQUITY FUND COMM FUND GROWTH FUND
----------- ----------- ------------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000 1,000 1,000
n = 1 1 1 1 1 1 1
ERV = 862.88 832.41 1,067.30 982.33 930.56 1,195.85 874.79
T = -13.71% -16.76% 6.73% -1.77% -6.94% 19.59% -12.52%
Total Return: P (1+T) / n / = ERV Total Return: P (1+T) / n / = ERV
For five years ended March 31, 1997: For ten years ended March 31, 1997:
</TABLE>
<TABLE>
<CAPTION>
PBHG PBHG
GROWTH FUND GROWTH FUND
----------- -----------
<S> <C> <C> <C>
P = 1,000 P = 1,000
n = 5 n = 10
ERV = 2,652.06 ERV = 4,052.86
T = 21.54% T = 15.02%
</TABLE>
Total Return: P (1+T) / n / = ERV
Since Inception:
<TABLE>
<CAPTION>
PBHG EMERGING PBHG PBHG PBHG LARGE CAP PBHG SELECT PBHG TECH & PBHG CORE
GROWTH FUND GROWTH FUND INTERNATIONAL FUND GROWTH FUND EQUITY FUND COMM FUND GROWTH FUND
----------- ----------- ------------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000 1,000 1,000 1,000
n = 3.79178 11.27945 2.79452 1.9863 1.9863 2.49315 1.24110
ERV = 2,267.20 6,837.46 1,130.56 1,472.74 1,646.13 1,492.68 1,034.00
T = 24.08% 18.58% 4.49% 21.49% 28.48% 30.52% 2.70%
</TABLE>
<TABLE>
<CAPTION>
PBHG LIMITED PBHG LARGE CAP PBHG STRATEGIC SMALL PBHG LARGE CAP
FUND* 20 FUND* COMPANY FUND* VALUE FUND*
------------ -------------- ------------------- --------------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 0.75068 0.33151 0.24658 0.24658
ERV = 908.46 926.02 886.00 1,011.00
T = -9.15% -7.40% -11.40% 1.10%
</TABLE>
* - Total return since inception is not annualized
<PAGE>
PBHG FUNDS
March 31, 1997
for seven days ended March 31, 1997:
Effective Yield = ( ( Base period Return + 1 ) 365 / 7 ) - 1
PBHG CASH
RESERVE
Effective Yield = 4.99%
Base Period
Return = 0.000934261
EXHIBIT 18
THE PBHG FUNDS, INC.
Rule 18f-3
Multiple Class Plan
(the "Plan")
November 25, 1995
The PBHG Funds, Inc. (the "Fund"), a registered investment company that
currently consists of the separately managed portfolios listed in Schedule A
hereto (each, a "Portfolio" and, collectively, the "Portfolios"), have elected
to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), in offering multiple classes of shares in each Portfolio.
A. Attributes of Share Classes
1. The rights of each class of the Portfolios shall be as set forth in the
respective Certificate of Class Designation for each Class (each a
"Certificate") as each such Certificate is approved by the Fund's Board of
Directors and as attached as Schedule B hereto.
2. With respect to each class of shares created hereunder, each share of a
Portfolio will represent an equal pro rata interest in the Portfolio and will
have identical terms and conditions, except that: (i) each new class will have a
different class name (or other designation) that identifies the class as
separate from any other class; (ii) each class will separately bear any
shareholder servicing fees ("Rule 12b-1 fees") in connection with a plan adopted
pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan") and will
separately bear any other service fees ("service fees") that are made under any
servicing agreement entered into with respect to that class, which are not
contemplated by or within the scope of the Rule 12b-1 Plan; (iii) each class may
bear, consistent with rulings and other published statements of position by the
Internal Revenue Service, the expenses of the Portfolio's operations which are
directly attributable to such class ("Class Expenses"); and (iv) shareholders of
the class will have exclusive voting rights regarding the Rule 12b-1 Plan and
the servicing agreements relating to such class, and will have separate voting
rights on any matter submitted to shareholders in which the interests of that
class differ from the interests of any other class.
B. Expense Allocations
Expenses of each class shall be allocated as follows: (i) any Rule
12b-1 fees relating to each class of shares associated with any Rule 12b-1 Plan
or any service fees relating to each class of shares are (or will be) borne
exclusively by that class; (ii) any incremental transfer agency fees relating to
a particular class are (or will be) borne exclusively by that class; and (iii)
Class Expenses relating to a particular class are (or will be) borne exclusively
by that class.
