As filed with the Securities and Exchange Commission on July 29, 1997
Securities Act Registration No. 2-99810
Investment Company Act Registration No. 811-4391
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. __ Post-effective Amendment No. __
THE PBHG FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
32 South Street
Baltimore, Maryland 21202
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(Address of Principal Executive Offices:
Number, Street, City, State, Zip Code)
(800) 443-0051
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(Area Code and Telephone Number)
Harold J. Baxter
Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087-1590
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(Name and Address of Agent for Service)
Copies to:
William H. Rheiner, Esq. John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll General Counsel
1735 Market Street, 51st Floor Pilgrim Baxter & Associates, Ltd.
Philadelphia, Pennsylvania 19103-7599 1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087-1590
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
No filing fee is required because an indefinite number of shares is being
registered pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended. The Registrant's Rule 24f-2 Notice for its fiscal year ended March 31,
1997 was filed on May 9, 1997. Registrant is filing a copy of its notice under
Rule 24f-2 as an exhibit to this Registration Statement. Pursuant to Rule 429
under the Securities Act of 1933, as amended ("1933 Act"), this Registration
Statement relates to shares previously registered on the aforesaid Registration
Statement.
It is proposed that this filing will become effective on August 28, 1997,
pursuant to Rule 488 under the 1933 Act.
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THE PBHG FUNDS, INC.
FORM N-14
Cross Reference Sheet
Pursuant to Rule 481(a) under the 1933 Act
<TABLE>
<CAPTION>
Item No. Location in Combined Proxy Statement and Prospectus
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Part A
<S> <C> <C>
1. Beginning of Registration Cover Page
Statement and Outside Front
Cover Page or Prospectus
2. Beginning and Outside Back Table of Contents
Cover Page
3. Fee Table, Synopsis and Risk Summary; Risk Factors
Factors
4. Information About the Transaction Summary; Additional Information About the Agreement
5. Information About the Registrant Summary; Additional Information About the Agreement;
Rights of Shareholders; Additional Information About
Each Fund
6. Information About the Company Summary; Additional Information About the Agreement;
Being Acquired Rights of Shareholders; Additional Information About
Each Fund
7. Voting Information Summary; Information Relating to Voting Matters
8. Interest of Certain Persons and Additional Information About Each Fund
Experts
9. Additional Information Required Not Applicable
for Reoffering by Persons
Deemed to be Underwriters
Part B Location in Statement of Additional Information
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10. Cover Page Cover Page
11. Table of Contents Cover Page
12. Additional Information About the Additional Information About PBHG Funds and the
Registrant Large Cap Value Fund; Incorporation of documents by
reference in the Statement of Additional Information
13. Additional Information About the Not Applicable
Company Being Acquired
14. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this document.
</TABLE>
<PAGE>
[Example of a Letter to Shareholders]
Dear Shareholder:
The accompanying Combined Proxy Statement and Prospectus contains an important
proposal for your consideration as a shareholder of Newbold's Equity Portfolio
(the "Equity Portfolio"), a series of UAM Funds Trust. Your Board of Trustees
has proposed that the Equity Portfolio enter into a transaction (the
"Reorganization") pursuant to which it will be combined with PBHG Large Cap
Value Fund (the "Large Cap Value Fund"), a series of The PBHG Funds, Inc. If the
proposed Reorganization is approved by the shareholders of the Equity Portfolio,
substantially all of the Equity Portfolio's assets (less a reserve for
liabilities) will be exchanged for shares of the Large Cap Value Fund. On the
closing date, you will receive shares of Large Cap Value Fund having an
aggregate net asset value equal to the aggregate net asset value of your Equity
Portfolio shares, with no tax effect to you.
The Equity Portfolio was designed to seek long-term total return consistent with
reasonable risk to principal. In seeking to achieve that objective, the Equity
Portfolio has invested primarily in a diversified portfolio of undervalued
equity securities of statistically attractive companies. While the Equity
Portfolio has performed reasonably well, it has not reached the "critical mass"
necessary to operate in an economically viable fashion.
Your Board of Trustees believes that the Reorganization presents several
benefits to shareholders of the Equity Portfolio. The investment objective of
the Large Cap Value Fund is to seek long-term growth of capital and income by
investing in equity securities which its investment adviser believes are
under-valued or overlooked in the market. Because Newbold's Asset Management,
Inc. ("Newbold's"), the adviser to the Equity Portfolio, is the sub-adviser to
the Large Cap Value Fund, your investment will continue to benefit from
Newbold's distinctive investment philosophy. By combining the Equity Portfolio
with the Large Cap Value Fund, the Board of Trustees has concluded that the
Reorganization will create opportunities for operating efficiencies and the
reduction or elimination of certain costs and expenses. As explained in the
Combined Proxy Statement and Prospectus, your Board of Trustees believes that
the proposed tax-free reorganization is likely to result in a more favorable
long-term cost structure for the Equity Portfolio's shareholders than would be
otherwise obtainable.
The enclosed materials provide more information about the proposal. Please read
this information carefully and call us if you have any questions. Our toll free
number is 1-800-638-7983.
Please know that your vote is important no matter how many shares you own.
Voting your shares early will help us avoid follow-up mailings and telephone
solicitations.
After reviewing the enclosed materials, we ask that you vote FOR the proposed
Reorganization by completing, dating, and signing your proxy card, and mailing
it to us today.
Sincerely,
Norton Reamer
Chairman
UAM Funds Trust
<PAGE>
UAM FUNDS TRUST
NEWBOLD'S EQUITY PORTFOLIO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on September 26, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Newbold's Equity Portfolio (the "Equity Portfolio"), a series of
UAM Funds Trust ("UAM Funds"), will be held at the offices of UAM Fund Services,
Inc., 211 Congress Street, Boston, Massachusetts, 02110, on September 26, 1997,
at 10:00 A.M. Eastern time, for the following purposes.
1. To approve or disapprove an Agreement and Plan of Reorganization (the
"Agreement") by and between UAM Funds, acting on behalf of the Equity
Portfolio, and The PBHG Funds, Inc. ("PBHG Funds"), acting on behalf of the
PBHG Large Cap Value Fund (the "Large Cap Value Fund"), a series of PBHG
Funds, and the transactions contemplated thereby (the "Reorganization").
Pursuant to the Agreement, the Equity Portfolio will transfer substantially
all of its assets to the Large Cap Value Fund. Upon such transfer, PBHG
Funds will issue PBHG Class shares of the Large Cap Value Fund to the
Equity Portfolio. The Equity Portfolio will then make a liquidating
distribution of the Large Cap Value Fund Shares so received to shareholders
of the Equity Portfolio. Each shareholder of the Equity Portfolio will
receive that number of Large Cap Value Fund shares with an aggregate net
asset value equal to the aggregate net asset value of his or her shares of
the Equity Portfolio. As soon as reasonably practicable after the transfer
of its assets, the Equity Portfolio will pay or make provision for payment
of all of its liabilities and will pay a dividend to its shareholders
consisting of all undistributed income and net capital gains, if any,
recognized prior to the transfer of its assets. The Equity Portfolio will
then terminate its existence as a separate series of UAM Funds.
2. To transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies
or their substitutes.
The Reorganization has been structured as a tax-free reorganization. No
sales charge will be imposed in connection with the Reorganization. The
Reorganization is described in the attached combined proxy statement and
prospectus.
Only shareholders of record at the close of business on July 25, 1997, the
record date for this Special Meeting, shall be entitled to vote at the Special
Meeting or any adjournments thereof.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
As a shareholder of the Equity Portfolio, you are asked to attend the Special
Meeting either in person or by proxy. If you are unable to attend the Special
Meeting in person, we urge you to complete, sign, date, and return the enclosed
proxy in the enclosed postage prepaid envelope. Your prompt return of the proxy
will help assure a quorum at the Special Meeting and avoid further solicitation.
Sending in your proxy will not prevent you from voting your shares in person at
the Special Meeting and you may revoke your proxy by advising the Secretary of
UAM Funds in writing (by subsequent proxy or otherwise) of such revocation at
any time before it is voted.
By Order of the Board of Trustees,
Michael E. DeFao
Secretary
Boston, Massachusetts
August __, 1997
<PAGE>
UAM FUNDS TRUST
Newbold's Equity Portfolio
UAM Funds Services, Inc.
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02228-2798
Toll Free: (800) 638-7983
THE PBHG FUNDS, INC.
PBHG Large Cap Value Fund
P.O. Box 419534
Kansas City, Missouri 64141-6534
Toll Free: (800) 433-0051
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated August __, 1997
This Combined Proxy Statement and Prospectus is furnished in connection
with the solicitation of proxies by the Board of Trustees of UAM Funds Trust
("UAM Funds") on behalf of Newbold's Equity Portfolio (the "Equity Portfolio"),
a separate series of UAM Funds, in connection with the Special Meeting of
Shareholders of the Equity Portfolio (the "Special Meeting") to be held at the
offices of UAM Fund Services, Inc., 211 Congress Street, Boston, Massachusetts,
02110, on September 26, 1997 at 10:00 A.M. Eastern time.
At the Special Meeting, the shareholders of the Equity Portfolio will be
asked to approve or disapprove a proposed Agreement and Plan of Reorganization,
dated as of June 26, 1997 (the "Agreement"), by and between UAM Funds, acting on
behalf of the Equity Portfolio, and The PBHG Funds, Inc. ("PBHG Funds"), acting
on behalf of the PBHG Large Cap Value Fund (the "Large Cap Value Fund"), a
separate series of PBHG Funds, and the transactions contemplated thereby (the
"Reorganization"). The Board of Trustees of UAM Funds has unanimously approved
the Agreement and the Reorganization as being fair to and in the best interests
of the Equity Portfolio shareholders.
The Agreement provides that, on the closing date for the Reorganization
(the "Closing Date"), which is currently scheduled to take place on September
30, 1997, substantially all of the property and assets of the Equity Portfolio
(except for certain excluded assets and a reserve for certain expenses and
liabilities) will be transferred to the Large Cap Value Fund. Upon such
transfer, PBHG Funds will issue PBHG Class shares of the Large Cap Value Fund
("Large Cap Value Shares") to the Equity Portfolio. The Equity Portfolio will
then make a liquidating distribution of the Large Cap Value Shares so received
to the shareholders of the Equity Portfolio, so that a holder of shares of the
Equity Portfolio ("Equity Portfolio Shares") on the Closing Date will receive
that number of full and fractional Large Cap Value Shares having an aggregate
net asset value equal to the aggregate net asset value of the shareholder's
Equity Portfolio Shares immediately before the Closing Date. Following the
Reorganization, the Equity Portfolio will pay or make provision for payment of
all of its liabilities and will pay a dividend to its shareholders consisting of
all undistributed income and capital gains, if any, recognized prior to the
transfer of its assets. The Equity Portfolio will then be terminated as a series
of the UAM Funds.
The Large Cap Value Fund is a portfolio of PBHG Funds, an open-end, series,
management investment company. The investment objective of the Large Cap Value
Fund is to achieve long-term growth of capital and income. Current income is a
secondary objective. The Large Cap Value Fund seeks to achieve its investment
objective primarily through investment in a diversified portfolio of equity
securities of large capitalization companies which, in the opinion of its
investment adviser, are undervalued or overlooked by the market. The investment
objective of the Equity Portfolio is to achieve maximum long-term total return,
consistent with reasonable risk to principal, by investing primarily in a
diversified portfolio of undervalued equity securities of statistically
attractive companies. The Large Cap Value Fund's investment objective is similar
to that of the Equity Portfolio, and their
<PAGE>
investment policies are also similar. There are some differences however, in the
investment limitations applicable to the Equity Portfolio and Large Cap Value
Fund. See "Risk Factors" and "Comparison of Investment Objectives and Policies."
This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Equity Portfolio should know before voting
on the Agreement and the Reorganization contemplated thereby and should be
retained for future reference. The Agreement is attached to this Combined Proxy
Statement and Prospectus as Exhibit B and is incorporated herein by reference.
A Prospectus for PBHG Fund, dated June 30, 1997, which describes the
investment program and operation of the Large Cap Value Fund, is attached to
this Combined Proxy Statement and Prospectus as Exhibit A. A Prospectus for the
Institutional Class Shares of the Equity Portfolio, dated July 10, 1997, was
previously provided to each Equity Portfolio shareholder. Additional information
concerning the Equity Portfolio and the Large Cap Value Fund is set forth in the
Statement of Additional Information for the Equity Portfolio, dated July 10,
1997, and the Statement of Additional Information for the Large Cap Value Fund,
dated May 20, 1997, as amended on July 21, 1997 , respectively. Moreover,
further information concerning the matters considered herein is set forth in the
Statement of Additional Information to this Combined Proxy Statement and
Prospectus, dated August __, 1997. Each of these documents is on file with the
Securities and Exchange Commission ("SEC"), and is available without charge upon
oral or written request by writing or calling the Equity Portfolio or Large Cap
Value Fund at the addresses and telephone numbers shown on the cover page of
this Combined Proxy Statement and Prospectus. The PBHG Fund prospectus is also
available on the Fund's Web site at http:\\www.pbhgfunds.com. The SEC maintains
a Web site at http:\\www.sec.gov that contains the Statements of Additional
Information, material incorporated by reference and other information regarding
the PBHG Fund, the UAM Funds, and other registrants that file electronically
with the SEC. The information contained in each of these Prospectuses, the
Statement of Additional Information of the Large Cap Value Fund and the
Statement of Additional Information to this Combined Proxy Statement and
Prospectus is incorporated herein by reference.
This Combined Proxy Statement and Prospectus constitutes the proxy
statement of the Equity Portfolio for the Special Meeting of Shareholders and
the prospectus for the Large Cap Value Shares, which have been registered with
the SEC and are to be issued in connection with the Reorganization.
The Notice, this Combined Proxy Statement and Prospectus, and the
accompanying proxy are expected to first be sent to shareholders of the Equity
Portfolio on or about August __, 1997.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS COMBINED PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
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SUMMARY .................................................................... 1
Proposed Reorganization and the Agreement........................... 1
Reasons for Reorganization.......................................... 1
Risk Considerations................................................. 2
Overview of the Equity Portfolio and the Large Cap Value Fund....... 2
RISK FACTORS................................................................. 7
Over-the-Counter Market............................................. 7
Foreign Securities and Emerging Markets............................. 7
Investments in Technology Companies................................. 7
Options and Futures Contracts....................................... 7
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES............................. 8
Investment Objectives and Policies.................................. 8
Investment Limitations.............................................. 10
Portfolio Manager................................................... 11
ADDITIONAL INFORMATION ABOUT THE AGREEMENT................................... 11
Description of the Agreement........................................ 11
Board Consideration................................................. 12
Federal Income Tax Consequences..................................... 14
RIGHTS OF SHAREHOLDERS....................................................... 15
Liability of Shareholders........................................... 16
Election of Directors/Trustees; Terms; Annual Shareholder Meetings.. 16
Removal of Trustees................................................. 16
Special Meetings of Shareholders.................................... 17
Liability of Directors/Trustees and Officers........................ 17
Termination......................................................... 17
Voting Rights of Shareholders....................................... 17
Dissenters' Rights.................................................. 18
Amendments to Organization Documents................................ 18
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION................ 19
ADDITIONAL INFORMATION ABOUT EACH FUND....................................... 19
Financial Information for the Equity Portfolio...................... 19
Financial Information for the Large Cap Value Fund.................. 21
Management Discussion and Analysis of Performance................... 21
Further Information About PBHG Funds and the Large Cap Value Fund... 21
Further Information About UAM Funds and the Equity Portfolio........ 22
CAPITALIZATION............................................................... 22
FINANCIAL STATEMENTS......................................................... 22
OWNERSHIP OF EQUITY PORTFOLIO AND PBHG LARGE CAP VALUE SHARES................ 23
<PAGE>
INFORMATION RELATING TO VOTING MATTERS....................................... 24
General Information................................................. 24
Shareholder and Board Approvals..................................... 25
Quorum ........................................................... 25
Other Business...................................................... 25
Shareholder Inquiries............................................... 25
Exhibit A: Prospectus of PBHG Large Cap Value Fund
Exhibit B: Agreement and Plan of Reorganization
Exhibit C: Discussion of Performance of PBHG Large Cap Value Fund
Exhibit D: Discussion of Performance of Newbold's Equity Portfolio
<PAGE>
SUMMARY
The following is a summary of certain information relating to the proposed
Reorganization, the parties thereto, the transactions contemplated thereby, and
is qualified by reference to the more complete information contained elsewhere
in this Combined Proxy Statement and Prospectus and the Statement of Additional
Information hereto, the Prospectuses of the Equity Portfolio and the Large Cap
Value Fund (each, a "Fund" and together, "Funds"), the Statement of Additional
Information for the Large Cap Value Fund and the Agreement dated as of June 26,
1997, which is attached to this Combined Proxy Statement and Prospectus as
Exhibit B.
Proposed Reorganization and the Agreement.
The Agreement and the Reorganization will result in the combination of the
Equity Portfolio and the Large Cap Value Fund. The Large Cap Value Fund is a
series of PBHG Funds, a Maryland corporation. The Equity Portfolio is a series
of UAM Funds, a Delaware business trust. The Agreement provides that, on the
closing date for the Reorganization (the "Closing Date"), which is currently
scheduled to take place on September 29, 1997, substantially all of the property
and assets of the Equity Portfolio (except for certain excluded assets and a
reserve for certain expenses and liabilities) will be transferred to the Large
Cap Value Fund. Upon such transfer, PBHG Funds will issue PBHG Class shares of
the Large Cap Value Fund ("Large Cap Value Shares") to the Equity Portfolio. The
Equity Portfolio will then make a liquidating distribution of the Large Cap
Value Shares so received to the shareholders of the Equity Portfolio, so that a
holder of shares of the Equity Portfolio ("Equity Portfolio Shares") on the
Closing Date will receive that number of full and fractional Large Cap Value
Shares having an aggregate net asset value equal to the aggregate net asset
value of the shareholder's Equity Portfolio Shares immediately before the
Closing Date. Following the Reorganization, the Equity Portfolio will pay or
make provision for payment of all of its liabilities and will pay a dividend to
its shareholders consisting of all undistributed income and capital gains, if
any, recognized prior to the transfer of its assets. The Equity Portfolio will
then be terminated as a series of the UAM Funds. For further information about
the Reorganization and the Agreement, see "Additional Information About the
Agreement."
Ballard Spahr Andrews & Ingersoll, counsel for PBHG Funds, will issue an
opinion as of the Closing Date to the effect that the Reorganization will
constitute a tax-free reorganization for Federal income tax purposes. Thus,
shareholders will not have to pay Federal income taxes as a result of the
Reorganization. See "Additional Information About the Agreement -- Federal
Income Tax Consequences."
Reasons for Reorganization.
The Board of Trustees of UAM Funds, including the non-interested Trustees,
has determined that it is in the best interests of the Equity Portfolio and its
shareholders to reorganize into the Large Cap Value Fund. In making such
determination, the Board of Trustees considered, among other things, the small
asset size and lack of significant additional asset growth of the Equity
Portfolio, and the resulting difficulty in achieving adequate economies of
scale. As a result of the Equity Portfolio's current asset level and relatively
slow asset growth, its investment adviser, Newbold's Asset Management, Inc.
("Newbold's"), has been voluntarily waiving a substantial portion of its
advisory fees. Such voluntary fee waiver will not be continued after January 28,
1998. Without the fee waiver, for the month ended April 30, 1997, the Equity
Portfolio's annualized expense ratio would have been 2.19% Upon consummation of
the Reorganization, the annual expense ratio of the Large Cap Value Fund is
expected to be 1.10%. Thus, the Board of Trustees determined that the
combination of the two Funds is expected to provide Equity Portfolio
shareholders with a more advantageous long-term cost structure than would
otherwise be achievable by the Equity Portfolio.
In addition, the Board of Trustees of UAM Funds considered the following
factors: (a) the investment objectives of the Equity Portfolio and Large Cap
Value Fund are similar as are their investment policies; (b) Newbold's serves as
adviser to the Equity Portfolio and sub-adviser to the Large Cap Value Fund,
providing day-to-day
<PAGE>
portfolio management for both Funds; (c) the Reorganization will be tax-free to
the Equity Portfolio and its shareholders; and (d) holders of shares of the
Large Cap Value Fund have a broader range of shareholder services available to
them than holders of shares of the Equity Portfolio.
Risk Considerations.
The risks involved in investing in the Equity Portfolio and Large Cap Value
Fund are similar, given the similarities in the investment objectives, policies
and restrictions of each Fund. There are differences, however, between certain
of the investment limitations applicable to the Equity Portfolio and the
investment limitations applicable to the Large Cap Value Fund. The primary
differences are that: (1) the Equity Portfolio may not invest more than 5% of
its assets at the time of purchase in securities of companies that have (with
predecessors) a continuous operating history of less than 3 years, whereas the
Large Cap Value Fund has no such limitation, (2) the Equity Portfolio may engage
in leverage to a greater degree than the Large Cap Value Fund, because it may
borrow amounts up to 33-1/3% of its gross assets, whereas the Large Cap Value
Fund may only borrow up to 10% of its gross assets; and (3) while the Large Cap
Value Fund may not purchase more than 10% of the voting securities of any
issuer, the Equity Portfolio's corresponding limitation applies to only 75% of
its assets; thus, up to 25% of the Equity Portfolio's assets may be invested
without regard to that limitation, and, as a result, may be used to acquire
larger positions in particular issuers than is permitted the Large Cap Value
Fund. To the extent that the Equity Portfolio engages in leverage or acquires
larger positions in a particular issuer's securities, its portfolio may be
riskier than the portfolio of the Large Cap Value Fund.
Overview of the Equity Portfolio and the Large Cap Value Fund.
Investment Objectives and Policies.
The investment objectives and policies of the Equity Portfolio and Large
Cap Value Fund are similar. The investment objective of the Equity Portfolio is
to achieve maximum long-term total return, consistent with reasonable risk to
principal. The investment objective of the Large Cap Value Fund is long-term
growth of capital and income; current income is a secondary objective. Both
Funds, under normal market conditions, invest at least 65% of their total assets
in a diversified portfolio of equity securities (i.e., common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of large capitalization companies. Each Fund defines large
capitalization companies as those companies with market capitalizations in
excess of $1 billion at the time of purchase.
Both Funds seek investment value and return by investing in companies that
are undervalued or overlooked by the market. Using custom designed research
models and proprietary software, which incorporate certain key elements of value
investing, Newbold's, which is both adviser to the Equity Portfolio and
sub-adviser to the Large Cap Value Fund, screens possible companies to identify
a set of statistically attractive value companies. Newbold's then uses its
fundamental research capabilities to assemble a portfolio of securities that are
currently out of favor but which have the potential to achieve significant
appreciation as the marketplace recognizes their fundamental value.
There are certain differences between each Fund's investment limitations.
See "Summary -- Risk Considerations" and "Comparison of Investment Objectives
and Policies" for a further description of the similarities and differences
between the investment objectives, policies and risks of the Equity Portfolio
and the Large Cap Value Fund.
2
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Advisory and Administrative Services
Equity Portfolio
Newbold's serves as investment adviser for the Equity Portfolio. Newbold's
is entitled to receive a monthly advisory fee from the Equity Portfolio,
computed at the annual rate of .50% of the Portfolio's average daily net asset
value. Newbold's is a wholly-owned subsidiary of 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 Fund Services, Inc. ("UAMFSI"), a wholly-owned subsidiary of UAM, is
responsible for performing and overseeing administrative, fund accounting,
transfer agent and dividend disbursing agent services provided to the Equity
Portfolio. UAMFSI's principal office is located at 211 Congress Street, Boston,
MA 02110. UAMFSI has engaged Chase Global Funds Services Company ("CGFSC"), an
affiliate of The Chase Manhattan Bank, to provide some of these services. CGFSC
is located at 73 Tremont Street, Boston, MA 02108.
The Equity Portfolio pays UAMFSI a two-part monthly fee: a
portfolio-specific fee which is retained by UAMFSI and a sub-administration fee
which UAMFSI in turn pays to CGFSC. The portfolio-specific fee for the Equity
Portfolio is equal to .04% of the Equity Portfolio's aggregate net assets. The
sub-administration fee paid to CGFSC is calculated based on the combined net
assets of all of the series of the UAM Funds, as follows: 0.19% of the first
$200 million of combined UAM Funds assets; 0.11% of the next $800 million of
combined UAM Funds assets; 0.07% of combined UAM Funds assets in excess of $1
billion but less than $3 billion; and 0.05% of combined UAM Funds assets in
excess of $3 billion. The sub-administration fees are allocated among the UAM
Funds' series on the basis of their relative assets, subject to a graduated
schedule of minimum fees per series, which starts at $2,000 per month and
increases to $70,000 annually after two years. Because the Equity Portfolio has
been in existence for two years, its minimum annual fee is $70,000
UAM Fund Distributors, Inc. ("UAMFD"), a wholly-owned subsidiary of UAM
with its principal office located at 211 Congress Street, Boston Massachusetts
02110, distributes the shares of the Equity Portfolio. UAMFD does not receive
any fee or other compensation for its services in connection with the
distribution of Institutional Class Shares of the Equity Portfolio.
Large Cap Value Fund
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") serves as investment
adviser for the Large Cap Value Fund and is entitled to receive a monthly
advisory fee from the Large Cap Value Fund, computed at the annual rate of .65%
of the Fund's average daily net asset value. Newbold's serves as investment
sub-adviser for the Large Cap Value Fund, and is paid a monthly fee by Pilgrim
Baxter at the annual rate of 0.50% of the average daily net assets of the Large
Cap Value Fund. Pilgrim Baxter is a wholly-owned subsidiary of UAM.
PBHG Fund Services ("PBFS"), a wholly owned subsidiary of Pilgrim Baxter,
provides the Large Cap Value Fund with administrative services, including
regulatory reporting and all necessary office space, equipment, personnel and
facilities. For these administrative services, PBFS 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 Large Cap Value Fund. PBFS' principal place of business
is 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087.
SEI Fund Resources ("SEIFR"), an indirect wholly-owned subsidiary of SEI
Investments Company ("SEI") and an affiliate of the Large Cap Value Fund's
distributor, assists PBFS in providing administrative services to the Fund. For
acting in this capacity, PBFS pays SEIFR a fee at the annual rate of 0.07% of
the average daily net assets of the Large Cap Value Fund with respect to $2.5
billion of the total average daily net assets of all the series
3
<PAGE>
of the PBHG Funds, and a fee at the annual rate of 0.025% of the average daily
net assets with respect to all series of the PBHG Funds' total average daily net
assets in excess of $2.5 billion.
SEI Investments Distribution Co. ("SEID"), Oaks, Pennsylvania 19456, a
wholly-owned subsidiary of SEI, provides the Large Cap Value Fund with
distribution services. No compensation is paid to SEID for its services in
connection with the distribution of the PBHG Class Shares of the Large Cap Value
Fund.
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 Large Cap Value Fund.
Expense Levels
The following table sets forth the current fees and expenses of the Equity
Portfolio for the fiscal period ended April 30, 1997 and the Large Cap Value
Fund for the month ended June 30, 1997 annualized. Neither the Equity Portfolio
nor the Large Cap Value Fund charge a sales load in connection with purchases of
their shares. The advisory fee currently paid by the Large Cap Value Fund is
expected to remain unchanged as a result of the Reorganization. Certain of the
other expenses of the Large Cap Value Fund (as a percentage of average net
assets) are expected to decrease after consummation of the Reorganization as a
result of the increase in the Large Cap Value Fund's assets.
Annual Operating Expenses
(as a percentage of average net assets after applicable
fee waivers or expense reimbursement)
Large Cap Equity Estimated
Value Fund(1) Portfolio(2) Combined
------------- ------------ ---------
Advisory Fees 0.65% 0.00% 0.65%
Other Expenses 0.65% 0.90% 0.48%
12b-1 Fees NONE NONE(3) NONE
Total Operating Expenses 1.30% 0.90% 1.13%(4)
- ----------
(1) Pilgrim Baxter has agreed to limit or waive its advisory fees or assume
other expenses in an amount that operates to limit annual operating
expenses of the Large Cap Value Fund to no more than 1.50% of its average
daily net assets. Each such waiver of the Large Cap Value Fund's advisory
fees or assumption of its other expenses by Pilgrim Baxter is subject to
possible reimbursement in future years if such reimbursement can be
achieved within the foregoing expense limitation. Nevertheless, it is not
expected that Pilgrim Baxter will need to waive or limit its advisory fees
or assume other expenses during the current fiscal year, assuming that the
Large Cap Value Fund will have average assets of at least $50 million. The
Large Cap Value Fund's "other expenses" specified above are based on
estimated expenses for the current fiscal year, since the Large Cap Value
Fund has only been in operation since January 2, 1997. For the period from
the Large Cap Value Fund's inception on January 2, 1997 through its fiscal
year and on March 31, 1997, absent fee waivers or expense reimbursements,
the actual advisory fees and total operating expenses as a percentage of
the average net assets of the Large Cap Value Fund were .85% and 1.74%,
respectively. On March 6, 1997, the Board of Directors of The PBHG Funds
voted to reduce the advisory fees of the Large Cap Value Fund from .85% to
.65%, effective May 1, 1997.
(2) The Equity Portfolio's expenses specified in the table above reflect its
expenses incurred during the fiscal year ended April 30, 1997 and take into
account fee waivers and assumption of expenses by Newbold's. Absent fee
waivers and the assumption of expenses, the total expense ratio for such
period would have been 1.45% of average daily net assets. The foregoing
expense figures reflect a waiver by Newbold's of all of an agreement by
Newbold's to waive all or a portion of its Advisory Fee for the Equity
Portfolio to keep
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the annual total operating expenses of the Equity Portfolio from exceeding
.90% of its average daily net assets.
(3) The Equity Portfolio has authorized a class of shares, called
"Institutional Service Class Shares", that are subject to a Rule 12b-1 fee
of .40% annually of average net assets. Since the Equity Portfolio has not
issued any of its Institutional Service Class Shares, however, information
concerning that class of shares has not been included in this Combined
Proxy Statement and Prospectus.
(4) The Estimated Combined expense figures specified above reflect the
estimated effect of the Reorganization.
Example of Fund Expenses
An investor 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:
Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- --------
PBHG Large Cap Value Fund $13 $41 N/A N/A
Newbold's Equity Portfolio $9 $29 $50 $111
Pro Forma Combined $11 $35 [ ] [ ]
The example is based upon estimated total operating expenses for the Funds, 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 the Funds and, on a pro forma basis, in the
Large Cap Value Fund after the Reorganization.
Organization.
The UAM Funds is organized as a Delaware business trust. The PBHG Funds is
organized as a Maryland corporation.
Purchase, Exchange and Redemption Policies
Equity Portfolio
The purchase price for shares acquired either directly or through
reinvestment of dividends and distributions shall be the net asset value per
share next determined after an order is received by UAM Funds or the net asset
value next determined as of the close of business on the record date of the
dividend or distribution. For information concerning Equity Portfolio purchase
policies see the Equity Portfolio Prospectus.
Shareholders of Institutional Class Shares of the Equity Portfolio
currently have exchange privileges for Institutional Class Shares of other
series of the UAM Funds. They will no longer have those privileges after the
Reorganization.
Shares of the Equity Portfolio may be redeemed by mail or telephone, at any
time, without cost, at the net asset value of the Equity Portfolio next
determined after receipt of a redemption request. No charge is made for
redemptions. Normally, the Equity Portfolio will make payment for all shares
redeemed under proper procedures within one day of, and no more than seven days
after, the receipt of the request, or earlier if required under applicable law.
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Large Cap Value Fund
Shares of the Large Cap Value Fund are sold on a continuous basis by SEID
and may be purchased directly by individuals and institutions or through certain
broker-dealers, financial institutions, or other service providers. PBHG Class
shares of the Large Cap Value Fund are sold on a no-load basis, meaning that
shares may be purchased, redeemed, and exchanged directly at net asset value
without paying a sales charge. Broker-dealers, financial institutions, and other
service providers, however, may charge an administrative fee on the purchase or
redemption of Large Cap Value Shares. The purchase price will be net asset value
next determined after the Large Cap Value Fund receives the shareholder's
purchase request in proper form.
No sales charge will be imposed on the issuance of Large Cap Value Shares
in connection with the Reorganization.
Due to the relatively high cost of maintaining smaller accounts, the Large
Cap Value Fund will impose an annual $12.00 minimum account charge and reserves
the right to redeem shares in any non-retirement account if, as the result of
redemptions, the value of any account drops below the minimum initial investment
amount specified above. Investors will be allowed at least 60 days, after notice
from the Large Cap Value Fund, to make an additional investment to bring your
account value up to at least the applicable minimum account size before the
annual $12.00 minimum account fee is charged and/or the redemption of a
non-retirement account is processed. The applicable minimum account charge will
be imposed annually on any such account until the account is brought up to the
applicable minimum account size.
The minimum initial investment for the Large Cap Value Fund is $2500 for
regular accounts and $2000 for Individual Retirement Accounts ("IRAs"). There is
no minimum for subsequent purchases except for those (1) using the Systematic
Investment Plan or (2) electing to purchase additional shares by telephone. No
minimum applies to subsequent purchases effected by dividend reinvestment.
Subsequent purchases through the Large Cap Value Fund's Systematic Investment
Plan and by Telephone Purchase Authorization must be at least $25 and $1000,
respectively.
A purchase order will be effective as of the day received by the Large Cap
Value Fund's 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 Large Cap
Value Fund offers a Systematic Investment Plan, Systematic Withdrawal Plan and a
variety of tax-sheltered retirement plans, as well as Uniform Gift to
Minors/Uniform Transfers to Minors accounts and custodial and fiduciary
accounts. Purchase orders may also be made via Automated Clearing House and by
Federal Reserve wire transfer.
Once an account has been established, shares of the Large Cap Value Fund
may be exchanged for shares of the other series of PBHG Funds currently
available to the public. Shareholders are limited to four (4) exchanges annually
from the Large Cap Value Fund to the PBHG Cash Reserves Fund. Exchanges are made
at net asset value. The Fund reserves the right to change the terms and
conditions of the exchange privilege, or to terminate the exchange privilege,
upon sixty (60) days' notice.
Redemption orders for shares of the Large Cap Value Fund received by the
transfer agent prior to 4:00 p.m. Eastern time on any Business Day will be
effective that day. Redemption orders may be placed by mail or by telephone. The
redemption price of shares of the Large Cap Value Fund is the net asset value
next determined after the redemption order is effective. Payment of redemption
proceeds will be made as promptly as possible and, in any event, within seven
days after the redemption order is received. Redemption payments may be made by
check or by Federal Reserve wire or ACH transfer.
Please refer to the Prospectus of the Large Cap Value Fund attached hereto
as Exhibit A for further information on its purchase, exchange and redemption
policies.
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RISK FACTORS
A description of the risks associated with an investment in the shares of
the Large Cap Value Fund is provided below.
Over-the-Counter Market
The Large Cap Value Fund may invest in over-the-counter stocks. In contrast
to the securities exchanges, the over-the-counter market is not a centralized
facility which limits trading activity to securities of companies which
initially satisfy certain defined standards. Generally, the volume of trading in
an unlisted or over-the-counter common stock is less than the volume of trading
in a listed stock. This means that the depth of market liquidity of some stocks
in which the Large Cap Value Fund invests may not be as great as that of other
securities and, if the Large Cap Value Fund 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 Large Cap Value Fund 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 Large Cap Value Fund'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.
Investments in Technology Companies
The Large Cap Value Fund may invest in equity securities of technology
companies. Such securities have tended to be subject to greater volatility than
securities of companies that are not dependent upon or associated with
technological issues. Also, because many technology industries share common
characteristics, an event or issue affecting one such industry may have a
significant impact on these other, related industries and, thus, may affect the
value of the Large Cap Value Fund's investments in technology companies.
Options and Futures Contracts.
Although it has no current intention to do so, the Large Cap Value Fund may
utilize futures contracts, and may write and purchase call and put options. The
risk of loss in trading futures contracts can be substantial because of the low
margin deposits required and the extremely high degree of leveraging involved in
futures pricing. As a result, a relatively small price movement in a futures
contract may cause an immediate and substantial loss or gain. The primary risks
associated with the use of options and futures contracts are (i) imperfect
correlations between the change in market value of the securities held by the
Portfolio and the prices of the options or futures contracts purchased or sold
by the Large Cap Value Fund; and (ii) possible lack of a liquid secondary market
for an over-the-counter option or futures contract and the resulting inability
to close the over-the-counter option or futures position prior to its maturity
date, which could have an adverse impact on the Large Cap Value Fund's ability
to execute futures and options strategies. Moreover, where these instruments are
used for hedging purposes, the associated commissions and other costs may
increase the Large Cap Value Fund's expenses and, if the market
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<PAGE>
factors and other economic factors used in formulating the hedging strategy are
incorrectly forecast, the Large Cap Value Fund might be in a better position if
it had not hedged at all.
Please see the Prospectus for the Large Cap Value Fund attached hereto as
Exhibit A for further information concerning the investment policies and risks
of an investment in its shares.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The investment objectives, the investment policies and the investment
restrictions of the Equity Portfolio and Large Cap Value Fund are similar. There
are, however, some differences in the investment limitations applicable to the
Funds. The following discussion summarizes the investment objectives and
policies of the Equity Portfolio and Large Cap Value Fund and is qualified in
its entirety by the discussion in the Prospectuses and Statements of Additional
Information of the Equity Portfolio and Large Cap Value Fund.
Investment Objectives and Policies.
The investment objectives of both the Equity Portfolio and Large Cap Value
Fund are fundamental, meaning that they may not be changed without a vote of the
holders of a majority of the particular Fund's outstanding shares.
Large Cap Value Fund
The Large Cap Value Fund seeks long-term growth of capital and income.
Current income is a secondary objective. Under normal market conditions, the
Fund will invest at least 65% of its total assets in a diversified portfolio of
equity securities (i.e., common stocks, preferred stock, rights, warrants and
securities convertible into or exchangeable for common stock) of large
capitalization companies which, in the opinion of Pilgrim Baxter and Newbold's,
are undervalued or overlooked by the market. Such large companies have market
capitalizations in excess of $1 billion at the time of purchase.
In selecting investments for the Large Cap Value Fund, Pilgrim Baxter and
Newbold's emphasize fundamental investment value and consider the following
factors, among others, in identifying and analyzing a security's fundamental
value: the relationship of a company's potential earnings power to the current
market price of its stock; continuing dividend income and the potential for
increasing dividend growth; a strong balance sheet with a low financial
leverage; low price/earnings ratio relative to either that company's historical
results or the current ratios for other similar companies; and potential for
favorable business developments. The Large Cap Value Fund may invest in equity
securities of companies that are considered to be financially sound and
attractive investments based on their long-term operations which may be
experiencing temporary earnings declines or adverse economic conditions that may
be company or industry specific or due to unfavorable publicity. The Large Cap
Value Fund may invest in such companies when Pilgrim Baxter and Newbold's
believe that those companies will react positively to changing economic
conditions or that such companies have taken or are expected to take actions
designed to return their earnings to historical levels or otherwise increase the
market price of their securities.
The equity securities in which the Large Cap Value Fund invests normally
will be traded in the United States or Canada on a registered securities
exchange or established over-the-counter markets. The Large Cap Value Fund may
invest up to 15% of its total assets in securities, of foreign issuers,
including ADRs, and may also invest up to 15% of its net assets in restricted or
illiquid securities. The Large Cap Value Fund may also engage in securities
lending. The Large Cap Value Fund may use high-quality money market investments
or short-term bonds to reduce down side volatility during uncertain or declining
market conditions. For temporary defensive purposes, the Large Cap Value Fund
may invest in money market securities or short-term bonds without limitations.
The Large Cap Value Fund may purchase securities on a when-issued or delayed
delivery basis.
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The use of a valuation approach may result in investment selections that
may be out-of-favor or counter to those of other investors. However, such an
approach may also produce significant capital appreciation.
The investment process used by Newbold's in providing sub-advisory services
for the Large Cap Value Fund is both quantitative and fundamental. In seeking to
identify attractive investment opportunities for the Large Cap Value Fund,
Newbold's first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investment (such as consistency of dividend payment, balance
sheet strength and low stock price relative to its assets, earnings, cash flow
and business franchise), Newbold's screens more than 8,000 possible companies
and creates an initial universe of statistically attractive value companies.
Following the creation of this universe of possible investments, Newbold's uses
its fundamental research capabilities to carefully identify securities that are
currently out of favor but which have the potential to achieve significant
appreciations as the market place recognizes their fundamental value. Once
constructed, portfolios are continually monitored for change. Newbold's follows
a disciplined valuation approach that requires it to sell any portfolio security
that they believe has become over-valued relative to the market. Sale of
portfolio securities is primarily triggered by the relative change in
price/earnings ratio. Adverse changes in other key value elements are, of
course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful, even over the long
term.
Equity Portfolio
The investment objective of the Equity Portfolio is to achieve maximum
long-term total return, consistent with reasonable risk to principal, by
investing primarily in a diversified portfolio of undervalued equity securities
of statistically attractive companies.
In seeking its investment objective, the Equity Portfolio will invest at
least 65% of its total assets, under normal circumstances, in equity securities,
consisting of common stock, preferred stock, convertible preferred stock,
convertible bonds, rights and warrants. The Equity Portfolio will invest
primarily in equity securities of large capitalization companies which are
defined as those with equity capitalizations greater than $1 billion at the time
of purchase.
Newbold's believes that investment value and return can be achieved by
investing in stocks with a low price relative to current earnings. This
bottom-up approach seeks to identify companies whose earnings growth suggests an
increasing stream of future dividend income and whose share prices represent a
level below realizable value.
Newbold's identifies prospective companies for the Equity Portfolio through
a computerized screening process which rates on four key elements: Market
capitalization - $1 billion or more for purposes of liquidity; Dividend payout -
ordinarily must pay cash dividends; Financial leverage - debt should not be
excessive, and an investment grade bond rating is required; and Return on
average five year equity - after the three previous criteria have been applied,
this evaluation is used as a measure of profitability in selecting the top 500
companies.
The stock issues of the top 500 companies are then sorted by price/earnings
ratio, ranked from highest to lowest and broken into five groups, each
consisting of 100 stocks. The bottom two groups are subject to intense
fundamental analysis by Newbold's. The objective is to assemble a portfolio of
40-70 statistically attractive stocks which represent relative "value" not
generally recognized by the market. However, the Equity Portfolio has the
flexibility to invest in less than 40 stock or more than 70 stocks, as Newbold's
deems necessary. Earnings for cyclical stock are normalized in this valuation
process.
Once the portfolio has been constructed, its price/earnings multiples are
continually monitored. The Equity Portfolio will stop buying a stock when its
price/earnings ratio approaches the current price/earnings multiple of the
Standard & Poors 500 Stock Index. The stock is sold when it moves above the
market's multiple.
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When Newbold's believes that market conditions warrant a defensive
position, up to 100% of the Equity Portfolio's assets may be held in cash and
short-term investments. When the Equity Portfolio is in a defensive position, it
may not necessarily be pursuing its stated investment objective.
Under normal market conditions, subject to the investment limitations
described in its Prospectus and Statement of Additional Information, the Equity
Portfolio may invest up to 35% of its assets in the following securities: (1)
short term domestic and foreign money market instruments; (2) repurchase
agreements; (3) investment company securities; and (4) ADRs and foreign
investments. The Equity Portfolio may also engage in securities lending as a
means of earning income and may use options, futures contracts and options on
futures contracts to reduce the overall risk of its investments.
Investment Limitations.
Neither the Large Cap Value Fund nor the Equity Portfolio may change its
fundamental investment limitations without the affirmative vote of the holders
of a majority of its outstanding shares (as defined in the 1940 Act). However,
investment limitations which are non-fundamental policies ("non-fundamental" or
"operating" policies) of the Equity Portfolio and Large Cap Value Fund may be
changed by their respective Boards without shareholder approval. The investment
limitations of the Large Cap Value Fund and the Equity Portfolio are
substantially similar and are set forth in each Fund's Prospectus and Statement
of Additional Information.
The primary differences are that: (1) the Equity Portfolio may not invest
more than 5% of its assets at the time of purchase in securities of companies
that have (with predecessors) a continuous operating history of less than 3
years, whereas the Large Cap Value Fund has no such limitation, (2) the Equity
Portfolio may engage in leverage to a greater degree than the Large Cap Value
Fund, because it may borrow amounts up to 33.3% of its gross assets, whereas the
Large Cap Value Fund may only borrow up to 10% of its gross assets; (3) while
the Large Cap Value Fund may not purchase more than 10% of the voting securities
of any issuer, the Equity Portfolio's corresponding limitation applies to only
75% of its assets; thus, up to 25% of the Equity Portfolio's assets may be
invested without regard to this limitation, and, as a result, may be used to
acquire larger positions in particular issuers than is permitted the Large Cap
Value Fund; and (4) the Equity Portfolio may pledge up to 33.3% of its total
assets, whereas the Large Cap Value Fund may not pledge more than 10% of this
total assets, and then only to secure permitted borrowings or in connection with
permitted option and futures transactions.
In addition, the Large Cap Value Fund has certain investment limitations
for which the Equity Portfolio has no comparable limitation, i.e.: (1) the Large
Cap Value Fund may not invest in oil, gas or other mineral exploration or
development programs; (2) the Large Cap Value Fund may not purchase or sell
puts, calls, straddles, spreads, or combinations thereof, except as permitted by
the 1940 Act.
Please see each Fund's Prospectus and Statement of Additional Information
for further information concerning each Fund's investment limitations.
Portfolio Manager
James H. Farrell, CFA, has managed the Large Cap Value Fund since its
inception. Mr. Farrell also is a member of the Investment Committee at Newbold's
that is responsible for the day-to-day management of the Equity Portfolio. Mr.
Farrell joined Newbold's in September 1996 and is its Chief Investment Officer.
Mr. Farrell until recently served as President of Farrell Seiwell, Inc., a
registered investment adviser. Prior to joining Newbold's, he was an Investment
Counselor in a sole proprietorship for two years. From 1983 to 1994, he was a
partner at Cashman, Farrell and Associates, an investment advisory firm.
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ADDITIONAL INFORMATION ABOUT THE AGREEMENT
The terms and conditions under which the Reorganization may be consummated
are set forth in the Agreement. Significant provisions of the Agreement are
summarized below; however, this summary is qualified in its entirety by
reference to the Agreement, a copy of which is attached as Exhibit B to this
Combined Proxy Statement and Prospectus and incorporated herein by reference.
Description of the Agreement
The Agreement provides that at the Closing Date substantially all of the
property and assets of the Equity Portfolio will be transferred to the Large Cap
Value Fund free and clear of all liens, encumbrances, and claims, except for (a)
any unamortized or deferred fees or expenses, prepaid expenses or goodwill shown
as assets on the books of the Equity Portfolio and (b) cash or bank deposits
(the "Reserve Account") in an amount necessary: (i) to discharge all of the
unpaid liabilities on the books and records of the Equity Portfolio at the
Closing Date, including any amounts due to shareholders of the Equity Portfolio
for unpaid dividends or otherwise; and (ii) to pay contingent liabilities, if
any, that the Board of Trustees of UAM Funds may reasonably deem to exist
against the Equity Portfolio at the Closing Date. (The property and assets to be
transferred to the Large Cap Value Fund are referred to herein as the "Equity
Portfolio Net Assets.") Upon the satisfaction or other resolution of all such
liabilities and obligations, any amount remaining from the Reserve Account will
be transferred to the Large Cap Value Fund.
In exchange for the transfer to the Large Cap Value Fund of the Equity
Portfolio Net Assets, PBHG Funds will simultaneously issue at the Closing Date
full and fractional Large Cap Value Shares to the Equity Portfolio for
distribution pro rata by the Equity Portfolio to its shareholders. The number of
Large Cap Value Shares so issued by PBHG Funds will have an aggregate net asset
value equal to the value of the Equity Portfolio Net Assets on the Closing Date.
Following the close of business on the Closing Date, the Equity Portfolio
will distribute pro rata to its shareholders the Large Cap Value Shares received
by the Equity Portfolio in liquidation thereof. Each shareholder owning Equity
Portfolio Shares at the Closing Date will receive that number of Large Cap Value
Shares having a aggregate net asset value equal to the aggregate net asset value
of his or her Equity Portfolio Shares, plus the right to receive any dividends
or distributions which were declared before the Closing Date but that remained
unpaid at that time on the Equity Portfolio Shares. In connection with the
Reorganization, the Equity Portfolio will be terminated as a series of UAM
Funds.
The share transfer books of the Equity Portfolio will be permanently closed
as of the close of business on the day immediately preceding the Closing Date.
Redemption requests received thereafter by the Equity Portfolio will be deemed
to be redemption requests for Large Cap Value Shares. If any Equity Portfolio
Shares held by a former Equity Portfolio shareholder are represented by a share
certificate, the certificate must be surrendered to the Large Cap Value Fund for
cancellation, or verification of such certificate's loss and indemnification
with respect to such loss must be established, before the Large Cap Value Shares
received by such shareholder in the Reorganization can be redeemed or
transferred.
The Reorganization is subject to a number of conditions, including, among
other things: (a) approval of the Agreement and the transactions contemplated
thereby described in this Combined Proxy Statement and Prospectus by the Equity
Portfolio's shareholders; (b) the receipt of certain legal opinions described in
Sections 7 and 8 of the Agreement, which include a legal opinion that the Large
Cap Value Shares issued and outstanding at the Closing Date will be duly
authorized, validly issued, fully paid, and non-assessable and a legal opinion
that the Reorganization will not give rise to the recognition of income, gain,
or loss for federal income tax purposes to the Equity Portfolio, the Large Cap
Value Fund, or their respective shareholders; (c) the receipt of certain
certificates from the parties concerning the continuing accuracy of the
representations and warranties in the Agreement and
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other matters; and (d) the parties' performance of their respective agreements
and undertakings in the Agreement. Assuming satisfaction of the conditions in
the Agreement, the Closing Date will be on September 30, 1997, or such other
date as is agreed to by the parties.
The Agreement provides that PBHG Fund Services shall be responsible for
reimbursement of the expenses incurred by the Large Cap Value Fund, and that
Newbold's shall be responsible for reimbursement of the expenses incurred by the
Equity Portfolio, in connection with the Reorganization (which expenses include
the fees and disbursements of attorneys and auditors and proxy printing and
solicitation expenses) and any related transfer fees and brokerage fees.
The Agreement and the Reorganization described therein may be abandoned at
any time prior to the Closing Date by the mutual consent of the parties to the
Agreement. In such event, there shall be no liability for damages on the part of
either the Equity Portfolio or the Large Cap Value Fund, or UAM Funds' Board of
Trustees or officers or PBHG Funds' Board of Directors or officers, but PBHG
Fund Services and Newbold's shall be liable for reimbursement of all reasonable
expenses incurred by the Funds in connection with entering into and carrying out
the transaction contemplated by the Agreement. The Agreement provides further
that at any time prior to or after approval of the Agreement by the Equity
Portfolio's shareholders, the Equity Portfolio and the Large Cap Value Fund, by
written agreement, may amend, modify, or supplement the Agreement. The Agreement
further provides that no such amendment, modification, or supplement may have
the effect of changing the provisions for determining the number of Large Cap
Value Shares to be distributed to Equity Portfolio shareholders under the
Agreement to the detriment of the Equity Portfolio shareholders, unless the
Equity Portfolio shareholders approve such change or unless the amendment merely
changes the Closing Date.
Board Consideration
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board of
Trustees of UAM Funds has unanimously determined that the proposed
Reorganization is in the best interest of the shareholders of the Equity
Portfolio, and recommends the approval of the Reorganization Agreement by such
shareholders at the Special Meeting. The following is a summary of the
information that was presented to, and considered by, the Board of Trustees in
making their determination.
Initially, the Board of Trustees reviewed several areas of concern
regarding the Equity Portfolio. The Board of Trustees considered that (a) the
relatively small asset size of the Equity Portfolio had prevented it from
realizing significant economies of scale in reducing its expense ratio (absent
waivers of fees and assumption of expenses by Newbold's); (b) Newbold's on a
voluntary basis has continuously waived a substantial portion of its advisory
fee since the Equity Portfolio's inception; (c) based on the Equity Portfolio's
historical asset growth, its assets were unlikely to grow sufficiently in the
foreseeable future to result in significant economies of scale; (d) in the
absence of significant asset growth, it was unlikely that Newbold's would
receive its full advisory fee; and (e) because the voluntary fee cap prevents
Newbold's from achieving any profits from its services to the Equity Portfolio,
Newbold's had determined not to continue its voluntary fee waiver, effective
January 28, 1998.
The alternative that the Board of Trustees felt offered the greatest
likelihood of addressing the lack of economies of scale and projected expense
increases and would be most beneficial to the Equity Portfolio shareholders was
the reorganization of the Equity Portfolio into an investment company with
substantially similar investment objectives, policies and restrictions. At a
meeting of the Board of Trustees held on June 19, 1997, the Board of Trustees
considered the proposed Reorganization on behalf of the Equity Portfolio. During
the course of their review and deliberation, the Trustees evaluated the
potential benefits and detriments to the Equity Portfolio and its shareholders.
The Trustees requested and received from Newbold's written materials containing
relevant information about the Large Cap Value Fund and the proposed
Reorganization, including fee and expense information on an actual and pro forma
basis, and comparative performance data. Newbold's also provided the
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Trustees with historical asset growth information, comparative expense ratio
information, analyses of the benefits to the shareholders of the Equity
Portfolio resulting from the proposed Reorganization, and a variety of other
information relevant to the consideration of the proposed Reorganization. In
this regard, the Board of Trustees evaluated the current and contractual expense
ratios of the Large Cap Value Fund and compared such expense ratios with the
current and contractual expense ratios of the Equity Portfolio. In addition, the
Board of Trustees considered the anticipated expenses and charges of the Large
Cap Value Fund that, after the Reorganization, would be borne directly and
indirectly by the shareholders of the Equity Portfolio. As part of this
evaluation, the Board of Trustees considered, among other things, estimates of
the Large Cap Value Fund's potential for asset growth, including information
concerning the Large Cap Value Fund's historical rate of asset growth, and the
effect such asset growth might would have on the Large Cap Value Fund's expense
ratio.
The Board of Trustees also considered the additional efficiencies and
benefits for shareholders of the Equity Portfolio that are expected to result
from the Reorganization, including that the Reorganization will provide the
Equity Portfolio's shareholders with enhanced shareholder services.
The Board of Trustees also considered information that, as of April 30,
1997, absent Newbold's voluntary fee waiver, the Equity Portfolio's current
annualized expense ratio as calculated for the month ended April 30, 1997 would
have been 2.19% which is clearly higher than Large Cap Value Fund's expense
ratio of 1.26% (assuming the currently applicable advisory fee was in effect
during that period)1. The Board of Trustees further noted that, on a pro forma
basis, the estimated expense ratio of the combined Funds were expected to be
1.13%, assuming that there is no additional asset growth for either Fund prior
to the Closing Date of the Reorganization. While the Board noted that this
expense ratio is greater than the Equity Portfolio's current expense ratio of
0.90% (after fee waivers by Newbold's), it also observed that an expense ratio
of 1.13% would result in a decrease of 1.06% in current annual expenses for
shareholders if the current annualized expense ratios for both Funds were
compared on an actual "before waivers" basis as of April 30, 1997. The Board
also noted that because the 0.90% voluntary fee cap prevents Newbold's from
achieving any profit from its services to the Equity Portfolio, Newbold's has
determined not to renew its voluntary fee cap, which will expire on January 28,
1998. Such an event the Board observed would cause the current annual expense
ratio of the Equity Portfolio to increase to approximately 2.19% of total
assets, assuming its assets remain at the current level. The Board of Trustees
also considered information indicating that the Large Cap Value Fund's advisory
fee was well within the range of advisory fees paid by other equity funds with
similar investment objectives. In addition, the Board considered that the total
estimated expense ratio (on a pro forma basis) of the Large Cap Value Fund is
below the average and median expense ratios paid by other similarly managed
funds. Accordingly, in light of the effect additional asset growth is expected
to have on the Large Cap Value Fund's expense ratio, the Board of Trustees
concluded that the proposed Reorganization is likely to result in a more
favorable long-term cost structure for the Equity Portfolio's shareholders than
would otherwise be obtainable.
The Board of Trustees considered the compatibility of the Equity
Portfolio's and Large Cap Value Fund's investment objectives, policies and
restrictions. In this regard, the Board of Trustees specifically considered
whether the shareholders of the Equity Portfolio would be subject to additional
potential or actual risks as shareholders of the Large Cap Value Fund and
determined that, under the Large Cap Value Fund's investment objectives,
policies
- ----------
1 The expense ratio for the Equity Portfolio for the month ending April 30,
1997 contained certain extrordinary expenses and charges that typically are
incurred by a mutual fund during the last month of a fund's fiscal year. If
such expenses had not been included in the Equity Fund's expense ratio, its
current annual expense ratio, as calculated for the month ending April 30,
1997, would have been 1.95% absent fee waivers. Expenses of the Equity
Portfolio significantly increased in April 1997 as a result of the
completionof the phase-in of a minimum annual fee of $70,000 for
accounting, administrative and transfer agency services provided by Chase
Global Fund Services Company. This minimum annual fee is in addition to the
annual fee of .06% of average daily net assets of the Equity Portfolio
charged by UAM Fund Services, Inc.
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and limitations, the Equity Portfolio's shareholders in some respects would be
subject to less risk. The Board of Trustees also considered those provisions of
the Agreement relating to the pricing of shares to be exchanged.
The Board of Trustees further noted that the Reorganization would result in
continuity of investment advisory services, since the Equity Portfolio currently
employs Newbold's as investment adviser and Large Cap Value Fund employs
Newbold's as investment sub-adviser, and the individual who serves as the
portfolio manager for the Large Cap Value Fund also serves on the Investment
Committee for the Equity Portfolio. The Board of Trustees noted further that no
sales or other charges would be imposed on any of the Large Cap Value shares
acquired by shareholders of the Equity Portfolio in connection with the
Reorganization.
Finally, the Board of Trustees on behalf of the Equity Portfolio reviewed
the terms of the Reorganization Agreement. The Board of Trustees noted that the
Equity Portfolio would be provided with an opinion of counsel with respect to
the tax-free treatment of the Reorganization.
Based upon their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board of
Trustees unanimously determined that the proposed Reorganization was in the best
interests of the Equity Portfolio and its shareholders and that the interests of
the Equity Portfolio shareholders will not be diluted as a result of the
proposed Reorganization, and recommended the approval of the Reorganization
Agreement by shareholders at the Special Meeting.
On June 26, 1997, the Board of Directors of the PBHG Funds considered the
proposed Reorganization with respect to the Large Cap Value Fund. Based upon
their evaluation of the relevant information provided to them, and in light of
their fiduciary duties under federal and state law, the Board of Directors
unanimously determined that (a) the proposed Reorganization was in the best
interests of the Large Cap Value Fund and its shareholders and (b) the interests
of the existing Large Cap Value Fund shareholders will not be diluted as a
result of the proposed Reorganization.
Federal Income Tax Consequences
The following is a general summary of the material federal income tax
consequences of the Reorganization to the shareholders of the Equity Portfolio
and is based upon the current provisions of the Code, the existing Treasury
regulations thereunder, current administrative rulings of the Internal Revenue
Service (the "IRS") and judicial decisions, all of which are subject to change.
The principal Federal income tax consequences that are expected to result
from the Reorganization, under currently applicable law, are as follows: (i) the
Reorganization will qualify as a "reorganization" within the meaning of Section
368(a)(1)(c) of the Code; (ii) no gain or loss will be recognized by the Equity
Portfolio upon the transfer of its assets to the Large Cap Value Fund; (iii) no
gain or loss will be recognized by any shareholder of the Equity Portfolio upon
the exchange of shares of the Equity Portfolio solely for shares of the Large
Cap Value Fund; (iv) no gain or loss will be recognized by the Large Cap Value
Fund as a result of the Reorganization; (v) the tax basis of the shares of Large
Cap Value Fund to be received by a shareholder of the Equity Portfolio will be
the same as the tax basis of the shares of the Equity Portfolio surrendered in
exchange therefor; (vi) the basis to the Large Cap Value Fund of the assets of
the Equity Portfolio will be the same as the basis of those assets in the hands
of the Equity Portfolio immediately prior to the Reorganization; and (vii) the
holding period of the shares of Large Cap Value Fund to be received by a
shareholder of the Equity Portfolio will include the holding period for which
such shareholder held the shares of the Equity Portfolio exchanged therefor,
provided that such shares of the Equity Portfolio are capital assets in the
hands of such shareholder as of the Closing Date.
As a condition to the Closing, Ballard Spahr Andrews & Ingersoll will
render a favorable opinion as to the foregoing Federal tax consequences of the
Reorganization, which opinion will be conditioned upon the accuracy, as of the
date of the Agreement and as of the Closing, of certain representations upon
which Ballard Spahr Andrews
14
<PAGE>
& Ingersoll will rely, including but not limited to, the following (taking into
account for purposes thereof any events occurring on, prior or subsequent to the
Closing Date that are part of the plan of reorganization): (A) there is no plan
or intention by the shareholders of the Equity Portfolio to sell, exchange or
otherwise dispose of a number of shares of Large Cap Value Fund received in the
Reorganization that would reduce the Equity Portfolio Shareholders' ownership of
Large Cap Value Fund shares to a number of shares having a value, as of the
Closing Date, of less than 50% of the value of all of the formerly outstanding
shares of the Equity Portfolio as of the Closing Date; (B) Large Cap Value Fund
will acquire at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the gross
assets held by the Equity Portfolio immediately prior to the Reorganization,
excluding any assets held by the Equity Portfolio that are to be distributed
(pursuant to the Act and not in excess of the requirements of Section 852 of the
Code) as regular, normal dividends in the ordinary course of the Equity
Portfolio's business; (C) following the Reorganization, Large Cap Value Fund
will continue the historic business of the Equity Portfolio (for this purpose
"historic business" shall mean the business most recently conducted by the
Equity Portfolio which was not entered into in connection with the
Reorganization) or use at least fifty percent (50%) of the Equity Portfolio's
historic business assets in its business; (D) at the direction of the Equity
Portfolio, PBHG Funds will transfer to the Equity Portfolio's shareholders pro
rata the shares of Large Cap Value Fund that the Equity Portfolio receives in
the Reorganization and the Equity Portfolio will distribute its other properties
(if any) to its shareholders on, or as promptly as practicable after, the
Closing Date and terminate its existence as a separate series of UAM Funds; (E)
Large Cap Value Fund has no plan or intention to reacquire any of its shares
issued in the Reorganization, except to the extent that Large Cap Value Fund is
required by the Investment Company Act to redeem any of its shares presented for
redemption; (F) Large Cap Value Fund does not plan or intend to sell or
otherwise dispose of any of the assets of the Equity Portfolio acquired in the
Reorganization, except for dispositions made in the ordinary course of its
business or dispositions necessary to maintain its status as a "regulated
investment company" under the Code; (G) Large Cap Value Fund, the Equity
Portfolio and the shareholders of the Equity Portfolio will pay their respective
expenses, if any, incurred in connection with the Reorganization; and (H) the
Equity Portfolio and the Large Cap Value Fund will each satisfy (Pilgram Baxter
has agreed to assume or reimburse all such expenses incurred by the Large Cap
Value Fund and the Equity Portfolio in connection with the Reorganization) the
requirements of Subchapter M of Subtitle A of the Code for qualification as a
"regulated investment company" (other than definitional requirement of Section
851(a)) for their respective taxable years that include the Closing Date.
Neither UAM Funds nor PBHG Funds has sought a tax ruling from the Internal
Revenue Service ("IRS"). The opinion of counsel is not binding on the IRS and
does not preclude the IRS from adopting a contrary position.
The foregoing description of the Federal income tax consequences of the
Reorganization is made without regard to the particular facts and circumstances
of any shareholder of the Equity Portfolio. The tax consequences to certain
Equity Portfolio shareholders, such as dealers in securities, foreign persons,
mutual funds, insurance companies and tax-exempt entities, that are subject to
special treatment under the Code or under the laws of other jurisdictions may
differ materially from those outlined above. All the Equity Portfolio
shareholders are urged to consult their own tax advisors as to the specific
consequences to them of the Reorganization, including the applicability and
effect of state, local, foreign and other tax laws.
RIGHTS OF SHAREHOLDERS
PBHG Funds is organized as a Maryland corporation and UAM Funds is a
Delaware business trust. There is much that is similar between the two forms of
organization. For example, the responsibilities, powers and fiduciary duties of
the trustees of UAM Funds are substantially the same as those of the directors
of PBHG Fund.
There are, however, certain differences between the two forms of
organization. The operations of the PBHG Funds, as a Maryland corporation, are
governed by its Articles of Incorporation and applicable Maryland law. The
operations of UAM Funds, as a Delaware business trust, are governed by its
Agreement and Declaration of Trust, as amended (the "Declaration of Trust") and
Delaware law.
15
<PAGE>
Liability of Shareholders
The Delaware Business Trust Act provides that shareholders of a Delaware
business trust shall be entitled to the same limitations of liability extended
to shareholders of private for-profit corporations. There is, however, a remote
possibility that, under certain circumstances, shareholders of a Delaware
business trust may be held personally liable for that trust's obligations to the
extent the courts of another state which does not recognize such limited
liability were to apply the laws of such state to a controversy involving such
obligations. The Declaration of Trust provides that shareholders of UAM Funds
shall not be subject to any personal liability for acts or obligations of UAM
Funds and that every written agreement, obligation or other undertaking made or
issued by UAM Funds shall contain a provision to the effect that shareholders
are not personally liable thereunder. In addition, the Declaration of Trust
provides for indemnification out of UAM Funds property for any shareholder held
personally liable solely by reason of his or her being or having been a
shareholder. Therefore, the risk of any shareholder incurring financial loss
beyond his investment due to shareholder liability is limited to circumstances
in which UAM Funds itself is unable to meet its obligations and the express
disclaimer of shareholder liabilities is determined not to be effective. Given
the nature of UAM Funds' assets and operations, the possibility of UAM Fund
being unable to meet its obligations is considered remote, and given the nature
of UAM Funds' operations, even if a claim were brought against UAM Funds and a
court determined that shareholders were personally liable, it would likely not
impose a material obligation on a shareholder.
