AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997.
1933 ACT REGISTRTION NO. 2-99810
1940 ACT REGISTRATION NO. 811-4391
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO. 31
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 29
THE PBHG FUNDS, INC.
(EXACT NAME OF REGISTRNT 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:
JOHN M. ZERR, ESQ. WILLIAM H. RHEINER, ESQ.
GENERAL COUNSEL BALLARD SPAHR ANDREWS & INGERSOLL
PILGRIM BAXTER & ASSOCIATES, LTD. 1735 MARKET STREET, 51ST FLOOR
1255 DRUMMERS LANE PHILADELPHIA, PENNSYLVANIA 19103-7599
SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
It is proposed that this filing will become effective:
X
- ----- immediately upon filing pursuant to paragraph (b)
- ----- on [date] pursuant to paragraph (b)
- ----- 60 days after filing pursuant to paragraph (a)
- ----- on [date] pursuant to paragraph (a) of Rule 485
- ----- 75 days after filing pursuant to paragraph (a)
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of common stock is being registered by this
Registration Statement. Registrant's Rule 24f-2 Notice for its most recent
fiscal year was filed on May 9, 1997.
<PAGE>
THE PBHG FUNDS, INC.
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 31
<TABLE>
<CAPTION>
PART A. Item No. and Captions Caption in each Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant The Fund and the Portfolios; Investment
Objectives and Policies; General Investment
Policies and Strategies; Risk Factors; Investment
Limitations; General Information - The Fund
5. Management of the Fund General Information - Directors of the Fund;
General Information - The Adviser and
Sub-Advisers; General Information - The
Administrator and Sub-Administrator; General
Information - The Transfer Agent and Sub-Transfer
Agents; General Information - The Distributor
6. Capital Stock and Other Securities General Information - Voting Rights;
General Information - Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Fund Shares; How to Redeem Fund
Shares; Determination of Net Asset Value
8. Redemption or Repurchase How to Purchase Fund Shares; How to Redeem Fund
Shares; Determination of Net Asset Value
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments; Investment
Limitations; Description of Shares
14. Management of the Registrant Directors and Officers of the Fund; The
Administrator
15. Control Persons and Principal Holders of Securities Directors and Officers of the Fund
16. Investment Advisory and Other Services The Adviser and Sub-Advisers; The Administrator
and Sub-Administrator;
The Distributor
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption, and Pricing of Securities Purchase and Redemption of Shares: Determination
Being Offered of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield; Calculation of Total Return
23. Financial Statements Financial Statements; Incorporation of Documents by
Reference in the Statement of Additional Information;
Incorporation of Documents by Reference in Part C
Part C. Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
</TABLE>
This Amendment does not delete, amend, or supersede any information contained in
the Registration Statement or in any previously filed post-effective amendment
to the Registration Statement including, in particular, any prospectus or
statement of additional information contained therein, except to the extent
specifically amended herein.
<PAGE>
THE PBHG FUND, INC.
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Supplement to the Prospectus for the PBHG Class shares
Part A - Prospectus for the Advisor Class shares
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
THE PBHG FUNDS, INC.
ADVISOR CLASS SHARES
JULY 21, 1997
The PBHG Funds, Inc. (the "Fund") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers Advisor Class shares of the PBHG Growth Fund
(the "Portfolio" or the "Growth Fund"), one of the fourteen portfolios of the
Fund.
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated May 20, 1997, as revised July 21, 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 Securities and
Exchange Commission maintains a Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding the Fund and other registrants that file
electronically with the Securities and Exchange Commission. The Statement of
Additional Information is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
1
<PAGE>
SUMMARY
- ---------------------------------------------------------------------------
The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
diversified portfolios of securities. This summary provides basic information
about the Advisor Class shares of the PBHG Growth Fund (the "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 Portfolio seeks capital appreciation. There can be no assurance
that the Portfolio will achieve its investment objective. The Portfolio will
invest primarily in a variety of equity securities in accordance with its
particular investment program and policies. The Portfolio invests primarily in
common stocks of small and medium capitalization companies believed by Pilgrim
Baxter & Associates, Ltd. (the "Adviser") to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The
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, the Portfolio invests extensively in
securities of small capitalization companies and therefore may experience
greater price volatility than investment companies that invest 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. See "Investment Objectives and
Policies" and "Glossary of Permitted Investments."
TABLE OF CONTENTS
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary..................................................... 2
Expense Summary............................................. 4
Financial Highlights........................................ 5
The Fund and the Portfolio.................................. 8
Investment Objectives and Policies.......................... 8
General Investment Policies and Strategies.................. 9
Risk Factors................................................ 9
Investment Limitations...................................... 10
How to Purchase Fund Shares................................. 11
Shareholder Services........................................ 13
How to Redeem Fund Shares................................... 15
Determination of Net Asset Value............................ 17
Performance Advertising..................................... 17
Taxes....................................................... 18
General Information......................................... 19
Glossary of Permitted Investments........................... 23
</TABLE>
2
<PAGE>
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to the Portfolio. See "Expense Summary" and "The Adviser."
WHO ARE THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services, a
wholly-owned subsidiary of the Adviser, serves as the administrator of the Fund,
and SEI Fund Resources, an affiliate of the Fund's distributor, serves as
sub-administrator of the Fund. See "The Administrator and Sub-Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."
IS THERE A SALES LOAD? No, shares of the Portfolio are offered on a no-load
basis. The Portfolio, however, pays Rule 12b-1 shareholder servicing fees to
certain financial intermediaries that provide shareholder and other services to
Advisor Class shareholders.
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial
investment of $2,500 for regular accounts and $2,000 for individual retirement
accounts ("IRAs").
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives
sufficient information to execute the order and receives payment by check or
readily available funds prior to 4:00 p.m., Eastern time. Redemption orders
placed with the Transfer Agent prior to 4:00 p.m., Eastern time on any Business
Day will be effective that day. The purchase and redemption price for shares is
the net asset value per share determined as of the end of the day the order is
effective. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
3
<PAGE>
- ------------------------------------------------------------------------------
EXPENSE SUMMARY
- ------------------------------------------------------------------------------
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in Advisor Class shares.
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
FUND
<S> <C>
- --------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(1) None
Exchange Fees None
</TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH
FUND
<S> <C>
- --------------------------------------------------------------------
Advisory Fees(2) 0.85%
12b-1 Fees 0.25%
Other Expenses 0.43%
- --------------------------------------------------------------------
Total Operating Expenses (net of reimbursement after fee
waiver or expense reimbursement, if any) 1.53%
</TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(2) The Adviser has agreed to waive a portion of its fee and reimburse expenses
(except for Rule 12b-1 expenses) in an amount that operates to limit total
operating expenses (exclusive of distribution fees paid pursuant to Rule
12b-1) for the current year to not more than 1.50% of the average daily net
assets of the Advisor Class of the Portfolio. Each such waiver of Advisory
Fees or assumption of Other Expenses by the Adviser is subject to a possible
reimbursement by the Advisor Class in future years if such reimbursement can
be achieved within the foregoing annual expense limit. No fee waivers or
reimbursements with respect to this Portfolio were necessary during the
Portfolio's prior fiscal year.
- ------------------------------------------------------------------------------
EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
An investor in the Portfolio would pay
the following expenses on a $1,000
investment assuming (1) 5% annual
return, and (2) redemption at the end
of each time period. $16 $48 $83 $182
</TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The example is based upon total operating expenses of the Portfolio, as set
forth in the "Annual Operating Expenses" table above. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in Advisor Class shares of the Portfolio. See "The
Adviser" and "The Administrator."
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge otherwise permitted under the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. ("NASD").
4
<PAGE>
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
The following information for the fiscal period ended March 31, 1997 has been
audited by Coopers & Lybrand L.L.P., the Fund's current independent accountants.
The information for the fiscal periods ended March 31, 1994, 1995 and 1996 was
audited by Arthur Andersen LLP, the Fund's former independent public
accountants. Arthur Andersen LLP served as the Fund's independent public
accountants from August, 1993 to November, 1996. The information with respect to
the Growth Fund for the periods from April 1, 1989 to March 31, 1993, was
audited by the Fund's independent public accountants that preceded Arthur
Andersen LLP for those periods. The information for the periods prior to April
1, 1989, is unaudited. The Fund's audited financial statements are incorporated
by reference into the Fund's Statement of Additional Information under
"Financial Information." The following tables should be read in conjunction with
the Fund's financial statements and notes thereto. Additional information about
each Portfolio's performance is contained in the Fund's Annual Report, which may
be obtained (without charge) by calling 1-800-433-0051.
The performance data in the table below which relates to the PBHG Class shares
does not reflect the actual performance of the Advisor Class. Because the
Advisor Class shares are subject to a service fee under a plan adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940, as amended ("1940 Act")
expenses for the Advisor Class shares are higher than the PBHG Class shares. As
a result, performance for the Advisor Class shares will be lower than that of
the corresponding PBHG Class shares.
5
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
REALIZED AND NET
NET ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE INVESTMENT GAINS OR FROM NET FROM VALUE
BEGINNING INCOME LOSSES INVESTMENT CAPITAL END OF TOTAL
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
PBHG GROWTH FUND
ADVISOR CLASS
- -----------------------------------------------------------------------------------------------------
1997(1) $25.42 $ (0.06) $ (4.33) -- -- $21.03 (17.27)%+
- -----------------------------------------------------------------------------------------------------
PBHG CLASS
- -----------------------------------------------------------------------------------------------------
1997 $25.30 $ (0.10) $ (4.14) -- -- $21.06 (16.76)%
1996 16.70 (0.06) 8.66 -- -- 25.30 51.50 %
1995 14.67 (0.05) 2.09 -- $ (0.01) 16.70 13.92 %
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28 %
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47 %
1992 11.51 (0.06) 1.35 -- (2.43) 10.37 13.78 %
1991 10.86 (0.01) 1.45 -- (0.79) 11.51 16.94 %
1990 10.84 (0.05) 2.92 $ (0.04) (2.81) 10.86 27.11 %
1989 10.44 0.02 0.41 -- (0.03) 10.84 3.98 %
1988 16.78 0.01 (2.11) -- (4.24) 10.44 (13.10)%
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Total returns have not been annualized.
(1) The PBHG Growth Fund Advisor Class commenced operations on
August 19, 1996.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
NET RATIO OF INCOME
RATIO OF INVESTMENT EXPENSES TO (LOSS) TO
NET ASSETS EXPENSES INCOME AVERAGE AVERAGE
END OF TO (LOSS) TO NET ASSETS NET ASSETS PORTFOLIO AVERAGE
PERIOD AVERAGE AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
(000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE PAID(2)
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
12,991 1.53%* (1.11)%* 1.53%* (1.11)%* 64.89% $0.0493
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
4,634,138 1.25% (0.69)% 1.25% (0.69)% 64.89% $0.0493
3,298,925 1.48% (0.79)% 1.48% (0.79)% 44.64% N/A
1,014,832 1.50% (0.69)% 1.50% (0.69)% 118.75% N/A
319,059 1.55% (0.78)% 1.59% (0.82)% 94.28% N/A
6,069 2.39% (1.69)% 3.04% (2.34)% 209.24% N/A
7,339 1.52% (0.55)% 2.00% (1.03)% 114.54% N/A
10,356 1.50% (0.09)% 1.75% (0.34)% 228.02% N/A
18,849 1.32% (0.35)% 1.32% (0.35)% 219.41% N/A
23,494 1.19% 0.20% 1.19% 0.20% 175.01% N/A
28,407 1.21% 0.02% 1.21% 0.02% 208.41% N/A
- ----------------------------------------------------------------------------------------------
</TABLE>
(2) Average commission rate paid per share for security
purchases and sales during the period. Presentation of the
rate is only required for fiscal years beginning after
September 1, 1995.
7
<PAGE>
- -------------------------------------
THE FUND AND THE PORTFOLIO
- -------------------------------------
The Fund is an open-end investment company that currently offers shares in
fourteen separate series. This Prospectus relates solely to the Advisor Class
shares for the PBHG Growth Fund (the "Portfolio"). Each share of the Portfolio
represents an undivided interest in the Portfolio. The Portfolio's shares are
currently divided into two classes of shares (PBHG Class and Advisor Class)
having such preferences and special or relative rights and privileges as the
Board of Directors determines. Only the Portfolio's Advisor Class shares are
offered by this Prospectus. The Advisor Class shares are generally subject to
the same expenses as the PBHG Class shares, but also bear a Rule 12b-1
shareholder servicing fee of 0.25% of the average daily net assets attributable
to its shares. The PBHG Class shares for the Portfolio are offered by a separate
prospectus, which is available without charge by calling 1-800-433-0051.
Additional information pertaining to the Fund may be obtained in writing from
the Fund's Transfer Agent, DST Systems, Inc., P.O. Box 419534, Kansas City,
Missouri 64141-6534, or by calling 1-800-433-0051.
- -------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------
The Growth Fund seeks capital appreciation. The Portfolio will normally be as
fully invested as practicable in common stocks and securities convertible into
common stocks, but also may invest up to 5% of its assets in warrants and rights
to purchase common stocks. In the opinion of the Adviser, there may be times
when the shareholders' interests are best served and the investment objective is
more likely to be achieved by having varying amounts of the Portfolio's assets
invested in convertible securities. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in common stocks and
convertible securities of small and medium sized growth companies (i.e.,
companies with market capitalization or annual revenues of up to $2 billion).
The average market capitalizations or annual revenues of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $2 billion subsequent to purchase,
if the company continues to satisfy the other investment policies of the
Portfolio
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of a
decline in market price is too great. Because of its policy with respect to the
sales of investments, the Portfolio may from time to time realize short-term
gains or losses. The Portfolio will likely have greater volatility than the
stock market in general, as measured by the Standard & Poors 500 Stock Index
("S&P 500"). Because the investment techniques employed by the Adviser are
responsive to near-term earnings trends of the companies whose securities are
owned by the Portfolio, portfolio turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined
8
<PAGE>
to be liquid pursuant to procedures established by the Board of Directors. See
"Glossary of Permitted Investments."