Non-class specific expenses shall be allocated in accordance with Rule
18f-3(c).
1
<PAGE>
C. Amendment of Plan; Periodic Review
This Plan must be amended to describe properly (through additional exhibits
hereto) each new class of shares, upon the approval of each new class by the
Board of Directors.
The Board of Directors of the Fund, including a majority of the independent
Directors, must periodically review this Plan for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Portfolio covered by the Plan.
-2-
<PAGE>
SCHEDULE A
THE PBHG FUNDS, INC.
Name of Portfolios
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April 23, 1997
A-1
<PAGE>
SCHEDULE B
THE PBHG FUNDS, INC.
CERTIFICATE OF CLASS DESIGNATION
PBHG Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
PBHG Class Shares are sold without a sales charge and are not subject to
any Rule 12b-1 fee or service fees.
2. Exchange Privileges.
PBHG Class Shares of each Portfolio may be exchanged for PBHG Class Shares
of each other Portfolio of the Fund. Shareholders are limited to four exchanges
into and out of the PBHG Cash Reserves Fund per year.
3. Voting Rights.
Each PBHG Class shareholder will have one vote for each full PBHG Class
Share held and a fractional vote for each fractional PBHG Class Share held. PBHG
Class shareholders will be entitled to vote on issues relating to PBHG Class
Rule 12b-1 expenses (including any Rule 12b-1 Plan), and on other matters
submitted to shareholders in which the interests of PBHG Class differ from the
interests on any other class.
4. Conversion Rights.
PBHG Class Shares do not have a conversion feature.
B-1
<PAGE>
THE PBHG FUNDS, INC.
CERTIFICATE OF CLASS DESIGNATION
Trust Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses
Trust Class Shares are sold without a sales charge, but are subject to a
Rule 12b-1 fee. This fee will be paid to compensate financial intermediaries,
plan fiduciaries and investment professionals ("Service Providers") at an annual
rate of up to .25% of each Fund's average daily net assets attributable to Trust
Class Shares as compensation for providing personal services, distribution
support services, and/or account maintenance services to shareholders or to the
underlying beneficial owners of Trust Class Shares or to insurance companies or
their affiliates for providing similar services for which they are not otherwise
compensated by variable annuity or variable life insurance contract holders. The
Fund, on behalf of the applicable Fund, will make monthly payments to Service
Providers under the Service Plan based on the average net asset value of Trust
Class Shares that are serviced or supported by such Service Providers.
2. Exchange Privileges.
Trust Class Shares of each Fund may be exchanged for Trust Class Shares of
each other Portfolio offering Trust Class Shares. Shareholders are limited to
four exchanges into and out of the PBHG Cash Reserves Fund per year.
3. Voting Rights.
Each Trust Class shareholder will have one vote for each full Trust Class
Share held and one fractional vote for each fractional Trust Class Share held.
Trust Class shareholders will be entitled to vote on issues relating to Trust
Class Rule 12b-1 fees (including any Rule 12b-1 plan), and on other matters
submitted to shareholders in which the interests of Trust Class differ from the
interests of any other class.
4. Conversion Rights.
Trust Class Shares do not have a conversion feature.
