AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 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. 29 /x/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 27
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:
________ immediately upon filing pursuant to paragraph (b)
________ on [date] pursuant to paragraph (b)
_x______ 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.
PBHG Mid-Cap Value Fund
(PBHG Class Shares)
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
<PAGE>
THE PBHG FUNDS, INC.
PBHG Mid-Cap Value Fund
(PBHG Class Shares)
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 29
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-Adviser; General
Information-- The Administrator
and Sub-Administrator; General
Information-- The Transfer Agent
and Sub-Transfer Agents; General
Information-- The Distributor
6. Capital Stock and Other General Information -- Voting
Securities Rights; General Information --
Dividends and Distributions; Taxes
7. Purchase of Securities Being How to Purchase Fund Shares; How
Offered to Redeem Fund Shares; Share Price
8. Redemption or Repurchase How to purchase Fund Shares; How
to Redeem Fund Shares; Share Price
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of
Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Description of Permitted
Policies Investments; Investment
Limitations; Description of Share
14. Management of the Registrant Directors and Officers of the
Fund; The Administrator
15. Control Persons and Principal Directors and Officers of the
Holders of Securities Fund
16. Investment Advisory and Other The Adviser and Sub-Adviser; The
Services Administrator and
Sub-Administrator; The Distributor
<PAGE>
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Description of Shares
Securities
19. Purchase, Redemption, and Purchase and Redemption of
Pricing of Securities Shares; Determination of Net Asset
Being Offered Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield;
Calculation of Total
Return
23. Financial Statements Not Applicable
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.
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___________
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 the following portfolio:
o PBHG Mid-Cap Value Fund
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated _______, 1997 has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-800-433-0051. The Statement of Additional Information is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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.
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
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Summary.................................... How to Purchase Fund Shares.......
Expense Summary............................ Shareholder Services..............
Financial Highlights....................... How to Redeem Fund Shares.........
The Fund and the Portfolio................. Share Price.......................
Investment Objectives and Policies......... Performance Advertising...........
General Investment Policies and Strategies.. Taxes.............................
Risk Factors................................ General Information...............
Investment Limitations...................... Glossary of Permitted Investments.
- - -------------------------------------------------------------------------------
SUMMARY
The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
diversified portfolios of securities. This summary provides basic information
about the PBHG Mid-Cap Value Fund ("Mid-Cap Value Fund" or "Portfolio"). This
summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.
What are the Investment Objectives, Program and Policies of the Portfolio?
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
MidCap 400 Index ("S&P 400"), which are considered to be relatively undervalued
based on certain proprietary measures of value.
What Are The Principal Risks Involved With An Investment In The Portfolio?
The Portfolio invests in securities that fluctuate in value, and investors
should expect the Portfolio's net asset value per share to fluctuate. The
Portfolio may invest in stocks and convertible securities that may be traded in
the over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, because the Portfolio invests extensively
in the securities of medium capitalization companies it may experience greater
price volatility than an investment company that invest primarily in more
established, larger capitalized companies. The Portfolio may invest in equity
securities of non-U.S. issuers, which are subject to certain risks not typically
associated with domestic securities. Such risks include changes in currency
rates and in exchange control regulations, costs associated with conversions
between various currencies, limited publicly available information regarding
foreign issuers, lack of uniformity in accounting, auditing and financial
standards and requirements, greater securities market volatility, less
liquidity, less government supervision of securities markets, changes in taxes
on income on securities, and possible seizure, nationalization or expropriation
of the foreign issuer or foreign deposits. The Portfolio also may enter into
futures contracts, which are subject to special risks. Such risks include the
potential of imperfect correlation between the change in value of a futures
contract purchased or sold and the market value of the securities held by the
Portfolio and the risk that the Portfolio may not be able to close out a
particular futures contract because of a lack of a liquid secondary market in
such futures contract. See "Investment Objectives and Policies", "Risk Factors"
and "Glossary of Permitted Investments."
Who Are The Adviser and Sub-Adviser? Pilgrim Baxter & Associates, Ltd.
("Adviser") serves as the investment adviser to the Portfolio. Newbold's Asset
Management, Inc. ("Sub-Adviser") serves as the investment sub-adviser to the
Portfolio. Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. are collectively referred herein as "Advisers". See "Expense Summary", "The
Adviser" and "The Sub-Adviser."
Who Are The Administrator And Sub-Administrator? PBHG Fund Services serves
as the administrator of the Fund, and SEI Fund Resources, an affiliate of the
Fund's distributor, serves as sub-administrator of the Fund. See "The
Administrator and Sub-Administrator."
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Who Are The Transfer Agent And Sub-Transfer Agents? DST Systems, Inc. serves
as the transfer agent, dividend disbursing agent and shareholder servicing agent
of the Fund. The Fund may also pay amounts to certain third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund. See "The Transfer Agent And
Sub-Transfer Agents."
Who Is the Distributor? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."
Is There A Sales Load? No, PBHG Class Shares of the Portfolio are offered on
a no-load basis.
Is There A Minimum Initial Investment? The Portfolio has a minimum initial
investment of $2,500 for regular accounts and $2,000 for IRAs.
How Do I Purchase And Redeem Shares? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives
sufficient information to execute the order and receives payment by check or
readily available funds prior to 4:00 p.m., Eastern time for the Portfolio.
Redemption orders placed with the Transfer Agent prior to 4:00 p.m., Eastern
time for the Portfolio on any Business Day will be effective that day. The
purchase and redemption price for shares is the net asset value per share
determined as of the end of the day the order is effective. Purchases and
redemptions also may be made through certain broker-dealers and other financial
institutions. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
EXPENSE SUMMARY
The purpose of the following table is to help you understand the various
costs and expenses that you, as a shareholder, will bear directly or indirectly
in connection with an investment in PBHG Class Shares of the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
Mid-Cap
Value Fund
----------
Sales Load Imposed on Purchases None
- - ------------------------------- ----
Sales Load Imposed on Reinvested None
Dividends
Deferred Sales Load None
Redemption Fees (1) None
Exchange Fees None
(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a shareholder. A
minimum account charge of $6.00 will be imposed quarterly on accounts that fall
below the minimum account size of $1,000 as a result of shareholder redemptions.
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<PAGE>
Annual Operating Expenses
(as a percentage of average net assets)
Mid-Cap
Value Fund
----------
Advisory Fees .85%
12b-1 Fees None
Other Expenses .65%
Total Operating Expenses 1.50%
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
Portfolio to not more than 1.50% of the average daily net assets of the
Portfolio. Such waiver of Advisory Fees or assumptions of Other Expenses by the
Adviser is subject to a possible reimbursement by the Portfolio in future years
if such reimbursement can be achieved within the foregoing annual expense limit.
Nevertheless, based on average assets of at least $50 million during the
Portfolio's first year of operations, it is not expected that the Adviser will
need to waive or limit its Advisory Fees or to assume Other Expenses of the
Portfolio.
Example
Portfolio 1 year 3 year
--------- ------ ------
An investor in the
Portfolio would pay
the following expenses Mid-Cap Value Fund $15 $47
on a $1,000 investment
assuming (1) 5% annual
return, and (2) redemption
at the end of each time
period.
This example is based upon estimated other expenses of the Portfolio, as set
forth in the "Annual Operating Expenses" table above. The example should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. The purposes of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Portfolio. See "The Adviser", "The
Sub-Adviser" and "The Administrator and Sub-Administrator."