There can be no assurance that the Portfolio will be able to achieve its
investment objective.
- -------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- -------------------------------------
INVESTMENT PROCESS OF THE ADVISER
The Adviser's investment process is both quantitative and fundamental, and is
extremely focused on quality earnings growth. In seeking to identify investment
opportunities, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for the
Portfolio and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of successful
growth, such as positive earnings surprises, upward earnings estimate revisions,
and accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct an investment portfolio that possesses strong growth
characteristics. The Adviser tries to keep the Portfolio fully invested at all
times. Because the universe of companies will undoubtedly experience volatility
in stock price, it is important that shareholders in this Portfolio maintain a
long-term investment perspective. Of course, there can be no assurance that use
of these techniques will be successful, even over the long term.
PORTFOLIO TURNOVER
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. The portfolio turnover rate for the Portfolio for the fiscal
year ended March 31, 1997 was 64.89%.
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, the Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser determines that market conditions warrant, the
Portfolio may invest up to 100% of its assets in cash and money market
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 securities
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 additional information.
- -------------------------------------
RISK FACTORS
- -------------------------------------
SMALL AND MEDIUM CAPITALIZATION STOCKS
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in the
Portfolio may be more suitable for long-term investors who can bear the risk of
these
9
<PAGE>
fluctuations. The Portfolio invests extensively in securities of issuers with
small and medium market capitalizations. While the Adviser intends to invest in
small and medium capitalization companies that have strong balance sheets and
favorable business prospects, any investment in small and medium capitalization
companies involves greater risk and price volatility than that customarily
associated with investments in larger, more established companies. This
increased risk may be due to the greater business risks of their small or medium
size, limited markets and financial resources, narrow product lines and frequent
lack of management depth. The securities of small and medium capitalization
companies are often traded in the over-the-counter market, and might not be
traded in volumes typical of securities traded on a national securities
exchange. Thus, the securities of small and medium capitalization companies are
likely to be less liquid, and subject to more abrupt or erratic market
movements, than securities of larger, more established companies.
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 were to dispose of such a stock, it might have to offer the shares at
a discount from recent prices, or sell the shares in small lots over an extended
period of time.
FOREIGN SECURITIES AND EMERGING MARKETS
The Portfolio may invest in foreign securities. Investing in the securities of
foreign issuers involves special risks and considerations not typically
associated with investing in U.S. companies. These risks and considerations
include differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investment in foreign countries and potential restrictions on the
flow of international capital and currencies. Foreign issuers may also be
subject to less government regulation than U.S. companies. Moreover, the
dividends and interest payable on foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to the Portfolio's shareholders. Further, foreign securities often
trade with less frequency and volume than domestic securities and, therefore,
may exhibit greater price volatility. Changes in foreign exchange rates will
affect, favorably or unfavorably, the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar.
For additional information regarding risks and permitted investments for the
Portfolio, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
- -------------------------------------
INVESTMENT LIMITATIONS
- -------------------------------------
The investment objectives of the Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolio. The
Portfolio's fundamental policies cannot be changed without the consent of the
holders of a
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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 emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of the Portfolio. This borrowing
provision is included solely to facilitate the orderly sale of portfolio
securities to accommodate substantial redemption requests if they should occur
and is not for investment purposes. All borrowings in excess of 5% of the
Portfolio's total assets will be repaid before making investments.
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 day on which the New York Stock Exchange is open for business
("Business Day"). Shares of the Portfolio are offered only to residents of
states in which such shares are eligible for purchase.
You may place orders by mail, wire or telephone. 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 or any loss,
liability, cost or expense for acting upon wire instructions or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares.
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For example, the investment opportunities for small or medium capitalization
companies may from time to time be more limited than those in other sectors of
the stock market. Therefore, in order to retain adequate investment flexibility,
the Adviser may from time to time recommend to the Board of Directors 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 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.
MINIMUM INVESTMENT
The minimum initial investment in the Portfolio is $2,500 for regular accounts
and $2,000 for IRAs. However, investors who establish a Systematic Investment
Plan, as described below, with a minimum investment of $25 per month may at the
same time open a regular or IRA account with a minimum initial investment of
$500. There is no minimum for subsequent purchases. The Distributor may waive
the minimum initial investment amount at its discretion. No minimum applies to
subsequent purchases effected by dividend reinvestment. As described below,
subsequent purchases through the Fund's Systematic Investment Plan must be at
least $25.
INITIAL PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
payable to The PBHG Funds, Inc., in the amount of at least $2,500 for regular
accounts and at least $2,000 for IRAs, and a completed Account Application to
THE PBHG FUNDS, INC. C/O DST SYSTEMS, INC., P.O. BOX 419534, KANSAS CITY,
MISSOURI 64141-6534. The Fund will not accept third-party checks, i.e., a check
not payable to The PBHG Funds, Inc. or the Portfolio for initial or subsequent
investments.
ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE)
You may purchase additional shares by telephoning the Transfer Agent at
1-800-433-0051. THE MINIMUM TELEPHONE PURCHASE IS $1,000, AND THE MAXIMUM IS
FIVE TIMES THE NET ASSET VALUE OF SHARES HELD BY THE SHAREHOLDER ON THE DAY
PRECEDING SUCH TELEPHONE PURCHASE FOR WHICH PAYMENT HAS BEEN RECEIVED. The
telephone purchase will be made at the offering price next computed after the
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, you will be liable for all losses incurred by the
Fund as a result of the cancellation of such purchase.
INITIAL PURCHASE BY WIRE
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolio by requesting your bank
to transmit funds by wire. Before making an initial investment by wire, you must
first telephone 1-800-433-0051 to receive an Account Application and be assigned
an account number. The Account Application must be received prior to receipt of
the wire. Your name, account number, taxpayer identification number or Social
Security Number, and address must be specified in the wire. All wires must be
received by 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 Growth Fund-Advisor Class and
your assigned account number].
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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 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. 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
and (ii) promptly transmit the order to the Transfer Agent. See "Determination
of Net Asset Value" below. The broker-dealer or financial institution is
responsible for promptly transmitting purchase orders to the Transfer Agent so
that you may receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred by the
Fund. The Fund reserves the right to reject a purchase order when the Fund
determines that it is not in the best interests of the Fund or its shareholders
to accept such order.
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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 Fund's Transfer Agent receives
your notification to discontinue such service(s) at least ten (10) days before
the next scheduled investment or withdrawal date.
SYSTEMATIC INVESTMENT AND SYSTEMATIC WITHDRAWAL PLANS
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan is a convenient
way for you to purchase shares in
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<PAGE>
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. Investors who establish a Systematic
Investment Plan may open an account with a minimum balance of $500.
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction) from your designated checking or savings
account. Your systematic investment in the Portfolio 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. The 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(s) in the
Portfolio to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $5,000 in any
account 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 and your payment has been converted to Federal Funds), you may
exchange Advisor Class shares of the Portfolio for Advisor Class shares of any
other Portfolio of the Fund that has Advisor Class shares. Advisor Class shares
of the Portfolio may not be exchanged for PBHG Class shares of any Portfolio of
the Fund. Currently, Advisor Class shares are available only for the Growth
Fund.
Exchanges are limited to four (4) per year. Exchanges are made at net asset
value. The Fund reserves the right to change the terms and conditions of the
exchange privilege described herein, or to terminate the exchange privilege,
upon sixty (60) days' notice.
Exchanges will be effected only after proper instructions in writing or by
telephone (an "Exchange Request") are received for an established account by the
Transfer Agent. Exchange purchases are subject to the minimum investment
requirements for purchases described above. An exchange will be treated as a
redemption and purchase for tax purposes. The exchange privilege may be
exercised only in those states in which the shares of the Portfolios purchased
may legally be sold.
TAX-SHELTERED RETIREMENT PLANS
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Portfolio.
(1) INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"). You may save for your retirement
and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or
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<PAGE>
(b) "rolling-over" to the Portfolio monies from other IRA accounts or lump sum
distributions from a qualified retirement plan. If you are between 18 and 70 1/2
years of age, you can use an IRA to invest up to $2,000 per year of your earned
income in the Portfolio. You may also invest up to $2,000 per year in a spousal
IRA if your spouse has no earned income. There is a $10.00 annual maintenance
fee charged to IRA investors. If you maintain more than one IRA account of the
same plan type, 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 TRANSFER TO MINORS. By establishing a
Uniform Gift to Minors/Uniform Transfer to Minors Account with the Fund you can
build a fund for your children's education or a nest egg for their future and,
at the same time, potentially reduce your own income taxes.
(2) CUSTODIAL AND FIDUCIARY ACCOUNTS. The Portfolio provides a convenient means
of establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.
For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
- -------------------------------------
HOW TO REDEEM FUND SHARES
- -------------------------------------
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time 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) or by ACH will be
forwarded only upon collection of payment for such shares; collection of payment
may take up to 15 days.
You may also redeem shares of 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.
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<PAGE>
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 4:00
p.m. Eastern time and (ii) promptly transmit the order to the Transfer Agent.
See "Determination of Net Asset Value" below. The financial institution is
responsible for promptly transmitting redemption orders to the Transfer Agent so
that your shares are redeemed at the same day's net asset value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.
BY MAIL
There is no charge for having a check for redemption proceeds mailed to you.
BY TELEPHONE
Redemption orders may be placed by telephone provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery. The Fund will not accept redemption requests for an
amount greater than $50,000 by telephone instruction. Such redemption requests
must be received in writing and be signature guaranteed.
BY WIRE
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
the Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
BY ACH
The Fund does not charge for ACH transactions; however, proceeds from such
transactions will not be posted to your bank account until the second Business
Day following the transaction. In order to process a redemption by ACH, banking
information must be established on your account at least 15 days prior to
initiating a transaction. A voided check or deposit slip must accompany requests
to establish this option.
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
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<PAGE>
a broker-dealer that is a member of a national securities exchange. The Fund
does not accept guarantees from notaries public or organizations that do not
provide reimbursement in the case of fraud.
MINIMUM ACCOUNT SIZE
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $12.00 below minimum account charge and reserves the right to
redeem shares in any account if, as the result of redemptions, the value of that
account drops below the minimum initial investment amount, specified above. See
"Minimum Investment" and "Systematic Investment and Systematic Withdrawal Plans"
above. You will be allowed at least 60 days, after notice by the Fund, to make
an additional investment to bring your account value up to at least the minimum
account size before the annual $12.00 minimum account fee is charged and/or the
redemption of a non-retirement account is processed.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
- -------------------------------------
DETERMINATION OF NET ASSET VALUE
- -------------------------------------
The net asset value per share of 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.
- -------------------------------------
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. 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.
17
<PAGE>
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
The performance of the Fund's Advisor Class shares will be lower than that of
the Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Advisor 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 advisors
regarding specific questions as to federal, state and local income taxes. See
the Statement of Additional Information.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. The Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended. 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 Adviser would not have chosen to sell such securities and which
may result in a taxable gain or loss.
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<PAGE>
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.
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.
The Fund has an authorized capitalization of 9.2 billion shares of $0.001 par
value common stock. All consideration received by the Fund for shares of any of
its portfolios and all assets of such portfolio belong to that portfolio and
would be subject to liabilities related thereto. The Fund reserves the right to
create and issue shares of additional portfolios.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of such
portfolio 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 Portfolio's expense ratios are disclosed under
"Financial Highlights" in this prospectus.
THE ADVISER
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston,
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Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to approximately $14 billion in assets. In addition to
advising the Portfolio and other Portfolios of the Fund, the Adviser provides
advisory services to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and 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"). The
Adviser makes the investment decisions for the assets of the Portfolio and
continuously reviews, supervises and administers the investment program of the
Portfolio, subject to the supervision of, and policies established by, the Board
of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.85% of average daily net assets. The
investment advisory fees paid by the Portfolio are higher than those paid by
most investment companies, although the Adviser believes the fees to be
comparable to those paid by investment companies with similar investment
objectives and policies. The Adviser has voluntarily entered into an expense
limitation agreement with the Portfolio ("Expense Limitation Agreement")
pursuant to which the Adviser has agreed to waive or limit a portion of its fee
and to assume other expenses in an amount necessary to limit total annual
operating expenses (exclusive of distribution fees paid pursuant to Rule 12b-1)
to not more than 1.50% of the average daily net assets of the Advisor Class of
the Portfolio. Reimbursement by the Portfolio of the advisory fees waived or
limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreements may be made at a later date when the Portfolio has reached
a sufficient asset size to permit reimbursement to be made without causing the
total annual expense rate of the Portfolio to exceed 1.50% (exclusive of
distribution fees paid pursuant to Rule 12b-1). 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%
(exclusive of distribution fees paid pursuant to Rule 12b-1); and (iii) the
payment of such reimbursement was approved by the Board of Directors on a
quarterly basis. For the fiscal year ended March 31, 1997, the Adviser received
a fee equal to 0.85% of the Portfolio's average daily net assets.
Gary L. Pilgrim, CFA, has served as the portfolio manager of the Growth Fund
since its inception. Mr. Pilgrim has also served as the Chief Investment Officer
for the Adviser for the past five years, and has been its President since 1993.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Fund. The principal place of business of the
Administrator is 1255 Drummers Lane, Suite 300, Wayne, PA 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total
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average daily net assets of the Fund and the PBHG Insurance Series Fund, Inc.
taken together and a fee at the annual rate of 0.025% of the average daily net
assets of each Portfolio with respect to the total average daily net assets of
the Fund and the PBHG Insurance Series Fund, Inc. taken together in excess of
$2.5 billion.