Shareholders of a Maryland corporation generally do not have personal
liability for a corporation's obligations, except a shareholder may be liable to
the extent that he receives any distribution which exceeds the amount which he
could properly receive under Maryland law or where such liability is necessary
to prevent fraud.
Election of Directors/Trustees; Terms; Annual Shareholder Meetings
The shareholders of UAM Funds initially elected the trustees at a meeting
of the shareholders held prior to the effective date of the Registration
Statement under the 1940 Act. Trustees elected thereat serve for the life of the
trust, subject to the earlier death, incapacitation, resignation, retirement or
removal (see below) of any such trustee. Shareholders may elect successors to
such trustees only at special meetings of shareholders called by the trustees.
UAM Funds is not required to hold annual meetings.
The By-laws of the PBHG Fund provide that the Directors shall be elected at
the annual meeting of the shareholders provided that such annual meetings for
the election of Directors are required under the 1940 Act. The 1940 Act requires
that at least two-thirds of the directors of an investment company be elected by
shareholders. If no such annual meeting is required, Directors shall be elected
at next annual meeting. Elections may also be held at a special meeting of
shareholders called for the purpose of electing Directors.
Removal of Trustees/Directors
A trustee of UAM Funds may be removed at any time by written instrument
signed by at least two-thirds of the trustees and specifying the date upon which
such removal becomes effective. The Declaration of Trust provides that in the
case of removal of a trustee, the remaining trustees may either fill the vacancy
or leave the vacancy unfilled, subject to the requirements of the 1940 Act. Any
appointment of a trustee shall be evidenced by a written instrument signed by a
majority of the trustees in office. Trustees may be removed with or without
cause.
Under PBHG Funds' Articles of Incorporation, removal of a director requires
the affirmative vote of a majority of: (i) the Board of Directors, (ii) a
committee of the Board of Directors appointed for such purpose, or (iii) the
shareholders of the outstanding shares of PBHG Funds. Directors may be removed
with or without cause.
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<PAGE>
Special Meetings of Shareholders
UAM Funds' Declaration of Trust provides that only trustees may call
special meetings of shareholders. Special meetings may be called for the purpose
of electing trustees or for any other action requiring shareholder approval (see
below), or for any matter deemed by the trustees to be necessary or desirable.
The PBHG Funds' By-Laws provide that a special meeting of shareholders may
be called by the President, Secretary, a majority of the Board of Directors or
by holders of shares entitled to cast at least 10% of the votes entitled to be
cast at the special meeting. Requests for special meetings must, among other
things, state the purpose of such meeting and the matters to be voted upon. No
special meeting may be called to consider any matter previously voted upon at a
special meeting called by the shareholders during the preceding twelve months,
unless requested by a majority of all shares entitled to vote at such meeting.
Liability of Directors/Trustees and Officers; Indemnification
Delaware law provides that trustees acting under a governing instrument
shall not be liable to the business trust or any shareholders thereof for acting
in good faith reliance on the provision of such instrument and that the
trustee's liabilities may be expanded or restricted by such instrument. Under
UAM Funds' Declaration of Trust, the trustees and officers of UAM Funds are not
liable for any act or omission or any conduct whatsoever in their capacity as
trustees, except for liability to the trust or shareholders due to willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of trustee. Delaware law allows a business
trust to indemnify and hold harmless any trustee or other person from and
against any and all claims and demands whatsoever. UAM Funds' Declaration of
Trust allows for the indemnification of trustees and officers to the fullest
extent permitted by Delaware law, except with respect to any matter in which it
has been determined that such director or officer acted with willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
Maryland law permits a corporation to include a provision in its
certificate of incorporation to eliminate liability of its directors and
officers to the corporation or its stockholders subject to two exceptions:
receipt of an improper benefit or profit and for active and deliberate
dishonesty. PBHG Funds' Articles of Incorporation eliminates director and
officer liability to the fullest extent permitted under Maryland law. Under
Maryland law, indemnification of directors and officers is mandatory if such
director or officer has been successful on the merits or otherwise in the
defense of certain proceedings. Maryland law permits indemnification for other
matters unless it is established that the act or omission giving rise to the
proceeding was (i) committed in bad faith, (ii) a result of active and
deliberate dishonesty, (iii) one in which a director or officer actually
received an improper benefit.
Termination
UAM Funds' Declaration of Trust provides that UAM Funds may be terminated
at any time (i) by the vote of shareholders holding a majority of shares
outstanding, or (ii) by the trustees after written notice to shareholders.
The liquidation or dissolution of PBHG Funds is governed by Maryland law,
which requires the affirmative vote of a majority of the Board of Directors and
two-thirds of the stockholders entitled to vote on the dissolution.
Voting Rights of Shareholders
UAM Funds' Declaration of Trust grants shareholders power to do the
following: (i) elect trustees; (ii) approve certain contracts, such as
investment advisory contracts, as required by the 1940 Act; (iii) terminate or
reorganize the trust; (iv) approve certain amendments to Bylaws; and (vii)
approve such additional matters as may be required by law or as the trustees, in
their sole discretion, shall determine.
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<PAGE>
Shareholders of a Maryland corporation such as PBHG Funds are entitled to
vote on, among other things, those matters which effect fundamental changes in
the corporate structure (such as a merger, consolidation or sale of
substantially all of the assets of the corporation) as provided by Maryland
corporation law.
Dissenters' Rights
Under Maryland law, a PBHG Funds shareholder may not demand the fair value
of his shares from the successor company in a transaction involving the transfer
of the PBHG Funds' assets, and is bound by the terms of the transaction.
Pursuant to the Declaration of Trust, UAM Funds' shareholders do not have
appraisal or dissenters' rights.
Amendments to Organization Documents
The trustees of UAM Funds may, without shareholder approval, amend the
Declaration of Trust at any time, except that no amendment may be made which
repeals the limitations of personal liability of any shareholder or the
prohibition on assessment upon shareholders with the express consent of the
shareholder(s) involved. No amendment to the Bylaws which otherwise adversely
affects the rights of shareholders may be adopted without the approval of the
shareholders holding a majority of the votes entitled to vote.
Consistent with Maryland law, PBHG Funds' Articles of Incorporation
provides that PBHG Funds reserves the right to amend, alter, change or repeal
any provision contained in the Articles of Incorporation in the manner now or
hereafter prescribed by statute, including any amendment that alters the
contract rights, as expressly set forth in the Articles of Incorporation, of any
outstanding stock, and all rights conferred on shareholders are granted subject
to this reservation. The Board of Directors of PBHG Funds may approve amendments
to the Articles of Incorporation to classify or reclassify unissued shares of a
class of stock without shareholder approval. Other amendments to PBHG Funds'
Articles of Incorporation will be adopted if approved by a majority of the votes
at any meeting at which a quorum is present. PBHG Funds' Bylaws provide that the
Bylaws may be amended at any regular meeting or special meeting of the
stockholders provided that notice of such amendment is contained in the notice
of the special meeting. Except as to any particular Bylaw which is specified as
not subject to amendment by the Board of Directors, the Bylaws may be also
amended by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board.
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<PAGE>
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
This Combined Proxy Statement and Prospectus and the related Statement of
Additional Information do not contain all of the information set forth in the
registration statements and the exhibits relating thereto and the annual reports
which UAM Funds and PBHG Funds have filed with the SEC pursuant to the
requirements of the Securities Act of 1933 and the 1940 Act, to which reference
is hereby made. The SEC file number for UAM Funds registration statement
containing the Prospectus and Statement of Additional Information relating to
the Equity Portfolio is Registration No. 33-79858. Such Prospectus is
incorporated herein by reference. The SEC file number for PBHG's registration
statement containing the Prospectus and Statement of Additional Information
relating to the Large Cap Value Fund is Registration No. 2-99810. Such
Prospectus and Statement of Additional Information are incorporated herein by
reference.
The Equity Portfolio and the Large Cap Value Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and the 1940 Act, as applicable, and, in accordance with such requirements,
files proxy materials, reports, and other information with the SEC. These
materials can be inspected and copied at the Public Reference Facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at the
SEC's Northeast Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048, and at the SEC's Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
ADDITIONAL INFORMATION ABOUT EACH FUND
Financial Information for the Equity Portfolio
Set forth below is financial information about the Equity Portfolio. It is
based on a share outstanding from the Equity Portfolio's inception on September
13, 1995 through its fiscal year ended April 30, 1997. This information is
derived from financial statements audited by Price Waterhouse LLP, independent
accountants to UAM Funds. The data should be read in conjunction with the
financial statements, related notes, and Price Waterhouse LLP's report thereon,
which are included in the Annual Report to Shareholders of Newbold's Equity
Portfolio dated April 30, 1997. A copy of the Annual Report to Shareholders of
Newbold's Equity Portfolio can be obtained without cost by contacting the Equity
Portfolio at the address appearing on the cover page of this Combined Proxy
Statement and Prospectus or by calling 1-800-638-7983.
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<PAGE>
UAM Funds Trust
Newbold's Equity Portfolio
FINANCIAL HIGHLIGHTS
Per Share Data and
Ratios for a Share
Outstanding Throughout
the Period Indicated:
April 30
--------------------------
1997 1996(a)
------- -------
Net asset value, Beginning $ 10.98 $10.00
of period
Net Investment Income (Loss) 0.24 0.14
Net Realized and Unrealized
Gains or Losses on 1.79 0.98
Investments
Distributions From Net (0.25) (0.12)
Investment Income
Distribution from Capital Gains (1.25) (0.02)
Net Asset Value, End of $ 11.51 $ 10.98
======= =======
Period
Total Return: (b) 19.89% 11.31%(b)
Net Assets, End of Period (000) $12,642 $14,090
Ratio of Expenses to
Average Net Assets 0.90% 0.90%*
Ratio of Net Investment
Income to Average Net 2.10% 2.27%*
Assets
Voluntarily Waived Fees and
Expenses Assumed by the Adviser
Per Share $0.06 $0.06
Portfolio Turnover Rate 83% 75%
Average Commission Rate $0.0599 $0.0566
- ----------
* Calculated on an annualized basis.
(a) September 13, 1995. (commencement of operations) to April 30, 1997.
(b) Total return has not been annualized.
(c) Total Return would have been lower had certain fees not been waived and
expenses assumed by the Adviser.
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Financial Information for the Large Cap Value Fund
Set forth below is financial information about the Large Cap Value Fund.
It is based on a single share outstanding from the Large Cap Value Fund's
inception on January 2, 1997 through its fiscal year end on March 31, 1997. This
information is derived from financial statements for such period audited by
Coopers & Lybrand, LLP, independent accountants to PBHG Funds. The data should
be read in conjunction with the financial statements, related notes, and Coopers
& Lybrand, LLP's report thereon which are included in the Annual Report to
Shareholders of The PBHG Funds, Inc. dated March 31, 1997. A copy of the Annual
Report to Shareholders of The PBHG Funds, Inc. which is incorporated by
reference and can be obtained without cost by contacting PBHG Funds at the
address appearing on the cover page of this Combined Proxy Statement Prospectus
or by calling 1-800-433-0051.
The PBHG Funds, Inc.:
PBHG Large Cap Value Fund
FINANCIAL HIGHLIGHTS
Per Share Data and
Ratios for a Share
Outstanding Throughout
the Period Indicated:
January 2, 1997
through
March 31, 1997(a)
-----------------
Net asset value, Beginning $ 10.00
of period
Net Investment Income (Loss) $0.02
Realized and Unrealized Gains $0.09
or Losses on Securities
Distribution from Net $0.00
Investment Income
Distribution from Capital Gains $0.00
Net Asset Value, End of Period $ 10.11
=======
Total Return:(b) 1.10%
Net Assets, End of Period (000) $26,262
Ratio of Expenses to 1.50%*
Average Net Assets
Ratio of Net Investment Income to 1.61%*
Average Net Assets
Ratio of Expenses to Average Net 1.74%
Assets (Excluding Waivers)
Ratio of Net Investment Income to 1.37%*
Average Net Assets (excluding
waivers)
Portfolio Turnover Rate .00%
Average Commission Rate $0.0588
- ----------
* Calculated on an annualized basis.
(a) Inception date is January 2, 1997.
(b) Total returns have not been annualized.
Management Discussion and Analysis of Performance
A discussion of the performance of the Large Cap Value Fund for the period
from its inception on January 2, 1997 through March 31, 1997 is set forth in
Exhibit C to this Combined Proxy Statement and Prospectus.
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<PAGE>
A discussion of the performance of the Equity Portfolio for its fiscal year
ended April 30, 1997 is set forth in Exhibit D to this Combined Proxy Statement
and Prospectus.
Further Information About PBHG Funds and the Large Cap Value Fund
For more information with respect to PBHG Funds and the Large Cap Value
Fund concerning the following topics, please refer to the Large Cap Value Fund
Prospectus as indicated: (i) see the headings "Summary," "The Fund and the
Portfolios," and "General Information" for information on the organization,
management and operations of PBHG Funds and the Large Cap Value Fund; (ii) see
the headings "Investment Objectives and Policies," "General Investment Policies
and Strategies" and "Investment Limitations" for a description of the investment
objectives and policies of the Large Cap Value Fund; (iii) see the headings
"Summary," "The Fund and the Portfolios," "Taxes" and "General Information" for
further information concerning the capital stock of PBHG Funds; and (iv) see the
headings "How to Purchase Fund Shares," "Shareholder Services" and "How to
Redeem Fund Shares" for further information regarding the purchase, exchange and
redemption of shares of the Large Cap Value Fund.
Further Information About UAM Funds and the Equity Portfolio
For more information with respect to UAM Funds and the Equity Portfolio
concerning the following topics, please refer to the Equity Portfolio Prospectus
as follows: (i) see the headings "Prospectus Summary," "Valuation of Shares,"
"Performance Calculations," "Investment Adviser," "Administrative Services,"
"Distributor," "Portfolio Transactions" and "General Information" for further
information on the organization, management and operation of UAM Funds and the
Equity Portfolio; (ii) see the headings "Investment Objectives," "Investment
Policies," "Other Investment Policies" and "Investment Limitations" for further
information concerning the investment objectives and policies of the Equity
Portfolio; (iii) see the headings "Prospectus Summary," "Dividends, Capital Gain
Distributions and Taxes" and "General Information" for further information
concerning the shares of beneficial interest of UAM Trust; and (iv) see the
headings "Purchase of Shares," "Redemption of Shares," "Other Redemption
Information," "Service and Distribution Plans" and "Shareholder Services" for
further information concerning the purchase, exchange and redemption of shares
of the Equity Portfolio.
CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the capitalization
of the Equity Portfolio; (ii) the capitalization of the Large Cap Value Fund;
and (iii) the pro forma capitalization of the Large Cap Value Fund as adjusted
to give effect to the Reorganization. If the Reorganization is consummated, the
capitalization of the Large Cap Value Fund is likely to be different at the
Closing Date as a result of daily share purchase and redemption activity in the
Equity Portfolio and the Large Cap Value Fund.
Equity Large Cap Pro Forma
Portfolio Value Fund Combined
----------- ----------- -----------
Total Net Assets $13,714,485 $58,048,187 $71,762,672
Shares Outstanding 1,072,665 5,020,871 6,207,245
Net Asset Value Per Share $ 12.79 $ 11.56 $ 11.56
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FINANCIAL STATEMENTS
The financial statements and financial highlights of the Equity Portfolio
for the fiscal year ended April 30, 1997, and the period ending April 30, 1996,
that are included by reference in its Prospectus and Statement of Additional
Information and in the Statement of Additional Information related to this
Combined Proxy Statement and Prospectus (and with respect to the financial
highlights, that are included in this Combined Proxy Statement and Prospectus)
have been audited by Price Waterhouse LLP, independent accountants, to the
extent indicated in its reports thereon, incorporated by reference or included
in such Prospectuses and Statements of Additional Information. The financial
statements and financial highlights audited by Price Waterhouse LLP, and
included in such Prospectuses and Statements of Additional Information have
been included in reliance upon such reports given upon the authority of such
firm as an expert in accounting and auditing.
The financial statements and financial highlights of the Large Cap Value
Fund for the fiscal year ended March 31, 1997, that are incorporated in its
Prospectus and Statement of Additional Information and in the Statement of
Additional Information related to this Combined Proxy Statement and Prospectus
(and with respect to the financial highlights, that are incorporated in this
Combined Proxy Statement and Prospectus) have been audited by Coopers & Lybrand,
LLP, independent accountants, to the extent indicated in its reports thereon,
incorporated by reference or incorporated in such Prospectuses and Statements of
Additional Information. The financial statements and financial highlights
audited by Coopers & Lybrand, LLP, and incorporated in such Prospectuses and
Statements of Additional Information have been incorporated in reliance upon
such reports given upon the authority of such firm as an expert in accounting
and auditing.
OWNERSHIP OF EQUITY PORTFOLIO AND PBHG LARGE CAP VALUE SHARES
On July 18, 1997, the name, address, and share ownership of the persons who
beneficially owned 5% or more of the Equity Portfolio's outstanding shares, and
the percentage of shares that would be owned by such persons upon consummation
of the Reorganization based upon their holdings and outstanding shares at July
18, 1997, are as follows:
Bryce Douglas Investment Limited Partnership 19.8%
P.O. Box 672
Kimberton, PA
David G. Jones MD, Profit Sharing Plan 12.6%
1860 Nottingham Road
Allentown, PA
Warren Pearlman Goldburgh 9.7%
7 Gregory Road
Lyme, PA
Joseph F. Rodgers MD 10.0%
1723 Sylvan Lane
Gladwyne, PA
23
<PAGE>
James D. Jamieson 8.8%
P.O. Box 95
Valley Forge, PA
Arthur M. Treister 5.8%*
260 Lamplighter Lane
Huntington Valley, PA
Mary Jane Littlepage 5.5%
302 Berkeley Street
Devon, PA
- ----------
* Denotes shares held by a trustee or other fiduciary for which beneficial
ownership is disclaimed or presumed disclaimed.
On June 30, 1997, the name, address, and share ownership of the persons who
beneficially owned 5% or more of the outstanding shares of the Large Cap Value
Fund and the percentage of shares what would be owned by such persons upon
consummation of the Reorganization based upon their holdings and outstanding
shares at June 30, 1997, are as follows:
CENCO 52.51%
c/o Compass Bank
P.O. Box 10566
Birmingham, AL 35296-0001
On July 14, 1997, the Directors and officers of The PBHG Funds, as a group,
owned less than 1% of the outstanding shares of the Large Cap Value Fund. At
July 18, 1997, the Trustees and officers of the UAM Funds, as a group,
beneficially owned less than 1% of the outstanding shares of the Equity
Portfolio.
INFORMATION RELATING TO VOTING MATTERS
General Information
This Combined Proxy Statement and Prospectus is being furnished in
connection with the solicitation of proxies by UAM Funds' Board of Trustees on
behalf of the Equity Portfolio in connection with the Special Meeting. It is
expected that the solicitation of proxies will be primarily by mail. Officers of
UAM Funds, PBHG Funds, Newbold's, and/or Pilgrim Baxter may also solicit proxies
by telephone, telegraph, or personal interview. Any shareholder giving a proxy
may revoke it at any time before it is exercised by submitting to the Equity
Portfolio a written notice of revocation or a subsequently executed proxy or by
attending the Special Meeting and voting in person.
Only shareholders of record at the close of business on July 25, 1997, will
be entitled to vote at the Special Meeting. On that date there were outstanding
and entitled to be voted __________ shares of the Equity Portfolio. Each share
or fraction thereof is entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting or any
adjournment thereof. For information on adjournment of the Special Meeting, see
"Quorum" below.
24
<PAGE>
Shareholder and Board Approvals
The Agreement and the transactions contemplated thereby is being submitted
at the Special Meeting for approval by the shareholders of the Equity Portfolio.
In accordance with the provisions of the Agreement and Declaration of Trust of
UAM Funds and the Delaware Business Trust Act, approval of the proposal requires
the affirmative vote of (A) 67% or more of the Equity Portfolio shares present
at the Special Meeting, if holders of more than 50% of the outstanding Equity
Portfolio shares are present or represented by proxy, or (B) more than 50% of
the outstanding Equity Portfolio shares, whichever is less. Abstentions will
have the same effect as casting a vote against the proposal. The vote of the
shareholders of the Large Cap Value Fund is not being solicited, because their
approval or consent is not required for the Reorganization to be consummated.
The approval of the Agreement by the respective Boards of UAM Funds and
PBHG Funds is discussed above under "Additional Information About the Agreement
- -- Board Consideration."
Quorum
In the event that a quorum is not present at the Special Meeting, or in the
event that a quorum is present at the Special Meeting but sufficient votes to
approve the Agreement and the transactions contemplated thereby are not
received, the persons named as proxies may propose one or more adjournments of
the Special Meeting to permit further solicitation of proxies. Any such
adjournment will require the affirmative vote of a majority of the shares
represented at the Special Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the Agreement in favor of such adjournments, and will vote
those proxies required to be voted AGAINST such proposal against any
adjournment. A quorum is constituted by the presence in person or by proxy of
the holders of 30% or more of the outstanding Equity Portfolio Shares. Proxies
properly executed and marked with a negative vote or an abstention, or broker
non-votes, will be considered to be present at the Special Meeting for the
purposes of determining the existence of a quorum for the transaction of
business. Broker non-votes exist where a broker proxy indicates that the broker
is not authorized to vote on a particular proposal.
Other Business
The Board of Trustees of UAM Funds knows of no other business to be brought
before the Special Meeting. However, if any other matters come before the
Special Meeting, it is the intention that proxies which do not contain specific
restrictions to the contrary will be voted on such matters in accordance with
the judgment of the persons named in the enclosed form of proxy.
Shareholder Inquiries
Shareholder inquiries may be addressed to the Equity Portfolio in writing
at the address on the cover page of this Combined Proxy Statement and Prospectus
or by telephoning 1-800-638-7983.
* * *
25
<PAGE>
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE URGED TO
DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE
WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES. IN ORDER TO AVOID THE EXPENSE OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY PROMPTLY.
By Order of the Board of Trustees of UAM Funds
Michael E. DeFao
Secretary
Boston, Massachusetts
August __, 1997
26
<PAGE>
EXHIBIT A
Prospectus of PBHG Large Cap Value Fund
<PAGE>
THE PBHG FUNDS, INC.
PBHG CLASS SHARES
PROSPECTUS DATED JUNE 30, 1997
The PBHG Funds, Inc. (the "Fund") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers PBHG Class shares of each of the following
portfolios (each a "Portfolio" and, together, the "Portfolios"):
PBHG GROWTH FUNDS PBHG VALUE FUNDS
o PBHG GROWTH FUND o PBHG LARGE CAP VALUE FUND
o PBHG EMERGING GROWTH o PBHG MID-CAP VALUE FUND
FUND o PBHG SMALL CAP VALUE FUND
o PBHG LARGE CAP GROWTH
FUND PBHG SPECIALTY FUNDS
o PBHG SELECT EQUITY FUND o PBHG INTERNATIONAL FUND
o PBHG CORE GROWTH FUND o PBHG CASH RESERVES FUND
o PBHG LIMITED FUND o PBHG TECHNOLOGY &
o PBHG LARGE CAP 20 FUND COMMUNICATIONS FUND
o PBHG STRATEGIC SMALL
COMPANY FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated May 20, 1997, has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-800-433-0051. This Prospectus is also available on the
Fund's Web site at http://www.pbhgfunds.com. The Securities and Exchange
Commission maintains a Web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding the Fund and other registrants that file electronically
with the Securities and Exchange Commission. The Statement of Additional
Information is incorporated by reference into this Prospectus.
AN INVESTMENT IN THE PBHG CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
AS OF THE DATE OF THIS PROSPECTUS, THE PGHG CLASS SHARES OF THE PBHG LIMITED
FUND ARE OPEN TO NEW INVESTMENTS ONLY BY EXISTING PBHG CLASS SHAREHOLDERS OF THE
PBHG LIMITED FUND. THE EXISTING PBHG CLASS SHAREHOLDERS OF THE PBHG LIMITED FUND
MAY OPEN NEW ACCOUNTS IN THE PBHG LIMITED FUND, PROVIDED THAT ANY NEW ACCOUNT IS
REGISTERED IN THE SAME NAME OR HAS THE SAME SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER AS THE EXISTING SHAREHOLDER'S ACCOUNT.
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 Prospectus provides basic information
about the 14 separate series of the Fund: PBHG Growth Fund (the "Growth Fund"),
PBHG Emerging Growth Fund (the "Emerging Growth Fund"), PBHG Large Cap Growth
Fund (the "Large Cap Growth Fund"), PBHG Select Equity Fund (the "Select Equity
Fund"), PBHG Core Growth Fund (the "Core Growth Fund"), PBHG Limited Fund (the
"Limited Fund"), PBHG Large Cap 20 Fund (the "Large Cap 20 Fund"), PBHG Large
Cap Value Fund (the "Large Cap Value Fund"), PBHG Mid-Cap Value Fund (the
"Mid-Cap Value Fund"), PBHG Small Cap Value Fund (the "Small Cap Value Fund"),
PBHG International Fund (the "International Fund"), PBHG Cash Reserves Fund (the
"Cash Reserves Fund"), PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), and PBHG Strategic Small Company Fund (the "Strategic
Small Company Fund").
WHO IS THE ADVISER AND EACH OF THE SUB-ADVISERS? Pilgrim Baxter &
Associates, Ltd. ("Adviser") serves as the investment adviser to each Portfolio.
Newbold's Asset Management, Inc. ("Newbold's") serves as the sub-adviser to the
Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company
Funds. Murray Johnstone International Limited ("Murray Johnstone") serves as the
sub-adviser to the International Fund. Wellington Management Company, LLP
("Wellington") serves as the sub-adviser to the Cash Reserves Fund. See "The
Adviser," "Newbold's," "Murray Johnstone," and "Wellington" under the caption
"General Information."
TABLE OF CONTENTS
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary..................................................... 2
Expense Summary............................................. 4
Financial Highlights........................................ 5
The Fund and the Portfolios................................. 8
Investment Objectives and Policies.......................... 8
General Investment Policies and Strategies.................. 19
Risk Factors................................................ 21
Investment Limitations...................................... 23
How to Purchase Fund Shares................................. 24
Shareholder Services........................................ 26
How to Redeem Fund Shares................................... 28
Determination of Net Asset Value............................ 30
Performance Advertising..................................... 30
Taxes....................................................... 31
General Information......................................... 32
Glossary of Permitted Investments........................... 39
</TABLE>
2
<PAGE>
WHO IS THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services, a
wholly-owned subsidiary of the Adviser, serves as the administrator of the Fund,
and SEI Fund Resources, an affiliate of the Fund's distributor, serves as
sub-administrator of the Fund. See "The Administrator and Sub-Administrator"
under the caption "General Information."
WHO IS THE TRANSFER AGENT AND SUB-TRANSFER AGENT? DST Systems, Inc. serves
as the transfer agent, dividend disbursing agent and shareholder servicing agent
of the Fund (the "Transfer Agent"). The Fund may also pay amounts to certain
third parties that provide sub-transfer agency and other administrative services
relating to the Fund to persons who beneficially own interests in the Fund. See
"The Transfer Agent and Sub-Transfer Agents" under the caption "General
Information."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the Fund
with distribution services. See "The Distributor" under the caption "General
Information."
IS THERE A SALES LOAD? No, PBHG Class shares of each Portfolio are offered
on a no-load basis.
IS THERE A MINIMUM INVESTMENT? Each Portfolio (except the Limited Fund and
Strategic Small Company Fund) has a minimum initial investment of $2,500 for
regular accounts and $2,000 for IRAs. The Limited Fund and Strategic Small
Company Fund each have a minimum initial investment of $5,000 for regular
accounts and $2,000 for IRAs. Each Portfolio, however, has a minimum initial
investment of $500 for both regular accounts and IRAs provided a Systematic
Investment Plan is established by the investor with a minimum investment of $25
per month at the same time that the initial investment is made.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). However, shares of the Cash Reserves Fund
cannot be purchased by Federal Reserve wire on federal holidays restricting wire
transfers. A purchase order will be effective as of the Business Day received by
the Transfer Agent if the Transfer Agent receives sufficient information to
execute the order and receives payment by check or readily available funds prior
to 2:00 p.m., Eastern time for the Cash Reserves Fund and 4:00 p.m., Eastern
time for each of the other Portfolios. Redemption orders placed with the
Transfer Agent prior to 2:00 p.m., Eastern time for the Cash Reserves Fund and
4:00 p.m., Eastern time for each of the other Portfolios on any Business Day
will be effective that day. The purchase and redemption price for shares is the
net asset value per share determined as of the end of the day the order is
effective. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
3
<PAGE>
- ------------------------------------------------------------------------------
EXPENSE SUMMARY
- ------------------------------------------------------------------------------
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in PBHG Class shares.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL OPERATING
EXPENSES (NET OF
REIMBURSEMENT
AFTER FEE WAIVER
OR EXPENSE
ADVISORY 12b-1 OTHER REIMBURSEMENT,
FEES(1) FEES EXPENSES(1)(2) IF ANY)(3)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Growth Fund .85% None .40% 1.25%
Emerging Growth Fund .85% None .43% 1.28%
Large Cap Growth Fund .75% None .48% 1.23%
Select Equity Fund .85% None .41% 1.26%
Core Growth Fund .85% None .51% 1.36%
Limited Fund 1.00% None .42% 1.42%
Large Cap 20 Fund .85% None .65% 1.50%
Large Cap Value Fund .65% None .85% 1.50%
Mid-Cap Value Fund .85% None .65% 1.50%
Small Cap Value Fund 1.00% None .50% 1.50%
International Fund 1.00% None 1.22% 2.22%
Cash Reserves Fund .30% None .38% .68%
Technology & Communications
Fund .85% None .48% 1.33%
Strategic Small Company Fund 1.00% None .50% 1.50%
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
(1) For the Large Cap 20, Large Cap Value, Mid-Cap Value, Small Cap Value and
Strategic Small Company Funds, "Advisory Fees" and "Other Expenses" are
based on estimated amounts for the current fiscal year. Estimated Advisory
Fees and Other Expenses are shown for each of those Portfolios because they
have been in existence for less than six months. For the fiscal period ended
March 31, 1997, the actual Advisory Fees and Total Expenses as a percentage
of the average net assets of the Large Cap Value Fund would have been 0.85%
and 1.74%, respectively, absent waivers of fees and expenses. On March 6,
1997, the Board of Directors of the Fund voted to reduce the Advisory Fees
for the Large Cap Value Fund from 0.85% to 0.65% of average net assets,
effective May 1, 1997.
(2) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder. A charge of $12.00 may be imposed annually on accounts that
fall below the minimum account size as a result of shareholder redemptions.
See "How to Redeem Shares -- Minimum Account Size" for the minimum account
size of each Portfolio.
(3) The Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit annual operating expenses of
the Core Growth, Limited, Large Cap 20, Large Cap Value, Mid-Cap Value,
Small Cap Value and Strategic Small Company Funds to no more than 1.50% of
the average daily net assets of each such Portfolio. In addition, the
Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit the annual operating expenses
of the International Fund to no more than 2.25% of the average daily net
assets of that Portfolio. Each such waiver of Advisory Fees or assumptions
of Other Expenses by the Adviser is subject to a possible reimbursement by
each Portfolio in future years if such reimbursement can be achieved within
the foregoing annual expense limits. Nevertheless, it is not expected that
the Adviser will need to waive or limit its Advisory Fees or to assume Other
Expenses for each of those Portfolios during the current fiscal year,
assuming the average assets of each of those Portfolios is at least $50
million.
4
<PAGE>
- ------------------------------------------------------------------------------
EXAMPLE An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end
of each period.
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
Growth Fund $13 $40 $ 69 $151
Emerging Growth Fund $13 $41 $ 70 $155
Large Cap Growth Fund $13 $39 $ 68 $149
Select Equity Fund $13 $40 $ 69 $152
Core Growth Fund $14 $43 $ 74 $164
Limited Fund $14 $45 N/A N/A
Large Cap 20 Fund $15 $47 N/A N/A
Large Cap Value Fund $15 $47 N/A N/A
Mid-Cap Value Fund $15 $47 N/A N/A
Small Cap Value Fund $15 $47 N/A N/A
International Fund $23 $69 $119 $255
Cash Reserves Fund $ 7 $22 $ 38 $ 85
Technology & Communications Fund $14 $42 $ 73 $160
Strategic Small Company Fund $15 $47 N/A N/A
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The example is based upon estimated total operating expenses for the Portfolios,
as set forth in the "Annual Operating Expenses" table above. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in PBHG Class shares of each
Portfolio. See "The Adviser" and "The Administrator and Sub-Administrator" under
the caption "General Information."
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following information for the fiscal period ended March 31, 1997 has been
audited by Coopers & Lybrand L.L.P., the Fund's current independent accountants.
The information for the fiscal periods ended March 31, 1994, 1995 and 1996 was
audited by Arthur Andersen LLP, the Fund's former independent public
accountants. Arthur Andersen LLP served as the Fund's independent public
accountants from August 1993 to November, 1996. The information with respect to
the Growth Fund for the periods from April 1, 1989 to March 31, 1993, was
audited by the Fund's independent public accountants that preceded Arthur
Andersen LLP for those periods. The information for the periods prior to April
1, 1989, is unaudited. The Fund's audited financial statements are incorporated
by reference into the Fund's Statement of Additional Information under
"Financial Information." The following tables should be read in conjunction with
the Fund's financial statements and notes thereto. Additional information about
each Portfolio's performance is contained in the Fund's Annual Report, which may
be obtained (without charge) by calling 1-800-433-0051. No information with
respect to the Mid-Cap Value Fund and the Small Cap Value Fund is included in
the following table because these Portfolios commenced operation after March 31,
1997.
5
<PAGE>
FOR A PBHG CLASS 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
- ---------------------------------------------------------------------------------------------------
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)%
- ---------------------------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
- ---------------------------------------------------------------------------------------------------
1997 $23.07 $ (0.11) $ (2.87) -- $ (0.83) $19.26 (13.71)%
1996 16.10 (0.07) 8.03 -- (0.99) 23.07 50.16%
1995(1,2) 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+
1994(1) 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64%
1993(3) 10.00 (0.03) 3.25 -- -- 13.22 32.20%c+
- ---------------------------------------------------------------------------------------------------
PBHG LARGE CAP GROWTH FUND
- ---------------------------------------------------------------------------------------------------
1997 $14.53 $ (0.05) $ (0.21) -- $ (0.01) $14.26 (1.77)%
1996(4) 10.00 (0.03) 4.97 -- (0.41) 14.53 50.47%*
- ---------------------------------------------------------------------------------------------------
PBHG SELECT EQUITY FUND
- ---------------------------------------------------------------------------------------------------
1997 $17.27 $ (0.13) $ (1.03) -- $ (0.20) $15.91 (6.94)%
1996(4) 10.00 (0.05) 7.68 -- (0.36) 17.27 77.75%*
- ---------------------------------------------------------------------------------------------------
PBHG CORE GROWTH FUND
- ---------------------------------------------------------------------------------------------------
1997 $11.82 $ (0.09) $ (1.39) -- -- $10.34 (12.52)%
1996(5) 10.00 -- 1.82 -- -- 11.82 18.20%+
- ---------------------------------------------------------------------------------------------------
PBHG LIMITED FUND
- ---------------------------------------------------------------------------------------------------
1997(6) $10.00 $ 0.02 $ (0.93) $ (0.03) $ (0.01) $ 9.05 (9.15)%+
- ---------------------------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ---------------------------------------------------------------------------------------------------
1997(7) $10.00 $ (0.01) $ (0.73) $ (0.01) -- $ 9.25 (7.40)%+
- ---------------------------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
- ---------------------------------------------------------------------------------------------------
1997(8) $10.00 $ 0.02 $ 0.09 -- -- $10.11 1.10%+
- ---------------------------------------------------------------------------------------------------
PBHG INTERNATIONAL FUND
- ---------------------------------------------------------------------------------------------------
1997 $10.55 -- $ 0.71 -- -- $11.26 6.73%
1996 9.13 (0.04) 1.46 -- -- 10.55 15.55%
1995(9) 10.00 (0.03) (0.80) -- $ (0.04) 9.13 (8.33)%+
- ---------------------------------------------------------------------------------------------------
PBHG CASH RESERVES FUND
- ---------------------------------------------------------------------------------------------------
1997 $ 1.00 $ 0.05 -- $ (0.05) -- $ 1.00 4.89%
1996(4) 1.00 0.05 -- (0.05) -- 1.00 5.24%*
- ---------------------------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- ---------------------------------------------------------------------------------------------------
1997 $12.48 $ (0.05) $ 2.55 -- $ (0.35) $14.63 19.59%
1996(10) 10.00 (0.02) 2.50 -- -- 12.48 24.82%+
- ---------------------------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ---------------------------------------------------------------------------------------------------
1997(8) $10.00 -- $ (1.14) -- -- $ 8.86 (11.40)%+
</TABLE>
* ANNUALIZED.
+ Total returns have not been annualized.
++ Average commission rate paid per share for security
purchases and sales during the period. Presentation of the
rate paid is only required for reporting periods beginning
after September 1, 1995.
1 The information set forth in this table for the periods
prior to June 2, 1994 is the financial data of the Pilgrim
Baxter Emerging Growth Fund, a series of the Advisors' Inner
Circle Fund. The PBHG Emerging Growth Fund acquired the
assets and assumed the liabilities of the Pilgrim Baxter
Emerging Growth Fund on June 2, 1994. The PBHG Emerging
Growth Fund retained the October 31 fiscal year end of its
predecessor only for fiscal year 1994. The PBHG Emerging
Growth Fund changed its fiscal year end to March 31, in 1995
and reported financial information for the fiscal period
from November 1, 1994 to March 31, 1995.
2 Per share calculations were performed using average shares
for the period.
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 ASSET 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++
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$4,634,138 1.25% (0.69)% 1.25% (0.69)% 64.89% $0.0443
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
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$1,195,620 1.28% (0.36)% 1.28% (0.36)% 47.75% $0.0328
689,705 1.47% (0.42)% 1.47% (0.42)% 97.05% N/A
411,866 1.50%* (0.08)%* 1.50%* (0.08)%* 27.50% N/A
113,329 1.45% (0.77)% 1.45% (0.77)% 95.75% N/A
34,517 1.50%* (0.72)%* 1.54%* (0.76)%* 71.18% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 119,971 1.23% (0.47)% 1.23% (0.47)% 51.70% $0.0547
53,759 1.50%* (0.66)%* 2.07%* (1.23)%* 116.75% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 372,486 1.26% (0.76)% 1.26% (0.76)% 71.70% $0.0443
202,796 1.50%* (0.74)%* 1.73%* (0.97)%* 206.22% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 283,995 1.36% (0.77)% 1.36% (0.77)% 46.75% $0.0437
31,092 1.50%* (0.18)%* 2.92%* (1.60)%* 17.00% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 137,520 1.42%* 0.33%* 1.42%* 0.33%* 75.46% $0.0304
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 69,819 1.50%* 0.17%* 1.50%* 0.17%* 43.98% $0.0550
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 26,262 1.50%* 1.61%* 1.74%* 1.37%* 0.00% $0.0588
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 21,265 2.22% (0.32)% 2.22% (0.32)% 74.82% $0.0287
11,243 2.25% (0.22)% 3.03% (1.00)% 140.26% N/A
15,236 2.25%* (0.43)%* 2.36%* (0.54)%* 81.72% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 341,576 0.68% 4.79% 0.68% 4.79% N/A N/A
99,001 0.70%* 5.05%* 0.88%* 4.87%* N/A N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 493,156 1.33% (0.59)% 1.33% (0.59)% 289.91% $0.0365
61,772 1.50%* (0.50)%* 2.00%* (1.00)%* 125.99% N/A
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
$ 61,382 1.50%* 0.18%* 1.50%* 0.18%* 88.88% $0.0562
</TABLE>
3 The Pilgrim Baxter Emerging Growth Fund, the predecessor series to the PBHG
Emerging Growth Fund, commenced operations on June 15, 1993.
4 The PBHG Select Equity Fund, the PBHG Large Cap Growth Fund, and the PBHG
Cash Reserves Fund commenced operations on April 5, 1995.
5 The PBHG Core Growth Fund commenced operations on January 2, 1996.
6 The PBHG Limited Fund commenced operations on July 1, 1996.
7 The PBHG Large Cap 20 Fund commenced operations on December 1, 1996.
8 The PBHG Large Cap Value Fund and PBHG Strategic Small Company Fund
commenced operations on January 2, 1997.
9 The PBHG International Fund commenced operations on June 14, 1994.
10 The PBHG Technology & Communications Fund commenced operations on October
2, 1995.
7
<PAGE>
- -------------------------------------
THE FUND AND THE PORTFOLIOS
- -------------------------------------
The Fund is an open-end management investment company that offers by means of
this Prospectus shares in 14 separate series: Growth Fund, Emerging Growth Fund,
Large Cap Growth Fund, Select Equity Fund, Core Growth Fund, Limited Fund, Large
Cap 20 Fund, Large Cap Value Fund, Mid-Cap Value Fund, Small Cap Value Fund,
International Fund, Cash Reserves Fund, Technology & Communications Fund and
Strategic Small Company Fund. Each share of each Portfolio represents an
undivided interest in that Portfolio. The Fund's shares are currently divided
into two classes of shares (PBHG Class and Advisor Class) having such
preferences and special or relative rights and privileges as the Board of
Directors determines. Only the Fund's PBHG Class shares are offered by this
Prospectus. 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 up
to 0.25% of the average daily net assets attributable to its shares. Advisor
Class shares are currently available for the Growth Fund only and are offered by
a separate prospectus, which is available without charge by calling
1-800-433-0051. Additional information pertaining to the Fund may be obtained in
writing from the Fund's Transfer Agent at DST Systems, Inc., P.O. Box 419534,
Kansas City, Missouri 64141-6534, or by calling 1-800-433-0051.
- -------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------
PBHG GROWTH FUNDS
PBHG GROWTH FUND
The Growth Fund seeks capital appreciation. The Portfolio will normally be as
fully invested as practicable in common stocks and securities convertible into
common stocks, but also may invest up to 5% of its assets in warrants and rights
to purchase common stocks. In the opinion of the Adviser, there may be times
when the shareholders' interests are best served and the investment objective is
more likely to be achieved by having varying amounts of the Portfolio's assets
invested in convertible securities. Under normal market conditions, the
Portfolio will invest at least 65% of its total assets in common stocks and
convertible securities of small and medium sized growth companies (i.e.,
companies with market capitalization or annual revenues of up to $2 billion).
The average market capitalizations or annual revenues of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $2 billion subsequent to purchase,
if the company continues to satisfy the other investment policies of the
Portfolio.
The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of a
decline in market price is too great. Because of its policy with respect to the
sales of investments, the Portfolio may from time to time realize short-term
gains or losses. The Portfolio will likely have greater volatility than the
stock market in general, as measured by the Standard & Poor's 500 Stock Index
("S&P 500"). Because the investment techniques employed by the Adviser are
responsive to near-term earnings trends of the companies whose securities are
owned by the Portfolio, portfolio
8
<PAGE>
turnover can be expected to be fairly high.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.
PBHG EMERGING GROWTH FUND
The Emerging Growth Fund seeks long-term growth of capital. The Portfolio will
normally be as fully invested as practicable in common stocks (including ADRs),
but also may invest in equity securities such as warrants and rights to purchase
common stocks, preferred stocks, and securities convertible into or exchangeable
for common stocks. Under normal market conditions, the Portfolio will invest at
least 65% of its total assets in common stocks of domestic emerging growth
companies that have historically exhibited exceptional or strong growth
characteristics and, in the Adviser's opinion, have an expected trend of
earnings higher than that of the U.S. market as a whole. Such companies
generally have market capitalizations or annual revenues of up to $500 million.
The average market capitalizations or annual revenues of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or annual revenues grow above $500 million subsequent to
purchase, if the company continues to satisfy the other investment policies of
the Portfolio. The Adviser will not consider dividend income when selecting
common stocks for the Portfolio.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market.
While it has no present intention to do so, the Portfolio reserves the right to
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, to purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities. The Portfolio may invest in restricted securities, but will not
invest more than 5% of its net assets in restricted securities that the Adviser
determines are illiquid based on guidelines approved by the Board of Directors
of the Fund. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG LARGE CAP GROWTH FUND
The Large Cap Growth Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in
9
<PAGE>
equity securities (including ADRs and foreign securities). The equity securities
in which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, preferred stocks and securities convertible into or
exchangeable for common stocks. Normally, the Portfolio will purchase
exchange-traded and over-the-counter equity securities, including foreign
securities traded in the United States. The Portfolio may invest in convertible
debt securities rated investment grade by a nationally recognized statistical
rating organization ("NRSRO") (i.e., within one of the four highest rating
categories).
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion (with a median market capitalization of approximately $2.75
billion). The Adviser also will consider the diversity of industries in choosing
investments for the Portfolio.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks and
stock indices. The Portfolio may also invest up to 15% of its net assets in
illiquid securities, but will not invest more than 5% of its net assets in
restricted securities that the Adviser determines are illiquid based on
guidelines approved by the Board of Directors of the Fund. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" for a fuller
description. The Portfolio may purchase securities on a when-issued or delayed
delivery basis. See "Risk Factors" and "Glossary of Permitted Investments" for
additional information.
PBHG SELECT EQUITY FUND
The Select Equity Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks,
preferred stocks and securities that are convertible into or exchangeable for
common stocks. The Portfolio may invest in convertible debt securities rated
investment grade by an NRSRO (i.e., within one of the four highest rating
categories). Normally, the Portfolio will purchase exchange-traded and over-the-
counter equity securities, including foreign securities traded in the United
States. The Adviser will consider the diversity of industries in choosing
investments for the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of a limited number of companies that, in the
Adviser's opinion, have a strong earnings growth outlook and potential for
capital appreciation. Normally, the Portfolio's investments will be limited to a
relatively small number of stocks (e.g., no more than 30 stocks) of small,
medium and large capitalization companies. Because the Portfolio focuses on a
small number of stocks, the impact of a change in value of a stock holding may
be magnified.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest
10
<PAGE>
more than 5% of its net assets in restricted securities that the Adviser
determines are illiquid based on guidelines approved by the Board of Directors
of the Fund. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG CORE GROWTH FUND
The Core Growth Fund seeks long-term capital appreciation. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (i.e., common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of companies, without regard to market capitalization, that are
believed by the Adviser to have superior long-term growth prospects and
potential for long-term capital appreciation.
The Adviser seeks to invest in companies poised for rapid growth that have an
historical record of above-average earnings growth, demonstrate the ability to
sustain strong earnings growth, and operate in industries or markets that may be
experiencing increased demand for their products or services. Such companies may
include ones that the Adviser has invested in or believes are good prospects for
certain of its other Portfolios. The Adviser will consider diversity of
industries in choosing investments for the Portfolio and will not limit the
number of small, medium and large capitalization companies in which the
Portfolio will invest.
The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may use high-quality money market investments or short-term bonds to reduce
downside volatility during uncertain or declining market conditions and for
temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" for a
fuller description. The Portfolio may purchase securities on a when-issued or
delayed delivery basis. See "Risk Factors" and "Glossary of Permitted
Investments" for additional information.
PBHG LIMITED FUND
The Limited Fund seeks long-term capital appreciation. Under normal conditions,
the Portfolio will invest primarily in a diversified portfolio of equity
securities (i.e., common stocks, preferred stocks, rights, warrants and
securities convertible into or exchangeable for common stocks) of companies,
with smaller market capitalizations or annual revenues of up to $250 million,
that are believed by the Adviser to have superior long-term growth prospects and
potential for long-term capital appreciation. The average and median market
capitalizations of holdings in the Portfolio may, however, fluctuate over time
as a result
11
<PAGE>
of market valuation levels and the availability of specific investment
opportunities. In addition, the Portfolio may continue to hold securities of
companies whose market capitalizations or revenues grow above $250 million
subsequent to purchase, if such companies continue to satisfy the other
investment policies of the Portfolio.
The Portfolio seeks to invest in smaller capitalization companies poised for
rapid and dynamic growth. In selecting holdings for the Portfolio, the Adviser
focuses on companies that possess exceptional or strong historical growth
characteristics and whose trend of earnings and stock prices are expected by the
Adviser to grow faster than those of the U.S. stock market as a whole. Dividend
income will not be considered in selecting holdings for the Portfolio.
The securities of smaller companies are usually less actively followed by
analysts and may be undervalued by the market, which can provide significant
opportunities for capital appreciation. However, the securities of such smaller
companies may also involve greater risks and may be subject to more volatile
market movements than securities of larger, more established companies. See
"Risk Factors" for more information about smaller company securities.
The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may also engage in securities lending. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Glossary of
Permitted Investments" for additional information.
PBHG LARGE CAP 20 FUND
The Large Cap 20 Fund seeks long-term growth of capital. The Portfolio will
normally be substantially invested in equity securities (including ADRs and
foreign equity securities). The equity securities in which the Portfolio will
invest are common stocks, warrants and rights to purchase common stocks, and
debt securities and preferred stock that are convertible into common stocks. The
Portfolio may invest in convertible debt securities rated investment grade by an
NRSRO (i.e., within one of the four higher rating categories). The Adviser will
consider the diversity of industries in choosing investments for the Portfolio.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of a limited number (i.e., no more than 20
stocks) of large capitalization companies that, in the Adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because the
Portfolio focuses on equity securities of a small number of companies, the
impact of a change in value of a single stock holding may be magnified.
The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
12
<PAGE>
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The Portfolio may also engage in
securities lending. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG VALUE FUNDS
PBHG LARGE CAP VALUE FUND
The Large Cap Value Fund seeks long-term growth of capital and income. Current
income is a secondary objective. Under normal market conditions, the Portfolio
will invest at least 65% of its total assets in a diversified portfolio of
equity securities (i.e., common stocks, preferred stocks, rights, warrants and
securities convertible into or exchangeable for common stocks) of large
capitalization companies which, in the opinion of the Adviser and Newbold's, are
undervalued or overlooked by the market. Such large companies have market
capitalizations in excess of $1 billion at the time of purchase.
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value: the relationship of
a company's potential earnings power to the current market price of its stock;
continuing dividend income and the potential for increasing dividend growth; a
strong balance sheet with low financial leverage; low price/earnings ratio
relative to either that company's historical results or the current ratios for
other similar companies; and potential for favorable business developments. The
Portfolio may invest in equity securities of companies that are considered to be
financially sound and attractive investments based on their long-term operations
which may be experiencing temporary earnings declines due to adverse economic
conditions that may be company or industry specific or due to unfavorable
publicity. The Portfolio may invest in such companies when the Adviser and
Newbold's believe that those companies will react positively to changing
economic conditions or that such companies have taken or are expected to take
actions designed to return their earnings to historical levels or otherwise
increase the market price of their securities.
The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total asset
in securities of foreign issuers, including ADRs, and may also invest up to 15%
of its net assets in restricted or illiquid securities. The Portfolio may also
engage in securities lending. The Portfolio may use high-quality money market
investments or short-term bonds to reduce downside volatility during uncertain
or declining market conditions. For temporary defensive purposes, the Portfolio
may invest in money market securities or short-term bonds without limitation.
See "Temporary Investments" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis.
The use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other
13
<PAGE>
investors. However, such an approach may also produce significant capital
appreciation. See "Risk Factors" and "Glossary of Permitted Investments" for
additional information.
PBHG MID-CAP VALUE FUND
The Mid-Cap Value Fund seeks to achieve above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing in
common stocks and other equity securities of companies with market
capitalizations in the range of companies represented in the Standard & Poor's
Mid-Cap 400 Index ("S&P 400"), which are considered to be relatively undervalued
based on certain proprietary measures of value.
The current market capitalization of companies represented in the S&P 400 is
typically between $200 million and over $5 billion. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings ratios than the average of those in the S&P 400. Under normal
circumstances, the Portfolio will be structured taking into account the economic
sector weighings of the S&P 400 with the Portfolio's sector weightings normally
within 5% of the sector weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value and capital
appreciation potential: the relationship of a company's potential earnings power
to its current stock price; current dividend income and the potential for
dividend growth; low price/earnings ratio relative to other similar companies;
strong competitive advantages, including a recognized brand or trade name or
niche market position; sufficient resources for expansion; capability of
management; and favorable overall business prospects. The Portfolio may invest
in securities of companies that are considered to be financially sound and
attractive investments based on their operating history, but which may be
experiencing temporary earnings declines due to adverse economic conditions that
may be company or industry specific or due to unfavorable publicity. The
Portfolio may invest in such companies when the Adviser and Newbold's believe
that those companies will react positively to changing economic conditions or
that such companies have taken or are expected to take actions designed to
improve their financial fundamentals or to otherwise increase the market price
of their securities. The use of a valuation approach may result in investment
selections that may be out-of-favor or counter to those of other investors.
However, such an approach may also produce significant capital appreciation.
Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities (i.e., common stocks, preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
undervalued medium capitalization issuers. The equity securities in which the
Portfolio invests normally will be traded in the United States or Canada on a
registered securities exchange or established over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers, including ADRs and other similar instruments. The Portfolio may also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of Portfolio's net assets and (ii) the
total market value of securities underlying all futures contracts does not
exceed 50% of the value of the Portfolio's total assets. In addition, the
Portfolio may invest up to 15% of its net assets in restricted or illiquid
securities. This limitation does not include any Rule 144A security that has
been determined to be liquid pursuant to procedures
14
<PAGE>
established by the Board. The Portfolio may also engage in securities lending.
The Portfolio may use high-quality money market investments or short-term bonds
to reduce downside volatility during uncertain or declining market conditions
and, for temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" below
for a fuller description. In addition, the Portfolio may purchase securities on
a when-issued or delayed delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.
PBHG SMALL CAP VALUE FUND
The Small Cap Value Fund seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks of small
companies with market capitalizations in the range of companies represented in
the Russell 2000 Index, which are considered to be relatively undervalued based
on certain proprietary measures of value.
The current market capitalization of companies represented in the Russell 2000
Index is typically between $57 million and $610 million. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the average of those in the
Russell 2000 Index. Under normal circumstances, the Portfolio will be structured
taking into account the economic sector weightings of the Russell 2000 Index,
with the Portfolio's sector weightings normally within 5% of the sector
weightings of that Index.
In selecting investments for the Portfolio, the Adviser and Newbold's emphasize
fundamental investment value and consider the following factors, among others,
in identifying and analyzing a security's fundamental value: the relationship of
a company's potential earnings power to its current stock price; current
dividend income and the potential for current dividends; low price/earnings
ratio relative to other similar companies; strong competitive advantages,
including a recognized brand or trade name or niche market position; sufficient
resources for expansion; capability of management; and favorable overall
business prospects. The Portfolio may invest in common stocks of companies that
are considered to be financially sound and attractive investments based on their
operating history, but which may be experiencing temporary earnings declines due
to adverse economic conditions that may be company or industry specific or due
to unfavorable publicity. The Portfolio may invest in such companies when the
Adviser and Newbold's believe that those companies will react positively to
changing economic conditions or that such companies have taken or are expected
to take actions designed to improve their financial fundamentals or to otherwise
increase the market price of their securities. The use of a valuation approach
may result in investment selections that may be out-of-favor or contrary to
those of other investors. However, such an approach may also produce significant
capital appreciation.
In addition to the Portfolio's primary investment (i.e., under normal market
conditions, at least 65% of its total assets will be invested in common stocks
of undervalued small capitalization companies), the Portfolio may also invest in
other equity securities (i.e., preferred stocks, warrants and securities
convertible into or exchangeable for common stocks) of such small capitalization
issuers. The Portfolio may also utilize futures contracts (i.e., purchase and
sell futures contracts) to the extent that (i) aggregate initial margin deposits
to establish other than "bona fide hedging" positions do
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not exceed 5% of the Portfolio's net assets and (ii) the total market value of
securities underlying all futures contracts does not exceed 50% of the value of
the Portfolio's total assets. In addition, the Portfolio may invest up to 15% of
its net assets in restricted or illiquid securities. This limitation does not
include any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. The Portfolio may also engage in securities
lending. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" below for a fuller description.
The securities in which the Portfolio invests normally will be traded in the
United States or Canada on a registered securities exchange or established over-
the-counter market. The Portfolio may invest up to 15% of its total asset in
securities of foreign issuers, including ADRs and other similar instruments. In
addition, the Portfolio may purchase securities on a when-issued or delayed
delivery basis.
See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.
PBHG SPECIALTY FUNDS
PBHG INTERNATIONAL FUND
The International Fund seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of equity securities of non-U.S.
issuers. Country selection is a significant part of the investment process.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in securities of issuers in at least three countries other than
the United States. The Portfolio may invest more than 25% of its total assets in
the securities of issuers whose principal activities are in specific countries
or geographic regions, including emerging markets. The term "emerging markets"
applies to any country which is generally considered to be an emerging or
developing country by the international financial community.
Under normal circumstances, the Portfolio's assets will be fully invested in the
following equity securities of non-U.S. companies: common stocks, securities
convertible into or exchangeable for common stocks, preferred stocks, warrants
and rights to subscribe to common stocks. The Portfolio may purchase securities
of foreign issuers sold in foreign markets, on United States registered
exchanges, in the over-the-counter market, or in the form of sponsored or
unsponsored ADRs or Global Depositary Receipts. The Portfolio's investments in
equity securities are not based on company size and can range from small
capitalization companies to large, established companies.
The Portfolio generally will not hedge its currency exposure, since currency
considerations are an important part of the Portfolio's country and company
selection process. Nevertheless, the Portfolio may on occasion enter into
forward foreign currency contracts as a hedge against possible variations in
foreign exchange rates or to hedge a specific security transaction or portfolio
position. (A forward foreign currency contract is a commitment to purchase or
sell a specified currency, at a specified future date, at a specified price.)
In addition, when, in the opinion of the Adviser or Murray Johnstone, market
conditions so warrant, the Portfolio may invest, without limitation, in U.S. or
non-U.S. money market securities and short-term debt securities, including
securities issued or guaranteed by U.S. or non-U.S. governments or the agencies
or instrumentalities of such governments, and securities issued by supranational
agencies. Such securities will be of comparable quality to U.S. securities rated
in one of
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the four highest rating categories by an NRSRO.
Under normal market conditions, the Portfolio expects to be fully invested in
the equity securities described above. However, it may invest up to 15% of its
total assets in: swaps, options on securities, non-U.S. indices and currencies,
and futures contracts, including stock index futures contracts, and options on
futures contracts. The Portfolio is permitted to acquire floating and variable
rate debt securities, when-issued securities and illiquid and restricted
securities. The Portfolio will not invest more than 15% of its net assets in
illiquid securities. The Portfolio may invest in common stocks of closed-end
investment companies that invest primarily in international common stocks. If
the Portfolio invests in closed-end investment companies, the Portfolio's
shareholders will bear not only their proportionate share of the expenses of the
Portfolio (including fees of the Adviser), but also will indirectly bear similar
expenses of the underlying closed-end fund. The Portfolio may also engage in
securities lending. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG CASH RESERVES FUND
The Cash Reserves Fund seeks to preserve principal value and maintain a high
degree of liquidity while providing current income. Under normal market
conditions the Portfolio invests in obligations denominated in U.S. dollars
consisting of: (i) commercial paper issued by U.S. and foreign issuers rated in
one of the two highest rating categories by any two NRSROs at the time of
investment, or, if not rated, determined by the Adviser or Wellington to be of
comparable quality; (ii) obligations (including certificates of deposit, time
deposits, bank notes and bankers' acceptances) of U.S. savings and loan and
thrift institutions, U.S. commercial banks (including foreign branches of such
banks), and U.S. and foreign branches of foreign banks, provided that such
institutions (or, in the case of a branch, the parent institution) have total
assets of $500 million or more as shown on their last published financial
statements at the time of investment; (iii) short-term corporate obligations of
U.S. and foreign issuers with a remaining term of not more than one year of
issuers with commercial paper of comparable priority and security meeting the
above ratings; (iv) U.S. Treasury obligations and obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the U.S. government; (v) securities issued by foreign governments, including
Canadian and Provincial Government and Crown Agency Obligations; (vi) short-term
obligations issued by state and local governmental issuers which are rated at
the time of investment by at least two NRSROs in one of the two highest
municipal bond rating categories, and carry yields that are competitive with
those of other types of money market instruments of comparable quality; and
(vii) repurchase agreements involving any of the foregoing obligations. The
Portfolio complies with regulations of the Securities and Exchange Commission
(the "SEC") applicable to money market funds. These regulations impose certain
quality, maturity and diversification restraints on investments. Under these
regulations, the Portfolio must maintain a dollar-weighted average portfolio
maturity of 90 days or less and generally, may invest only in securities with
maturities of 397 days or
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less. The purchase of single rated or unrated securities by the Adviser or
Wellington is subject to the approval or ratification by the Board of Directors.
It is a fundamental policy of the Portfolio to use its best efforts to maintain
a constant net asset value of $1.00 per share. There can be no assurance that
the Portfolio will be able to maintain a net asset value of $1.00 per share on a
continuing basis. The Portfolio may invest up to 10% of its net assets in
illiquid securities. However, restricted securities, including Rule 144A
securities and Section 4(2) commercial paper, that meet the criteria established
by the Board of Directors of the Fund will be considered liquid. In addition,
the Portfolio may invest in U.S. Treasury STRIPS. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
PBHG TECHNOLOGY & COMMUNICATIONS FUND
The Technology & Communications Fund seeks long-term growth of capital. Current
income is incidental to the Portfolio's objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in common
stocks of companies which rely extensively on technology or communications in
their product development or operations, or which are expected to benefit from
technological advances and improvements, and that may be experiencing
exceptional growth in sales and earnings driven by technology- or
communication-related products and services.
Such technology and communications companies may be in many different industries
or fields, including computer software and hardware, electronic components and
systems, network and cable broadcasting, telecommunications, mobile
communications, satellite communications, defense and aerospace, transportation
systems, data storage and retrieval, biotechnology and medical, and
environmental. As a result of this focus, the Portfolio offers investors the
significant growth potential of companies that may be responsible for
breakthrough products or technologies or that are positioned to take advantage
of cutting-edge developments.
The Portfolio will normally be fully invested in common stocks (including ADRs)
of such technology and communications companies, but also may invest in warrants
and rights to purchase common stocks and debt securities and preferred stocks
convertible into or exchangeable for common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, established firms with track records in developing and marketing such
scientific advances.
Normally, the Portfolio will purchase only securities traded in the U.S. or
Canada on registered exchanges or in the over-the-counter market. The Portfolio
may also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio also may invest up to 15% of its net assets in illiquid
securities. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
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PBHG STRATEGIC SMALL COMPANY FUND
The Strategic Small Company Fund seeks growth of capital. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (as previously defined herein) of
small capitalization companies. Such small companies have market capitalizations
or annual revenues of up to $750 million at the time of purchase. The Portfolio
may continue to hold securities of companies whose market capitalization or
revenues grow above that level if such companies continue to satisfy the other
investment policies of the Portfolio.
In selecting investments for the Portfolio, the Adviser or Newbold's may
emphasize securities poised for rapid and dynamic growth ("growth securities")
or securities that are undervalued or overlooked by the market ("value
securities") depending on the views of the Adviser and Newbold's of current
economic or market conditions and their long-term investment outlook. The
Portfolio is flexibly and strategically managed so that depending on the views
of the Adviser and Newbold's of economic or market conditions they will adjust
the mix of growth and value securities held by the Portfolio. Consequently, at
times it may be more heavily invested in growth securities and at other times it
may be more heavily invested in value securities.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs), and may invest up to 15% of its net assets in
restricted or illiquid securities. The Portfolio may also engage in securities
lending. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.
THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL BE ABLE TO ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------
GENERAL INVESTMENT POLICIES
AND STRATEGIES
- -------------------------------------
INVESTMENT PROCESS OF THE ADVISER
The Adviser's investment process is both quantitative and fundamental, and is
extremely focused on quality earnings growth. In seeking to identify investment
opportunities, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for each
Portfolio and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of successful
growth, such as positive earnings surprises, upward earnings estimate revisions,
and accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct investment portfolios that possess strong growth
characteristics. The Adviser tries to keep each Portfolio fully invested at
all times. Because the universe of companies will undoubtedly experience
volatility in stock price, it is important that shareholders in the Portfolios
maintain a long-term investment perspective. Of course, there can be no
assurance
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that use of these techniques will be successful, even over the long term.
INVESTMENT PROCESS OF NEWBOLD'S
Newbold's investment process, like that of the Adviser, is both quantitative and
fundamental. In seeking to identify attractive investment opportunities,
Newbold's first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investing (such as consistency of dividend payment, balance
sheet strength and, low stock price relative to its assets, earnings, cash flow
and business franchise), Newbold's screens more than 8,000 possible companies
and creates an initial universe of statistically attractive value companies.
Following the creation of this universe of possible investments, Newbold's uses
its strong fundamental research capabilities to carefully identify securities
that are currently out of favor but which have the potential to achieve
significant appreciation as the marketplace recognizes their fundamental value.
Once constructed, portfolios are continually monitored for change. Newbold's
follows a disciplined valuation approach that requires it to sell any portfolio
security that it believes has become overvalued relative to the market. Sales of
portfolio securities are primarily triggered by the relative change in
price/earnings ratio. Adverse changes in other key value elements are, of
course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful, even over the long
term.