THE FUND AND THE PORTFOLIO
The Fund is an open-end investment company that currently offers shares in
twelve separate series. This Prospectus relates solely to the PBHG Class
Shares for the Mid-Cap Value Fund. Each share of the Portfolio represents an
undivided interest in the Portfolio. The Fund's shares are currently divided
into two classes of shares (PBHG Class and Trust Class) having such preferences
and special or relative rights and privileges as the Board of Directors
determines. Only the Fund's PBHG Class Shares are offered by this Prospectus.
Trust Class Shares are generally subject to the same expenses as the PBHG Class
Shares but also bear a Rule 12b-1 shareholder servicing fee of 0.25% of the
average daily net assets attributable to its shares. The Trust Class Shares are
not currently available for the Portfolio. Additional
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<PAGE>
information pertaining to the Fund may be obtained in writing from the Fund's
transfer agent, DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534, or by calling 1-800-433-0051.
INVESTMENT OBJECTIVES AND POLICIES
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 with market capitalizations in the range of
companies represented in the S&P 400, which are considered to be relatively
undervalued based on certain proprietary measures of value.
The current market capitalization of companies in the S&P 400 is typically
between $200 million to over $5 billion. It is expected that securities
purchased by the Portfolio will typically exhibit lower price/earnings value
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 weights of
the S&P 400 with the Portfolio's sector weightings normally within 5% of the
sector weightings of that Index.
In selecting investments for the Portfolio, the Advisers emphasize fundamental
investment value and consider the following factors, among others, in
identifying and analyzing a security's fundamental value 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 Sub-Adviser 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 utilization of a valuation approach may result in investment selections
that may be out-of-favor or counter to those of other investors. However, such
an approach may also produce significant capital appreciation.
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 American Depositary Receipts ("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 does 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 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 "General Investment Policies and Strategies -- 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" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks. There can be no assurance that the Portfolio will be able to achieve its
investment objective.
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<PAGE>
GENERAL INVESTMENT POLICIES AND STRATEGIES
Investment Process: Mid-Cap Value Fund
The investment process is both quantitative and fundamental. In seeking to
identify attractive investment opportunities for the Mid-Cap Value Fund, the
Sub-Adviser first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investing (such as consistency of dividend payment, balance
sheet strength and, low stock price relative to its assets, earnings, cash flow
and business franchise), the Sub-Adviser screens more than 8,000 possible
companies and creates an initial universe of statistically attractive value
companies. Following the creation of this universe of possible investments, the
Sub-Adviser uses its strong fundamental research capabilities to carefully
identify securities that are currently out of favor but which have the potential
to achieve significant appreciation as the marketplace recognizes their
fundamental value. Once constructed, portfolios are continually monitored for
change. The Sub-Adviser follows a disciplined valuation approach that requires
it to sell any portfolio security that becomes overvalued relative to the
market. Sales of portfolio securities are primarily triggered by the relative
change in a company's price/earnings ratio. Adverse changes in other key value
elements are, of course, factors that would also trigger a sale. Of course,
there can be no assurance that use of these techniques will be successful.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rates for the Portfolio may exceed 200%. High rates of
portfolio turnover necessarily result in correspondingly greater brokerage and
portfolio trading costs, which are paid by the Portfolio. In addition to greater
portfolio trading costs, high 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 the 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, the Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Advisers determine that market conditions warrant, the
Portfolio may invest up to 100% of its assets in cash and money market
instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization ("NRSRO"); repurchase agreements involving such securities;
and, to the extent permitted by applicable law and the Portfolio's investment
restrictions, shares of other investment companies investing solely in money
market securities). To the extent the Portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective. See
"Glossary of Permitted Investments" and the Statement of Additional Information
for further information about such investments.
-6-
<PAGE>
RISK FACTORS
Medium Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in the
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Portfolio invests primarily in securities issued by
medium capitalization companies. While the Advisers intend to invest in medium
capitalization companies that have strong balance sheets and favorable business
prospects, any investment in 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 medium size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The
securities of 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
medium capitalization companies are likely to be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more
established companies.
Over-The-Counter Market
The Portfolio may invest in over-the-counter stocks. In contrast to the
securities exchanges, the over-the-counter market is not a centralized facility
which limits trading activity to securities of companies which initially satisfy
certain defined standards. Generally, the volume of trading in an unlisted or
over-the-counter common stock is less than the volume of trading in a listed
stock. This means that the depth of market liquidity of some stocks in which the
Portfolio invests may not be as great as that of other securities and if the
Portfolio was to dispose of such a stock, it might have to offer the shares at a
discount from recent prices, or sell the shares in small lots over an extended
period of time.
Foreign Securities
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 mmission 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 the Portfolio's shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
Futures Contracts
The primary risks associated with the use of futures contracts are: (i)
imperfect correlations between the change in market value of the securities held
by the Portfolio and the prices of futures contracts purchased or sold by the
Portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position, which could
have an adverse impact on the Portfolio's ability to execute futures and options
strategies.
For additional information regarding permitted investments for the Portfolio,
and their risks see "Glossary of Permitted Investments" and the Statement of
Additional Information.
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<PAGE>
INVESTMENT LIMITATIONS
The investment objective of the Portfolio, the investment limitations set forth
below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolio. The
Portfolio's fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
3. Borrow money except for temporary or for emergency purposes and then only in
an amount not exceeding 331/3% of the value of the Portfolio's total assets.
This borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate substantial redemption requests if they
should occur and is not for investment purposes. All borrowings in excess of 5%
of the Portfolio's total assets will be repaid before making investments.
The foregoing percentages will apply at the time of the purchase of a security.
HOW TO PURCHASE FUND SHARES
You may purchase shares of the Portfolio directly through DST Systems, Inc.
("DST" or the "Transfer Agent"). Purchases of shares of the Portfolio may be
made on any Business Day. Shares of the Portfolio are offered only to residents
of states in which such shares are eligible for purchase.
You may place orders by mail, wire or telephone if you have elected the
Telephone Purchase Authorization option on your Account Application. If market
conditions are extraordinarily active, or if severe weather or other emergencies
exist, and you 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 the Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolio. Such financial institutions may charge you a fee for this service in
addition to the Portfolio's public offering price.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instruction or upon telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for 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 and Sub-Adviser may from
time to time recommend to the Board of Directors of the Fund that the 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, Sub-Adviser and its affiliated companies). In such event, the Board
of Directors would determine whether such discontinuance is in the best
interests of the Portfolio and its shareholders.
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<PAGE>
Minimum Initial Investment
The minimum initial investment for the Mid-Cap Value Fund is $2,500 for regular
accounts and $2,000 for IRAs. There is no minimum for subsequent purchases
except for those (1) using the Systematic Investment Plan or (2) electing to
purchase additional shares by telephone. The Distributor may waive the minimum
at its discretion. No minimum applies to subsequent purchases effected by
dividend reinvestment. As described below, subsequent purchases through the
Fund's Systematic Investment Plan and by Telephone Purchase Authorization must
be at least $25 and $1,000, respectively.
Initial Purchases By Mail
An account may be opened by mailing a check or other negotiable bank draft
payable to -- PBHG Mid-Cap Value Fund -- for $2,500 or more for regular accounts
and $2,000 for IRAs, together with 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 any Portfolio for initial or subsequent investments.