B-2
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 010
<NAME> GROWTH FUND PBHG CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 4529523
<INVESTMENTS-AT-VALUE> 4618634
<RECEIVABLES> 46804
<ASSETS-OTHER> 13873
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4679311
<PAYABLE-FOR-SECURITIES> 26404
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5778
<TOTAL-LIABILITIES> 32182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4854615
<SHARES-COMMON-STOCK> 220051
<SHARES-COMMON-PRIOR> 130418
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (312440)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89111
<NET-ASSETS> 4647129
<DIVIDEND-INCOME> 1659
<INTEREST-INCOME> 27130
<OTHER-INCOME> 0
<EXPENSES-NET> (64712)
<NET-INVESTMENT-INCOME> (35923)
<REALIZED-GAINS-CURRENT> (244650)
<APPREC-INCREASE-CURRENT> (840002)
<NET-CHANGE-FROM-OPS> (1120575)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5020812
<NUMBER-OF-SHARES-REDEEMED> (2567916)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2452896
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (67783)
<GROSS-ADVISORY-FEES> 44149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (64712)
<AVERAGE-NET-ASSETS> 5190456
<PER-SHARE-NAV-BEGIN> 25.30
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> (4.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.06
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 011
<NAME> GROWTH FUND TRUST CLASS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> AUG-19-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 4529523
<INVESTMENTS-AT-VALUE> 4618634
<RECEIVABLES> 46804
<ASSETS-OTHER> 13873
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4679311
<PAYABLE-FOR-SECURITIES> 26404
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5778
<TOTAL-LIABILITIES> 32182
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15843
<SHARES-COMMON-STOCK> 618
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (312440)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89111
<NET-ASSETS> 4647129
<DIVIDEND-INCOME> 1659
<INTEREST-INCOME> 27130
<OTHER-INCOME> 0
<EXPENSES-NET> (64712)
<NET-INVESTMENT-INCOME> (35923)
<REALIZED-GAINS-CURRENT> (244650)
<APPREC-INCREASE-CURRENT> (840002)
<NET-CHANGE-FROM-OPS> (1120575)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15962
<NUMBER-OF-SHARES-REDEEMED> (79)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15883
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (67783)
<GROSS-ADVISORY-FEES> 44149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (64712)
<AVERAGE-NET-ASSETS> 5782
<PER-SHARE-NAV-BEGIN> 25.42
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> (4.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.03
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC
<SERIES>
<NUMBER> 020
<NAME> EMERGING GROWTH FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1229211
<INVESTMENTS-AT-VALUE> 1189375
<RECEIVABLES> 17273
<ASSETS-OTHER> 21
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1206669
<PAYABLE-FOR-SECURITIES> 9522
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1527
<TOTAL-LIABILITIES> 11049
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1286560
<SHARES-COMMON-STOCK> 62077
<SHARES-COMMON-PRIOR> 29892
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (51104)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (39836)
<NET-ASSETS> 1195620
<DIVIDEND-INCOME> 251
<INTEREST-INCOME> 11384
<OTHER-INCOME> 0
<EXPENSES-NET> (16184)
<NET-INVESTMENT-INCOME> (4549)
<REALIZED-GAINS-CURRENT> (51106)
<APPREC-INCREASE-CURRENT> (232763)
<NET-CHANGE-FROM-OPS> (288418)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (49616)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1925528
<NUMBER-OF-SHARES-REDEEMED> (1128876)
<SHARES-REINVESTED> 47297
<NET-CHANGE-IN-ASSETS> 843949
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 49583
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10775
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (16184)
<AVERAGE-NET-ASSETS> 1267636
<PER-SHARE-NAV-BEGIN> 23.07
<PER-SHARE-NII> (.11)
<PER-SHARE-GAIN-APPREC> (2.87)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.26
<EXPENSE-RATIO> 1.28
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 030
<NAME> INTERNATIONAL EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 19887
<INVESTMENTS-AT-VALUE> 21556
<RECEIVABLES> 336
<ASSETS-OTHER> 65
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21957
<PAYABLE-FOR-SECURITIES> 108
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 584
<TOTAL-LIABILITIES> 692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19513
<SHARES-COMMON-STOCK> 1889
<SHARES-COMMON-PRIOR> 1602
<ACCUMULATED-NII-CURRENT> (45)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 128
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1669
<NET-ASSETS> 21265
<DIVIDEND-INCOME> 287
<INTEREST-INCOME> 50
<OTHER-INCOME> 0
<EXPENSES-NET> (394)
<NET-INVESTMENT-INCOME> (57)
<REALIZED-GAINS-CURRENT> 417
<APPREC-INCREASE-CURRENT> 779
<NET-CHANGE-FROM-OPS> 1139
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1327
<NUMBER-OF-SHARES-REDEEMED> (1931)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10022
<ACCUMULATED-NII-PRIOR> (29)
<ACCUMULATED-GAINS-PRIOR> (184)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (177)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (394)
<AVERAGE-NET-ASSETS> 17710
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .73
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> 2.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 040
<NAME> LARGE CAP GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 118975