INVESTMENT PROCESS OF MURRAY JOHNSTONE
The investment process of Murray Johnstone, like that of the Adviser, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the International Fund, Murray Johnstone starts by determining
the countries or geographic regions that, on the basis of its model criteria,
can provide the best investment opportunities for the International Fund. Murray
Johnstone's criteria for country selection incorporates twenty factors that are
used to score and rank each market. Following the creation of this investment
universe, Murray Johnstone uses its strong fundamental research capabilities to
identify individual companies having superior growth records and expectations,
sound balance sheets and high cash flow generation. After this identification
process, each company's investment value is evaluated by taking into account
such factors as relative price performance, upward earnings estimate revisions,
improving balance sheets and strength of management. Currency considerations
play a part in both country and company selection. Since the companies in which
the International Fund invests may experience greater price volatility than a
domestic stock portfolio, it is important that shareholders of the International
Fund maintain a long-term investment perspective. Of course, there can be no
assurance that the use of these techniques will be successful, even over the
long term.
PORTFOLIO TURNOVER
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. The portfolio turnover rate for the fiscal year or period
ended March 31, 1997 for each of the Portfolios (except the Mid-Cap Value and
Small Cap Value Funds) is specified in the Financial Highlights table. It is
expected that under normal market conditions, the annual portfolio turnover
rates for the Mid-Cap Value and Small Cap Value Funds will not exceed 400%. High
rates of portfolio turnover necessarily result in correspondingly greater
brokerage and portfolio trading costs, which are paid by
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the Portfolio. Trading in fixed-income securities does not generally involve the
payment of brokerage commissions, but does involve indirect transaction costs.
In addition to portfolio trading costs, higher rates of portfolio turnover may
result in the realization of capital gains. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes. In addition, high rates of
portfolio turnover may adversely affect each Portfolio's status as a "regulated
investment company" ("RIC") under Section 851 of the Internal Revenue Code of
1986, as amended ("Code").
TEMPORARY DEFENSIVE POSITIONS
Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or a sub-adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets in
cash and money market instruments (consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations having net assets of at least $500 million as stated on their
most recently published financial statements; commercial paper rated in one of
the two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective. See "Glossary of Permitted Investments" and the Statement
of Additional Information for additional information.
- -------------------------------------
RISK FACTORS
- -------------------------------------
SMALL AND MEDIUM CAPITALIZATION STOCKS
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio (other than the Cash Reserves Fund) may be more suitable for long-term
investors who can bear the risk of these fluctuations. The Growth Fund, Emerging
Growth Fund, Limited Fund, Small Cap Value Fund and Strategic Small Company Fund
invest extensively in small capitalization companies. The Mid-Cap Value Fund
invests extensively in medium capitalization companies. In certain cases, the
Core Growth Fund, Select Equity Fund and Technology & Communications Fund invest
in securities of issuers with small or medium market capitalizations. While the
Adviser and Newbold's intend to invest in small and medium capitalization
companies that have strong balance sheets and favorable business prospects, any
investment in small and medium capitalization companies involves greater risk
and price volatility than that customarily associated with investments in
larger, more established companies. This increased risk may be due to the
greater business risks of their small or medium size, limited markets and
financial resources, narrow product lines and frequent lack of management depth.
The securities of small and medium capitalization companies are often traded in
the over-the-counter market, and might not be traded in volumes typical of
securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.
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OVER-THE-COUNTER MARKET
Each Portfolio (except the Cash Reserves Fund) may invest in over-the-counter
stocks. In contrast to the securities exchanges, the over-the-counter market is
not a centralized facility which limits trading activity to securities of
companies which initially satisfy certain defined standards. Generally, the
volume of trading in an unlisted or over-the-counter common stock is less than
the volume of trading in a listed stock. This means that the depth of market
liquidity of some stocks in which each Portfolio invests may not be as great as
that of other securities and, if the Portfolios were to dispose of such a stock,
they might have to offer the shares at a discount from recent prices, or sell
the shares in small lots over an extended period of time.
FOREIGN SECURITIES AND EMERGING MARKETS
Each of the Portfolios may invest in foreign securities. Investing in the
securities of foreign issuers involves special risks and considerations not
typically associated with investing in U.S. companies. These risks and
considerations include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability
which could affect U.S. investment in foreign countries and potential
restrictions on the flow of international capital and currencies. Foreign
issuers may also be subject to less government regulation than U.S. companies.
Moreover, the dividends and interest payable on foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Portfolio's shareholders. Further, foreign
securities often trade with less frequency and volume than domestic securities
and, therefore, may exhibit greater price volatility. Changes in foreign
exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
The International Fund's investments in emerging markets may be considered
speculative, and therefore may offer higher potential for gains and losses than
investments in developed markets of the world. With respect to any emerging
country, there may be greater potential for nationalization, expropriation or
confiscatory taxation, political changes, government regulation, social
instability or diplomatic developments (including war) which could affect
adversely the economies of such countries or the value of the International
Fund's investments in those countries. In addition, it may be difficult to
obtain and enforce a judgment in the courts of such countries. Further, the
economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade.
INVESTMENTS IN TECHNOLOGY COMPANIES
Each Portfolio (except the Cash Reserves Fund) may invest in equity securities
of technology companies. Such securities have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Fund will invest primarily in the securities of technology companies operating
in various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related industries and, thus, may affect the value of the
Technology & Communications Fund's
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investments in technology companies. For example, the technology companies in
which the Technology & Communication Fund invests may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies.
OPTIONS AND FUTURES CONTRACTS
Certain of the Portfolios may utilize futures contracts, and may write and
purchase call and put options. The risk of loss in trading futures contracts can
be substantial because of the low margin deposits required and the extremely
high degree of leveraging involved in futures trading. As a result, a relatively
small price movement in a futures contract may cause an immediate and
substantial loss or gain. The primary risks associated with the use of options
and futures contracts are (i) imperfect correlations between the change in
market value of the securities held by the Portfolio and the prices of the
options or futures contracts purchased or sold by the Portfolio; and
(ii) possible lack of a liquid secondary market for an over-the-counter option
or futures contract and the resulting inability to close the over-the-counter
option or futures position prior to its maturity date, which could have an
adverse impact on the Portfolio's ability to execute futures and options
strategies.
For additional information regarding permitted investments for each Portfolio
and other risks, see "Glossary of Permitted Investments" and the Statement of
Additional Information.
- -------------------------------------
INVESTMENT LIMITATIONS
- -------------------------------------
The investment objectives of each Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of each Portfolio. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.
A Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. With the
exception of the Cash Reserves Fund, this restriction applies to 75% of each
Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation,
(i) utility companies will be divided according to their services, for example,
gas distribution, gas transmission, electric and telephone will each be
considered a separate industry, and (ii) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of each Portfolio's total assets (or 33
1/3% of the value of each of the Growth, Mid-Cap Value and Small Cap Value
Funds' total assets). This borrowing provision is included solely to
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facilitate the orderly sale of portfolio securities to accommodate substantial
redemption requests if they should occur and is not for investment purposes. All
borrowings in excess of 5% of the Portfolio's total assets will be repaid before
making investments.
The foregoing percentages apply at the time of the purchase of a security.
- -------------------------------------
HOW TO PURCHASE FUND SHARES
- -------------------------------------
You may purchase shares of each Portfolio directly through DST Systems, Inc.,
the Fund's Transfer Agent. Purchases of shares of each Portfolio may be made on
any Business Day. However, shares of the Cash Reserves Fund cannot be purchased
or exchanged (i) on days when the Federal Reserve is closed or (ii) by Federal
Reserve wire on federal holidays restricting wire transfers. Shares of each
Portfolio are offered only to residents of states in which such shares are
eligible for purchase.
You may place orders by mail, wire or telephone. If market conditions are
extraordinarily active, or if severe weather or other emergencies exist, and you
experience difficulties placing orders by telephone, you may wish to consider
placing your order by other means, such as mail or overnight delivery.
You may also purchase shares of each Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolios. Such financial institutions may charge you a fee for this service in
addition to each Portfolio's public offering price.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions, or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
Each Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small or medium capitalization companies may from time to time
be more limited than those in other sectors of the stock market. Therefore, in
order to retain adequate investment flexibility, the Adviser may from time to
time recommend to the Board of Directors of the Fund that a Portfolio, which
invests extensively in such companies, indefinitely discontinue the sale of its
shares to new investors (other than directors, officers and employees of the
Adviser, each of the sub-advisers and their affiliated companies). In such
event, the Board of Directors would determine whether such discontinuance is in
the best interests of the applicable Portfolio and its shareholders. Shares of
the PBHG Limited Fund are currently offered only to existing shareholders of the
PBHG Class shares of the Portfolio. The PBHG Limited Fund may recommence
offering its shares to new investors in the future, provided that the Board of
Directors determines that doing so would be in the best interest of the
Portfolio and its shareholders.
MINIMUM INVESTMENT
The minimum initial investment in each Portfolio (other than the Limited Fund
and Strategic Small Company Fund) is $2,500 for regular accounts and $2,000 for
IRAs. The minimum initial investment in the Limited Fund and the Strategic Small
Company Fund is $5,000 for regular accounts and $2,000 for IRAs. However,
investors who establish a Systematic Investment Plan, as described below, with a
minimum investment of $25 per month may at the same time open a
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regular or IRA account with any Portfolio with a minimum initial investment of
$500. There is no minimum for subsequent investments. The Distributor may waive
the minimum initial investment amount at its discretion. No minimum applies to
subsequent purchases effected by dividend reinvestment. As described below,
subsequent purchases through the Fund's Systematic Investment Plan must be at
least $25.
INITIAL PURCHASE BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
payable to The PBHG Funds, Inc. for at least the minimum initial amount
specified above for regular and IRA accounts, and a completed Account
Application to THE PBHG FUNDS, INC. C/O DST SYSTEMS, INC., P.O. BOX 419534,
KANSAS CITY, MISSOURI 64141-6534. The Fund will not accept third-party checks,
i.e., a check not payable to The PBHG Funds, Inc. or a Portfolio for initial or
subsequent investments.
ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE)
You may purchase additional shares by telephoning the Transfer Agent at
1-800-433-0051. THE MINIMUM TELEPHONE PURCHASE IS $1,000, AND THE MAXIMUM IS
FIVE TIMES THE NET ASSET VALUE OF SHARES HELD BY THE SHAREHOLDER ON THE DAY
PRECEDING SUCH TELEPHONE PURCHASE FOR WHICH PAYMENT HAS BEEN RECEIVED. The
telephone purchase will be made at the offering price next computed after the
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, you will be liable for all losses incurred by the
Fund as a result of the cancellation of such purchase.
INITIAL PURCHASE BY WIRE
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolios by requesting your
bank to transmit funds by wire. Before making an initial investment by wire, you
must first telephone 1-800-433-0051 to receive an Account Application and be
assigned an account number. The Account Application must be received prior to
receipt of the wire. Your name, account number, taxpayer identification number
or Social Security Number, and address must be specified in the wire. All wires
must be received by 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00
p.m. Eastern time for all other Portfolios to be effective on that day. In
addition, an original Account Application should be promptly forwarded to: The
PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. All wires must be sent as follows: United Missouri Bank of Kansas
City, N.A.; ABA #10-10-00695; for Account Number 98705-23469; Further Credit:
[name of Portfolio and your assigned account number].
ADDITIONAL PURCHASES BY WIRE
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
PURCHASE BY ACH
If you have made this election, shares of each Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to you initiating an ACH
transaction.
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GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives sufficient information to execute the order and
receives payment before 2:00 p.m., Eastern time for the Cash Fund and 4:00 p.m.,
Eastern time for all other Portfolios. Payment may be made by check or readily
available funds. The purchase price of shares of a Portfolio is the net asset
value per share next determined after a purchase order is effective. Purchases
will be made in full and fractional shares of a Portfolio calculated to three
decimal places. The Fund will not issue certificates representing shares of the
Portfolios.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 2:00 p.m., Eastern time
for the Cash Fund and 4:00 p.m. Eastern time for all other Portfolios and
(ii) promptly transmit the order to the Transfer Agent. See "Determination of
Net Asset Value" below. The broker-dealer or financial institution is
responsible for promptly transmitting purchase orders to the Transfer Agent so
that you may receive the same day's net asset value.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred by the
Fund. The Fund reserves the right to reject a purchase order when the Fund
determines that it is not in the best interests of the Fund or its shareholders
to accept such an order.
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SHAREHOLDER SERVICES
- -------------------------------------
SHAREHOLDER INQUIRIES AND SERVICES OFFERED
If you have any questions about the Portfolios or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST SYSTEMS, INC., P.O. BOX 419534, KANSAS CITY, MISSOURI
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent receives
your notification to discontinue such service(s) at least ten (10) days before
the next scheduled investment or withdrawal date.
SYSTEMATIC INVESTMENT AND SYSTEMATIC WITHDRAWAL PLANS
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolios at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolios despite
their fluctuating net asset values through regular purchases of a fixed dollar
amount of shares in the Portfolios. Dollar-cost averaging brings discipline to
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your investing. Dollar-cost averaging results in more shares being purchased
when a Portfolio's net asset value is relatively low and fewer shares being
purchased when a Portfolio's net asset value is relatively high, thereby helping
to decrease the average price of your shares. Investors who establish a
Systematic Investment Plan may open an account with a minimum balance of $500.
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction per Portfolio) from your designated
checking or savings account. Your systematic investment in the Portfolio(s)
designated by you will be processed on a regular basis at your option beginning
on or about either the first or fifteenth day of the month or quarter you
select. This Systematic Investment Plan must be established on your account at
least 15 days prior to the intended date of your first systematic investment.
(2) SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the Portfolio(s). The Systematic Withdrawal Plan permits you to
have payments of $50 or more automatically transferred from your account(s) in
the Portfolio(s) to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $5,000 in any
account using this feature. Your systematic withdrawals will be processed on a
regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.
EXCHANGE PRIVILEGES
Once payment for your shares has been received (i.e., an account has been
established) and your payment has been converted to Federal funds, you may
exchange some or all of your shares for shares of the other Portfolios of the
Fund currently available to the public. However, if you own shares of any
Portfolio other than the Cash Reserves Fund, you are limited to four (4)
exchanges annually from such Portfolio to the Cash Reserves Fund. Exchanges are
made at net asset value. The Fund reserves the right to change the terms and
conditions of the exchange privilege discussed herein, or to terminate the
exchange privilege, upon sixty (60) days' notice. Exchanges will be made only
after proper instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Transfer Agent.
The exchange privilege may be exercised only in those states where the shares of
the new Portfolio may legally be sold.
TAX-SHELTERED RETIREMENT PLANS
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) INDIVIDUAL RETIREMENT ACCOUNTS ("IRAs"). You may save for your retirement
and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or (b) "rolling-over" to the Fund monies from other IRA
accounts or lump sum distributions from a qualified retirement plan. If you are
between 18 and 70 1/2 years of age, you can use an IRA to invest up to $2,000
per year of your earned income in any of the Portfolios. You may also invest up
to $2,000 per year in a spousal IRA if your spouse has no earned income. There
is a $10.00 annual maintenance fee charged to IRA investors. If you maintain IRA
accounts in more than one Portfolio of the Fund, you will only be charged one
fee. This fee can be prepaid or will be debited
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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 Portfolios on a
tax-deferred basis in order to help them meet their retirement needs.
(5) 403(b) PLANS. Section 403(b) plans are custodial accounts which are
available to employees of most non-profit organizations and public schools.
OTHER SPECIAL ACCOUNTS
The Fund also offers the following special accounts to meet your needs:
(1) UNIFORM GIFT TO MINORS/UNIFORM TRANSFERS TO MINORS. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the
Fund you can build a fund for your children's education or a nest egg for their
future and, at the same time, potentially reduce your own income taxes.
(2) CUSTODIAL AND FIDUCIARY ACCOUNTS. The Fund provides a convenient means of
establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.
For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
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HOW TO REDEEM FUND SHARES
- -------------------------------------
Redemption orders received by the Transfer Agent prior to 2:00 p.m., Eastern
time for the Cash Reserves Fund and 4:00 p.m., Eastern time for each of the
other Portfolios on any Business Day will be effective that day. The redemption
price of shares is the net asset value per share of a Portfolio next determined
after the redemption order is effective. Payment of redemption proceeds will be
made as promptly as possible and, in any event, within seven days after the
redemption order is received, provided, however, that redemption proceeds for
shares purchased by check (including certified or cashier's checks) or by ACH
will be forwarded only upon collection of payment for such shares; collection of
payment may take up to 15 days.
You may also redeem shares of each Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 2:00
p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for each
other Portfolio and (ii) promptly transmit the order to the Transfer Agent. See
"Determination of Net Asset Value" below. The financial institution is
responsible for promptly transmitting redemption orders to the Transfer Agent so
that your shares are redeemed at the same day's net asset value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.
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BY MAIL
There is no charge for having a check for redemption proceeds mailed to you.
BY TELEPHONE
Redemption orders may be placed by telephone, provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders
by telephone, you may wish to consider placing your order by other means, such
as mail or overnight delivery. The Fund will not accept redemption requests for
an amount greater than $50,000 by telephone instruction. Such redemption
requests must be received in writing and be signature guaranteed.
BY WIRE
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
a Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
BY ACH
The Fund does not charge for ACH transactions; however, proceeds from such
transactions will not be posted to your bank account until the second Business
Day following the transaction. In order to process a redemption by ACH, banking
information must be established on your account at least 15 days prior to
initiating a transaction. A voided check or deposit slip must accompany requests
to establish this option.
CHECK WRITING (CASH RESERVES FUND ONLY)
Check writing service is offered free of charge to shareholders of the Cash
Reserves Fund. If you have an account balance of $5,000 or more, you may redeem
shares by writing checks on your account for $250 or more. To establish this
privilege, please call 1-800-433-0051 to request a signature card. Once you have
signed and returned a signature card, you will receive a supply of checks. A
check may be made payable to any person, and your account will continue to earn
dividends until the check clears. Because of the difficulty of determining in
advance the exact value of your account, you may not use a check to close your
account. Your account will be charged a fee for stopping payment of a check upon
your request, or if the check cannot be honored because of insufficient funds or
other valid reasons.
SIGNATURE GUARANTEES
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; and (3) redemption requests that provide that the redemption proceeds
should be sent to an address other than the address of record or to a person
other than the registered shareholder(s) for the account.
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Signature guarantees can be obtained from any of the following institutions: a
national or state bank, a trust company, a federal savings and loan association,
or a broker-dealer that is a member of a national securities exchange. The Fund
does not accept guarantees from notaries public or organizations that do not
provide reimbursement in the case of fraud.
MINIMUM ACCOUNT SIZE
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $12.00 minimum account charge and reserves the right to redeem
shares in any non-retirement account if, as the result of redemptions, the value
of any account drops below the minimum initial investment amount, specified
above, for each Portfolio. See "Minimum Investment" and "Systematic Investment
and Systematic Withdrawal Plans" for minimum investments. You will be allowed at
least 60 days, after notice from the Fund, to make an additional investment to
bring your account value up to at least the applicable minimum account size
before the annual $12.00 minimum account fee is charged and/or the redemption of
a non-retirement account is processed. The applicable minimum account charge
will be imposed annually on any such account until the account is brought up to
the applicable minimum account size.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
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DETERMINATION OF NET ASSET VALUE
- -------------------------------------
The net asset value per share of each Portfolio, other than the Cash Reserves
Fund, is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total outstanding
shares of the Portfolio. Net asset value per share is determined daily as of the
close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time) on any Business Day. The net asset value per share of each Portfolio,
other than the Cash Reserves Fund, is listed under PBHG in the mutual fund
section of most major daily newspapers, including the Wall Street Journal.
The Cash Reserves Fund values its portfolio securities using the amortized cost
method of valuation, approximating market value. Net asset value per share is
determined daily as of 2:00 p.m., Eastern time on each Business Day.
- -------------------------------------
PERFORMANCE ADVERTISING
- -------------------------------------
From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. For Portfolios other than the Cash Reserves Fund,
yield refers to the annualized income generated by an investment in the
Portfolio over a specified 30-day period. The yield is calculated by assuming
that the same amount of income generated by the investment during that period is
generated in each 30-day period over one year and is shown as a percentage of
the investment.
The "current yield" of the Cash Reserves Fund refers to the income generated by
an investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield") is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio is assumed to be reinvested. The effective yield will
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be slightly higher than the current yield because of the compounding effect of
this assumed reinvestment.
The total return of each Portfolio other than the Cash Reserves Fund refers to
the average compounded rate of return on a hypothetical investment for
designated time periods (including but not limited to the period from which the
Portfolio commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period and assuming the
reinvestment of all dividend and capital gain distributions.
Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.
The performance of the Fund's 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.
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TAXES
- -------------------------------------
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the
Portfolios or their shareholders. Accordingly, you are urged to consult your tax
advisors regarding specific questions as to federal, state and local income
taxes. See the Statement of Additional Information.
TAX STATUS OF THE PORTFOLIOS
Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded RICs as
defined under Subchapter M of the Code. So long as a Portfolio qualifies for
this special tax treatment, it will be relieved of federal income tax on that
part of its net investment income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) which it distributes to
shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares.
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Dividends from net investment income will qualify for the dividends-received
deduction for corporate shareholders only to the extent such distributions are
derived from dividends paid by domestic corporations. It can be expected that
only certain dividends of a Portfolio will qualify for that deduction. Any net
capital gains will be distributed annually and will be taxed to shareholders as
long-term capital gains, regardless of how long the shareholder has held shares
and regardless of whether the distributions are received in cash or in
additional shares. The Portfolios will make annual reports to shareholders of
the federal income tax status of all distributions, including the amount of
dividends eligible for the dividends-received deduction.
Certain securities purchased by the Portfolios (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments. Each
Portfolio will be required to include as part of its current net investment
income the accrued discount on such obligations for purposes of the distribution
requirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because a Portfolio distributes all of its
net investment income to its shareholders, the Portfolio may have to sell
portfolio securities to distribute such accrued income, which may occur at a
time when the Adviser or sub-adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from a
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. Each Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from a Portfolio is considered tax exempt in your
particular state.
Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.
TAX TREATMENT OF TRANSACTIONS
Each sale, exchange or redemption of a Portfolio's shares is a taxable event to
the shareholder.
Income derived by a Portfolio from securities of foreign issuers may be subject
to foreign withholding taxes. The International Fund expects to be able to treat
shareholders as having paid their proportionate share of such foreign taxes.
- -------------------------------------
GENERAL INFORMATION
- -------------------------------------
THE FUND
The Fund, an open-end management investment company, was originally incorporated
in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective July 31,
1992, the Fund was reorganized as a Maryland corporation pursuant to an
Agreement and Articles of Merger which was approved by Fund shareholders on July
21, 1992. On September 8, 1993, the Fund's shareholders voted to change the
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name of the Fund to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994, the
Fund's shareholders voted to change the name of the Fund to The PBHG Funds, Inc.
The Fund currently has an authorized capitalization of 9.2 billion shares of
common stock with a par value of $0.001 per share. All consideration received by
the Fund for shares of any Portfolio and all assets of such Portfolio belong to
that Portfolio and would be subject to liabilities related thereto. The Fund
reserves the right to create and issue shares of additional portfolios.
Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of its
Portfolios under federal and state securities laws, pricing and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses. Each Portfolio's expense ratios are disclosed under
"Financial Highlights" in this Prospectus.
THE ADVISER
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to approximately $12 billion in assets. In addition to
advising the Portfolios, the Adviser provides advisory services to pension and
profit-sharing plans, charitable institutions, corporations, individual
investors, trusts and estates, and other investment companies. The principal
business address of the Adviser is 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087.
The Adviser serves as the investment adviser to each Portfolio under an
investment advisory agreement with the Fund (the "Advisory Agreement"). The
Adviser makes the investment decisions for the assets of each Portfolio and
continuously reviews, supervises and administers the investment program of each
Portfolio, subject to the supervision of, and policies established by, the Board
of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of: 0.85% of each of the Growth, Emerging
Growth, Select Equity, Core Growth, Large Cap 20, Mid-Cap Value and Technology &
Communications Funds' average daily net assets; 0.75% of the Large Cap Growth
Fund's average daily net assets; 0.65% of the Large Cap Value Fund's average
daily net assets; 1.00% of each of the Limited, Small Cap Value, International
and Strategic Small Company Funds' average daily net assets; and 0.30% of the
Cash Reserves Fund's average daily net assets. On March 6, 1997, the Board of
Directors approved a reduction in the annual rate of the advisory fee applicable
to the Large Cap Value Fund from 0.85% of its average daily net assets to 0.65%
of its average daily net assets, effective May 1, 1997. The investment advisory
fees paid by certain of the Portfolio are higher than those paid by most
investment companies, although the Adviser believes the fees to be comparable to
those paid by investment companies with similar investment objectives and
policies.
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In the interest of limiting the expenses of the Portfolios, the Adviser has
voluntarily entered into expense limitation agreements with the Fund ("Expense
Limitation Agreements") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses to not more than 1.50% of the average
daily net assets of each of the Core Growth, Limited, Large Cap 20, Large Cap
Value, Mid-Cap Value, Small Cap Value and Strategic Small Company Funds, and to
not more than 2.25% of the average daily net assets of the International Fund.
Reimbursement by the Portfolios of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreements may
be made at a later date when the Portfolios have reached a sufficient asset size
to permit reimbursement to be made without causing the total annual expense rate
of each Portfolio to exceed 1.50% (or 2.25% for the International Fund).
Consequently, no reimbursement by a Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.50% (or 2.25% for the International Fund); and (iii) the
payment of such reimbursement was approved by the Board of Directors on a
quarterly basis.
For the fiscal year ended March 31, 1997, the Adviser received a fee equal to
0.85% of the Growth Fund's average daily net assets, 0.85% of the Emerging
Growth Fund's average daily net assets, 0.75% of the Large Cap Growth Fund's
average daily net assets, 0.85% of the Select Equity Fund's average daily net
assets, 0.85% of the Core Growth Fund's average daily net assets, 1.00% of the
Limited Fund's average daily net assets, 0.85% of the Large Cap 20 Fund's
average daily net assets, 0.61% of the Large Cap Value Fund's average daily net
assets, 1.00% of the International Fund's average daily net assets, 0.30% of the
Cash Reserves Fund's average daily net assets, 0.85% of the Technology &
Communications Fund's average daily net assets and 1.00% of the Strategic Small
Company Fund's average daily net assets.
Christine M. Baxter, CFA, Portfolio Manager, has managed the Emerging Growth and
Limited Funds since their inception. Ms. Baxter has worked as an equity analyst
and portfolio manager for the Adviser since 1991. Gary L. Pilgrim, CFA has
served as the portfolio manager of the Growth Fund since its inception. Mr.
Pilgrim has served as the Chief Investment Officer for the Adviser for the past
six years, and has been its President since 1993. James D. McCall, CFA, managed
the Large Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds from
their inception until March 1997 and has co-managed each of those Portfolios
since March 1997. Mr. McCall has been a portfolio manager with the Adviser since
1994. Prior to joining the Adviser, Mr. McCall was a portfolio manager with
First National Bank of Maryland. Ellen A. McGee, CFA, has co-managed the Large
Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds since March 1997.
Ms. McGee joined the Adviser in March 1997 and is a portfolio manager/analyst.
Prior to joining the Adviser, Ms. McGee was Vice President and Senior Portfolio
Manager with First Union Capital Management from August 1995 until March 1997,
Vice President and Portfolio Manager with NationsBank Private Client Group from
May 1994 until August 1995, and Vice President and Senior Institutional
Portfolio Manager with First National Bank of Maryland from April 1991 until May
1994. John F. Force, CFA, has co-managed the Technology & Communications Fund
since its inception. Mr. Force joined the Adviser in 1993, and is a portfolio
manager/analyst. Prior to joining the Adviser, Mr. Force was Vice
President/Portfolio Manager at Fiduciary Management Associates from July, 1987
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to September, 1992. James M. Smith, CFA, has served as co-manager of both the
Technology & Communications Fund and the Strategic Small Company Fund since
their inception. Mr. Smith has over twenty years of investment experience in
equity portfolio management and research. Mr. Smith joined the Adviser in 1993.
Prior to joining the Adviser, Mr. Smith was Senior Vice President/Portfolio
Manager at Selected Financial Services, a registered investment advisory firm.
NEWBOLD'S ASSET MANAGEMENT, INC.
Newbold's, 950 Haverford Road, Bryn Mawr, Pennsylvania, is a registered
investment adviser that was formed in 1940. As with the Adviser, the controlling
shareholder of Newbold's is UAM. Newbold's currently has discretionary
management authority with respect to over $4 billion in assets. In addition to
sub-advising certain of the Portfolios, Newbold's provides advisory services to
pension and profit-sharing plans, charitable institutions, trusts, estates and
other investment companies. Newbold's serves as the investment sub-adviser for
the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company
Funds pursuant to sub-advisory agreements with the Fund and the Adviser
("Sub-Advisory Agreements"). Under each Sub-Advisory Agreement, Newbold's
manages the investments of each of those Portfolios, selects investments and
places all orders for purchases and sales of each Portfolio's securities,
subject to the general supervision of the Board of Directors of the Fund and the
Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreements for the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic
Small Company Funds, Newbold's is entitled to receive from the Adviser a
sub-advisory fee with respect to the average daily net assets each Portfolio
that is computed daily and paid monthly at an annual rates of 0.40%, 0.50%.
0.65% and 0.30%, respectively. On March 6, 1997, the Board of Directors approved
a reduction in the annual rate of the sub-advisory fee with respect to the
average daily net assets of the Large Cap Value Fund from 0.50% to 0.40%,
effective May 1, 1997.
James H. Farrell, CFA, has managed the Large Cap Value Fund since its inception.
Mr. Farrell joined Newbold's in September 1996 and is its Chief Investment
Officer. Mr. Farrell also manages another mutual fund advised by Newbold's and
until recently served as President of Farrell Seiwell, Inc., a registered
investment adviser. Prior to joining Newbold's, he was an Investment Counselor
in a sole proprietorship for two years. From 1983 to 1994, he was a partner at
Cashman, Farrell and Associates, an investment advisory firm.
Gary D. Haubold, CFA, has managed the Mid-Cap Value and Small Cap Value Funds
and co-managed the Strategic Small Company Fund since each Portfolio's
inception. Mr. Haubold joined Newbold's in January 1997. Prior to joining
Newbold's, Mr. Haubold was employed by Miller Anderson & Sherrerd ("MAS") from
1993 until January 6, 1997. At MAS, Mr. Haubold served as the co-manager of the
Mid-Cap Value Portfolio of the MAS Fund from its inception on December 30, 1994
through January 6, 1997 and the co-manager of the Small Cap Value Portfolio of
the MAS Fund from December 31, 1994 through January 6, 1997. Mr. Haubold was the
person primarily responsible for the day-to-day management of those two mutual
funds during the periods noted. Prior to joining MAS, Mr. Haubold was Senior
Vice President of Wood, Struthers & Winthrop.
MURRAY JOHNSTONE INTERNATIONAL, LTD.
Murray Johnstone, 11 West Nile Street, Glasgow, Scotland, is a U.S. registered
investment adviser that was founded in 1989 under the laws of Scotland. Murray
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Johnstone is a wholly-owned subsidiary of Murray Johnstone Holdings Limited,
which together have under management approximately $7 billion in assets, as of
March 31, 1997, for institutional clients worldwide. Murray Johnstone Holdings
Limited, along with its predecessors, has been in business since 1907, and is an
indirect wholly-owned subsidiary of UAM. Murray Johnstone has been advising
open-end investment companies since 1992. For its services provided pursuant to
its investment sub-advisory agreement with the Adviser and the Fund, Murray
Johnstone receives a fee from the Adviser at an annual rate of 0.50% of the
International Fund's average daily net assets. Murray Johnstone receives no fees
directly from the International Fund.
Rodger F. Scullion, MSI, has served as the portfolio manager of the
International Fund since July 3, 1995. Mr. Scullion has been associated with
Murray Johnstone since November, 1992, and serves as its Managing Director,
Chief Executive Officer and Chief Investment Officer. Prior to that, Mr.
Scullion served as Investment Director of Murray Johnstone Limited.
WELLINGTON MANAGEMENT COMPANY, LLP
Wellington serves as the investment sub-adviser for the Cash Reserves Fund
pursuant to a sub-advisory agreement with the Fund and the Adviser. Under the
sub-advisory agreement, Wellington manages the investments of the Portfolio,
selects investments, and places all orders for purchases and sales of the
Portfolio's securities, subject to the general supervision of the Board of
Directors of the Fund and the Adviser.
For the services provided and expenses incurred pursuant to the sub-advisory
agreement, Wellington is entitled to receive from the Adviser a fee, computed
daily and paid monthly, at the annual rate equal to 0.075% of the Portfolio's
average daily net assets up to and including $500 million and 0.020% of the
Portfolio's average daily net assets over $500 million, but subject to a minimum
annual fee of $50,000.
Wellington is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of March 31, 1997,
Wellington had discretionary management authority with respect to approximately
$136 billion of assets. Wellington and its predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington, 75 State Street, Boston,
Massachusetts 02109, is a Massachusetts general partnership, of which the
following persons are managing partners: Robert W. Doran, Duncan M. McFarland
and John R. Ryan.
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Fund. The principal place of business of the
Administrator is 1255 Drummers Lane, Suite 300, Wayne, PA 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total
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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 AGENTS
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide sub-
transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly-owned subsidiary of SEI, provides the Fund with
distribution services. No compensation is paid to the Distributor for
distribution services for the PBHG Class shares of the Portfolios.
DIRECTORS OF THE FUND
The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected series. Shareholders of all series of the Fund will
vote together in matters affecting the Fund generally, such as the election of
Directors or selection of independent accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Advisor Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of directors under certain
circumstances. In addition, a director may be removed by the remaining directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
REPORTING
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
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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 a
Portfolio (except the Cash Reserves Fund) is distributed in the form of annual
dividends. If any capital gain is realized, substantially all of it will be
distributed by each Portfolio at least annually. The Cash Reserves Fund accrues
dividends daily and pays them monthly to shareholders.
Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least 15 days prior to the distribution. Shareholders may
receive payments for cash distributions in the form of a check or by Federal
Reserve wire or ACH transfer.
Dividends and distributions of the Portfolios are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
COUNSEL AND INDEPENDENT ACCOUNTANTS
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 Fund and each Portfolio
other than the International Fund. The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois 60675 serves as the custodian for the International
Fund (together, the "Custodians"). The Custodians hold cash, securities and
other assets of the Fund as required by the Investment Company Act of 1940, as
amended (the "1940 Act").
MISCELLANEOUS
As of March 31, 1997, Pilgrim Baxter Partners I LP, 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087-1565, owned of record or beneficially, at least
25% of the outstanding PBHG Class shares of the Cash Reserves Fund, and may be
deemed to be a controlling person of this Portfolio for purposes of the 1940
Act. As of May 1, 1997, SEI Investments Distribution Co., One Freedom Valley
Road, Oaks, Pennsylvania 19456, owned of record or beneficially, at least 25% of
the outstanding PBHG Class Shares of the Mid-Cap Value Fund and Small Cap Value
Fund as each Portfolio's initial shareholder and, as a result, may be deemed to
be a controlling person of those Portfolios for purposes of the 1940 Act.
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- -------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- -------------------------------------
The following is a description of permitted investments for certain of the
Portfolios:
AMERICAN DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY RECEIPTS ("GDRS") -- ADRs are
securities, typically issued by a U.S. financial institution (a "depositary"),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer and deposited with the depositary. ADRs include American
Depositary Shares and New York Shares. GDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership interests in a security
or a pool of securities issued by either a U.S. or foreign issuer. ADRs, GDRs
and CDRs may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
BANKERS' ACCEPTANCE -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATE OF DEPOSIT -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.
COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
CONVERTIBLE SECURITIES -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, the Portfolio's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.
DEMAND INSTRUMENTS -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.
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DERIVATIVES -- Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: futures, options
on futures, options (e.g., puts and calls), swap agreements, mortgage-backed
securities (e.g., CMOs, REMICs, IOs and POs), when-issued securities and forward
commitments, floating and variable rate securities, convertible securities,
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPS) and privately
issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere in this
"Glossary of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about the investment policies and limitations applicable to their use.
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.
FORWARD FOREIGN CURRENCY CONTRACTS -- Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar, or between foreign
currencies in which a Portfolio's portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
incorporated into each Portfolio's long-term investment strategies. However,
the Adviser and the sub-advisers believe that it is important to have the
flexibility to enter into forward foreign currency contracts when they determine
that the best interests of any Portfolio will be served. The International Fund
will convert currency on a spot basis, and investors should be aware of the
costs of currency conversion.
When the Adviser or a sub-adviser believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Portfolio in question may enter into a forward foreign
currency contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximating the value of
some or all of the Portfolio's securities denominated in such foreign currency.
At the maturity of a forward foreign currency contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. A Portfolio may realize a gain or loss from currency
transactions.
Generally, a Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to hedge
a specific security transaction or portfolio position. If a Portfolio enters
into forward
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foreign currency contracts to cover activities which are essentially
speculative, the Portfolio will segregate cash or readily marketable securities
with its custodian, or a designated sub-custodian, in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to such contracts.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- No Portfolio, except the
International Fund, Strategic Small Company Fund, Mid-Cap Value Fund and Small
Cap Value Fund, has a current intention of utilizing futures contracts. The
International Fund, Strategic Small Company Fund, Mid-Cap Value Fund and Small
Cap Value Fund may enter into futures contracts for the purchase or sale of
securities, including, for the International Fund, index contracts on foreign
currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery of the securities or foreign currency,
called for by the contract at a specified price during a specified future month.
When a futures contract is sold, the Portfolio incurs a contractual obligation
to deliver the securities or foreign currency underlying the contract at a
specified price on a specified date during a specified future month. Each of the
specified Portfolios may sell stock index futures contracts in anticipation of,
or during, a market decline to attempt to offset the decrease in market value of
its common stocks that might otherwise result; and it may purchase such
contracts in order to offset increases in the cost of common stocks that it
intends to purchase. Each of the specified Portfolios may enter into futures
contracts, and with respect to the International Fund options thereon, to the
extent that (i) aggregate initial margin deposits to establish positions other
than "bona fide hedging" positions (and premiums paid for unexpired options on
futures contracts) do not exceed 5% of the Portfolio's net assets and (ii) the
total market value of obligations underlying all futures contracts does not
exceed 20% of the value of the International Fund's total assets or 50% of the
value of each of the other specified Portfolio's total assets.
The International Fund may also purchase and write options to buy or sell
futures contracts. The International Fund may write options on futures only on a
covered basis. Options on futures are similar to options on securities except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract, rather than actually to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option.
Each Portfolio will maintain assets sufficient to meet its obligations under
such futures contracts in a segregated margin account with the custodian bank or
will otherwise comply with the SEC's position on asset coverage. The prices of
futures contracts are volatile and are influenced by, among other things, actual
and anticipated changes in the market and interest rates.
ILLIQUID SECURITIES -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.
MORTGAGE-BACKED SECURITIES -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped mortgage-
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backed securities. The value of these securities may be significantly affected
by changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved. Some securities may have a structure
that makes their reaction to interest rates and other factors difficult to
predict, making their value highly volatile. These securities may also be
subject to prepayment risk.
OPTIONS -- No Portfolio, except the International Fund, has a current intention
of utilizing options on stocks and stock indices. The International Fund may
invest in put and call options for various stocks and stock indices that are
traded on national securities exchanges, from time to time as the Adviser deems
to be appropriate. Options will be used for hedging purposes and will not be
engaged in for speculative purposes. The aggregate value of option positions may
not exceed 10% of the International Fund's net assets as of the time the
International Fund enters into such options.
A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
Although the International Fund will engage in option transactions only as
hedging transactions and not for speculative purposes, there are risks
associated with such investment including the following: (i) the success of a
hedging strategy may depend on the ability of the Adviser or a sub-adviser to
predict movements in the prices of the individual securities, fluctuations in
markets and movements in interest rates; (ii) there may be an imperfect
correlation between the changes in market value of the stocks held by the
International Fund and the prices of options; (iii) there may not be a liquid
secondary market for options; and (iv) while the International Fund will receive
a premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security. When writing options (other
than covered call options), the International Fund must establish and maintain a
segregated account with the Fund's Custodian containing cash or other liquid
assets in an amount at least equal to the market value of the option.
RECEIPTS -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.
REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Fund's Custodians or their agents will hold
the security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral
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securities or if the Portfolio realizes a loss on the sale of the collateral
securities. The Adviser or a sub-adviser will enter into repurchase agreements
on behalf of a Portfolio only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Directors. Repurchase agreements
are considered loans under the 1940 Act, as well as for federal and state income
tax purposes.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by the Cash
Reserves Fund are subject to limitations imposed under regulations adopted by
the SEC. These regulations generally require the Cash Reserves Fund to acquire
only U.S. dollar obligations maturing in 397 days or less and to maintain a
dollar-weighted average portfolio maturity of 90 days or less. In addition, the
Cash Reserves Fund may acquire only obligations that present minimal credit
risks and that are "eligible securities."
RESTRICTED SECURITIES -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. A Portfolio may invest in restricted
securities that the Adviser determines are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Fund. The
Board of Directors will periodically review such procedures and guidelines and
will monitor the Adviser's implementation of such procedures and guidelines.
Under these procedures and guidelines, the Adviser will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. The Fund
may purchase restricted securities sold in reliance upon the exemption from
registration provided by Rule 144A under the 1933 Act. Restricted securities may
be difficult to value because market quotations may not be readily available.
Because of the restrictions on the resale of restricted securities, they may
pose liquidity problems for the Portfolios.
SECURITIES LENDING -- In order to generate additional income, certain of the
Portfolios may lend the securities in which they are invested pursuant to
agreements requiring that the loan be continuously secured by cash, securities
of the U.S. Government or its agencies or any combination of cash and such
securities as collateral equal at all times to 100% of the market value of the
securities lent. Each Portfolio will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of cash
collateral in U.S. Government securities. Collateral is marked to market daily
to provide a level of collateral at least equal to the value of the securities
lent. There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser or
sub-advisers to be of good standing and when, in the judgment of the Adviser or
sub-advisers, the consideration which can be earned currently from such
securities loans justifies the attendant risk.
SWAPS -- As a way of managing its exposure to different types of investments,
the International Fund may enter into interest rate swaps, currency swaps and
other types of swap agreements such as caps, collars and floors. In a typical
interest rate swap, one party agrees to make
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regular payments equal to a floating interest rate times a "notional principal
amount." In return for payments equal to a fixed rate times the same amount, for
a specific period of time. If a swap agreement provides for payment in different
currencies, the parties might agree to exchange the notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an agreed-
upon level, while the seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-upon
level. An interest rate collar combines elements of buying a cap and selling a
floor.
Swap agreements will tend to shift the Portfolio's investments exposure from one
type of investment to another. For example, if the Portfolio agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Portfolio's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of investments
and their share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and have a considerable impact on the
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform and may decline in value if the counterparty's
creditworthiness deteriorates. The Portfolio may also suffer losses if it is
unable to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Portfolio may have under these types
of arrangements will be covered by setting aside high quality liquid securities
in a segregated account. The Portfolio will enter into swaps only with
counterparties deemed creditworthy by the Adviser.
TIME DEPOSIT -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Federal
National Mortgage Association securities).
U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
44
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U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive all of
the principal ("principal-only" or "PO class"). The yield to maturity on IO
classes and PO classes is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the portfolio
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Portfolio may fail to fully recoup its
initial investment in these securities, even if the security is in one of the
highest rating categories.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain of the obligations purchased
by the International Fund may carry variable or floating rates of interest, may
involve a conditional or unconditional demand feature and may include variable
amount master demand notes. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices,
such as a Federal Reserve composite index. The interest rates on these
securities may be reset daily, weekly, quarterly or some other reset period, and
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice exceeding seven
days may be considered illiquid if there is no secondary market for such
securities.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES -- When-issued and delayed-delivery
securities are securities subject to settlement on a future date. For fixed
income securities, the interest rate realized on when-issued or delayed-delivery
securities is fixed as of the purchase date and no interest accrues to the
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and will have the effect of leveraging
the Portfolio's assets. The Portfolios are permitted to invest in forward
commitments or when-issued securities where such purchases are for investment
and not for leveraging purposes. One or more segregated accounts will be
established with the Custodian, and the Portfolios will maintain liquid assets
in such accounts in an amount at least equal in value to each Portfolio's
commitments to purchase when-issued securities.
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[ LOGO ]
THE
PBHG
FUNDS,
INC.
PROSPECTUS
JUNE 30, 1997
The PBHG Funds, Inc.
P.O. Box 419534
Kansas City, MO 64141-6534
Investment Adviser:
Pilgrim Baxter & Associates, Ltd.
Distibutor:
SEI Investments Distribution Co.
[ LOGO ]
The Power of Discipline.
The rewards of time.(Servicemark)
To open an account, receive information,
make inquiries or request literature:
1-800-433-0051
<PAGE>
EXHIBIT B
Agreement and Plan of Reorganization
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of the 26th day of June, 1997, by and between UAM Funds Trust, a Delaware
business trust (the "Trust"), on behalf of Newbold's Equity Portfolio, a
separate series of the Trust (the "Acquired Fund"), and The PBHG Funds, Inc., a
Maryland corporation ("PBHG Funds"), on behalf of PBHG Large Cap Value Fund, a
separate series of the PBHG Funds (the "Acquiring Fund"). (The Acquiring Fund
and the Acquired Fund are sometimes referred to collectively as the "Funds" and
individually as a "Fund".)
This Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The reorganization ("Reorganization")
will consist of the transfer of substantially all of the property, assets, and
goodwill of the Acquired Fund to the Acquiring Fund in exchange solely for PBHG
Class shares of the voting common stock of the Acquiring Fund ("Acquiring Fund
Shares"), followed by the distribution by the Acquired Fund, on the Closing
Date, as defined herein, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund, the cancellation of all of the outstanding shares of the Acquired
Fund ("Acquired Fund Shares"), and the liquidation of the Acquired Fund, and the
termination of the Acquired Fund as a series of the Trust, as provided herein,
all upon the terms and conditions hereinafter set forth in this Agreement.
In consideration of the premises and of the covenants and agreements
hereinafter set forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND SHARES
AND LIQUIDATION OF THE ACQUIRED FUND
1.1 On the closing date for the Reorganization (the "Closing Date"),
the Acquired Fund shall transfer substantially all of its property and assets
(consisting, without limitation, of portfolio securities and instruments,
dividends and interest receivables, claims, cash, cash equivalents, books and
records, and other assets), as set forth in the statement of assets and
liabilities referred to in Section hereof (the "Statement of Assets and
Liabilities"), to the Acquiring Fund free and clear of all liens, encumbrances,
and claims, except for (a) any unamortized or deferred fees or expenses, prepaid
expenses or goodwill shown as assets on the Acquired Fund's books, and (b) cash
or bank deposits in an amount necessary: (i) to discharge all of the unpaid
liabilities reflected on its books and records at the Closing Date including any
amounts due to holders of shares of the Acquired Fund for unpaid dividends or
otherwise; and (ii) to pay such contingent liabilities, if any, as the Board of
Trustees of the Acquired Fund shall reasonably deem to exist against the
Acquired Fund at the Closing Date, for which contingent and other appropriate
liability reserves shall be established on the Acquired Fund's books. Any
unspent portion of such cash or bank deposits retained shall be delivered by the
Trust to the
<PAGE>
Acquiring Fund upon the satisfaction of all of the foregoing liabilities, costs,
and expenses of the Acquired Fund. (The property and assets to be transferred to
the Acquiring Fund under this Agreement are referred to herein as the "Acquired
Fund Net Assets".) In exchange for the transfer of the Acquired Fund Net Assets,
the Acquiring Fund shall deliver to the Acquired Fund, for distribution pro rata
by the Acquired Fund to its shareholders as of the close of business on the
Closing Date, a number of the Acquiring Fund Shares having a aggregate net asset
value equal to the value of the Acquired Fund Net Assets, all determined as
provided in Section of this Agreement and as of the date and time specified
therein. Such transactions shall take place on the Closing Date at the time of
the closing provided for in Section of this Agreement (the "Closing Time"). The
Acquiring Fund shall not assume any liability of the Acquired Fund and the
Acquired Fund shall use its reasonable best efforts to discharge all of its
known liabilities, so far as may be possible, from the cash and bank deposits
described above. Following the closing, the Trust shall not be responsible for
the liabilities, costs and expenses of the Acquired Fund, and recourse for such
liabilities shall be limited to the cash or bank deposits retained to satisfy
such liabilities, costs and expenses, as provided for above in this Section 1.1.
1.2 The Acquired Fund reserves the right to purchase or sell any of its
portfolio securities, except to the extent such purchases or sales may be
limited by the representations made in connection with issuance of the tax
opinion described in Section hereof.
1.3 On the Closing Date, the Acquired Fund shall liquidate and
distribute pro rata to its shareholders of record at the Closing Time on the
Closing Date (the "Acquired Fund Shareholders") the Acquiring Fund Shares
received by the Acquired Fund pursuant to Section hereof. (The date of such
liquidation and distribution is referred to as the "Liquidation Date.") In
addition, each Acquired Fund Shareholder shall have the right to receive any
dividends or other distributions that were declared prior to the Closing Date,
but unpaid at that time, with respect to the Acquired Fund Shares that are held
by such Acquired Fund Shareholders on the Closing Date. Such liquidation and
distribution shall be accomplished by DST Systems, Inc., in its capacity as
transfer agent for the Acquiring Fund, by opening accounts on the share records
of the Acquiring Fund in the names of the Acquired Fund Shareholders and
transferring to each such Acquired Fund Shareholder account the pro rata number
of the Acquiring Fund Shares due each such Acquired Fund Shareholder from the
Acquiring Fund Shares then credited to the account of the Acquired Fund on the
Acquiring Fund's books and records. The Acquiring Fund shall not issue
certificates representing Acquiring Fund Shares in connection with such
exchange.
1.4 The Acquired Fund Shareholders holding certificates representing
their ownership of Acquired Fund Shares may be requested to surrender such
certificates or deliver an affidavit with respect to lost certificates, in such
form and accompanied by such surety bonds as the Acquired Fund may require
(collectively, an "Affidavit"), to the Acquired Fund prior to the Closing Date.
On the Closing Date, any Acquired Fund Share certificates that remain
2
<PAGE>
outstanding shall be deemed to be canceled. The Trust's transfer books with
respect to the Acquired Fund's shares shall be closed permanently as of the
close of business on the day immediately preceding the Closing Date. All
unsurrendered Acquired Fund Share certificates shall no longer evidence
ownership of common stock of the Acquired Fund and shall be deemed for all
corporate purposes to evidence ownership of the number of Acquiring Fund Shares
into which the Acquired Fund Shares were effectively converted. Unless and until
any such certificate shall be so surrendered or a Affidavit relating thereto
shall be delivered to the Acquiring Fund, dividends and other distributions
payable by the Acquiring Fund subsequent to the Liquidation Date with respect to
such Acquiring Fund Shares shall be paid to the holders of such certificate(s),
but such Shareholders may not redeem or transfer Acquiring Fund Shares received
in the Reorganization with respect to unsurrendered Acquired Fund Share
certificates.
1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares
in a name other than the registered holder of the Acquiring Fund Shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.6 As soon as practicable following the Liquidation Date, the Trust
shall take all steps necessary to terminate the existence of the Acquired Fund,
including (a) the payment or other satisfaction of the Acquired Fund's remaining
outstanding liabilities, costs and expenses, from the cash and bank deposits
retained for that purpose pursuant to Section hereof, and (b) the termination of
the Acquired Fund as a series of the Trust in accordance with the Trust's
Agreement and Declaration of Trust, as heretofore amended (the "Declaration of
Trust").
2. VALUATION
2.1 The net asset value of the Acquiring Fund Shares and the value of
the Acquired Fund Net Assets shall in each case be determined as of the close of
regular trading on the New York Stock Exchange ("NYSE") on the Closing Date
unless on such date (a) the NYSE is not open for unrestricted trading or (b) the
reporting of trading on the NYSE or elsewhere is disrupted or (c) any other
extraordinary financial event or market condition occurs (all such events
described in (a), (b)and (c) are each referred to as a "Market Disruption"). The
net asset value per share of Acquiring Fund Shares and the value of the Acquired
Fund Net Assets shall be computed in accordance with the policies and procedures
set forth in the then-current Prospectus and Statement of Additional Information
of the Acquiring Fund. The net asset value per share of the Acquiring Fund
Shares shall be computed to not fewer than two (2) decimal places.
2.2 In the event of a Market Disruption on the proposed Closing Date so
that accurate appraisal of the net asset value of the Acquiring Fund or the
value of the Acquired Fund Net Assets is impracticable, the Closing Date shall
be postponed until the first business day when
3
<PAGE>
regular trading on the NYSE shall have been fully resumed and reporting shall
have been restored and other trading markets are otherwise stabilized.
2.3 The number of Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund Net Assets shall be
determined by dividing the value of the Acquired Fund Net Assets by the
Acquiring Fund's net asset value per share, both as determined in accordance
with Section hereof.
2.4 All computations of value regarding the net asset value of the
Acquiring Fund Shares and the value of the Acquired Fund Net Assets shall be
made by Pilgrim Baxter & Associates, Ltd., the investment adviser to the
Acquiring Fund ("Pilgrim Baxter"), in cooperation with SEI Financial Management
Corporation, the Acquiring Fund's subadministrator ("SEI") and Coopers &
Lybrand, LLP, independent auditors of the Acquiring Fund; provided, however,
that all computations of value shall be subject to review by the Acquired Fund
and by Price Waterhouse LLP, independent auditors of the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 30, 1997 or such earlier or
later date as the parties may agree. The Closing Time shall be at 4:30 P.M.,
Eastern time. The Closing shall be held at the offices of Ballard Spahr Andrews
& Ingersoll located at 1735 Market Street, 51st Floor, Philadelphia,
Pennsylvania, 19103-7599, or at such other time and/or place as the parties may
agree.
3.2 At least five (5) business days prior to the Closing Date, the
Acquired Fund will provide the Acquiring Fund with a list of its assets,
including all of its portfolio securities, and a list of its outstanding
liabilities, costs and expenses. No later than five business days prior to the
Closing Date, the custodian of the Acquiring Fund shall be given access to any
portfolio securities of the Acquired Fund not held in book entry form for the
purpose of examination. Such portfolio securities (together with any cash or
other assets) shall be delivered by the Acquired Fund to such custodian for the
account of the Acquiring Fund on the Closing Date, in accordance with applicable
custody provisions under the Act, and duly endorsed in proper form for transfer
in such condition as to constitute good delivery thereof. Such portfolio
securities shall be accompanied by any necessary federal and state stock
transfer stamps or a check for the appropriate purchase price of such stamps.
The cash delivered shall be in any form as is reasonably directed by the
Acquiring Fund or its custodian. Portfolio securities held of record by the
Acquired Fund in book entry form shall be transferred to the Acquiring Fund by
an appropriate officer of the Acquired Fund instructing its custodian to deliver
such portfolio securities to the custodian of the Acquiring Fund for the account
of the Acquiring Fund and by the custodian of the Acquired Fund executing such
instructions through an appropriate clearing agency or as the Funds may
otherwise agree.
4
<PAGE>
3.3 If any of the Acquired Fund Net Assets, for any reason, are not
transferred on the Closing Date, the Acquired Fund shall cause such assets to be
transferred to the Acquiring Fund in accordance with this Agreement at the
earliest practicable date thereafter.
3.4 UAM Fund Services, Inc. ("UAMFSI"), in its capacity as transfer
agent for the Acquired Fund, shall deliver, or shall cause Chase, in its
capacity as sub-transfer agent, to deliver, to the Acquiring Fund prior to the
Closing Time a list of the names, addresses, federal taxpayer identification
numbers, and backup withholding and nonresident alien withholding status of
Acquired Fund Shareholders and the number and aggregate net asset value of
outstanding shares of the Acquired Fund owned by each such Acquired Fund
Shareholder, all as of the close of regular trading on the NYSE on the Closing
Date, certified by an appropriate officer of UAMFSI or Chase, as the case may be
(the "Shareholder List"). DST Systems, Inc., in its capacity as transfer agent
for the Acquiring Fund, shall issue and deliver to the Acquired Fund a
confirmation evidencing the Acquiring Fund Shares to be credited to each
Acquired Fund Shareholder on the Liquidation Date, or provide evidence
satisfactory to the Acquired Fund that such Acquiring Fund Shares have been
credited to each Acquired Fund Shareholder's account on the books of the
Acquiring Fund. At the Closing, each Fund shall deliver to the other Fund such
bills of sale, checks, assignments, certificates, receipts, or other documents
as the other Fund or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE TRUST AND THE ACQUIRED FUND
The Trust, on behalf of the Acquired Fund, represents and warrants to
The PBHG Funds, on behalf of the Acquiring Fund, as follows:
4.1 The Trust is a business trust duly organized, validly existing, and
in "good standing" under the laws of the State of Delaware and has the power to
own all of its properties and assets and, subject to approval of the Acquired
Fund Shareholders, to perform its obligations under this Agreement and to
consummate the transactions contemplated herein. The Trust is not required to
qualify to do business in any jurisdiction in which it is not so qualified or
where failure to qualify would not subject it to any material liability or
disability. The Trust has all necessary federal, state, and local
authorizations, consents, and approvals required to own all of its properties
and assets and to carry on its business as now being conducted and to consummate
the transactions contemplated herein.
4.2 The Trust is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the Investment Company Act of 1940, as
amended, (the "1940 Act") is in full force and effect. The Acquired Fund is a
separate series of the Trust for purposes of the 1940 Act.
5
<PAGE>
4.3 The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Trust's Board of
Trustees on behalf of the Acquired Fund, and this Agreement constitutes a valid
and binding obligation of the Trust, subject to the approval of the Acquired
Fund Shareholders, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium,
and other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
4.4 The Trust is not, and the execution, delivery, and performance of
this Agreement by the Trust will not result, in violation of any provision of
the Declaration of Trust or By-Laws of the Trust or of any agreement, indenture,
instrument, contract, lease, or other arrangement or undertaking to which the
Trust or the Acquired Fund is a party or by which it is bound.
4.5 The Acquired Fund has elected to be treated as a regulated
investment company ("RIC") for federal income tax purposes under Part I of
Subchapter M of Subtitle A of the Code, has qualified as a RIC for each taxable
year of its operations, and will continue to qualify as a RIC as of the Closing
Date and with respect to its final taxable year ending upon its liquidation.
4.6 The financial statements of the Acquired Fund for the period from
its inception on September 13, 1995 to April 30, 1997 (which were audited by its
independent accountants) (copies of which have been furnished to the Acquiring
Fund), and any interim unaudited Financial Statements that the Acquired Fund may
furnish to the Acquiring Fund prior to the Closing Date, present fairly the
financial position of the Acquired Fund as of the dates indicated and the
results of its operations and changes in net assets for the respective stated
periods (in accordance with generally accepted accounting principles ("GAAP")
consistently applied).
4.7 The Prospectus of the Acquired Fund, dated January 3, 1997, and the
corresponding Statement of Additional Information, dated January 3, 1997, do not
contain untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and any
amended, revised, or new Prospectus or Statement of Additional Information of
the Acquired Fund or any supplement thereto, that is hereafter filed with the
SEC (copies of which documents shall be provided to the PBHG Funds promptly
after such filing), shall not contain any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.8 No material legal or administrative proceeding or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the Trust or the Acquired Fund or any of their
properties or assets. The Trust and the Acquired Fund know of no facts which
might form the basis for the institution of such proceedings. The Trust
6
<PAGE>
and the Acquired Fund are not parties to or subject to the provisions of any
order, decree, or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the transactions
herein contemplated.
4.9 The Trust has furnished the PBHG Funds and PBHG Fund Services with
copies or descriptions of all agreements or other arrangements to which the
Acquired Fund is a party. The Acquired Fund has no material contracts or other
commitments (other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and consistent with
its obligations under this Agreement) which will not be terminated by the
Acquired Fund in accordance with their terms at or prior to the Closing Date.
4.10 The Acquired Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section hereof and those
incurred in the ordinary course of business as a investment company since the
dates of those financial statements. On the Closing Date, the Trust shall advise
the PBHG Funds and PBHG Fund Services in writing of all of the Acquired Fund's
known liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing or accrued at such time.
4.11 Since April 30, 1997, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
4.12 At the date hereof and by the Closing Date, all federal, state,
and other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or furnished
by such dates shall have been filed or furnished, or extensions concerning such
tax returns and reports shall have been obtained, and all federal, state, and
other taxes, interest, and penalties shall have been paid so far as due, or
adequate provision shall have been made on the Acquired Fund's books for the
payment thereof, and to the best of the Acquired Fund's knowledge no such tax
return is currently under audit and no tax deficiency or liability has been
asserted with respect to such tax returns or reports by the Internal Revenue
Service or any state or local tax authority.
4.13 At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund Net Assets, and subject to approval by the
Acquired Fund Shareholders, full right, power and authority to sell, assign,
transfer, and deliver such assets hereunder, and upon delivery and in payment
for such assets, the Acquiring Fund will acquire good and marketable title
thereto subject to no liens or encumbrances of any nature whatsoever or
restrictions on the ownership or transfer thereof, except (a) such imperfections
of title or encumbrances as do not materially detract from the value or use of
the assets subject thereto, or materially affect title thereto; or (b) such
restrictions as might arise under federal or state securities laws or the rules
and regulations thereunder.
7
<PAGE>
4.14 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired Fund or
the Trust of the transactions contemplated by this Agreement, except such as may
be required under the federal or state securities laws or the rules and
regulations thereunder.
4.15 The Combined Proxy Statement/Prospectus of the Funds referred to
in Section hereof ("Proxy Statement/Prospectus) and any Prospectus or Statement
of Additional Information of the Acquired Fund contained or incorporated by
reference into the Form N-14 Registration Statement, referred to in Section
hereof, and any supplement or amendment to such documents, on the effective and
clearance dates of the Form N-14 Registration Statement, on the date of the
Special Meeting of Acquired Fund Shareholders, and on the Closing Date, and only
insofar as such Proxy Statement/Prospectus and the Prospectus and Statement of
Additional Information relate to the Trust, the Acquired Fund or to the
transactions contemplated by this Agreement and is based on information
furnished by the Trust or the Acquired Fund for inclusion therein: (a) shall
comply in all material respects with the provisions of the Securities Exchange
Act of 1934 (the "1934 Act"), the 1940 Act, the rules and regulations
thereunder, and all applicable state and federal securities laws and rules and
regulations thereunder; and (b) shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which such statements were made, not misleading.
4.16 The Acquired Fund is authorized to issue two classes of shares,
Institutional Class Shares and Institutional Service Class Shares. The Acquired
Fund has not issued any Institutional Service Class Shares. All of the issued
and outstanding shares of the Acquired Fund are, and at the Closing Date will
be, duly and validly issued and outstanding, fully paid and nonassessable. All
of the issued and outstanding shares of the Acquired Fund will, at the time of
Closing, be held by the persons and in the amounts set forth in the Shareholder
List.
4.17 All of the issued and outstanding shares of the Acquired Fund have
been offered for sale and sold in conformity, in all material respects, with all
applicable federal and state securities laws, including the registration or
exemption from registration of such shares, except as may have been previously
disclosed in writing to the PBHG Funds and PBHG Fund Services.
4.18 The Trust and the Acquired Fund are not under the jurisdiction of
a Court in Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
4.19 The information to be furnished by the Trust or the Acquired Fund
for use in preparing any application for orders, the Form N-14 Registration
Statement referred to in Section hereof, and the Combined Proxy
Statement/Prospectus to be included in the Form N-14 Registration Statement,
proxy materials, and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and shall
8
<PAGE>
comply in all material respects with federal securities and other laws and
regulations thereunder applicable thereto.
4.20 There is no intercorporate indebtedness existing between the
Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
4.21 The Acquired Fund does not have any unamortized or unpaid
organizational fees or expenses.
5. REPRESENTATIONS AND WARRANTIES OF THE PBHG FUNDS AND THE ACQUIRING FUND
The PBHG Funds, on behalf of the Acquiring Fund, represents and
warrants to the Trust, on behalf of the Acquired Fund, as follows:
5.1 The PBHG Funds is a corporation duly organized, validly existing,
and in "good standing" under the laws of the State of Maryland and has the power
to own all of its properties and assets and, to perform its obligations under
this Agreement and to consummate the transactions contemplated herein. The PBHG
Funds is not required to qualify to do business in any jurisdiction in which it
is not so qualified or where failure to qualify would not subject it to any
material liability or disability. The PBHG Funds has all necessary federal,
state, and local authorizations, consents, and approvals required to own all of
its properties and assets and to carry on its business as now being conducted
and to consummate the transactions contemplated herein.
5.2 The PBHG Funds is a registered investment company classified as a
management company of the open-end diversified type and its registration with
the SEC as an investment company under the 1940 Act is in full force and effect.
The Acquiring Fund is a separate series of the PBHG Funds for purposes of the
1940 Act.
5.3 The execution, delivery, and performance of this Agreement have
been duly authored by all necessary action on the part of the PBHG Funds' Board
of Directors, on behalf of the Acquiring Fund, and this Agreement constitutes a
valid and binding obligation of the PBHG Funds, enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency, reorganization,
arrangement, moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
5.4 The PBHG Funds is not, and the execution, delivery, and performance
of this Agreement by the PBHG Funds will not result, in violation of any
provisions of the PBHG Funds' Articles of Incorporation, as amended from time to
tine (the "Articles of Incorporation") or By-Laws or of any agreement,
indenture, instrument, contract, lease, or other arrangement
9
<PAGE>
or undertaking to which the PBHG Funds or the Acquiring Fund is a party or by
which it is bound.
5.5 The Acquiring Fund has elected to be treated as a RIC for federal
income tax purposes under Part I of Subchapter M of Subtitle A of the Code, has
qualified as a RIC for each taxable year since its inception, and will qualify
as a RIC as of the Closing Date.
5.6 The financial statements of the Acquiring Fund for the period from
its inception on January 2, 1997 to March 31, 1997 (which were audited by its
independent accountants (copies of which have been furnished to the Acquired
Fund), and any interim unaudited financial statements that the Acquiring Fund
may furnish to the Acquired Fund prior to the Closing Date, present fairly the
financial position of the Acquiring Fund as of the dates indicated and the
results of its operations and changes in net assets for the respective stated
periods (in accordance with GAAP consistently applied).