Additional Purchases By Phone (Telephone Purchase Authorization)
If you have made this election you may purchase additional shares by telephoning
the Transfer Agent at 1-800-433-0051. The telephone purchase authorization is an
election available on the account application. The minimum telephone purchase is
$1,000, and the maximum is five times the net asset value of shares held by the
shareholder on the day preceding such telephone purchase for which payment has
been received. The telephone purchase will be made at the offering price next
computed after the receipt of the call by the Transfer Agent. Payment for the
telephone purchase must be received by the Transfer Agent within seven days. If
payment is not received within seven days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Initial Purchase By Wire
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolio by requesting your bank
to transmit funds by wire transfer. Before making an initial investment by wire,
you must first telephone 1-800-433-0051 to receive an Application and to 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 4:00 p.m. Eastern time to be effective on that day. In
addition, an original Account Application should be promptly forwarded to: DST
Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534. All wires must
be sent as follows: United Missouri Bank of Kansas City, N.A.; ABA #10-10-00695;
for Account Number 98705-23469; Further Credit: PBHG Mid-Cap Value Fund.
Additional Purchases By Wire
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
Purchases by ACH
If you have made this election, shares of the 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 4:00 p.m., Eastern time for the Portfolio. Payment may
be made by check or readily available funds. The purchase price of shares of the
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 the
Portfolio calculated to three decimal places. The Fund will not issue
certificates representing shares of the Portfolio.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 4:00 p.m. Eastern Time
for the Portfolio and (ii) promptly transmit the order to the Transfer Agent.
See "Determination of Net Asset Value" below. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders to the
Transfer Agent so that you may receive the same day's net asset value.
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If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred. The Fund
reserves the right to reject a purchase order when the Fund determines that it
is not in the best interests of the Fund or its shareholders to accept such
order.
SHAREHOLDER SERVICES
Shareholder Inquiries And Services Offered
If you have any questions about the Portfolio or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST SYSTEMS, INC., P.O. BOX 419534, Kansas City, Missouri
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Transfer Agent receives your
notification to discontinue such service(s) at least ten days before the next
scheduled investment or withdrawal date.
Systematic Investment And Systematic Withdrawal Plans
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolio 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 Portfolio despite their
fluctuating net asset values through regular purchases of a fixed dollar amount
of shares in the Portfolio. Dollar-cost averaging brings discipline to your
investing. Dollar-cost averaging results in more shares being purchased when the
Portfolio's net asset value is relatively low and fewer shares being purchased
when the Portfolio's net asset value is relatively high, thereby helping to
decrease the average price of your shares.
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction) from your designated checking or savings
account. Your systematic investment in the Portfolio 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. The Systematic Withdrawal Plan permits you to have
payments of $50 or more automatically transferred from your account in the
Portfolio to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. This 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 utilizing this feature. Your systematic withdrawals will be processed on
a regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.
Exchange Privileges
Once payment for your shares has been received (i.e., an account has been
established), you may exchange some or all of your shares for shares of other
portfolios of the Fund currently available for investment by new investors.
However, if you own shares of any portfolio of the Fund other than the PBHG Cash
Reserves Fund, you are limited to four (4) exchanges annually from such
portfolio to the PBHG Cash Reserves Fund. Exchanges are made at net asset value.
The Fund reserves the right to change the terms and conditions of the exchange
privilege discussed herein, or to terminate the exchange privilege, upon sixty
days' notice. Exchanges will be made only after proper instructions in writing
or by telephone (an "Exchange Request") are received for an established account
by the Transfer Agent.
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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 the Portfolio. You may also invest up to $250
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) Keogh and Corporate Retirement Plans. Both a prototype money purchase
pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
(4) 401(k) Plans. Through the establishment of a 401(k) plan by a corporation of
any size, employees can invest a portion of their wages in the Portfolio on a
tax-deferred basis in order to help them meet their retirement needs.
(5) 403(b) Plans. Section 403(b) plans are custodial accounts which are
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 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.
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HOW TO REDEEM FUND SHARES
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time for the Portfolio on any Business Day will be effective that day. The
redemption price of shares is the net asset value per share of the Portfolio
next determined after the redemption order is effective. Payment on redemption
will be made as promptly as possible and, in any event, within seven days after
the redemption order is received, provided, however, that redemption proceeds
for shares purchased by check (including certified or cashier's checks) will be
forwarded only upon collection of payment for such shares; collection of payment
may take up to 15 days.
You may also redeem shares of the Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 4:00
p.m. Eastern Time for the Portfolio and (ii) promptly transmit the order to the
Transfer Agent. See "Determination of Net Asset Value" above. The financial
institution is responsible for promptly transmitting redemption orders to the
Transfer Agent so that your shares are redeemed at the same day's net asset
value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
or ACH wire transfer.
By Mail
There is no charge for having a check for redemption proceeds mailed.
By Telephone
Redemption orders may be placed by telephone provided that this option has been
elected. 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.
By Wire
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
the Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
By ACH
The Fund does not charge for ACH transactions; however, 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 an ACH
transaction. A voided check or deposit slip must accompany requests to establish
this option.
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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 a quarterly $6.00 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 $1,000 for the Mid-Cap Value Fund. You will be
allowed at least sixty (60) days, after notice by the Fund, to make an
additional investment to bring your account value up to at least $1,000 before
the $6.00 minimum account fee is charged and/or the redemption of a
non-retirement account is processed. The $6.00 minimum account charge will be
imposed quarterly on any such account until the account is brought up to the
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.
SHARE PRICE
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) on any Business Day. The net asset
value per share of the Portfolio is listed under PBHG in the mutual fund section
of most major daily newspapers, including the Wall Street Journal.
PERFORMANCE ADVERTISING
From time to time, the Portfolio may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. For the Portfolio, yield refers to the annualized income generated
by an investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of the Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
The 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. The Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
The Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertisements 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.
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The performance of the Fund's Trust Class shares may be lower than that of the
Fund's PBHG Class Shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Trust Class Shares.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Portfolio
or its shareholders. Accordingly, you are urged to consult your tax advisor
regarding specific questions as to federal, state and local income taxes. See
the Statement of Additional Information for further information.
Tax Status of the Portfolio
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded a RIC
under Subchapter M of the Code. So long as the 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.
Tax Status of Distributions
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of the
Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The
Portfolio will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Portfolio (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments.
The 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
the Portfolio distributes all of its net investment income to its shareholders,
the Portfolio may have to sell portfolio securities to distribute such accrued
income, which may occur at a time when the Advisers would not have chosen to
sell such securities and which may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by the Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from the
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. The Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from the Portfolio is considered tax exempt in your
particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.
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Tax Treatment of Transactions
Each sale, exchange or redemption of the Portfolio's shares is a taxable event
to the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes.
GENERAL INFORMATION
The Fund
The Fund, an open-end management investment company, was originally incorporated
in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective July 31,
1992, the Fund was reorganized as a Maryland corporation pursuant to an
Agreement and Articles of Merger which was approved by Fund shareholders on July
21, 1992. On September 8, 1993, the Fund's shareholders voted to change the name
of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994, the
Fund's shareholders voted to change the name of the Fund to The PBHG Funds, Inc.
All consideration received by the Fund for shares of the Portfolio and all
assets of the Portfolio belong to the Portfolio and would be subject to
liabilities related thereto. The Fund reserves the right to create and issue
shares of additional portfolios.