THE TRANSFER AGENT AND SUB-TRANSFER AGENT
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide sub-
transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly-owned subsidiary of SEI, provides the Fund with
distribution services. The Fund, on behalf of the Portfolio, has adopted a
Service Plan pursuant to which the Portfolio pays Rule 12b-1 shareholder
servicing fees at an aggregate annual rate of up to 0.25% of the Portfolio's
average daily net assets attributable to Advisor Class shares. The shareholder
servicing fee is intended to compensate financial intermediaries, plan
fiduciaries and investment professionals ("Service Providers") for providing
personal services, distribution support services, and/or account maintenance
services to shareholders of the underlying beneficial owners of Advisor Class
shares or to insurance companies or their affiliates for providing similar
services for which they are not otherwise compensated by variable annuity or
variable life insurance contractholders. The Fund, on behalf of the Portfolio,
will make monthly payments to Service Providers under the Service Plan based on
the average net asset value of Advisor Class shares that are serviced or
supported by such Service Providers. These payments to Service Providers are
characterized as compensation and are not directly tied to the expenses incurred
by them. The Fund intends to operate the Service Plan in accordance with its
terms and all applicable NASD rules.
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders of
the Portfolio will vote separately on matters relating solely to the Portfolio,
such as approval of advisory agreements and changes in fundamental policies, and
matters affecting some but not all Portfolios of the Fund will be voted on only
by shareholders of the affected Portfolios. Shareholders of all Portfolios of
the Fund will vote together in matters affecting the Fund generally, such as the
election of Directors or selection of accountants. Shareholders of the Advisor
Class of the Portfolio will vote separately on matters relating solely to the
Advisor
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Class, such as the Rule 12b-1 Service Plan, and not on matters relating to the
Advisor Class of the Portfolio. 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.
SHAREHOLDER INQUIRIES
You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419534, Kansas City, Missouri 64141-6534, or by calling 1-800-433-0051.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of annual dividends. If any capital
gain is realized, substantially all of it will be distributed by the Portfolio
at least annually.
Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least 15 days prior to the distribution. Shareholders may
receive payments for cash distributions in the form of a check or by Federal
Reserve 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
Ballard Spahr Andrews & Ingersoll serves as counsel to the Fund. Coopers &
Lybrand L.L.P. serves as the independent accountants of the Fund.
CUSTODIANS
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, serves as the custodian for the Portfolio (the "Custodian").
The Custodian holds cash, securities and other assets of the Portfolio as
required by the Investment Company Act of 1940, as amended (the "1940 Act").
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- -------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- -------------------------------------
The following is a description of permitted investments for certain of the
Portfolios:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") AND GLOBAL DEPOSITARY RECEIPTS ("GDRs") --
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. GDRs, which are
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.
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.
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect the Portfolio's net asset value.
FORWARD FOREIGN CURRENCY CONTRACTS -- Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar, or between foreign
currencies in which the Portfolio's portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
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incorporated into the Portfolio's long-term investment strategies. However, the
Adviser believes that it is important to have the flexibility to enter into
forward foreign currency contracts when they determine that the best interests
of the Portfolio will be served.
When the Adviser believes that the currency of a particular country may suffer a
significant decline against the U.S. dollar or against another currency, the
Portfolio may enter into a forward foreign currency contract to sell, for a
fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency.
At the maturity of a forward foreign currency contract, the Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. The Portfolio may realize a gain or loss from currency
transactions.
Generally, the Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to hedge
a specific security transaction or portfolio position. If the Portfolio enters
into forward foreign currency contracts to cover activities which are
essentially speculative, the Portfolio will segregate cash or readily marketable
securities with its custodian, or a designated sub-custodian, in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to such
contracts.
ILLIQUID SECURITIES -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
MONEY MARKET INSTRUMENTS -- Money market securities are high-quality, dollar-
denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposit, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial paper; and (v)
repurchase agreements involving any of the foregoing obligations entered into
with highly-rated banks and broker-dealers.
REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Fund's Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
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 Adviser will enter into repurchase agreements on
behalf of the Portfolio only with financial institutions
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deemed to present minimal risk of bankruptcy during the term of the agreement
based on guidelines established and periodically reviewed by the Directors.
Repurchase agreements are considered loans under the 1940 Act, as well as for
federal and state income tax purposes.
RESTRICTED SECURITIES -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933 or an exemption from
registration. The Portfolio may invest in restricted securities that the Adviser
determines are not illiquid, based on guidelines and procedures developed and
established by the Board of Directors of the Fund. The Board of Directors will
periodically review such procedures and guidelines and will monitor the
Adviser's implementation of such procedures and guidelines. Under these
procedures and guidelines, the Adviser will consider the frequency of trades and
quotes for the security, the number of dealers in, and potential purchasers for,
the securities, dealer undertakings to make a market in the security, and the
nature of the security and of the marketplace trades. The Portfolio may purchase
restricted securities sold in reliance upon the exemption from registration
provided by Rule 144A under the Securities Act of 1933. Restricted securities
may be difficult to value because market quotations may not be readily
available. Because of the restrictions on the resale of restricted securities,
they may pose liquidity problems for the Portfolio.
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
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").
WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- The Portfolio may purchase
securities on a when-issued or delayed-delivery basis. When the Portfolio
purchases securities on a when-issued or delayed-delivered basis, the price of
such securities is fixed at the time of the commitment, but delivery and payment
for the securities may take place up to 120 days after the date of the
commitment to purchase. The securities so purchased are subject to market
fluctuation and no interest accrues to the purchaser during this period. When-
issued and delayed-delivery securities involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or increases
in value and there is a failure to deliver the security.
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Fund:
THE PBHG FUNDS, INC.
Portfolios:
PBHG GROWTH FUND
PBHG EMERGING GROWTH FUND
PBHG LARGE CAP GROWTH FUND
PBHG SELECT EQUITY FUND
PBHG CORE GROWTH FUND
PBHG LIMITED FUND
PBHG LARGE CAP 20 FUND
PBHG LARGE CAP VALUE FUND
PBHG MID-CAP VALUE FUND
PBHG SMALL CAP VALUE FUND
PBHG INTERNATIONAL FUND
PBHG CASH RESERVES FUND
PBHG TECHNOLOGY & COMMUNICATIONS FUND
PBHG STRATEGIC SMALL COMPANY FUND
Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates
only to each of the Portfolios listed above. It is intended to provide
additional information regarding the activities and operations of The PBHG
Funds, Inc. (the "Fund" or "Registrant") and the Portfolios. The Statement of
Additional Information should be read in conjunction with the Prospectus for the
Portfolios' PBHG Class shares dated June 30, 1997 and with the Prospectus for
the Portfolios' Advisor Class shares dated July 21, 1997. The Prospectuses for
the Portfolios may be obtained by calling 1-800-433-0051.
TABLE OF CONTENTS
THE FUND.................................................................S - 2
DESCRIPTION OF PERMITTED INVESTMENTS.....................................S - 2
INVESTMENT LIMITATIONS...................................................S - 11
THE ADVISER..............................................................S - 15
THE SUB-ADVISERS.........................................................S - 17
THE ADMINISTRATOR AND SUB-ADMINISTRATOR..................................S - 19
THE DISTRIBUTOR..........................................................S - 21
DIRECTORS AND OFFICERS OF THE FUND.......................................S - 22
COMPUTATION OF YIELD ....................................................S - 24
CALCULATION OF TOTAL RETURN..............................................S - 25
PURCHASE AND REDEMPTION OF SHARES........................................S - 27
DETERMINATION OF NET ASSET VALUE.........................................S - 27
TAXES....................................................................S - 29
PORTFOLIO TRANSACTIONS...................................................S - 31
DESCRIPTION OF SHARES....................................................S - 33
5% AND 25% SHAREHOLDERS..................................................S - 33
FINANCIAL STATEMENTS.....................................................S - 39
May 20, 1997
as Revised July 21, 1997
<PAGE>
THE FUND
This Statement of Additional Information relates to the Fund and each of
its Portfolios. Each Portfolio is a separate series of The PBHG Funds, Inc. (the
"Fund"), which was originally incorporated in Delaware on August 2, 1985 under
the name PBHG Growth Fund, Inc. and commenced business shortly thereafter as an
open-end diversified management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). On July 21, 1992, shareholders of the
Fund approved an Agreement and Articles of Merger pursuant to which the Fund was
reorganized and merged into a new Maryland corporation, also named PBHG Growth
Fund, Inc. On September 8, 1993, the shareholders of the Fund voted to change
the name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994,
the shareholders voted to change the Fund's name to The PBHG Funds, Inc. The
articles of incorporation permit the Fund to offer separate classes of shares of
each Portfolio. Shareholders may purchase shares through two separate classes,
i.e., PBHG Class and Advisor Class (formerly the Trust Class) shares, which
provide for differences in distribution costs, voting rights and dividends.
Except for these differences, each PBHG Class share and each Advisor Class share
of each Portfolio represents an equal proportionate interest in that Portfolio.
See "Description of Shares." Currently each Portfolio of the Fund except the
PBHG Limited Fund and PBHG Cash Reserves Fund offers Advisor Class shares. This
Statement of Additional Information relates to both classes of shares of the
Fund. No investment in shares of a Portfolio should be made without first
reading the Portfolio's Prospectus. Capitalized terms not defined herein are
defined in each Prospectus offering shares of the Portfolios.
DESCRIPTION OF PERMITTED INVESTMENTS
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by the
Portfolios will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. With
respect to all repurchase agreements entered into by a Portfolio, the Fund's
custodians or their agents must take possession of the underlying collateral.
However, if the seller defaults, the Portfolio could realize a loss on the sale
of the underlying security to the extent that the proceeds of the sale,
including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Portfolio may incur delay
and costs in selling the underlying security or may suffer a loss of principal
and interest if the Portfolio is
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treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate.
Investment Company Shares
Investment Company Shares that each Portfolio may invest in are limited to
shares of money market mutual funds, except as set forth under "Investment
Limitations" below. Since such mutual funds pay management fees and other
expenses, shareholders of the Portfolios would indirectly pay both Portfolio
expenses and the expenses of underlying funds with respect to Portfolio assets
invested therein. Applicable regulations prohibit a Portfolio from acquiring the
securities of other investment companies that are not "part of the same group of
investment companies" if, as a result of such acquisition; (i) the Portfolio
owns more than 3% of the total voting stock of the company; (ii) more than 5% of
the Portfolio's total assets are invested in securities of any one investment
company; or (iii) more than 10% of the total assets of the Portfolio are
invested in securities (other than treasury stock) issued by all investment
companies. Each Portfolio has no current intention, in the foreseeable future,
of investing more than 5% of its assets in investment company securities.
Illiquid Investments
Illiquid Investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Adviser or Sub-Advisers determine the liquidity of the Fund's investments and,
through reports from the Adviser or Sub-Advisers, the Board monitors investments
in illiquid instruments. In determining the liquidity of a Portfolio's
investments, the Adviser or Sub-Advisers may consider various factors including:
(i) the frequency of trades and quotations; (ii) the number of dealers and
prospective purchasers in the marketplace; (iii) dealer undertakings to make a
market; (iv) the nature of the security (including any demand or tender
features); and (v) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Adviser or
Sub-Advisers may determine some government-stripped fixed-rate mortgage backed
securities, loans and other direct debt instruments, and swap agreements to be
illiquid. However, with respect to over-the-counter options a Portfolio writes,
all or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and terms of any
agreement a Portfolio may have to close out the option before expiration. In the
absence of market quotations, illiquid investments are priced at fair value as
determined in good faith by a committee appointed by the Board of Directors. If,
through a change in values, net assets or other circumstances, a Portfolio was
in a position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
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Restricted Securities
Restricted Securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act"), or in a registered public offering.
Where registration is required, a Portfolio may be obligated to pay all or part
of the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time a Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a Portfolio might obtain a
less favorable price than prevailed when it decided to seek registration of the
security. Moreover, investing in Rule 144A securities (i.e., securities that
qualify for resale under Rule 144A under the Securities Act of 1933) would have
the effect of increasing the level of a Portfolio's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Foreign Currency Transactions
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies maybe exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Adviser or the applicable Sub-Advisers may enter into
settlement hedges in the normal course of managing the Portfolio's foreign
investments. A Portfolio may also enter into forward contracts to purchase or
sell a foreign currency in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific investments
have not yet been selected by the Adviser or the Sub-Advisers.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge", would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for
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example, by entering into a forward contract to sell Deutschemark or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Under certain conditions, guidelines of the Securities Exchange Commission
("SEC") require mutual funds to set aside appropriate liquid assets in a
segregated account to cover currency forward contracts. As required by SEC
guidelines, each Portfolio will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. A Portfolio will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the skill of the
Adviser or the applicable Sub-Adviser in analyzing and predicting currency
values. Forward contracts may substantially change a Portfolio's investment
exposure to changes in currency exchange rates, and could result in losses to a
Portfolio if currencies do not perform as the Adviser or the applicable
Sub-Adviser anticipates. For example, if a currency's value rose at a time when
the Adviser or Sub-Adviser had hedged a Portfolio by selling that currency in
exchange for dollars, a Portfolio would be unable to participate in the
currency's appreciation. If the Adviser or a Sub-Adviser hedges a Portfolio's
currency exposure through proxy hedges, the Portfolio could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Adviser or the applicable
Sub-Adviser increases a Portfolio's exposure to a foreign currency and that
currency's value declines, the Portfolio will realize a loss. There is no
assurance that the use of forward currency contracts by the Adviser or the
Sub-Advisers will be advantageous to a Portfolio or that it will hedge at an
appropriate time.
Futures Contracts
A futures contract is a bilateral agreement to buy or sell a security (or
deliver a cash settlement price, in the case of a contract relating to an index
or otherwise not calling for physical delivery at the end of trading in the
contracts) for a set price in the future. Futures contracts are designated by
boards of trade which have been designated "contracts markets" by the
Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain that
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded. By using futures contracts as a risk management
technique, given the greater liquidity in the futures market than in the cash
market, it may be possible to accomplish certain results more quickly and with
lower transaction costs.