5.7 The Prospectus of the Acquiring Fund, dated May 20,1997, and its
Statement of Additional Information, dated May 20, 1997, do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and any amended,
revised, or new Prospectus or Statement of Additional Information of the
acquiring Fund or any supplement thereto, that is hereafter filed with the SEC
(copies of which documents shall be provided to the Trust promptly after such
filing), shall not contain any untrue statement of a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.8 No material legal or administrative proceeding, or investigation of
or before any court or governmental body is currently pending or, to its
knowledge, threatened as to the PBHG Funds or the Acquiring Fund or any of their
properties or assets. The PBHG Funds and the Acquiring Fund know of no facts
which might form the basis for the institution of such proceedings. The PBHG
Funds and the Acquiring Fund are not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body which
materially and adversely affects the Acquiring Fund's business or its ability to
consummate the transactions herein contemplated.
5.9 The Acquiring Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other than those
reflected in the financial statements referred to in Section hereof and those
incurred in the ordinary course of business as a investment company since the
date of those financial statements. On the Closing Date, the PBHG Funds shall
advise the Trust and UAMFSI in writing of all of the Acquiring Fund's known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued at such time.
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5.10 Since March 31, 1997, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of its business.
5.11 At the date hereof and by the Closing Date, all federal, state,
and other tax returns and reports, including information returns and payee
statements, of the PBHG Funds and the Acquiring Fund required by law to have
been filed or furnished by such dates shall have been filed or furnished or
extensions concerning such tax returns and reports shall have been obtained, and
all federal, state, and other taxes, interest, and penalties shall have been
paid so far as due, or adequate provision shall have been made on the PBHG Funds
and the Acquiring Fund's books for the payment thereof, and to the best of the
PBHG Fund's and the Acquiring Fund's knowledge no such tax return is currently
under audit and no tax deficiency or liability has been asserted with respect to
such tax returns or reports by the Internal Revenue Service or any state or
local tax authority.
5.12 No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring Fund or
the PBHG Funds of the transactions contemplated by the Agreement, except for the
registration of the Acquiring Fund Shares under the Securities Act of 1933 (the
"1933 Act"), the 1940 Act, or as may otherwise be required under the federal and
state securities laws or the rules and regulations thereunder.
5.13 The Form N-14 Registration Statement and the Proxy
Statement/Prospectus referred to in Section hereof (other than the portions of
such documents based on information furnished by or on behalf of the Trust for
inclusion or incorporation by reference therein as covered by the Trust's
warranty in Sections and hereof, and any Prospectus or Statement of Additional
Information of the Acquiring Fund contained or incorporated therein by
reference, and any supplement or amendment to the Form N-14 Registration
Statement or any such Prospectus or Statement of Additional Information, on the
effective and clearance dates of the Form N-14 Registration Statement, on the
date of the Special Meeting of Acquired Fund Shareholders, and on the Closing
Date: (a) shall comply in all material respects with the provisions of the 1934
Act, the 1940 Act, the rules and regulations thereunder, and all applicable
state securities laws and the rules and regulations thereunder; and (b) shall
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements were made, not
misleading.
5.14 All of the issued and outstanding shares of common stock of the
Acquiring Fund are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable.
5.15 All of the issued and outstanding shares of common stock of the
Acquiring Fund have been offered for sale and sold in conformity, in all
material respects, with all applicable
11
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federal and state securities laws, including the registration or exemption from
registration of such shares, except as may previously have been disclosed in
writing to the Trust and UAMFSI.
5.16 The Acquiring Fund Shares to be issued and delivered to the Trust
pursuant to the terms of this Agreement, when so issued and delivered, will be
duly and validly issued shares of common stock of the Acquiring Fund, will be
fully paid and nonassessable by the PBHG Funds, and will be duly registered in
conformity with all applicable federal securities laws, and no shareholder of
the Acquiring Fund shall have any option, warrant, or preemptive right of
subscription or purchase with respect thereto.
5.17 The PBHG Funds and the Acquiring Fund are not under the
jurisdiction of a Court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
5.18 All information to be furnished by the PBHG Funds to the Trust for
use in preparing any prospectus, proxy materials, and other documents which may
be necessary in connection with the transactions contemplated hereby shall be
accurate and complete and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
5.19 There is no intercorporate indebtedness existing between the
Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
5.20 The Acquiring Fund does not own, directly or indirectly, nor has
it owned during the past five (5) years, directly or indirectly, any shares of
the Acquired Fund.
6. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
6.1 Except as expressly contemplated herein to the contrary, each Fund
shall operate its business in the ordinary course between the date hereof and
the Closing Date, it being understood that such ordinary course of business will
include customary dividends and distributions and any other distribution
necessary or desirable to avoid federal income or excise taxes.
6.2 After the effective date of the Form N-14 Registration Statement
referred to in Section 6.7 hereof, and before the Closing Date and as a
condition thereto, the Board of Trustees of the Trust shall call, and the Trust
shall hold, a Special Meeting of the Acquired Fund Shareholders to consider and
vote upon this Agreement and the transactions contemplated hereby and the Trust
shall take all other actions reasonably necessary to obtain approval of the
transactions contemplated herein.
6.3 The Trust and the Acquired Fund covenant that they shall not sell
or otherwise dispose of any of the Acquiring Fund Shares to be received in the
transactions contemplated
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herein, except in distribution to the Acquired Fund Shareholders as contemplated
in Section 1.3 hereof.
6.4 The Trust shall provide such information within its possession or
reasonably obtainable as the PBHG Funds or PBHG Fund Services may reasonably
request concerning the beneficial ownership of the Acquired Fund Shares.
6.5 Subject to the provisions of this Agreement, the PBHG Funds and the
Trust each shall take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper, or advisable to consummate the
transactions contemplated by this Agreement.
6.6 The Trust shall furnish to the PBHG Funds on the Closing Date the
Statement of the Assets and Liabilities of the Acquired Fund as of the Closing
Date, which statement shall be prepared in accordance with GAAP consistently
applied and shall be certified by the Trust's Treasurer or Assistant Treasurer.
As promptly as practicable, but in any case within forty-five (45) days after
the Closing Date, the Trust shall furnish to the PBHG Funds, in such form as is
reasonably satisfactory to the PBHG Funds, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes, and of any capital
loss carryovers and other items that will be carried over to the Acquiring Fund
as a result of Section 381 of the Code, which statement shall be certified by
the Trust's Treasurer or Assistant Treasurer. The Trust covenants that the
Acquired Fund has no earnings and profits that were accumulated by it or any
acquired entity during a taxable year when it or such entity did not qualify as
a RIC under the Code or, if it has such earnings and profits, shall distribute
them to its shareholders prior to the Closing Date.
6.7 The PBHG Funds, with the cooperation of the Trust and its counsel,
shall prepare and file with the SEC a Registration Statement on Form N-14 (the
"Form N-14 Registration Statement") which shall include the Proxy
Statement/Prospectus, as promptly as practicable in connection with the issuance
of the Acquiring Fund Shares and the holding of the Special Meeting of the
Acquired Fund Shareholders to consider approval of this Agreement as
contemplated herein and transactions contemplated hereunder. The PBHG Funds
shall prepare any pro forma financial statement that may be required under
applicable law to be included in the Form N-14 Registration Statement. The Trust
shall provide the PBHG Funds with all information about the Acquired Fund that
is necessary to prepare the pro forma financial statements. The PBHG Funds and
the Trust shall cooperate with each other and shall furnish each other with any
information relating to itself or its related series that is required by the
1933 Act, the 1934 Act, and the 1940 Act, the rules and regulations thereunder,
and applicable state securities laws, to be included in the Form N-14
Registration Statement and the Proxy Statement/Prospectus.
6.8 The Trust shall deliver to the PBHG Funds at the Closing Date
confirmation or other adequate evidence as to the tax costs and holding periods
of the assets and property of the
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Acquired Fund transferred to the Acquiring Fund in accordance with the terms of
this Agreement.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE ACQUIRED FUND
The obligations of the Trust and the Acquired Fund hereunder shall be
subject to the following conditions precedent:
7.1 This Agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Directors of the PBHG Funds in the
manner required by the PBHG Funds' Articles of Incorporation and applicable law,
and this Agreement and the transactions contemplated by this Agreement shall
have been approved by the Acquired Fund Shareholders in the manner required by
the Acquired Fund's Declaration of Trust and By-Laws and applicable law.
7.2 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquiring Fund
since the dates of the most recent financial statements furnished to the Trust
in accordance with Section 5.6 hereof. For purposes of this Section , a decline
in the net asset value per share of the Acquiring Fund due to the effect of
normal market conditions on liquid securities shall not constitute a material
adverse change.
7.3 All representations and warranties of the PBHG Funds and the
Acquiring Fund made in this Agreement, except as they may be affected by the
transactions contemplated by this Agreement, shall be true and correct in all
material respects as if made at and as of the Closing Date.
7.4 The PBHG Funds and the Acquiring Fund shall have performed and
complied in all material respects with each of their obligations, agreements,
and covenants required by this Agreement to be performed or complied with by
each of them prior to or at the Closing Date.
7.5 The PBHG Funds shall have furnished the Trust at the Closing Date
with a certificate or certificates of its President (or any Vice President)
and/or Treasurer or Assistant Treasurer as of the Closing Date to the effect
that the conditions precedent set forth in the Sections , , and hereof have been
fulfilled.
7.6 The Trust shall have received a opinion or opinions of counsel to
the PBHG Funds, in form reasonably satisfactory to the Trust or its counsel, and
dated as of the Closing Date, to the effect that: (a) the PBHG Funds is a
corporation duly organized and validly existing under the laws of the State of
Maryland; (b) the shares of the Acquiring Fund issued and outstanding at the
Closing Date are duly authorized, validly issued, fully paid, and non-
14
<PAGE>
assessable by the PBHG Funds, and the Acquiring Fund Shares to be delivered to
the Trust, as provided for by this Agreement, are duly authorized and upon
delivery pursuant to the terms of this Agreement will be validly issued, fully
paid and non-assessable by the PBHG Funds, and to such counsel's knowledge, no
shareholder of the Acquiring Fund has any option, warrant, or preemptive right
to subscription or purchase in respect thereof; (c) this Agreement has been duly
authorized, executed, and delivered by the PBHG Funds and represents a valid and
binding contract of the PBHG Funds, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto and to the exercise of
judicial discretion in accordance with general principles of equity, whether in
a proceeding at law or in equity; provided, however, that no opinion need be
expressed with respect to provisions of this Agreement relating to
indemnification; (d) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated by this Agreement will not,
violate the Articles of Incorporation or By-Laws of the PBHG Funds or any
material agreement known to such counsel to which the PBHG Funds or the
Acquiring Fund is a party or by which it is bound; (e) to the knowledge of such
counsel, no consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the PBHG Funds of the
transactions contemplated by this Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under
those statutes, and such as may be required by state securities laws, rules and
regulations; and (f) the PBHG Funds is registered as a investment company under
the 1940 Act and the Acquiring Fund is a separate series thereof and such
registration with the SEC under the 1940 Act is in full force and effect. Such
opinion: (a) shall state that while such counsel have not verified, and are not
passing upon and do not assume responsibility for, the accuracy, completeness,
or fairness of any portion of the Form N-14 Registration Statement or any
amendment thereof or supplement thereto, they have generally reviewed and
discussed certain information included therein with respect to the PBHG Funds
and the Acquiring Fund with certain of its officers and that in the course of
such review and discussion no facts came to the attention of such counsel which
caused them to believe that, on the respective effective or clearance dates of
the Form N-14 Registration Statement and any amendment thereof or supplement
thereto and only insofar as they relate to information with respect to the PBHG
Funds and the Acquiring Fund, the Form N-14 Registration Statement or any
amendment thereof or supplement thereto contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; (b) shall state that
such counsel does not express any opinion or belief as to the financial
statements, other financial data, statistical data, or information relating to
the PBHG Funds or the Acquiring Fund contained or incorporated by reference in
the Form N-14 Registration Statement; (c) may rely on the opinion of other
counsel to the extent set forth in such opinion, provided such other counsel is
reasonably acceptable to the Trust; and (d) shall state that such opinion is
solely for the benefit of the Trust and its Board of Trustees and officers.
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7.7 The Trust shall have received a opinion of counsel to the PBHG
Funds addressed to the Funds in form reasonably satisfactory to them and dated
as of the Closing Date, with respect to the matters specified in Section hereof.
7.8 The Form N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending the effectiveness shall have
been instituted, or to the knowledge of the Funds, contemplated by the SEC.
7.9 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel to the PBHG Funds or another
person approved by the parties, containing assurance reasonably satisfactory to
them that all authorizations necessary under state securities laws to consummate
the transactions contemplated herein have been obtained.
7.10 No action, suit, or other proceeding shall be threatened or
pending before any court or governmental agency in which is sought to restrain
or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
7.11 The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceedings seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
7.12 The Trust shall have received from the PBHG Funds all such
documents which the Trust or its counsel may reasonably request.
7.13 The PBHG Funds shall have furnished the Trust on the Closing Date
with a certificate or certificates of its President (or any Vice President)
and/or Treasurer or Assistant Treasurer dated as of said date to the effect
that: (a) the Acquiring Fund has no plan or intention to reacquire any of the
Acquiring Fund Shares to be issued in the Reorganization, except to the extent
that the Acquiring Fund is required by the 1940 Act to redeem any of its shares
presented for redemption; (b) the Acquiring Fund has no plan or intention to
sell or otherwise dispose of any of the assets of the Acquired Fund acquired in
the Reorganization, except for dispositions made in the ordinary course of
business or dispositions necessary to maintain its status as a "regulated
investment company" under the Code; and (c) following the Closing, the Acquiring
Fund will continue the historic business of the Acquired Fund or use a
significant portion of the Acquired Fund's assets in a business.
7.14 DST Systems, Inc., in its capacity as transfer agent for the
Acquiring Fund, shall issue and deliver to the Trust a confirmation statement
evidencing the Acquiring Fund Shares to be credited at the Closing Date or
provide evidence satisfactory to the Trust that the Acquiring Fund Shares have
been credited to the accounts of each of the Acquired Fund Shareholders on the
books of the Acquiring Fund.
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7.15 At the Closing Date, the registration of the PBHG Funds with the
SEC with respect to the Acquiring Fund will be in full force and effect.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PBHG FUNDS AND
THE ACQUIRING FUND
The obligations of the PBHG Funds and the Acquiring Fund hereunder
shall be subject to the following conditions precedent:
8.1 This Agreement and the transactions contemplated by this Agreement
shall have been approved by the Board of Trustees of the Trust and the Acquired
Fund Shareholders, and the termination of the Acquired Fund as a series of the
Trust shall have been approved by the Board of Trustees of the Trust, in the
manner required by the Trust's Declaration of Trust and By-Laws and applicable
law.
8.2 The Trust shall have furnished the PBHG Funds with the Statement of
Assets and Liabilities of the Acquired Fund, with values determined as provided
in Section hereof, with their respective dates of acquisition and tax costs, all
as of the Closing Date, certified on the Trust's behalf by its Treasurer or
Assistant Treasurer. The Statement of Assets and Liabilities shall list all of
the securities owned by the Acquired Fund as of the Closing Date and a final
statement of assets and liabilities of the Acquired Fund prepared in accordance
with GAAP consistently applied.
8.3 As of the Closing Date, there shall have been no material adverse
change in the financial position, assets, or liabilities of the Acquired Fund
since the dates of the financial statements referred to in Section hereof. For
purposes of this Section , a decline in the value of the Acquired Fund Net
Assets due to the effect of normal market conditions on liquid securities shall
not constitute a material adverse change.
8.4 All representations and warranties of the Trust and the Acquired
Fund made in this Agreement, except as they may be affected by the transactions
contemplated by this Agreement, shall be true and correct in all material
respects as if made at and as of the Closing Date.
8.5 The Trust and the Acquired Fund shall have performed and complied
in all material respects with each of their obligations, agreements, and
covenants required by this Agreement to be performed or complied with by each of
them prior to or at the Closing Date.
8.6 The Trust shall have furnished the PBHG Funds at the Closing Date
with a certificate or certificates of its President and/or Treasurer, dated as
of the Closing Date, to the effect that the conditions precedent set forth in
Sections 8.1, 8.3, 8.4, 8.5, 8.14, 8.15 hereof have been fulfilled.
17
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8.7 The Trust shall have duly executed and delivered to the PBHG Funds
(a) bills of sale, assignments, certificates and other instruments of transfer
("Transfer Documents") as the PBHG Funds may deem necessary or desirable to
transfer all of the Acquired Fund's right, title, and interest in and to the
Acquired Fund Net Assets; and (b) all such other documents, including but not
limited to, checks, share certificates, if any, and receipts, which the PBHG
Funds may reasonably request. Such assets of the Acquired Fund shall be
accompanied by all necessary state stock transfer stamps or cash for the
appropriate purchase price therefor.
8.8 The PBHG Funds shall have received an opinion or opinions of
counsel to the Trust, in form reasonably satisfactory to the PBHG Funds and its
counsel, and dated as of the Closing Date, to the effect that: (a) the Trust is
a business trust duly organized and validly existing under the laws of the State
of Delaware; (b) the shares of the Acquired Fund issued and outstanding at the
Closing Date are duly authorized, validly issued, fully paid and non-assessable
by the Trust; (c) this Agreement and the Transfer Documents have been duly
authorized, executed, and delivered by the Trust and represent valid and binding
contracts of the Trust, enforceable in accordance with their terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto and to the exercise of
judicial discretion in accordance with general principles of equity, whether in
a proceeding at law or in equity; provided, however, that no opinion need be
expressed with respect to provisions of this Agreement relating to
indemnification; (d) the execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated by this Agreement will not,
violate the Declaration of Trust or By-laws of the Trust or any material
agreement known to such counsel to which the Trust or the Acquired Fund is a
party or by which it is bound; (e) to the knowledge of such counsel, no consent,
approval, authorization, or order of any court or governmental authority is
required for the consummation by the Trust or the Acquired Fund of the
transactions contemplated by this Agreement, except such as have been obtained
under the 1933 Act, the 1934 Act, the 1940 Act, the rules and regulations under
those statutes, and such as may be required under state securities laws, rules,
and regulations; and (f) the Trust is registered as an investment company under
the 1940 Act and the Acquired Fund is a separate series thereof and such
registration with the SEC is in full force and effect. Such opinion: (a) shall
state that while such counsel have not verified, and are not passing upon and do
not assume responsibility for, the accuracy, completeness, or fairness of any
portion of the Form N-14 Registration Statement or any amendment thereof or
supplement thereto, they have generally reviewed and discussed certain
information included therein with respect to the Trust and the Acquired Fund
with certain officers of the Trust and that in the course of such review and
discussion no facts came to the attention of such counsel which caused them to
believe that, on the respective effective or clearance dates of the Form N-14
Registration Statement, and any amendment thereof or supplement thereto and only
insofar as they relate to information with respect to the Trust and the Acquired
Fund, the Form N-14 Registration Statement or any amendment thereof or
supplement thereto contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements therein not
18
<PAGE>
misleading; (b) shall state that such counsel does not express any opinion or
belief as to the financial statements, other financial data, statistical data,
or any information relating to the Trust or the Acquired Fund contained or
incorporated by reference in the Form N-14 Registration Statement; (c) may rely
upon the opinion of other counsel to the extent set forth in the opinion,
provided such other counsel is reasonably acceptable to the PBHG Funds; and (d)
shall state that such opinion is solely for the benefit of the PBHG Funds and
its Board of Directors and officers.
8.9 The PBHG Funds shall have received a opinion of counsel to the PBHG
Funds, addressed to the Funds in form reasonably satisfactory to them and
substantially to the effect that, on the basis of facts, representations and
assumptions referenced in such opinion that are reasonably consistent with the
state of facts existing at the Closing Date: (a) the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for Acquiring Fund
Shares, and the distribution of said Acquiring Fund Shares to the shareholders
of the Acquired Fund, as provided in this Agreement, will constitute a
reorganization within the meaning of Section 368(a)(1)(C) of the Code; (b) no
gain or loss will be recognized by the Acquired Fund as a result of the
Reorganization; (c) no gain or loss will be recognized by the Acquiring Fund as
a result of the Reorganization; (d) no gain or loss will be recognized by any
Acquired Fund Shareholder on the distribution in complete liquidation of the
acquired Fund of the Acquiring Fund Shares in exchange for the Acquired Fund
Shares held by such Acquired Fund Shareholder; (e) the basis to the Acquiring
Fund of the assets of the Acquired Fund will be the same as the basis of such
assets in the hands of the Acquired Fund immediately prior to the
Reorganization; (f) the tax basis of the Acquiring Fund Shares to be received by
an Acquired Fund Shareholder will be the same as the tax basis of the Acquired
Fund Shares surrendered in exchange therefor; (g) the holding period of the
Acquiring Fund with respect to the assets received from the Acquired Fund in the
Reorganization will include the period for which such assets were held by the
Acquired Fund; (h) the holding period of the Acquiring Fund Shares to be
received by an Acquired Fund Shareholder will include the holding period for
which such Acquired Fund Shareholder held the Acquired Fund Shares exchanged
therefor provided that such Acquired Fund Shares are capital assets in the hands
of such Acquired Fund Shareholders as of the Closing Date; and (i) subject to
the conditions and limitations specified in Section 381,382, 383, and 384 of the
Code, the Acquiring Fund will succeed to and take into account the items of the
Acquired Fund described in Section 381(c) of the Code, including the earnings
and profits, or deficit in earnings and profits, of the Acquired Fund as of the
Closing Date. In rendering such opinion, counsel may request and rely upon
representations, contained in the certificates of officers of the Acquired Fund
and the Acquiring Fund and others, and the Acquiring Fund and the Acquired Fund
shall use their best efforts to make available such truthful certificates.
8.10 The property and assets to be transferred to the Acquiring Fund
under this Agreement shall include no assets which the Acquiring Fund may not
properly acquire.
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8.11 The Form N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the Funds, contemplated by the SEC.
8.12 The parties shall have received a memorandum, in form reasonably
satisfactory to each of them, prepared by counsel to the PBHG Funds or another
person approved by the parties, containing assurance reasonably satisfactory to
them that all authorizations necessary under state securities laws to consummate
the transactions contemplated by this Agreement have been obtained.
8.13 No action, suit, or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.14 The SEC shall not have issued any unfavorable advisory report
under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to
enjoin consummation of the transactions contemplated by this Agreement under
Section 25(c) of the 1940 Act.
8.15 Prior to the Closing Date, the Acquired Fund shall have declared a
dividend or dividends, which, together with all previous dividends, shall have
the effect of distributing to its shareholders all of its net investment company
income, if any, for each taxable period or year ending prior to the Closing Date
and for the periods from the end of each such taxable period or year to and
including the Closing Date (computed without regard to any deduction for
dividends paid), and all of its net capital gain, if any, realized in each
taxable period or year ending prior to the Closing Date and in the periods from
the end of each such taxable period or year to and including the Closing Date.
8.16 The Trust shall have furnished the PBHG Funds at the Closing Date
with a certificate or certificates of its President and/or Treasurer dated as of
said date (and upon which counsel to the PBHG Funds is expressly authorized to
rely in rendering opinions as to the matters described in Section 8.9 hereof) to
the effect that: (a) the Acquired Fund will tender for acquisition by the
Acquiring Fund its assets consisting of at least ninety percent (90%) of the
fair market value of the Acquired Fund's net assets and at least seventy percent
(70%) of the fair market value of its gross assets immediately prior to the
Closing Date. For purposes of this certification, all of the following shall be
considered as assets of the Acquired Fund held immediately prior to the Closing
Date: (i) amounts used by the Acquired Fund to pay its expenses in connection
with the transactions contemplated hereby; and (ii) all amounts used to make
redemptions of or distributions on the Acquired Fund Shares (except for regular,
normal redemptions pursuant to the 1940 Act and in the ordinary course of its
business and regular, normal dividends in the ordinary course of its business
and not in excess of the distribution requirements of Section 852 of the Code;
and (b) the Trust will distribute to Acquired Fund Shareholders in complete
liquidation of the Acquired Fund the Acquiring Fund Shares that it will receive
in the transactions contemplated hereby on or as promptly as practicable after
the Closing Date and in pursuance of the plan contemplated by this Agreement and
having made such distributions will take all necessary steps to liquidate and
terminate the Acquired Fund as a series of the Trust; and (c) there is no
current plan or intention any of its shareholders who
20
<PAGE>
own five percent (5%) or more of the Acquired Fund Shares, and to the best of
the Trust's knowledge, there is no current plan or intention on the part of the
remaining shareholders of the Acquired Fund to sell, exchange, or otherwise
dispose of a number of shares of the Acquiring Fund received in the
Reorganization that would reduce the ownership of the Acquired Fund Shareholders
of Acquiring Fund Shares to a number of shares having a value, as of the Closing
Date, of less than fifty percent (50%) of the value of all of the formerly
outstanding Acquired Fund Shares as of the Closing Date. For purposes of this
certification: Acquired Fund Shares and the Acquiring Fund Shares held by
Acquired Fund Shareholders and otherwise sold, redeemed, or disposed of in
anticipation of the Reorganization, or subsequent to the Closing Date pursuant
to a current plan or intention that existed as of the Closing Date, also will be
taken into account.
8.17 UAMFSI, in its capacity as transfer agent for the Acquired Fund,
shall have furnished, or shall have caused Chase, in its capacity as
sub-transfer agent, to have furnished, to the PBHG Funds immediately prior to
the Closing Date a list of the names and addresses of the Acquired Fund
Shareholders and the number and percentage ownership of outstanding Acquired
Fund Shares owned by each such shareholder as of the close of regular trading on
the NYSE on the Closing Date, certified on behalf of the Acquired Fund by the
Trust's President.
8.18 At the Closing Date, the registration of the Trust with the SEC
with respect to the Acquired Fund shall be in full force and effect.
9. FINDER'S FEES AND OTHER EXPENSES
9.1 Each Fund represents and warrants to the other that there is no
person or entity entitled to receive any finder's fees or other similar fees or
commission payments in connection with the transactions provided for herein.
9.2 PBHG Fund Services and Newbold's shall be liable for all reasonable
expenses incurred by the Funds in connection with entering into and carrying out
the transactions contemplated by this Agreement, whether or not the transactions
contemplated hereby are consummated.
21
<PAGE>
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Funds agree that neither Fund has made any representation,
warranty, or covenant not set forth herein or referred to in Sections , , and
hereof, and that this Agreement constitutes the entire agreement between the
parties and supersedes any and all prior agreements, arrangements, and
undertakings relating to the matters provided for herein.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder for a
period of three (3) years following the Closing Date. In the event of a breach
by the Trust or the Acquired Fund of any such representation, warranty, or
covenant, the Acquired Fund, until the time of its liquidation and termination
as a series of the Trust, and Newbold's jointly and severally shall be liable to
the PBHG Funds and the Acquiring Fund for any such breach.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Funds. In addition, either Fund may at its option terminate this Agreement at or
prior to the Closing Date because of:
11.1(a) a material breach by the other Fund of any representation,
warranty, or agreement contained herein to be performed at or
prior to the Closing Date; or
11.1(b) a condition precedent to the obligations of either Fund
has not been met and which reasonably appears will not or cannot
be met.
11.2 In the event of any such termination, there shall be no liability
for damages on the part of either Fund, the Trust, or the PBHG Funds, or their
respective Boards of Directors/Trustees or officers, but all expenses incidental
to the preparation and carrying out of this Agreement shall be paid as provided
in Section hereof.
12. INDEMNIFICATION
12.1 The PBHG Funds and the Acquiring Fund shall indemnify, defend, and
hold harmless the Acquired Fund, the Trust, its Board of Trustees, officers,
employees, and agents (collectively "Acquired Fund Indemnified Parties") against
all losses, claims, demands, liabilities, and expenses, including reasonable
legal and other expenses incurred in defending third party claims, actions,
suits, or proceedings, whether or not resulting in any liability to such
Acquired Fund Indemnified Parties and including amounts paid by any one or more
of the Acquired Fund Indemnified Parties in a compromise or settlement of any
such claim, action, suit, or proceeding, or threatened third party claim, suit,
action, or proceeding, made with the
22
<PAGE>
consent of the PBHG Funds and the Acquiring Fund, arising from any untrue
statement or alleged untrue statement of a material fact contained in the Form
N-14 Registration Statement, as filed and in effect with the SEC, or any
application prepared by the PBHG Funds and the Acquiring Fund with any state
regulatory agency in connection with the transactions contemplated by this
Agreement under the securities laws thereof ("Application"); or which arises out
of or is based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the PBHG Funds and the Acquiring Fund
shall only be liable in such case to the extent that any such loss, claim,
demand, liability, or expense arises out of or isbased upon an untrue statement
or alleged untrue statement or omission or alleged omission about the PBHG Funds
and/or the Acquiring Fund or the transactions contemplated by this Agreement
made in the Form N-14 Registration Statement or any Application.
12.2 The Trust and the Acquired Fund, until the time of its
liquidation, and Newbold's on a joint and several basis shall indemnify, defend,
and hold harmless the Acquiring Fund, the PBHG Funds, its Board of Directors,
officers, employees and agents ("Acquiring Fund Indemnified Parties") against
all losses, claims, demands, liabilities, and expenses, including reasonable
legal and other expenses incurred in defending third party claims, actions,
suits, or proceedings, whether or not resulting in any liability to such
Acquiring Fund Indemnified Parties and including amounts paid by any one or more
of the Acquiring Fund Indemnified Parties in a compromise or settlement of any
such claim, suit, action, or proceeding, made with the consent of the Trust and
the Acquired Fund (if it still exists) or Newbold's, arising from any untrue
statement or alleged untrue statement of a material fact contained in the Form
N-14 Registration Statement, as filed and in effect with the SEC or any
Application; or which arises out of or is based upon any omission or alleged
omission to state therein a material fact required to be stated therein and
necessary to make the statements therein not misleading; provided, however, that
the Trust and the Acquired Fund and Newbold's shall only be liable in such case
to the extent that any such loss, claim, demand, liability, or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission about the Trust and/or the Acquired Fund or about
the transactions contemplated by this Agreement made in the Form N-14
Registration Statement or any Application.
12.3 A party seeking indemnification hereunder is hereinafter called
the "indemnified party" and the party from whom the indemnified party is seeking
indemnification hereunder is hereinafter called the "indemnifying party." Each
indemnified party shall notify the indemnifying party in writing within ten (10)
days of the receipt by one or more of the indemnified parties of any notice of
legal process of any suit brought against or claim made against such indemnified
party as to any matters covered by this Section , but the failure to notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under this Section .
The indemnifying party shall be entitled to participate at its own expense in
the defense of any claim, action, suit, or proceeding covered by this Section ,
or, if it so elects, to assume at its own expense the defense thereof with
23
<PAGE>
counsel satisfactory to the indemnified parties; provided, however, if the
defendants in any such action include both the indemnifying party and any
indemnified party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it which are different from or
additional to those available to the indemnifying party, the indemnified party
shall have the right to select separate counsel to assume such legal defense and
to otherwise participate in the defense of such action on behalf of such
indemnified party.
Upon receipt of notice from the indemnifying party to the indemnified
parties of the election by the indemnifying party to assume the defense of such
action, the indemnifying party shall not be liable to such indemnified parties
under this Section for any legal or other expenses subsequently incurred by such
indemnified parties in connection with the defense thereof unless (i) the
indemnified parties shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the provision of the immediately
preceding sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel); (ii)
the indemnifying party does not employ counsel reasonably satisfactory to the
indemnified parties to represent the indemnified parties within a reasonable
time after notice of commencement of the action; or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified parties at its
expenses.
12.4 This Section shall survive the termination of this Agreement and
for a period of three (3) years following the Closing Date.
13. LIABILITY OF PBHG FUNDS AND THE TRUST
13.1 Each party acknowledges and agrees that all obligations of the
PBHG Funds under this Agreement are binding only with respect to the Acquiring
Fund; that any liability of the PBHG Funds under this Agreement with respect to
the Acquiring Fund, or in connection with the transactions contemplated herein
with respect to the Acquiring Fund, shall be discharged only out of the assets
of the Acquiring Fund; and that no other series of the PBHG Funds shall be
liable with respect to this Agreement or in connection with the transactions
contemplated herein.
13.2 Each party acknowledges and agrees that all obligations of the
Trust under this Agreement are binding only with respect to the Acquired Fund;
that any liability of the Trust under this Agreement with respect to the
Acquired Fund, or in connection with the transactions contemplated herein with
respect to the Acquired Fund, shall be discharged only out of the assets of the
Acquired Fund; and that no other series of the Trust shall be liable with
respect to this Agreement or in connection with the transactions contemplated
herein.
24
<PAGE>
14. AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the PBHG
Funds and the Trust; provided, however, that following the Special Meeting of
Acquired Fund Shareholders called by the Board of Trustees of the Trust pursuant
to Section hereof, no such amendment may have the effect of changing the
provisions for determining the number of Acquiring Fund Shares to be issued to
Acquired Fund Shareholders under this Agreement to the detriment of such
shareholders without their further approval, provided that nothing contained in
this Section shall be construed to prohibit the parties from amending this
Agreement to change the Closing Date or any other provision of this Agreement
(to the fullest extent permitted by law).
15. NOTICES
Any notice, report, statement, or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed to be
properly given when delivered personally or by telecopier to the party entitled
to receive the notice or when sent by certified or registered mail, postage
prepaid, or delivered to a recognized overnight courier service, in each case
properly addressed to the party entitled to receive such notice or communication
at the following address or such other address as may hereafter be furnished in
writing by notice similarly given by one party to the other.
If to the Acquired Fund:
UAM Funds Trust
c/o Newbold's Asset Management, Inc.
950 Haverford Road
Bryn Mawr, PA 19010
Attention: _______________
with copies to:
Audrey C. Talley, Esq.
Stradley Ronon Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103
If to the Acquiring Fund:
25
<PAGE>
The PBHG Funds, Inc.
c/o Pilgrim Baxter & Associates, Ltd.
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1590
Attention: John M. Zerr, Esq.
with copies to:
William H. Rheiner
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
16. FAILURE TO ENFORCE
The failure of any party hereto to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or any
part hereof as the right of any party thereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.
17. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
17.1 The Article and Section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed a original.
17.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland.
17.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
26
<PAGE>
17.5 It is expressly understood and agreed that the obligations of the
Trust and the PBHG Funds under this Agreement, including but not limited to any
liability as a result of the breach of any of their respective representations
and warranties, are not binding on their respective Boards of
Directors/Trustees, shareholders, nominees, officers, agents, or employees
individually, but bind only the respective assets of the Acquiring Fund and the
Acquired Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its President and its seal to be affixed thereto and
attested by its Secretary.
Attest: THE PBHG FUNDS, INC., on behalf of
PBHG Large Cap Value Fund
By:
- -------------------------------- --------------------------------
Attest: UAM FUNDS TRUST, on behalf of
Newbold's Equity Portfolio
By:
- -------------------------------- --------------------------------
27
<PAGE>
Newbold's Asset Management, Inc. hereby joins in this Agreement with
respect to and agrees to the matters described in Sections and .
Attest: NEWBOLD'S ASSET MANAGEMENT,
INC.
By:
- -------------------------------- --------------------------------
28
<PAGE>
EXHIBIT C
Discussion of Performance of PBHG Large Cap Value Fund
<PAGE>
Reproduced below is a discussion of the performance of the Large Cap Value
Fund for its fiscal year ended March 31, 1997 that was prepared by its
investment adviser and included in the Annual Report of PBHG Funds dated March
31, 1997.
Performance
For its initial quarter ending March 31, 1997, The Fund's aggregate total return
was 1.10% versus 2.45% for the Russell 1000 Value Index, 2.54% for the S&P 500,
and 1.13% for the Lipper Growth and Income Funds Average.
The Fund began its existence on January 2, 1997 and the initial contributions
were received during the strongest month of the quarter as the S&P advanced 6.1%
in January. Investing these contributions in an exceptionally strong market
hindered the Fund's performance as it lagged the Russell 1000 Value Index and
the S&P 500 by 2.35% and 3.73% respectively during the month of January. As the
market advance slowed in February and declined in March, the Fund outperformed
both the Russell 1000 Value Index and the S&P 500 by an average of 70 and 124
basis points respectively in each month.
During the quarter, the stock characteristics which contributed to performance
were very large capitalization, moderate dividend yield, and high relative
price/earnings ratios. If the S&P 500 were separated into five quintiles, only
the quintile composed of the largest stocks outperformed the S&P 500 Index,
whereas all four of the remaining quintiles underperformed. Similarly, if the
S&P 500 were separated into five quintiles by relative price/earnings ratios,
the strongest performance came from the two quintiles with the highest relative
price/earnings ratios, an area off limits to most value portfolios.
Portfolio Highlights
The Fund's heaviest weightings were in the Financial, Energy and Capital Goods
sectors. In the first two months of the quarter, financial stocks outperformed
the market as bank earnings were strong and a number of banks announced programs
to buy back substantial amounts of stock. In March the financial stocks weakened
as fears of an overheating economy and higher interest rates raised concerns
over continued earnings gains. In spite of the weakness in March, the Fund's top
two performers, Nationwide Financial Services and Equitable of Iowa were
financial stocks.
As fears of higher inflation arose in March, the Fund's overweighting in energy
stocks contributed to outperformance in a weak market.
In addition to the two financial stocks, the Fund's top performers included
Dillard Department Stores and two health care stocks, Aetna and MedPartners,
Inc. In the case of the former, the outlook for pricing by health maintenance
organizations improved and MedPartners, a physician practice management company,
recovered from an overly depressed valuation.
On the negative side, the worst performing sectors were Utilities, Capital
Goods, and Basic Materials. The Fund's two poorest performers, Rohm and Haas
(chemicals) and James River (paper), both basic material producers,
1
<PAGE>
declined as a result of lower earnings expectations. Avnet, a capital
goods-technology company, failed to meet earnings expectations and declined in a
weak technology environment. Rounding out the list of the five worst performers
were Burlington Northern Santa Fe Corp. (railroad) with temporarily
disappointing earnings due to adverse weather conditions and NYNEX Corp.
(telephone utility) which was negatively affected by higher interest rates.
Although interest rate concerns may cause some further near term concerns for
financial stocks, the fundamental earnings outlook remains positive for this
sector. Similarly, we believe that selected capital goods producers have
significant growth potential over the coming several years. With the overall
market outlook being somewhat murky, we believe that emphasis on individual
stock selection will be the key to performance in 1997.
- ----------------------------------- -----------------------------------
Top Five Performers* Bottom Five Performers*
Nationwide Financial Services Rohm & Haas
Equitable of Iowa James River
Dillard Department Stores Avnet
Aetna Burlington Northern Santa Fe
MedPartners NYNEX
- ----------
* During the year ended March 31, 1997
2
<PAGE>
EXHIBIT D
Discussion of Performance of Newbold's Equity Portfolio
<PAGE>
Reproduced below is a discussion of the performance of the Equity Portfolio
for its fiscal year ended April 30. 1997, that was prepared by its investment
adviser and included in its Annual Report dated April 30, 1997.
"Fellow Shareholder:
During Newbold's Equity Portfolio's 1997 fiscal year, which ended on April
30, the stock market extended its long-running rally. The S&P 500 Index posted a
total return of 25.12% in this period, and the average Growth & Income fund as
calculated by Lipper Analytical Services delivered a return of 18.51%. The
Portfolio provided a return of 19.89% during the fiscal year.
Market Perspective
The fiscal year ended April 30, 1997, marked a continuation in the historic
rise in equity prices that began in August 1982. If we turned back the clock to
July 31, 1982, we would find that the yield on the 30-year Treasury bond stock
at 13.4% (vs. 7.0% as of April 30, 1997), the year-over-year increase in the
Consumer Price Index was 6.6% (vs. 2.5% as of April 30), and the annualized
total return of the S&P 500 Index over the previous fourteen years was under 6%.
Over the subsequent 14+ years from August 1982 through April 1997, a period that
included two of the longest economic expansions in the last half-century, the
S&P 500 Index produced an astonishing annualized return of 18.54%.
It is worth noting that the performance record of the S&P 500 Index since
1994 has been dominated by relatively few of the very largest capitalization
stocks that are members of the Index. To illustrate, while the return of the
capitalization-weighted S&P 500 Index was 25.12% for the twelve months ended
April 30, 1997, the return of the average stock in the S&P 500 Index on a
equal-weighted basis was a mere 10.52%. Under these unusual conditions, it has
proven to be difficult for most active managers like Newbold's, who manage
broadly diversified portfolios, to keep pace with the popular averages.
The powerful forces that contributed to this unprecedented rise in the
value of financial assets have been well documented and may continue to propel
equity returns to above-average levels for some time to come. We believe,
however, that overall market returns are bound to regress eventually toward the
long-term average and that indexing strategies will eventually be less
successful as the market broadens. More traditional value considerations, such
as dividend yields and price relative to earnings, will not be as outdated a
notion as they have appeared in recent times, and our fundamental value approach
should continue to produce sold returns.
Portfolio Comments and Strategy
Newbold's investment approach seeks to earn a solid return for investors
primarily through the careful selection of stocks that we believe are
undervalued by the market. During the fiscal year, favorable stock selection in
the computers and health care segments contributed positively to the Portfolio's
performance relative to the S&P 500 Index. The beverages, food and tobacco
segment produced lagging results during the period.
During the second half of the fiscal year we significantly increased the
Portfolio's weighting in bank and insurance stocks. The financial sector
currently represents a significant share of our holdings. In spite of the strong
performance of the sector in recent years, we feel that this part of the market
may still offer good value with the potential for above-average earnings gains.
Over the same period we also trimmed the Portfolio's exposure to utilities and
telecommunications stocks by a substantial amount. Although these industries
appear by some measures to offer low valuations and attractive dividend yields,
the potentially treacherous waters of industry deregulation make us cautious.
1
<PAGE>
Your investment team is focused on uncovering promising investment
opportunities among companies that possess compelling valuations, healthy
balance sheets and improving fundamental outlooks. As usual, the characteristics
of the Portfolio are distinguished by an above-average dividend yield and a
below-average price-to earnings ratio. While we have some concerns regarding the
lofty valuation levels on the equity market, we continue to remain fully
invested in the belief that our value-oriented strategy will enable us to
participate in the market's generally upward trend while offering some
protection from declines.
NEWBOLD'S ASSET MANAGEMENT, INC."
2
<PAGE>
THE PBHG FUNDS, INC.
PBHG Large Cap Value Fund
P.O. Box 419534
Kansas City, Missouri 64141-6534
Toll Free: (800) 433-0051
UAM FUNDS TRUST
Newbold's Equity Portfolio
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, Massachusetts 02228-2798
Toll Free: (800) 638-7983
STATEMENT OF ADDITIONAL INFORMATION
(1997 Special Meeting of Shareholders of Newbold's Equity Portfolio)
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus dated
August __, 1997, for the Special Meeting of Shareholders of the Newbold's Equity
Portfolio (the "Equity Portfolio"), a series of UAM Funds Trust (the "UAM
Funds"), to be held on September 26, 1997. Copies of the Combined Proxy
Statement and Prospectus may be obtained at no charge by writing the Equity
Portfolio at the address shown above or by calling 1-800-638-7983.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
Further information about the PBHG Large Cap Value Fund is contained in and
incorporated by reference to its Statement of Additional Information dated July
10, 1997, which is included herewith. The aforementioned document may be
obtained without charge by writing to the address shown above or by calling
1-800-638-7983.
The date of this Statement of Additional Information is August __, 1997.
TABLE OF CONTENTS
ADDITIONAL INFORMATION ABOUT PBHG FUNDS
AND THE LARGE CAP VALUE FUND..............................................B-2
FINANCIAL INFORMATION.......................................................B-2
Appendix I - The PBHG Funds, Inc. Statement of Additional Information
Appendix II - Pro Forma Financial Information
<PAGE>
ADDITIONAL INFORMATION ABOUT THE PBHG FUND AND
LARGE CAP VALUE PORTFOLIO
Additional information about PBHG Funds and Large Cap Value Fund is
contained in the PBHG Fund's Statement of Additional Information. For more
information with respect to PBHG Funds and Large Cap Value Fund concerning the
following topics, please refer to the PBHG Fund's Statement of Additional
Information as indicated: (i) see the discussion "The Fund" for further general
and historical information regarding the PBHG Funds and Large Cap Value Fund;
(ii) see the discussion "Description of Permitted Investments" and "Investment
Limitations" for further information regarding the investment objectives and
policies of Large Cap Value Fund; (iii) see the discussion "Directors and
Officers of the Fund" for further information regarding management of Large Cap
Value Fund; (iv) see the discussion "The Adviser," "The Sub-Adviser," "The
Administrator and Sub- Administrator," and "The Distributor" for further
information regarding investment advisory and other services for Large Cap Value
Fund; (v) see the discussion "Portfolio Transactions" for further information
regarding brokerage allocation and other practices relating to Large Cap Value
Fund; (vi) see the discussion "Description of Shares" for further information
regarding the capital stock of Large Cap Value Fund; (vii) see the discussion
"Purchase and Redemption of Shares," and "Determination of Net Asset Value" for
further information regarding the purchase, redemption and pricing of the Large
Cap Value Fund securities being offered; (viii) see the discussion "Taxes" for a
discussion of the tax status of Large Cap Value Fund; (ix) see the discussion
"The Distributor" for further information regarding Large Cap Value Fund's
distributor; and (x) see the discussion "Calculation of Yield" and "Calculation
of Total Return" for further information regarding the calculation of Large Cap
Value Fund's performance data.
Information regarding control persons and principal holders of Large Cap
Value Fund's securities is set forth under the discussion "Ownership of Equity
Portfolio and Large Cap Value Fund Shares" in the Combined Proxy Statement and
Prospectus relating to this Statement of Additional Information.
FINANCIAL STATEMENTS
The financial statements for the Large Cap Value Fund are set forth in PBHG
Funds' Annual Report to Shareholders dated March 31, 1997, which is incorporated
herein by reference. The PBHG Funds' Annual Report to Shareholders may be
obtained without charge by writing to the address shown on the cover page of
this Statement of Additional Information or by calling 1-800-433-0051.
The financial statements for the Equity Portfolio are set forth in the
Equity Portfolio's Annual Report to Shareholders dated April 30, 1997, which is
incorporated herein by reference. The Annual Report to Shareholders of UAM Funds
may be obtained without charge by writing to the address shown on the cover page
of this Statement of Additional Information or by calling 1-800-638-7983.
Pro forma financial information for the Large Cap Value Fund as of June 30,
1997, giving effect to the Reorganization, is attached hereto as Appendix II.
2
<PAGE>
Appendix I
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.
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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
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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.
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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
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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
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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
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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
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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.
S-12
<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.
S-13
<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>
Appendix II
Pro Forma Schedule of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares Market Value
- -------------------------------- ---------------------------------------
Newbold's PBHG Large Newbold's PBHG Large
Equity Cap Value Pro Forma Equity Cap Value Pro Forma
Portfolio Fund Combining Security Portfolio Fund Combining
COMMON STOCKS-96.4%
BASIC MATERIALS-5.4%
<S> <C> <C> <C> <C> <C> <C>
2,700 5,800 8,500 ALUMINUM COMPANY AMERICA $ 203,512 $ 437,175 $ 640,687
9,000 9,000 JAMES RIVER CORP. VA 333,000 333,000
5,200 22,500 27,700 LTV 74,100 320,625 394,725
2,800 10,200 13,000 REYNOLDS METALS 199,500 726,750 926,250
2,200 9,100 11,300 ROHM & HAAS 198,137 819,568 1,017,705
1,200 10,700 11,900 UNION CAMP 60,000 535,000 595,000
------------
3,907,367
------------
CAPITAL GOODS - 12.6%
10,400 36,900 47,300 AGCO 373,750 1,326,093 1,699,843
7,500 20,600 28,100 CASE 516,562 1,418,825 1,935,387
24,500 24,500 DURCO INTERNATIONAL 716,625 716,625
8,300 38,200 46,500 ELSAG BAILEY PROCESS AUTO* 152,513 701,925 854,438
11,000 47,100 58,100 HARNISCHFEGER INDUSTRIES 456,500 1,954,650 2,411,150
2,000 21,600 23,600 PARKER HANNIFIN 121,375 1,310,850 1,432,225
------------
9,049,668
------------
COMMUNICATIONS SERVICES - 4.5%
7,800 23,400 31,200 GTE 342,225 1,026,675 1,368,900
7,000 24,000 31,000 NYNEX 403,375 1,383,000 1,786,375
------------
3,155,275
------------
CONSUMER CYCLICAL - 8.1%
2,700 13,000 15,700 BORG-WARNER AUTOMOTIVE 145,969 702,812 848,781
11,600 10,000 21,600 BUDGET GROUP* 400,200 345,000 745,200
15,200 15,200 CLAIRE'S STORES 266,000 266,000
7,800 33,400 41,200 DILLARDS, CLASS A 270,075 1,156,475 1,426,550
4,900 20,900 25,800 ELECTRONIC DATA SYSTEMS 200,900 856,900 1,057,800
4,000 14,000 18,000 HERTZ CLASS A 144,000 504,000 648,000
5,000 15,700 20,700 NINE WEST GROUP* 190,938 599,543 790,481
------------
5,782,812
------------
</TABLE>
<PAGE>
Pro Forma Schedule of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares Market Value
- -------------------------------- ---------------------------------------
Newbold's PBHG Large Newbold's PBHG Large
Equity Cap Value Pro Forma Equity Cap Value Pro Forma
Portfolio Fund Combining Security Portfolio Fund Combining
<S> <C> <C> <C> <C> <C> <C>
CONSUMER STAPLES - 3.6%
4,800 14,100 18,900 AMERICAN STORES 237,000 696,188 933,188
11,100 39,900 51,000 RJR NABISCO HOLDING* 366,300 1,316,700 1,683,000
------------
2,616,188
------------
DIVERSIFIED COMPANIES - 1.5%
7,500 7,500 FLUOR 413,905 413,905
1,400 5,500 6,900 LOEWS 140,175 550,687 690,862
------------
1,104,767
------------
ENERGY - 13.9%
3,750 11,600 15,350 AMOCO 326,016 1,008,475 1,334,491
3,081 3,081 DUKE ENERGY 147,694 147,694
5,000 14,200 19,200 MOBIL 349,375 992,225 1,341,600
7,300 40,200 47,500 NOBLE DRILLING 164,706 907,013 1,071,719
8,100 35,100 43,200 READING AND BATES 216,675 938,925 1,155,600
6,500 27,200 33,700 REPSOL S.A. SPONSORED ADR 275,844 1,154,300 1,430,144
1,800 7,800 9,600 TEXACO 195,750 848,250 1,044,000
13,800 22,800 36,600 TRANSCANADA PIPELINES 277,725 458,850 736,575
10,200 48,100 58,300 USX-MARATHON GROUP 294,525 1,388,888 1,683,413
------------
9,945,236
------------
FINANCE - 30.5%
3,900 18,400 22,300 ALLSTATE 284,700 1,343,200 1,627,900
3,600 15,700 19,300 BANC ONE 174,375 760,469 934,844
4,200 17,000 21,200 BANKBOSTON 302,663 1,225,063 1,527,726
4,000 15,000 19,000 CHASE MANHATTAN NEW 388,250 1,455,938 1,844,188
2,600 10,200 12,800 EQUITABLE OF IOWA 145,600 571,200 716,800
4,800 29,200 34,000 EQUITY RESIDENTIAL PROPERTIES TRUST 228,000 1,387,000 1,615,000
4,600 15,400 20,000 FIRST UNION 425,500 1,424,500 1,850,000
6,300 20,400 26,700 FLEET FINANCIAL 398,475 1,290,300 1,688,775
4,900 17,600 22,500 HARTFORD FINANCIAL SERVICES* 405,475 1,456,400 1,861,875
5,000 22,100 27,100 MEDITRUST 199,375 879,856 1,079,231
5,000 16,400 21,400 NATIONSBANK 322,500 1,057,800 1,380,300
30,000 30,000 NATIONWIDE FINANCIAL SERVICES* 796,875 796,875
</TABLE>
<PAGE>
Pro Forma Schedule of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares Market Value
- -------------------------------- ---------------------------------------
Newbold's PBHG Large Newbold's PBHG Large
Equity Cap Value Pro Forma Equity Cap Value Pro Forma
Portfolio Fund Combining Security Portfolio Fund Combining
<S> <C> <C> <C> <C> <C> <C>
22,300 22,300 NATIONWIDE HEALTH PROPERTIES 490,600 490,600
22,200 22,200 PENNCORP FINANCIAL GROUP 854,700 854,700
9,100 39,400 48,500 SIMON DEBARTOLO GROUP 291,200 1,260,800 1,552,000
6,000 27,300 33,300 TRAVELERS 378,375 1,721,606 2,099,981
------------
21,920,795
------------
HEALTHCARE - 5.6%
4,600 17,000 21,600 AETNA 470,925 1,740,375 2,211,300
1,700 7,800 9,500 COLUMBIA/HCA HEALTHCARE 66,831 306,638 373,469
24,000 24,000 FOUNDATION HEALTH SYSTEMS* 727,500 727,500
31,400 31,400 MEDPARTNERS* 679,025 679,025
------------
3,991,294
------------
TECHNOLOGY - 6.3%
3,900 19,600 23,500 AVNET 224,250 1,127,000 1,351,250
3,800 15,700 19,500 IBM 342,713 1,415,944 1,758,657
3,700 14,100 17,800 XEROX 291,838 1,112,138 1,403,976
------------
4,513,883
------------
TRANSPORTATION - 4.4%
2,700 11,300 14,000 BURLINGTON NORTHERN SANTA FE 242,662 1,015,588 1,258,250
1,400 6,400 7,800 DELTA AIRLINES 114,800 524,800 639,600
9,600 40,200 49,800 SOUTHWEST AIRLINES 248,400 1,040,175 1,288,575
------------
3,186,425
------------
TOTAL COMMON STOCKS
(COST $64,389,633) 13,392,323 55,781,387 69,173,710
------------ ------------ ------------
</TABLE>
<PAGE>
Pro Forma Schedule of Investments
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Shares Market Value
- -------------------------------- ---------------------------------------
Newbold's PBHG Large Newbold's PBHG Large
Equity Cap Value Pro Forma Equity Cap Value Pro Forma
Portfolio Fund Combining Security Portfolio Fund Combining
Face Amount SHORT-TERM INVESTMENTS-0.8%
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 290,000 $ 290,000 REPURCHASE AGREEMENT** 290,000 290,000
$ 297,796 $ 297,796 REPURCHASE AGREEMENT 297,796 297,796
TOTAL SHORT-TERM INVESTMENTS
(COST $587,796) 587,796
------------
TOTAL INVESTMENTS - 97.2%
(COST $64,977,429) 13,682,323 56,079,183 69,761,506
OTHER ASSETS LESS LIABILITIES-2.8% 32,162 1,969,004 2,001,166
------------ ------------ ------------
TOTAL NET ASSETS - 100.0% $ 13,714,485 $ 58,048,187 $ 71,762,672
============ ============ ============
</TABLE>
See accompanying notes to Pro Forma Financial Statements
* Non-income producing security.
** Collateral: J.P. Morgan 6.05%, dated 06/30/97, matures 07/01/97, repurchase
price $297.845 (collateralized by GNMA obligation, total par value $300,993,
7.50%, 06/15/97: total market value $303,762).
<PAGE>
Pro Forma Combining Statements of Assets and Liabilities
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Newbold's PBHG Large
Equity Cap Value Pro Forma
Portfolio Fund Combining
--------- ---- ---------
Assets:
<S> <C> <C> <C>
Investments, at market value $13,682,323 $56,079,183 $69,761,506
(cost $11,133,596 - Newbold's Equity Portfolio;
$53,843,833 - PBHG Large Cap Value Fund)
Cash 643 10,560 11,203
Receivables for:
Fund shares sold -- 1,177,902 1,177,902
Dividends and interest 27,197 48,440 75,637
Investments sold -- 751,191 751,191
Other assets 15,819 -- 15,819
----------- ----------- -----------
Total Assets 13,725,982 58,067,276 71,793,258
----------- ----------- -----------
Liabilities:
Accrued expenses 11,497 19,089 30,586
----------- ----------- -----------
Total Liabilities 11,497 19,089 30,586
----------- ----------- -----------
Net assets applicable to shares outstanding $13,714,485 $58,048,187 $71,762,672
=========== =========== ===========
Shares outstanding, $0.001 par value per share 1,072,665 5,020,871 6,207,245(1)
Net asset value, Offering and Redemption
Price Per Share $ 12.79 $ 11.56 $ 11.56
=========== =========== ===========
<FN>
(1) Reflects the issuance of 1,186,374 shares of the PBHG Large Cap Value Fund
in exchange for the net assets of the Newbold's Equity Portfolio.
</FN>
</TABLE>
See accompanying notes to Pro Forma Financial Statements
<PAGE>
Pro Forma Combining Statements of Operations
For the Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Newbold's PBHG Large
Equity Cap Value Pro Forma
Portfolio Fund Adjustments Combining
--------- ---- ----------- ---------
Investment income:
<S> <C> <C> <C> <C>
Dividends $ 176,198 $ 203,040 $ -- $ 379,238
Interest 5,165 49,862 -- 55,027
----------- ----------- ----------- -----------
Total investment income 181,363 252,902 -- 434,265
----------- ----------- ----------- -----------
Expenses:
Investment advisory fees 34,810 78,301 18,058 131,169
Waiver of investment advisory fees (34,810) (8,931) (36,191) (79,932)
Reimbursement of other expenses (36,191) -- 36,191 0
Administrative fees 46,457 15,369 (36,073) 25,753
Transfer agent fees -- 35,860 183 36,043
Registration and filing fees 18,630 11,004 -- 29,634
Professional fees 13,568 1,519 (13,568) 1,519
Custodian fees -- 5,108 -- 5,108
Directors'/Trustees' fees 836 121 (836) 121
Other 19,360 5,652 -- 25,012
=========== =========== =========== ===========
Total expenses 62,660 144,003 (32,236) 174,427
=========== =========== =========== ===========
Net investment income 118,703 108,899 32,236 259,838
=========== =========== =========== ===========
Realized and unrealized gain on
investments:
Net realized gain from security
transactions 1,591,039 335,583 -- 1,926,622
Net change in unrealized appreciation on
investments 566,491 2,235,350 -- 2,801,841
=========== =========== =========== ===========
Net realized and unrealized gain on
investments 2,157,530 2,570,933 -- 4,728,463
=========== =========== =========== ===========
Net increase in net assets resulting from
operations $ 2,276,233 $ 2,679,832 $ 32,236 $ 4,988,301
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Pro Forma Financial Statements
<PAGE>
PBHG Large Cap Value Fund
UAM Funds Trust - Newbold's Equity Portfolio
Notes to Pro Forma Combining Financial Statements
June 30, 1997
(Unaudited)
Note 1 - Basis of Pro Forma Presentation
The pro forma financial statements and the accompanying pro forma schedule of
investments give effect to the proposed acquisition of the assets of UAM Funds
Trust - Newbold's Equity Portfolio ("Newbold's Portfolio") by PBHG Large Cap
Value Fund accounted for as a tax-free reorganization. The acquisition would be
accomplished by an exchange of shares of PBHG Large Cap Value Fund for the net
assets of the Newbold's Portfolio and the distribution of PBHG Large Cap Value
Fund shares to Newbold's Portfolio shareholders. Under generally accepted
accounting principles, The PBHG Large Cap Value Fund will be the surviving
entity for accounting purposes with historical cost of investment securities and
results of operations being carried forward. If the acquisition were to have
taken place at June 30, 1997, Newbold's Portfolio shareholders would have
received 1,186,374 shares of PBHG Large Cap Value Fund stock.
Note 2 - Pro Forma Adjustments
Pro forma adjustments have been made to reflect the expenses of the combined
entities.
Note 3 - Investment Advisory Fees
Effective May 1, 1997, the Board of Directors of The PBHG Funds, Inc. approved a
reduction in the amount of the advisory fee paid to Pilgrim Baxter & Associates,
Ltd. (the Adviser). The Adviser's fee was lowered from 0.85% per annum to 0.65%
per annum of the average daily net assets of the PBHG Large Cap Value Fund. The
Pro Forma Combining Statements of Operations reflects these advisory fees for
the periods indicated.
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification
Pursuant to Section 2-418 of the Maryland General Corporations Law,
Article 7.4 of Registrant's Articles of Incorporation, as amended and
supplemented, provides as follows:
7.4 Indemnification. The Corporation, including its successors and
assigns, shall indemnify its directors and officers and make advance
payment of related expenses to the fullest extent permitted, and in
accordance with the procedures required, by the General Laws of the
State of Maryland and the Investment Company Act of 1940. The By-Laws
may provide that the Corporation shall indemnify its employees and/or
agents in any manner and within such limits as permitted by applicable
law. Such indemnification shall be in addition to any other right or
claim to which any director, officer, employee or agent may otherwise
be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent
of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise or employee benefit plan, against any
liability (including, with respect to employee benefit plans, excise
taxes) asserted against and incurred by such person in any such
capacity or arising out of such person's position, whether or not the
Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall
be enforceable against the Corporation by such person who shall be
presumed to have relied upon such rights in serving or continuing to
serve in the capacities indicated herein. No amendment of these
Articles of Incorporation shall impair the rights of any person arising
at any time with respect to events occurring prior to such amendment.
In addition, Article VI of Registrant's By-Laws provides as follows:
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 arrangements as may be permitted by law.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit 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
<PAGE>
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason or willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment Company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
Item 16. Exhibits.
1(a) Certificate of Incorporation(1)
1(b) Certificate of Amendment dated October 28, 1985(2)
1(c) Certificate of Amendment to Certificate of Incorporation(3)
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc., a
Maryland corporation(4)
1(e) Articles of Incorporation of The PBHG Funds, Inc.(4)
1(f) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc., dated November 12, 1993(5)
1(g) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 5, 1994(6)
1(h) Articles of Amendment of the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 1995(9)
1(i) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 25, 1994(6)
1(j) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 5, 1994(7)
1(k) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 9, 1994(7)
1(l) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated August 21, 1995(13)
1(m) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 1995(9)
409136.002(B&F) C-2 07/24/97
<PAGE>
1(n) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated December 28, 1995(9)
1(o) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated May 20, 1996(10)
1(p) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated July 1, 1996(10)
1(q) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated September 6, 1996(10)
1(r) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated October 2, 1996(11)
1(s) Articles Supplementary to the Articles of Incorporation of
The PBHG Funds, Inc. dated January 31, 1997(12)
1(t) Articles of Amendment to the Articles of Incorporation of
The PBHG Funds, Inc. dated June 30, 1997.
2 By-Laws(4)
3 Voting trust agreement - none
4 Agreement and Plan of Reorganization, filed herewith as Exhibit A
to the Combined Proxy Statement and Prospectus.
5 Specimen copy of stock certificate(1)
6(a) Investment Advisory Agreement dated April 28, 1995 and Schedule A
dated April 1, 1997(13)
6(b) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the PBHG Cash Reserves Fund, Pilgrim
Baxter & Associates, Ltd. and Wellington Management Company dated
April 4, 1995(9)
6(c) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the International Fund, Pilgrim Baxter
& Associates, Ltd. and Murray Johnstone International Limited
dated June 30, 1995(9)
6(d) 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)(13)
6(e) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Strategic Small Company Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated December 16, 1996(12)
409136.002(B&F) C-3 07/24/97
<PAGE>
6(f)) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Mid-Cap Value Fund, Pilgrim Baxter
& Associates, Ltd. and Newbold's Asset Management, Inc. dated
April 1, 1997(13)
6(g) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Small Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.
dated April 1, 1997(13)
7 Distribution Agreement between The PBHG Funds, Inc. and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated April 1, 1997(13)
8 None.
9(a) Custodian Agreement between The PBHG Funds, Inc., on behalf of
the International Fund, and The Northern Trust Company(13)
9(b) Custodian Agreement between The PBHG Funds, Inc. and CoreStates
Bank, N.A. dated as of October 17, 1996, and Schedule A dated
April 1, 1997(13)
10 Plan pursuant to Rule 12b-1 with respect to Trust Class Shares(8)
11 Opinion of Ballard Spahr Andrews & Ingersoll and consent to its
use is filed herewith as Exhibit 11
12 Opinion of counsel as to tax matters and consequences to
shareholders (including consent of such firm).
[to be filed by amendment]
13(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 1993(5)
13(b) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
April 1, 1997(13)
13(c) Sub-Administrative Services Agreement between The PBHG Funds,
Inc. and SEI Fund Resources dated July 1, 1996 and Schedule A
dated April 1, 1997(13)
13(d) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Core Growth Fund and Pilgrim Baxter & Associates,
Ltd. dated September 24, 1996(11)
13(e) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Limited Fund and Pilgrim Baxter & Associates, Ltd.
dated September 24, 1996(11)
13(f) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap 20 Fund and Pilgrim Baxter & Associates,
Ltd. dated November 24, 1996(12)
409136.002(B&F) C-4 07/24/97
<PAGE>
13(g) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated December 16, 1996(12)
13(h) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Strategic Small Company Fund and Pilgrim Baxter &
Associates, Ltd. dated December 16, 1996(12)
13(i) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG International Fund and Pilgrim Baxter &
Associates, Ltd. dated March 6, 1997(13)
13(j) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 1997(13)
13(k) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Small Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated April 1, 1997(13)
14(a) Consent of Coopers & Lybrand, LLP
14(b) Consent of Price Waterhouse, LLP
15 None.
16 Power of Attorney(10).
17(a) Form of Proxy.
17(b) Copy of Registrant's Declaration under Rule 24f-2 is filed
herewith electronically as Exhibit 17(b).
17(c) Prospectus of Newbold's Equity Portfolio, dated July 10, 1997, is
filed herewith electronically as Exhibit 17(c).