The Portfolio 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 shares under federal and state securities
laws, pricing and insurance expenses and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $15 billion in assets. In addition to advising
the Portfolio, the Adviser provides advisory services to the Fund's other
portfolios and to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and estates, and other investment
companies. The principal business address of the Adviser is 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to the Portfolio under an
investment advisory agreement with the Fund (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser either continuously reviews, supervises and
administers the investment program of the Portfolio, which includes managing and
selecting investments, or oversees the investment management of the Portfolio by
the Portfolio's Sub-Adviser, subject to the supervision of, and policies
established by, the Board of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .85% of the average daily net assets of
the Mid-Cap Value Fund. The advisory fee paid by the Portfolio is higher than
those paid by most investment companies, although the Adviser believes the fee
to be comparable to that paid by investment companies with similar investment
objectives and policies.
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The Sub-Adviser
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the Adviser,
the controlling shareholder of the Sub-Adviser is UAM. The Sub-Adviser currently
has discretionary management authority with respect to over $4 billion in
assets. In addition to advising the Portfolio, the Sub-Adviser provides advisory
services to pension and profit-sharing plans, charitable institutions, trusts,
estates and other investment companies.
The Sub-Adviser serves as the investment sub-adviser for the Portfolio pursuant
to a sub-advisory agreement with the Fund and the Adviser ("Sub-Advisory
Agreement"). Under the Sub-Advisory Agreement, the Sub-Adviser manages the
investments of 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 for the Mid-Cap Value Fund, the Sub-Adviser is entitled to receive
from the Adviser a fee with respect to the Portfolio which is computed daily and
paid monthly an annual rate of .30% of the average daily net assets of the
Mid-Cap Value Fund.
Portfolio Manager
Gary D. Haubold, CFA, has managed the PBHG Mid-Cap Value Fund since its
inception. Mr. Haubold joined the Sub-Adviser in January 1997. Prior to joining
the Sub-Adviser, 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 ("MAS Mid Cap Value Portfolio") of the MAS Fund and
the co-manager of the Small Cap Value Portfolio of the MAS Fund. Prior to
joining MAS, Mr. Haubold was Senior Vice President of Wood, Struthers &
Winthrop.
Although Mr. Haubold co-managed the MAS Mid Cap Value Portfolio from December
30, 1994 (since inception) through January 6, 1997, Mr. Haubold was the person
primarily responsible for the day-to-day management and investments of the MAS
Mid Cap Value Portfolio. During that period, the MAS Mid Cap Value Portfolio had
an investment objective, policies, and strategies that were substantially
similar to those of the PBHG Mid-Cap Value Fund. The cumulative total return for
the institutional class of MAS Mid Cap Value Portfolio from January 1, 1995
through December 31, 1996 was ___.___% as compared to ___.__% for the S&P 400
over the same period. The average annual total returns for the institutional
class of MAS Mid Cap Value Portfolio for one-year and since the inception of the
Portfolio (through December 31, 1996) compared with the performance of the S&P
400 were:
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MAS Mid Cap Value
Year Portfolio(1)(2)
ended 12/31/96 (institutional class) S&P 400 (3)
-------------- --------------------- -----------
1 Year __.__% __.__%
Since inception __.__% __.__%
(12/30/94)
(1) Average annual total returns reflect changes in share price of the MAS
Mid-Cap Value Portfolio, reinvestment of all dividends and distributions
and are net of all fund expenses.
(2) The expense ratio of the institutional class of MAS Mid Cap Value
Portfolio was capped at .88% for the period 12/30/94 (inception) through
12/31/96 (reflecting annualized reimbursement or waiver of expenses of
2.18% for the period 12/30/94 through 9/30/95 and reflecting reimbursement
or waiver of expenses of .74% for the period 10/1/95 through 9/30/96).
(3) The S&P 400 Index is a measure of the performance of 400 medium-size
companies selected by Standard & Poor's on the basis of their market size,
liquidity and industry group representation.
Historical performance does not indicate future performance. THE MAS MID CAP
VALUE PORTFOLIO IS A SEPARATE FUND AND ITS HISTORICAL PERFORMANCE IS NOT
INDICATIVE OF THE POTENTIAL PERFORMANCE OF PBHG MID-CAP VALUE FUND. Share prices
and investment returns will fluctuate.
Expense Limitation Agreements
In the interest of limiting expenses of the Portfolio, the Adviser has entered
into an expense limitation agreement with the Fund ("Expense Limitation
Agreement"), with respect to the Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolio
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of the Portfolio's average daily net assets) to 1.50%.
Reimbursement by the Portfolio of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolio has reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expenses rate
of the Portfolio to exceed 1.50%. Consequently, no reimbursement by the
Portfolio will be made unless: (i) the Portfolio's assets exceed $75 million;
(ii) the Portfolio's total annual expense ratio is less than 1.50%; and (iii)
the payment of such reimbursement was approved by the Board of Directors on a
quarterly basis.
The Administrator and Sub-Administrator
PBHG Fund Services (the "Administrator") provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the Fund. The
principal place of business of the Administrator is 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087.
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SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of the Portfolio with respect to $2.5 billion of the total average daily
net assets of the Fund, and a fee at the annual rate of 0.025% of the average
daily net assets of the Portfolio with respect to the total average daily net
assets of the Fund in excess of $2.5 billion.
The Transfer Agent and Sub-Transfer Agents
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Transfer Agent for providing these services to
shareholders investing directly in the Fund.
The Distributor
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services. No compensation is paid to the Distributor for
distribution services for the PBHG Class Shares of the Portfolio.
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 agreements
under which, as described above, certain companies provide essential management
services to the Fund.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
the Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all portfolios of the Fund will be voted on only by
shareholders of the affected portfolios. Shareholders of all portfolios of the
Fund will vote together on matters affecting the Fund generally, such as the
election of Directors or selection of accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Trust Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of Directors under certain
circumstances. In addition, a Director may be removed by the remaining Directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
Reporting
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
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Shareholder Inquiries
You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009, or by calling 1-800-433-0051.
Dividends and Distributions
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of annual dividends. If any capital
gain is realized, substantially all of it will be distributed by the Portfolio
at least annually.
Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least fifteen (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 Portfolio are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
Counsel and Independent Public Accountants
Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, LLP
serves as the independent public accountants of the Fund.
Custodian
CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian for the Portfolio. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended (the "1940 Act").
Miscellaneous
As of the date of this Prospectus, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, as the Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding PBHG Class
Shares of the Portfolio, and may be deemed to be a controlling person of the
Portfolio for purposes of the 1940 Act.
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments of the
Portfolio:
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") --
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
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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.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following, among others, may be considered to be derivative
securities: futures, convertible securities and "stripped" U.S. Treasury
securities (e.g., STRIPS). 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.
Futures Contracts -- Futures contracts are derivatives. Futures contracts
provide for the sale by one party and purchase by another party of a specified
amount of a specific security, securities index or currency at a specified
future time and price. The 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 (7) days at approximately the price at which the
Portfolio has valued the security.
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Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. The
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. The Advisers will enter into repurchase agreements on
behalf of the Portfolio only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Directors. Repurchase agreements
are considered loans under the 1940 Act, as well as for federal and state income
tax purposes.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. The Portfolio may invest in restricted
securities that the Advisers determine are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Fund. The
Board of Directors will periodically review such procedures and guidelines and
will monitor the Advisers' implementation of such procedures and guidelines.
Under these procedures and guidelines, the Advisers will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. The
Portfolio 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 Portfolio.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Securities issued by these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States (e.g., GNMA securities) or supported
by the issuing agencies' right to borrow from the Treasury. The securities
issued by other agencies are supported only by the credit of the instrumentality
(e.g., Tennessee Valley Authority securities).
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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 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, the Portfolio may fail to fully recoup its
initial investment in these securities, even if the security is in one of the
highest rating categories.