S-5
<PAGE>
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, a
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous to that Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect each of the Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (i) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (ii) if purchased for other than "bona fide hedging"
purposes, the sum of the amounts of initial margin deposits on a Portfolio's
existing futures contracts and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of that Portfolio's total
assets. In instances involving the purchase of futures contracts by a Portfolio,
an amount of cash or other liquid assets, equal to the cost of such futures
contracts (less any related margin deposits), will be deposited in a segregated
account with its custodian, thereby insuring
S-6
<PAGE>
that the use of such futures contracts is unleveraged. In instances involving
the sale of futures contracts by a Portfolio, the securities underlying such
futures contracts or options will at all times be maintained by that Portfolio
or, in the case of index futures contracts, the Portfolio will own securities
the price changes of which are, in the opinion of its Adviser expected to
replicate substantially the movement of the index upon which the futures
contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
Options
No Portfolio, except for the International Fund, has a current intention, in the
foreseeable future of utilizing options. The types of options transactions that
each Portfolio is permitted to utilize and that the International Fund may
currently utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, a Portfolio will give
up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." A Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from a Portfolio's securities
portfolio, that Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
S-7
<PAGE>
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by such Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
Securities Index Options. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by a Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier." A
securities index fluctuates with changes in the
S-8
<PAGE>
market value of the securities so included. For example, some securities index
options are based on a broad market index such as the S&P 500 or the NYSE
Composite Index, or a narrower market index such as the S&P 100. Indexes may
also be based on an industry or market segment such as the AMEX Oil and Gas
Index or the Computer and Business Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Such Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
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
S-9
<PAGE>
and substantial loss, as well as gain, to the investor. For example, if at the
time of purchase, 10% of the value of the futures contract is deposited as
margin, a subsequent 10% decrease in the value of the futures contract would
result in a total loss of the margin deposit, before any deduction for the
transaction costs, if the account were then closed out. A 15% decrease would
result in a loss equal to 150% of the original margin deposit, if the futures
contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when a Portfolio has sold futures
to hedge its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in that Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although a Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange. There is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If a Portfolio is unable to effect a
closing purchase transaction, that Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolio will engage in
such
S-10
<PAGE>
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a Portfolio will not exactly match the composition of
the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Portfolio's shareholders. Such
majority is defined in the 1940 Act as the lesser of (i) 67% or more of the
voting securities of the Portfolio present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Portfolio.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. With respect to 75% of its assets, purchase more than 10% of the outstanding
voting securities of any one issuer.
2. Pledge any of its assets, except that the Portfolio may pledge assets having
a value of not more than 10% of its total assets in order to (i) secure
permitted borrowings, or (ii) as may be necessary in connection with the
Portfolio's use of options and futures contracts.
3. Purchase or write puts, calls or combinations thereof, except that the
Portfolio may invest in and commit its assets to writing and purchasing only
put and call options that are listed on a national securities exchange and
issued by the Options Clearing Corporation to the extent permitted by the
Prospectus and this Statement of Additional Information. In order to comply
with the securities laws of several states, the Portfolio (as a matter of
operating policy) will not write a covered call option if, as a result, the
aggregate market value of all portfolio securities covering call options or
subject to put options for that Portfolio exceeds 25% of the market value of
that Portfolio's net assets.
4. Make loans except by the purchase of bonds or other debt obligations of
types commonly offered publicly or privately and purchased by financial
institutions, including investment in repurchase agreements, provided that
the Portfolio will not make any investment in repurchase agreements
S-11
<PAGE>
maturing in more than seven days if such investments, together with any
other illiquid securities held by the Portfolio, would exceed 15% of the
value of its net assets.
5. Invest in the securities of other open-end investment companies, or invest
in the securities of closed-end investment companies except through purchase
in the open market in a transaction involving no commission or profit to a
sponsor or dealer (other than the customary broker's commission) or as part
of a merger, consolidation or other acquisition.
6. Engage in the underwriting of securities of other issuers, except that the
Portfolio may sell an investment position even though it may be deemed to be
an underwriter as that term is defined in the 1933 Act.
7. Purchase or sell real estate, commodities or commodity contracts, except
that the Portfolio may enter into futures contracts and options thereon that
are listed on a national securities or commodities exchange where, as a
result thereof, no more than 5% of the total assets for that Portfolio
(taken at market value at the time of entering into the futures contracts)
would be committed to margin deposits on such futures contracts and premiums
paid for unexpired options on such futures contracts; provided that, in the
case of an option that is "in-the-money" at the time of purchase, the
"in-the-money" amount, as defined under Commodity Futures Trading Commission
regulations, may be excluded in computing such 5% limit.
8. Invest in interests in oil, gas or other mineral exploration or development
programs.
All Other Portfolios
Each of the other Portfolios may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets (or with respect to
the PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund, 33 1/3 of the
value of the total assets of each such Portfolio). This borrowing provision
is included solely to facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they should occur and is not
for investment purposes. All borrowings in excess of 5% of the Portfolio's
total assets will be repaid before making investments.
4. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt
instruments, and (ii) enter into repurchase agreements as described in the
Portfolio's prospectus and this Statement of Additional Information. In
addition, the PBHG Limited Fund, the PBHG Large Cap 20 Fund, the PBHG Large
Cap Value Fund, the PBHG Mid-Cap Value Fund, the PBHG Small Cap Value Fund,
the PBHG International Fund and the PBHG Strategic Small Company Fund may
each lend its portfolio securities in an amount not exceeding one-third the
value of its total assets.
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<PAGE>
5. Pledge, mortgage or hypothecate assets, except: (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings;
or (ii) in connection with permitted transactions regarding options and
futures contracts and, except for the PBHG Mid-Cap Value Fund and the PBHG
Small Cap Value Fund, in aggregate amounts not to exceed 10% of total assets
taken at current value at the time of the occurrence of such pledge,
mortgage or hypothecation.
6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this
shall not prevent a Portfolio from: (i) investing in readily marketable
securities of issuers which can invest in real estate or commodities,
institutions that issue mortgages, or real estate investment trusts which
deal in real estate or interests therein, pursuant to the Portfolio's
investment objective and policies; and (ii) entering into futures contracts
and options thereon that are listed on a national securities or commodities
exchange where, as a result thereof, no more than 5% of the total assets for
that Portfolio (taken at market value at the time of entering into the
futures contracts) would be committed to margin deposits on such futures
contracts and premiums paid for unexpired options on such futures contracts;
provided that, in the case of an option that is "in-the-money" at the time
of purchase, the "in-the-money" amount, as defined under the Commodity
Futures Trading Commission regulations, may be excluded in computing the 5%
limit. Each Portfolio (as a matter of operating policy) will utilize only
listed futures contracts and options thereon.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may: (i) obtain short-term
credits as necessary for the clearance of security transactions; and (ii)
establish margin accounts as may be necessary in connection with the
Portfolio's use of options and futures contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
10. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowing money or pledging, mortgaging or hypothecating
assets, as described in each Portfolio's limitation on borrowing money and
each Portfolio's limitation on permitted borrowings and each Portfolio's
limitation on pledging, mortgaging or hypothecating assets, or as permitted
by rule, regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and, except for the PBHG Mid-Cap Value Fund and the PBHG Small Cap
Value Fund, invest in oil, gas or mineral leases.
12. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if, as a result, more than 5% of the
total assets of the Portfolio would be invested in the securities of such
issuer.
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<PAGE>
With the execution of the PBHG Cash Reserves Fund, this restriction applies
to 75% of each Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be divided according
to their services, for example, gas distribution, gas transmission, electric
and telephone will each be considered a separate industry, and (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry. For
purposes of this limitation, supranational organizations are deemed to be
issuers conducting their principal business activities in the same industry.
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Portfolio's
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. Invest in the securities of foreign issuers if, at the time of acquisition,
more than 15% of the value of the Portfolio's total assets would be invested
in such securities.
2. Make short sales or purchase securities on margin; but it may obtain such
short-term credits as are necessary for the clearance of purchases and sales
of securities.
3. Purchase or hold the securities of an issuer if, at the time thereof, any
such purchase or holding would cause more than 15% of the Portfolio's net
assets to be invested in illiquid securities. This limitation does not
include any Rule 144A security that has been determined by, or pursuant to
procedures established by, the Board, based on trading markets for such
security, to be liquid.
All Other Portfolios
Each of the other Portfolios may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established
by, the Board of Directors, based on trading markets for such security, to
be liquid.
S-14
<PAGE>
2. Purchase puts, calls, straddles, spreads, and any combination thereof,
except to the extent permitted by the 1940 Act or the rules or regulations
thereunder.
The foregoing percentages will apply at the time of each purchase of a security.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement with respect to each Portfolio (the "Advisory Agreement"). The
Advisory Agreement provides certain limitations on the Adviser's liability, but
also provides that the Adviser shall not be protected against any liability to
the Fund or each of its Portfolios or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The Advisory Agreement obligates the Adviser to: (i) provide a program of
continuous investment management for the Fund in accordance with the Fund's
investment objectives, policies and limitations; (ii) make investment decisions
for the Fund; and (iii) place orders to purchase and sell securities for the
Fund, subject to the supervision of the Board of Directors. The Advisory
Agreement provides that the Adviser is not responsible for other expenses of
operating the Fund. (See the Prospectuses for a description of expenses borne by
the Fund.)
For the fiscal years and periods ended March 31, 1995, 1996, and 1997 the
Portfolios paid or waived the following advisory fees:
<TABLE>
<CAPTION>
================================================================================================================================
Fees Paid Fees Waived
-------------------------------------------------------- -----------------------------------------------------
Portfolio 1995 1996 1997 1995 1996 1997
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $4,883,694 $15,198,342 $44,149,035 $0 $0 $0
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Emerging $941,6061 $4,784,791 $10,774,907 $0 $0 $0
Growth+
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Large Cap * $33,1612 $930,649 * $82,513 $0
Growth
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Select * $461,5552 $4,101,441 * $162,473 $0
Equity
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Core Growth * ($10,712)3 $2,918,000 * $33,489 $0
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Limited * * $1,415,9354 * * $0
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Large Cap 20 * * $183,3355 * * $0
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Large Cap * * $32,0596 * * $8,931
Value
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Mid-Cap * * * * * *
Value
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Small Cap * * * * * *
Value
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG $98,1947 $25,795 $176,992 $12,025 $88,733 $0
International
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Cash * $66,0352 $678,965 * $99,136 $0
Reserves
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Technology * $58,4908 $2,970,000 * $70,782 $0
& Communications
- ----------------- ----------------- -------------------- ------------------- ------------------ --------------- ----------------
PBHG Strategic * * $153,8866 * * $0
Small Company
================================================================================================================================
</TABLE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the liabilities
of the Pilgrim Baxter Emerging Growth Fund on June 2, 1994. The PBHG Emerging
Growth Fund retained the October 31 fiscal year of its predecessor only for
fiscal 1994. The PBHG Emerging Growth Fund changed its fiscal year end to March
31 in 1995.
1 For the period from June 3, 1994 through March 31, 1995.
2 For the period from April 5, 1995 (commencement of operations) through
March 31, 1996.
S-15
<PAGE>
3 For the period from January 2, 1996 (commencement of operations) through March
31, 1996.
4 For the period from July 1, 1996 (commencement of operations)
through March 31, 1997.
5 For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
6 For the period from January 2, 1997 (commencement of operations) through
March 31, 1997.
7 For the period from June 14, 1994 (commencement of operations) through
March 31, 1995.
8 For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
In the interest of limiting the expenses of each Portfolio, the Adviser has
entered into separate expense limitation agreements with the Fund ("Expense
Limitation Agreement") with respect to the PBHG Class shares of the PBHG Core
Growth Fund, the PBHG Limited Fund, the PBHG Large Cap 20 Fund, the PBHG Large
Cap Value Fund, the PBHG Mid-Cap Value Fund, the PBHG Small Cap Value Fund, the
PBHG International Fund and the PBHG Strategic Small Company Fund. Pursuant to
each Expense Limitation Agreement the Adviser has agreed to waive or limit its
advisory fees and to assume other expenses of the PBHG Class shares of each of
the above referenced Portfolios to the extent necessary to limit the total
annual operating expenses (expressed as a percentage of each Portfolio's average
daily net assets) to 1.50% for all the Portfolios (except the PBHG International
Fund) and 2.25% for the PBHG International Fund. Reimbursement by the Portfolios
of the advisory fees waived or limited and other expenses paid by the Adviser
pursuant to the Expense Limitation Agreements may be made at a later date when
the Portfolios have reached a sufficient asset size to permit reimbursement to
be made without causing the total annual expense rate of the PBHG Class shares
of each Portfolio to exceed 1.50% (or 2.25% for the International Fund).
Consequently, no reimbursement by a Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio with respect to its PBHG Class shares and is less than 1.50% (or 2.25% for
the International Fund); and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis. In addition, the
Adviser has voluntarily agreed (without entering expense limitation agreements)
to waive its advisory fees and to assume other expenses in an amount that
operates to limit the total expenses of the PBHG Class shares of each other
Portfolio to 1.50%. Except as provided for in the Expense Limitation Agreement
described above, reimbursement by each relevant Portfolio of amounts previously
waived or assumed by the Adviser is not permitted.
With respect to the Advisor Class shares of each Portfolio, the Adviser has
entered into a separate Expense Limitation Agreement with the Fund. Pursuant to
such Expense Limitation Agreement the Adviser has agreed to waive or limit its
advisory fees and to assume other expenses of the Advisor Class shares of each
Portfolio to the extent necessary to limit the total operating expenses
(exclusive of Rule 12b-1 expenses) to 1.50% of average daily net assets of each
of the Portfolios (except the PBHG International Fund) and 2.25% of average
daily net assets of the PBHG International Fund. Reimbursement by the Portfolios
of the advisory fees waived or limited and other expenses paid by the Adviser
pursuant to the Expense Limitation Agreement may be made at a later date when
the Portfolios have reached a sufficient asset size to permit reimbursement to
be made without causing the total annual expense ratio (exclusive of Rule 12b-1
expenses) of the Advisor Class shares of each Portfolio to exceed 1.50% (or
2.25% for the International Fund). Consequently, no reimbursement by a Portfolio
will be made unless: (i) the Portfolio's assets exceed $75 million; (ii) the
Portfolio's total annual expense ratio (exclusive of Rule 12b-1 expenses) with
respect to the Advisor Class shares is less than 1.50% (or 2.25% for the
International Fund); and (iii) the payment of such reimbursement was approved by
the Board of Directors on a quarterly basis.