17(d) The Annual Report to Shareholders of The PBHG Funds, Inc. dated
March 31, 1997, is filed herewith electronically as Exhibit
17(d).
17(e) The Annual Report to Shareholders of Newbold's Equity Portfolio
dated April 30, 1997, is filed herewith electronically as Exhibit
17(e).
- ----------
Key to Exhibit Reference Numbers
- ----------
(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).
409136.002(B&F) C-5 07/24/97
<PAGE>
(3) Incorporated herein by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(4) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(6) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(7) Incorporated herein by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(8) Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(9) Incorporated herein by reference to Post-Effective Amendment No. 23 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(10) Incorporated herein by reference to Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(11) Incorporated herein by reference to Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(12) Incorporated herein by reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (File No. 2-99810).
(13) Incorporated herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement Form N-1A (File No. 2-99810).
(14) Incorporated herein by reference to Post-Effective Amendment No. 31 to
Registrant's Registration Statement Form N-1A (File No. 2-99810).
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this registration statement by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c) of
the Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an amendment
to the registration statement and will not be used until the amendment
is effective, and that, in determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
409136.002(B&F) C-6 07/24/97
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wayne, and Commonwealth of Pennsylvania on the
28 day of July, 1997.
THE PBHG FUNDS, INC.
By: /s/ Harold J. Baxter
-------------------------------
Harold J. Baxter
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Harold J. Baxter
- ------------------------------- Chairman and Chief July 28, 1997
Harold J. Baxter Executive Officer
and Director
x
- ------------------------------- Chief Financial Officer and
Stephen G. Meyer Controller (Principal Financial
and Accounting Officer)
x
- ------------------------------- Director
John R. Bartholdson
x
- -------------------------------- Director
Jettie M. Edwards
x
- -------------------------------- Director
Albert A. Miller
By: /s/ Harold J. Baxter
----------------------------
Harold J. Baxter
(Attorney-in-Fact)
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Opinion of Ballard Spahr Andrews & Ingersoll and consent to
its use
14(a) Consent of Coopers & Lybrand, LLP
14(b) Consent of Price Waterhouse, LLP
14(c) Consent of Arthur Andersen, LLP
17(a) Form of Proxy
17(b) Copy of Registrant's Declaration under Rule 24f-2.
17(c) Newbold's Equity Portfolio Prospectus dated July 10, 1997
17(d) Annual Report to Shareholders of The PBHG Funds, Inc. dated
March 31, 1997
17(e) Annual Report to Shareholders of Newbold's Equity Portfolio dated
April 30, 1997
Exhibit 11
July 25, 1997
The PBHG Funds, Inc.
32 South Street
Baltimore, MD 21202
Re: Shares of Common Stock
The PBHG Funds, Inc.
----------------------
Gentlemen:
We have acted as counsel to The PBHG Funds, Inc., a Maryland
corporation (the "Company"), in connection with the proposed Agreement and Plan
of Reorganization (the "Agreement") between the Company and UAM Funds Trust, a
Delaware Business Trust (the "Trust"), and the consummation of the transactions
contemplated therein. The Agreement contemplates the acquisition of
substantially all of the property, assets and goodwill of Newbold's Equity
Portfolio, a separate series of the Trust (the "Equity Portfolio") by PBHG Large
Cap Value Fund, a separate series of the Company (the "Large Cap Fund"), in
exchange for shares of common stock of the Large Cap Fund, which shares will be
issued by the Company and then immediately transferred to the shareholders of
the Equity Portfolio (the "Transaction"). Each shareholder of the Equity
Portfolio will receive that number of shares of common stock of the Large Cap
Fund (the "Shares") representing interests with an aggregate net asset value
equal to the aggregate net asset value of his or her shares of the Equity
Portfolio.
The opinion expressed below is based on the assumption that a
Registration Statement on Form N-14 with respect to the Shares will have been
filed by the Company with the Securities and Exchange Commission and will have
become effective before the Transaction occurs.
<PAGE>
The PBHG Funds, Inc.
July 25, 1997
Page 2
Based on the foregoing, we are of the opinion that the Shares,
when issued by the Company in accordance with the terms and conditions of the
Agreement, will be duly authorized, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 11 to the
Company's Registration Statement on Form N-14 and to the references to this firm
in such Registration Statement.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
[LOGO OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
under the Securities Act of 1933, filed on Form N-14 (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 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, LLP
- -------------------------------
Coopers & Lybrand, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 24, 1997
Exhibit 14(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to
all references to our firm included in the Form N-14 Registration
Statement of The PBHG Funds, Inc. (File No. 2-99810).
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Philadelphia, PA
July 23, 1997
Exhibit 14(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the
Combined Proxy Statement and Prospectus (the Proxy/Prospectus) and the related
Statement of Additional Information constituting part of this Registration
Statement on Form N-14 (the Registration Statement) of The PBHG Funds, Inc., of
our report dated June 9, 1997 on the financial statements and financial
highlights included in the April 30, 1997 Annual Report to Shareholders of UAM
Funds Trust: Newbold's Equity Portfolio.
We consent to the references to our Firm under the headings
"Additional Information About Each Fund" and "Financial Statement" in the
Proxy/Prospectus and to the references to our Firm under the headings "Financial
Highlights," "Accountants," and "Reports" in the Prospectus and "Financial
Statements" in the Statement of Additional Information for UAM Funds Trust:
Newbold's Equity Portfolio, which are also incorporated by reference into the
Proxy/Prospectus.
/s/ Price Waterhouse LLP
- ------------------------
Price Waterhouse LLP
Boston, Massachusetts
July 25, 1997
Exhibit 17(a)
FORM OF PROXY CARD
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL
MAILINGS.
(Please Detach at Perforation Before Mailing)
.................................................................
.................................................................
NEWBOLD'S EQUITY PORTFOLIO
PROXY SOLICITED BY THE BOARD OF TRUSTEES
<PAGE>
The undersigned holder of shares of Newbold's Equity Portfolio (the "Fund"), a
series of UAM Funds Trust, hereby appoints Michael E. DeFao and Karl Hartmann
proxies for the undersigned with full powers of substitution and revocation, to
represent the undersigned and to vote on behalf of the undersigned all shares of
the Fund that the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Fund to be held at the offices of UAM Fund Services, Inc.,
211 Congress Street, Boston, Massachusetts 02110, on September 26, 1997 at 10:00
a.m., and any adjournment or adjournments thereof. The undersigned hereby
acknowledges receipt of the Notice of Special Meeting and Combined
Prospectus/Proxy Statement dated August __, 1997 and hereby instructs said
proxies to vote said shares as indicated herein. In their discretion, the
proxies are authorized to vote upon such other business as may properly come
before the Meeting. A majority of the proxies present and acting at the Meeting
in person or by substitute (or, if only one shall be so present, then that one)
shall have and may exercise all of the power and authority of said proxies
hereunder. The undersigned hereby revokes any proxy previously given.
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE
Note: Please sign exactly as your name appears on this Proxy. If joint owners,
EITHER may sign this Proxy. When signing as attorney, executor, administrator,
trustee, guardian or corporate officer, please give your full title.
Date: _______________________
______________________________ __________________________________
Signature(s) (Title(s), if applicable)
2
<PAGE>
VOTE THIS VOTING INSTRUCTION CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE THE EXPENSE OF ADDITIONAL
MAILINGS.
(Please Detach at Perforation Before Mailing)
.................................................................
.................................................................
Please indicate your vote by an "X" in the appropriate box below. This proxy, if
properly executed, will be voted in the manner directed by the undersigned
shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" APPROVAL OF
THE PROPOSAL.
1. To approve or disapprove the
Plan of Reorganization FOR [_] AGAINST [_] ABSTAIN [_]
To approve or disapprove the respective Plan of Reorganization dated as
of ____________, 1997 (the "Plan") providing (i) that the Fund be
reorganized from a series of UAM Funds Trust into the PBHG Large Cap
Value Fund, a series of the PBHG Funds, Inc., (ii) the Fund would
transfer to The PBHG Large Cap Value Fund all or substantially all of
its assets in exchange for shares of The PBHG Large Cap Value Fund,
(iii) the distribution of such shares of the PBHG Large Cap Value Funds
to shareholders of the Funds in liquidation of the Funds, and (iv) the
subsequent termination of the Fund.
2. To transact such other business as it may properly come before the
Meeting or any adjournment or adjournments thereof.
3
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 50249
FORM 24F-2
Annual Notice of Securities Sold
Pursuant to Rule 24f-2
1. Name and address of issuer:
PBHG Funds, Inc.
680 East Swedesford Road
Wayne, PA 19087
2. Name of each series or class of funds for which this notice is filed:
PBHG International Fund
PBHG Emerging Growth Fund
PBHG Cash Reserves Fund
PBHG Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Strategic Small Company Fund
PBHG Large Cap Value Fund
3. Investment Company Act File Number: 811-4391
Securities Act File Number: 2-99810
4. Last day of fiscal year for which this notice is filed:
March 31, 1997
5. Check box if this notice is being filed more than 180 days after the
close of the issuer's fiscal year for purposes of reporting securities sold
after the close of the fiscal year but before termination of the issuer's
24f-2 declaration:
[ ]
6. Date of termination of issuer's declaration under rule 24f-2(a)(1),
if applicable (see instruction A.6):
7. Number and amount of securities of the same class or series which had been
registered under the Securities Act of 1933 other than pursuant to rule 24f-2 in
a prior fiscal year, but which remained unsold at the beginning of the fiscal
year: 0
8. Number and amount of securities registered during the fiscal year other than
pursuant to rule 24f-2: 0
<PAGE>
9. Number and aggregate sale price of securities sold during the fiscal year:
Dollars $11,996,789,886
Shares 1,904,269,839
10. Number and aggregate sale price of securities sold during the fiscal year in
reliance upon registration pursuant to rule 24f-2:
Dollars $11,996,789,886
Shares 1,904,269,839
11. Number and aggregate sale price of securities issued during the fiscal year
in connection with dividend reinvestment plans, if applicable (see Instruction
B.7):
Dollars $72,022,943
Shares 11,754,011
<TABLE>
<CAPTION>
12 Calculation of registration fee:
<S> <C>
(i) Aggregate sale price of securities sold during the fiscal
year in reliance on rule 24f-2 (from Item 10): $11,996,789,886
(ii) Aggregate price of shares issued in connection with
dividend reinvestment plans (from Item 11, if applicable): + 72,022,943
(iii) Aggregate price of shares redeemed or repurchased during
the fiscal year (if applicable): - 7,034,607,449
(iv) Aggregate price of shares redeemed or repurchased and
previously applied as a reduction to filing fees pursuant to
rule 24e-2 (if applicable): + 0
(v) Net Aggregate price of securities sold and issued during
the fiscal year in reliance on rule 24f-2 [line (i), plus line
(ii), less line (iii), plus line (iv)] (if applicable): 5,034,205,380
(vi) Multiplier prescribed by Section 6(b) of the Securities Act
of 1933 or other applicable law or regulation (see x1/33rd
instruction C.6):
(vii) Fee due [line (i) or line (v) multiplied by line (vi)]: $1,525,516.78
</TABLE>
13. Check box if fees are being remitted to the Commission's lockbox depository
as described in section 3a of the Commission's Rules of Informal and Other
Procedures (17 CFR 202.3a).
[ X ]
Date of mailing or wire transfer of filing fees to the Commission's
lockbox depository: May 7, 1997
<PAGE>
SIGNATURES
This report has been signed below by the following person on behalf of the
issuer and in the capacities and on the dates indicated.
By (Signature and Title)* /s/Stephen G Meyer
Stephen G Meyer
Date May 7, 1997
May 7, 1997
Securities & Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
PBHG Funds, Inc. (the "Fund"), was organized under the laws of the State of
Maryland with its principal place of business in Wayne, Pennsylvania. The Fund
is about to file a Rule 24f-2 Notice pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended, for the purpose of making definite the number
of shares ("Shares") which it has registered under the Securities Act of 1933,
as amended, and which it sold during its fiscal year ended March 31, 1997.
As counsel to SEI Financial Services Company, I have examined copies, either
certified or otherwise proved to be genuine, of the Fund's Articles of
Incorporation and By-Laws, as now in effect, and such minutes of meetings of its
Directors and other documents relating to the Fund's organization and operation,
as I have deemed necessary in rendering this opinion. I have been advised that
during its fiscal year ended March 31, 1997, the Fund sold 1,916,023,850 Shares
( including Dividend Reinvestment Plan Shares), at an aggregate sales price of $
12,068,812,829 and redeemed 1,447,953,955 Shares having an aggregate redemption
price of $7,034,607,449. Based upon the foregoing, it is my opinion that:
1. Each Fund except the PBHG Cash Reserve, PBHG Emerging Growth Fund,
and the PBHG Growth Fund is authorized to issue 200 Million Shares, including
those Shares now issued and outstanding. PBHG Cash Reserve is authorized to
issue 1.8 Billion Shares, including those Shares now issued and outstanding. The
PBHG Emerging Growth Fund is authorized to issue 400 Million Shares and PBHG
Growth Fund is authorized to issue 600 Million Shares, including those Shares
now issued and outstanding. Under Maryland law, such Shares which were issued
and subsequently were redeemed by the Fund may be resold.
2. The 1,916,023,850 Shares sold during the Fund's fiscal year ended
March 31, 1997, the registration of which will be made definite by the filing of
a Rule 24f-2 Notice, were legally issued, fully paid and non-assessable. I
express no legal opinion with respect to compliance with the Securities Act of
1933, the Investment Company Act of 1940 or applicable state securities laws in
connection with the sale of such Shares.
<PAGE>
Securities and Exchange Commission
Page Two
May 7, 1997
I hereby consent to this opinion accompanying the Rule 24f-2 Notice which the
Trust is about to file with the Securities and Exchange Commission.
Very truly yours,
/s/ Barbara A. Nugent
Barbara A. Nugent, Esquire
<PAGE>
[LOGO OF UAM FUNDS APPEARS HERE]
Newbold's Equity Portfolio
Institutional
Class Shares
July 10, 1997
P R O S P E C T U S
<PAGE>
TABLE OF CONTENTS
PAGE
----
Fund Expenses.............................................................. 1
Prospectus Summary......................................................... 3
Risk Factors............................................................... 4
Financial Highlights....................................................... 5
Investment Objectives...................................................... 6
Investment Policies........................................................ 6
Other Investment Policies.................................................. 7
Investment Limitations..................................................... 12
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 16
Shareholder Services....................................................... 18
Valuation of Shares........................................................ 18
Performance Calculations................................................... 19
Dividends, Capital Gains Distributions and Taxes........................... 19
Investment Adviser......................................................... 20
Administrative Services.................................................... 21
Distributor................................................................ 22
General Information........................................................ 22
UAM Funds -- Institutional Class Shares.................................... 24
<PAGE>
[LOGO OF UAM FUNDS APPEARS HERE]
UAM FUNDS SERVICE CENTER
C/O CHASE GLOBAL FUNDS SERVICES COMPANY
P.O. BOX 2798
BOSTON, MA 02208-2798
1-800-638-7983
- -------------------------------------------------------------------------------
NEWBOLD'S EQUITY PORTFOLIO
INSTITUTIONAL CLASS SHARES
INVESTMENT ADVISER: NEWBOLD'S ASSET MANAGEMENT, INC.
- -------------------------------------------------------------------------------
PROSPECTUS -- JULY 10, 1997
UAM Funds Trust (the "Fund") is an open-end investment company known as a
"mutual fund." The Fund consists of multiple series (known as "Portfolios")
each of which has different investment objectives and policies. Newbold's Eq-
uity Portfolio currently offers two separate classes: Institutional Class
Shares and Institutional Service Class Shares ("Service Class Shares"). Shares
of each class represent equal, pro rata interests in a Portfolio and accrue
dividends in the same manner except that Service Class Shares bear fees pay-
able by the class to financial institutions for services they provide to the
owners of such shares. The securities offered in this Prospectus are Institu-
tional Class Shares of one diversified, no-load Portfolio of the Fund managed
by Newbold's Asset Management, Inc.
NEWBOLD'S EQUITY PORTFOLIO. Newbold's Equity Portfolio (the "Portfolio")
seeks to achieve maximum long-term total return, consistent with reasonable
risk to principal, by investing primarily in a diversified portfolio of under-
valued equity securities of statistically attractive companies.
There can be no assurance that the Portfolio will achieve its stated objec-
tive.
Shareholders of the Portfolio should note that the Fund's Board of Trustees
voted unanimously on June 19, 1997 to combine the Portfolio with PBHG Large
Cap Value Fund, a series of The PBHG Funds, Inc. It is anticipated that the
terms of the proposed combination will be submitted to shareholders of the
Portfolio for approval at a meeting to be held on September 27, 1997. Proxy
materials will be delivered to Shareholders before that date, which will ex-
plain in detail the terms of the proposed combination.
Keep this Prospectus for future reference. It contains information that you
should know before you invest. A "Statement of Additional Information" ("SAI")
containing additional information about the Fund has been filed with the Secu-
rities and Exchange Commission. The SAI is dated July 10, 1997 and has been
incorporated by reference into this Prospectus. For a free copy of the SAI
contact the UAM Funds Service Center at the address or telephone number above.
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 OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
FUND EXPENSES
The following table illustrates expenses and fees that a shareholder of the
Portfolio's Institutional Class Shares would incur. Transaction fees may be
charged if a broker-dealer or other financial intermediary deals with the Fund
on your behalf. (See "PURCHASE OF SHARES.")
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases:........................................ NONE
Sales Load Imposed on Reinvested Dividends:............................. NONE
Deferred Sales Load:.................................................... NONE
Redemption Fees:........................................................ NONE
Exchange Fees:.......................................................... NONE
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE AVERAGE OF NET ASSETS)
Investment Advisory Fees:........................................... 0.50 %
Administrative Fees:................................................ 0.48 %
12b-1 Fees:......................................................... NONE
Other Expenses:..................................................... 0.47 %
Advisory Fees Waived and Expenses Assumed:.......................... (0.55)%
-----
Total Operating Expenses (After Fee Waiver):........................ 0.90 %*
=====
- -----------
* The Adviser has agreed to waive all or a portion of its advisory fees and to
assume operating expenses to keep the Portfolio's total annual operating ex-
penses (excluding interest, taxes and extraordinary expenses), after the ef-
fect of expense offsets, from exceeding 0.90% of average daily net assets
through January 29, 1998. For the fiscal year ended April 30, 1997, the
Portfolio had no expense offsets. Absent the fee waivers and assumption of
expenses by the Adviser, the Portfolio's Institutional Class Shares' total
annual operating expenses would have been 1.45% of average daily net assets.
The Adviser will not be reimbursed by the Fund for any advisory fees which
are waived or expenses which the Adviser may bear on behalf of the Portfolio
for a given fiscal year.
The table above shows various fees and expenses an investor would bear di-
rectly or indirectly. The expenses and fees set forth above are based on the
Portfolio's Institutional Class Shares' operations during the fiscal year
ended April 30, 1997.
The following example illustrates expenses a shareholder would pay on a
$1,000 investment over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of the time period indicated. The Portfo-
lio charges no redemption fees of any kind.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Expenses..................................... $9 $29 $50 $111
1
<PAGE>
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EX-
PENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN.
2
<PAGE>
PROSPECTUS SUMMARY
INVESTMENT ADVISER
Newbold's Asset Management, Inc. (the "Adviser") is a registered investment
adviser. Founded in 1940, the firm currently has over $4.8 billion in assets
under management. The Adviser is a wholly-owned subsidiary of United Asset
Management Corporation. (See "INVESTMENT ADVISER.")
PURCHASE OF SHARES
Shares of the Portfolio are offered through UAM Fund Distributors, Inc. (the
"Distributor"), a wholly-owned subsidiary of United Asset Management Corpora-
tion, to investors at net asset value without a sales commission. Share pur-
chases may be made by sending investments directly to the Fund. The minimum
initial investment in the Portfolio is $2,500. The minimum initial investment
for IRA accounts is $500. The minimum initial investment for spousal IRA ac-
counts is $250. The minimum for any subsequent investment is $100. Certain ex-
ceptions to the initial or minimum investment amounts may be made by the offi-
cers of the Fund. (See "PURCHASE OF SHARES.")
DIVIDENDS AND DISTRIBUTIONS
The Portfolio will normally distribute substantially all of its net invest-
ment income in an annual dividend. Any realized net capital gains will also be
distributed annually. Distributions will be reinvested in the Portfolio's
shares automatically unless an investor elects to receive cash distributions.
(See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES.")
REDEMPTIONS OF SHARES
Shares of the Portfolio may be redeemed at any time, without cost, at the
net asset value of the Portfolio next determined after receipt of the redemp-
tion request. The redemption price may be more or less than the purchase
price. (See "REDEMPTION OF SHARES.")
ADMINISTRATIVE SERVICES
UAM Fund Services, Inc. ("UAMFSI"), a wholly-owned subsidiary of United As-
set Management Corporation, is responsible for performing and overseeing ad-
ministration, dividend disbursing and transfer agency services provided to the
Fund and its Portfolios by third-party service providers. (See "ADMINISTRATIVE
SERVICES.")
3
<PAGE>
RISK FACTORS
The value of the Portfolio's shares will fluctuate in response to changes in
market and economic conditions as well as the financial conditions and pros-
pects of the issuers in which the Portfolio invests. Prospective investors
should consider the following: (1) The Portfolio may engage in various strate-
gies to seek to hedge its investments against movements in security prices by
the use of derivatives including options and futures as well as options on
futures. Such strategies are commonly referred to as "derivatives" and involve
the risk of imperfect correlation in movements in the price of options and
futures and movements in the price of securities which are the subject of the
hedge. Options and futures transactions in foreign markets are also subject to
the risk factors associated with foreign investments generally. There can be
no assurance that a liquid secondary market for options and futures contracts
will exist at any specific time; (2) The Portfolio may invest in the securi-
ties of foreign issuers which may be subject to additional risk factors, in-
cluding foreign currency risks, not applicable to securities of U.S. issuers;
(3) The Portfolio may invest in repurchase agreements which entail a risk of
loss should the seller default on its transaction; (4) The Portfolio may lend
its investment securities which entails a risk of loss should a borrower fail
financially; (5) The Portfolio may purchase securities on a when-issued basis
which do not earn interest until issued and may decline or appreciate in mar-
ket value prior to their delivery to the Portfolio. (See "OTHER INVESTMENT
POLICIES.")
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share information for a share out-
standing throughout the periods presented of the Portfolio's Institutional
Class Shares. This table is part of the Portfolio's Financial Statements in-
cluded in the Portfolio's 1997 Annual Report to Shareholders. The Report is
incorporated into the Portfolio's SAI. The Portfolio's Financial Statements in
the Annual Report have been audited by Price Waterhouse LLP whose unqualified
opinion on the Financial Statements for the year ended April 30, 1997 is also
incorporated into the Portfolio's SAI. Please read the following information
in conjunction with the Portfolio's 1997 Annual Report to Shareholders.
SEPTEMBER 13, 1995*
TO YEAR ENDED
APRIL 30, 1996 APRIL 30, 1997
------------------- --------------
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 10.00 $ 10.98
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................... 0.14 0.24
Net Realized and Unrealized Gain on
Investments............................ 0.98 1.79
------- -------
Total From Investment Operations....... 1.12 2.03
------- -------
DISTRIBUTIONS
Net Investment Income.................... (0.12) (0.25)
Net Realized Gain........................ (0.02) (1.25)
------- -------
Total Distributions.................... (0.14) (1.50)
------- -------
NET ASSET VALUE, END OF PERIOD............. $ 10.98 $ 11.51
======= =======
TOTAL RETURN+.............................. 11.31%*** 19.89%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)...... $14,090 $12,642
Ratio of Net Expenses to Average Net
Assets................................... 0.90%** 0.90%
Ratio of Net Investment Income to Average
Net Assets............................... 2.27%** 2.10%
Portfolio Turnover Rate.................... 75% 83%
Average Commission Rate.................... $0.0566 $0.0599
Voluntary Waived Fees and Expenses Assumed
by the Adviser Per Share................. $ 0.06 $ 0.06
Ratio of Expenses to Average Net Assets
Including Expense Offsets................. 0.90%** 0.90%
- ------------
* Commencement of Operations.
** Annualized.
*** Not Annualized.
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the Adviser.
5
<PAGE>
INVESTMENT OBJECTIVE
The Newbold's Equity Portfolio seeks to achieve maximum long-term total re-
turn, consistent with reasonable risk to principal, by investing primarily in
a diversified portfolio of undervalued equity securities of statistically at-
tractive companies. The Adviser believes that the Portfolio's performance over
the long term will be superior to its benchmark index (the Standard & Poor's
500 Stock Index). There can be no assurance that the Portfolio will achieve
its stated objective.
INVESTMENT POLICIES
In seeking its investment objective, the Portfolio will invest at least 65%
of its total assets, under normal circumstances, in equity securities, con-
sisting of common stock, preferred stock, convertible preferred stock, con-
vertible bonds, rights and warrants. The Portfolio will invest primarily in
equity securities of large capitalization companies which are defined as those
with equity capitalizations greater than $1 billion at the time of purchase.
The Adviser believes that investment value and return can be achieved by in-
vesting in stocks with a low price relative to current earnings. This bottom-
up approach seeks to identify companies whose earnings growth suggests an in-
creasing stream of future dividend income and whose share prices represent a
level below realizable value.
The Adviser is able to identify prospective companies through a computerized
screening process which rates on four key elements: Market capitalization --
$1 billion or more for purposes of liquidity; Dividend payout -- ordinarily
must pay cash dividends; Financial leverage -- debt should not be excessive,
and an investment grade bond rating is required; and Return on average five-
year equity -- after the three previous criteria have been applied, this eval-
uation is used as a measurement of profitability in selecting the top 500 com-
panies.
The stock issues of the top 500 companies are then sorted by price/earnings
ratio, ranked from highest to lowest and broken into five groups, each con-
sisting of 100 stocks. The bottom two groups are subject to intense fundamen-
tal analysis by the Adviser. The objective is to assemble a portfolio of 40-70
statistically attractive stocks which represent relative "value" not generally
recognized by the market. However, the Portfolio has the flexibility to invest
in less than 40 stocks or more than 70 stocks, as the Adviser deems necessary.
Earnings for cyclical stocks are normalized in this valuation process.
Once the Portfolio has been constructed, its price/earnings multiples are
continually monitored. The Portfolio will stop buying a stock when its price-
/earnings ratio approaches the current price/earnings multiple of the Standard
& Poor's 500 Stock Index. The stock is sold when it moves above the market's
multiple.
6
<PAGE>
When the Adviser believes that market conditions warrant a defensive posi-
tion, up to 100% of the Portfolio's assets may be held in cash and short-term
investments. See "SHORT-TERM INVESTMENTS" below for a description of the types
of short-term instruments in which the Portfolio may invest for temporary de-
fensive purposes. When the Portfolio is in a defensive position, it may not
necessarily be pursuing its stated investment objective.
OTHER INVESTMENT POLICIES
The Portfolio may also, under normal circumstances, invest up to 35% of its
assets, unless restricted by additional limitations described below or in the
Portfolio's SAI, in the following securities or investment techniques:
SHORT-TERM INVESTMENTS
In order to earn a return on uninvested assets, meet anticipated redemp-
tions, or for temporary defensive purposes, the Portfolio may invest a portion
of its assets in domestic and foreign money market instruments including cer-
tificates of deposit, bankers' acceptances, time deposits, U.S. Government ob-
ligations, U.S. Government agency securities, short-term corporate debt secu-
rities, and commercial paper rated A-1 or A-2 by Standard & Poor's Corporation
or Prime-1 or Prime-2 by Moody's Investors Service, Inc. or if unrated, deter-
mined by the Adviser to be of comparable quality.
Time deposits maturing in more than seven days will not be purchased by the
Portfolio, and time deposits maturing from two business days through seven
calendar days will not exceed 10% of the total assets of the Portfolio. The
Portfolio will not invest in any security issued by a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, (ii) in the case of U.S. banks, it is a member of the Fed-
eral Deposit Insurance Corporation, and (iii) in the case of foreign branches
of U.S. banks, the security is, in the opinion of the Adviser, of an invest-
ment quality comparable with other debt securities which may be purchased by
the Portfolio.
The Fund has received permission from the Securities and Exchange Commission
(the "SEC") to deposit the daily uninvested cash balances of the Fund's Port-
folios, as well as cash for investment purposes, into one or more joint ac-
counts and to invest the daily balance of the joint accounts in the following
short-term investments: fully collateralized repurchase agreements, interest-
bearing or discounted commercial paper including dollar-denominated commercial
paper of foreign issuers, and any other short-term money market instruments
including variable rate demand notes and tax-exempt money instruments. By en-
tering into these investments on a joint basis, it is expected that the Port-
folio may earn a higher rate of return on investments relative to what it
could earn individually.
The Fund has received permission from the SEC for each of its Portfolios to
invest, for cash management purposes, the greater of 5% of its total assets or
$2.5 million in the Fund's DSI Money Market Portfolio. (See "INVESTMENT COMPA-
NIES.")
7
<PAGE>
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit, and certain bankers' accept-
ances and other securities outlined above under "SHORT-TERM INVESTMENTS." In a
repurchase agreement, the Portfolio buys a security and simultaneously commits
to sell that security back at an agreed upon price plus an agreed upon market
rate of interest. Under a repurchase agreement, the seller is also required to
maintain the value of securities subject to the agreement at not less than
100% of the repurchase price. The value of the securities purchased will be
evaluated daily, and the Adviser will, if necessary, require the seller to
maintain additional securities to ensure that the value is in compliance with
the previous sentence. The use of repurchase agreements involves certain
risks. For example, a default by the seller of the agreement may cause the
Portfolio to experience a loss or delay in the liquidation of the collateral
securing the repurchase agreement. The Portfolio might also incur disposition
costs in liquidating the collateral. While the Fund's management acknowledges
these risks, it is expected that they can be controlled through stringent
counterparty selection criteria and careful monitoring procedures. The Fund
has received permission from the SEC to pool daily uninvested cash balances of
the Fund's Portfolios in order to invest in repurchase agreements on a joint
basis. By entering into joint repurchase agreements, the Portfolio may incur
lower transaction costs and earn higher rates of interest on joint repurchase
agreements. The Portfolio's contribution would determine its return from a
joint repurchase agreement. (See "SHORT-TERM INVESTMENTS.")
LENDING OF SECURITIES
The Portfolio may lend its investment securities to qualified institutional
investors as a means of earning income. The Portfolio will not loan securities
to the extent that greater than one-third of its assets at fair market value
would be committed to loans. During the term of a loan, the Portfolio is sub-
ject to a gain or loss depending on any increase or decrease in the market
price of the securities loaned. Lending of securities is subject to review by
the Fund's Board of Trustees. All relevant facts and circumstances, including
the creditworthiness of the broker, dealer or institution, will be considered
in making decisions about securities lending.
An investment company may pay reasonable negotiated fees in connection with
loaned securities so long as such fees are set forth in a written contract and
approved by its Board of Trustees. The Portfolio will continue to retain any
voting rights with respect to loaned securities. If a material event occurs
affecting an investment on a loan, the loan must be called and the securities
voted.
WHEN-ISSUED, FORWARD DELIVERY AND DELAYED SETTLEMENT SECURITIES
The Portfolio may purchase and sell securities on a "when-issued," "delayed
settlement," or "forward delivery" basis. "When-issued" or "forward delivery"
8
<PAGE>
refers to securities whose terms and indenture are available, and for which a
market exists, but which are not available for immediate delivery. When-issued
and forward delivery transactions may be expected to occur a month or more be-
fore delivery is due. Delayed settlement is a term used to describe settlement
of a securities transaction in the secondary market which will occur sometime
in the future. No payment or delivery is made by the Portfolio until it re-
ceives delivery or payment from the other party to any of the above transac-
tions. It is possible that the market price of the securities at the time of
delivery may be higher or lower than the purchase price. The Portfolio will
maintain a separate account of cash or liquid securities at least equal to the
value of purchase commitments until payment is made. Typically, no income ac-
crues on securities purchased on a delayed delivery basis prior to the time
delivery is made although the Portfolio may earn income on securities it has
deposited in a segregated account.
The Portfolio may engage in these types of purchases in order to buy securi-
ties that fit with its investment objectives at attractive prices--not to in-
crease its investment leverage.
PORTFOLIO TURNOVER
Portfolio turnover is not anticipated to exceed 60%. In addition to Portfo-
lio trading costs, higher rates of portfolio turnover may result in the reali-
zation of capital gains. (See "DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX-
ES" for more information on taxation). The Portfolio will not normally engage
in short-term trading, but each reserves the right to do so. The table set
forth in "Financial Highlights" presents the Portfolio's historical portfolio
turnover rates.
INVESTMENT COMPANIES
The Portfolio reserves the right to invest up to 10% of its total assets,
calculated at the time of investment, in the securities of other open-end or
closed-end investment companies. No more than 5% of the investing Portfolio's
total assets may be invested in the securities of any one investment company
nor may it acquire more than 3% of the voting securities of any other invest-
ment company. The Portfolio will indirectly bear its proportionate share of
any management fees paid by an investment company in which it invests in addi-
tion to the advisory fee paid by the Portfolio.
The Fund has received permission from the SEC to allow each of its Portfo-
lios to invest, for cash management purposes, the greater of 5% of its total
assets or $2.5 million in the Fund's DSI Money Market Portfolio provided that
the investment is consistent with the Portfolio's investment policies and re-
strictions. Based upon the Portfolio's assets invested in the DSI Money Market
Portfolio, the investing Portfolio's adviser will waive its investment advi-
sory fee and any other fees earned as a result of the Portfolio's investment
in the DSI Money Market Portfolio. The investing Portfolio will bear expenses
of the DSI Money Market Portfolio on the same basis as all of its other share-
holders.
9
<PAGE>
AMERICAN DEPOSITARY RECEIPTS
The Portfolio intends to invest primarily in U.S.-based companies. In addi-
tion, the Portfolio may purchase shares of foreign-based companies in the form
of American Depositary Receipts (ADRs). ADRs may be sponsored or unsponsored.
Sponsored ADRs are established jointly by a depositary and the underlying is-
suer, whereas unsponsored ADRs may be established without participation by the
underlying issuer. Holders of an unsponsored ADR generally bear all the costs
associated with establishing the unsponsored ADR. The depositary of an
unsponsored ADR is under no obligation to distribute shareholder communica-
tions received from the underlying issuer or to pass through voting rights to
the holders of the unsponsored ADR with respect to the deposited securities or
pool of securities.
FOREIGN INVESTMENTS
Investing in foreign companies may involve additional risks and considera-
tions which are not typically associated with investing in U.S. companies.
Since stocks of foreign companies are normally denominated in foreign curren-
cies, the Portfolio may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and may incur costs in
connection with conversions between various currencies.
As non-U.S. companies are not generally subject to uniform accounting, au-
diting and financial reporting standards and practices comparable to those ap-
plicable to U.S. companies, comparable information may not be readily avail-
able about certain foreign companies. Securities of some non-U.S. companies
may be less liquid and more volatile than securities of comparable U.S. compa-
nies. In addition, in certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in those coun-
tries.
Although the Portfolio will seek the most favorable trading costs available
in any given market, investors should recognize that foreign commissions are
generally higher than those in the U.S. In addition, custodial expenses, that
is, fees paid to financial institutions for holding the Portfolio's securi-
ties, will generally be higher than would be the case in the U.S.
Some foreign governments also levy withholding taxes against dividend and
interest income. Although in some countries a portion of the taxes is recover-
able, the non-recovered portion of foreign withholding taxes will reduce the
income the Portfolio receives from the companies comprising its investments.
HEDGING AND RELATED STRATEGIES AND RISK CONSIDERATIONS
To reduce the overall risk of its investments (hedge), the Portfolio may use
options, futures contracts, and options on futures contracts. Hedging strate-
gies may also be used in an attempt to manage the Portfolio's exposure to
changing security
10
<PAGE>
prices. The Portfolio's ability to use these strategies may be limited by mar-
ket conditions, regulatory limits and tax considerations. The Portfolio's ob-
ligation under such hedging strategies will be covered by the maintenance of a
segregated account consisting of cash or liquid securities equal to at least
100% of the Portfolio's commitment. The Portfolio may buy or sell futures con-
tracts, write covered call options and buy put and call options on any secu-
rity or index, including options and futures traded on foreign exchanges and
options not traded on exchanges. The Portfolio's SAI contains further informa-
tion on all of these strategies and the risks associated with them.
The Portfolio may write or purchase options in privately negotiated transac-
tions ("OTC Options") as well as listed options. OTC Options can be closed out
only by agreement with the other party to the transaction. Any OTC Option pur-
chased by the Portfolio is considered an illiquid security. Any OTC Option
written by the Portfolio will be with a qualified dealer pursuant to an agree-
ment under which the Portfolio may repurchase the option at a formula price.
Such options are considered illiquid to the extent that the formula price ex-
ceeds the intrinsic value of the option. The Portfolio may not purchase or
sell futures contracts or related options for which the aggregate initial mar-
gin and premiums exceed 5% of the fair market value of the Portfolio's assets.
In order to prevent leverage in connection with the purchase of futures con-
tracts or call options thereon by the Portfolio, an amount of cash, cash
equivalents or liquid securities equal to the market value of the obligation
under the futures contracts or options (less any related market deposits) will
be maintained in a segregated account with the Fund's Custodian. The Portfolio
may not invest more than 15% of its net assets in illiquid securities and re-
purchase agreements which have a maturity of longer than seven days. A more
complete discussion of the potential risks involved in transactions in options
or futures contracts and related options is contained in the Portfolio's SAI.
RISK CONSIDERATIONS. The Portfolio might not employ any of the hedging
strategies described above, and there can be no assurance that any strategy
used will succeed. If the Adviser incorrectly forecasts market values or other
economic factors in utilizing a strategy for the Portfolio, the Portfolio
would be in a better position if it had not hedged at all. In addition, the
Portfolio will pay commissions and other costs in connection with such invest-
ments which may increase the Portfolio's expenses and reduce its return.
The use of these strategies involves certain risks, including (1) the fact
that skills needed to use hedging instruments are different from those needed
to select the Portfolio's securities, (2) possible imperfect correlation, or
even no correlation, between price movements of hedging instruments and price
movements of the investments being hedged, (3) the fact that, while hedging
strategies can reduce the risk of loss, they can also reduce the opportunity
for gain, or even result in losses, by offsetting favorable price movements in
hedged investments and (4) the possible
11
<PAGE>
inability of the Portfolio to purchase or sell a security at a time that oth-
erwise would be favorable for it to do so, or the possible need for the Port-
folio to sell a security at a disadvantageous time due to the need for it to
maintain "cover" or to segregate securities in connection with hedging trans-
actions, and the possible inability of the Portfolio to close out or to liqui-
date its hedged position.
RESTRICTED AND ILLIQUID SECURITIES
The Portfolio may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified in-
stitutional investors under Rule 144A of the Securities Act of 1933. Under the
supervision of the Fund's Board of Trustees, the Adviser determines the li-
quidity of such investments by considering all relevant factors. Provided that
a dealer or institutional trading market in such securities exists, these re-
stricted securities are not treated as illiquid securities for purposes of the
Portfolio's investment limitations. The Portfolio may also invest up to 15% of
its net assets in securities that are illiquid. The prices realized from the
sales of these securities could be less than those originally paid by the
Portfolio or less than what may be considered the fair value of such securi-
ties.
INVESTMENT LIMITATIONS
The Portfolio will not:
(a) with respect to 75% of its assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and in-
terest by the U.S. Government or any of its agencies or instrumentali-
ties);
(b) with respect to 75% of its assets, purchase more than 10% of any class
of the outstanding voting securities of any issuer;
(c) invest more than 5% of its assets at the time of purchase in the secu-
rities of companies that have (with predecessors) a continuous operat-
ing history of less than 3 years;
(d) invest more than 25% of its assets in companies within a single indus-
try; however, there are no limitations on investments made in instru-
ments issued or guaranteed by the U.S. Government and its agencies.
(e) make loans except by purchasing debt securities in accordance with its
investment objective and policies or entering into repurchase agree-
ments or by lending its portfolio securities to banks, brokers, deal-
ers and other financial institutions so long as the loans are made in
compliance with the 1940 Act, as amended, or the Rules and Regulations
or interpretations of the SEC;
(f) (i) borrow, except from banks and as a temporary measure for extraor-
dinary or emergency purposes and then, in no event, in excess of 33
1/3% of the Portfolio's gross assets valued at the lower of market or
cost, and
12
<PAGE>
(ii) the Portfolio may not purchase additional securities when
borrowings exceed 5% of total assets; or
(g) pledge, mortgage or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value.
The Portfolio's investment objective and investment limitations (a), (b),
(d), (e) and (f)(i) listed above are fundamental policies and may be changed
only with the approval of the holders of a majority of the outstanding voting
securities of the Portfolio. The other investment limitations described here,
those not specified as fundamental in the SAI, and the Portfolio's investment
policies are not fundamental, and the Fund's Board of Trustees may change them
without shareholder approval.
PURCHASE OF SHARES
Shares of the Portfolio are offered through UAM Fund Distributors, Inc. (the
"Distributor"), without a sales commission at the net asset value per share
next determined after an order is received by the Fund and payment is received
by the Custodian. (See "VALUATION OF SHARES.") The minimum initial investment
required is $2,500. The minimum initial investment for IRA accounts is $500.
The minimum initial investment for spousal IRA accounts is $250. Certain ex-
ceptions may be made by officers of the Fund.
Shares of the Portfolio may be purchased by customers of brokers-dealers or
other financial intermediaries ("Service Agents") which have established a
shareholder servicing relationship with the Fund on behalf of their customers.
Service Agents may impose additional or different conditions on purchases or
redemptions of Portfolio shares and may charge transaction or other account
fees. Each Service Agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding additional or different
purchase or redemption conditions. Shareholders who are customers of Service
Agents should consult their Service Agent for information regarding these fees
and conditions. Amounts paid to Service Agents may include transaction fees
and/or service fees paid by the Fund from the Fund assets attributable to the
Service Agent, which would not be imposed if shares of the Portfolio were pur-
chased directly from the Fund or the Distributor. Service Agents may provide
shareholder services to their customers that are not available to a share-
holder dealing directly with the Fund. A salesperson and any other person en-
titled to receive compensation for selling or servicing Portfolio shares may
receive different compensation with respect to one particular class of shares
over another in the Fund.
Service Agents may enter confirmed purchase orders on behalf of their cus-
tomers. If shares of a Portfolio are purchased in this manner, the Service
Agent must receive your investment order before the close of trading on the
New York
13
<PAGE>
Stock Exchange ("NYSE"), and transmit it to the Fund's Sub-Transfer Agent
prior to 4 p.m. to receive that day's share price. Proper payment for the or-
der must be received by the Sub-Transfer Agent no later than the time when the
Portfolio is priced on the following business day. Service Agents are respon-
sible to their customers and the Fund for timely transmission of all subscrip-
tion and redemption requests, investment information, documentation and money.
INITIAL INVESTMENT BY MAIL
. Complete and sign an Application, and mail it together with a check pay-
able to UAM Funds to:
UAM Funds Trust
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
Payment for purchases of shares received by mail will be credited to an ac-
count at the next share price calculated for the Portfolio after receipt. Pay-
ment does not need to be converted into Federal Funds (monies credited to the
Fund's Custodian Bank by a Federal Reserve Bank) before the Fund will accept
it for investment.
BY WIRE
. Telephone the UAM Funds Service Center and provide the account name, ad-
dress, telephone number, social security or taxpayer identification num-
ber, Portfolio selected, amount being wired, and the name of the bank
wiring the funds. An account number will be provided to you. Next,
. instruct your bank to wire the specified amount to the Fund's custodian:
The Chase Manhattan Bank
ABA #021000021
UAM Funds
Credit DDA #9102772952
Ref: Portfolio Name ________________
Your Account Number __________________
Your Account Name _________________
Wire Control Number ________________
. Forward a completed Application to the Fund at the address shown on the
form. Federal Funds purchases will be accepted only on days when the
NYSE and the Custodian Bank are open for business.
ADDITIONAL INVESTMENTS
Additional investments can be made at any time. The minimum additional in-
vestment is $100. Shares can be purchased at net asset value by mailing a
check
14
<PAGE>
to the UAM Service Center (payable to "UAM Funds") or by wiring money to the
Custodian Bank using the instructions outlined above. When making additional
investments, be sure that the account name and number is identified on the
check or wire and the Portfolio to be purchased is specified.
Prior to wiring additional investments, notify the Fund by calling the num-
ber on the cover of this prospectus. Mail orders should include, when possi-
ble, the "Invest by Mail" stub which accompanies any Fund confirmation state-
ment.
OTHER PURCHASE INFORMATION
Investments received by 4 p.m. ET (the close of the NYSE) will be invested
at the share price calculated after the NYSE closes on that day. Investments
received after the close of the NYSE will be executed at the price computed on
the next day the NYSE is open. The Fund reserves the right, in its sole dis-
cretion, to suspend the offering of shares of the Portfolio or to reject pur-
chase orders when, in the judgment of management, such suspension or rejection
is in the best interests of the Fund. Purchases of the Portfolio's shares will
be made in full and fractional shares of the Portfolio calculated to three
decimal places. Certificates for fractional shares will not be issued. Certif-
icates for whole shares will not be issued except at the written request of
the shareholder.
IN-KIND PURCHASES
If accepted by the Fund, shares of the Portfolio may be purchased in ex-
change for securities which are eligible for acquisition by the Portfolio, as
described in this Prospectus. Securities to be exchanged which are accepted by
the Fund will be valued as described under "VALUATION OF SHARES" at the next
determination of net asset value after acceptance. Shares issued by the Port-
folio in exchange for securities will be issued at net asset value determined
as of the same time. All dividends, interest, subscription, or other rights
pertaining to such securities shall become the property of the Portfolio and
must be delivered to the Fund by the investor upon receipt from the issuer.
Securities acquired through an in-kind purchase will be acquired for invest-
ment and not for immediate resale.
The Fund will not accept securities in exchange for shares of the Portfolio
unless:
. at the time of exchange, such securities are eligible to be included in
the Portfolio (current market quotations must be readily available for
such securities);
. the investor represents and agrees that all securities offered to be ex-
changed are liquid securities and not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of 1933, or other-
wise; and
. the value of any such securities (except U.S. Government securities) be-
ing exchanged together with other securities of the same issuer owned by
the
15
<PAGE>
Portfolio will not exceed 5% of the net assets of the Portfolio immedi-
ately after the transaction.
Investors who are subject to Federal taxation upon exchange may realize a
gain or loss for Federal income tax purposes depending upon the cost of securi-
ties or local currency exchanged. Investors interested in such exchanges should
contact the Adviser.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed by mail or telephone, at any time,
without cost, at the net asset value of the Portfolio next determined after re-
ceipt of the redemption request. No charge is made for redemptions. Any redemp-
tion may be more or less than the purchase price of your shares depending on
the market value of the investment securities held by the Portfolio.
BY MAIL
Address requests for redemption to the UAM Funds Service Center. Requests to
redeem shares must include:
. share certificates, if issued;
. a letter of instruction or an assignment specifying the number of shares
or dollar amount to be redeemed, signed by all registered owners of the
shares in the exact names in which they are registered;
. any required signature guarantees (see "SIGNATURE GUARANTEES"); and
. any other necessary legal documents, if required, in the case of es-
tates, trusts, guardianships, custodianships, corporations, pension and
profit sharing plans and other organizations.
BY TELEPHONE
A redemption request by telephone requires the following:
. establish the telephone redemption privilege (and if desired, the wire
redemption privilege) by completing appropriate sections of the Applica-
tion; and
. call the Fund and instruct that the redemption proceeds be mailed to you
or wired to your bank.
The following tasks cannot be accomplished by telephone:
. changing the name of the commercial bank or the account designated to
receive redemption proceeds (this can be accomplished only by a written
request signed by each shareholder, with each signature guaranteed);
. redemption of certificated shares by telephone.
16
<PAGE>
The Fund and its Sub-Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and they may
be liable for any losses if they fail to do so. These procedures include re-
quiring the investor to provide certain personal identification at the time an
account is opened, as well as prior to effecting each transaction requested by
telephone. In addition, all telephone transaction requests will be recorded
and investors may be required to provide additional telecopied written in-
structions of such transaction requests. The Fund or Sub-Transfer Agent may be
liable for any losses due to unauthorized or fraudulent telephone instructions
if the Fund or the Sub-Transfer Agent does not employ the procedures described
above. Neither the Fund nor the Sub-Transfer Agent will be responsible for any
loss, liability, cost or expense for following instructions received by tele-
phone that it reasonably believes to be genuine.
SIGNATURE GUARANTEES
Signature guarantees are required for the following redemptions:
. redemptions where the proceeds are to be sent to someone other than the
registered shareholder(s);
. redemptions where the proceeds are to be sent to an address which is not
the registered address; or
. share transfer requests.
Signature guarantees will be accepted from any eligible guarantor institu-
tion which participates in a signature guarantee program. Eligible guarantor
institutions include banks, as well as through most brokers, dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations. Broker-dealers guaranteeing signa-
tures must be a member of a clearing corporation or maintain net capital of at
least $100,000. Credit unions must be authorized to issue signature guaran-
tees. A notary public can not provide a signature guarantee.
OTHER REDEMPTION INFORMATION
Normally, the Fund will make payment for all shares sold under proper proce-
dures within one business day of and no more than seven days after receipt of
the request, or earlier if required under applicable law. The Fund may suspend
the right of redemption or postpone the date at times when both the NYSE and
Custodian Bank are closed, or under any emergency circumstances as determined
by the SEC.
If the Fund's Board of Trustees determines that it would be detrimental to
the best interests of the remaining shareholders of the Fund to make payments
wholly or partly in cash, the Fund may pay the redemption proceeds in whole or
in part by a distribution in-kind of liquid securities held by the Portfolio
instead of cash in conformity with applicable rules of the SEC. Investors may
incur brokerage charges when they sell portfolio securities received in pay-
ment of redemptions.
17
<PAGE>
SHAREHOLDER SERVICES
EXCHANGE PRIVILEGE
Institutional Class Shares of the Portfolio may be exchanged for Institu-
tional Class Shares of any other UAM Funds Portfolio. (See the list of Portfo-
lios of the UAM Funds at the end of this Prospectus.) Exchange requests should
be made by contacting the UAM Funds Service Center.
Any exchange will be based on the net asset value of the shares involved.
There is no sales commission or charge of any kind for an exchange. Before
making an exchange into a Portfolio, a shareholder should read its Prospectus
and consider the investment objectives of the Portfolio to be purchased. Call
the UAM Funds Service Center for a copy of the Prospectus for the Portfolio(s)
in which you are interested. Exchanges can only be made with Portfolios that
are qualified for sale in a shareholder's state of residence.
Exchange requests may be made either by mail or telephone. Telephone ex-
changes will be accepted only if the certificates for the shares to be ex-
changed have not been issued to the shareholder and if the registration of the
two accounts will be identical. Requests for exchanges received prior to 4
p.m. (ET) will be processed as of the close of business on the same day. Re-
quests received after 4 p.m. will be processed on the next business day. The
Board of Trustees may limit the frequency and amount of exchanges permitted.
For additional information regarding responsibility for the authenticity of
telephoned instructions, see "REDEMPTION OF SHARES BY TELEPHONE". An exchange
into another UAM Funds Portfolio is a sale of shares and may result in a gain
or loss for income tax purposes. The Fund may modify or terminate the exchange
privilege at any time.
VALUATION OF SHARES
The net asset value of the Portfolio is determined by dividing the value of
the Portfolio's assets attributable to the class, less any liabilities attrib-
utable to the class, by the number of shares outstanding attributable to the
class. The net asset value per share of the Portfolio is determined as of the
close of the NYSE on each day that the NYSE is open for business.
Equity securities listed on a securities exchange for which market quota-
tions are readily available are valued at the last quoted sale price of the
day. Price information on listed securities is taken from the exchange where
the security is primarily traded. Unlisted equity securities and listed secu-
rities not traded on the valuation date for which market quotations are read-
ily available are valued neither exceeding the current ask prices nor less
than the current bid prices. Quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents. The converted value is
based upon the bid price of the foreign currency against U.S. dollars quoted
by any major bank or by a broker.
18
<PAGE>
Securities purchased with remaining maturities of 60 days or less are valued
at amortized cost when the Board of Trustees determines that amortized cost
reflects fair value.
The value of other assets and securities for which no quotations are readily
available (including restricted securities) is determined in good faith at
fair value using methods determined by the Fund's Board of Trustees.
PERFORMANCE CALCULATIONS
The Portfolio measures performance by calculating total return. Total return
figures are based on historical earnings and are not intended to indicate fu-
ture performance.
Total return is the change in value of an investment in the Portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A cu-
mulative or aggregate total return reflects actual performance over a stated
period of time. An average annual total return is a hypothetical rate of re-
turn that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period.
The Portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported
in financial and industry publications, and various indices, all as further
described in the Portfolio's SAI. This information may also be included in
sales literature and advertising.
The Portfolio's Annual Report to Shareholders for the most recent fiscal
year end contains additional performance information that includes comparisons
with appropriate indices. The Annual Report is available without charge. Con-
tact the UAM Funds Service Center at the address or telephone number on the
cover of this Prospectus.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
DIVIDENDS AND CAPITAL GAINS
The Portfolio will normally distribute substantially all of its net invest-
ment income (for tax purposes), to shareholders in quarterly dividends. If any
net capital gains are realized, the Portfolio will normally distribute them
annually. All dividends and capital gains distributions will be automatically
reinvested in additional shares of the Portfolio unless the Fund is notified
in writing that the shareholder elects to receive distributions in cash.
FEDERAL TAXES
The Portfolio intends to qualify as a "regulated investment company" under
subchapter M of the Internal Revenue Code of 1986, as amended, for federal
19
<PAGE>
income tax purposes and to meet all other requirements that are necessary for
it (but not its shareholders) to be exempt from federal taxes on income and
gains paid to shareholders in the form of dividends. To do this, the Portfolio
must, among other things, distribute substantially all of its ordinary income
and net capital gains on an annual basis and maintain a portfolio of invest-
ments which satisfies certain diversification criteria.
Dividends paid by the Portfolio from net investment income, whether in cash
or reinvested in shares, are taxable to shareholders as ordinary income.
Short-term capital gains will be taxed as ordinary income. Long-term capital
gains distributions are taxed as long-term capital gains. Shareholders will be
notified annually of dividend income earned for tax purposes.
Dividends declared in October, November and December to shareholders of rec-
ord in such a month will be treated as if they had been paid by the Fund and
received by the shareholders on December 31 of the same calendar year, pro-
vided that the dividends are paid before February of the following year.
The Fund is required by Federal law to withhold 31% of reportable payments
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify that your Social Security
or Taxpayer Identification Number you have provided is correct and that either
you are not currently subject to backup withholding or you are exempt from
backup withholding. This certification must be made on the Application or on a
separate form supplied by the Fund.
Dividends and interest received by the Portfolio may give rise to withhold-
ing and other taxes imposed by foreign countries. These taxes reduce the Port-
folio's dividends but are included in the taxable income reported on your tax
statement if the Portfolio qualifies for this tax treatment and elects to pass
it through to you. Consult a tax adviser for more information regarding deduc-
tions and credits for foreign taxes.
INVESTMENT ADVISER
The Adviser is a registered investment adviser formed in 1940. Its business
offices are located at 950 Haverford Road in Bryn Mawr, Pennsylvania. The Ad-
viser is a wholly-owned subsidiary of United Asset Management Corporation
("UAM") and provides and offers investment management and advisory services to
corporations, unions, pensions and profit-sharing plans, trusts, estates and
other institutions and investors. The Adviser currently has over $4.8 billion
in assets under management.
The Portfolio pays an annual fee in monthly installments to the Adviser for
advisory services. This fee is accrued daily and paid monthly as a percentage
of the average net assets in the Portfolio for that month. The percentage fee
on an annual basis is 0.50%.
20
<PAGE>
The Adviser may compensate its affiliated companies for referring investors
to the Portfolio. The Distributor, UAM, the Adviser, or any of their affili-
ates, may, at its own expense, compensate a Service Agent or other person for
marketing, shareholder servicing, record-keeping and/or other services per-
formed with respect to the Fund, the Portfolio or any Class of Shares of the
Portfolio. The person making such payments may do so out of its revenues, its
profits or any other source available to it. Such services arrangements, when
in effect, are made generally available to all qualified service providers.
The Distributor, the Adviser and certain of their other affiliates also par-
ticipate, at the date of this Prospectus, in an arrangement with Smith Barney
Inc. under which Smith Barney provides certain defined contribution plan mar-
keting and other shareholder services and receives from such entities .15 of
1% of the daily net asset value of Institutional Class Shares held by Smith
Barney's eligible customer accounts in addition to amounts payable to all
selling dealers. The Fund also compensates Smith Barney for services it pro-
vides to certain defined contribution plan shareholders that are not otherwise
provided by UAMFSI.
An Investment Committee at the Adviser is responsible for the day-to-day
management of the Portfolio.
ADMINISTRATIVE SERVICES
UAMFSI, a wholly-owned subsidiary of UAM, is responsible for performing and
overseeing administrative, fund accounting, dividend disbursing and transfer
agent services provided to the Fund and its Portfolios. UAMFSI's principal of-
fice is located at 211 Congress Street, Boston, MA 02110. UAMFSI has subcon-
tracted some of these services to Chase Global Funds Services Company
("CGFSC"), an affiliate of The Chase Manhattan Bank, by a Mutual Funds Service
Agreement dated June 30, 1997. CGFSC is located at 73 Tremont Street, Boston,
MA 02108.
Each Portfolio pays UAMFSI a two part monthly fee: a Portfolio-specific fee
which is retained by UAMFSI and a sub-administration fee which UAMFSI in turn
pays to CGFSC. The following Portfolio-specific fees are calculated from the
aggregate net assets of the Portfolio:
<TABLE>
<CAPTION>
RATE
----
<S> <C>
Newbold's Equity Portfolio............................................. 0.06%
</TABLE>
CGFSC's monthly fee for its services is calculated on an annualized basis as
follows:
0.19 of 1% of the first $200 million of combined UAM Funds assets;
0.11 of 1% of the next $800 million of combined UAM Funds assets;
21
<PAGE>
0.07 of 1% of combined UAM Funds assets in excess of $1 billion but less
than $3 billion;
0.05 of 1% of combined UAM Funds assets in excess of $3 billion.
The UAM Funds are allocated among the Portfolios on the basis of their rela-
tive assets and are subject to a graduated minimum fee schedule per Portfolio,
which starts at $2,000 per month and increases to $70,000 annually after two
years. If a separate class of shares is added to a Portfolio, its minimum an-
nual fee increases by $20,000.
DISTRIBUTOR
The Distributor, a wholly-owned subsidiary of UAM with its principal office
located at 211 Congress Street, Boston, Massachusetts 02110, distributes the
shares of the Fund. Under the Fund's Distribution Agreement (the "Agreement"),
the Distributor, as agent of the Fund, agrees to use its best efforts as sole
distributor of the Fund's shares. The Distributor does not receive any fee or
other compensation under the Agreement with respect to the Institutional Class
Shares offered in this Prospectus. The Agreement continues in effect as long
as it is approved at least annually by the Fund's Board of Trustees. Those ap-
proving the Agreement include a majority of Trustees who are neither parties
to the Agreement nor interested persons of any such party. This Agreement pro-
vides that the Fund will bear the costs of the registration of its shares with
the SEC and various states and the printing of its prospectuses, SAIs and re-
ports to shareholders.
GENERAL INFORMATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
The Fund was organized as a Delaware business trust on May 18, 1994 under
the name "The Regis Fund II." On October 31, 1995, the name of the Fund was
changed to "UAM Funds Trust." The Fund's Agreement and Declaration of Trust
permits the Fund to issue an unlimited number of shares of beneficial inter-
est, without par value. The Trustees have the power to designate one or more
series ("Portfolios") or classes of shares of beneficial interest without fur-
ther action by shareholders.
At its discretion, the Board of Trustees may create additional Portfolios
and classes of shares. The shares of each Portfolio are fully paid and nonas-
sessable, and have no preference as to conversion, exchange, dividends, re-
tirement or other features and no pre-emptive rights. They have noncumulative
voting rights, which means that holders of more than 50% of shares voting for
the election of Trustees can elect 100% of the Trustees. A shareholder is en-
titled to one vote for each full share held (and a fractional vote for each
fractional share held), then standing in his or her name on the books of the
Fund.
22
<PAGE>
Both Institutional Class and Institutional Service Class Shares represent an
interest in the same assets of a Portfolio. Institutional Service Class Shares
bear certain expenses related to shareholder servicing, and may bear expenses
related to the distribution of such shares. Service Class Shares have exclu-
sive voting rights with respect to matters relating to such distribution ex-
penditures. For information about the Service Class Shares of the Portfolios
contact the UAM Funds Service Center at the number on the cover of this Pro-
spectus.
Annual meetings will not be held except as required by the 1940 Act and
other applicable laws. The Fund has undertaken that its Trustees will call a
meeting of shareholders if such a meeting is requested in writing by the hold-
ers of not less than 10% of the outstanding shares of the Fund. The Fund will
assist shareholder communications in such matters.
CUSTODIAN
The Chase Manhattan Bank serves as custodian of the Fund's assets.
ACCOUNTANTS
Price Waterhouse LLP is the independent accountant for the Fund.
REPORTS
Investors will receive unaudited semi-annual financial statements and annual
financial statements audited by Price Waterhouse LLP.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be made by contacting the UAM Funds Service Center
at the number or address listed on the cover of this Prospectus.
LITIGATION
The Fund is not involved in any litigation.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIO'S STATEMENT
OF ADDITIONAL INFORMATION, IN CONNECTION WITH THE OFFERING MADE BY THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR ITS REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH OF-
FERING MAY NOT BE LAWFULLY MADE.
23
<PAGE>
UAM FUNDS -- INSTITUTIONAL CLASS SHARES
Acadian Emerging Markets Portfolio
Acadian International Equity Portfolio
BHM&S Total Return Bond Portfolio
Chicago Asset Management Intermediate Bond Portfolio
Chicago Asset Management Value/Contrarian Portfolio
C&B Balanced Portfolio
C&B Equity Portfolio
C&B Equity Portfolio for Taxable Investors
C&B Mid Cap Equity Portfolio
DSI Balanced Portfolio
DSI Disciplined Value Portfolio
DSI Limited Maturity Bond Portfolio
DSI Money Market Portfolio
FMA Small Company Portfolio
FPA Crescent Portfolio
Hanson Equity Portfolio
ICM Equity Portfolio
ICM Fixed Income Portfolio
ICM Small Company Portfolio
IRC Enhanced Index Portfolio
Jacobs International Octagon Portfolio
McKee Domestic Equity Portfolio
McKee International Equity Portfolio
McKee U.S. Government Portfolio
McKee Small Cap Equity Portfolio
MJI International Equity Portfolio
Newbold's Equity Portfolio
NWQ Balanced Portfolio
NWQ Value Equity Portfolio
Rice, Hall James Small Cap Portfolio
Rice, Hall James Small/Mid Cap Portfolio
Sirach Equity Portfolio
Sirach Fixed Income Portfolio
Sirach Growth Portfolio
Sirach Short-Term Reserves Portfolio
Sirach Special Equity Portfolio
Sirach Strategic Balanced Portfolio
SAMI Preferred Stock Income Portfolio
Sterling Partners' Balanced Portfolio
Sterling Partners' Equity Portfolio
Sterling Partners' Short-Term Fixed Income Portfolio
Sterling Partners' Small Cap Value Portfolio
TS&W Equity Portfolio
TS&W Fixed Income Portfolio
TS&W International Equity Portfolio
TS&W Balanced Portfolio
24
<PAGE>
UAM Funds Service Center
c/o Chase Global Funds Services Company
P.O. Box 2798
Boston, MA 02208-2798
1-800-638-7983
Investment Adviser
Newbold's Asset Management, Inc.
950 Haverford Road
Bryn Mawr, Pennsylvania
Distributor
UAM Fund Distributors, Inc.
211 Congress Street
Boston, MA 02110
PROSPECTUS
July 10, 1997
MESSAGE TO SHAREHOLDERS
Dear Fellow Shareholders:
We are pleased to send you The PBHG Funds, Inc. (the "Fund") Annual Report for
the year ended March 31, 1997. The Fund has continued to make strides towards
meeting more of our shareholders' needs. In order to give our shareholders the
opportunity to diversify their individual investment portfolios, we've added
several new funds to the PBHG Fund Family. PBHG Fund Services, Administrator to
the Fund, has been successful in decreasing Fund expenses, while increasing
services. We also have a number of initiatives for 1997 that are intended to
further enhance the overall satisfaction of our shareholders.
THE PBHG FUNDS' GROWTH
During the fiscal year ended March 31, 1997, the Fund grew to $7.8 billion from
$4.4 billion on April 1, 1996. The Fund's Adviser, Pilgrim Baxter & Associates,
Ltd. added 26 new employees during the year and now has a total staff of 62. The
PBHGFund's Shareholder Servicing Department -- employees dedicated to our Fund
investors -- currently has 121 professionals, up from 60 just one year ago.
PBHG Fund Services will continue to plan for and respond to future growth as the
investment offerings and benefits to our shareholders expand. A new Voice
Response System, a much improved Internet Site (with account lookup and the
ability to complete transactions), and a focus on enhancing the facilities and
training for all of our shareholder representatives is just a short list of some
of the initiatives that PBHG Fund Services has planned for 1997.
CHALLENGING ENVIRONMENT This fiscal year was a year of many challenges for both
the investment professionals and the administrative and operational
professionals within our organization. Our investment team has experienced a
shift in market sentiment in which smaller, growth companies have gone largely
unrewarded for their earnings accomplishments. It has been a period during
which investors replaced small companies in their equity portfolios with
larger, blue chip type stocks. As explained later in this report, we have seen
this type of environment before and realize the importance of remaining
committed to our discipline. This commitment has enabled us to compile a
long-term track record of significant outperformance over the last eleven-plus
years. Therefore, we confidently follow our disciplined investment process and
take advantage of buying opportunities where available in the current
environment.