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 Portfolio is permitted to invest in the 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 Portfolio will maintain liquid assets in
such accounts in an amount at least equal in value to the Portfolio's
commitments to purchase when-issued securities.
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THE PBHG FUNDS, INC.
PBHG MID-CAP VALUE FUND
INVESTMENT ADVISER:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates only to
the PBHG Mid-Cap Value Fund (the "Portfolio"). It is intended to provide
additional information regarding the activities and operations of The PBHG
Funds, Inc. (the "Fund") and the Portfolio, and should be read in conjunction
with the Portfolio's Prospectus dated ______________, 1997. The Prospectus for
the Portfolio may be obtained without charge by calling 1-800-431-0051.
TABLE OF CONTENTS
THE FUND..................................................................S -
DESCRIPTION OF PERMITTED INVESTMENTS......................................S -
INVESTMENT LIMITATIONS....................................................S -
THE ADVISER ..............................................................S -
THE SUB-ADVISER...........................................................S -
THE ADMINISTRATOR AND SUB-ADMINISTRATOR...................................S -
THE DISTRIBUTOR...........................................................S -
DIRECTORS AND OFFICERS OF THE FUND........................................S -
COMPUTATION OF YIELD .....................................................S -
CALCULATION OF TOTAL RETURN...............................................S -
PURCHASE AND REDEMPTION OF SHARES.........................................S -
DETERMINATION OF NET ASSET VALUE..........................................S -
TAXES ....................................................................S -
PORTFOLIO TRANSACTIONS....................................................S -
DESCRIPTION OF SHARES.....................................................S -
___________, 1997
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's PBHG Mid-Cap
Value Fund (the "Portfolio"). The Portfolio is a separate series of The PBHG
Funds, Inc., which was originally incorporated in Delaware on August 2, 1985,
under the name PBHG Growth Fund, Inc., and commenced business shortly thereafter
as an open-end diversified management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). On July 21, 1992, shareholders
of the Fund approved an Agreement and Articles of Merger pursuant to which the
Fund was reorganized and merged into a new Maryland corporation, also named PBHG
Growth Fund, Inc. On September 8, 1993, the shareholders of the Fund voted to
change the name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May
2, 1994, the shareholders voted to change the Fund's name to The PBHG Funds,
Inc. The Fund currently offers shares of twelve other portfolios, i.e., PBHG
Growth Fund, PBHG Emerging Growth Fund, PBHG Large Cap Growth Fund, PBHG Select
Equity Fund, PBHG International Fund, PBHG Cash Reserves Fund, PBHG Technology &
Communications Fund, PBHG Core Growth Fund, PBHG Limited Fund, PBHG Large Cap 20
Fund, PBHG Large Cap Value Fund, and PBHG Strategic Small Company Fund through
means of separate prospectuses and statements of additional information. The
Portfolio is a separate mutual fund, and each share of the Portfolio represents
an equal proportionate interest in the Portfolio. See "Description of Shares."
No investment in shares of the Portfolio should be made without first reading
the Portfolio's Prospectus. Pilgrim Baxter & Associates, Ltd. ("Adviser") serves
as the investment adviser to the Portfolio. Newbold's Asset Management, Inc.
("Sub-Adviser") serves as the investment sub-adviser to the Portfolio. The
Adviser and the Sub- Adviser are collectively referred herein as the "Advisers."
Capitalized terms not defined herein are defined in the Portfolio's Prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
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
Advisers determine the liquidity of the Portfolio's investments and, through
reports from the Advisers, the Board monitors investments in illiquid
instruments. In determining the liquidity of the Portfolio's investments,
Advisers may consider various factors including: (1) the frequency of trades and
quotations; (2) the number of dealers and prospective purchasers in the
marketplace; (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features); and (5) the nature of the
market place for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment). Investments
currently considered by the Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven (7) days and over the-counter options. Also, the Advisers may determine
some government-stripped fixed-rate mortgage backed securities are illiquid. 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, the 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.
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Investment Company Shares
** 1 The Portfolio may invest in shares of money market mutual funds, to the
extent set forth under "Investment Limitations" below. Since such funds pay
management fees and other expenses, shareholders of the Portfolio would
indirectly pay both the Portfolio's expenses and the expenses of underlying
funds with respect to the Portfolio's assets invested therein. Applicable
regulations prohibit the 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, the Portfolio owns more than 3%
of the total voting stock of the company; more than 5% of the Portfolio's total
assets are invested in securities of any one investment company; or more than
10% of the total assets of the Portfolio are invested in securities (other than
treasury stock) issued by all investment companies.
Futures Contracts
Futures Transactions. 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, the Portfolio upon entering into a futures contract (and to maintain
the 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.
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." The Portfolio expects to earn interest income on its initial and
variation margin deposits.
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The 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 the Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous to the 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 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, the 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, the 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, the
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. Portfolio will not
purchase or sell futures contracts unless either (1) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts
of initial margin deposits on the Portfolio's existing futures contracts and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts by the Portfolio, an amount of cash or other
liquid assets, equal to the cost of such futures contracts (less any related
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 the Portfolio, the
securities underlying such futures contracts or options will at all times be
maintained by the 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.
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Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., the 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 the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Advisers monitor compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor of the seller and is required to return the underlying
security to the seller's estate.
S-5
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Restricted Seurities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the 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 the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
S-6
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Options
The Portfolio has no current intention, in the foreseeable future of utilizing
options. However, the types of options transactions that the Portfolio is
permitted to 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.
The 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, the
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, the 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
the Portfolio owns securities not subject to a call option, the 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.
The 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." The 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 the Portfolio's securities
portfolio, the 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. The 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.
The 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 the 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 the 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.
The 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. The 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 the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The 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. The 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.
S-8
<PAGE>
Securities Index Options. The 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. The
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 the 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."
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. The 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 the 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." The 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 the 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.
S-9
<PAGE>
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.
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 the 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 the 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 the 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 the 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.
S-10
<PAGE>
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 the 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 (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 the Portfolio is unable to
effect a closing purchase transaction, the 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 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 the 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 the 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.
S-11
<PAGE>
INVESTMENT LIMITATIONS
Fundamental Policies
The 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.
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding 331/3% of the value of its total assets. This
borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate substantial redemption requests if
they should occur and is not for investment purposes. All borrowings in
excess of 5% of the Portfolio's total assets will be repaid before making
investments.
4. Make loans, except that the Portfolio, in accordance with the 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 Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by the Portfolio's limitation on permitted
borrowings, or (ii) in connection with permitted transactions regarding
options and futures contracts.
`
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this
shall not prevent the 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 the 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 the 5% limit. The 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 except that the 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.
S-12
<PAGE>
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 the Portfolio's limitation on borrowing money, the
Portfolio's limitation on permitted borrowings and the Portfolio's
limitation on pledging, mortgaging or hypothecating assets, or as
permitted by rule, regulation or orders of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Purchase securities of any issuer (except securities issued or guaranteed
by the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the
total assets of the Portfolio would be invested in the securities of such
issuer. This restriction applies to 75% of the Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total assets
of the Portfolio to be invested in the securities of one or more issuers
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.
S-13
<PAGE>
Non-Fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolio's
Prospectus, the Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
The Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate,
15% of its net assets. This limitation does not include any Rule 144A
restricted security that has been determined by, or pursuant to procedures
established by, the Board, based on trading markets for such security, to
be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof the value of its aggregate investment in
such classes of securities will exceed 5% of its total assets.