S-16
<PAGE>
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated (i) at
any time without penalty by the Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to the Adviser or (ii) by the Adviser at any time
without penalty upon 60 days' written notice to the Fund. The Advisory Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act).
THE SUB-ADVISERS
Newbold's Asset Management, Inc.
The Fund, on behalf of PBHG Mid-Cap Value Fund, PBHG Large Cap Value Fund, PBHG
Small Cap Value Fund and PBHG Strategic Small Company Fund, and the Adviser have
entered into sub-advisory agreements ("Sub-Advisory Agreement") with Newbold's
Asset Management, Inc. ("Newbold's"). Each Sub-Advisory Agreement provides
certain limitations on Newbold's liability, but also provides that Newbold's
shall not be protected against any liability to the Fund or its shareholders by
reason of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
Each Sub-Advisory Agreement obligates Newbold's to: (i) manage the investment
operations of the relevant Portfolio and the composition of the Portfolio's
investment portfolios, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objective, policies and
limitation; (ii) provide supervision of the Portfolio's investments and to
determine from time to time what investment and securities will be purchased,
retained or sold by the Portfolio and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
The continuance of each Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Portfolio and
(ii) by the affirmative vote of a majority of the Directors who are not parties
to the agreement or interested persons of any such party by votes cast in person
at a meeting called for such purpose. Each Sub-Advisory Agreement may be
terminated (i) by the Fund, without the payment of any penalty, by the vote of a
majority of the Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the relevant Portfolio, (ii) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other parties, or (iii) by Newbold's at any
time, without the payment of any penalty, on 90 days' written notice to the
other parties. Each Sub-Advisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
Murray Johnstone International Ltd.
S-17
<PAGE>
The Fund, on behalf of the PBHG International Fund, and the Adviser have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement") with Murray
Johnstone International Ltd. ("Murray Johnstone"). The Sub-Advisory Agreement
provides certain limitations on Murray Johnstone's liability, but also provides
that Murray Johnstone shall not be protected against any liability to the Fund
or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from a breach of
fiduciary duty with respect to the receipt of compensation for services
thereunder.
The Sub-Advisory Agreement obligates Murray Johnstone to: (i) manage the
investment operations of the PBHG International Fund and the composition of the
Portfolio's portfolio, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objectives, policies and
limitations; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
The continuance of the Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Sub-Advisory Agreement may be terminated
(i) by the Portfolio at any time, without the payment of any penalty, by the
vote of a majority of Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the Portfolio, (ii) by the Adviser at any time,
without the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the other parties, or (iii) by Murray Johnstone at any
time, without the payment of any penalty, on 90 days' written notice to the
other parties. The Sub-Advisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
Wellington Management Company, LLP
The Fund, on behalf of the PBHG Cash Reserves Fund, and the Adviser have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement") with Wellington
Management Company, LLP ("Wellington"). The Sub-Advisory Agreement provides
certain limitations on Wellington's liability, but also provides that Wellington
shall not be protected against any liability to the Portfolio or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from a breach of fiduciary duty
with respect to the receipt of compensation for services thereunder.
The Sub-Advisory Agreement obligates Wellington to: (i) manage the investment
operations of the PBHG Cash Reserves Fund and the composition of the Portfolio's
portfolio, including the purchase, retention and disposition thereof in
accordance with the Portfolio's investment objectives, policies and
restrictions; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion
S-18
<PAGE>
of the assets will be invested or held uninvested in cash; and (iii) determine
the securities to be purchased or sold by the Portfolio and will place orders
with or through such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration Statement or as
the Board of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws.
The Sub-Advisory Agreement will continue in effect for a period of more than two
years from the date thereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that this
Agreement may be terminated with respect to the Fund (i) by the Fund at any
time, without the payment of any penalty, by the vote of a majority of Directors
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, (ii) by the Adviser at any time, without the payment of any penalty,
on not more than 60 days' nor less than 30 days' written notice to the other
parties, or (iii) by Wellington at any time, without the payment of any penalty,
on 90 days' written notice to the other parties. The Sub-Advisory Agreement
shall terminate automatically and immediately in the event of its assignment as
defined in the 1940 Act.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July 1,
1996 pursuant to which the Administrator oversees the administration of the
Fund's and each Portfolio's business and affairs, including services performed
by various third parties. The Administrator, a wholly-owned subsidiary of the
Adviser, was organized as a Pennsylvania business trust and has its principal
place of business at 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087.
The Administrator is entitled to a fee from the Fund, which is calculated daily
and paid monthly at an annual rate of 0.15% of the average daily net assets of
each Portfolio. The Administrative Agreement provides that the Administrator
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Administrator in the performance of its duties.
The Administrative Agreement shall remain in effect until December 31, 1998, and
shall thereafter continue in successive periods of one year, unless terminated
by either party upon not less than 90 days' prior written notice to the other
party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement on July 1, 1996 pursuant
to which the Sub-Administrator assists the Administrator in connection with the
administration of the business and affairs of the Fund. Prior to July 1, 1996,
the Sub-Administrator served as the administrator of the Fund. The
Sub-Administrator is an indirect wholly-owned subsidiary of SEI Investment
Company ("SEI"). The Sub-Administrator was organized as a Delaware business
trust, and has its principal business offices at One Freedom Valley Road, Oaks,
Pennsylvania 19456. The Sub-Administrative Services Agreement provides that the
Sub-Administrator shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the matters to which
the Sub-Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Sub-Administrator in the
performance of its duties. The Sub-Administrative Agreement shall
S-19
<PAGE>
remain in effect until December 31, 1998, and shall continue in successive
periods of one year, unless terminated by either party upon not less than 90
days' prior written notice to the other party.
Under the Sub-Administrative Services Agreement, the Sub-Administrator is
entitled to a fee from the Administrator, which is calculated daily and paid
monthly, (i) an annual rate of 0.07.% of the average daily net assets of each
Portfolio with respect to the first $2.5 billion of the total average daily net
assets of the Fund and the PBHG Insurance Series Fund, Inc. taken together and
(ii) an annual rate of .025% of the average daily net assets of each Portfolio
with respect to the total average daily net assets of the Fund in excess of $2.5
billion and the PBHG Insurance Series Fund, Inc. taken together.
For the fiscal years and periods ended March 31, 1995, 1996 and 1997 the
Portfolios paid the following administration fees:
<TABLE>
<CAPTION>
================================================================================================================================
Fees Paid Fees Waived
-------------------------------------------------- ------------------------------------------------
Portfolio 1995 1996 1997++ 1995 1996 1997
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $1,200,047 $3,576,064 $8,325,330 $0 $0 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- -------------- --------------
PBHG Emerging Growth+ $221,5541 $1,125,834 $2,026,934 $0 $0 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Large Cap Growth * $69,8872 $194,580 * $6,148 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Select Equity * $158,4222 $762,481 * $6,148 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Core Growth * $12,0923 $527,363 * $6,148 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Limited * * $212,3904 * * $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Large Cap 20 * * $32,3535 * * $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Large Cap Value * * $5,6586 * * $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Mid-Cap Value * * * * * *
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Small Cap Value * * * * * *
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG International $59,3847 $74,949 $40,069 $0 $0 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Cash Reserves * $117,2042 $354,921 * $6,148 $0
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Technology & * $35,8988 $537,851 * $6,148 $0
Communications
- --------------------------- ---------------- ------------------ ----------------- ---------------- ------------- ---------------
PBHG Strategic Small * * $23,0836 * * $0
Company
================================================================================================================================
</TABLE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the liabilities
of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The PBHG Emerging
Growth Fund retained the October 31 fiscal year of its predecessor only for
fiscal 1994. The PBHG Emerging Growth Fund changed its fiscal year end to March
31 in 1995.
++ From January 1, 1996 to June 30, 1996, SEI Fund Resources served as the
Fund's Administrator. From July 1, 1996 to March 31, 1997, PBHG Fund Services
served as the Fund's Administrator.
1 For the period from June 3, 1994 through March 31, 1995.
2 For the period from April 5, 1995 (commencement of operations) through March
31, 1996.
3 For the period from January 2, 1996 (commencement of operations) through March
31, 1996.
4 For the period from July 1, 1996 (commencement of operations) through March
31, 1997.
5 For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
6 For the period from January 1, 1997 (commencement of operations) through March
31, 1997.
7 For the period from June 14, 1994 (commencement of operations) through March
31, 1995.
8 For the period from October 2, 1995 (commencement of operations) through
March 31, 1996.
S-20
<PAGE>
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement"). The Distributor is not entitled to receive any compensation for the
distribution services it provides with respect to either class of shares.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than 60 days' written notice by either party or upon assignment by the
Distributor.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 under 1940 Act to
enable the Advisor Class shares of each Portfolio to directly and indirectly
bear certain expenses relating to the distribution of such Shares. Pursuant to
such Service Plan, the Fund shall be entitled to pay to financial
intermediaries, plan fiduciaries, and investment professionals ("Service
Providers") a shareholder servicing fee at the aggregate annual rate of up to
0.25% of each Portfolio's average daily net assets attributable to Advisor Class
shares. The shareholder servicing fee is intended to compensate Service
Providers for providing to shareholders or the underlying beneficial owners of
Advisor Class shares: (i) personal support services; (ii) distribution
assistance and distribution support services; and (iii) account maintenance
services. In addition, insurance companies or their affiliates may be paid a
shareholder servicing fee described for providing similar services to variable
annuity or variable life insurance contract holders ("Contract Holders") or
their participants for which such insurance companies are not otherwise
compensated by Contract Holders or participants.
The Distributor shall prepare and deliver written reports to the Board of
Directors of the Fund on a regular basis (at least quarterly) setting forth the
payments made to Service Providers pursuant to the Service Plan, and the
purposes for which such expenditures were made, as well as any supplemental
reports as the Board of Directors may from time to time reasonably request.
Except to the extent that the Administrator, Sub-Administrator or Adviser may
benefit through increased fees from an increase in the net assets of the Fund
which may have resulted in part from the expenditures, no interested person of
the Fund nor any Director of the Fund who is not an interested person of the
Fund had a direct or indirect financial interest in the operation of the Plan or
any related agreement.
No compensation was paid to the Distributor for distribution services for the
fiscal years ended March 31, 1995, March 31, 1996 and March 31, 1997. For the
fiscal year ended March 31, 1997, $8,871 was paid to Service Providers pursuant
to the Service Plan for the Advisor Class shares of the PBHG Growth Fund.
S-21
<PAGE>
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and the principal occupations for the last five years are set forth below. Each
may have held other positions with the named companies during that period. The
age of each Director and officer is indicated in the parenthesis.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Director,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Chief
Financial Officer and Director, The Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Director, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Trustee, the Administrator since May 1996 and Chief Executive Officer, Newbold's
Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010, since June
1996.
JETTIE M. EDWARDS (50) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Director,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Trustee,
Provident Investment Counsel Trust (investment company) since 1992 and EQ
Advisors Trust (investment company) since March 1997.
ALBERT A. MILLER (63) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Merchandise executive, Cherry and Webb Stores since 1996. Principal and
Treasurer, JK Equipment Exporters since 1995. Director, PBHG Insurance Series
Fund, Inc. (investment company) since 1997. Advisor and Secretary, The
Underwoman Shoppes Inc. (retail clothing stores) since 1980. Merchandising Group
Vice President, R.H. Macy & Co. 1958-1995 (retired).GARY L. PILGRIM (56) -
President - President, Chief Investment Officer, Treasurer and Director, the
Adviser since 1982. Trustee, the Administrator since May 1996. President, PBHG
Insurance Series Fund, Inc. (investment company) since 1997. Director, Newbold's
since June 1996.
SANDRA K. ORLOW (43) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1983. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997.
KEVIN P. ROBINS (36) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992. Vice President and Assistant
Secretary, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
_________________
* Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund as that term is defined in the 1940 Act.
S-22
<PAGE>
KATHRYN L. STANTON (38) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1994. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (31) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1995. Vice President and Assistant Secretary, PBHG Insurance Series Fund, Inc.
(investment company) since 1997. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
BARBARA A. NUGENT (40) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Vice President and Assistant
Secretary, PBHG Insurance Series Fund, Inc. (investment company) since 1997.
Associate, Drinker, Biddle & Reath (law firm), 1994-1996. Assistant Vice
President, Delaware Service Company, Inc. (transfer agent), 1988-1993.
STEPHEN G. MEYER (31) - Treasurer, Chief Financial Officer and Controller - Vice
President and Chief Financial Officer, SEI since November 1996. Vice President
and Controller - Director of Internal Audit and Risk Management at SEI,
1992-1996. Chief Financial Officer and Controller, PBHG Insurance Series Fund,
Inc. (investment company) since 1997.
MICHAEL J. HARRINGTON (28) - Vice President - Director of Fund Services, the
Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994. Assistant Vice President, PBHG Insurance Series Fund,
Inc. (investment company) since 1997.
LEE T. CUMMINGS (33) - Vice President - Director of Mutual Fund Operations, the
Adviser since 1996. Treasurer, the Administrator since May 1996. Vice President,
PBHG Insurance Series Fund, Inc. (investment company) since 1997. Investment
Accounting Officer, Delaware Group of Funds, 1994-1996. Vice President,
Fund/Plan Services, Inc., 1992-1994.
BRIAN F. BEREZNAK (35) - Vice President - Trustee and President, the
Administrator since May 1996, Chief Operating Officer, the Adviser from 1989
through December 31, 1996. Director, Newbold's since June 1996. Vice President
and Assistant Secretary, PBHG Insurance Series Fund, Inc. (investment company)
since 1997.
JOHN M. ZERR (35) - Vice President and Secretary - General Counsel and
Secretary, the Adviser since November 1996. Vice President, PBHG Insurance
Series Fund, Inc. (investment company) since 1997. Vice President and Assistant
Secretary, Delaware Management Company, Inc. and the Delaware Group of Funds,
1995-1996. Associate, Ballard Spahr Andrews & Ingersoll (law firm), 1987-1995.