<INVESTMENTS-AT-VALUE> 121092
<RECEIVABLES> 86
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121178
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1207
<TOTAL-LIABILITIES> 1207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123595
<SHARES-COMMON-STOCK> 8413
<SHARES-COMMON-PRIOR> 3701
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5741)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2117
<NET-ASSETS> 119971
<DIVIDEND-INCOME> 238
<INTEREST-INCOME> 706
<OTHER-INCOME> 0
<EXPENSES-NET> (1525)
<NET-INVESTMENT-INCOME> (581)
<REALIZED-GAINS-CURRENT> (5730)
<APPREC-INCREASE-CURRENT> (1449)
<NET-CHANGE-FROM-OPS> (7760)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (146)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 259520
<NUMBER-OF-SHARES-REDEEMED> (185537)
<SHARES-REINVESTED> 135
<NET-CHANGE-IN-ASSETS> 74118
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 931
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1525)
<AVERAGE-NET-ASSETS> 124086
<PER-SHARE-NAV-BEGIN> 14.53
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> (.21)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.26
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 050
<NAME> SELECT EQUITY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 384048
<INVESTMENTS-AT-VALUE> 372483
<RECEIVABLES> 365
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 372848
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 362
<TOTAL-LIABILITIES> 362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 417726
<SHARES-COMMON-STOCK> 23413
<SHARES-COMMON-PRIOR> 11746
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33675)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11565)
<NET-ASSETS> 372486
<DIVIDEND-INCOME> 101
<INTEREST-INCOME> 2310
<OTHER-INCOME> 0
<EXPENSES-NET> (6078)
<NET-INVESTMENT-INCOME> (3667)
<REALIZED-GAINS-CURRENT> (32999)
<APPREC-INCREASE-CURRENT> (31600)
<NET-CHANGE-FROM-OPS> (68266)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6009)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 828376
<NUMBER-OF-SHARES-REDEEMED> (590076)
<SHARES-REINVESTED> 5665
<NET-CHANGE-IN-ASSETS> 243965
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5331
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (6078)
<AVERAGE-NET-ASSETS> 482522
<PER-SHARE-NAV-BEGIN> 17.27
<PER-SHARE-NII> (.13)
<PER-SHARE-GAIN-APPREC> (1.03)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.20)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.91
<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 060
<NAME> CASH RESERVES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 341900
<INVESTMENTS-AT-VALUE> 341900
<RECEIVABLES> 440
<ASSETS-OTHER> 634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342974
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1398
<TOTAL-LIABILITIES> 1398
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 341577
<SHARES-COMMON-STOCK> 341577
<SHARES-COMMON-PRIOR> 99000
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 341576
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12387
<OTHER-INCOME> 0
<EXPENSES-NET> (1543)
<NET-INVESTMENT-INCOME> 10844
<REALIZED-GAINS-CURRENT> (2)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10842
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10844)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1393768
<NUMBER-OF-SHARES-REDEEMED> (1160133)
<SHARES-REINVESTED> 8942
<NET-CHANGE-IN-ASSETS> 242577
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 679
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (1543)
<AVERAGE-NET-ASSETS> 226322
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 070
<NAME> TECHNOLOGY & COMMUNICATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 544849
<INVESTMENTS-AT-VALUE> 492667
<RECEIVABLES> 1243
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 493917
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 761
<TOTAL-LIABILITIES> 761
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 539693
<SHARES-COMMON-STOCK> 33719
<SHARES-COMMON-PRIOR> 4952
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5645
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (52182)
<NET-ASSETS> 493156
<DIVIDEND-INCOME> 39
<INTEREST-INCOME> 2555
<OTHER-INCOME> 0
<EXPENSES-NET> (4641)
<NET-INVESTMENT-INCOME> (2047)
<REALIZED-GAINS-CURRENT> 18009
<APPREC-INCREASE-CURRENT> (56036)
<NET-CHANGE-FROM-OPS> (40074)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (10050)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1278462
<NUMBER-OF-SHARES-REDEEMED> (806167)
<SHARES-REINVESTED> 9213
<NET-CHANGE-IN-ASSETS> 481508
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (267)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2970
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (4641)
<AVERAGE-NET-ASSETS> 349250
<PER-SHARE-NAV-BEGIN> 12.48
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 2.55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.35)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.63
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 080
<NAME> CORE GROWTH
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 324336
<INVESTMENTS-AT-VALUE> 284608
<RECEIVABLES> 1335
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 285943
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1948
<TOTAL-LIABILITIES> 1948
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 373211
<SHARES-COMMON-STOCK> 27454
<SHARES-COMMON-PRIOR> 2631
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49488)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (39728)