S-14
<PAGE>
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides certain
limitations on the Adviser's liability, but also provides that the Adviser shall
not be protected against any liability to the Fund or its shareholders by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisory Agreement obligates the Adviser to: (1) provide a program of
continuous investment management for the Portfolio in accordance with the
Portfolio's investment objectives, policies and limitations; (2) make investment
decisions for the Portfolio; and (3) place orders to purchase and sell
securities for the Portfolio, 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.)
S-15
<PAGE>
The Adviser is entitled to a fee which is calculated daily and paid monthly. The
fees to be paid under the Advisory Agreement are set forth in the Prospectus.
The Adviser has also agreed to waive or limit its advisory fees and to assume
certain operating expenses of the Portfolio in order total annual operating
expenses (expressed as a percentage of the Portfolio's average daily net assets)
be limited to 1.50%, as described in greater detail in the Prospectus.
The continuance of the Advisory Agreement with respect to the Portfolio after
the first two years must be specifically approved at least annually (i) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of 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. The
Advisory Agreement with respect to the Portfolio may be terminated (i) at any
time without penalty by the Fund upon the vote of a majority of the Directors or
by vote of the majority of the outstanding voting securities of the Portfolio
upon sixty (60) days' written notice to the Adviser or (ii) by the Adviser at
any time without penalty upon sixty (60) days' written notice to the Fund. The
Advisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
THE SUB-ADVISER
The Fund, on behalf of the Portfolio, and the Adviser have entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Newbold's Asset
Management, Inc. The Sub-Advisory Agreement provides certain limitations on the
Sub-Adviser's liability, but also provides that the Sub-Adviser shall not be
protected against any liability to the Fund or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Sub-Advisory Agreement obligates the Sub-Adviser to: (1) manage the
investment operations of the 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; (2) 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 (3) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
S-16
<PAGE>
The continuance of the Sub-Advisory Agreement with respect to the Portfolio
after the first two years must be specifically approved at least annually (i) by
the Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of 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. The
Sub-Advisory Agreement with respect to the Portfolio may be terminated (i) by
the Fund, without the payment of any penalty, by the vote of a majority of the
Directors of the Fund or by the vote of a majority of the outstanding voting
securities of the Portfolio, (ii) by the Adviser at any time, without the
payment of any penalty, on not more than sixty (60) days' nor less than thirty
(30) days' written notice to the other parties, or (iii) by the Sub-Adviser at
any time, without the payment of any penalty, on ninety (90) days' written
notice to the other parties. The Sub-Advisory Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July 1,
1996, pursuant to which the Administrator oversees the administration of the
business and affairs of the Fund, including services provided to it by various
third parties. The Administrator was organized as a Pennsylvania business trust
and has its principal place of business at 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087. Under the Administrative Agreement, the Administrator is
entitled to a fee from the Fund, which is calculated daily and paid monthly, at
an annual rate of 0.15% of the average daily net assets of each series of the
Fund, including the Portfolio. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall remain in effect
until December 31, 1998 and shall thereafter continue in effect for successive
periods of one year, unless terminated by either party upon not less than ninety
(90) days' prior written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub- Administrative Services Agreement ("Sub-Administrative
Agreement") on July 1, 1996 pursuant to which the Sub- Administrator assists the
Administrator in connection with the administration of the business and affairs
of the Fund. Prior to July 1, 1996, the Sub-Administrator served as the
administrator of the Fund. The Sub-Administrator is a wholly-owned subsidiary of
SEI Financial Management Company ("SEI Financial"), which is a wholly-owned
subsidiary of SEI Corporation ("SEI"). The Sub-Administrator was organized as a
Delaware business trust, and has its principal business offices at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Under the Sub- Administrative
Agreement, the Sub-Administrator is entitled to a fee from the Administrator,
which is calculated daily and paid monthly, (i) at an annual rate of 0.07% of
the average daily net assets of each series of the Fund, including the
Portfolio, with respect to the first $2.5 billion of the total average daily net
assets of the Fund; and (ii) at the annual rate of .025% of average daily net
assets of each series of the Fund, including the Portfolio, with respect to the
total average daily net assets of the Fund in excess of $2.5 billion. The
Sub-Administrative Agreement provides that the Sub-Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Sub-Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Sub-Administrator in the performance of its
duties. The Sub-Administrative Agreement shall remain in effect until December
31, 1998 and shall thereafter continue in effect for successive periods of one
year, unless terminated by either party upon not less than ninety (90) days'
prior written notice to the other party.
S-17
<PAGE>
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, and the Fund are parties to a distribution agreement (the
"Distribution Agreement") dated July 1, 1996 pursuant to which the Distributor
serves as principal underwriter for the Fund. The Distributor will receive no
compensation for serving in such capacity.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than sixty (60) days' written notice by either party or upon assignment
by the Distributor.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and 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. Chief
Financial Officer and Director, The Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Trustee, the Administrator since May 1996 and Chief Executive Officer, Newbold's
Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010, since June
1996.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
S-18
<PAGE>
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co. 1958-1995 (retired).
GARY PILGRIM (55) - President - President, Treasurer and Director, the Adviser
since 1982. Trustee, the Administrator since May 1996.
SANDRA K. ORLOW (42) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1983
and SEI Financial since June 1996.
KEVIN P. ROBINS (35) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992 and SEI Financial since June
1996. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (37) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1994
and SEI Financial since June 1996. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (30) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1995
and SEI Financial since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
JOSEPH LYDON (36) - Vice President, Assistant Secretary - Director of Business
Administration, SEI since April, 1995. Vice President of Fund Group, Vice
President of the Advisor - Dreman Value Management, LP, President of Dreman
Financial Services, Inc., 1989-1995.
BARBARA A. NUGENT (40) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service Company,
Inc. (transfer agent), 1988-1993.
STEPHEN G. MEYER (31) - Chief Financial Officer and Controller - Director of
Internal Audit and Risk Management at SEI Corporation since 1992. Senior
Associate at Coopers & Lybrand, LLP (accounting firm), 1990- 1992.
MICHAEL HARRINGTON (27) - Assistant Vice President - Mutual Fund Coordinator,
the Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994.
S-19
<PAGE>
LEE T. CUMMINGS (32) - Vice President - Director of Mutual Fund Operations, the
Adviser since 1996. Treasurer, the Administrator since May 1996. Investment
Accounting Officer, Delaware Group of Funds, 1994- 1996. Vice President,
Fund/Plan Services, Inc., 1992-1994. Assistant Vice President, Fund/Plan
Services, Inc., 1990-1992.
BRIAN BEREZNAK (34) - Vice President and Assistant Secretary. Trustee and
President, the Administrator since May 1996, Chief Operating Officer, the
Adviser from 1989 through December 31, 1996.
JOHN M. ZERR (34) - Vice President and Secretary - General Counsel and
Secretary, the Adviser since November 1996. 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 (40)- Vice President - President, DeRemer Associates (financial
consulting), 155 South Street, Wrentham, MA 02093 since 1987.
JANE A. KANTER (47) - 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.
- - -------------------
*Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund as that term is defined in the 1940 Act.