DARLENE DEREMER (41) - Vice President - President, DeRemer Associates (financial
consulting), 155 South Street, Wrentham, MA 02093 since 1987. Vice President,
PBHG Insurance Series Fund, Inc. (investment company) since 1997.
S-23
<PAGE>
As of the date of this Statement of Additional Information, the Directors and
officers of the Fund as a group owned less than 1% of the outstanding shares of
both classes of shares of each Portfolio.
Each current Director of the Fund who is not an "interested person" of the Fund
received the following compensation during the fiscal year ending March 31,
1997:
<TABLE>
<CAPTION>
====================================================================================================================
Name of Person, Aggregate Pension or Estimated Total Compensation
Position Compensation From Retirement Annual Benefits from the Fund and
The Fund* Benefits Accrued Upon Retirement Fund Complex Paid
as Part of Fund to Directors*
Expenses
- --------------------------- -------------------- ---------------------- -------------------- -----------------------
<S> <C> <C>
John R. Bartholdson, $19,333 N/A N/A $22,333 for services
Director on two Boards
- --------------------------- -------------------- ---------------------- -------------------- -----------------------
Harold J. Baxter,
Director** $0 N/A N/A $0
- --------------------------- -------------------- ---------------------- -------------------- -----------------------
Jettie M. Edwards,
Director $19,333 N/A N/A $22,333 for services
on two Boards
- --------------------------- -------------------- ---------------------- -------------------- -----------------------
Albert A. Miller,
Director $19,333 N/A N/A $22,333 for services
on two Boards
====================================================================================================================
</TABLE>
- -----------------
* The Fund and Fund Complex are expected to pay in the aggregate approximately
$47,000 to each Director who is not an "interested person" of the Registrant for
the fiscal year ending March 31, 1998.
** Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
Each Director is expected to receive $30,500 for services to the Fund for the
fiscal year ending March 31, 1998.
COMPUTATION OF YIELD
From time to time the PBHG Cash Reserves Fund may advertise its "current yield"
and "effective compound yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
PBHG Cash Reserves Fund refers to the income generated by an investment in the
PBHG Cash Reserves Fund over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the PBHG Cash Reserves Fund is assumed to be
S-24
<PAGE>
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the PBHG Cash Reserves Fund will be calculated daily based
upon the seven days ending on the date of calculation ("base period"). The yield
is computed by determining the net change (exclusive of capital changes) in the
value of a hypothetical pre-existing shareholder account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
compound yield of the PBHG Cash Reserves Fund is determined by computing the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: Effective Yield = ((Base Period Return + 1) 365/7) - 1. The
current and the effective yields reflect the reinvestment of net income earned
daily on portfolio assets.
The yield of the PBHG Cash Reserves Fund fluctuates, and the annualization of a
week's dividend is not a representation by the Fund as to what an investment in
the PBHG Cash Reserves Fund will actually yield in the future. Actual yields
will depend on such variables as asset quality, average asset maturity, the type
of instruments the PBHG Cash Reserves Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the PBHG Cash Reserves
Fund and other factors.
Yields are one basis upon which investors may compare the PBHG Cash Reserves
Fund with other money market funds; however, yields of other money market funds
and other investment vehicles may not be comparable because of the factors set
forth above and differences in the methods used in valuing portfolio
instruments.
For the 7-day period ended March 31, 1997, the yield for the PBHG Cash Reserves
Fund was 5.10% and the 7-day effective yield was 4.99%.
CALCULATION OF TOTAL RETURN
From time to time, each of the Portfolios may advertise its total returns. The
total return refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including, but not limited to, the
period from which the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period.
S-25
<PAGE>
Based on the foregoing, the average annual total returns for each of the
Portfolios (other than the Cash Reserves Fund) from its inception through March
31, 1997 and for the one, five and ten year periods ended March 31, 1997, and
the aggregate total returns for the Portfolios since inception, were as follows:
<TABLE>
<CAPTION>
============================================================================================================================
Aggregate
Average Annual Total Return Total Return
----------------------------------------------------------------------------- ---------------
Since Since
Portfolio One Year Five Year Ten Year Inception Inception
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
PBHG Growth1 -16.76% 21.54% 15.02% 18.58% 583.75%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Emerging Growth2 -13.71% * * 24.08% 126.72%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Large Cap Growth3 - 1.77% * * 21.49% 47.27%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Select Equity4 - 6.49% * * 28.48% 64.61%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Core Growth5 -12.52% * * 2.70% 3.40%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Limited6 * * * -9.15%** -9.15%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Large Cap 207 * * * -7.40%** -7.40%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Large Cap Value8 * * * 1.10%** 1.10%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Mid-Cap Value * * * * *
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Small Cap Value * * * * *
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG International9 6.73% * * 4.49% 13.06%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Technology & 19.59% * *
Communications10 30.52% 49.27%
- ------------------------------ ------------------ ------------------- ------------------- ------------------ ---------------
PBHG Strategic Small * * *
Company11 -11.40%** -11.40%
============================================================================================================================
</TABLE>
* Not in operation during the period.
** Not annualized since each Portfolio has been in operations for less than ten
months.
1 The PBHG Growth Fund commenced operations on December 19, 1985. The Advisor
Class shares of this Portfolio commenced operations on August 19, 1996.
2 The PBHG Emerging Growth Fund commenced operations with its predecessor on
June 15, 1993.
3 The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
4 The PBHG Select Equity Fund commenced operations on April 5, 1995.
5 The PBHG Core Growth Fund commenced operations on January 2, 1996.
6 The PBHG Limited Fund commenced operations on July 1, 1996.
7 The PBHG Large Cap 20 Fund commenced operations on December 1, 1996.
8 The PBHG Large Cap Value Fund commenced operations on January 1, 1997.
9 The PBHG International Fund commenced operations on June 14, 1994.
10 The PBHG Technology & Growth Fund commenced operations on October 2, 1995.
11 The PBHG Strategic Small Company Fund commenced operations on January 1,
1997.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
S-26
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of the
Portfolios are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Fund also
reserves the right to suspend sales of shares of a Portfolio for any period
during which the New York Stock Exchange, the Adviser, the Administrator,
Sub-Administrator, the Transfer Agent and/or the Custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of each Portfolio are valued by the Sub-Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the mean
between the most recent bid and asked prices. In the event a listed security is
traded on more than one exchange, it is valued at the last sale price on the
exchange on which it is principally traded. If there are no transactions in a
security during the day, it is valued at the most recent bid price. However,
debt securities (other than short-term obligations), including listed issues,
are valued on the basis of valuations furnished by a pricing service which
utilizes electronic data processing techniques to determine valuations for
normal institutional size trading units of debt securities, without exclusive
reliance upon exchange or over-the-counter prices. Short-term obligations are
valued at amortized cost. Securities for which market quotations are not readily
available and other assets held by the Fund, if any, are valued at their fair
value as determined in good faith by the Board of Directors.
The net asset value per share of the PBHG Cash Reserves Fund is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of
S-27
<PAGE>
interest on the value of the instrument. While this method provides certainty in
valuation, it may result in periods during which a security's value, as
determined by this method, is higher or lower than the price the Fund would
receive if it sold the instrument. During periods of declining interest rates,
the daily yield of the PBHG Cash Reserves Fund may tend to be higher than a like
computation made by a company with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio securities. Thus, if the use of amortized cost by the PBHG Cash
Reserves Fund resulted in a lower aggregate portfolio value on a particular day,
a prospective investor in the PBHG Cash Reserves Fund would be able to obtain a
somewhat higher yield than would result from investment in a company utilizing
solely market values, and existing investors in the Portfolio would experience a
lower yield. The converse would apply in a period of rising interest rates.
The use of amortized cost valuation by the PBHG Cash Reserves Fund and the
maintenance of the Portfolio's net asset value at $1.00 are permitted by
regulations set forth in Rule 2a-7 under the 1940 Act, provided that certain
conditions are met. Under Rule 2a-7 as amended, a money market portfolio must
maintain a dollar-weighted average maturity in the Fund of 90 days or less and
not purchase any instrument having a remaining maturity of more than 397 days.
In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized security rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The Directors must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of a Portfolio's assets may be invested in such securities in the
aggregate, and (ii) any investment in such securities of one issuer is limited
to the greater of 1% of the Portfolio's total assets or $1 million. The
regulations also require the Directors to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Portfolio. However, there is no assurance that the Fund will be able to meet
this objective. The Fund's procedures include the determination of the extent of
deviation, if any, of the Portfolio's current net asset value per unit
calculated using available market quotations from the Portfolio's amortized cost
price per share at such intervals as the Directors deem appropriate and
reasonable in light of market conditions and periodic reviews of the amount of
the deviation and the methods used to calculate such deviation. In the event
that such deviation exceeds 1/2 of 1%, the Directors are required to consider
promptly what action, if any, should be initiated. If the Directors believe that
the extent of any deviation may result in material dilution or other unfair
results to shareholders, the Directors are required to take such corrective
action as they deem appropriate to eliminate or reduce such dilution or unfair
results to the extent reasonably practicable. In addition, if any Portfolio
incurs a significant loss or liability, the Directors have the authority to
reduce pro rata the number of shares of that Portfolio in each shareholder's
account and to offset each shareholder's pro rata portion of such loss or
liability from the shareholder's accrued but unpaid dividends or from future
dividends.
S-28
<PAGE>
TAXES
The following is only a summary of certain income tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% 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.
S-29
<PAGE>
In certain cases, a Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed
to provide a correct taxpayer identification number, (ii) is subject to backup
withholding by the Internal Revenue Service, or (iii) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
State Taxes
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state and local taxes.
Foreign Taxes
Dividends and interest received by the PBHG International Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Portfolio's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by foreign investors. If the PBHG
International Fund meets the Distribution Requirement and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, the Portfolio will be eligible
to file an election with the Internal Revenue Service that will enable
Shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Portfolio.
Pursuant to the election, the Portfolio will treat those taxes as dividends paid
to its Shareholders. Each Shareholder will be required to include a
proportionate share of those taxes in gross income as income received from a
foreign source and must treat the amount so included as if the Shareholder had
paid the foreign tax directly. The Shareholder may then either deduct the taxes
deemed paid by him or her in computing his or her taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the Shareholder's federal income tax. If the Portfolio makes the
election, it will report annually to its Shareholders the respective amounts per
share of the Portfolio's income from sources within, and taxes paid to, foreign
countries and U.S. possessions.
The PBHG International Fund's transactions in foreign currencies and forward
foreign currency contracts will be subject to special provisions of the Code
that, among other things, may affect the character of gains and losses realized
by the Portfolio (i.e., may affect whether gains or losses are ordinary or
capital), accelerate recognition of income to the Portfolio and defer Portfolio
losses. These rules could therefore affect character, amount and timing of
distributions to shareholders. These provisions also may require the Portfolio
to mark-to-market certain types of the positions in its portfolio (i.e., treat
them as if they were closed out) which may cause the Portfolio to recognize
income without receiving cash with which to make distributions in amounts
necessary to satisfy the
S-30
<PAGE>
90% and 98% distribution requirements for avoiding income and excise taxes. The
Portfolio will monitor its transactions, will make the appropriate tax
elections, and will make the appropriate entries in its books and records when
it acquires any foreign currency, option, futures contract, forward contract, or
hedged investment in order to mitigate the effect of these rules and prevent
disqualification of the Portfolio as a regulated investment company and minimize
the imposition of income and excise taxes.
PORTFOLIO TRANSACTIONS
The Adviser or Sub-Advisers are authorized to select brokers and dealers to
effect securities transactions for the Portfolios. The Adviser or Sub-Advisers
will seek to obtain the most favorable net results by taking into account
various factors, including price, commission, if any, size of the transactions
and difficulty of executions, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved. While the
Adviser or Sub-Advisers generally seek reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. The Adviser or Sub-Advisers seek to select brokers or
dealers that offer the Portfolios best price and execution or other services
which are of benefit to the Portfolios. Certain brokers or dealers assist their
clients in the purchase of shares from the Distributor and charge a fee for this
service in addition to a Portfolio's public offering price. In the case of
securities traded in the over-the-counter market, the Adviser or Sub-Advisers
expect normally to seek to select primary market makers.
The Adviser or Sub-Advisers may, consistent with the interests of the
Portfolios, select brokers on the basis of the research services they provide to
the Adviser or Sub-Advisers. Such services may include analyses of the business
or prospects of a company, industry or economic sector, or statistical and
pricing services. Information so received by the Adviser will be in addition to
and not in lieu of the services required to be performed by the Adviser under
the Advisory Agreement. If, in the judgment of the Adviser or Sub-Adviser, a
Portfolio or other accounts managed by the Adviser or Sub-Adviser will be
benefitted by supplemental research services, the Adviser or Sub-Advisers are
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser or Sub-Advisers will not necessarily be reduced as a result of the
receipt of such information, and such services may not be used exclusively, or
at all, with respect to the Portfolio or account generating the brokerage, and
there can be no guarantee that the Adviser or Sub-Advisers will find all of such
services of value in advising the Portfolios.
It is expected that the Portfolios may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio
S-31
<PAGE>
transactions for the Portfolios on an exchange if a written contract is in
effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Adviser or Sub-Advisers may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Portfolio's or the Fund's expenses. In
addition, the Adviser or Sub-Adviser may place orders for the purchase or sale
of Portfolio securities with qualified broker-dealers that refer prospective
shareholders to the Portfolios. The Directors, including those who are not
"interested persons" of the Fund, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Advisers may consider
sales of the Portfolio's shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the Portfolio.