<NET-ASSETS> 283995
<DIVIDEND-INCOME> 188
<INTEREST-INCOME> 1839
<OTHER-INCOME> 0
<EXPENSES-NET> (4625)
<NET-INVESTMENT-INCOME> (2598)
<REALIZED-GAINS-CURRENT> (49445)
<APPREC-INCREASE-CURRENT> (41122)
<NET-CHANGE-FROM-OPS> (93165)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 804054
<NUMBER-OF-SHARES-REDEEMED> (457986)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 346068
<ACCUMULATED-NII-PRIOR> (5)
<ACCUMULATED-GAINS-PRIOR> (43)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2918
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (4625)
<AVERAGE-NET-ASSETS> 339346
<PER-SHARE-NAV-BEGIN> 11.82
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> (1.39)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 090
<NAME> LIMITED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 149415
<INVESTMENTS-AT-VALUE> 136388
<RECEIVABLES> 1633
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 138021
<PAYABLE-FOR-SECURITIES> 220
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 281
<TOTAL-LIABILITIES> 501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 150191
<SHARES-COMMON-STOCK> 15195
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 356
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (13027)
<NET-ASSETS> 137520
<DIVIDEND-INCOME> 24
<INTEREST-INCOME> 2445
<OTHER-INCOME> 0
<EXPENSES-NET> (2005)
<NET-INVESTMENT-INCOME> 464
<REALIZED-GAINS-CURRENT> 641
<APPREC-INCREASE-CURRENT> (13027)
<NET-CHANGE-FROM-OPS> 11922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 464
<DISTRIBUTIONS-OF-GAINS> 285
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 198852
<NUMBER-OF-SHARES-REDEEMED> (49381)
<SHARES-REINVESTED> 720
<NET-CHANGE-IN-ASSETS> 150191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1416
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (2005)
<AVERAGE-NET-ASSETS> 189310
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> (.93)
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.05
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 100
<NAME> LARGE CAP 20
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> DEC-02-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 77118
<INVESTMENTS-AT-VALUE> 72282
<RECEIVABLES> 76
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72358
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2539
<TOTAL-LIABILITIES> 2539
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77211
<SHARES-COMMON-STOCK> 7548
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (17)
<ACCUMULATED-NET-GAINS> (2539)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4836)
<NET-ASSETS> 69819
<DIVIDEND-INCOME> 38
<INTEREST-INCOME> 322
<OTHER-INCOME> 0
<EXPENSES-NET> (324)
<NET-INVESTMENT-INCOME> 36
<REALIZED-GAINS-CURRENT> (2539)
<APPREC-INCREASE-CURRENT> (4836)
<NET-CHANGE-FROM-OPS> (7339)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (53)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 109566
<NUMBER-OF-SHARES-REDEEMED> (32405)
<SHARES-REINVESTED> 50
<NET-CHANGE-IN-ASSETS> 77211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 184
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (324)
<AVERAGE-NET-ASSETS> 66156
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> (.73)
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.25
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 110
<NAME> STRATEGIC SMALL COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 66627
<INVESTMENTS-AT-VALUE> 60357
<RECEIVABLES> 1665
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 62022
<PAYABLE-FOR-SECURITIES> 561
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 79
<TOTAL-LIABILITIES> 640
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69672
<SHARES-COMMON-STOCK> 6925
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 28
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2048)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6270)
<NET-ASSETS> 61382
<DIVIDEND-INCOME> 98
<INTEREST-INCOME> 161
<OTHER-INCOME> 0
<EXPENSES-NET> (231)
<NET-INVESTMENT-INCOME> 28
<REALIZED-GAINS-CURRENT> (2048)
<APPREC-INCREASE-CURRENT> (6270)
<NET-CHANGE-FROM-OPS> (8290)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 87204
<NUMBER-OF-SHARES-REDEEMED> (17532)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 69672
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (231)
<AVERAGE-NET-ASSETS> 63828
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> (1.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.86
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PBHG FUNDS INC.
<SERIES>
<NUMBER> 120
<NAME> LARGE CAP VALUE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JAN-02-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 28468
<INVESTMENTS-AT-VALUE> 27668
<RECEIVABLES> 76
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27744
<PAYABLE-FOR-SECURITIES> 652
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 830
<TOTAL-LIABILITIES> 1482
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27002
<SHARES-COMMON-STOCK> 2597
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 60
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (800)
<NET-ASSETS> 26262
<DIVIDEND-INCOME> 73
<INTEREST-INCOME> 44
<OTHER-INCOME> 0
<EXPENSES-NET> (57)
<NET-INVESTMENT-INCOME> 60
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (800)
<NET-CHANGE-FROM-OPS> (740)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35206
<NUMBER-OF-SHARES-REDEEMED> (8204)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 27002
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (66)
<AVERAGE-NET-ASSETS> 15644
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