DIVERSIFICATION OF PRODUCT OFFERING AND
DISTRIBUTION CHANNELS
Throughout this year, the Fund continued to explore, develop and offer to our
shareholders a number of new fund offerings. The PBHG Limited Fund and PBHG
Large Cap 20 Fund were two new growth products made available during the year.
Most notably however, this year the Fund, through our affiliation with Newbold's
Asset Management, Inc., offered shareholders a number of "value" style
investment options. By so doing, the Fund is now able to provide a Fund
investment option that allows for diversification across investment growth and
value equity styles. This is a first step along the path of our development from
a growth style, niche fund company to becoming a full service mutual fund
family. We will continue to explore other products of interest to our
shareholders and, where appropriate, make additions to our Fund family.
1
<PAGE>
MESSAGE TO SHAREHOLDERS
As always, we appreciate your investment in and commitment to The PBHG Funds,
Inc. We realize that in a challenging investment environment like the one we are
currently experiencing it may be difficult to remain loyal to your long-term
investment goals and objectives. We do urge investors to stay focused on
long-term performance, just as we do in our investment approach. Again, we have
experienced similar market environments and have learned that a disciplined
investment process, coupled with a long-term investment horizon compensate for
the short-term volatility associated with aggressive equity investing.
Sincerely,
/S/ SIGNATURE
HAROLD J. BAXTER
Chairman
The PBHG Funds, Inc.
2
<PAGE>
PBHG FAMILY OF FUNDS
PBHG AGGRESSIVE GROWTH FUNDS
PBHG GROWTH FUND
The PBHG Growth Fund seeks capital appreciation by investing primarily in
common stocks of small- and medium-sized U.S. growth companies. These are
companies that, in the opinion of Pilgrim Baxter, have an outlook for
strong growth in earnings and potential for significant capital
appreciation. This Fund is aggressive and should be considered a long-term
investment.
PBHG EMERGING GROWTH FUND
The PBHG Emerging Growth Fund seeks long-term growth of capital by
investing primarily in common stocks of emerging U.S. companies. This Fund
is aggressive and should be considered a long-term investment.
PBHG LARGE CAP GROWTH FUND
The PBHG Large Cap Growth Fund seeks long-term growth of capital by
investing primarily in equity securities of large, established companies.
Many of these companies were followed by the PBHG Growth and Emerging
Growth Funds until their cap sizes grew too large for those Funds. The
Fund's net asset value may be less volatile than those of our smaller cap
Funds.
PBHG SELECT EQUITY FUND
The PBHG Select Equity Fund seeks long-term growth of capital by investing
at least 65% of its portfolio in a limited number of companies (normally no
more than 30) across the domestic equity market capitalizations spectrum
that, in the Adviser's opinion, have a strong earnings growth outlook and
potential for capital appreciation. This Fund is aggressive and should be
considered a long-term investment.
PBHG CORE GROWTH FUND
The PBHG Core Growth Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of small-,
medium- and large-capitalization companies. The companies selected are
believed to offer the potential for strong earnings growth and significant
capital appreciation. This Fund is aggressive and should be considered a
long-term investment.
PBHG LIMITED FUND
The PBHG Limited Fund seeks long-term capital appreciation. The Portfolio
invests primarily in a diversified portfolio of equity securities with
market capitalizations or annual revenues of up to $250 million that are
believed to have an outlook for strong earnings growth and the potential
for significant long-term capital appreciation. This Fund is aggressive and
should be considered a long-term investment.
PBHG LARGE CAP 20 FUND
The PBHG Large Cap 20 Fund seeks long-term growth of capital by investing
at least 65% of its portfolio in a limited number (no more than 20) of
large capitalization companies that, in the Adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. The
concentrated strategy of this Fund is expected to produce above-average
volatility.
3
<PAGE>
PBHG FAMILY OF FUNDS
PBHG VALUE FUNDS
PBHG LARGE CAP VALUE FUND
The PBHG Large Cap Value Fund seeks long-term growth of capital and income.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in a diversified portfolio of equity securities of large
capitalization companies which, in the Adviser's opinion, are undervalued
or overlooked by the market. (The PBHG Large Cap Value Fund is sub-advised
by Newbold's Asset Management, Inc.)
PBHG SPECIALTY FUNDS
PBHG INTERNATIONAL FUND
The PBHG International Fund seeks to provide long-term capital appreciation
by investing primarily in a diversified portfolio of equity securities of
non-U.S. issuers. The Fund is aggressive and should be considered a
long-term investment. (The PBHG International Fund is sub-advised by Murray
Johnstone International, Ltd. "Murray Johnstone".)
PBHG CASH RESERVES FUND
The PBHG Cash Reserves Fund seeks to preserve principal and maintain a high
degree of liquidity while providing current income. (The PBHG Cash Reserves
Fund is sub-advised by Wellington Management Company.)
PBHG TECHNOLOGY & COMMUNICATIONS FUND
The PBHG Technology & Communications Fund seeks long-term growth of capital
by investing primarily in common stocks of companies that rely extensively
on science, technology and communications in their product development or
operations, or which are expected to benefit from technology- or
communications-related advances. This Fund is aggressive and should be
considered a long-term investment.
PBHG STRATEGIC SMALL COMPANY FUND
The PBHG Strategic Small Company Fund seeks growth of capital. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
a diversified portfolio of equity securities of small capitalization
companies. In selecting investments for the Portfolio, the Advisers
(Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.)
may emphasize securities poised for rapid and dynamic growth ("growth
securities") or securities that are undervalued or overlooked by the market
("value securities") depending on the Advisers' view of current economic or
market conditions and their long-term investment outlook.
4
<PAGE>
PBHG PORTFOLIO MANAGERS
[PHOTO OF GARY L. PILGRIM, CFA]
Gary L. Pilgrim, CFA
MANAGER
PBHG Growth Fund
CO-MANAGER
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Core Growth Fund
As President and Chief Investment Officer of Pilgrim Baxter & Associates, Ltd.,
Gary Pilgrim is responsible for the investment direction of all institutional
and mutual fund portfolios, and for overseeing day-to-day operations in trading
and account control. Gary is a member of Pilgrim Baxter's Board of Directors and
President of The PBHG Funds, Inc. He has been involved in growth stock investing
throughout his 27-year career. He began his career at the Philadelphia National
Bank in the late 1960s, where he served initially as an analyst, later as
Director of Research, and, ultimately, as Chief Investment Officer. He is an
M.B.A. graduate from Drexel University with a B.S.B.A. from the University of
Tulsa. Gary is a Chartered Financial Analyst and a member of the Financial
Analysts of Philadelphia, Inc.
[PHOTO OF CHRISTINE M. BAXTER, CFA]
Christine M. Baxter, CFA
MANAGER
PBHG Limited Fund
CO-MANAGER
PBHG Emerging Growth Fund
PBHG Core Growth Fund
In addition to managing PBHG mutual funds, Christine Baxter is responsible for
research on the smallest companies in the Pilgrim Baxter universe. Christine
joined Pilgrim Baxter & Associates, Ltd. in 1991. Her previous responsibilities
included equity/quantitative analysis and the construction of the Pilgrim Baxter
micro-cap universe. She is a graduate of the University of Pennsylvania. While
at Penn, she interned in the equity area at First Boston Corporation. Christine
is a Chartered Financial Analyst and a member of the Financial Analysts of
Philadelphia, Inc.
[PHOTO OF JAMES A. FARRELL, CFA]
James A. Farrell, CFA
MANAGER
PBHG Large Cap Value Fund
James Farrell is the Chief Investment Officer of Newbold's Asset Management,
Inc., having joined that firm in September 1996. He manages the PBHG Large Cap
Value Fund and several institutional accounts. Prior to joining Newbold's, he
was an investment counselor in a sole proprietorship for two years. From 1983 to
1994, he was a partner at Cashman, Farrell and Associates, an investment
advisory firm. Jim received his MBA from Drexel University and holds a B.S.M.E.
Cum Laude from Tufts University. He is a Chartered Financial Analyst and a
member of the Philadelphia Society of Security Analysts.
5
<PAGE>
PBHG PORTFOLIO MANAGERS
[PHOTO OF JOHN S. FORCE, CFA]
John S. Force, CFA
CO-MANAGER
PBHG Technology & Communications Fund
In addition to co-managing the PBHG Technology & Communications Fund, John Force
is an analyst and manager of small cap portfolios for institutional investors.
He joined Pilgrim Baxter from Fiduciary Management Associates, where he was
Vice-President/Portfolio Manager responsible for managing a small cap mutual
fund and analyzing the health care and consumer stock sectors. John's eighteen
years of portfolio management experience include bank-pooled equity funds,
endowments, pensions, and profit-sharing portfolios. As a research analyst, he
has covered a broad spectrum of industries. He is an M.B.A. graduate from the
University of Toledo and has a B.S. in Finance and Accounting from Miami
University of Ohio. John is a Chartered Financial Analyst and a member of the
Financial Analysts of Philadelphia, Inc.
[PHOTO OF GARY D. HAUBOLD, CFA]
Gary D. Haubold, CFA
CO-MANAGER
PBHG Strategic Small Company Fund
Gary Haubold joined Newbold's Asset Management, Inc. in January 1997. Prior to
joining Newbold's, Gary managed the MAS Small Cap and Mid Cap Funds for Miller,
Anderson & Sherrerd. From 1986 to 1993 he was with Wood, Stuthers & Winthrop, an
investment advisory firm. An M.B.A. graduate from the Wharton School of
Business, University of Pennsylvania, he holds an B.S. in Civil/Structural
Engineering from Rice University. Gary is a Chartered Financial Analyst.
[PHOTO OF JOHN C. KEOGH]
John C. Keogh
MANAGER
PBHG Cash Reserves Fund
John Keogh is a Senior Vice President and Partner of Wellington Management
Company, sub-adviser to the PBHG Cash Reserves Fund. As a member of Wellington
Management's Fixed Income Group, John chairs the Short Duration Bond Strategy
Group, which develops guidelines for portfolio managers on investing client
assets in short maturity portfolios. John manages approximately $10 billion in
money market portfolios for various clients of the firm, and he has the
distinction of managing the first dollar-denominated money market fund ever
offered by a Japanese entity in Japan. Prior to joining Wellington Management
Company in 1983, he worked in the investment division of Connecticut National
Bank. John holds a B.A. in Economics from Tufts University.
6
<PAGE>
PBHG PORTFOLIO MANAGERS
[PHOTO OF JAMES D. MCCALL, CFA]
James D. McCall, CFA
MANAGER
PBHG Large Cap 20 Fund
CO-MANAGER
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Core Growth Fund
In addition to his responsibilities with the PBHG Core Growth, Large Cap Growth,
Large Cap 20 and Select Equity Funds, Jim McCall manages institutional
investment accounts. Jim previously worked at The First National Bank of
Maryland where he was Vice President/Portfolio Manager responsible for managing
a growth mutual fund that invested across all capitalizations. Prior to that,
Jim was employed by Provident Mutual Management, Co., where he managed a similar
growth mutual fund. Before entering the investment field a decade ago, Jim spent
10 years as a hospital pharmacist. He received his M.B.A. and M.S. in Pharmacy
from the University of Utah and holds a B.S. from the Philadelphia College of
Pharmacy & Science. Jim is a Chartered Financial Analyst.
[PHOTO OF RODGER SCULLION, MSI]
Rodger Scullion, MSI
MANAGER
PBHG International Fund
Rodger Scullion is Managing Director and Chief Investment Officer of Murray
Johnstone International, Ltd. (MJI) in Glasgow, Scotland. In addition to the
PBHG International Fund, for which he assumed responsibility in June 1995,
Rodger handles other investment vehicles for all types of investors, including a
closed-end fund with over $600 million in assets. Rodger joined MJI fourteen
years ago, and in that time has had primary responsibility for the investments
in markets outside the U.S. Prior to MJI, he spent eleven years with an
international fund management group in Glasgow, where his investment arena
included the U.S., Europe, U.K., Southeast Asia and Japan. Rodger is a Member of
the Securities Institute (MSI) in Scotland.
[PHOTO OF JAMES M. SMITH, CFA]
James M. Smith, CFA
CO-MANAGER
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
Jim Smith serves as portfolio manager and analyst for institutional small cap
portfolios at Pilgrim Baxter & Associates, Ltd., as well as co-manager of the
PBHG Technology & Communications Fund and PBHG Strategic Small Company Fund. Jim
has over twenty years of investment experience in equity portfolio management
and research. Most recently, he was employed by Selected Financial Services as
Senior Vice-President/Portfolio Manager for a small cap growth mutual fund.
Jim's prior service includes employment by Sears Investment Management Company
as Vice President responsible for emerging growth and venture capital
portfolios. He is a graduate of Washington & Lee University, where he was
inducted into Phi Beta Kappa, and he earned his M.B.A. from Northwestern
University. Jim is a Chartered Financial Analyst.
7
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
[PHOTO OF GARY L. PILGRIM, CFA]
Gary L. Pilgrim, CFA
Dear Fellow Shareholder:
The U.S. equity market has challenged investors employing all investment styles
during the last twelve months, but it has been particularly confounding to
growth managers. In order to better explain our performance numbers, I believe
that it is helpful to review the market activity over the past year.
Our fiscal year started off with many companies reporting very strong earnings
for the March quarter, and growth stocks performed well heading into the second
calendar quarter. However, June ushered in a host of earnings disappointments
from some bellwether companies and reintroduced the specter of inflation,
roiling the markets throughout the Summer. With investors already jittery, the
November elections served as additional impetus for investors to opt out of
higher growth, small capitalization names for the perceived stability of larger
capitalization, more mature blue-chip stocks. Unfortunately, such moves tend to
be self-fulfilling -- as investor support for smaller cap growth stocks dried
up, those equities met many investors' expectations of declines while buoying
big capitalization stocks at the same time.
PERFORMANCE COMPARISONS
The chart below shows how dramatically market sentiment -- and dollars --
shifted to support the largest, slower growth companies that make up the Dow
Jones Industrial Average over the riskier, higher growth companies in the NASDAQ
Composite Index and the Russell 2000 Growth Index.
COMPARATIVE MARKET INDEXES
FOR THE ONE-YEAR PERIOD ENDED MARCH 31, 1997
NASDAQ COMPOSITE 11.31% DOW JONES INDUSTRIAL AVERAGE 21.53%
RUSSELL 2000 GROWTH -5.82% S&P 500 19.88%
THE NASDAQ COMPOSITE INDEX is based on the National Association of
Securities Dealers Automated Quotations (NASDAQ) and represents all
domestic over-the-counter stocks (approximately 5,500) except those traded
on exchanges and those having only one market maker.
THE RUSSELL 2000 GROWTH INDEX is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Russell 2000 Index is generally considered to be
representative of the small capitalization segment of the market.
THE DOW JONES INDUSTRIAL AVERAGE is a price-weighted average of 30
actively traded blue-chip stocks, primarily industrials.
THE S&P 500 INDEX is an unmanaged index generally considered to be
representative of the large capitalization segment of the U.S. market.
Even these comparisons mask much of the battle growth stock investors have waged
since last May. Most market watchers understand that the Dow Jones Industrial
Average is made up of only 30 stocks, and that it can therefore be an inadequate
representation of the market's overall performance; however, fewer investors
understand how the NASDAQ Composite Index is composed. That Composite includes
over 5,500 issues which trade on the NASDAQ Stock Market, and therefore is the
most often used proxy for growth stock performance. However, the four largest
companies (by market capitalization) which trade on the NASDAQ accounted for 22%
of the performance of the entire index last year. And the one hundred largest
companies, known as the NASDAQ 100 Index, accounted for nearly 50% of the
performance of the NASDAQ Composite Index late last year. What that means to
investors is that the "market" performance numbers listed in the papers and
quoted on radio and television often reflect very little of what is happening
with the remaining thousands -- the majority -- of stocks in the market.
8
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
In fact, recent declines in the universe of companies we track, closely mirror
the stock price declines of companies in the overall NASDAQ stock market. But at
the same time, the Pilgrim Baxter universe of companies far outpaces the Nasdaq
market in terms of earnings growth rates and the percentage of companies
surprising us on the upside each quarter. So, while investing in high growth
rate companies -- the neighborhood in which we live -- has recently been under
siege, The PBHG Funds, Inc. continue to hold what we believe to be the best
companies available within our discipline.
The most difficult challenge we faced as managers over the past year is that our
style of investing in the highest growth companies has simply been out of favor.
We have continued to find very strong companies in our traditional growth
industries: technology, health care, consumer and service. And, those companies,
for the most part, have continued to perform very well. Unfortunately, the
market, which at times rewards even moderate growth, has offered very little
support for these companies which have been experiencing record quarters of
growth. As a result, many of the companies which we follow closely have seen
their stock prices cut in half while their growth rates have remained just as
strong, and in some cases improved. These declines in stock prices, and in our
Funds, are further accentuated due to the highs they reached a year ago. The
last up cycle was above average for growth stocks and for our Funds, leaving
both exposed to greater losses during periods of market volatility.
THE PILGRIM BAXTER DISCIPLINE
Our investment philosophy and methodology remain the same through both up and
down cycles. We continue to seek and invest in the highest quality, fastest
growing companies we can find. As long-time managers following this style, we
are pleased to report that we believe there is currently no shortage of very
good companies, quality managements and strong ideas in which to invest.
As we've explained before, we continue to find most of our investments in the
technology, health care, consumer and services sectors -- those industries in
which company and stock price performance have been most remarkable over the
last several years. As a result, we often find our portfolios highly
concentrated in particular sectors of the market at different times. We like to
hold large positions in industries while their growth curves are the steepest --
either due to technological improvement, an undersupply of key products, or
perhaps consolidation among competitors. This concentration can contribute to
very favorable returns while the companies scale the growth curve and there
aren't enough shares to go around Wall Street. But, the ride down tends to be
equally steep, once investors get a hint that the growth may be slowing.
Unfortunately, that reaction of "sell now, ask questions later" often infects an
entire industry, even though only a few companies may actually be slowing. Such
was the case with networking stocks and the technology sector these past few
months. A few of the bellwether networking names -- companies which make all of
the infrastructure for the ever-enlarging Internet, intranets and local area
networks -- stumbled during recent quarters. These shortfalls sent investors
fleeing from technology stocks across the board, even though fundamentals in the
sector were strong. It is during capricious shifts in sentiment such as these
that our concentration in sectors of the market makes us vulnerable.
THE CYCLES OF THE MARKET
Although this past year challenged us as the market seemingly ignored high
quality growth companies and strong earnings, we take some heart in the fact
that it is a pattern through which we have invested and thrived before. We know
from experience that these periods of underperformance are often well rewarded
by significant outperformance in the months and years ahead.
These volatile months are in fact the exact periods in which we, as managers,
can do some of our most opportunistic buying. Many of the companies we already
own, or would like to have in our portfolios, are well off their highs and, by
many measures, downright bargains. We like to view the current market in terms
of our PBHG Fund investors potentially getting far more "growth" for their
dollar than they were a year ago. We believe that when the market again
recognizes and begins to reward the earnings growth these companies have
produced, that "growth" should go a long way in turning underperformance into
significant outperformance. As difficult as it may seem to shareholders who
watch the ups and downs of the stock and mutual fund tables, down periods are
also opportunities for investors to consider increasing their investment
holdings. While this may seem counterintuitive to your wallet, as an informed
9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
investor, you know the potential value of adding to your position when prices
are down. The chart below outlines the potential benefits of "dollar cost
averaging" which may help investors take advantage of market volatility by
buying fewer shares when prices are high and a greater number when prices are
lower. The PBHG Systematic Investment Plan lets investors take advantage of
dollar cost averaging.
<TABLE>
<CAPTION>
DOLLAR COST AVERAGING AT WORK
DOLLAR COST AVERAGING VS. LUMP SUM PURCHASE
AMOUNT SHARE # SHARES AMOUNT SHARE # SHARES
INVESTED PRICE PURCHASED INVESTED PRICE PURCHASED
<S> <C> <C> <C> <C> <C> <C> <C>
January $100 $10 10.00 $1,200 $10 120
February $100 $11 9.09
March $100 $9 11.11
April $100 $6 16.67
May $100 $7 14.29
June $100 $12 8.33
July $100 $8 12.50
August $100 $7 14.29
September $100 $9 11.11
October $100 $9 11.11
November $100 $11 9.09
December $100 $10 10.00
TOTAL AMOUNT INVESTED $1,200.00 VS. $1,200.00
TOTAL # SHARES PURCHASED 137.59 VS. 120.00
AVERAGE COST PER SHARE $ 8.72 VS. $ 10.00
</TABLE>
A program of regular investment cannot assure a profit nor protect against a
loss in a declining market and, since such a program involves continuous
investment regardless of fluctuating share values, investors should consider
their financial ability to continue the program through all market cycles.
Many of you, our shareholders, have expressed concern over the past few months
wondering if the PBHG investment strategy or method has changed. While the
simple answer to the question is no, the fact that our investors are asking that
question gives us some encouragement. It tells us that our shareholders
understand our discipline of buying shares in companies with strong growth in
earnings. And, in some fashion that question is a stamp of approval from our
shareholders, sort of an "I liked what you were doing before, are you still
doing it now?" The answer is yes. It's important to understand that it is the
market that has changed since this time last year. We at The PBHG Funds are
still doing the same thing we did last year, five years ago and ten years ago.
It is periods such as this which may test your belief in the growth strategy.
But, after revisiting why you invested with The PBHG Funds in the first place
exceptional long-term growth -- we expect you will feel confident that downturns
can be overcome with long-term outperformance.
/S/ SIGNATURE
GARY L. PILGRIM
Chief Investment Officer
Pilgrim Baxter & Associates, Ltd.
10
<PAGE>
PBHG GROWTH FUND
OBJECTIVE: Capital appreciation.
INVESTS IN: Small to medium sized growth companies.
STRATEGY: While the Fund is currently making the majority of purchase
selections in the $500 million to $2.5 billion range, the weighted average
capitalization of the Fund has increased from a year ago. This is attributable
to the higher valuation levels of a rising market, and the Adviser's decision
to maintain positions in some companies exceeding $2 billion in market
capitalization as long as they continue to meet the Adviser's high-growth
criteria.
- --------------------------------------------------------------------------------
PBHG GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Annualized Annualized
One Year 3 Year 5 Year 10 Year
Return Return Return Return
- --------------------------------------------------------------------------------
PBHG Growth Fund-PBHG Class -16.76% 12.84% 21.54% 15.02%
- --------------------------------------------------------------------------------
PBHG Growth Fund-Trust Class 2 -16.88% 12.78% 21.50% 15.00%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GROWTH
FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, THE LIPPER CAPITAL APPRECIATION
FUNDS AVERAGE, AND THE LIPPER MID-CAP FUNDS AVERAGE
[LINE GRAPH]
Lipper Capital Lipper
PBHG Growth Fund Russell 2000 Appreciation Funds Mid-Cap
PBHG Class Growth Index 3 Average 4 Funds Average 5
12/31/85 10,000 10,000 10,000 10,000
3/86 11,510 11,481 11,619 11,652
3/87 16,870 13,175 13,728 14,830
3/88 14,665 10,888 12,365 13,118
3/89 15,249 11,991 14,046 14,908
3/90 19,383 13,057 16,024 17,437
3/91 22,667 14,462 17,744 20,921
3/92 25,781 17,206 20,865 25,252
3/93 34,668 17,726 23,631 28,550
3/94 47,592 19,628 25,751 31,294
3/95 54,217 21,057 27,633 34,188
3/96 82,139 27,660 35,780 44,452
3/97 68,372 26,051 37,984 46,652
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The performance shown for the Trust Class prior to its inception on August 19,
1996, is based on the performance and expenses of the PBHG Class. Subsequent
to August 19, 1996, the performance is that of the Trust Class and reflects
the expenses specific to the Trust Class, which will cause its returns to
be less than those of the PBHG Class. The aggregate total return of the PBHG
Trust Class since its inception was -17.27%.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Capital Appreciation Funds Average is an equally weighted
benchmark composed of mutual funds with the investment objective of maximum
capital appreciation. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
5 The Lipper Mid-Cap Funds Average is an equally weighted benchmark composed of
mutual funds, each of which limits its investments, by prospectus or
portfolio practice, to companies with average market capitalizations
and/or revenues between $800 and the average market capitalization of the
Wilshire 4500 Index. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
PERFORMANCE
For the year ended March 31, 1997 the Fund's total return was -16.8% versus the
Russell 2000 Growth Index of -5.8% and the Lipper Capital Appreciation Funds
average of 4.1%. The Fund's performance characteristics changed dramatically as
the year progressed, going from an 11.6% gain in the first half of the fiscal
year to a -25.4% loss in the second half. Smaller growth company sentiment
turned decidedly negative as the Russell 2000 Growth Index return of -10.3%
compared poorly with an 11.3% gain by the S&P 500. This is, by far, the most
abrupt change in relative performance in memory. We believe investor anxiety
regarding the direction of interest rates against a back drop of high valuation
for smaller growth companies resulted in this flight to larger companies as a
safer haven for nervous investors.
The Technology sector continued as the Fund's largest exposure, finishing the
year roughly unchanged at a 30% weighting. Service sector companies again
increased during the year, rising from 17% to 24%. Healthcare and Consumer
sector weightings each declined by about four percentage points. While still
small at 4.5% each, both Energy and Financials sectors were increased during the
year. The largest share of the negative return came from the Consumer sector
(41%), Healthcare (34%) and Technology sectors (19%).
PORTFOLIO HIGHLIGHTS
After a period such as the one just past, it would be misleading to focus on our
successes. However, of the 59 stocks held for the full year, 27 did produce a
positive return and the top five averaged an approximate 70% gain. While there
were no common business themes to these winners, four were from the Technology
sector.
Broadening the scope of the analysis, the Fund owned a total of 127 stocks
during the course of the year, of which 61% showed declines. The five worst
issues were down on average, 68%. A total of 31 issues dropped by 30% or more
with this group dominated by health care and technology. As is usually the case,
all but four of these 31 companies had unexpectedly weak earnings.
As for patterns among our losers; the well publicized slowing of networking
company fundamentals explains the sharp declines of Fore Systems, Shiva,
Premysis and Cascade while companies providing technology to physicians such as
Medaphis and Medic Computer Systems also stumbled badly. Some specialty
physician practice management companies such as Physician Reliance Network and
American Oncology failed to meet investor expectations as well.
While one could conclude that the number of company problems in the Fund
increased dramatically, we believe that our performance is better explained by
acknowledging at least an average number of company failures, but more
importantly they occurred in an environment of investor sentiment that grew
increasingly apprehensive about the risk of small company investing so that even
companies executing flawlessly on their business plans were sold in sympathy
with those that did not.
- ---------------------------
TOP FIVE PERFORMERS*
Electronics For Imaging
McAfee Associates
United States Filter
Comverse Technology
Altera Corp.
- ---------------------------
BOTTOM FIVE PERFORMERS*
Citrix Systems
Macromedia
Idexx Laboratories
Medaphis Corp.
Physician Reliance Network
*DURING THE YEAR ENDED MARCH 31, 1997
11
<PAGE>
PBHG EMERGING GROWTH FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Domestic emerging growth companies.
STRATEGY: The Fund's strategy is to invest in young, rapidly growing companies
with prospects for continued growth. The Fund will typically target the
following sectors: Technology, Healthcare, Consumer and Service. The Fund will
remain diversified over a large number of securities, with no one security
accounting for more than 3% of the portfolio.
- --------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Annualized
One Year 3 Year Inception
Return Return to Date 2
- --------------------------------------------------------------------------------
PBHG Emerging Growth Fund -13.71% 19.58% 24.08%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG EMERGING
GROWTH FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL COMPANY
FUNDS AVERAGE
[LINE GRAPH]
PBHG Emerging Russell 2000 Lipper Small Company
Growth Fund Growth Index 3 Funds Average 4
6/14/93 10,000 10,000 10,000
3/94 13,100 10,763 10,809
3/95 17,290 11,547 11,668
3/96 25,963 15,168 15,399
3/97 22,403 14,285 16,118
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Emerging Growth Fund commenced operations on June 15, 1993.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by
prospectus or portfolio practice, to companies on the basis of the size of the
company. The performance figures are based on changes in net asset value of
the funds in the Index with all capital gains distributions and income
dividends reinvested.
PERFORMANCE
For the year ending March 31, 1997 the Fund's total return was -13.71% versus
the Wilshire Small Cap Growth Index of -2.50%. The Russell 2000 Growth Index
return was -5.82%, and the Lipper Small Company Funds Average was -1.79%.
The Technology sector was responsible for roughly 15% of the decline
in the portfolio with gains in the first half of the period offset by losses
in the second half of the period. Combined, the Consumer and Healthcare
sectors were responsible for the majority of the decline.
Fund performance shifted considerably in the latter part of the fiscal year.
To fully appreciate the magnitude of the shift, consider that for the first
three months of the fiscal year, April 1, through June 30, 1996, the Fund
returned +12.3 only to return -23.2% over the next three fiscal quarters.
Even more telling of this turnaround is the most recent quarter's return of
- - -20.5%. Most of this shift can be attributed to the much talked about
"flight to quality." Investors sentiment turned away from small cap, high
valuation growth stocks in favor of blue chip stocks.
The Technology and Consumer sectors remained relatively unchanged over the
period, representing 40% and 12%, of each respective portfolio. We continue
to increase our exposure to the Service sector as we went from 8% to 14% of the
portfolio over the course of the year. Healthcare sector decreased 28% over the
period, representing just 15% of the portfolio as of March 31, 1997 as compared
to 21% one year ago.
PORTFOLIO HIGHLIGHTS
For the year, the Fund's five top performing stocks were up an average of 105%,
while the bottom five were down an average of 71%. In both cases returns were
driven by earnings performance. Those stocks owned thoughout the period produced
an average return of 0.9%, those purchased during the period produced an average
return of -13.5%, and those sold during the period produced an average return of
- -23.2%.
The Fund seeks companies with an ability to sustain superior revenue and
earnings growth. Throughout the period the growth characteristics of the
companies in the portfolio has remained consistent. The position weighted
average earnings per share growth for the last twelve months remains above 60%.
Given this fact, we believe the negative return for the Fund is a result of both
a decline in the valuation of high growth companies, and negative results from
companies that failed to meet growth expectations. The sector distribution is
determined by bottom-up stock picking. Thoughout the period the Technology and
Healthcare sector weightings declined slightly while the Service sector
weighting increased.
- --------------------------
TOP FIVE PERFORMERS*
Eagle USA
II-VI, Inc,
Scopus Technology
Greenwich Air Services
PRI Automation
- --------------------------
BOTTOM FIVE PERFORMERS*
Applix
Microcom
Verilink
Astea
Desktop Data
*DURING THE YEAR ENDED MARCH 31, 1997
12
<PAGE>
PBHG LARGE CAP GROWTH FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Companies, with above $1 billion of market capitalization, that in
the Advisers opinion, have an outlook for strong growth in earnings and
potential for capital appreciation.
STRATEGY: The Fund's larger company focus is intended to provide reduced
short-term volatility while still generating superior returns. At year end, the
Fund's 57 Portfolio holdings ranged from roughly $800 million to $112 billion in
market capitalization, with an average capitalization of $13.2 billion. The
stock selection approach remains focused on the fundamental analysis of
individual companies, the strength of their products and/or services and their
competitive positioning. Sector exposure is determined solely by the selection
of the most attractive individual stocks, although a 40% sector limitation is in
place as a risk control measure.
- --------------------------------------------------------------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap Growth Fund -1.77% 21.49%
- - ------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
GROWTH FUND, VERSUS THE RUSSELL 1000 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Large Cap Russell 1000 Lipper Growth
Growth Fund Growth Index 3 Funds Average 4
4/4/95 10,000 10,000 10,000
6/95 10,920 10,748 10,744
9/95 13,160 11,724 11,675
12/95 13,382 12,259 11,945
3/96 14,992 12,917 12,604
6/96 16,158 13,739 13,173
9/96 16,871 14,234 13,559
12/96 16,515 15,093 14,268
3/97 14,728 15,175 14,086
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
3 The Russell 1000 Growth Index is an unmanaged index comprised of those
securities in the Russell 1000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Fund's total return for the last 12 months was -1.77%, including a decline
of 10.76% in March. This compares to a 12 month return of the Russell 1000
Growth Index of 17.47%. Dramatic market volatility in recent months coupled with
a negative shift in investor sentiment toward high growth, above average P/E
multiple stocks helped turn a positive return into a negative one. We did
experience some significant disappointments in financial performance by a few of
the Fund's holdings, each of which was subsequently sold. However, for the most
part the Fund's holdings delivered the kind of financial results we anticipated,
but the market did not seem to care.
Once again the Technology sector represented the largest industry exposure,
closing the year at 25% after reaching almost 33% during the Summer. This sector
contributed a return of 5.47% for the year. The next largest sector was the
Healthcare sector which accounted for 23% of the Fund at year end, having
increased steadily from 19% at the beginning of the year. The return from the
Healthcare sector was -1.22%. The Business Services sector was third largest at
roughly 21% and returned -1.59%. Consumer at 17% and Financial Services at 7%
were the only other sectors with meaningful exposure. The contributions from
these two sectors were -3.64% and 1.41%, respectively.
PORTFOLIO HIGHLIGHTS
Of the 82 different stocks owned over the last 12 months, 30 advanced more than
10%, while 31 declined more than 10%. The top five performers were up an average
of 63.1%, while the bottom five, all of which were sold based on weakening
business trends, declined an average of 63.0%.
The top five performers included four technology stocks, including the two
industry bellwethers Intel and Microsoft along with telecommunications
equipment supplier ADC Telecom, Inc. and specialty semiconductor manufacturer
Altera. Intel demonstrated accelerating growth driven by great demand for
faster, more powerful microprocessors, while Microsoft benefited from a
strong product upgrade cycle, e.g. Windows 95 for PC's and Windows NT for
network servers. ADC consistently reported financial results ahead of
expectation as their telephone and cable industry customers sought to improve
the quality and capacity of their communications networks. Altera rebounded
strongly from an oversupply situation a year ago in their specialty niche
of programmable logic devices. The only non-technology name among the top
five performers was Nike which benefited from very strong demand from
consumers for any and all athletic products bearing the "swoosh" trademark.
This position was sold near the end of the period as we anticipate a
deceleration in the company's growth rate going forward.
The bottom five performers all announced disappointing financial results caused
by a variety of factors. Shiva's products for providing remote access to
corporate computer networks were effectively obsoleted by new products from
bigger and stronger competitors. Fore Systems suffered from a slowdown in demand
for their high speed networking products as customers hesitated to buy in
anticipation of a slew of new competing products reaching the market. Sunglass
Hut opened too many stores thereby oversaturating the high priced sunglass
market. Fritz Companies had difficulty digesting a large acquisition in the
transportation logistics market. Lastly, Idexx Laboratories flooded their
distributors with veterinary diagnostic instruments in quantities well in excess
of end-user demand, leading to a substantial sales slowdown.
- --------------------------
TOP FIVE PERFORMERS*
Intel
Nike
Microsoft
ADC Telecommunications
Altera
- --------------------------
BOTTOM FIVE PERFORMERS*
Idexx Laboratories
Fritz Companies
Sunglass Hut International
Fore Systems
Shiva
*DURING THE YEAR ENDED MARCH 31, 1997
13
<PAGE>
PBHG SELECT EQUITY FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Normally no more than 30 common stocks of companies that in the
Adviser's opinion have a strong outlook for capital appreciation.
STRATEGY: The Fund concentrates its investments in what we view as the best
opportunities in our universe of approximately 1,000 companies. At the end of
the period, the Fund held 27 stocks ranging in size from $487 million (Forte
Software) to $112 billion (Intel). The mean market capitalization was $6.9
billion. The Fund's size characteristics may vary dramatically from one time
period to another, reflecting the inherent sensitivity to changes in holdings of
a highly concentrated portfolio. The Fund is currently closed to new investors
to protect its investment objective.
- --------------------------------------------------------------------------------
PBHG SELECT EQUITY FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Select Equity Fund -6.94% 28.48%
- -------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SELECT
EQUITY FUND, VERSUS THE RUSSELL 3000 GROWTH INDEX, AND THE LIPPER CAPITAL
APPRECIATION FUNDS AVERAGE
[LINE GRAPH]
PBHG Select Russell 3000 Lipper Capital Appreciation
Equity Fund Growth Index 3 Funds Average 4
4/4/95 10,000 10,000 10,000
6/95 11,686 10,757 10,744
9/95 14,546 11,758 11,806
12/95 15,512 12,257 12,119
3/96 17,329 12,920 12,846
6/96 19,606 13,735 13,492
9/96 21,121 14,165 13,762
12/96 19,854 14,938 14,128
3/97 16,123 14,858 13,667
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Select Equity Fund commenced operations on April 5, 1995.
3 The Russell 3000 Growth Index is an unmanaged index comprised of the 3000
largest U.S. securities as determined by total market capitalization
and represents approximately 98% of the investable U.S. equity market. The
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
4 The Lipper Capital Appreciation Funds Average is an equally weighted benchmark
composed of mutual funds with the investment objective of maximum
capital appreciation. The performance figures are based on changes in net
asset value of the funds in the Index with all capital gains distributions
and income dividends reinvested.
PERFORMANCE
The Fund's total return for the last 12 months was -6.94%, including a decline
of -18.79% in the last three months. This compares to the 12 month returns of
6.16% for the Lipper Capital Appreciation Funds Average and 16.50% for the
Russell 3000 Index. We believe a negative shift in investor psychology towards
growth stocks began in the summer and intensified significantly in the last
three months of the year. In addition, market sentiment toward the technology
sector particularly networking and software stocks, turned decidedly bearish in
the last three months. Changes in the Fund's holdings were made where warranted
by weakening fundamentals but, for the most part, the Fund's holdings continued
to demonstrate the same desirable high growth characteristics that appealed to
us in the first place.
The Technology sector represented the largest area of exposure in the Fund,
ranging from 36% to 54%, and ending the year at 40%. This sector returned 2.56%
for the year. The second largest sector exposure was in healthcare which
increased steadily from 14% at the beginning of the year to 26% at the end. This
sector declined 1.53% for the year. The Business Services sector varied in
its weighting during the year but ended where it began, at roughly 17%, and
produced a return of -2.15%. The only other sector of consequence was
Consumer which held a fairly steady weighting of about 13% throughout the
period and generated a return of -4.29%. The balance of the Fund included
stocks in the Energy, Financial and Transportation sectors, which
collectively contributed a return of 0.63%.
PORTFOLIO HIGHLIGHTS
Of the 45 stocks owned during the course of the year, 15 advanced more than 10%
while 14 declined more than 10%. The top five performers were up by an average
of 69.7%, while the bottom five declined by an average of 44.3%.
The top five performers included three unrelated technology companies, a company
that operates several radio and television stations, and a health maintenance
organization (HMO). In the case of the best performer, Dell Computer success was
driven by the continuing strong demand for PC's and, in particular, Dell's
low-cost, direct distribution operating model. McAfee Associates' technological
leadership in antivirus software and PeopleSoft's ability to deliver superior
business applications software for the burgeoning client-server computing
environment led to financial results that were consistently ahead of
expectations. Clear Channel Communications took advantage of favorable
regulatory changes to acquire attractive broadcasting properties and also expand
into the billboard advertising markets. All of Clear Channel's acquisitions were
additive to the company's cash flow. Oxford Health Plans, in an otherwise
difficult environment for HMO's, continued to demonstrate great foresight and
creativity in an everchanging healthcare arena.
Among the bottom five performers, only Fore Systems demonstrated a clear
deterioration in business fundamentals (which prompted sale of the position
shortly after year end). Rational and Forte both in the business of providing
software tools for building and testing software programs. Their stocks suffered
from concerns about Microsoft's intentions in their market and the general
compression of P/E multiples among high growth companies. Both companies are
currently under review to determine, for rational specificially, the future
impact of pending acquistions and, for companies, the sustainability of growth
in the high-end software development market. Pediatrix continued in its effort
to consolidate the market for providing neonatal intensive care services, while
Accustaff continued making accretive acquisitions in the temporary help market
with an emphasis on expanding their information technology business. The stocks
of both Pediatrix and Accustaff experienced substantial P/E multiple
compression, despite no apparent change in business fundamentals.
- ----------------------------
TOP FIVE PERFORMERS*
Dell Computer
McAfee Associates
Clear Channel Communications
PeopleSoft
Oxford Health Plans
- ----------------------------
BOTTOM FIVE PERFORMERS*
Fore Systems
Rational Software
Pediatrix Medical Group
Forte Software
Accustaff
*DURING THE YEAR ENDED MARCH 31, 1997
14
<PAGE>
PBHG CORE GROWTH FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: A diversified portfolio of equity securities of companies without
regard to market capitalization.
STRATEGY: At year end the Fund's holdings ranged from roughly $140 million to
$54 billion in market capitalization, with an average size of $3.4 billion.
While future changes in holdings will create some variability, we do not expect
the company size features of the fund to differ substantially from what they are
presently. Stock selection is exclusively "bottom up", focusing on individual
companies and the strength of their fundamental business characteristics. Sector
exposure is not predetermined, but follows from the selection of the most
attractive individual stocks.
- --------------------------------------------------------------------------------
PBHG CORE GROWTH FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One Year Annualized
Return Inception to Date 2
- --------------------------------------------------------------------------------
PBHG Core Growth Fund -12.52% 2.70%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CORE
GROWTH FUND, VERSUS THE RUSSELL 3000 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Core Russell 3000 Lipper Growth
Growth Fund Growth Index 3 Funds Average 4
12/31/95 10,000 10,000 10,000
3/96 11,820 10,541 10,543
6/96 13,800 11,206 11,020
9/96 14,200 11,557 11,342
12/96 13,280 12,188 11,936
3/97 10,340 12,122 11,783
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Core Growth Fund commenced operations on January 2, 1996.
3 The Russell 3000 Growth Index is an unmanaged index comprised of the 3000
largest U.S. securities as determined by total market capitalization
and represents approximately 98% of the investable U.S. equity market. The
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds in
the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Core Growth Fund's total return for the last 12 months was -12.52%,
including a decline of 22.14% in the last three months. This compares to the 12
month return of 15.00% by the Russel 3000 Growth Index. Since June of 1996, we
believe market psychology has been decidedly negative on growth stocks, with
smaller companies and high P/E companies bearing the brunt of the selling
pressure. With few exceptions, the Fund's holdings have not experienced any
change in the business fundamentals that made them attractive for purchase
initially.
The Technology sector made up roughly 30% of the Fund and contributed to a
return of -1.28% for the year. Business services remained the second largest
sector at 27% and returned -2.05%. Healthcare accounted for 16% and produced a
return of -2.78%, while the Consumer sector represented 13% and returned -5.21%.
The balance of the Fund included relatively minor exposure in Transportation
(+0.62%), Manufacturing (+0.39%), Financial (0.00%), and Energy (+0.31%)
sectors.
PORTFOLIO HIGHLIGHTS
Of the 92 stocks owned during the last 12 months, 26 advanced more than 10%,
while 43 declined more than 10%. The top five performers were up an average of
78.7%, while the bottom five, all of which were sold, declined an average of
63.0%.
The top five performers included three vastly different technology companies,
one water treatment company, and one oil well equipment company. In the case of
Dell Computer, success was driven by its low cost direct distribution model.
With Electronics For Imaging and McAfee Associates, technological leadership in
their respective fast-growing markets of high-speed color printing and antivirus
software led to financial results that were consistently ahead of expectations.
U.S. Filter continued to consolidate the water filtration industry by making
numerous strategic acquisitions that proved highly additive to the company's
earnings. Varco benefited from the increased utilization of deep water drilling
rigs and the resulting demand for replacement parts and services.
The bottom five performers all announced disappointing financial results caused
by a variety of factors. Shiva's remote access products were effectively made
obsolete by products from bigger and stronger competitors; Fore Systems suffered
from a slow down in demand for their networking products as customers hesitated
to buy in the face of a slew of new competitive products hitting the market;
Sunglass Hut opened too many stores thereby over-saturating the high-priced
sunglass market; Fritz Companies had difficulty digesting a large acquisition in
the transportation logistics market; and Idexx Laboratories flooded their
distributors with veterinary diagnostic instruments in quantities well in excess
of end-user demand, leading to a substantial sales slowdown.
- ------------------------------
TOP FIVE PERFORMERS*
Dell Computer
Electronics For Imaging
McAfee Associates
U.S. Filter
Varco Int'l
- -----------------------------
BOTTOM FIVE PERFORMERS*
Idexx Laboratories
Fritz Companies
Sunglass Hut International
Fore Systems
Shiva
*DURING THE YEAR ENDED MARCH 31, 1997
15
<PAGE>
PBHG LIMITED FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: A diversified portfolio of equity securities of companies that are
believed, by the Adviser, to have superior long-term growth prospects and
potential appreciation.
STRATEGY: The Fund invests in companies under $250 million in market
capitalization or annual revenues. The Fund is currently closed to additional
investment by new or existing shareholders in order to protect its investment
objective.
- --------------------------------------------------------------------------------
PBHG LIMITED FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Limited Fund -9.15%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LIMITED
FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL COMPANY FUNDS
AVERAGE
[LINE GRAPH]
PBHG Russell 2000 Lipper Small Company
Limited Fund Growth Index 3 Funds Average 4
6/30/96 10,000 10,000 10,000
7/96 9,950 8,779 9,135
8/96 10,320 9,429 9,698
9/96 11,011 9,914 10,198
10/96 10,570 9,487 9,992
11/96 10,561 9,751 10,282
12/96 11,082 9,941 10,429
1/97 11,273 10,189 10,691
2/97 10,049 9,574 10,244
3/97 9,085 8,898 9,707
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Limited Fund commenced
operations on July 1, 1996.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by prospectus
or portfolio practice, to companies on the basis of the size of the company.
The performance figures are based on changes in net asset value of the Funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
For the nine months ending March 31, 1997 the Fund's total return was -9.15%
versus the Wilshire Small Cap Growth Index of -7.94%. The Russell 2000 Growth
Index aggregate return was -11.02%, and the aggregate total return for the
Lipper Small Company Funds Average was -9.16%. The Technology, Service and
Consumer sectors each contributed to the decline.
PORTFOLIO HIGHLIGHTS
During the Funds first nine months, of the 100 stocks owned in the portfolio, 39
of these produced a positive return and 61 produced a negative return. The Fund
will typically hold between 70 and 110 stocks of small rapidly growing companies
where we believe superior earnings growth is sustainable. The Fund's five top
performing stocks were up an average of 126%, while the bottom five were down an
average of 64%. The position weighted average trailing twelve months earnings
per share growth of securities held in the Fund is above 50%. Currently the
weighted average market capitalization of the portfolio is below $200 million.
The sector weightings are determined through a process of bottom up stock
picking. At the end of the period, Technology was the largest sector
representing 36% of the portfolio with Service the next largest sector at 23% of
the portfolio.
- ----------------------
TOP FIVE PERFORMERS*
Scopus Technology
Centennial Technology
Consolidated Graphics
Encad
Gadzooks
- -------------------------
BOTTOM FIVE PERFORMERS*
Inference
Act Networks
Unison
Desktop Data
Concentra
*DURING THE YEAR ENDED MARCH 31, 1997
16
<PAGE>
PBHG LARGE CAP 20 FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: A limited number of larger capitalization companies (no more than
20) that have above-average potential for capital appreciation.
STRATEGY: The Fund can invest in companies with market capitalizations in excess
of $1 billion but is currently focused on those in excess of $5 million. These
companies have a strong earnings growth outlook and potential for capital
appreciation in the opinion of the Adviser.
- --------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap 20 -7.40%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
20 FUND, VERSUS THE RUSSELL TOP 200 GROWTH INDEX, AND THE LIPPER GROWTH FUNDS
AVERAGE
[LINE GRAPH]
PBHG Large Russell Top 200 Lipper Growth
Cap 20 Fund Growth Index 3 Funds Average 4
11/30/96 10,000 10,000 10,000
Dec-96 9,841 9,793 9,855
Jan-97 10,462 10,580 10,361
Feb-97 10,002 10,571 10,209
Mar-97 9,261 10,008 9,727
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Large Cap 20 Fund commenced
operations on December 1, 1996.
3 The Russell Top 200 Growth Index is an unmanaged index comprised of those
securities in the Russell Top 200 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Growth Funds Average is an equally weighted bench-mark composed of
mutual funds, each of which normally invests in companies whose long-
term earnings are expected to grow significantly faster than the earnings
of the stocks represented in the major unmanaged stock indexes. The
performance figures are based on changes in net asset value of the funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE
The Large Cap 20 Fund commenced operations on December 1, 1996, and in its four
month existence has generated an aggregate total return of -7.40%. While there
is no index that can exactly serve as a benchmark for the performance of a
concentrated portfolio of 20 stocks, we have determined that the Russell Top 200
Growth Index is the most appropriate comparison because of similarity in market
capitalization. This index has had an aggregate total return of -0.73% over the
same time period as the Fund's existence. We expect the short term volatility of
this concentrated Fund to be substantial, as it has been thus far, since a
significant move in just one or two stocks has a major influence on the overall
portfolio performance.
The Technology sector accounted for roughly 40% of the Fund during the period
and returned -2.96%. Healthcare was next at 17% with a return of -1.32%. Both
Consumer and Business Services sectors represented 15% of the Fund and returned
- - -1.04% and -1.68% respectively. Financial Services was the only other sector
represented, accounting for 4% of the Fund and returning -0.23%.
PORTFOLIO HIGHLIGHTS
The Fund owned 25 different stocks in the last four months but never more than
20 at any one time. The top five performers were up by an average of 14% for the
four month period, while the bottom 5 declined by an average of 28%. The best
performer was Dell Computer where their low cost, direct distribution operating
model provided market share gains in the strong corporate PC market. Microsoft
benefited from a strong product upgrade cycle, e.g. Windows 95 for desktop PC's
and Windows NT for network servers. Intel demonstrated accelerating growth
driven by great demand for faster, more powerful microprocessors. Nike enjoyed
very strong demand from consumers for any and all athletic products bearing the
"swoosh" trademark. This position was subsequently sold however, as we
anticipate a deceleration in the company's growth rate going forward. Lastly,
HealthSouth continued to deliver better than expected financial results as it
moves ahead in its quest to become the only national provider of specialty
medical services.
The bottom five performers were all in the Technology sector. Three of the five,
Cascade, Ascend, and Cisco were sold when a broadbased weakness in the
networking equipment sector became apparent. No deterioration in business trends
were evident at information technology outsourcer Computer Sciences Corp. or at
computer-aided design software maker Parametric Technology, so these positions
were retained.
- ----------------------
TOP FIVE PERFORMERS*
Dell Commuter
Microsoft
Intel
Nike
HealthSouth
- -------------------------
BOTTOM FIVE PERFORMERS*
Cascade Communications
Ascend Communications
Cisco Systems
Computer Sciences Corp.
Parametric Technology
*DURING THE YEAR ENDED MARCH 31, 1997
17
<PAGE>
PBHG LARGE CAP VALUE FUND
OBJECTIVE: Long-term growth of capital and income.
INVESTS IN: A diversified portfolio of equity securities of large capitalization
companies.
STRATEGY: The Fund invests in companies with market capitalizations in excess of
$1 billion which, in the Advisers' opinion, are undervalued or overlooked by the
market. In selecting investments for the Fund, the Advisers emphasize
fundamental investment value and consider factors such as the relationship of a
company's potential earning power to the current market price of its stock;
continuing dividend income and the potential for increased dividend growth; low
price/earnings ratio relative to either that company's historical results or the
current ratios for other similar companies; and potential for favorable business
developments.
- --------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Large Cap Value 1.10%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP
VALUE FUND, VERSUS THE RUSSELL 1000 VALUE INDEX, AND THE LIPPER GROWTH & INCOME
FUNDS AVERAGE
[LINE GRAPH]
PBHG Large Cap Lipper Growth & Income Russell 1000
Value Fund Funds Average 4 Value Index 3
12/31/96 10,000 10,000 10,000
Jan-97 10,240 10,485 10,431
Feb-97 10,430 10,639 10,487
Mar-97 10,110 10,256 10,114
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not been annualized. The PBHG Large Cap Value Fund commenced
operations on January 2, 1997.
3 The Russell 1000 Value Index is an unmanaged index comprised of those
securities in the Russell 1000 Index with lower price-to-book ratios and
lower forecasted growth values. The Index reflects the reinvestment of
income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
4 The Lipper Growth and Income Funds Average is an equally weighted benchmark
composed mutual funds, each which combines growth of earnings with an income
requirement for level and/or rising dividends. The performance figures are
based on changes in net asset value of the Funds in the Index with all
capital gains distributions and income dividends reinvested.
PERFORMANCE
For its initial quarter ending March 31, 1997, The Fund's aggregate total return
was 1.10% versus 2.45% for the Russell 1000 Value Index, 2.54% for the S&P 500,
and 1.13% for the Lipper Growth and Income Funds Average.
The Fund began its existence on January 2, 1997 and the initial contributions
were received during the strongest month of the quarter as the S&P advanced 6.1%
in January. Investing these contributions in an exceptionally strong market
hindered the Fund's performance as it lagged the Russell 1000 Value Index and
the S&P 500 by 2.35% and 3.73% respectively during the month of January. As the
market advance slowed in February and declined in March, the Fund outperformed
both the Russell 1000 Value Index and the S&P 500 by an average of 70 and 124
basis points respectively in each month.
During the quarter, the stock characteristics which contributed to
performance were very large capitalization, moderate dividend yield, and high
relative price/earnings ratios. If the S&P 500 were separated into five
quintiles, only the quintile composed of the largest stocks outperformed the
S&P 500 Index, whereas all four of the remaining quintiles underperformed.
Similarly, if the S&P 500 were separated into five quintiles by relative
price/earnings ratios, the strongest performance came from the two quintiles
with the highest relative price/earnings ratios, an area off limits to most
value portfolios.
PORTFOLIO HIGHLIGHTS
The Fund's heaviest weightings were in the Financial, Energy and Capital Goods
sectors. In the first two months of the quarter, financial stocks outperformed
the market as bank earnings were strong and a number of banks announced programs
to buy back substantial amounts of stock. In March the financial stocks weakened
as fears of an overheating economy and higher interest rates raised concerns
over continued earnings gains. In spite of the weakness in March, the Fund's top
two performers, Nationwide Financial Services and Equitable of Iowa were
financial stocks.
As fears of higher inflation arose in March, the Fund's overweighting in energy
stocks contributed to outperformance in a weak market.
In addition to the two financial stocks, the Fund's top performers included
Dillard Department Stores and two health care stocks, Aetna and MedPartners,
Inc. In the case of the former, the outlook for pricing by health maintenance
organizations improved and MedPartners, a physician practice management company,
recovered from an overly depressed valuation.
On the negative side, the worst performing sectors were Utilities, Capital
Goods, and Basic Materials. The Fund's two poorest performers, Rohm and Haas
(chemicals) and James River (paper), both basic material producers, declined as
a result of lower earnings expectations. Avnet, a capital goods-technology
company, failed to meet earnings expectations and declined in a weak technology
environment. Rounding out the list of the five worst performers were Burlington
Northern Santa Fe Corp. (railroad) with temporarily disappointing earnings due
to adverse weather conditions and NYNEX Corp. (telephone utility) which was
negatively affected by higher interest rates.
Although interest rate concerns may cause some further near term concerns for
financial stocks, the fundamental earnings outlook remains positive for this
sector. Similarly, we believe that selected capital goods producers have
significant growth potential over the coming several years. With the overall
market outlook being somewhat murky, we believe that emphasis on individual
stock selection will be the key to performance in 1997.
- -------------------------------
TOP FIVE PERFORMERS*
Nationwide Financial Services
Equitable of Iowa
Dillard Department Stores
Aetna
MedPartners
- ------------------------------
BOTTOM FIVE PERFORMERS*
Rohm & Haas
James River
Avnet
Burlington Northern Santa Fe
NYNEX
*DURING THE YEAR ENDED MARCH 31, 1997
18
<PAGE>
PBHG INTERNATIONAL FUND
OBJECTIVE: Long-term capital appreciation.
INVESTS IN: Non-U.S. companies.
STRATEGY: The focus of the Fund was on three areas: Europe, the Far East and the
Emerging markets. It was underweighted throughout the year in Japan.
- --------------------------------------------------------------------------------
PBHG INTERNATIONAL FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
Annualized Inception
1 Year to Date 2
- --------------------------------------------------------------------------------
PBHG International Fund 6.73% 4.49%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG
INTERNATIONAL FUND, VERSUS THE F.T. S&P WORLD INDEX, NON-U.S., IN U.S. DOLLARS
[LINE GRAPH]
PBHG F.T. S&P World Index, Non-U.S.,
International Fund in U.S. Dollars 4
6/30/94 10,000 10,000
3/95 9,203 10,007
3/96 10,634 11,274
3/97 11,350 11,466
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG International Fund commenced operations on June 14, 1994.
3 The F.T. S&P World Index, Non-U.S., in U.S. Dollars consists of 1,749 of the
largest international companies which have been selected based on
market capitalization, ability to be purchased by international investors
and the degree to which the companies reflect the weightings of industries
within their respective countries. The returns of the Index reflect the
reinvestment of income dividends and capital gains distributions.
PERFORMANCE
For the year ended March 31, 1997, the Fund produced a return of 6.7% versus
1.7% returned by its benchmark, the FT S&P World Index, Non- U.S., in U.S.
Dollars. On March 31, 1997 the top five country weightings were Japan, Germany,
UK, France and Switzerland.
PORTFOLIO HIGHLIGHTS
The year was marked by the strong performance of markets in Europe and Latin
America. The nascent recovery in the Japanese economy and stock market faded and
markets elsewhere in the Far East were tainted by problems in Korea and Thailand
and drifted for much of the year.
During the year we increased exposure to the European markets which were looking
attractive on several counts. Firstly, progress towards European Monetary Union
(EMU) led to fiscal discipline -- governments cut spending to reduce their
budget deficits and this allowed interest rates to fall, making equities more
attractive investments. In addition, companies in Europe began to restructure
and rationalize their operations and this enhanced their earnings outlook.
Finally, as economies emerged from recession we considered that earnings
forecasts were too conservative. Indeed, we have seen several earnings surprises
on the upside and this also lifted stock prices. The Fund was overweight in
Italy and Spain through 1996 when the benefits of lower interest rates came
through and in 1997 shifted focus to Germany and Switzerland, where there was
the widest scope for rationalization. Although, underweighted in the UK, market
returns were good reflecting the strong economy and rising currency versus the
U.S. dollar.
Investments in Japan and the Far East saw poor returns during the year. The
modest strengthening of the Japanese economy in early 1996 faded later in the
year. Stocks were sold as earnings expectations fell and the currency weakened
as cash flowed out of Yen assets. Attempts to resolve the problems of the
financial sector which seemed to be making progress early in the year faltered
when several high profile bankruptcies caused the Bank of Japan to pull back
from its firm position on poorly managed institutions. As a result, the market
ended the year down 26.1% in dollars. The Fund remained overweighted in the
market for the year and stock selection outperformed the index but any exposure
was still a negative. Elsewhere in South East Asia returns were mixed. Weak
economies and stock markets in Korea and Thailand and concerns over the handover
of Hong Kong to China caused many investors to reduce their exposure to the
area. In the case of Hong Kong they also took profits out of the market in early
1997 following its strong rise in 1996. We are firm believers that the region
will demonstrate steady growth and investment potential in the year ahead and
will continue with an overweighted exposure.
Investments in the Emerging Markets produced strong returns, reflecting the
recovery from recession following the crisis in Mexico in 1994. In most markets
growth has returned to sustainable levels, inflation is moderate and currencies
are stable. Recently, the prospect of new privatizations, particularly in
Eastern Europe, has rekindled the interest of investors.
During the year, four of the best performing stocks were in Europe and primarily
in sectors sensitive to economic growth: engineering, electronics and motors,
and one dairy producer. The remaining stock was a retailer in Argentina. The
underperforming stocks were split between Japan and Singapore. In Japan the
stocks were a bank and two industrials; the banks still failing to solve their
long-standing problems while the weak economy continued to disappoint industrial
stocks.
The sector allocations within the Fund have moved on in Europe from interest
rate sensitive to cyclical stocks, sensitive to economic recovery. Real estate
companies and financials continue to be the main targets in the Far East with
the exception of Japan where we have introduced more manufacturing stocks which
will benefit from the weaker Yen.
- -------------------------------
TOP FIVE PERFORMERS*
Disco - Argentina
Telecom Italia Mobile - Italy
BMW - Germany
Volkswagen - Germany
Parmalat - Italy
- -------------------------------
BOTTOM FIVE PERFORMERS*
Sanwa Bank - Japan
Nippon Sanso - Japan
Keppel - Singapore
Itochu - Japan
Singapore Land - Singapore
*DURING THE YEAR ENDED MARCH 31, 1997
19
<PAGE>
PBHG CASH RESERVES FUND
OBJECTIVE: Preserve principal value & maintain a high degree of liquidity while
providing current income.
INVESTS IN: Money market securities.
STRATEGY: The Fund's strategy is to be fully invested in a diversified portfolio
of short-term, high-quality money market securities.
PBHG CASH RESERVES FUND
PERFORMANCE
For the twelve months ended March 31, 1997, the PBHG Cash Reserves Fund
portfolio yielded 4.9% compared to 4.8% for the Lipper Money Market Average. The
key to this higher yield was managing the average maturity of the portfolio
during periods when the market anticipated interest rate moves, and taking
advantage of higher yielding sectors.
MARKET HIGHLIGHTS
The Federal Reserve held short term interest rates steady for nearly all of the
past twelve months. With short term rates at 5.25%, yield on longer maturity
instruments moved with the ebbs and flows of market psychology. Signs of
stronger economic growth, even without the shadow of inflation, prompted the Fed
to shift their bias toward raising rates later in the year.
With stronger economic trends throughout the rest of 1996, the credit cycle
remained healthy. Money market funds sailed smoothly through the year without
exposure to credit defaults, until early 1997, when Mercury Finance, a lender in
the higher risk "sub-prime" sector to less creditworthy consumers, faced a
liquidity crisis and was unable to repay its commercial paper investors. The
mutual fund sponsors, which distribute the exposed funds, digested the problem
securities as they have in the past, and no shareholders lost money. Private
investors handled their problems quietly. In all, the company had $500 million
in commercial paper outstanding.
One of the more interesting developments in the year involved the U.S. Treasury.
The Treasury developed plans to issue its first-ever indexed bond, a floating
rate security whose return is tied to changes in the rate of U.S. inflation. On
the surface, although floating rate securities are attractive for money market
mutual funds, we do not believe that these new securities are appropriate
stable-value investments for the PBHG Cash Reserves Fund and will not purchase
them in this Fund.
The Fed became increasingly outspoken by the beginning of 1997, and all but
pre-announced the March 25, 1997 rate increase. The 25 basis point increase at
the end of the Fund's fiscal year was well anticipated by the market.
PORTFOLIO HIGHLIGHTS
For most of the second quarter of 1996, we sought extra yield by maintaining a
longer average maturity in the Fund. However, unusually strong economic data in
the second quarter lead us to believe a Fed rate hike was near. Accordingly, we
shortened maturities in the Fund to 46 days by the end of June. At that time,
the Fund held 88% of its assets in commercial paper, while we looked to boost
yield from the Fund's 7% holding in floating rate notes.
In the second half of the year, while remaining heavily weighted in commercial
paper, we looked for opportunities to lengthen maturities when we felt the
market prices fully discounted the expected Fed actions. In order to maintain
high liquidity and quality, we eliminated illiquid securities in late 1996, and
as a policy will no longer purchase them for the Fund.
During the first quarter of 1997, we reduced our weighting in commercial paper
(down to 73%) in order to take advantage of yield premiums available in
repurchase agreements, which made up 15% of the portfolio at quarter-end. Also,
we shortened the Fund's weighted average maturity during the first quarter in
anticipation of the Fed's widely anticipated rate hike.
In summary, it was a year when short-term interest rates did not vary beyond a
narrow band; consequently, there were few opportunities for money market funds
to differentiate themselves. The PBHG Cash Reserves Fund enjoyed healthy cash
inflows throughout this time, increasing net assets more than threefold. These
asset flows and a favorable investment environment allowed the Fund to
outperform its competitors while closely tracking the minor fluctuations in
short term rates.
20
<PAGE>
PBHG TECHNOLOGY & COMMUNICATIONS FUND
OBJECTIVE: Long-term growth of capital.
INVESTS IN: Companies which rely extensively on the technology or communications
in their product development and operations.
STRATEGY: The Fund's strategy is to be invested in technology and related
companies exhibiting extraordinary rates of growth in earnings and revenue with
high profitability levels. The portfolio's 72 holdings as of year end March 31,
range in market cap from $40 million to $11.9 billion, with the current average
and median market capitalization of $1.55 billion and $587 million.
- --------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN 1
- --------------------------------------------------------------------------------
One year Annualized Inception
Return to Date 2
- --------------------------------------------------------------------------------
PBHG Technology & Communications Fund 19.59% 30.52%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG TECHNOLOGY
& COMMUNICATIONS FUND, VERSUS THE PACIFIC STOCK EXCHANGE HIGH TECHNOLOGY INDEX,
AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE
[LINE GRAPH]
Pacific Stock Lipper Science &
PBHG Technology & Exchange High Technology
Communications Fund Technology Index 3 Funds Average 4
9/30/95 10,000 10,000 10,000
12/95 11,602 9,919 9,431
3/96 12,483 9,899 9,473
6/96 14,973 10,245 10,164
9/96 16,644 10,945 10,782
12/96 17,917 11,955 11,334
3/97 14,927 11,955 10,359
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 The PBHG Technology & Communications Fund commenced operations on October 2,
1995.