Each current Director of the Fund who is not an "interested person" of the Fund
is expected to receive the following compensation during the fiscal year ending
March 31, 1997:
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Annual from the Fund
Name of Person, from the Part Benefits Paid to
Position Portfolio* of Upon Directors*
-------------- ------------ ---------- -------- ------------
Fund Expenses Retirement
John R. Bartholdson, less than N/A N/A $29,000
Director $1,500
Harold J. Baxter, N/A N/A N/A N/A
Director**
Jettie M. Edwards, less than N/A N/A $29,000
Director $1,500
Albert A. Miller, less than N/A N/A $29,000
Director $1,500
S-20
<PAGE>
- - -------------------
*The Fund is expected to pay approximately $29,000 to each Director who is not
an "interested person" of the Fund for the fiscal year ending March 31, 1998. In
addition, the Fund will compensate each committee member $500 for each committee
meeting attended. The Portfolio is expected to pay its proportionate share of
the total compensation, based on its total net assets relative to the total net
assets of the Fund.
**Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
As the Portfolio's initial shareholder, SEI Financial, 680 East Swedesford Road,
Wayne, PA 19087-1658, holds all of the outstanding shares, both beneficially and
of record, of the Portfolio as of the date of this Statement of Additional
Information.
COMPUTATION OF YIELD
From time to time, the Portfolio may advertise yield. These figures will be
based on historical earnings and are not intended to indicate future
performance. The yield of the Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
CALCULATION OF TOTAL RETURN
From time to time, the Portfolio may advertise total return. The total return of
the Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
S-21
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on any day on
which the New York Stock Exchange is open for business. Currently, the following
holidays are observed by the
Fund: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Shares of the Portfolio are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the 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 the Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the mean
between the most recent bid and asked prices. In the event a listed security is
traded on more than one exchange, it is valued at the last sale price on the
exchange on which it is principally traded. If there are no transactions in a
security during the day, it is valued at the mean between the most recent bid
and asked prices. However, debt securities (other than short-term obligations)
including listed issues, are valued on the basis of valuations furnished by a
pricing service which utilizes electronic data processing techniques to
determine valuations for normal institutional size trading units of debt
securities, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations are valued at amortized cost. Securities for which market
quotations are not readily available and other assets held by the Fund, if any,
are valued at their fair value as determined in good faith by the Board of
Directors.
S-22
<PAGE>
TAXES
The following is only a summary of certain income tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The 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, the 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, the 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
anyone issuer or of two or more issuers which are engaged in the same, similar
or related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that the 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.
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In certain cases, the Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (1) has failed
to provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If the 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 the 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 the Portfolio to shareholders and the ownership of shares maybe
subject to state and local taxes.
PORTFOLIO TRANSACTIONS
The Advisers are authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Advisers will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Advisers generally seek
reasonably competitive commissions, the Fund will not necessarily be paying the
lowest spread or commission available. The Advisers seek to select brokers or
dealers that offer the Portfolio best price and execution or other services
which are of benefit to the Portfolio. 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 the Portfolio's public offering price. In the case of
securities traded in the over-the-counter market, the Advisers expect normally
to seek to select primary market makers.
The Advisers may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Advisers. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by the Advisers will be in addition to and not in lieu of the services
required to be performed by the Advisers under the Advisory Agreement and
Sub-Advisory Agreement. If, in the judgment of the Advisers, the Portfolio or
other accounts managed by the Advisers will be benefitted by supplemental
research services, the Advisers are authorized to pay brokerage commissions to a
broker furnishing such services which are in excess of commissions which another
broker may have charged for effecting the same transaction. These research
services include advice, either directly or through publications or writings, as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends; assisting
in determining portfolio strategy; providing computer software used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. The expenses of the Advisers will not necessarily be reduced as a
result of the receipt of such information, and such services may not be used
exclusively, or at all, with respect to the Portfolio or account generating the
brokerage, and there can be no guarantee that the Advisers will find all of such
services of value in advising the Portfolio.
S-24
<PAGE>
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio 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 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. However, the Advisers may place orders for the purchase or sale of
portfolio securities of the Portfolio with qualified broker-dealers that refer
prospective shareholders to the Portfolio. 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. 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.
S-25
<PAGE>
The 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.
DESCRIPTION OF SHARES
The Fund is authorized to issue an unlimited number of shares of the Portfolio
and to create additional portfolios of the Fund. Each share of the Portfolio
represents an equal proportionate interest in the Portfolio with each other
share. Shareholders 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
the Portfolio and all assets in which such consideration is invested belong to
the Portfolio and would be subject to the liabilities related thereto.
S-26
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibit
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
1(a) Certificate of Incorporation(1)
1(b) Certificate of Amendment dated
October 28, 1985(2)
1(c) Certificate of Amendment to Certificate of
Incorporation(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. with respect to the Advisers Class Shares dated December
28, 1995(12)
1(m) Articles Supplementary to the Articles of Incorporation of The PBHG
Funds, Inc. with respect to the PBHG Mid-Cap Growth Fund dated
December 28, 1995(12)
1(n) Articles Supplementary to the Articles of Incorporation of The PBHG
Funds, Inc. with respect to an increase in number of shares dated
May 20, 1996(13)
1(o) Articles Supplementary to the Articles of Incorporation of THE PBHG
Funds, Inc. with respect to the PBHG Limited Fund dated July 1,
1996(13)
1(p) Articles Supplementary to the Articles of Incorporation of The PBHG
Funds, Inc. with respect to the PBHG Large Cap 20 Fund dated
September 6, 1996(13)
1(q) Articles Supplementary to the Articles of Incorporation of The PBHG
Funds, Inc. with respect to the PBHG Large Cap Value Fund, Mid-Cap
Value Fund and the Strategic Small Company Fund dated October 2,
1996(14)
1(r) Articles Supplementary to the Articles of Incorporation of The PBHG
Funds, Inc. with respect to the PBHG Small Cap Value Fund dated
January 31, 1997(15)
2 By-Laws(5)
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3 Voting trust agreement - none
4 Specimen Common Stock Certificate(1)
5(a)(1) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated November 23, 1996(13)
5(a)(2) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated December 16, 1996(14)
5(a)(3) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated April __, 1997(15)
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(15)
5(d)(2) Form of 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.(14)
5(d)(3) 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)(4) Form of 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 __, 1997(15)
6(a)(1) Distribution Agreement between The PBHG Funds, Inc., and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated December 16, 1996(14)
6(a)(2) Distribution Agreement between The PBHG Funds, Inc. and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated April __, 1997(15)
6(b) Copy 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(6)
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8(b) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. and Schedule A dated December 16,
1996(14)
8(c) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. and Schedule A dated April __, 1997(15)
9(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 1993(6)
9(b)(1) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
December 16, 1996(14)
9(b)(2) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
April __, 1997(15)
9(c)(1) Sub-Administrative Services Agreement between The PBHG Funds,
Inc. and SEI Fund Resources dated July 1, 1996 and Schedule A
dated December 16, 1996(14)
9(c)(2) Sub-Administrative Services Agreement between The PBHG Funds,
Inc. and SEI Fund Resources dated July 1, 1996 and Schedule A
dated April __, 1997(15)
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) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter &
Associates, Ltd.(14)
9(d)(6) 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)(7) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Small Cap Value Fund and Pilgrim Baxter
& Associates, Ltd. dated April __, 1997(15)
10(a) Opinion of Counse(l5)
10(b) Opinion of Counsel with respect to the legality of the shares
of the PBHG Core Growth Fund(12)
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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(12)
11(b) Consent of Independent Public Accountants
12 Financial Statements omitted from Part B - none
13 Letter from Philadelphia Life Insurance Company to the
Registrant with respect to the initial capitalization of the
Registrant(2)
14(a) Southwestern Life Insurance Company Defined Benefit Pension
Plan and Trust(1)
14(b) Adoption Agreement for Southwestern Life Insurance Company
Standardized Integrated Defined Benefit Pension Plan and Trust
(with Pairing Provisions)(1)
14(c) Adoption Agreement for Southwestern Life Insurance Company
Standardized Non- Integrated Defined Benefit Pension Plan and
Trust (with Pairing Provisions)(1)
14(d) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized
Integrated Defined Benefit Pension Plan and Trust(1)
14(e) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Non-Integrated Defined Benefit Pension Plan
and Trust(1)
14(f) Southwestern Life Insurance Company Combination Profit
Sharing-Money Purchase Plan and Trust(1)
14(g) Adoption Agreement for Southwestern Life Insurance Company
Standardized Money Purchase Plan and Trust (with Pairing
Provisions)(1)
14(h) Adoption Agreement for Southwestern Life Insurance Company
Standardized Profit Sharing Plan and Trust (with Pairing
Provisions)(1)
14(i) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Money Purchase Plan and Trust(1)
14(j) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Profit Sharing Plan and Trust(1)
14(k) Form 5305, Simplified Employee Pension-Individual Retirement
Accounts Contribution Agreement(1)
14(l) Form 5305-A, Individual Retirement Custodial Account(1)
14(m) Southwestern Life Insurance Company Tax Deferred Annuity
Program Custodial Agreement(1)
14(n) Amendment to Application for Investment Plans under a
403(b)(7) Plan(9)
15 Plan pursuant to Rule 12b-1 with respect to Trust Class
Shares(10)
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16 Schedule for computation of Performance Quotation provided in
the Registration Statement - none for the PBHG Small Cap Value
Fund
18 Rule 18f-3 Multiple Class Plan dated November 20, 1995 and
Schedule A dated April ___, 1997(15)
24(a) Power of Attorney(11)
24(b) Power of Attorney(13)
27 Financial Data Schedule(12)
- - ------------------------
1 Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N- 1A (File No.