The Fund's Board of Directors has adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by the
Portfolio. The Code of Ethics allows trades to be made in securities that may be
held by the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
For the fiscal year and periods ended March 31, 1997, 1996, and 1995, the
Portfolios paid brokerage fees as follows:
S-32
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
Percent of
Total Amount Total Amount
of Brokerage of Brokerage
Total Amount Total Amount Total Amount Commissions Commissions
of Brokerage of Brokerage of Brokerage Paid to the Paid to the
Commissions Commissions Commissions Distributor Distributor
Fund Paid in 1997 Paid in 1996 Paid in 1995 in 1997++ in 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PBHG Growth $4,696,917 $1,546,204 $802,803 $262,068 6%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Emerging Growth+ $408,039 $702,027 $101,2351 $107,839 26%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Large Cap Growth $138,111 $50,9072 * $6,768 5%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Select Equity $329,054 $204,4852 * $21,840 7%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Core Growth $306,218 $21,3343 * $17,609 6%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Limited Fund $80,6024 * * $23,147 29%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Large Cap 20 $67,1225 * * $3,003 4%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Large Cap Value $40,1286 * * $428 1%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Mid-Cap Value * * * * *
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Small Cap Value * * * * *
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG International $110,586 $152,429 $87,6587 $0 0%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Cash Reserves $0 $02 * $0 0%
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Technology & $646,233 $39,5598 * $24,434 4%
Communications
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
PBHG Strategic Small $162,6176 * * $1,516 9%
Company
======================================================================================================================
</TABLE>
* Not in operation during the period.
+ The PBHG Emerging Growth Fund acquired the assets and assumed the liabilities
of the Pilgrim Baxter Emerging Growth Fund on June 1, 1994. The PBHG Emerging
Growth Fund retained the October 31 fiscal year of its predecessor only for
fiscal 1994. The PBHG Emerging Growth Fund changed its fiscal year end to March
31 in 1995.
++ These commissions were paid to the Distributor in connection with
repurchase agreement transactions.
1 For the period from June 3, 1994 through March 31, 1995.
2 For the period from April 5, 1995 (commencement of operations) through March
31, 1996.
3 For the period from January 2, 1996 (commencement of operations) through March
31, 1996.
4 For the period from July 1, 1996 (commencement of operations) through March
31, 1997.
5 For the period from December 1, 1996 (commencement of operations) through
March 31, 1997.
6 For the period from January 2, 1997 (commencement of operations) through March
31, 1997.
7 For the period from June 14, 1994 (commencement of operations) through March
31, 1995.
8 For the period from October 2, 1995 (commencement of operations) through March
31, 1996.
Consistent with the Rules of Fair Practice of the NASD and subject to seeking
best execution and such other policies as the Board of Directors may determine,
the Adviser may consider sales of Fund shares as a factor in the selection of
dealers to execute portfolio transactions for the Fund.
DESCRIPTION OF SHARES
The Fund is authorized to issue additional shares of each Portfolio and to
create additional portfolios of the Fund. Each share of a Portfolio represents
an equal proportionate interest
S-33
<PAGE>
in that Portfolio with each other share. Shares are entitled upon liquidation to
a pro rata share in the net assets of the Portfolio available for distribution
to shareholders. Shareholders have no preemptive rights. All consideration
received by the Fund for shares of any Portfolio and all assets in which such
consideration is invested would belong to that Portfolio and would be subject to
the liabilities related thereto.
5% AND 25% SHAREHOLDERS
As of July 15, 1997, the following persons were the only persons who were record
owners (or to the knowledge of the Fund, beneficial owners) of 5% or more of the
shares of the Portfolios. The Fund believes that most of the shares referred to
below were held by the persons indicated in accounts for their fiduciary, agency
or custodial clients.
PBHG Core Growth Fund - PBHG Class
Charles Schwab & Co., Inc. 21.14%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 14.76%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Emerging Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 22.05%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 14.16%
P.O. Box 3909
Church Street Station
New York, New York 10008-3908
PBHG Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 22.91%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 9.47%
P.O. 3908
Church Street Station
New York, New York 10008-3908
Fidelity Investments Institutional 5.11%
Operations Co. as Agent for certain
Employee Benefit Plans
100 Magellan Way
Covington, KY 41015-1987
S-34
<PAGE>
PBHG Growth Fund - Advisor Class
The Travelers Insurance Company 41.97%
ATTN: Roger Ferland
1 Tower Square
Hartford, CT 06183-9001
Sisters of Mercy 11.59%
2300 Adeline Drive
Burlingame, CA 94010-5599
Fleet National Bank TTEE 5.85%
FBO Davies Medical Pen
ATTN: 00033733800
P.O. Box 92800
Rochester, NY 14692-8900
Fleet National Bank 5.10%
FBO Continental Homes
ATTN: 0004958770
P.O. Box 92800
Rochester, NY 14692-8900
Chase Manhattan Bank 20.81%
General Cable Savings Plan
Resource Plan
ATTN: Mary Makebov
770 Broadwal, Fl. 10
New York, NY 10003-9522
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 24.74%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 16.35%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S-35
<PAGE>
PBHG Limited Fund - PBHG Class
Charles Schwab & Co., Inc. 9.33%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Northern Trust TR 10.77%
FBO J. Paul Getty Trust
P.O. Box 92956
Chicago, IL 60675-2956
PBHG Large Cap 20 Fund - PBHG Class
Charles Schwab & Co., Inc. 19.79%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 12.42%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 19.79%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 12.42%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
S-36
<PAGE>
PBHG Large Cap Value Fund - PBHG Class
CENCO 52.51%
Mutual Fund Department
c/o Compass Bank
P.O. Box 10566
Birmingham, AL 35296-0001
PBHG Mid-Cap Value - PBHG Class
National Financial Services Corp. 15.94%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co, Inc. 6.49%
Charles Schwab & Co., Inc. 10.30%
Reinvest Account
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin Jenrette 10.12%
Transfer Dept., 5th Floor
P.O. Box 2052
Jersey City, NJ 07303-2052
S-37
<PAGE>
PBHG Small Cap Value - PBHG Class
National Financial Services Corp. 17.08%
P.O. Box 3906
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co., Inc. 13.33%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin & Jenrette 22.37%
Transfer Dept., 5th Floor
P.O. Box 2O52
Jersey City, NJ 07303-2052
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 12.39%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 8.69%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
FTC & Co. 5.85%
Attn: Datalynx #024
P.O. Box 173736
Denver, CO 80217-3736
PBHG Strategic Small Company Fund
Charles Schwab & Co., Inc. 16.88%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 18.41%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Technology & Communications Fund - PBHG Class
Charles Schwab & Co., Inc. 28.77%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
S-38
<PAGE>
National Financial Services Corp. 16.61%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Cash Reserves Fund - PBHG Class
Harold J. Baxter & 6.11%
Christine E. Baxter JTTEN
1054 S. Leopard Road
Berwyn, PA 19312-2027
Pilgrim Baxter Partners II LP 21.77%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1565
FINANCIAL STATEMENTS
Coopers & Lybrand L.L.P. located at 2400 Eleven Penn Center, Philadelphia,
Pennsylvania, serves as the independent accountants for the Fund. Coopers &
Lybrand L.L.P. provides audit services, tax return preparation and assistance
and consultation in connection with review of SEC filings.
The audited financial statements for the fiscal year ended March 31, 1997 and
the report of the independent accountants for that year are included in the
Fund's Annual Report to Shareholders dated March 31, 1997. The Annual Report,
except for pages one through ten thereof, is incorporated herein by reference
and made a part of this document. These financial statements have been audited
by Coopers & Lybrand L.L.P. and have been included in the Prospectus and
incorporated by reference into the Statement of Additional Information in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in auditing and accounting.
S-39
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Prospectus:
Financial Highlights
Part B - Statement of Additional Information:
Statement of Net Assets as of March 31, 1997 Statements of Operations
for the period ended March 31, 1997 Statements of Charges in Net Assets
for the period ended March 31, 1997 Financial Highlights for the fiscal
year or period ended March 31, 1997 Notes to Financial Statements as of
March 31, 1997
The Fund's audited financial statements are incorporated by reference
into the Fund's Statement of Additional Information under "Financial
Information."
(b) Exhibits:
1(a) Certificate of Incorporation1
1(b) Certificate of Amendment dated October 28, 19852
1(c) Certificate of Amendment to Certificate of Incorporation3
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc.,
a Maryland corporation5
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, 19936
1(g) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 5, 19947
1(h) Articles of Amendment of the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 199512
1(i) Articles of Amendment to the Articles of Incorporation of
the PBHG Funds, Inc. dated June 30, 1997
1(j) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 25, 19947
1(k) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 5, 19948
1(l) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 9, 19948
1(m) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated August 21, 199516
1(n) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 199512
1(o) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 199512
C-1
<PAGE>
1(p) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 20, 199613
1(q) Articles Supplementary to the Articles of Incorporation of
THE PBHG Funds, Inc. dated July 1, 199613
1(r) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated September 6, 199613
1(s) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated October 2, 199614
1(t) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated January 31, 199715
2 By-Laws5
3 Voting trust agreement - none
4 Specimen Common Stock Certificate1
5(a) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated April 1, 199716
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, 199512
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, 199512
5(d)(1) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Large Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated December 16, 1996 (as revised effective May 1,
1997)16
5(d)(2) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Strategic Small Company Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated December 16, 199616
5(d)(3) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Mid-Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated April 1, 199716
5(d)(4) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Small Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated April 1, 199716
6(a) Distribution Agreement between The PBHG Funds, Inc. and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated April 1, 199716
6(b) Form of Selling Group Agreement4
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 Company16
8(b) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. and Schedule A dated April 1, 199716
C-2
<PAGE>
9(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 19936
9(b) Administrative Services Agreement between The PBHG Funds,
Inc. and PBHG Fund Services dated July 1, 1996 and Exhibit A
dated April 1, 199716
9(c) Sub-Administrative Services Agreement between The PBHG
Funds, Inc. and SEI Fund Resources dated July 1, 1996 and
Schedule A dated April 1, 199716
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, 199614
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, 199614
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, 199615
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, 199615
9(d)(5) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Strategic Small Company Fund and Pilgrim
Baxter & Associates, Ltd. dated December 16, 199615
9(d)(6) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG International Fund and Pilgrim Baxter &
Associates, Ltd. dated March 6, 199716
9(d)(7) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 199716
9(d)(8) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Small Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 199716
9(d)(9) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of each Portfolio with respect to its Advisor
Class shares
10(a) Opinion of Counsel5
10(b)(1) Consent of Counsel
10(b)(2) Opinion of Counsel with respect to the legality of the
shares of the PBHG Core Growth Fund12
10(c) Opinion of Counsel with respect to the legality of the
shares of the PBHG Limited Fund12
10(d) Opinion of Counsel with respect to the legality of the
shares of the PBHG Large Cap 20 Fund13
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 Fund14
10(f) Opinion of Counsel with respect to the legality of the
shares of the PBHG Small Cap Value Fund15
11(a) Consent of Arthur Andersen, L.L.P.
C-3
<PAGE>
11(b) Consent of Coopers & Lybrand, L.L.P.
12 Financial Statements omitted from Part B - none
13 Letter from Philadelphia Life Insurance Company to the
Registrant with respect to the initial capitalization of the
Registrant2
14(a) Southwestern Life Insurance Company Defined Benefit Pension
Plan and Trust1
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
Trust1
14(e) Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Non-Integrated Defined
Benefit Pension Plan and Trust1
14(f) Southwestern Life Insurance Company Combination
Profit Sharing-Money Purchase Plan and Trust1
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
Trust1
14(j) Adoption Agreement for Southwestern Life Insurance
Company Non-Standardized Profit Sharing Plan and
Trust1
14(k) Form 5305, Simplified Employee Pension-Individual
Retirement Accounts Contribution Agreement1
14(l) Form 5305-A, Individual Retirement Custodial Account1
14(m) Southwestern Life Insurance Company Tax Deferred
Annuity Program Custodial Agreement1
14(n) Amendment to Application for Investment Plans under a
403(b)(7) Plan9
15 Plan pursuant to Rule 12b-1 with respect to Advisor
Class shares10
16 Schedule for computation of Performance Quotation
provided in the Registration Statement
18 Rule 18f-3 Multiple Class Plan dated November 20,
1995 and Schedule A dated April 1, 199716
19 Representation of Ballard Spahr Andrews & Ingersoll
pursuant to Rule 485(b) under the Securities Act of 1933.
24(a) Power of Attorney11
24(b) Power of Attorney13
27 Financial Data Schedule
- --------------
1 Incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
2 Incorporated herein by reference to Pre-Effective Amendment
No. 2 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
3 Incorporated herein by reference to Post-Effective Amendment
No. 6 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
C-4
<PAGE>
4 Incorporated herein by reference to Post-Effective Amendment
No. 10 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
5 Incorporated herein by reference to Post-Effective Amendment
No. 11 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
6 Incorporated herein by reference to Post-Effective Amendment
No. 12 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
7 Incorporated herein by reference to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
8 Incorporated herein by reference to Post-Effective Amendment
No. 14 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
9 Incorporated herein by reference to Post-Effective Amendment
No. 19 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
10 Incorporated herein by reference to Post-Effective Amendment
No. 21 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
11 Incorporated herein by reference to Post-Effective Amendment
No. 22 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
12 Incorporated herein by reference to Post-Effective Amendment
No. 23 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
13 Incorporated herein by reference to Post-Effective Amendment
No. 24 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
14 Incorporated herein by reference to Post-Effective Amendment
No. 25 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
15 Incorporated herein by reference to Post-Effective Amendment
No. 27 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
16 Incorporated herein by reference to Post-Effective Amendment
No. 30 to Registrant's Registration Statement on Form N-1A
(File No. 2-99810).
C-5
<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 May 31, 1997:
Title of Class Number of Record Holders
PBHG Class
PBHG Core Growth Fund 41,759
PBHG Emerging Growth Fund 106,532
PBHG Growth Fund 290,149
PBHG Large Cap Growth Fund 15,152
PBHG Large Cap 20 Fund 9,824
PBHG Limited Fund 13,383
PBHG Select Equity Fund 38,555
PBHG Mid-Cap Value Fund 392
PBHG Large Cap Value Fund 3,868
PBHG Small Cap Value Fund 574
PBHG International Fund 6,135
PBHG Strategic Small Company Fund 7,085
PBHG Technology & Communications Fund 45,019
PBHG Cash Reserves Fund 27,281
Advisor Class
PBHG Growth Fund 23
Item 27. Indemnification
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940, as amended ("1940 Act"). The By-Laws may provide that the
Corporation shall indemnify its employees and/or agents in any manner and within
such limits as permitted by applicable law. Such indemnification shall be in
addition to any other right or claim to which any director, officer, employee or
agent may otherwise be entitled. The Corporation may purchase and
C-6
<PAGE>
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, as amended ("1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suite or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
C-7
<PAGE>
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the 1940 Act,
as amended, and Release No. IC-11330 issued thereunder.