3 The Pacific Stock Exchange High Technology Index is a price-weighted index of
the top 100 U.S. technology stocks. The Index reflects the reinvestment
of income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
4 The Lipper Science & Technology Funds Average is an equally weighted benchmark
composed of mutual funds, each of which normally invests more than 65% of
its equity portfolio in science and technology stocks. The performance figures
are based on changes in net asset value of the funds in the Index with all
capital gains distributions and income dividends reinvested.
PERFORMANCE
For the twelve months ending March 31, 1997, the Fund produced a 19.59% total
return versus 20.27% for its benchmark, the Pacific Stock Exchange High
Technology Index. The Fund outperformed the average return of a technology fund
of 7.03%, as measured by the Lipper Science and Technology Funds Average.
Information technology services was the best performing subsector over the past
year as the demand for professional consulting, outsourcing, systems integration
and programming services remains extremely robust as a result of corporations
needing outside help with major informations systems' decisions and
implementation. The remaining subsectors had disparate results across the year,
with networking and software industries performing well early in the fiscal
year, giving way to dramatic underperformance later as many companies
experienced weak earnings and revenue results (Premisys, Cascade Communications,
Fore Systems). Semiconductor and semiconductor equipment stocks underperformed
early on, but rallied off the July 1996 technology lows as the inventory
correction and semiconductor capital spending cycles appeared to trough toward
the 1996 calender year end. The Fund was underweighted in these stocks. The
Fund's strategy is to identify the best secular growth opportunities that are
exceeding informed earnings and revenue expectations, and the semiconductor
sector did not fit this criteria for most of the year. The average company in
the portfolio has grown earnings 59.4% over the past 12 months with a 21.5%
return on equity.
PORTFOLIO HIGHLIGHTS
The Fund's top five performers produced an average gain in excess of 100% and
all experienced dramatically better than expected earnings and subsequent
positively revised earnings and growth expectations. Viasoft, a provider of
software and service to automate COBOL application software systems, is a
beneficiary of the "Year 2000" problem. With the exception of Act Networks, the
bottom five performers reported disappointing earnings results and have been
sold out of the Fund.
Going forward, the long term secular demand for technology expenditures is
continuing at a strong pace. Despite recent turbulent declines in stock prices
and many market pundits predicting a dire outlook for the sector, current
capital spending surveys are actually predicting a better capital spending
environment for technology companies in 1997 versus 1996. Most recently, the
networking sector and other software infrastructure-related companies, such as
the database vendors, have been reporting disappointing results. The likely
culprit is a lengthening of the evaluation cycles associated with confusion over
new product cycles and the complexity of new information technology systems, as
opposed to a macroeconomic decline in demand.
A number of fundamental trends should continue to propel various technology
segments. The growing influence of the Internet, the increasing number of
individuals and organizations desirous of connections to various wide area
networks, and the shortage of bandwidth for communications will continue to
drive the demand for networking products. We believe the accelerated demand for
outsourced solutions in information technology will continue to shift resources
into the integrated consulting and service provider companies. Applications
software appears to remain the stimulus for improved business productivity.
While price corrections in technology seem inevitable, we feel the probability
of strong post-corrections recovery remains very high in the technology sector.
- -------------------------
TOP FIVE PERFORMERS*
Viasoft
Consolidated Graphics
ADC Telecommunications
Ciber
Electronics For Imaging
- --------------------------
BOTTOM FIVE PERFORMERS*
ACT Networks
TCSI
ASTEA
California Amplifier
Premysis Communications
*DURING THE YEAR ENDED MARCH 31, 1997
21
<PAGE>
================================================================================
PBHG STRATEGIC SMALL COMPANY FUND
OBJECTIVE: Growth of capital.
INVESTS IN: Small companies having a market capitalization or annual revenues of
up to $750 million.
STRATEGY: The Fund invests in securities poised for rapid and dynamic growth
("growth companies") or securities that are undervalued or overlooked by the
market ("value securities") depending on the Advisers' view of current economic
or market conditions and their long-term investment outlook.
- --------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURN 1
- --------------------------------------------------------------------------------
Inception
to Date 2
- --------------------------------------------------------------------------------
PBHG Strategic Small
Company Fund -11.40%
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG STRATEGIC
SMALL COMPANY FUND, VERSUS THE RUSSELL 2000 GROWTH INDEX, AND THE LIPPER SMALL
COMPANY FUNDS AVERAGE
[LINE GRAPH]
PBHG Stategic Russell 2000 Lipper Small
Small Company Growth Company Funds
Fund Index 3 Average 4
12/31/96 10,000 10,000 10,000
Jan-97 10,120 10,250 10,251
Feb-97 9,350 9,631 9,823
Mar-97 8,860 8,951 9,308
1 Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
2 Total return has not be annualized. The PBHG Strategic Small Company Fund
commenced operations on January 2, 1997.
3 The Russell 2000 Growth Index is an unmanaged index comprised of those
securities in the Russell 2000 Index with a greater-than-average
growth orientation. The Index reflects the reinvestment of income dividends
and capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
4 The Lipper Small Company Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by prospectus
or portfolio practice, to companies on the basis of the size of the company.
The performance figures are based on changes in net asset value of the Funds
in the Index with all capital gains distributions and income dividends
reinvested.
PERFORMANCE-GROWTH
Because the Strategic Small Company Fund made its debut in January, 1997, the
Fund has only booked one calendar quarter of financial results. Since inception,
the Fund's aggregate total return was -11.4% at March 31, 1997, versus the
Russell 2000 Index aggregate total return of -5.2% and the Lipper Small Company
Fund Index of -9.5%. The total return for the growth portion of the portfolio
was -21.8%, as early positive results in January were more than erased by a
severe valuation correction in the small growth portion of the Fund in February
and March. The Fund is structured to allow its assets to be proactively
allocated between the growth style employed by Pilgrim Baxter and the value
style utilized by its affiliate, Newbold's Asset Management, Inc. Throughout the
first period of operations, this allocation was established to be a neutral
50/50 based on the flow of funds into the portfolio. During the period, value
performed better than growth, and the balance of these two styles within the
Fund provided some moderating impact during a generally difficult stock market
environment.
PERFORMANCE-VALUE
For the quarter ended March 31, 1997 the Fund's aggregate total return for the
value portion of the portfolio was -0.33% versus the Russell 2000 Index
aggregate total return of -5.17%. Since the Fund's initial launch date was
January 2, 1997, investment returns for the March quarter and fiscal year ending
March 31, 1997 are identical.
While the S&P 500 eked out a modest positive return of 2.68% for the first
calendar quarter, small cap stocks fared poorly. Most of the damage to small
cap investors was inflicted throughout the month of March, as the markets
correctly began anticipating the Fed tightening that didn't actually
occur until the last week of the month. The early stages of a negative change
in monetary policy are always difficult for investors. However, we should note
that market volatility has created a number of unusually interesting
investment opportunities for us and we are eagerly laying the groundwork
for what we anticipate to be more favorable results when the stock market
eventually recovers.
PORTFOLIO HIGHLIGHTS-GROWTH
Looking first at the growth portion of the Fund, the technology sector
represented the most important single exposure. Technology represented 40% of
the assets invested in the growth style, but only 25% of the total portfolio.
Well represented in the category are rapidly growing young software,
telecommunications and semiconductor companies. Another significant growth
sector exposure is Business Services, with many excellent young companies
enjoying success in such diverse activities as business process re-engineering,
temporary staffing, telephone call center management and prison management. Two
major themes of the 1990's are the pervasive spread of technology driven
solutions throughout the economy, and the renewed focus of major enterprises on
their core competencies through the outsourcing of non-core functions. The
growth portfolio is well positioned to take advantage of these opportunities.
While still a very young Fund, early growth company winners include Learning
Tree International (training programs in information technology), United Waste
Systems (waste management), and Eagle USA (freight forwarding.) The most
significant declines and loss realizations occur when a company fails to achieve
its anticipated earnings. During the quarter, Verlink, Clintrials and Medic
Computer were examples of companies eliminated because of earnings
disappointments. We remain convinced that the earnings prospects for our growth
companies are robust, and that investors will be well rewarded for their
ownership.
PORTFOLIO HIGHLIGHTS-VALUE
The small cap value investment process is driven chiefly by bottom-up
considerations, although we do take into account broad macro-economic trends
that influence the outlook for certain industries. Although our value approach
emphasizes stocks with below average valuations, our methodology also includes
additional quality and growth factors such as the expected future growth in
earnings and dividends, the recent pattern of earnings estimate revisions and
subjective judgements regarding the quality of a company's business franchise.
As a result, our portion of the Fund should look similar to the Russell 2000
benchmark in the quality and growth characteristics of its holdings, but the
overall valuation of the Fund should be lower.
For the past quarter, our good relative results were largely produced by
positive stock selection across a broad range of industries. Notable holdings
included Greenwhich Air Services, Southdown, Onbancorp, Amerus Life, Silgan
Holdings, Brylane and Knightsbridge Tankers. At this time, we are most
enthusiastic about the near-term and long-term prospects for the aviation supply
and services industry, where the cyclical upturn bodes well for sales and
earnings over the next 1-3 years. We look forward to reporting further on our
potential investment success in this area as results unfold.
- ---------------------------
TOP FIVE PERFORMERS*
Amerus Life Holdings
Onbancorp
Greenwich Air Services
Silgan Holdings
Living Centers of America
- --------------------------
BOTTOM FIVE PERFORMERS*
Miller Industries
Renaissance Solutions
Veritas
Vanstar
Verilink
*DURING THE YEAR ENDED MARCH 31, 1997
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND DIRECTORS OF
THE PBHG FUNDS, INC.:
We have audited the accompanying statements of net assets of The PBHG
Funds, Inc. (the "Fund") (comprising, respectively, PBHG Growth Fund, PBHG
Emerging Growth Fund, PBHG Core Growth Fund, PBHG Select Equity Fund, PBHG Large
Cap Growth Fund, PBHG Technology & Communications Fund, PBHG Limited Fund, PBHG
Large Cap 20 Fund, PBHG Large Cap Value Fund, PBHG Strategic Small Company Fund,
PBHG International Fund, and PBHG Cash Reserves Fund) as of March 31, 1997, and
the related statements of operations, statements of changes in net assets and
financial highlights for the year (or period) then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The statements of
changes in net assets for the year (or period) ended March 31, 1996 and the
financial highlights of The PBHG Funds, Inc. for each of the four years (or
periods) ended March 31, 1996 were audited by other auditors, whose reports
dated April 26, 1996 and April 25, 1994 expressed unqualified opinions thereon.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatment. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
March 31, 1997, by correspondence with the custodians and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the aforementioned funds constituting The PBHG Funds, Inc. as of March
31, 1997 and the results of their operations, changes in their net assets, and
financial highlights for the year (or period) then ended, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 23, 1997
23
<PAGE>
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Growth Fund
CONSUMER - 13%
TECHNOLOGY - 32%
HEALTHCARE - 15%
SERVICES - 23%
FINANCIAL - 4%
ENERGY - 5%
CASH - 8%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 92.1%
APPAREL -- 2.6%
Nautica Enterprises* 2,089,400 $ 52,496
Tommy Hilfiger* 1,333,100 69,654
- --------------------------------------------------------------------------------
122,150
- --------------------------------------------------------------------------------
APPLICATIONS SOFTWARE/SERVICES -- 0.2%
Citrix Systems* 779,800 10,332
- --------------------------------------------------------------------------------
10,332
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 0.8%
Pure Atria* 2,173,400 37,084
- --------------------------------------------------------------------------------
37,084
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.3%
Biogen* 1,509,500 56,418
Idexx Laboratories* 130,000 1,820
- --------------------------------------------------------------------------------
58,238
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.6%
Clarify* 1,057,500 25,512
Remedy* 1,231,500 47,105
- --------------------------------------------------------------------------------
72,617
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 3.4%
Baan, ADR* 809,700 36,133
Legato Systems* 880,400 14,747
Peoplesoft* 2,647,600 105,904
- --------------------------------------------------------------------------------
156,784
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.0%
Sterling Commerce* 1,645,800 47,728
- --------------------------------------------------------------------------------
47,728
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 2.3%
Aames Financial 1,209,050 24,483
ContiFinancial* 1,784,100 55,307
Money Store (The) 1,453,400 30,521
- --------------------------------------------------------------------------------
110,311
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CONTRACT MANUFACTURING -- 1.7%
Kent Electronics* 721,000 $ 16,583
Sanmina* 1,344,200 60,153
- --------------------------------------------------------------------------------
76,736
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.0%
Quintiles Transnational* 859,900 46,327
- --------------------------------------------------------------------------------
46,327
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 1.9%
Corrections Corp. of America* 3,671,800 89,041
- --------------------------------------------------------------------------------
89,041
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 0.3%
P-COM* 552,600 14,368
- --------------------------------------------------------------------------------
14,368
- --------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.9%
Cognos* 1,671,000 43,446
- --------------------------------------------------------------------------------
43,446
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 5.1%
Cadence Design Systems* 2,322,000 79,819
Cognex* 996,000 18,924
Parametric Technology* 2,151,900 97,105
Waters* 1,615,000 43,201
- --------------------------------------------------------------------------------
239,049
- --------------------------------------------------------------------------------
DRUGS -- 1.2%
Dura Pharmaceuticals* 1,521,500 54,394
- --------------------------------------------------------------------------------
54,394
- --------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 1.9%
Apollo Group, Cl A* 2,228,000 54,586
Devry* 1,457,800 32,072
- --------------------------------------------------------------------------------
86,658
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.2%
Accustaff* 3,308,565 55,418
- --------------------------------------------------------------------------------
55,418
- --------------------------------------------------------------------------------
ENERGY-EXPLORATION & PRODUCTION -- 3.0%
Chesapeake Energy* 4,896,100 102,206
Global Marine* 1,699,500 36,539
- --------------------------------------------------------------------------------
138,745
- --------------------------------------------------------------------------------
ENERGY-SERVICE/EQUIPMENT -- 1.5%
Tidewater 745,000 34,270
Varco International* 1,395,000 34,875
- --------------------------------------------------------------------------------
69,145
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.7%
Ionics* 1,199,100 55,608
United Waste Systems* 1,410,400 52,537
US Filter* 2,584,300 79,790
USA Waste Services* 799,980 28,399
- --------------------------------------------------------------------------------
216,334
- --------------------------------------------------------------------------------
24
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
GRAPHIC/IMAGE PROCESSING -- 1.9%
Electronics for Imaging* 2,252,800 $ 89,830
- --------------------------------------------------------------------------------
89,830
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 0.4%
HCIA* 1,161,500 19,455
- --------------------------------------------------------------------------------
19,455
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 2.3%
CBT Group* 1,201,500 59,925
Gartner Group, Cl A* 2,183,500 47,218
- --------------------------------------------------------------------------------
107,143
- --------------------------------------------------------------------------------
INFORMATION/FINANCIAL SERVICES -- 1.0%
Transaction Systems Architects* 1,759,600 48,389
- --------------------------------------------------------------------------------
48,389
- --------------------------------------------------------------------------------
INSURANCE -- 2.0%
HCC Insurance Holdings 1,993,900 48,851
Vesta Insurance Group 1,240,350 44,187
- --------------------------------------------------------------------------------
93,038
- --------------------------------------------------------------------------------
LODGING -- 1.9%
Doubletree* 1,279,100 45,408
Prime Hospitality* 2,675,800 41,809
- --------------------------------------------------------------------------------
87,217
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 0.7%
Compdent* 447,400 12,527
Orthodontic Centers of America* 1,551,700 20,948
- --------------------------------------------------------------------------------
33,475
- --------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 1.0%
Catalina Marketing* 1,147,000 46,597
- --------------------------------------------------------------------------------
46,597
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.5%
Thermo Cardiosystems* 1,259,950 24,254
- --------------------------------------------------------------------------------
24,254
- --------------------------------------------------------------------------------
M-DICAL EQUIPMENT -- 1.4%
Coherent* 701,100 33,521
Lunar* 904,000 30,962
- --------------------------------------------------------------------------------
64,483
- --------------------------------------------------------------------------------
NETWORKING -- 1.8%
Ascend Communications* 1,240,800 50,563
FORE Systems* 2,233,600 33,504
- --------------------------------------------------------------------------------
84,067
- --------------------------------------------------------------------------------
NETWORKING SECURITY -- 0.7%
Security Dynamics Technologies* 1,295,900 31,750
- --------------------------------------------------------------------------------
31,750
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
NON-DURABLES -- 1.5%
Blyth Industries* 896,300 $ 32,379
Rexall Sundown* 1,366,200 35,009
- --------------------------------------------------------------------------------
67,388
- --------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 1.6%
Oxford Health Plans* 1,247,800 73,152
- --------------------------------------------------------------------------------
73,152
- --------------------------------------------------------------------------------
PATIENT CARE-HOSPITAL -- 1.2%
Health Management Associates, Cl A* 2,331,200 55,366
- --------------------------------------------------------------------------------
55,366
- --------------------------------------------------------------------------------
PATIENT CARE-LONG TERM -- 1.5%
Genesis Health Ventures* 833,600 26,050
Multicare* 2,365,400 44,647
- --------------------------------------------------------------------------------
70,697
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 0.8%
Total Renal Care Holdings* 1,260,000 38,273
- --------------------------------------------------------------------------------
38,273
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.4%
Express Scripts* 1,028,800 36,780
Omnicare 1,295,500 30,444
- --------------------------------------------------------------------------------
67,224
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.9%
Pediatrix Medical Group* 650,700 21,392
PhyCor* 2,522,112 68,728
- --------------------------------------------------------------------------------
90,120
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.9%
Clear Channel Communications* 3,187,800 136,677
- --------------------------------------------------------------------------------
136,677
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.4%
Boston Chicken* 1,280,100 39,043
Papa John's International* 1,071,975 28,273
- --------------------------------------------------------------------------------
67,316
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 2.2%
CDW Computer Centers* 999,200 45,026
Global DirectMail* 997,200 17,326
MSC Industrial Direct* 1,302,400 37,932
- --------------------------------------------------------------------------------
100,284
- --------------------------------------------------------------------------------
RETAIL-GENERAL -- 1.7%
Dollar Tree Stores* 819,100 30,307
Proffitt's* 1,283,800 48,463
- --------------------------------------------------------------------------------
78,770
- --------------------------------------------------------------------------------
RETAIL-HOME FURNISHINGS -- 1.3%
Bed Bath & Beyond* 2,543,500 61,521
- --------------------------------------------------------------------------------
61,521
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 0.8%
US Office Products* 1,440,500 35,652
- --------------------------------------------------------------------------------
35,652
- --------------------------------------------------------------------------------
25
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 1.3%
General Nutrition* 2,872,900 $ 58,176
- --------------------------------------------------------------------------------
58,176
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.6%
Altera* 2,644,000 113,692
DSP Communications* 2,110,200 20,311
Linear Technology 749,600 33,170
Microchip Technology* 3,151,650 94,550
- --------------------------------------------------------------------------------
261,723
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 2.6%
McAfee Associates* 1,808,787 80,039
Saville Systems ADR* 1,411,200 40,572
- --------------------------------------------------------------------------------
120,611
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.1%
Cambridge Technology Partners* 2,301,900 53,231
- --------------------------------------------------------------------------------
53,231
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 1.9%
ADC Telecommunications* 2,364,000 63,533
Adtran* 900,700 22,518
- --------------------------------------------------------------------------------
86,051
- --------------------------------------------------------------------------------
TELEMARKETING -- 2.1%
Apac Teleservices* 1,741,300 45,274
Sitel* 2,590,100 34,643
TeleTech Holdings* 833,000 16,452
- --------------------------------------------------------------------------------
96,369
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.6%
Concord EFS* 1,984,225 37,204
National Data 1,733,300 61,316
PMT Services* 1,955,600 21,512
- --------------------------------------------------------------------------------
120,032
- --------------------------------------------------------------------------------
V-ICE/CALL TRANSACTION PROCESSING -- 1.5%
Aspect Telecommunications* 745,100 14,529
Comverse Technology* 1,352,500 53,424
- --------------------------------------------------------------------------------
67,953
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $4,192,078) 4,281,189
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.3%
Greenwich
6.61%, dated 03/31/97, matures 04/01/97,
repurchase price $276,489,951
(collateralized by FNMA obligations,
total par value $314,320,011,
6.00%-9.50%, 06/01/02 - 04/01/26:
total market value $281,969,031) (A) $276,439 276,439
J.P. Morgan
6.61%, dated 03/31/97, matures
04/01/97, repurchase price
$61,017,574 (collateralized
by GNMA obligations, total par
value $72,690,888,
6.00%-7.50%, 07/15/22 - 02/20/27:
total market value $62,250,877) (A) 61,006 61,006
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION VALUE (000)
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $337,445) $ 337,445
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.4%
(COST $4,529,523) $4,618,634
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.6%
Other Assets and Liabilities, Net 28,495
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized 400 million
shares -- $0.001 par value) based on 220,051,159
outstanding shares of common stock 4,854,615
Fund Shares of Trust Class (authorized
200 million shares --$0.001 par value)
based on 617,612 outstanding shares of
common stock 15,843
Accumulated net realized loss on investments (312,440)
Net unrealized appreciation on investments 89,111
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $4,647,129
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE -- PBHG CLASS $21.06
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE -- TRUST CLASS $21.03
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
26
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Emerging Growth Fund
CONSUMER - 12%
TECHNOLOGY - 40%
HEALTHCARE - 15%
SERVICES - 14%
FINANCIAL - 1%
ENERGY - 1%
INDUSTRIAL - 2%
TRANSPORTATION - 3%
CASH - 12%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 88.3%
APPAREL -- 3.5%
North Face* 404,000 $ 6,717
St. John Knits 459,700 19,882
Wolverine World Wide 408,000 14,892
- --------------------------------------------------------------------------------
41,491
- --------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 1.0%
Eltron International* 224,700 4,410
Trident International* 360,300 7,116
- --------------------------------------------------------------------------------
11,526
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 1.2%
Pure Atria* 807,194 13,773
Rational Software* 34,942 721
- --------------------------------------------------------------------------------
14,494
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 0.7%
Meridian Diagnostics 292,300 3,215
Serologicals* 380,250 5,704
- --------------------------------------------------------------------------------
8,919
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.6%
Clarify* 558,900 13,483
Pegasystems* 296,600 5,969
Scopus Technology* 503,150 15,094
Vantive* 443,300 9,088
- --------------------------------------------------------------------------------
43,634
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 4.1%
Advent Software* 250,900 5,520
Datastream Systems* 335,500 5,368
Documentum* 353,600 6,542
Forte Software* 508,300 11,691
HNC Software* 162,800 4,253
Legato Systems* 727,600 12,187
Unison Software* 467,450 2,980
- --------------------------------------------------------------------------------
48,541
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
COMMERCIAL SERVICES -- 1.3%
Consolidated Graphics* 489,500 $ 14,012
Ultrak* 71,600 1,289
- --------------------------------------------------------------------------------
15,301
- --------------------------------------------------------------------------------
COMMUNICATION SERVICE -- 0.4%
Premiere Technologies* 244,200 4,731
- --------------------------------------------------------------------------------
4,731
- --------------------------------------------------------------------------------
COMPONENTS -- 2.7%
II-VI* 510,600 12,637
Proxim* 324,300 5,432
Smart Modular* 540,600 12,839
WPI Group* 301,100 1,882
- --------------------------------------------------------------------------------
32,790
- --------------------------------------------------------------------------------
CONTRACT DRILLING -- 0.5%
Atwood Oceanic* 101,600 6,312
- --------------------------------------------------------------------------------
6,312
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.9%
Parexel International* 621,600 14,297
Quintiles Transnational* 157,800 8,501
- --------------------------------------------------------------------------------
22,798
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 2.3%
P-COM* 387,600 10,078
VideoServer* 762,000 18,002
- --------------------------------------------------------------------------------
28,080
- --------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.2%
Red Brick Systems* 130,000 1,820
- --------------------------------------------------------------------------------
1,820
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 1.0%
LeCroy* 323,200 8,403
Mechanical Dynamics* 36,600 265
Perceptron* 110,000 2,887
- --------------------------------------------------------------------------------
11,555
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 0.2%
Microtouch Systems* 134,600 2,658
- --------------------------------------------------------------------------------
2,658
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 1.4%
Radisys* 74,000 2,165
Veritas Software* 498,000 14,753
- --------------------------------------------------------------------------------
16,918
- --------------------------------------------------------------------------------
DRUGS -- 1.3%
Jones Medical 89,300 2,143
Medicis Pharmaceutical, Cl A* 444,300 13,218
- --------------------------------------------------------------------------------
15,361
- --------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 1.4%
Apollo Group, Cl A* 660,850 16,191
- --------------------------------------------------------------------------------
16,191
- --------------------------------------------------------------------------------
27
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
OMMON STOCKS -- CONTINUED
EMBEDDED SOFTWARE -- 1.6%
Wind River Systems* 817,350 $19,310
- --------------------------------------------------------------------------------
19,310
- --------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.3%
On Assignment* 165,000 4,166
Romac International* 796,100 14,081
Vincam Group* 328,100 8,982
- --------------------------------------------------------------------------------
27,229
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 0.5%
Regal Cinemas* 226,700 6,121
- --------------------------------------------------------------------------------
6,121
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.3%
Superior Services* 554,400 12,335
Tetra Tech* 215,625 3,154
- --------------------------------------------------------------------------------
15,489
- --------------------------------------------------------------------------------
FINANCE-OTHER -- 0.6%
Sirrom Capital 188,800 6,844
- --------------------------------------------------------------------------------
6,844
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 0.9%
Encad* 375,900 11,230
- --------------------------------------------------------------------------------
11,230
- --------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 1.5%
ABR Information Services* 972,800 17,510
- --------------------------------------------------------------------------------
17,510
- --------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 1.0%
Gulf South Medical Supply* 346,900 6,721
Physician Sales & Service* 418,600 5,285
- --------------------------------------------------------------------------------
12,006
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 0.5%
Impath* 259,200 4,666
Medquist* 69,800 1,536
- --------------------------------------------------------------------------------
6,202
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 2.8%
Computer Management Sciences* 280,600 4,139
Meta Group* 480,200 9,244
Whittman-Hart* 951,600 20,222
- --------------------------------------------------------------------------------
33,605
- --------------------------------------------------------------------------------
LOGISTICS -- 2.6%
Eagle USA Airfreight* 991,500 30,489
- --------------------------------------------------------------------------------
30,489
- --------------------------------------------------------------------------------
MACHINERY/EQUIPMENT -- 0.8%
Greenwich Air Services, Cl A 127,100 3,622
Greenwich Air Services, Cl B* 204,000 5,916
- --------------------------------------------------------------------------------
9,538
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 1.4%
First Commonwealth* 233,500 3,444
Orthodontic Centers of America* 968,800 13,079
- --------------------------------------------------------------------------------
16,523
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MANUFACTURING SOFTWARE -- 1.9%
Manugistics* 235,300 $ 8,588
Project Software & Development* 422,950 13,534
- --------------------------------------------------------------------------------
22,122
- --------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 0.8%
Abacus Direct* 463,400 9,847
- --------------------------------------------------------------------------------
9,847
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.1%
Sabratek* 74,700 1,494
- --------------------------------------------------------------------------------
1,494
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.7%
Minimed* 341,300 8,788
- --------------------------------------------------------------------------------
8,788
- --------------------------------------------------------------------------------
NETWORKING -- 0.2%
Act Networks* 214,200 2,517
- --------------------------------------------------------------------------------
2,517
- --------------------------------------------------------------------------------
NETWORKING SECURITY -- 1.5%
Security Dynamics Technologies* 722,300 17,696
- --------------------------------------------------------------------------------
17,696
- --------------------------------------------------------------------------------
NON-DURABLES -- 0.4%
NBTY* 313,900 4,748
- --------------------------------------------------------------------------------
4,748
- --------------------------------------------------------------------------------
PATIENT CARE-HOME -- 1.8%
Pediatric Services of America* 367,200 6,931
Rural/Metro* 486,900 14,850
- --------------------------------------------------------------------------------
21,781
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 2.5%
National Surgery Centers* 508,100 14,735
Renal Treatment Centers* 672,600 15,134
- --------------------------------------------------------------------------------
29,869
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.2%
NCS HealthCare* 657,400 14,874
- --------------------------------------------------------------------------------
14,874
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.0%
OccuSystems* 511,800 11,516
- --------------------------------------------------------------------------------
11,516
- --------------------------------------------------------------------------------
RESTAURANTS -- 3.1%
CKE Restaurants 197,700 4,374
Logan's Roadhouse* 469,550 9,861
Papa John's International* 773,100 20,391
Rare Hospitality International* 182,600 2,374
- --------------------------------------------------------------------------------
37,000
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.2%
Insight Enterprises* 56,100 1,388
Wilmar Industries* 845,100 13,099
- --------------------------------------------------------------------------------
14,487
- --------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 2.0%
Daisytek International* 162,500 5,078
US Office Products* 757,000 18,736
- --------------------------------------------------------------------------------
23,814
- --------------------------------------------------------------------------------
28
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 2.1%
Gadzooks* 22,200 $ 699
Just For Feet* 473,762 8,172
West Marine* 492,800 16,262
- --------------------------------------------------------------------------------
25,133
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 1.2%
IKOS Systems* 605,400 10,367
PRI Automation* 80,600 3,849
- --------------------------------------------------------------------------------
14,216
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 1.1%
DSP Communications* 364,500 3,508
Sipex* 347,000 10,150
- --------------------------------------------------------------------------------
13,658
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 0.9%
Trico Marine Services* 233,900 11,110
- --------------------------------------------------------------------------------
11,110
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 5.2%
Aspen Technology* 787,200 21,451
Desktop Data* 302,025 3,851
Inso* 564,200 21,193
Visio Software* 388,400 15,148
- --------------------------------------------------------------------------------
61,643
- --------------------------------------------------------------------------------
SPECIAL MATERIALS -- 1.1%
Zoltek* 497,800 12,632
- --------------------------------------------------------------------------------
12,632
- --------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 2.2%
Ciber* 377,800 9,539
Pomeroy Computer Resources* 206,900 4,086
Technology Solutions* 464,100 12,821
- --------------------------------------------------------------------------------
26,446
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 3.4%
Remec* 167,000 3,590
Sawtek* 859,000 24,696
Uniphase* 329,000 12,173
Verilink* 58,100 349
- --------------------------------------------------------------------------------
40,808
- --------------------------------------------------------------------------------
TELEMARKETING -- 3.4%
Sitel* 1,020,500 13,649
Sykes Enterprises* 707,100 23,069
Telespectrum Worldwide* 290,800 3,453
- --------------------------------------------------------------------------------
40,171
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
VOICE/CALL TRANSACTION PROCESSING -- 2.8%
Brooktrout Technology* 703,925 $ 10,471
Davox* 302,100 9,365
Natural Microsystems* 695,200 13,817
- --------------------------------------------------------------------------------
33,653
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $1,095,075) 1,055,239
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 11.2%
Greenwich
6.59%, dated 03/31/97,
matures 04/01/97, repurchase
price $90,306,162 (collateralized
by FNMA obligations, total par
value $99,241,760,
6.50%-9.00%, 11/01/02-06/01/26:
total market value $92,098,079) (A) $90,290 90,290
J.P. Morgan
6.59%, dated 03/31/97, matures
04/01/97, repurchase price
$43,853,669 (collateralized by GNMA
obligations, total par value $49,506,187,
6.00%-9.00%, 04/15/16-11/20/26:
total market value $45,440,503) (A) 43,846 43,846
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $134,136) 134,136
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.5%
(COST $1,229,211) 1,189,375
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.5%
Other Assets and Liabilities, Net 6,245
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized 400 million
shares -- $0.001 par value) based on 62,077,268
outstanding shares of common stock 1,286,560
Accumulated net realized loss on investments (51,104)
Net unrealized depreciation on investments (39,836)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $1,195,620
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $19.26
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
29
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG CORE GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Core Growth Fund
CONSUMER - 11%
TECHNOLOGY - 30%
INDUSTRIAL - 5%
SERVICES - 29%
HEALTHCARE - 16%
FINANCIAL - 4%
ENERGY 1%
CASH - 4%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
APPAREL -- 1.1%
Tommy Hilfiger* 57,600 $ 3,010
- --------------------------------------------------------------------------------
3,010
- --------------------------------------------------------------------------------
AUTO-RELATED -- 3.4%
Harley-Davidson 167,300 5,667
Miller Industries* 330,400 3,965
- --------------------------------------------------------------------------------
9,632
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 3.4%
Pure Atria* 260,200 4,440
Rational Software* 258,600 5,334
- --------------------------------------------------------------------------------
9,774
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.4%
Remedy* 73,600 2,815
Scopus Technology* 226,500 6,795
- --------------------------------------------------------------------------------
9,610
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 6.1%
Datastream Systems* 185,200 2,963
Forte Software* 181,900 4,184
HNC Software* 143,900 3,759
Peoplesoft* 162,400 6,496
- --------------------------------------------------------------------------------
17,402
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 3.0%
Computer Sciences* 76,500 4,724
DST Systems* 129,100 3,679
- --------------------------------------------------------------------------------
8,403
- --------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 0.6%
LCI International* 100,000 1,675
- --------------------------------------------------------------------------------
1,675
- --------------------------------------------------------------------------------
CONSUMER FINANCE -- 3.8%
Associates First Capital 132,100 5,680
Money Store (The) 247,725 5,202
- --------------------------------------------------------------------------------
10,882
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CONTRACT RESEARCH -- 1.4%
Quintiles Transnational* 72,900 $ 3,927
- --------------------------------------------------------------------------------
3,927
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 1.9%
Corrections Corp. of America* 217,500 5,274
- --------------------------------------------------------------------------------
5,274
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 1.2%
VideoServer* 149,200 3,525
- --------------------------------------------------------------------------------
3,525
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 4.1%
Parametric Technology* 137,600 6,209
Synopsys* 219,541 5,489
- --------------------------------------------------------------------------------
11,698
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 2.2%
Dell Computer* 91,000 6,154
- --------------------------------------------------------------------------------
6,154
- --------------------------------------------------------------------------------
DRUGS -- 3.0%
Dura Pharmaceuticals* 153,800 5,498
Pfizer 35,600 2,995
- --------------------------------------------------------------------------------
8,493
- --------------------------------------------------------------------------------
ENTERTAINMENT -- 1.9%
Regal Cinemas* 196,550 5,307
- --------------------------------------------------------------------------------
5,307
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 8.2%
Thermo Electron* 137,550 4,247
United Waste Systems* 164,500 6,128
US Filter* 218,000 6,731
USA Waste Services* 170,770 6,062
- --------------------------------------------------------------------------------
23,168
- --------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 1.7%
Electronics for Imaging* 119,600 4,769
- --------------------------------------------------------------------------------
4,769
- --------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 2.2%
Gulf South Medical Supply* 175,500 3,400
Physician Sales & Service* 230,000 2,904
- --------------------------------------------------------------------------------
6,304
- --------------------------------------------------------------------------------
INFORMATION/FINANCIAL SERVICES -- 2.0%
Paychex 137,700 5,663
- --------------------------------------------------------------------------------
5,663
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 1.5%
HBO & Company 91,800 4,360
- --------------------------------------------------------------------------------
4,360
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.7%
Gartner Group, Cl A* 225,800 4,883
- --------------------------------------------------------------------------------
4,883
- --------------------------------------------------------------------------------
LODGING -- 2.6%
HFS* 99,000 5,829
Signature Resorts* 71,300 1,676
- --------------------------------------------------------------------------------
7,505
- --------------------------------------------------------------------------------
30
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
LOGISTICS -- 1.7%
Eagle USA Airfreight* 154,900 $ 4,763
- --------------------------------------------------------------------------------
4,763
- --------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 1.5%
Compdent* 100,000 2,800
Orthodontic Centers of America* 106,800 1,442
- --------------------------------------------------------------------------------
4,242
- --------------------------------------------------------------------------------
MEDICAL DEVICES -- 1.4%
Thermo Cardiosystems* 200,000 3,850
- --------------------------------------------------------------------------------
3,850
- --------------------------------------------------------------------------------
NETWORKING -- 1.9%
Ascend Communications* 65,700 2,677
FORE Systems* 186,700 2,800
- --------------------------------------------------------------------------------
5,477
- --------------------------------------------------------------------------------
NON-DURABLES -- 2.0%
Blyth Industries* 157,800 5,701
- --------------------------------------------------------------------------------
5,701
- --------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.9%
HEALTHSOUTH* 286,600 5,481
- --------------------------------------------------------------------------------
5,481
- --------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.6%
Omnicare 199,000 4,677
- --------------------------------------------------------------------------------
4,677
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.8%
PhyCor* 186,100 5,071
- --------------------------------------------------------------------------------
5,071
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.2%
Clear Channel Communications* 144,300 6,187
- --------------------------------------------------------------------------------
6,187
- --------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
Boston Chicken* 144,300 4,401
- --------------------------------------------------------------------------------
4,401
- --------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.6%
CDW Computer Centers* 101,949 4,594
- --------------------------------------------------------------------------------
4,594
- --------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.8%
West Marine* 154,400 5,095
- --------------------------------------------------------------------------------
5,095
- --------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 1.4%
Varco International* 155,600 3,890
- --------------------------------------------------------------------------------
3,890
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 4.2%
Aspen Technology* 235,000 6,404
McAfee Associates* 129,450 5,728
- --------------------------------------------------------------------------------
12,132
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 1.5%
Cambridge Technology Partners* 178,800 $ 4,135
- --------------------------------------------------------------------------------
4,135
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 2.2%
ADC Telecommunications* 230,800 6,203
- --------------------------------------------------------------------------------
6,203
- --------------------------------------------------------------------------------
TELEMARKETING -- 4.0%
Apac Teleservices* 140,000 3,640
Sitel* 222,400 2,975
TeleTech Holdings* 239,600 4,732
- --------------------------------------------------------------------------------
11,347
- --------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 1.9%
First Data 157,400 5,332
- --------------------------------------------------------------------------------
5,332
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $313,724) 273,996
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.7%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $6,677,574 (collateralized
by FNMA obligations, total par value
$7,064,480, 7.50%,
12/01/22-12/01/23:
total market value $6,810,300) (A) $ 6,676 6,676
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $3,936,584 (collateralized
by GNMA obligations, par value
$4,100,000, 6.00%, 03/20/27:
market value $4,034,843) (A) 3,936 3,936
- --------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $10,612) 10,612
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2%
(COST $324,336) 284,608
- --------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.2%)
Other Assets and Liabilities, Net (613)
- --------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares-- $0.001 par value)
based on 27,454,089 outstanding shares of
common stock 373,211
Accumulated net realized loss on investments (49,488)
Net unrealized depreciation on investments (39,728)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $283,995
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $10.34
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
31
<PAGE>
STATEMENT OF NET ASSETS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG SELECT EQUITY FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Select Equity Fund
CONSUMER - 13%
TECHNOLOGY - 46%
SERVICES - 17%
HEALTHCARE - 21%
CASH - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- 96.6%
APPAREL -- 7.6%
Jones Apparel Group* 173,300 $ 6,434
Tommy Hilfiger* 418,800 21,882
- --------------------------------------------------------------------------------
28,316
- --------------------------------------------------------------------------------
AUTOMATED SOFTWARE QUALITY -- 1.4%
Rational Software* 244,400 5,041
- --------------------------------------------------------------------------------
5,041
- --------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 3.2%
Remedy* 313,900 12,007
- --------------------------------------------------------------------------------
12,007
- --------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 6.8%
Forte Software* 227,600 5,235
Peoplesoft* 506,600 20,264
- --------------------------------------------------------------------------------
25,499
- --------------------------------------------------------------------------------
CONTRACT RESEARCH -- 5.2%
Quintiles Transnational* 359,000 19,341
- --------------------------------------------------------------------------------
19,341
- --------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 2.5%
Corrections Corp. of America* 387,200 9,390
- --------------------------------------------------------------------------------
9,390
- --------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 6.0%
PairGain Technologies* 750,000 22,219
- --------------------------------------------------------------------------------
22,219
- --------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 3.1%
Parametric Technology* 256,600 11,579
- --------------------------------------------------------------------------------
11,579
- --------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 5.7%
Dell Computer* 311,700 21,079
- --------------------------------------------------------------------------------
21,079
- --------------------------------------------------------------------------------
DRUGS -- 4.5%
Dura Pharmaceuticals* 467,400 16,709
- --------------------------------------------------------------------------------
16,709
- --------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- --------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
EMPLOYMENT SERVICES -- 3.6%
Accustaff* 800,000 $ 13,400
- --------------------------------------------------------------------------------
13,400
- --------------------------------------------------------------------------------
ENVIRONMENTAL -- 2.3%
US Filter* 282,900 8,734
- --------------------------------------------------------------------------------
8,734
- --------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 5.0%
HBO & Company 394,400 18,734
- --------------------------------------------------------------------------------
18,734
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 3.2%
Gartner Group, Cl A* 556,700 12,039
- --------------------------------------------------------------------------------
12,039
- --------------------------------------------------------------------------------
LODGING -- 5.7%
HFS* 362,500 21,342
- --------------------------------------------------------------------------------
21,342
- --------------------------------------------------------------------------------
NETWORKING -- 3.1%
Ascend Communications* 155,800 6,349
FORE Systems* 345,700 5,185
- --------------------------------------------------------------------------------
11,534
- --------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 6.3%
Oxford Health Plans* 397,200 23,286
- --------------------------------------------------------------------------------
23,286
- --------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 4.9%
Pediatrix Medical Group* 169,200 5,562
PhyCor* 459,300 12,516
- --------------------------------------------------------------------------------
18,078
- --------------------------------------------------------------------------------
RADIO/TELEVISION -- 4.9%
Clear Channel Communications* 426,400 18,282
- --------------------------------------------------------------------------------
18,282
- --------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 2.1%
Intel 57,000 7,930
- --------------------------------------------------------------------------------
7,930
- --------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 8.7%
McAfee Associates* 470,875 20,836
Visio Software* 294,900 11,501
- --------------------------------------------------------------------------------
32,337
- --------------------------------------------------------------------------------
TELEMARKETING -- 0.8%
TeleTech Holdings* 145,800 2,880
- --------------------------------------------------------------------------------
2,880
- --------------------------------------------------------------------------------
Total Common Stocks
(Cost $371,321) 359,756
- --------------------------------------------------------------------------------
32
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
FACE AMOUNT MARKET
DESCRIPTION (000) VALUE (000)
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 3.4%
Greenwich
6.59%, dated 03/31/97, matures
04/01/97, repurchase price
$9,983,084 (collateralized
by FNMA obligations, total
par value $12,219,568,
6.50%-7.00%, 04/01/09-05/01/24:
total market value $10,184,503) (A) $ 9,981 $ 9,981
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $2,746,451 (collateralized
by GNMA obligations, par value
$2,800,000, 6.00%, 02/20/27:
market value $2,804,722) (A) 2,746 2,746
- - ------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $12,727) 12,727
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(COST $384,048) 372,483
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.0%
Other Assets and Liabilities, Net 3
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 23,412,588 outstanding shares
of common stock 417,726
Accumulated net realized loss on investments (33,675)
Net unrealized depreciation on investments (11,565)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $372,486
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $15.91
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
33
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LARGE CAP GROWTH FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap Growth Fund
CONSUMER - 17%
INDUSTRIAL - 3%
TECHNOLOGY - 31%
SERVICES - 18%
FINANCIAL - 7%
HEALTHCARE - 21%
CASH - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 96.5%
APPAREL -- 3.8%
Jones Apparel Group* 52,300 $ 1,942
Tommy Hilfiger* 50,000 2,613
- - ------------------------------------------------------------------------------
4,555
- - ------------------------------------------------------------------------------
AUTO-RELATED -- 1.9%
Harley-Davidson 67,400 2,283
- - ------------------------------------------------------------------------------
2,283
- - ------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 1.9%
Peoplesoft* 56,400 2,256
- - ------------------------------------------------------------------------------
2,256
- - ------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
Computer Sciences* 37,400 2,309
DST Systems* 43,400 1,237
Sterling Commerce* 52,300 1,517
- - ------------------------------------------------------------------------------
5,063
- - ------------------------------------------------------------------------------
COMMUNICATION SERVICES -- 1.0%
LCI International* 70,300 1,178
- - ------------------------------------------------------------------------------
1,178
- - ------------------------------------------------------------------------------
CONSUMER FINANCE -- 3.4%
Associates First Capital 77,500 3,333
Money Store (The) 35,100 737
- - ------------------------------------------------------------------------------
4,070
- - ------------------------------------------------------------------------------
CONSUMER PRODUCTS-MISCELLANEOUS -- 1.7%
Gillette 27,600 2,004
- - ------------------------------------------------------------------------------
2,004
- - ------------------------------------------------------------------------------
CONSUMER SERVICES -- 3.4%
CUC International* 90,700 2,041
Service Corp. International 68,000 2,023
- - ------------------------------------------------------------------------------
4,064
- - ------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.7%
Quintiles Transnational* 37,700 2,031
- - ------------------------------------------------------------------------------
2,031
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CORRECTIONAL SERVICES -- 0.8%
Corrections Corp. of America* 37,600 $ 912
- - ------------------------------------------------------------------------------
912
- - ------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 3.3%
Parametric Technology* 55,800 2,518
Synopsys* 55,800 1,395
- - ------------------------------------------------------------------------------
3,913
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 2.6%
Dell Computer* 47,000 3,178
- - ------------------------------------------------------------------------------
3,178
- - ------------------------------------------------------------------------------
DRUGS -- 4.4%
Lilly (Eli) & Co. 20,800 1,711
Merck 21,300 1,795
Pfizer 21,300 1,792
- - ------------------------------------------------------------------------------
5,298
- - ------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.5%
Accustaff* 84,800 1,420
Manpower 44,200 1,591
- - ------------------------------------------------------------------------------
3,011
- - ------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.9%
Thermo Electron* 50,900 1,572
United Waste Systems* 43,400 1,617
USA Waste Services* 75,300 2,673
- - ------------------------------------------------------------------------------
5,862
- - ------------------------------------------------------------------------------
FINANCIAL-MISCELLANEOUS -- 1.9%
First USA 55,200 2,339
- - ------------------------------------------------------------------------------
2,339
- - ------------------------------------------------------------------------------
HEALTH CARE-SUPPLIES -- 1.8%
Johnson & Johnson 40,688 2,151
- - ------------------------------------------------------------------------------
2,151
- - ------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 2.3%
HBO & Company 57,500 2,731
- - ------------------------------------------------------------------------------
2,731
- - ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.4%
Gartner Group, Cl A* 76,400 1,652
- - ------------------------------------------------------------------------------
1,652
- - ------------------------------------------------------------------------------
LODGING -- 1.9%
HFS* 38,800 2,284
- - ------------------------------------------------------------------------------
2,284
- - ------------------------------------------------------------------------------
MEDICAL DEVICES -- 2.8%
Boston Scientific* 39,600 2,445
Thermo Cardiosystems* 46,000 886
- - ------------------------------------------------------------------------------
3,331
- - ------------------------------------------------------------------------------
MORTGAGE RELATED -- 2.0%
MGIC Investment 34,600 2,448
- - ------------------------------------------------------------------------------
2,448
- - ------------------------------------------------------------------------------
34
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MULTI-INDUSTRY -- 1.3%
Danaher 38,900 $ 1,619
- - ------------------------------------------------------------------------------
1,619
- - ------------------------------------------------------------------------------
NETWORKING -- 1.5%
Ascend Communications* 20,600 839
FORE Systems* 61,800 927
- - ------------------------------------------------------------------------------
1,766
- - ------------------------------------------------------------------------------
PATIENT CARE-HEALTH PLAN -- 2.7%
Oxford Health Plans* 54,300 3,183
- - ------------------------------------------------------------------------------
3,183
- - ------------------------------------------------------------------------------
PATIENT CARE-HOSPITAL -- 1.9%
Health Management Associates, Cl A* 97,800 2,323
- - ------------------------------------------------------------------------------
2,323
- - ------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.8%
HEALTHSOUTH* 115,000 2,199
- - ------------------------------------------------------------------------------
2,199
- - ------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.6%
Omnicare 80,200 1,885
- - ------------------------------------------------------------------------------
1,885
- - ------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 2.0%
PhyCor* 86,450 2,356
- - ------------------------------------------------------------------------------
2,356
- - ------------------------------------------------------------------------------
RADIO/TELEVISION -- 2.0%
Clear Channel Communications* 57,000 2,444
- - ------------------------------------------------------------------------------
2,444
- - ------------------------------------------------------------------------------
RESTAURANTS -- 1.5%
Boston Chicken* 58,600 1,787
- - ------------------------------------------------------------------------------
1,787
- - ------------------------------------------------------------------------------
RETAIL-CATALOG -- 0.8%
Viking Office Products* 48,100 932
- - ------------------------------------------------------------------------------
932
- - ------------------------------------------------------------------------------
RETAIL-GENERAL -- 1.8%
Dollar General 68,500 2,141
- - ------------------------------------------------------------------------------
2,141
- - ------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 1.8%
Staples* 110,100 2,216
- - ------------------------------------------------------------------------------
2,216
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 2.3%
Applied Materials* 60,300 2,796
- - ------------------------------------------------------------------------------
2,796
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.9%
Altera* 62,900 2,705
Intel 19,000 2,643
Linear Technology 38,800 1,717
- - ------------------------------------------------------------------------------
7,065
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SOFTWARE-GENERAL -- 2.0%
Microsoft* 26,600 $ 2,439
- - ------------------------------------------------------------------------------
2,439
- - ------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.4%
Cambridge Technology Partners* 71,400 1,651
- - ------------------------------------------------------------------------------
1,651
- - ------------------------------------------------------------------------------
SYSTEM SOFTWARE -- 2.0%
BMC Software* 52,200 2,408
- - ------------------------------------------------------------------------------
2,408
- - ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 4.1%
ADC Telecommunications* 87,600 2,354
Tellabs* 71,400 2,579
- - ------------------------------------------------------------------------------
4,933
- - ------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.5%
First Data 89,900 3,045
- - ------------------------------------------------------------------------------
3,045
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $113,685) 115,802
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 4.4%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $2,175,824 (collateralized
by FNMA obligation, total par value
$2,350,000, 7.50%, 12/01/23:
total market value $2,222,526) (A) $ 2,175 2,175
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $3,115,274 (collateralized
by GNMA obligation, par value
$3,175,000, 6.00%, 02/20/27:
market value $3,180,354) (A) 3,115 3,115
- - ------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $5,290) 5,290
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.9%
(COST $118,975) 121,092
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.9%)
Other Assets and Liabilities, Net (1,121)
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class
(authorized 200 million
shares -- $0.001 par value)
based on 8,412,537 outstanding
shares of common stock 123,595
Accumulated net realized loss on investments (5,741)
Net unrealized appreciation on investments 2,117
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $119,971
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $14.26
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
35
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG TECHNOLOGY & COMMUNICATIONS FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Technology & Communications Fund
TECHNOLOGY - 83%
SERVICES - 6%
HEALTHCARE - 3%
CASH - 8%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 91.5%
AUTOMATED SOFTWARE QUALITY -- 1.7%
Rational Software* 417,288 $ 8,607
- - ------------------------------------------------------------------------------
8,607
- - ------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 0.7%
Scopus Technology* 113,650 3,409
- - ------------------------------------------------------------------------------
3,409
- - ------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 1.2%
Documentum* 191,900 3,550
Unison Software* 343,500 2,190
- - ------------------------------------------------------------------------------
5,740
- - ------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 2.8%
Consolidated Graphics* 367,200 10,511
Ultrak* 171,600 3,089
- - ------------------------------------------------------------------------------
13,600
- - ------------------------------------------------------------------------------
CONTRACT MANUFACTURING -- 1.3%
Sanmina* 144,000 6,444
- - ------------------------------------------------------------------------------
6,444
- - ------------------------------------------------------------------------------
CONTRACT RESEARCH -- 1.2%
Parexel International* 23,000 529
Quintiles Transnational* 104,400 5,625
- - ------------------------------------------------------------------------------
6,154
- - ------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 4.9%
P-COM* 328,800 8,549
PairGain Technologies* 128,700 3,813
Teledata Communication Limited* 667,100 12,008
- - ------------------------------------------------------------------------------
24,370
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DATABASE SOFTWARE -- 2.1%
Cognos* 407,300 $ 10,590
- - ------------------------------------------------------------------------------
10,590
- - ------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 14.0%
Cadence Design Systems* 541,500 18,614
LeCroy* 254,300 6,612
Mechanical Dynamics* 202,500 1,468
Parametric Technology* 493,300 22,260
Perceptron* 184,000 4,830
Stratasys* 206,400 3,664
Tecnomatix Technologies Limited* 540,800 11,222
- - ------------------------------------------------------------------------------
68,670
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 7.7%
Dell Computer* 118,900 8,041
EMC* 210,600 7,476
Network Appliance* 169,600 5,512
Read-Rite* 183,700 4,638
Seagate Technology* 117,700 5,282
Western Digital* 125,000 7,078
- - ------------------------------------------------------------------------------
38,027
- - ------------------------------------------------------------------------------
DRUGS -- 1.7%
Dura Pharmaceuticals* 234,000 8,365
- - ------------------------------------------------------------------------------
8,365
- - ------------------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.4%
Wind River Systems* 86,325 2,039
- - ------------------------------------------------------------------------------
2,039
- - ------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.1%
Accustaff* 315,400 5,283
- - ------------------------------------------------------------------------------
5,283
- - ------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 6.6%
Electronics for Imaging* 555,800 22,163
Encad* 276,800 8,269
Xionics Document Technologies* 164,200 2,073
- - ------------------------------------------------------------------------------
32,505
- - ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 0.5%
Gartner Group, Cl A* 118,600 2,565
- - ------------------------------------------------------------------------------
2,565
- - ------------------------------------------------------------------------------
NETWORKING -- 3.4%
Act Networks* 224,200 2,634
Ascend Communications* 187,900 7,657
FORE Systems* 415,500 6,232
- - ------------------------------------------------------------------------------
16,523
- - ------------------------------------------------------------------------------
36
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SEMI-CONDUCTOR EQUIPMENT -- 6.0%
ASM Lithography Holdings* 87,200 $ 6,540
CFM Technologies* 38,600 1,144
Fusion Systems* 170,400 4,047
Kulicke & Soffa Industries* 159,200 3,363
PRI Automation* 93,200 4,450
Quickturn Design Systems* 391,200 6,259
Speedfam International* 110,400 3,643
- - ------------------------------------------------------------------------------
29,446
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 8.5%
Altera* 162,000 6,966
ESS Technology* 338,600 8,211
Lattice Semiconductor* 47,600 2,178
Linear Technology 130,400 5,770
Maxim Integrated Products* 79,800 3,860
Microchip Technology* 406,100 12,183
Vitesse Semiconductor* 99,300 2,743
- - ------------------------------------------------------------------------------
41,911
- - ------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 5.7%
Aspen Technology* 212,800 5,799
Inso* 134,300 5,045
JDA Software Group* 159,400 3,248
McAfee Associates* 202,975 8,982
Saville Systems ADR* 158,000 4,542
- - ------------------------------------------------------------------------------
27,616
- - ------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 5.3%
Cambridge Technology Partners* 579,200 13,394
Claremont Technology Group* 141,400 3,323
Renaissance Solutions* 167,400 4,227
Technology Solutions* 195,600 5,403
- - ------------------------------------------------------------------------------
26,347
- - ------------------------------------------------------------------------------
TECHNOLOGY-COMPONENTS -- 1.9%
Adaptec* 254,200 9,088
- - ------------------------------------------------------------------------------
9,088
- - ------------------------------------------------------------------------------
TECHNOLOGY-CONNECTORS -- 1.3%
Cable Design Technologies* 295,650 6,578
- - ------------------------------------------------------------------------------
6,578
- - ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 6.7%
Advanced Fibre Communication* 142,800 4,605
Applied Voice Technology* 21,000 260
Gilat Satellite Networks Limited* 117,500 3,554
Remec* 435,700 9,368
Sawtek* 87,500 2,516
Tellabs* 235,800 8,518
Uniphase* 119,900 4,436
- - ------------------------------------------------------------------------------
33,257
- - ------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 1.2%
National Data 170,100 6,017
- - ------------------------------------------------------------------------------
6,017
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
VOICE/CALL TRANSACTION PROCESSING -- 3.6%
Aspect Telecommunications* 281,000 $ 5,480
Comverse Technology* 143,600 5,672
Nice Systems Limited* 328,600 6,736
- - ------------------------------------------------------------------------------
17,888
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $503,221) 451,039
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.4%
Greenwich
6.59%, dated 03/31/97,
matures 04/01/97, repurchase
price $41,635,752 (collateralized
by FNMA obligations, total
par value $70,515,903,
5.51%-10.00%, 06/01/97-02/01/27:
total market value $42,460,794) (A) $41,628 41,628
- - ------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $41,628) 41,628
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.9%
(COST $544,849) 492,667
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.1%
Other Assets and Liabilities, Net 489
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class
(authorized 200 million shares
-- $0.001 par value) based on
33,719,342 outstanding shares
of common stock 539,693
Accumulated net realized gain on investments 5,645
Net unrealized depreciation on investments (52,182)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $493,156
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $14.63
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
37
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LIMITED FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Limited Fund
CONSUMER - 13%
TECHNOLOGY - 40%
SERVICES - 13%
ENERGY - 2%
HEALTHCARE - 17%
CASH - 15%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 84.7%
APPAREL -- 4.8%
Kenneth Cole Productions* 113,200 $ 2,377
North Face* 87,800 1,460
Rocky Shoes* 62,500 836
Vans* 162,400 1,908
- - ------------------------------------------------------------------------------
6,581
- - ------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 1.6%
Eltron International* 67,700 1,329
Trident International* 45,700 903
- - ------------------------------------------------------------------------------
2,232
- - ------------------------------------------------------------------------------
BIOTECHNOLOGY -- 1.6%
Meridian Diagnostics 111,600 1,228
Serologicals* 63,300 949
- - ------------------------------------------------------------------------------
2,177
- - ------------------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.3%
Scopus Technology* 57,700 1,731
- - ------------------------------------------------------------------------------
1,731
- - ------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 4.5%
Advent Software* 68,600 1,509
Documentum* 30,000 555
Interlink Computer Sciences* 142,800 1,517
Radiant Systems* 163,200 1,469
Unison Software* 175,500 1,119
- - ------------------------------------------------------------------------------
6,169
- - ------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 4.2%
Administaff* 23,000 382
Consolidated Graphics* 49,800 1,426
F.Y.I.* 55,000 1,134
Lason* 65,000 1,300
Quickresponse Services* 50,900 1,342
Ultrak* 8,300 149
- - ------------------------------------------------------------------------------
5,733
- - ------------------------------------------------------------------------------
COMPONENTS -- 5.1%
Ducommun* 31,500 768
II-VI* 77,000 1,906
Proxim* 59,500 997
Smart Modular Technologies* 65,100 1,546
WPI Group* 283,100 1,769
- - ------------------------------------------------------------------------------
6,986
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DESIGN/MANUFACTURING AUTOMATION -- 3.8%
LeCroy* 70,400 $ 1,830
Mechanical Dynamics* 123,900 898
Perceptron* 83,200 2,184
Technology Modeling Associates* 30,000 300
- - ------------------------------------------------------------------------------
5,212
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE
& PERIPHERALS -- 1.0%
Microtouch Systems* 67,000 1,323
- - ------------------------------------------------------------------------------
1,323