2-99810).
2 Incorporated herein by reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N- 1A (File No.
2-99810).
3 Incorporated herein by reference to Post-Effective Amendment No. 6
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
4 Incorporated herein by reference to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
5 Incorporated herein by reference to Post-Effective Amendment No. 11
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
6 Incorporated herein by reference to Post-Effective Amendment No. 12
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
7 Incorporated herein by reference to Post-Effective Amendment No. 13
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
8 Incorporated herein by reference to Post-Effective Amendment No. 14
to Registrant's Registration Statement on Form N-1A (File No.
2-99810).
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).
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<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
There are no persons that are controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of December 31, 1996:
Title of Class Number of Record Holders
PBHG Class
PBHG Growth Fund 238,728
PBHG Emerging Growth Fund 79,672
PBHG International Fund 3,426
PBHG Large Cap Growth Fund 9,840
PBHG Select Equity Fund 32,615
PBHG Cash Reserves Fund 11,844
PBHG Technology & Communications Fund 23,225
PBHG Core Growth Fund 31,156
PBHG Large Cap 20 Fund 5,564
PBHG Large Cap Value Fund 1
PBHG Limited Fund 11,856
PBHG Strategic Small Company Fund 1
PBHG Small Cap Value Fund 0
Trust Class 1
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. 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
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<PAGE>
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:
ARTICLE VI
Indemnification
"The Corporation shall indemnify (a) its Directors and officers,
whether serving the Corporation or at its request any other entity,
to the full extent required or permitted by (i) Maryland law now or
hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law, and (ii) the
Investment Company Act of 1940, as amended, and (b) other employees
and agents to such extent as shall be authorized by the Board of
Directors and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which
those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such resolutions or contracts
implementing such provisions nor such further indemnification
arrangement as may be permitted by law."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
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<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>
<CAPTION>
Name and Position with Pilgrim Connection with Other
Baxter & Associates, Ltd. Name of Other Company Company
- - ------------------------------ --------------------- --------------------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
Name and Position with
Newbold's Asset Name of Other
Management, Inc. Company Connection with Other Company
- - ---------------- ------- -----------------------------
<S> <C> <C>
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
Services Trustee
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>
C-8
<PAGE>
The list required by this Item 28 of officers and directors of Murray
Johnstone International Limited, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Murray Johnstone
International Limited pursuant to the Investment Advisers Act of 1940 (SEC File
No. 801-34926).
The list required by this Item 28 of officers and directors of Wellington
Management, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Wellington Management pursuant to the Investment
Advisers Act of 1940 (SEC File No. 801-15908).
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a
principal underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"),
acts as distributor for:
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds (R) June 1, 1993
MarquisSM Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
C-9
<PAGE>
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.
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
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 -
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 -
C-10
<PAGE>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
Kevin P. Robins Senior Vice President, General Vice President &
Counsel & 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 -
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 -
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 -
C-11
<PAGE>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
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 -
Paul Sachs Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
Kathryn L. Stanton Vice President & Assistant Secretary Vice President
& Assistant
Secretary
William Zawaski Vice President -
James Dougherty Director of Brokerage Services -
C-12
<PAGE>
c. None.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained at
the offices of Registrant's Custodian:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a- 1(f), the required books and records
are currently maintained at the offices of Registrant's Sub-
Administrator:
SEI 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 Investment 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
Wellington Management Company Newbold's Asset Management, Inc.
75 State Street 950 Haverford Road
Boston, MA 02109 Bryn Mawr, PA 19010
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<PAGE>
Item 31. Management Services: None.
Item 32. Undertakings
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940
inform the Board of Directors of their desire to communicate with
Shareholders of the Fund, the Directors will inform such Shareholders
as to the approximate number of Shareholders of record and the
approximate costs of mailing or afford said Shareholders access to a
list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the purpose
of voting upon the question of removal of a Director(s) when requested
in writing to do so by the holders of at least 10% of Registrant's
outstanding shares and in connection with such meetings to comply with
the provisions of Section 16(c) of the Investment Company Act of 1940
relating to Shareholder communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
Shareholders, upon request and without charge. Registrant undertakes to
file a poest-effective amendment, including financial statements, which
need not be audited, within 4-6 months from the later of the
commencement of operations of the PBHG Large 20 Fund of the Registrant
or the effective date of Post-Effective Amendment No. 24 to the
Registrant's 1933 Act Registration Statement.
Registrant hereby undertakes to file a post-effective amendment,
including financial statements which need not be audited, within 4-6
months from the later of the commencement of operations of each of the
PBHE Large Cap Value Fund, PBHG Mid-Cap Value Fund and PBHG Strategic
Small Company Fund or the effective date of Post-Effective Amendment
No. 25 to the Registrant's 1933 Act Registration Statement.
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 of the Registrant or the effective date of Post-Effective
Amendment No. 27 to the Registrant's 1933 Act Registration Statement.
C-14
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 29 to Registration Statement No. 2-99810 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wayne, and Commonwealth of Pennsylvania on the __ day of March, 1997.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
---------------------------------
Harold J. Baxter
Chairman and Chief Executive
Officer
C-15
<PAGE>
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 March 4, 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
---------------------- March 4, 1997
Harold J. Baxter
(Attorney-in-Fact)
C-16
<PAGE>
EXHIBIT LIST
Exhibit No. Description
----------- -----------
11(b) Consent of Independent Public
Accountants
EXHIBIT 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent in this Post-Effective Amendment No. 29 under the Securities Act of
1933, as amended, to this Registration Statement on Form N-1A (File No. 2-99810)
of The PBHG Funds, Inc. to the reference to our Firm under the heading "Counsel
and Independent Public Accountants" in the Registration Statement.
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 3, 1997