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 Baxter & Connection with Other
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 Corporation Member, Board of
Directors
Newbold's Asset Management, Inc.
Chief Executive Officer
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 Management, Inc. Chief Financial Officer
Chief Financial Officer
Harold J. Baxter Pilgrim Baxter & Associates, Ltd. Director, Chairman & Chief
Chief Executive Officer Executive Officer
PBHG Fund Services
United Asset Management Corporation Trustee
Member, Board of
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Name and Position with
Pilgrim Baxter & Connection with Other
Associates, Ltd. Name of Other Company Company
- ---------------- --------------------- ---------------------
<S> <C> <C>
Directors
Brian F. Bereznak Pilgrim Baxter & Associates, Ltd. Chief Operating Officer
Director (from 1989 through 1996)
PBHG Fund Services
President and Trustee
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, Inc. President
Chief Investment Officer
David W. Jennings Pilgrim Baxter & Associates, Ltd. Director of Client Service
President & Chief
Operating Officer
Eric C. Schneider Pilgrim Baxter & Associates, Ltd. Chief Financial Officer
Chief Financial Officer
</TABLE>
The list required by this Item 28 of officers and directors of Murray
Johnstone International Limited, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Murray Johnstone
International Limited pursuant to the Investment Advisers Act of 1940, as
amended ("Advisers Act"), (SEC File No. 801-34926).
The list required by this Item 28 of officers and directors of
Wellington Management, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by Wellington Management pursuant to the
Advisers Act (SEC File No. 801-15908).
C-9
<PAGE>
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than
the Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a
principal underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company
("SFS"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds (R) June 1, 1993
MarquisSM Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 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
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<PAGE>
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
High Mark Funds February 15, 1997
Armada Funds March 8, 1997
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table
with respect to each director, officer or partner of each
principal underwriter named in the answer to Item 21 of Part
B.
<TABLE>
<CAPTION>
Name and Principal Position and Offices
Business Address Position and Office with Underwriter with Registrant
- ---------------- ------------------------------------ --------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer -
Henry H. Greer Director, President & Chief Operating Officer -
Carmen V. Romeo Director, Executive Vice President & Treasurer -
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 -
Kevin P. Robins Senior Vice President, General Counsel & Secretary Vice President &
Assistant Secretary
C-11
<PAGE>
Name and Principal Position and Offices
Business Address Position and Office with Underwriter with Registrant
- ---------------- ------------------------------------ --------------------
<S> <C> <C>
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 -
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 -
</TABLE>
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<PAGE>
c. None.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the 1940
Act, and the rules promulgated thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodians:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of Registrant's
Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone
1255 Drummers Lane, Suite 300 International Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
Wellington Management Company, LLP Newbold's Asset Management, Inc.
75 State Street 950 Haverford Road
Boston, MA 02109 Bryn Mawr, PA 19010
Item 31. Management Services: None.
Item 32. Undertakings
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940
inform the Board of Directors of their desire to communicate with
Shareholders of the Fund, the Directors will inform such
Shareholders as to the approximate number of Shareholders of record
and the approximate costs of mailing or afford said Shareholders
access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director(s)
when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares and in connection with such
meetings to comply with the
C-13
<PAGE>
provisions of Section 16(c) of the Investment Company Act of 1940
relating to Shareholder communications.
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to Shareholders, upon request and without charge. Registrant
undertakes to file a post-effective amendment, including financial
statements, which need not be audited, within 4-6 months from the
later of the commencement of operations of the PBHG Small Cap Value
Fund and PBHG Mid-Cap Value Fund of the Registrant or the effective
date of Post-Effective Amendment Nos. 27 and 29 to the Registrant's
1933 Act Registration Statement.
C-14
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that this
filing meets all of the requirements for effectiveness pursuant to Rule 485(b)
under the Securities Act of 1933 and the Registrant has duly caused this
Post-Effective Amendment No. 31 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Wayne, and
Commonwealth of Pennsylvania on the 18th day of July, 1997.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
------------------------------------------
Harold J. Baxter
Chairman and Chief Executive Officer
ATTEST:
/s/ Brian F. Bereznak
- ---------------------------------
Brian F. Bereznak, Vice President
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Harold J. Baxter Chairman and Chief
- ------------------------ Executive Officer,
Harold J. Baxter and Director July 18, 1997
* Director -------------
- ------------------------
John R. Bartholdson
* Director -------------
- ------------------------
Jettie M. Edwards
* Director -------------
- ------------------------
Albert A. Miller
* Chief Financial
- ------------------------ Officer and Controller --------------
Stephen G. Meyer
* By: /s/ Harold J. Baxter July 18, 1997
---------------------
Harold J. Baxter
(Attorney-in-Fact)
C-15
<PAGE>
EXHIBIT LIST
Exhibit Number Description
-------------- -----------
1(i) Articles of Amendment to The Articles of Incorporation
of The PBHG Funds, Inc. dated June 30, 1997.
9(d)(9) Form of Expense Limitation Agreement between The
PBHG Funds, Inc. on behalf of each Portfolio with
respect to its Advisor Class Shares.
10(b)(1) Consent of Counsel
11(a) Consent of Arthur Andersen LLP
11(b) Consent of Coopers & Lybrand L.L.P.
19 Representation of Ballard Spahr Andrews & Ingersoll
pursuant to Rule 485(b) under Securities Act of 1933.
27 Financial Data Schedules
Exhibit (1)(i)
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
First: The Corporation's Board of Directors in accordance with Section
2-605(a)(4) of the Maryland General Corporation Law and Article V Section 5.4 of
the Articles of Incorporation has adopted a resolution classifying and
redesignation the current class of shares of the "Trust Class Shares" as the
"Advisor Class Shares" for each of the Corporation's fourteen (14) series,
subject to each such class of shares having the same voting powers, preferences,
other rights, qualifications, restrictions, limitations and terms and conditions
of redemption, as currently set forth in Article V, Section 5.5 of the Articles
of Incorporation and is limited to a change expressly permitted by Section
2-605(a)(4) of the Maryland General Corporation law without action of the
Corporation's shareholders.
Second: The said amendment has been approved and authorized by the
affirmative vote of a majority of the entire Board of Directors of the
Corporation and is limited to a change expressly permitted by Section
2-605(a)(4) of the Maryland General Corporation Law without action of the
Corporation's shareholders.
<PAGE>
Third: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
2
<PAGE>
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these Articles of
Amendment to be executed in its name and its behalf by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary on
this 30th day of June, 1997.
[CORPORATE SEAL] The PBHG Funds, Inc.
By: /s/ Brian Bereznak
------------------------
Brian Bereznak
Vice President
Attest: /s/ John M. Zerr
-----------------------
John M. Zerr
General Counsel and
Secretary
The undersigned, Vice President of THE PBHG FUNDS, INC., who
executed on behalf of said Corporation the foregoing Articles of Amendment to
the Articles of Incorporation of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles of Amendment to the Articles of Incorporation to be the corporate act
of said Corporation and further certifies that, to the best of his knowledge,
information and belief, the mattes and facts set forth herein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
/s/ Brian Bereznak
------------------------
Brian Bereznak
Vice President
Dated: June 30, 1997
3
EXHIBIT 9(d)(9)
THE PBHG FUNDS, INC.
ADVISOR CLASS SHARES
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of June, 1997, by and
between The PBHG Funds, Inc. (the "Fund"), on behalf of each series of the Fund
set forth in Schedule A attached hereto (each a "Portfolio" and collectively,
the "Portfolios"), with respect to its Advisor Class shares, and Pilgrim Baxter
& Associates, Ltd.
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
diversified management company of the series type, and each Portfolio is a
series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to each Portfolio for compensation
based on the value of the average daily net assets of each such Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of each Portfolio and its shareholders to
maintain the expenses of each Portfolio at the levels specified in Schedule A.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by a Portfolio in any fiscal year, including but not
limited to investment advisory fees of the Adviser (but excluding fees and
expenses incurred under the Fund's Service Plan, interest, taxes, brokerage
commissions, and any expenditures that are capitalized in accordance with
generally accepted accounting principles, and any extraordinary expenses not
incurred in the ordinary course of the Portfolio's business) ("Portfolio
Operating Expenses"), exceed the Operating Expense Limit, as defined in Section
1.2 below, such excess amount (the "Excess Amount") shall be the liability of
the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
with respect to each Portfolio shall be the amount specified in Schedule A based
on a percentage of the average daily net assets of each Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month of a Portfolio exceed the
Operating Expense Limit of such Portfolio, the Adviser shall first
<PAGE>
waive or reduce its investment management fee for such month by an amount
sufficient to reduce the annualized Portfolio Operating Expenses to an amount no
higher than the Operating Expense Limit. If the amount of the waived or reduced
investment advisory fee for any such month is insufficient to pay the Excess
Amount, the Adviser may also remit to the appropriate Portfolio or Portfolios an
amount that, together with the waived or reduced advisory fee, is sufficient to
pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which a Portfolio's total
assets are greater than $75million and in which the Advisory Agreement is still
in effect, the estimated aggregate Portfolio Operating Expenses for the fiscal
year are less than the Operating Expense Limit for that year, subject to
quarterly approval by the Fund's Board of Directors as provided in Section 2.2
below, the Adviser shall be entitled to reimbursement by such Portfolio, in
whole or in part as provided below, of the advisory fees waived or reduced and
other payments remitted by the Adviser to the Portfolio pursuant to Section 1
hereof. The total amount of reimbursement to which the Adviser may be entitled
(the "Reimbursement Amount") shall equal, at any time, the sum of all investment
advisory fees previously waived or reduced by the Adviser and all other payments
remitted by the Adviser to the Portfolio, pursuant to Section 1 hereof, during
any of the previous two (2) fiscal years, less any reimbursement previously paid
by such Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with
respect to such waivers, reductions, and payments. The Reimbursement Amount
shall not include any additional charges or fees whatsoever, including, e.g.,
interest accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser with
respect to any Portfolio pursuant to this provision in any fiscal quarter,
unless the Fund's Board of Directors has determined that the payment of such
reimbursement is in the best interests of such Portfolio and its shareholders.
The Fund's Board of Directors shall determine quarterly in advance whether any
reimbursement may be paid to the Adviser with respect to any Portfolio in such
quarter.
2.3 Method of Computation. To determine a Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Operating Expense Limit of such Portfolio, such
Portfolio, only with the prior approval of the Board, shall pay to the Adviser
an amount sufficient to increase the annualized Portfolio Operating Expenses of
that Portfolio to an amount no greater than the Operating Expense Limit of that
Portfolio, provided that such amount paid to the Adviser will in no event exceed
the total Reimbursement Amount.
2
<PAGE>
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or a Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
- ------------------------------------- By:------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
------------------------------------ By:------------------------------
Secretary
<PAGE>
SCHEDULE A
EXPENSE LIMITATION AMOUNTS
This Agreement relates to the following Portfolios of the Fund with respect to
its Advisor Class Shares:
Maximum Expense
Name of Portfolio Limitation Amount
- ----------------- -----------------
PBHG Growth Fund 1.50%
PBHG Emerging Growth Fund 1.50%
PBHG International Fund 2.25%
PBHG Large Cap Growth Fund 1.50%
PBHG Select Equity Fund 1.50%
PBHG Technology & Communications Fund 1.50%
PBHG Core Growth Fund 1.50%
PBHG Limited Fund 1.50%
PBHG Large Cap 20 Fund 1.50%
PBHG Large Cap Value Fund 1.50%
PBHG Mid-Cap Value Fund 1.50%
PBHG Strategic Small Company Fund 1.50%
PBHG Small Cap Value Fund 1.50%
Exhibit (10)(b)(1)
CONSENT OF COUNSEL
We hereby consent to the use of our name under the caption "Counsel and
Independent Public Accountants" in the Prospectus of Post-Effective Amendment
No. 31 to the Registration Statement on Form N-1A of The PBHG Funds, Inc.
(Registration No. 2-99810) filed under the Securities Act of 1933 and Amendment
No. 29 under the Investment Company Act of 1940.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Ballard Spahr Andrews & Ingersoll
July 21, 1997
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to all references to our
firm included in Post-Effective Amendment No. 31 to the Registration Statement
on Form N-1A of The PBHG Funds, Inc. (File No. 2-99810).
/s/ Arthur Andersen LLP
Philadelphia, PA
July 21, 1997
<PAGE>
[COOPERS & LYBRAND L.L.P.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 31 to the Registration Statement under the Securities act of 1933 on Form
N-1A (File No. 2-99810) of our report dated April 23, 1997 on our audit of the
financial statements and financial highlights of The PBHG Funds, Inc. as of and
for the year or period ended March 31, 1997 in the Statement of Additional
Information. We also consent to the reference to our Firm under the headings
"Financial Highlights" and "Counsel and Independent Accountants" in the
Prospectus and under the heading "Financial Statements" in the Statement of
Additional Information.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 21, 1997
<PAGE>
Exhibit (19)
REPRESENTATION OF COUNSEL PURSUANT TO RULE
485(b) UNDER THE SECURITIES ACT OF 1933
We hereby represent that Post-Effective Amendment No. 31 to the
Registration Statement on Form N-1A of The PBHG Funds, Inc. (Registration
No. 2-99810) filed with the Securities and Exchange Commission under the
Securities Act of 1933 and Amendment No. 29 under the Investment Company Act
of 1940 contains no disclosures which would render it ineligible to become
effective pursuant to paragraph (b) of Rule 485 under the Securities Act
of 1933.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Ballard Spahr Andrews & Ingersoll
July 21, 1997
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