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 0.2%
Radisys* 8,500 249
- - ------------------------------------------------------------------------------
249
- - ------------------------------------------------------------------------------
DRUGS -- 1.1%
Medicis Pharmaceutical, Cl A* 53,550 1,593
- - ------------------------------------------------------------------------------
1,593
- - ------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 2.9%
On Assignment* 19,400 490
Romac International* 101,200 1,790
The Vincam Group* 65,300 1,788
- - ------------------------------------------------------------------------------
4,068
- - ------------------------------------------------------------------------------
ENVIRONMENTAL -- 1.7%
Superior Services* 103,400 2,301
- - ------------------------------------------------------------------------------
2,301
- - ------------------------------------------------------------------------------
EXPLORATION & PRODUCTION -- 1.8%
Patterson Energy* 88,500 2,445
- - ------------------------------------------------------------------------------
2,445
- - ------------------------------------------------------------------------------
FOOD & BEVERAGE -- 1.9%
Worthington Foods 133,599 2,605
- - ------------------------------------------------------------------------------
2,605
- - ------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 2.0%
Encad* 64,800 1,936
Xionics Document Technologies* 60,100 759
- - ------------------------------------------------------------------------------
2,695
- - ------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 1.2%
Diagnostic Health Services* 212,000 1,669
- - ------------------------------------------------------------------------------
1,669
- - ------------------------------------------------------------------------------
INFORMATION SYSTEMS -- 3.2%
IMPATH* 152,500 2,745
Medquist* 76,400 1,681
- - ------------------------------------------------------------------------------
4,426
- - ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 5.9%
Computer Management Sciences* 180,550 2,663
Forrester Research* 103,200 1,883
META Group* 66,200 1,274
Whittman-Hart* 110,800 2,354
- - ------------------------------------------------------------------------------
8,174
- - ------------------------------------------------------------------------------
MANAGED CARE-DENTAL -- 0.8%
First Commonwealth* 74,400 1,097
- - ------------------------------------------------------------------------------
1,097
- - ------------------------------------------------------------------------------
38
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
MARKETING INFORMATION SERVICES -- 1.5%
Abacus Direct* 78,000 $ 1,657
Market Facts 20,000 410
- - ------------------------------------------------------------------------------
2,067
- - ------------------------------------------------------------------------------
MEDICAL DEVICES -- 2.5%
Resmed* 101,400 1,774
Sabratek* 83,600 1,672
- - ------------------------------------------------------------------------------
3,446
- - ------------------------------------------------------------------------------
MEDICAL EQUIPMENT -- 0.9%
Molecular Dynamics* 80,000 1,180
- - ------------------------------------------------------------------------------
1,180
- - ------------------------------------------------------------------------------
NETWORKING -- 0.7%
Act Networks* 76,900 904
- - ------------------------------------------------------------------------------
904
- - ------------------------------------------------------------------------------
PATIENT CARE-HOME -- 3.1%
Lifeline Systems* 104,100 1,770
Pediatric Services of America* 130,200 2,458
- - ------------------------------------------------------------------------------
4,228
- - ------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 1.2%
National Surgery Centers* 55,900 1,621
- - ------------------------------------------------------------------------------
1,621
- - ------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.4%
NCS HealthCare* 82,600 1,869
- - ------------------------------------------------------------------------------
1,869
- - ------------------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 0.4%
FPA Medical Management* 30,000 577
- - ------------------------------------------------------------------------------
577
- - ------------------------------------------------------------------------------
RESTAURANTS -- 3.0%
Logan's Roadhouse* 101,600 2,134
PJ America* 118,000 1,696
Rare Hospitality International* 23,300 303
- - ------------------------------------------------------------------------------
4,133
- - ------------------------------------------------------------------------------
RETAIL-CATALOG -- 2.6%
Insight Enterprises* 77,600 1,921
Wilmar Industries* 104,100 1,614
- - ------------------------------------------------------------------------------
3,535
- - ------------------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 0.5%
Daisytek International* 20,900 653
- - ------------------------------------------------------------------------------
653
- - ------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.8%
Gadzooks* 2,500 79
Hibbet Sporting Goods* 143,500 2,439
- - ------------------------------------------------------------------------------
2,518
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 0.9%
IKOS Systems* 71,100 1,218
- - ------------------------------------------------------------------------------
1,218
- - ------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 0.4%
Key Energy Group* 40,200 573
- - ------------------------------------------------------------------------------
573
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SOFTWARE-GENERAL -- 0.6%
Concentra* 78,500 $ 412
Desktop Data* 38,250 488
- - ------------------------------------------------------------------------------
900
- - ------------------------------------------------------------------------------
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS-- 3.1%
Ciber* 46,900 1,184
Pomeroy Computer Resources* 80,000 1,580
Renaissance Solutions* 57,500 1,452
- - ------------------------------------------------------------------------------
4,216
- - ------------------------------------------------------------------------------
TECHNOLOGY-MISCELLANEOUS -- 1.3%
Engineering Animation* 80,400 1,869
- - ------------------------------------------------------------------------------
1,869
- - ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 5.1%
Applied Voice Technology* 158,700 1,964
Electromagnetic Sciences* 83,400 1,553
Remec* 101,200 2,176
Tollgrade Communications* 72,100 1,298
- - ------------------------------------------------------------------------------
6,991
- - ------------------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 3.3%
Brooktrout Technology* 86,700 1,290
Davox* 49,700 1,541
Natural Microsystems* 83,500 1,660
- - ------------------------------------------------------------------------------
4,491
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $129,482) 116,455
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 14.5%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $11,021,175
(collateralized by FNMA obligations,
total par value $11,511,260,
6.00%-9.50%, 09/01/03-02/01/27:
total market value $11,242,909) (A) $ 11,019 11,019
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $8,915,596
(collateralized by GNMA obligation,
par value $9,250,000, 6.00%, 03/20/27:
market value $9,102,999) (A) 8,914 8,914
- - ------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $19,933) 19,933
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.2%
(COST $149,415) 136,388
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 0.8%
Other Assets and Liabilities, Net 1,132
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 15,195,006 outstanding shares
of common stock 150,191
Accumulated net realized gain on investments 356
Net unrealized depreciation on investments (13,027)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $137,520
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $9.05
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
39
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG LARGE CAP 20 FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap 20 Fund
CONSUMER - 11%
TECHNOLOGY - 42%
SERVICES - 20%
HEALTHCARE - 17%
FINANCIAL - 4%
CASH - 6%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 93.7%
APPAREL -- 2.6%
Nike, Cl B 29,600 $ 1,835
- - ------------------------------------------------------------------------------
1,835
- - ------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 5.6%
Peoplesoft* 97,600 3,904
- - ------------------------------------------------------------------------------
3,904
- - ------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 5.3%
Computer Sciences* 59,300 3,662
- - ------------------------------------------------------------------------------
3,662
- - ------------------------------------------------------------------------------
CONSUMER FINANCE -- 4.5%
Associates First Capital 72,400 3,113
- - ------------------------------------------------------------------------------
3,113
- - ------------------------------------------------------------------------------
CONSUMER SERVICES -- 4.7%
CUC International* 145,800 3,281
- - ------------------------------------------------------------------------------
3,281
- - ------------------------------------------------------------------------------
DESIGN/MANUFACTURING AUTOMATION -- 4.6%
Parametric Technology* 71,700 3,236
- - ------------------------------------------------------------------------------
3,236
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 10.5%
Dell Computer* 51,100 3,456
EMC* 109,200 3,877
- - ------------------------------------------------------------------------------
7,333
- - ------------------------------------------------------------------------------
DRUGS -- 7.8%
Lilly (Eli) & Co. 30,000 2,468
Pfizer 35,600 2,995
- - ------------------------------------------------------------------------------
5,463
- - ------------------------------------------------------------------------------
ENTERTAINMENT -- 5.0%
Walt Disney 47,800 3,489
- - ------------------------------------------------------------------------------
3,489
- - ------------------------------------------------------------------------------
ENVIRONMENTAL -- 4.9%
USA Waste Services* 95,500 3,390
- - ------------------------------------------------------------------------------
3,390
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
HEALTH CARE-INFORMATION SYSTEMS -- 4.5%
HBO & Company 66,200 $ 3,145
- - ------------------------------------------------------------------------------
3,145
- - ------------------------------------------------------------------------------
LODGING -- 3.1%
HFS* 37,000 2,178
- - ------------------------------------------------------------------------------
2,178
- - ------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 5.0%
HEALTHSOUTH* 184,000 3,519
- - ------------------------------------------------------------------------------
3,519
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 5.5%
Applied Materials* 82,700 3,835
- - ------------------------------------------------------------------------------
3,835
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.5%
Intel 27,500 3,826
- - ------------------------------------------------------------------------------
3,826
- - ------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 3.8%
Microsoft* 29,200 2,677
- - ------------------------------------------------------------------------------
2,677
- - ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 5.3%
Tellabs* 102,600 3,706
- - ------------------------------------------------------------------------------
3,706
- - ------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 5.5%
First Data 112,300 3,804
- - ------------------------------------------------------------------------------
3,804
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $70,232) 65,396
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 9.8%
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $6,887,661 (collateralized
by GNMA obligation, par value
$7,150,000, 6.00%, 03/20/27:
market value $7,036,372) (A) $ 6,886 6,886
- - ------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $6,886) 6,886
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.5%
(COST $77,118) 72,282
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.5%)
Other Assets and Liabilities, Net (2,463)
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 7,548,091 outstanding shares
of common stock 77,211
Overdistributed net investment income (17)
Accumulated net realized loss on investments (2,539)
Net unrealized depreciation on investments (4,836)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $69,819
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $9.25
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
CL--CLASS
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
40
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Large Cap Value Fund
CONSUMER - 9%
TECHNOLOGY - 7%
INDUSTRIAL - 4%
MISCELLANEOUS - 2%
HEALTHCARE - 8%
FINANCIAL - 36%
ENERGY - 15%
CAPITAL GOODS - 11%
UTILITIES - 5%
TRANSPORTATION - 3%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 101.0%
AUTO & RELATED -- 2.8%
Borg-Warner Automotive 17,500 $ 746
- - ------------------------------------------------------------------------------
746
- - ------------------------------------------------------------------------------
CHEMICALS & ALLIED PRODUCTS -- 1.3%
Rohm & Haas 4,600 344
- - ------------------------------------------------------------------------------
344
- - ------------------------------------------------------------------------------
DIVERSIFIED COMPANIES -- 1.5%
Fluor 7,500 394
- - ------------------------------------------------------------------------------
394
- - ------------------------------------------------------------------------------
DRUGS & HEALTH CARE -- 8.4%
Aetna 9,600 824
Health Systems International, Cl A* 25,200 709
Medpartners* 31,400 667
- - ------------------------------------------------------------------------------
2,200
- - ------------------------------------------------------------------------------
ELECTRONICS & INSTRUMENTATION -- 2.2%
Avnet 10,100 569
- - ------------------------------------------------------------------------------
569
- - ------------------------------------------------------------------------------
FINANCE-INSURANCE -- 10.3%
Allstate 13,400 796
Equitable of Iowa 7,800 390
ITT Hartford Group 11,000 793
Nationwide Financial Services* 15,000 386
Penncorp Financial Group 10,000 320
- - ------------------------------------------------------------------------------
2,685
- - ------------------------------------------------------------------------------
FINANCE-MONEY CENTER BANKS -- 5.6%
Banc One 15,600 620
Chase Manhattan Bank 9,000 843
- - ------------------------------------------------------------------------------
1,463
- - ------------------------------------------------------------------------------
FINANCE-OTHER -- 3.2%
Travelers 17,500 838
- - ------------------------------------------------------------------------------
838
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
FINANCE-REGIONAL BANKS -- 9.0%
Bank of Boston 8,300 $ 556
CoreStates Financial Group 3,500 166
First Union 10,000 811
Fleet Financial Group 8,000 458
NationsBank 6,900 382
- - ------------------------------------------------------------------------------
2,373
- - ------------------------------------------------------------------------------
FURNITURE & APPLIANCES -- 1.0%
Black & Decker 8,100 260
- - ------------------------------------------------------------------------------
260
- - ------------------------------------------------------------------------------
MACHINERY & INSTRUMENTATION -- 10.7%
Agco 19,000 525
Case Equipment 13,100 665
Harnischfeger Industries 20,400 949
Parker Hannifin 15,500 663
- - ------------------------------------------------------------------------------
2,802
- - ------------------------------------------------------------------------------
NATURAL GAS PIPELINES -- 2.4%
Panenergy 14,800 638
- - ------------------------------------------------------------------------------
638
- - ------------------------------------------------------------------------------
NON-FERROUS METALS & MINING -- 1.9%
Reynolds Metals 7,900 490
- - ------------------------------------------------------------------------------
490
- - ------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES -- 5.0%
International Business Machines 5,800 797
Xerox 9,000 512
- - ------------------------------------------------------------------------------
1,309
- - ------------------------------------------------------------------------------
OIL & GAS SERVICES -- 3.0%
Noble Drilling* 22,800 393
Reading & Bates* 18,000 407
- - ------------------------------------------------------------------------------
800
- - ------------------------------------------------------------------------------
OILS-DOMESTIC -- 5.7%
Amoco 6,300 546
Atlantic Richfield 1,600 216
USX-Marathon Group 26,200 730
- - ------------------------------------------------------------------------------
1,492
- - ------------------------------------------------------------------------------
OILS-INTERNATIONAL -- 3.5%
Mobil 3,900 510
Repsol ADR 10,300 420
- - ------------------------------------------------------------------------------
930
- - ------------------------------------------------------------------------------
PAPER -- 0.7%
James River Corp. of Virginia 6,700 195
- - ------------------------------------------------------------------------------
195
- - ------------------------------------------------------------------------------
REAL ESTATE/REITS -- 9.2%
Equity Residential Properties Trust 14,900 661
Meditrust 16,600 618
Nationwide Health Properties 22,300 477
Simon DeBartolo Group 22,000 666
- - ------------------------------------------------------------------------------
2,422
- - ------------------------------------------------------------------------------
41
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-DEPARTMENT STORES -- 1.7%
Dillard Department Stores, Cl A 14,300 $ 451
- - ------------------------------------------------------------------------------
451
- - ------------------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.0%
Claire's Stores 15,200 255
- - ------------------------------------------------------------------------------
255
- - ------------------------------------------------------------------------------
TOBACCO -- 2.6%
RJR Nabisco 21,200 684
- - ------------------------------------------------------------------------------
684
- - ------------------------------------------------------------------------------
TRANSPORTATION -- 3.0%
Burlington Northern Santa Fe 7,100 525
Southwest Airlines 11,700 259
- - ------------------------------------------------------------------------------
784
- - ------------------------------------------------------------------------------
UTILITIES-TELEPHONE -- 5.3%
GTE 15,300 713
NYNEX 15,000 684
- - ------------------------------------------------------------------------------
1,397
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $27,321) 26,521
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.4%
Greenwich
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $1,147,414 (collateralized
by FNMA obligation, par value
$1,180,000, 7.59%, 05/01/25:
market value $1,173,930) (A) $ 1,147 1,147
- - ------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,147) 1,147
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 105.4%
(COST $28,468) 27,668
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (5.4%)
Other Assets and Liabilities, Net (1,406)
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares --
$0.001 par value) based on
2,596,834 outstanding shares
of common stock 27,002
Undistributed net investment income 60
Net unrealized depreciation on investments (800)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $26,262
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $10.11
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
42
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Strategic Small Company Fund
CONSUMER - 17%
TECHNOLOGY - 30%
INDUSTRIAL - 2%
SERVICES - 9%
HEALTHCARE - 5%
FINANCIAL - 14%
ENERGY - 4%
CAPITAL GOODS - 9%
TRANSPORTATION - 5%
MISCELLANEOUS - 1%
CASH - 4%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- 95.8%
AEROSPACE & EQUIPMENT -- 5.4%
Aviation Sales* 20,800 $ 523
Barnes Group 6,300 453
Crane 6,900 216
First Aviation Services* 45,000 427
Greenwich Air Services, Cl A 18,500 527
Hudson General 6,000 224
Mercury Air Group 28,400 209
Moog, Cl A* 4,600 108
Precision Castparts 7,500 382
SPS Technologies* 3,300 223
- - ------------------------------------------------------------------------------
3,292
- - ------------------------------------------------------------------------------
APPAREL -- 0.6%
St. John Knits 8,800 381
- - ------------------------------------------------------------------------------
381
- - ------------------------------------------------------------------------------
AUTO & RELATED -- 1.1%
Arvin Industries 19,600 458
Miller Industries* 20,000 240
- - ------------------------------------------------------------------------------
698
- - ------------------------------------------------------------------------------
AUTOMATED DATA COLLECTION -- 0.4%
Trident International* 12,500 247
- - ------------------------------------------------------------------------------
247
- - ------------------------------------------------------------------------------
BUILDING & CONSTRUCTION -- 2.2%
Florida Rock Industries 13,000 426
Lafarge 3,500 80
Lone Star Industries 2,500 97
Medusa 10,100 379
Perini Corp* 13,400 94
Southdown 7,700 264
- - ------------------------------------------------------------------------------
1,340
- - ------------------------------------------------------------------------------
CHEMICALS & ALLIED PRODUCTS -- 0.3%
Buckeye Cellulose* 3,200 95
Geon 3,900 91
- - ------------------------------------------------------------------------------
186
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
CLIENT/SERVER HELP DESK -- 1.6%
Clarify* 16,700 $ 403
Pegasystems* 10,700 215
Remedy* 10,000 382
- - ------------------------------------------------------------------------------
1,000
- - ------------------------------------------------------------------------------
CLIENT/SERVER SOFTWARE -- 0.7%
Forte Software* 9,400 216
HNC Software* 8,200 214
- - ------------------------------------------------------------------------------
430
- - ------------------------------------------------------------------------------
CHEMICALS-SPECIALTY -- 0.2%
Fuller (H.B.) 2,200 107
- - ------------------------------------------------------------------------------
107
- - ------------------------------------------------------------------------------
COMMERCIAL SERVICES -- 1.2%
Caribiner International* 7,600 355
Consolidated Graphics* 12,500 358
- - ------------------------------------------------------------------------------
713
- - ------------------------------------------------------------------------------
CONSUMER FINANCE -- 0.3%
Money Store (The) 9,100 191
- - ------------------------------------------------------------------------------
191
- - ------------------------------------------------------------------------------
CONTRACT RESEARCH -- 0.5%
Parexel International* 12,100 278
- - ------------------------------------------------------------------------------
278
- - ------------------------------------------------------------------------------
CORRECTIONAL SERVICES -- 0.5%
Corrections Corp. of America* 12,500 303
- - ------------------------------------------------------------------------------
303
- - ------------------------------------------------------------------------------
DATA COMMUNICATIONS -- 0.4%
P-COM* 9,900 257
- - ------------------------------------------------------------------------------
257
- - ------------------------------------------------------------------------------
DATABASE SOFTWARE -- 0.5%
Cognos* 12,200 317
- - ------------------------------------------------------------------------------
317
- - ------------------------------------------------------------------------------
DISTRIBUTION -- 0.8%
Brightpoint* 16,625 270
CHS Electronics* 10,000 204
- - ------------------------------------------------------------------------------
474
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/HARDWARE & PERIPHERALS -- 0.8%
Microtouch Systems* 11,900 235
Network Appliance* 8,800 286
- - ------------------------------------------------------------------------------
521
- - ------------------------------------------------------------------------------
DISTRIBUTION-SYSTEMS/SOFTWARE -- 0.4%
Veritas Software* 8,200 243
- - ------------------------------------------------------------------------------
243
- - ------------------------------------------------------------------------------
DIVERSIFIED COMPANIES -- 1.1%
Kimball International, Cl B 16,000 608
Norrell 3,600 89
- - ------------------------------------------------------------------------------
697
- - ------------------------------------------------------------------------------
43
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DRUGS & HEALTH CARE -- 2.8%
Bergen Brunswig, Cl A 2,200 $ 65
Express Scripts, Cl A 2,000 72
Living Centers of America* 600 21
Medicis Pharmaceutical, Cl A* 9,300 277
Physicians Specialty* 90,000 664
Respironics* 10,000 212
Sullivan Dental Products 7,900 116
Watson Pharmaceuticals* 8,500 304
- - ------------------------------------------------------------------------------
1,731
- - ------------------------------------------------------------------------------
EDUCATIONAL PRODUCTS & SERVICES -- 0.7%
Learning Tree International* 15,100 423
- - ------------------------------------------------------------------------------
423
- - ------------------------------------------------------------------------------
ELECTRICAL & ELECTRONIC -- 0.4%
Teradyne* 7,700 222
- - ------------------------------------------------------------------------------
222
- - ------------------------------------------------------------------------------
ELECTRONICS & INSTRUMENTATION -- 3.3%
ADE* 7,000 131
Berg Electronics* 2,500 71
Ducommun* 4,900 119
Genrad* 20,400 316
Oak Technology* 26,000 263
Opti* 13,000 75
Smart Modular* 4,400 104
Stratus Computer* 3,500 108
Tech Data* 3,000 72
Trident Microsystems* 2,000 27
USCS International* 14,000 259
Waters* 6,900 185
Wyle Electronics 2,400 81
Yurie Systems* 18,000 191
- - ------------------------------------------------------------------------------
2,002
- - ------------------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.9%
Peerless Systems* 21,000 244
Wind River Systems* 14,350 339
- - ------------------------------------------------------------------------------
583
- - ------------------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.4%
Accustaff* 15,200 255
Corestaff* 17,400 344
The Vincam Group* 9,500 260
- - ------------------------------------------------------------------------------
859
- - ------------------------------------------------------------------------------
ENVIRONMENTAL -- 0.9%
Flanders* 20,000 190
United Waste Systems* 10,000 372
- - ------------------------------------------------------------------------------
562
- - ------------------------------------------------------------------------------
FINANCE-INSURANCE -- 1.9%
Amerus Life Holdings, CI A* 29,000 645
Chartwell Re 3,100 85
HCC Insurance Holdings 11,900 292
Mercury General 2,800 171
- - ------------------------------------------------------------------------------
1,193
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
FINANCE-INVESTMENT -- 3.6%
Eaton Vance 14,800 $ 655
Everen Capital 9,000 182
Hambrecht and Quist* 15,600 261
Investment Technology Group* 58,000 1,102
- - ------------------------------------------------------------------------------
2,200
- - ------------------------------------------------------------------------------
FINANCE-OTHER -- 1.4%
Amresco 17,400 291
Homeside* 9,400 139
Sirrom Capital 12,500 453
- - ------------------------------------------------------------------------------
883
- - ------------------------------------------------------------------------------
FINANCE-REGIONAL BANKS -- 4.9%
AmSouth Bancorp 1,200 58
Astoria Financial 3,000 108
Central Fidelity Banks 14,000 388
Cullen/Frost Bankers 1,000 36
GBC Bancorp 3,300 108
Hamilton Bank Corp* 22,000 380
Hubco 1,000 23
Interwest Bancorp 5,000 161
Mid America Bancorp 1,000 20
N B T Bancorp 6,000 117
Onbancorp 7,700 360
Oriental Financial Group 4,400 111
SouthTrust* 2,000 72
Southwest Bancorp of Texas* 10,000 192
Trans Financial 17,000 382
Trustco Bank 5,000 104
Vectra Banking* 13,000 249
Washington Federal 3,830 87
Westamerica Bancorp 1,000 63
- - ------------------------------------------------------------------------------
3,019
- - ------------------------------------------------------------------------------
FOOD, HOUSE & PERSONAL PRODUCTS -- 1.8%
Silgan Holdings* 43,000 1,075
- - ------------------------------------------------------------------------------
1,075
- - ------------------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 1.4%
Encad* 5,000 149
Electronics for Imaging* 7,300 291
Splash Technologies Holdings* 11,000 275
Xionics Document Technologies* 10,000 126
- - ------------------------------------------------------------------------------
841
- - ------------------------------------------------------------------------------
HEALTH CARE-MANAGEMENT SERVICES -- 0.4%
ABR Information Services* 13,500 243
- - ------------------------------------------------------------------------------
243
- - ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 1.1%
Forrester Research* 17,000 310
Whittman-Hart* 17,800 378
- - ------------------------------------------------------------------------------
688
- - ------------------------------------------------------------------------------
44
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
LODGING -- 0.6%
Capstar Hotel* 10,000 $ 280
John Q. Hammons Hotels, Cl A* 12,600 113
- - ------------------------------------------------------------------------------
393
- - ------------------------------------------------------------------------------
LOGISTICS -- 0.7%
Eagle USA Airfreight* 13,000 400
- - ------------------------------------------------------------------------------
400
- - ------------------------------------------------------------------------------
MACHINERY & INSTRUMENTATION -- 1.6%
Coltec Industries* 2,600 48
Gleason 300 10
JLG Industries 29,300 575
Omniquip International* 25,000 363
- - ------------------------------------------------------------------------------
996
- - ------------------------------------------------------------------------------
MANUFACTURING SOFTWARE -- 1.0%
Manugistics* 9,800 358
Project Software & Development* 8,700 278
- - ------------------------------------------------------------------------------
636
- - ------------------------------------------------------------------------------
MARKETING INFORMATION SERVICES -- 0.5%
Abacus Direct* 14,700 312
- - ------------------------------------------------------------------------------
312
- - ------------------------------------------------------------------------------
MEDICAL DEVICES -- 0.8%
Acuson* 11,000 257
Sabratek* 12,500 250
- - ------------------------------------------------------------------------------
507
- - ------------------------------------------------------------------------------
METALS & MINING-- 0.6%
RMI Titanium* 16,900 349
- - ------------------------------------------------------------------------------
349
- - ------------------------------------------------------------------------------
NETWORKING SECURITY -- 0.3%
Security Dynamics Technologies* 8,800 216
- - ------------------------------------------------------------------------------
216
- - ------------------------------------------------------------------------------
NON-DURABLES -- 0.4%
NBTY* 17,900 271
- - ------------------------------------------------------------------------------
271
- - ------------------------------------------------------------------------------
OFFICE EQUIPMENT & SUPPLIES -- 1.6%
Computer Products* 6,000 88
HMT Technology* 20,000 245
Inacom* 15,900 362
Penn Engineering & Manufacturing* 10,400 201
Technology Modeling Associates* 7,000 70
- - ------------------------------------------------------------------------------
966
- - ------------------------------------------------------------------------------
OIL & GAS SERVICES -- 2.9%
Atwood Oceanics* 4,500 280
BJ Services* 600 29
Cliffs Drilling* 3,000 178
Dawson Production Services* 78,400 960
Helmerich & Payne 600 28
Rowan Companies* 3,200 72
World Fuel Services 11,800 209
- - ------------------------------------------------------------------------------
1,756
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
PAPER -- 0.5%
Albany International 5,400 $ 111
Fort Howard* 3,000 93
Pope and Talbot 5,600 77
- - ------------------------------------------------------------------------------
281
- - ------------------------------------------------------------------------------
PATIENT CARE-SPECIALTY -- 0.6%
National Surgery Centers* 12,000 348
- - ------------------------------------------------------------------------------
348
- - ------------------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 0.4%
NCS HealthCare* 11,900 269
- - ------------------------------------------------------------------------------
269
- - ------------------------------------------------------------------------------
PRINTING & PUBLISHING -- 1.8%
AHL Services* 20,000 200
Fiserv* 1,000 37
Interim Services* 2,000 78
McClatchy Newspapers, Cl A 15,100 361
National Data 2,000 71
Personnel Group of America* 9,100 179
Wallace Computer Services 5,300 176
- - ------------------------------------------------------------------------------
1,102
- - ------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 2.1%
American General Hospitality 7,400 202
Cali Realty 3,600 115
Camden Property Trust 1,700 46
Colonial Properties Trust 1,400 41
Federal Realty Investment Trust 2,400 62
Innkeepers USA Trust 2,000 29
Liberty Property Trust 1,300 32
Mid-America Apartment Communities 12,900 361
National Golf Properties 2,900 90
Sovran Self Storage 7,900 243
Urban Shopping Centers 2,300 69
- - ------------------------------------------------------------------------------
1,290
- - ------------------------------------------------------------------------------
RETAIL-CATALOG -- 1.4%
CDW Computer Centers* 6,400 288
Delia's Inc* 9,500 176
Insight Enterprises* 15,000 371
- - ------------------------------------------------------------------------------
835
- - ------------------------------------------------------------------------------
RETAIL-FOOD-- 1.1%
CKE Restaurants 16,550 366
Ryan's Family Steak Houses* 20,000 156
Riser Foods, Cl A 4,900 162
- - ------------------------------------------------------------------------------
684
- - ------------------------------------------------------------------------------
RETAIL-GENERAL -- 0.5%
Dollar Tree Stores* 8,400 311
- - ------------------------------------------------------------------------------
311
- - ------------------------------------------------------------------------------
45
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
RETAIL-SPECIALTY -- 2.6%
Brylane* 10,900 $ 259
Claire's Stores 2,900 49
Duty Free International 3,600 53
Family Dollar Stores 7,300 171
Finish Line* 16,400 365
GT Bicycles* 54,600 485
Pacific Greystone* 2,600 32
Rockshox* 9,000 134
Russ Berrie 1,100 26
- - ------------------------------------------------------------------------------
1,574
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR EQUIPMENT -- 3.1%
Cymer* 8,500 305
Fusion Systems* 22,900 544
PRI Automation* 7,400 353
Speedfam International* 10,000 330
Zygo 15,600 355
- - ------------------------------------------------------------------------------
1,887
- - ------------------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 1.3%
ESS Technology* 6,000 146
Microchip Technology* 11,400 342
Vitesse Semiconductor* 11,400 315
- - ------------------------------------------------------------------------------
803
- - ------------------------------------------------------------------------------
SERVICE/EQUIPMENT -- 1.6%
Energy Ventures* 6,500 401
Trico Marine Services* 6,000 285
Varco International* 11,700 293
- - ------------------------------------------------------------------------------
979
- - ------------------------------------------------------------------------------
SOFTWARE -- 3.0%
Factset Research Systems* 10,100 196
Inso* 1,000 38
Rainbow Technology* 32,000 552
SPSS* 1,800 45
Symantec* 54,000 769
Vanstar* 3,300 27
Xlconnect Solutions* 32,000 192
- - ------------------------------------------------------------------------------
1,819
- - ------------------------------------------------------------------------------
SOFTWARE-GENERAL -- 1.4%
Aspen Technology* 10,000 272
Visio* 8,500 331
Saville Systems ADR* 9,000 259
- - ------------------------------------------------------------------------------
862
- - ------------------------------------------------------------------------------
SPECIAL MATERIALS -- 0.4%
Zoltek* 9,400 239
- - ------------------------------------------------------------------------------
239
- - ------------------------------------------------------------------------------
STEEL -- 0.2%
LTV 1,400 18
Oregon Steel Mills 1,200 21
Quanex 4,400 111
- - ------------------------------------------------------------------------------
150
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
SYSTEM INTEGRATORS/VALUE ADDED RESELLERS -- 1.8%
Cambridge Technology Partners* 13,400 $ 310
Registry* 7,300 259
Renaissance Solutions* 8,200 207
Technology Solutions* 11,200 309
- - ------------------------------------------------------------------------------
1,085
- - ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 1.7%
Advanced Fibre Communication* 6,500 210
Remec* 14,400 310
Sawtek* 9,500 273
Uniphase* 7,000 259
Verilink* 1,300 8
- - ------------------------------------------------------------------------------
1,060
- - ------------------------------------------------------------------------------
TELEMARKETING -- 1.8%
Precision Response* 10,600 250
Sitel* 17,500 234
Snyder Communications* 13,500 317
Sykes Enterprises* 8,500 277
Telespectrum Worldwide* 3,000 36
- - ------------------------------------------------------------------------------
1,114
- - ------------------------------------------------------------------------------
TEXTILES & APPAREL -- 3.5%
Culp 7,100 122
Pluma* 170,000 2,040
- - ------------------------------------------------------------------------------
2,162
- - ------------------------------------------------------------------------------
TOBACCO -- 1.4%
Dimon 13,300 306
Glatfelter (PH) 29,100 480
Schweitzer-Manduit International 1,700 51
- - ------------------------------------------------------------------------------
837
- - ------------------------------------------------------------------------------
TRANSACTION PROCESSING -- 0.3%
Concord EFS* 10,300 193
- - ------------------------------------------------------------------------------
193
- - ------------------------------------------------------------------------------
TRANSPORTATION -- 4.6%
Air Express International 3,400 108
Coach USA* 11,000 319
Expeditors International of Washington 7,600 182
Halter Marine* 500 8
Knightsbridge Tankers Limited* 34,000 825
Offshore Logistics* 5,000 80
Seacor Holdings* 23,200 1,244
Trinity Industries 900 27
- - ------------------------------------------------------------------------------
2,793
- - ------------------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 1.8%
Aspect Telecommunications* 15,000 293
Comverse Technology* 8,100 320
Davox* 9,300 288
Natural Microsystems* 11,500 229
- - ------------------------------------------------------------------------------
1,130
- - ------------------------------------------------------------------------------
46
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
UTILITIES-ELECTRICAL -- 0.0%
Hawaiian Electric Industries 900 $ 30
- - ------------------------------------------------------------------------------
30
- - ------------------------------------------------------------------------------
Total Common Stocks
(Cost $65,108) 58,838
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 2.5%
J.P. Morgan
6.59%, dated 03/31/97, matures 04/01/97,
repurchase price $1,519,083 (collateralized
by GNMA obligation, par value
$1,575,000, 6.00%, 08/20/26:
market value $1,570,280) (A) $ 1,519 $ 1,519
- - ------------------------------------------------------------------------------
Total Repurchase Agreements
(Cost $1,519) 1,519
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 98.3%
(COST $66,627) 60,357
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- 1.7%
Other Assets and Liabilities, Net 1,025
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
200 million shares -- $0.001 par value)
based on 6,925,416 outstanding shares
of common stock 69,672
Undistributed net investment income 28
Accumulated net realized loss on investments (2,048)
Net unrealized depreciation on investments (6,270)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $61,382
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $8.86
================================================================================
* NON-INCOME PRODUCING SECURITY
(A) -- TRI-PARTY REPURCHASE AGREEMENT
ADR--AMERICAN DEPOSITORY RECEIPT
CL--CLASS
GNMA--GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
47
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG INTERNATIONAL FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG International Fund
JAPAN - 23%
UNITED KINGDOM - 11%
GERMANY - 10%
FRANCE - 7%
SWITZERLAND - 7%
AUSTRALIA 5%
SINGAPORE - 5%
HONG KONG - 4%
MALAYSIA - 4%
NETHERLANDS - 4%
ITALY - 3%
SPAIN - 3%
OTHER - 14%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- 91.1%
ARGENTINA -- 1.9%
Banco Frances del Rio ADS 4,500 $ 135
Disco ADR* 4,820 155
Irsa GDR 3,000 112
- - ------------------------------------------------------------------------------
402
- - ------------------------------------------------------------------------------
AUSTRALIA -- 4.8%
Australia & New Zealand Bank 60,000 380
Commonwealth Bank of Australia 30,000 300
Newscorp 75,000 349
- - ------------------------------------------------------------------------------
1,029
- - ------------------------------------------------------------------------------
BELGIUM -- 2.0%
Fortis 2,390 425
- - ------------------------------------------------------------------------------
425
- - ------------------------------------------------------------------------------
CHILE -- 2.3%
Madeco ADR 3,500 94
Quimica Minera ADR 7,000 403
- - ------------------------------------------------------------------------------
497
- - ------------------------------------------------------------------------------
FRANCE -- 6.8%
AXA 3,576 237
Bancaire 1,930 256
Lyonnaise des Eaux 3,081 316
Michelin, Cl B 2,323 138
SGS-Thomson Microelectronics* 4,700 331
Total, Cl B 2,000 173
- - ------------------------------------------------------------------------------
1,451
- - ------------------------------------------------------------------------------
GERMANY -- 8.5%
BMW 640 521
Continental 8,430 187
Linde 670 469
Mannesmann 770 293
Volkswagen 620 341
- - ------------------------------------------------------------------------------
1,811
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- CONTINUED
HONG KONG -- 4.3%
Cheung Kong Holdings 30,000 $ 264
Hutchison Whampoa 15,000 113
Peregrine Investment Holdings 165,000 263
Peregrine Investment Holdings Warrants* 16,500 4
Swire Pacific, Cl A 35,000 276
- - ------------------------------------------------------------------------------
920
- - ------------------------------------------------------------------------------
IRELAND -- 1.0%
Allied Irish Bank 30,103 206
- - ------------------------------------------------------------------------------
206
- - ------------------------------------------------------------------------------
ITALY -- 3.3%
ENI SPA 40,100 204
Parmalat Finanziaria 177,000 246
Seat 19,838 7
STET 25,800 113
Telecom Italia Mobile 47,000 135
- - ------------------------------------------------------------------------------
705
- - ------------------------------------------------------------------------------
JAPAN -- 14.9%
Canon Sales 11,000 218
Dai-Ichi Kangyo Bank 17,000 180
Eisai 15,000 257
Fuji Machine Manufacturing 10,000 260
Hitachi 30,000 267
Itochu 33,000 162
Keyence 1,650 188
Matsushita Communications 8,000 186
Mitsubishi Heavy Industries 31,000 202
Murata Manufacturing 7,000 251
Nippon Sanso 48,000 157
Nippon Steel 70,000 192
Nissan Motors 28,000 169
Sanwa Bank 9,000 97
Shin Etsu Chemical 8,000 152
Sumitomo Electric 17,000 231
- - ------------------------------------------------------------------------------
3,169
- - ------------------------------------------------------------------------------
MALAYSIA -- 3.6%
Hicom Holdings 125,000 325
Malayan Banking 25,000 285
Renong Berhad 85,000 144
- - ------------------------------------------------------------------------------
754
- - ------------------------------------------------------------------------------
MEXICO -- 2.2%
Cifra ADR* 92,000 129
Grupo Imsa ADR* 7,500 174
Grupo Industrial Durango ADR* 15,000 148
Interceramica* 18,000 25
Interceramica UB rights* 2,248 --
Interceramica ULD rights* 1,818 --
- - ------------------------------------------------------------------------------
476
- - ------------------------------------------------------------------------------
NETHERLANDS -- 3.6%
Elsevier 6,310 103
Hollandsche Beton Groep 540 123
ING Groep 5,500 217
VNU 15,910 327
- - ------------------------------------------------------------------------------
770
- - ------------------------------------------------------------------------------
48
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
MARKET
DESCRIPTION SHARES VALUE (000)
- - ------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- CONTINUED
NEW ZEALAND -- 1.4%
Carter Holt Harvey 70,000 $ 148
Lion Nathan 60,000 142
- - ------------------------------------------------------------------------------
290
- - ------------------------------------------------------------------------------
NORWAY -- 1.9%
Norsk Hydro 7,840 393
- - ------------------------------------------------------------------------------
393
- - ------------------------------------------------------------------------------
PHILIPPINES -- 0.0%
Benpres Holdings GDS* 800 6
- - ------------------------------------------------------------------------------
6
- - ------------------------------------------------------------------------------
POLAND -- 1.4%
BRE 5,000 150
Mostostal Export 16,000 49
Polifarb Cieszyn 15,000 98
- - ------------------------------------------------------------------------------
297
- - ------------------------------------------------------------------------------
SINGAPORE -- 4.7%
City Developments 40,000 355
Hongkong Land Holdings 125,000 290
Keppel 35,000 221
Singapore Land 25,000 128
- - ------------------------------------------------------------------------------
994
- - ------------------------------------------------------------------------------
SPAIN -- 2.7%
Porsegur Comp Seguridad 16,400 163
Telefonica de Espana 17,420 419
- - ------------------------------------------------------------------------------
582
- - ------------------------------------------------------------------------------
SWITZERLAND -- 7.4%
Asea Brown Boveri 160 191
Ciba Specialty Chemicals* 384 32
Novartis* 384 474
Winterthur 610 422
Zurich Insurance* 1,420 445
- - ------------------------------------------------------------------------------
1,564
- - ------------------------------------------------------------------------------
THAILAND -- 1.4%
Bangkok Bank, F 30,000 292
- - ------------------------------------------------------------------------------
292
- - ------------------------------------------------------------------------------
UNITED KINGDOM -- 11.0%
Abbey National 11,600 142
Argyll Group 21,500 126
BOC Group 8,300 130
British Aerospace 6,600 148
British Airport Authority 15,000 127
British Petroleum 12,586 146
BTR 25,000 110
Cadbury Schweppes 16,800 149
Carlton Communications 14,000 120
Commercial Union 9,500 105
CRH 8,570 85
Glaxo Wellcome 11,800 217
Grand Metropolitan 17,200 139
Kingfisher 10,800 124
Ladbroke 32,900 122
National Westminster 13,200 149
Smurfit (Jefferson) Group 31,470 82
Wolseley 15,800 128
- - ------------------------------------------------------------------------------
2,349
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
SHARES/FACE MARKET
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
FOREIGN COMMON STOCKS -- CONTINUED
Total Foreign Common Stocks
(Cost $17,969) $19,382
- - ------------------------------------------------------------------------------
FOREIGN PREFERRED STOCKS -- 1.9%
BRAZIL -- 0.0%
Brahma* 6,432 4
- - ------------------------------------------------------------------------------
4
- - ------------------------------------------------------------------------------
GERMANY -- 1.9%
Fresenius 1,700 390
- - ------------------------------------------------------------------------------
390
- - ------------------------------------------------------------------------------
Total Foreign Preferred Stocks
(Cost $138) 394
- - ------------------------------------------------------------------------------
TIME DEPOSITS -- 8.4%
International Bank of Japan
6.313%, 04/01/97 $1,780 1,780
- - ------------------------------------------------------------------------------
Total Time Deposits
(Cost $1,780) 1,780
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 101.4%
(COST $19,887) $21,556
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (1.4%)
Other Assets and Liabilities, Net (291)
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares PBHG Class (authorized
200 million shares -- $.001 par value)
based on 1,889,359 outstanding shares
of common stock 19,513
Accumulated net investment loss (45)
Accumulated net realized gain on investments 128
Net unrealized appreciation on investments 1,669
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $21,265
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $11.26
================================================================================
* NON INCOME PRODUCING SECURITY
ADR--AMERICAN DEPOSITORY RECEIPT
ADS--AMERICAN DEPOSITORY SHARE
CL--CLASS
F--FOREIGN REGISTRY SHARES
GDR--GLOBAL DEPOSITORY RECEIPT
GDS--GLOBAL DEPOSITORY SHARE
49
<PAGE>
STATEMENT OF NET ASSETS
- - ------------------------------------------------------------------------------
AS OF MARCH 31, 1997
PBHG CASH RESERVES FUND
[PIE CHART OMITTED]
Pie chart depicting PBHG Cash Reserves Fund
COMMERCIAL PAPER - 73%
CORPORATE OBLIGATIONS - 4%
U.S. GOVERNMENT AGENCY OBLIGATIONS - 4%
CERTIFICATES OF DEPOSIT - 4%
REPURCHASE AGREEMENTS - 15%
% OF TOTAL PORTFOLIO INVESTMENTS
- - ------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMERCIAL PAPER -- 73.5%
A1 Credit
6.500%, 04/01/97 $10,000 $10,000
American Brands
5.300%, 05/13/97 (B) 8,000 7,951
American General Finance
5.350%, 06/04/97 8,000 7,924
Apreco
5.320%, 04/21/97 8,000 7,976
Avco Financial Services
6.700%, 04/01/97 10,000 10,000
Bear Stearns Company
5.300%, 05/14/97 8,000 7,949
BHF Finance
5.300%, 04/11/97 7,000 6,990
BT Securities
5.350%, 05/15/97 5,000 4,967
Centric Funding
5.350%, 04/28/97 8,000 7,968
Cie de Saint Gobain
5.310%, 04/28/97 4,000 3,984
CIT Group Holdings
5.350%, 06/30/97 7,000 6,906
Clorox
5.310%, 04/07/97 8,000 7,993
Dean Witter Discover
5.320%, 04/22/97 1,600 1,595
Electricite Defrance
5.350%, 07/07/97 8,500 8,378
Ford Motor Credit
5.360%, 07/09/97 8,000 7,882
General Electric Capital
5.340%, 06/16/97 7,000 6,921
General Motors Acceptance
5.370%, 06/04/97 8,000 7,924
Gillette
6.700%, 04/01/97 10,000 10,000
Hitachi America
5.330%, 05/29/97 5,000 4,957
- - ------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
COMMERCIAL PAPER -- CONTINUED
Honeywell
6.700%, 04/01/97 $10,840 $10,840
International Neder US Insurance
6.600%, 04/01/97 10,000 10,000
Kitty Hawk Funding
5.380%, 06/02/97 (B) 7,700 7,629
Merrill Lynch
5.350%, 05/02/97 8,000 7,963
Morgan Stanley Group
5.310%, 05/15/97 8,500 8,445
National Rural Utilities
5.330%, 05/05/97 8,000 7,960
New Center Asset Trust
5.280%, 08/14/97 5,000 4,901
Otter Tail Power
5.340%, 04/08/97 1,500 1,498
PPG Industries
5.310%, 04/08/97 8,000 7,992
Prudential Funding
5.360%, 06/23/97 5,000 4,938
Quebec Province
5.270%, 05/15/97 2,865 2,847
Ranger Funding
5.300%, 04/14/97 (B) 5,000 4,990
Riverwoods Funding
5.310%, 04/08/97 8,000 7,992
Toshiba America
5.370%, 07/30/97 6,630 6,511
Transamerica Finance
5.300%, 04/14/97 8,000 7,985
Unifunding Yankee
5.310%, 05/12/97 2,500 2,485
Washington Gas Light
5.350%, 04/02/97 8,000 7,999
- - ------------------------------------------------------------------------------
Total Commercial Paper
(Cost $251,240) 251,240
- - ------------------------------------------------------------------------------
CORPORATE OBLIGATIONS -- 3.8%
Asset Backed Securities Investment Trust 1996-M (A)
5.438%, 10/15/97 5,000 5,000
Bank One (A) (B)
5.300%, 12/24/97 8,000 7,993
- - ------------------------------------------------------------------------------
Total Corporate Obligations
(Cost $12,993) 12,993
- - ------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 3.8%
FNMA
5.434%, 04/24/97 2,915 2,905
5.373%, 05/06/97 10,000 9,949
- - ------------------------------------------------------------------------------
Total U.S. Government Agency Obligations
(Cost $12,854) 12,854
- - ------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT -- 4.1%
Bank of New York Bank Note
5.840%, 06/03/97 7,000 7,001
National Bank of Canada
5.590%, 07/08/97 5,000 5,000
Southtrust Bank of Alabama (A)
5.521%, 06/17/97 2,000 2,000
- - ------------------------------------------------------------------------------
Total Certificates of Deposit
(Cost $14,001) 14,001
- - ------------------------------------------------------------------------------
50
<PAGE>
THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
FACE
DESCRIPTION AMOUNT (000) VALUE (000)
- - ------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 14.9%
Lanston
6.35%, dated 03/31/97, matures 04/01/97,
repurchase price $50,820,963 (collateralized
by U.S. Treasury Notes, total par value
$49,999,000, 6.25%, 07/31/98-03/31/99;
U.S. Treasury Bill, total par value
$1,896,000, 5.36%, 09/11/97:
total market value $51,849,347) $ 50,812 $50,812
- - ------------------------------------------------------------------------------
Total Repurchase Agreement
(Cost $50,812) 50,812
- - ------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.1%
(COST $341,900) 341,900
- - ------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.1%)
Other Assets and Liabilities, Net (324)
- - ------------------------------------------------------------------------------
NET ASSETS:
Fund Shares of PBHG Class (authorized
1 billion, 800 million shares -- $0.001
par value) based on 341,576,620
outstanding shares of common stock 341,577
Accumulated net realized loss on investments (1)
- - ------------------------------------------------------------------------------
TOTAL NET ASSETS-- 100.0% $341,576
================================================================================
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $1.00
================================================================================
(A) FLOATING RATE SECURITY. THE RATE REFLECTED ON THE STATEMENT OF NET ASSETS IS
THE RATE IN EFFECT ON MARCH 31, 1997.
(B) PRIVATE PLACEMENT SECURITY.
FNMA--FEDERAL NATIONAL MORTGAGE ASSOCIATION
MTN--MEDIUM TERM NOTE
51
<PAGE>
STATEMENTS OF OPERATIONS (000) THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------- -------- -------- --------
PBHG PBHG PBHG
PBHG EMERGING CORE SELECT
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
-------- -------- -------- --------
04/01/96 04/01/96 04/01/96 04/01/96
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,659 $ 251 $ 188 $ 101
Interest 27,130 11,384 1,839 2,310
Less: Foreign Taxes Withheld -- -- -- --
----------- --------- --------- --------
Total Investment Income 28,789 11,635 2,027 2,411
----------- --------- --------- --------
EXPENSES:
Investment Advisory Fees 44,149 10,775 2,918 4,101
Waiver of Investment Advisory Fees -- -- -- --
Administrative Fees 8,325 2,027 527 762
Transfer Agent Fees 9,496 2,677 913 993
Registration and Filing Fees 1,124 360 128 107
Printing Fees 855 161 77 61
Professional Fees 388 95 27 28
Custodian Fees 216 55 28 16
Insurance and Other Fees 116 23 3 5
Directors' Fees 34 8 1 2
Amortization of Deferred Organizational Costs -- 3 3 3
Distribution Fees 4 9 -- -- --
----------- --------- --------- --------
Total Expenses 64,712 16,184 4,625 6,078
----------- --------- --------- --------
NET INVESTMENT INCOME (LOSS) (35,923) (4,549) (2,598) (3,667)
----------- --------- --------- --------
Net Realized Gain (Loss) from Security Transactions (244,650) (51,106) (49,445) (32,999)
Net Realized Loss on Foreign Currency Transactions -- -- -- --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (840,002) (232,763) (41,122) (31,600)
----------- --------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (1,084,652) (283,869) (90,567) (64,599)
----------- --------- --------- --------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(1,120,575) $(288,418) $ (93,165) $(68,266)
=========== ========= ========= ========
-------- -------------- -------- --------
PBHG PBHG PBHG
LARGE CAP TECHNOLOGY & PBHG LARGE CAP
GROWTH COMMUNICATIONS LIMITED 20
FUND FUND FUND FUND
-------- -------------- -------- --------
04/01/96 04/01/96 07/01/96 1 12/01/96 2
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- -------------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 238 $ 39 $ 24 $ 38
Interest 706 2,555 2,445 322
Less: Foreign Taxes Withheld -- -- -- --
------- -------- ------- -------
Total Investment Income 944 2,594 2,469 360
------- -------- ------- -------
EXPENSES:
Investment Advisory Fees 931 2,970 1,416 184
Waiver of Investment Advisory Fees -- -- -- --
Administrative Fees 195 538 212 32
Transfer Agent Fees 314 877 248 52
Registration and Filing Fees 31 162 57 36
Printing Fees 22 48 27 8
Professional Fees 13 15 23 6
Custodian Fees 12 21 18 3
Insurance and Other Fees 4 7 2 1
Directors' Fees 1 1 2 --
Amortization of Deferred Organizational Costs 2 2 -- 2
Distribution Fees 4 -- -- -- --
------- -------- ------- -------
Total Expenses 1,525 4,641 2,005 324
------- -------- ------- -------
NET INVESTMENT INCOME (LOSS) (581) (2,047) 464 36
------- -------- ------- -------
Net Realized Gain (Loss) from Security Transactions (5,730) 18,009 641 (2,539)
Net Realized Loss on Foreign Currency Transactions -- -- -- --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- -- --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (1,449) (56,036) (13,027) (4,836)
------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (7,179) (38,027) (12,386) (7,375)
------- -------- ------- -------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $(7,760) $(40,074) $11,922 $(7,339)
======= ======== ======= =======
-------- ------------- ------------- ---------
PBHG PBHG PBHG
LARGE CAP STRATEGIC PBHG CASH
VALUE SMALL COMPANY INTERNATIONAL RESERVES
FUND FUND FUND FUND
-------- ------------- ------------- ---------
01/02/97 3 01/02/97 3 04/01/96 04/01/96
to to to to
03/31/97 03/31/97 03/31/97 03/31/97
-------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 73 $ 98 $ 317 $ --
Interest 44 161 50 12,387
Less: Foreign Taxes Withheld -- -- (30) --
------ ------- ------ -------
Total Investment Income 117 259 337 12,387
------ ------- ------ -------
EXPENSES:
Investment Advisory Fees 32 154 177 679
Waiver of Investment Advisory Fees (9) -- -- --
Administrative Fees 6 23 40 355
Transfer Agent Fees 15 33 86 321
Registration and Filing Fees 9 14 17 94
Printing Fees 1 3 3 38
Professional Fees 1 2 1 23
Custodian Fees 1 1 41 23
Insurance and Other Fees 1 1 13 4
Directors' Fees -- -- -- 4
Amortization of Deferred Organizational Costs -- -- 16 2
Distribution Fees 4 -- -- -- --
------ ------- ------ -------
Total Expenses 57 231 394 1,543
------ ------- ------ -------
NET INVESTMENT INCOME (LOSS) 60 28 (57) 10,844
------ ------- ------ -------
Net Realized Gain (Loss) from Security Transactions -- (2,048) 451 (2)
Net Realized Loss on Foreign Currency Transactions -- -- (34) --
Net Change in Unrealized Appreciation on Foreign
Currency and Translation of Other Assets and
Liabilities in Foreign Currency -- -- 1 --
Net Change in Unrealized Appreciation (Depreciation)
on Investments (800) (6,270) 778 --
------ ------- ------ -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS (800) (8,318) 1,196 (2)
------ ------- ------ -------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (740) $(8,290) $1,139 $10,842
====== ======= ====== =======
<FN>
1. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
2. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996.
3. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS ON JANUARY 2, 1997.
4. ALL DISTRIBUTION FEES ARE INCURRED IN THE TRUST CLASS.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
</FN>
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
52 & 53
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (000) THE PBHG FUNDS, INC.
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------- ---------------------- ----------------------
PBHG PBHG
PBHG EMERGING CORE
GROWTH GROWTH GROWTH
FUND FUND FUND
---------- ---------- ---------- --------- --------- ----------
04/01/96 04/01/95 04/01/96 04/01/95 04/01/96 01/02/96 1
to to to to to to
03/31/97 03/31/96 03/31/97 03/31/96 03/31/97 03/31/96
---------- ---------- ---------- --------- --------- ----------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ (35,923) $ (14,090) $ (4,549) $ (2,334) $ (2,598) $ (5)
Net Realized Gain (Loss) from Security
Transactions (244,650) (34,304) (51,106) 76,215 (49,445) (43)
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (840,002) 793,260 (232,763) 149,027 (41,122) 1,394
---------- ---------- ---------- --------- --------- ---------
Net Increase (Decrease) in Net Assets
Resulting from Operations (1,120,575) 744,866 (288,418) 222,908 (93,165) 1,346
---------- ---------- ---------- --------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income -- -- -- -- -- --
Net Realized Gains from Security
Transactions -- -- (49,616) (27,375) -- --
---------- ---------- ---------- --------- --------- ---------
Total Distributions -- -- (49,616) (27,375) -- --
---------- ---------- ---------- --------- --------- ---------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 5,020,812 1,989,556 1,925,528 300,741 804,054 32,701
Shares Issued upon Reinvestment
of Distributions -- -- 47,297 26,142 -- --
Shares Redeemed (2,567,916) (450,329) (1,128,876) (244,577) (457,986) (2,955)
---------- ---------- ---------- --------- --------- ---------
Total PBHG
Class Transactions 2,452,896 1,539,227 843,949 82,306 346,068 29,746
---------- ---------- ---------- --------- --------- ---------
Trust Class
Shares Issued 15,962 -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed (79) -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Total Trust Class Transactions 15,883 -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Increase (Decrease) in Net Assets Derived
from Capital Share Transactions 2,468,779 1,539,227 843,949 82,306 346,068 29,746
---------- ---------- ---------- --------- --------- ---------
Total Increase (Decrease) in Net Assets 1,348,204 2,284,093 505,915 277,839 252,903 31,092
---------- ---------- ---------- --------- --------- ---------
NET ASSETS:
Beginning Period 3,298,925 1,014,832 689,705 411,866 31,092 --
---------- ---------- ---------- --------- --------- ---------
End of Period $4,647,129 $3,298,925 $1,195,620 $ 689,705 $ 283,995 $ 31,092
========== ========== ========== ========= ========= =========
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 189,736 91,357 77,652 15,598 60,034 2,888
Shares Issued upon Reinvestment
of Distributions -- -- 1,921 1,270 -- --
Shares Redeemed (100,103) (21,718) (47,388) (12,551) (35,211) (257)
---------- ---------- ---------- --------- --------- ---------
Total PBHG Class Share Transactions 89,633 69,639 32,185 4,317 24,823 2,631
---------- ---------- ---------- --------- --------- ---------
Trust Class 3
Shares Issued 621 -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed (3) -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Total Trust Class Share Transactions 618 -- -- -- -- --
---------- ---------- ---------- --------- --------- ---------
Net Increase (Decrease) in Shares
Outstanding 90,251 69,639 32,185 4,317 24,823 2,631
========== ========== ========== ========= ========= =========
-------------------- -------------------- ----------------------
PBHG PBHG PBHG
SELECT LARGE CAP TECHNOLOGY &
EQUITY GROWTH COMMUNICATIONS
FUND FUND FUND
--------- --------- -------- --------- -------- ---------
04/01/96 04/05/95 2 4/01/96 04/05/95 4 04/01/96 10/02/95 5
to to to to to to
03/31/97 03/31/96 03/31/97 03/31/96 03/31/97 03/31/96
--------- --------- -------- --------- -------- ---------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ (3,667) $ (546) $ (581) $ (103) $ (2,047) $ (77)
Net Realized Gain (Loss) from Security
Transactions (32,999) 8,613 (5,730) 950 18,009 (184)
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (31,600) 20,035 (1,449) 3,566 (56,036) 3,854
--------- --------- -------- ------- -------- -------
Net Increase (Decrease) in Net Assets
Resulting from Operations (68,266) 28,102 (7,760) 4,413 (40,074) 3,593
--------- --------- -------- ------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income -- -- -- -- -- (6)
Net Realized Gains from Security
Transactions (6,009) (2,736) (146) (712) (10,050) --
--------- --------- -------- ------- -------- -------
Total Distributions (6,009) (2,736) (146) (712) (10,050) (6)
--------- --------- -------- ------- -------- -------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 828,376 283,506 259,520 74,598 1,278,462 86,263
Shares Issued upon Reinvestment
of Distributions 5,665 2,634 135 592 9,213 6
Shares Redeemed (590,076) (108,710) (185,537) (25,132) (806,167) (28,084)
--------- --------- -------- ------- -------- -------
Total PBHG
Class Transactions 243,965 177,430 74,118 50,058 481,508 58,185
--------- --------- -------- ------- -------- -------
Trust Class
Shares Issued -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Total Trust Class Transactions -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Increase (Decrease) in Net Assets Derived
from Capital Share Transactions 243,965 177,430 74,118 50,058 481,508 58,185
--------- --------- -------- ------- -------- -------
Total Increase (Decrease) in Net Assets 169,690 202,796 66,212 53,759 431,384 61,772
--------- --------- -------- ------- -------- -------
NET ASSETS:
Beginning Period 202,796 -- 53,759 -- 61,772 --
--------- --------- -------- ------- -------- -------
End of Period $ 372,486 $ 202,796 $119,971 $53,759 $493,156 $61,772
========= ========= ======== ======= ======== =======
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 42,146 18,709 16,415 5,520 77,511 7,440
Shares Issued upon Reinvestment
of Distributions 284 176 8 46 525 1
Shares Redeemed (30,763) (7,139) (11,712) (1,865) (49,269) (2,489)
--------- --------- -------- ------- -------- -------
Total PBHG Class Share Transactions 11,667 11,746 4,711 3,701 28,767 4,952
--------- --------- -------- ------- -------- -------
Trust Class3
Shares Issued -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Total Trust Class Share Transactions -- -- -- -- -- --
--------- --------- -------- ------- -------- -------
Net Increase (Decrease) in Shares
Outstanding 11,667 11,746 4,711 3,701 28,767 4,952
========= ========= ======== ======= ======== =======
--------- ---------- ---------- --------- ---------------------- --------------------
PBHG PBHG PBHG
PBHG LARGE CAP LARGE CAP STRATEGIC PBHG PBHG
LIMITED 20 VALUE SMALL CO. INTERNATIONAL CASH RESERVES
FUND FUND FUND FUND FUND FUND
--------- --------- ---------- --------- --------- -------- ---------- ---------
07/01/96 6 12/01/96 7 01/02/97 8 01/02/97 8 04/01/96 04/01/95 04/01/96 04/05/95 9
to to to to to to to to
03/31/97 03/31/97 03/31/97 03/31/97 03/31/97 03/31/96 03/31/97 03/31/96
--------- --------- ---------- --------- --------- -------- ---------- ---------
INVESTMENT ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income (Loss) $ 464 $ 36 $ 60 $ 28 $ (57) $ (25) $ 10,844 $ 2,838
Net Realized Gain (Loss) from Security
Transactions 641 (2,539) -- (2,048) 451 348 (2) 1
Net Realized Gain (Loss) on Foreign
Currency Transactions -- -- -- -- (34) 96 -- --
Net Change in Unrealized Appreciation
(Depreciation) on Investments and
Foreign Currency Transactions (13,027) (4,836) (800) (6,270) 779 1,261 -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Net Increase (Decrease) in Net Assets
Resulting from Operations (11,922) (7,339) (740) (8,290) 1,139 1,680 10,842 2,839
-------- -------- -------- -------- --------- -------- ---------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (464) (53) -- -- -- -- (10,844) (2,838)
Net Realized Gains from Security
Transactions (285) -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Distributions (749) (53) -- -- -- -- (10,844) (2,838)
-------- -------- -------- -------- --------- -------- ---------- --------
CAPITAL SHARE TRANSACTIONS (A):
PBHG Class
Shares Issued 198,852 109,566 35,206 87,204 39,195 13,080 1,393,768 269,541
Shares Issued upon Reinvestment
of Distributions 720 50 -- -- -- -- 8,942 2,751
Shares Redeemed (49,381) (32,405) (8,204) (17,532) (30,312) (18,753) (1,160,133) (173,292)
-------- -------- -------- -------- --------- -------- ---------- --------
Total PBHG
Class Transactions 150,191 77,211 27,002 69,672 8,883 (5,673) 242,577 99,000
-------- -------- -------- -------- --------- -------- ---------- --------
Trust Class
Shares Issued -- -- -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Trust Class Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Increase (Decrease) in Net Assets
Derived from Capital
Share Transactions 150,191 77,211 27,002 69,672 8,883 (5,673) 242,577 99,000
-------- -------- -------- -------- --------- -------- ---------- --------
Total Increase (Decrease)
in Net Assets 137,520 69,819 26,262 61,382 10,022 (3,993) 242,575 99,001
-------- -------- -------- -------- --------- -------- ---------- --------
NET ASSETS:
Beginning Period -- -- -- -- 11,243 15,236 99,001 --
-------- -------- -------- -------- --------- -------- ---------- --------
End of Period $137,520 $ 69,819 $ 26,262 $ 61,382 $ 21,265 $ 11,243 $341,576 $ 99,001
======== ======== ======== ======== ========= ======== ========== ========
(A) SHARES ISSUED AND REDEEMED:
PBHG Class
Shares Issued 19,868 10,798 3,381 8,740 3,602 1,327 1,393,768 269,541
Shares Issued upon Reinvestment
of Distributions 66 5 -- -- -- -- 8,942 2,751
Shares Redeemed (4,739) (3,255) (784) (1,815) (2,778) (1,931) (1,160,133) (173,291)
-------- -------- -------- -------- --------- -------- ---------- --------
Total PBHG Class Share Transactions 15,195 7,548 2,597 6,925 824 (604) 242,577 99,001
-------- -------- -------- -------- --------- -------- ---------- --------
Trust Class3
Shares Issued -- -- -- -- -- -- -- --
Shares Issued upon Reinvestment
of Distributions -- -- -- -- -- -- -- --
Shares Redeemed -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Total Trust Class Share Transactions -- -- -- -- -- -- -- --
-------- -------- -------- -------- --------- -------- ---------- --------
Net Increase (Decrease) in Shares
Outstanding 15,195 7,548 2,597 6,925 824 (604) 242,577 99,001
======== ======== ======== ======== ========= ======== ========== ========
<FN>
1. THE PBHG CORE GROWTH FUND COMMENCED OPERATIONS ON JANUARY 2, 1996.
4. THE PBHG LARGE CAP GROWTH FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
2. THE PBHG SELECT EQUITY FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
5. THE PBHG TECHNOLOGY & COMMUNICATIONS FUND COMMENCED OPERATIONS ON OCTOBER 2, 1995.
3. THE PBHG GROWTH FUND -- TRUST CLASS COMMENCED OPERATIONS ON AUGUST 19, 1996.
6. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
7. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996. AMOUNTS
DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
8. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS
ON JANUARY 2, 1997.
9. THE PBHG CASH RESERVES FUND COMMENCED OPERATIONS ON APRIL 5, 1995.
</FN>
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
54 & 55
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- - ----------------------------------------------------------------------------------------------------------------------------------
For a Share Outstanding Throughout each Fiscal Year or Period
NET NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE END OF EXPENSES
BEGINNING INCOME GAINS OR (LOSSES) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
- - ----------------------------------------------------------------------------------------------------------------------------------
PBHG GROWTH FUND
- - ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
1997 $25.30 $(0.10) $(4.14) -- -- $21.06 (16.76)% $4,634,138 1.25%
1996 16.70 (0.06) 8.66 -- -- 25.30 51.50% 3,298,925 1.48%
1995 14.67 (0.05) 2.09 -- $(0.01) 16.70 13.92% 1,014,832 1.50%
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28% 319,059 1.55%
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47% 6,069 2.39%
PBHG TRUST CLASS
1997(1) $25.42 $(0.06) $(4.33) -- -- $21.03 (17.27)%+ $ 12,991 1.53%*
- - -------------------------
PBHG EMERGING GROWTH FUND
- - -------------------------
PBHG Class
1997 $23.07 $(0.11) $(2.87) -- $(0.83) $19.26 (13.71)% $1,195,620 1.28%
1996 16.10 (0.07) 8.03 -- (0.99) 23.07 50.16% 689,705 1.47%
1995(2,3) 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+ 411,866 1.50%*
1994(2) 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64% 113,329 1.45%
1993(4) 10.00 (0.03) 3.25 -- -- 13.22 32.20%+ 34,517 1.50%*
- - ---------------------
PBHG CORE GROWTH FUND
- - ---------------------
PBHG CLASS
1997 $11.82 $(0.09) $(1.39) -- -- $10.34 (12.52% $ 283,995 1.36%
1996(5) 10.00 -- 1.82 -- -- 11.82 18.20%+ 31,092 1.50%*
- - -----------------------
PBHG SELECT EQUITY FUND
- - -----------------------
PBHG CLASS
1997 $17.27 $(0.13) $(1.03) -- $(0.20) $15.91 (6.94)% $ 372,486 1.26%
1996(6) 10.00 (0.05) 7.68 -- (0.36) 17.27 77.75%* 202,796 1.50%*
- - --------------------------
PBHG LARGE CAP GROWTH FUND
- - --------------------------
PBHG CLASS
1997 $14.53 $(0.05) $(0.21) -- $(0.01) $14.26 (1.77)% $ 119,971 1.23%
1996(6) 10.00 (0.03) 4.97 -- (0.41) 14.53 50.47%* 53,759 1.50%*
- - -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- - -------------------------------------
PBHG CLASS
1997 $12.48 $(0.05) $2.55 -- $(0.35) $14.63 19.59% $ 493,156 1.33%
1996(7) 10.00 (0.02) 2.50 -- -- 12.48 24.82%+ 61,772 1.50%*
- - -----------------
PBHG LIMITED FUND
- - -----------------
PBHG CLASS
1997(8) $10.00 $0.02 $(0.93) $(0.03) $(0.01) $ 9.05 (9.15)%+ $ 137,520 1.42%*
RATIO
RATIO OF NET
OF NET RATIO INVESTMENT
INVESTMENT OF EXPENSES INCOME (LOSS)
INCOME TO AVERAGE TO AVERAGE
(LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS WAIVERS) WAIVERS) RATE RATE 12
- --------------------------------------------------------------------------------
PBHG GROWTH FUND
- ------------------
<S> <C> <C> <C> <C> <C>
PBHG CLASS
1997 (0.69)% 1.25% (0.69)% 64.89% $0.0493
1996 (0.79)% 1.48% (0.79)% 44.64% n/a
1995 (0.69)% 1.50% (0.69)% 118.75% n/a
1994 (0.78)% 1.59% (0.82)% 94.28% n/a
1993 (1.69)% 3.04% (2.34)% 209.24% n/a
PBHG TRUST CLASS
1997(1) (1.11)%* 1.53%* (1.11)%* 64.89% $0.0493
- ---------------------------
PBHG EMERGING GROWTH FUND
- ---------------------------
PBHG Class
1997 (0.36)% 1.28% (0.36)% 47.75% $0.0328
1996 (0.42)% 1.47% (0.42)% 97.05% n/a
1995(2,3) (0.08)%* 1.50%* (0.08)%* 27.50% n/a
1994(2) (0.77)% 1.45% (0.77)% 95.75% n/a
1993(4) (0.72)%* 1.54%* (0.76)%* 71.18% n/a
- -----------------------
PBHG CORE GROWTH FUND
- -----------------------
PBHG CLASS
1997 (0.77)% 1.36% (0.77)% 46.75% $0.0437
1996(5) (0.18)%* 2.92%* (1.60)%* 17.00% n/a
- -------------------------
PBHG SELECT EQUITY FUND
- -------------------------
PBHG CLASS
1997 (0.76)% 1.26% (0.76)% 71.70% $0.0443
1996(6) (0.74)%* 1.73%* (0.97)%* 206.22% n/a
- ----------------------------
PBHG LARGE CAP GROWTH FUND
- ----------------------------
PBHG CLASS
1997 (0.47)% 1.23% (0.47)% 51.70% $0.0547
1996(6) (0.66)%* 2.07%* (1.23)%* 116.75% n/a
- ---------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- ---------------------------------------
PBHG CLASS
1997 (0.59)% 1.33% (0.59)% 289.91% $0.0365
1996(7) (0.50)%* 2.00%* (1.00)%* 125.99% n/a
- -------------------
PBHG LIMITED FUND
- -------------------
PBHG CLASS
1997(8) 0.33%* 1.42%* 0.33%* 75.46% $0.0304
<FN>
* ANNUALIZED
+ TOTAL RETURNS HAVE NOT BEEN ANNUALIZED.
1. THE PBHG GROWTH FUND TRUST CLASS COMMENCED OPERATIONS ON AUGUST 19, 1996.
2. THE INFORMATION SET FORTH IN THIS TABLE FOR THE PERIODS PRIOR TO JUNE 2,
1994 IS THE FINANCIAL DATA OF THE PILGRIM BAXTER EMERGING GROWTH FUND, A SERIES
OF THE ADVISORS' INNER CIRCLE FUND. THE PBHG EMERGING GROWTH FUND ACQUIRED THE
ASSETS AND ASSUMED THE LIABILITIES OF THE PILGRIM BAXTER EMERGING GROWTH FUND ON
JUNE 2, 1994. THE PBHG EMERGING GROWTH FUND RETAINED THE OCTOBER 31 FISCAL YEAR
END OF ITS PREDECESSOR ONLY FOR FISCAL YEAR 1994. THE PBHG EMERGING GROWTH FUND
CHANGED ITS FISCAL YEAR END TO MARCH 31, IN 1995 AND REPORTED FINANCIAL
INFORMATION FOR THE FISCAL PERIOD FROM NOVEMBER 1, 1994 TO MARCH 31, 1995.
3. PER SHARE CALCULATIONS WERE PERFORMED USING AVERAGE SHARES FOR THE PERIOD.
4. THE PILGRIM BAXTER EMERGING GROWTH FUND, THE PREDECESSOR SERIES TO THE PBHG
EMERGING GROWTH FUND, COMMENCED OPERATIONS ON JUNE 15, 1993.
5. THE PBHG CORE GROWTH FUND COMMENCED OPERATIONS ON JANUARY 2, 1996.
6. THE PBHG SELECT EQUITY FUND, THE PBHG LARGE CAP GROWTH FUND, AND THE PBHG CASH RESERVES FUND
COMMENCED OPERATIONS ON APRIL 5, 1995.
7. THE PBHG TECHNOLOGY & COMMUNICATIONS FUND COMMENCED OPERATIONS ON OCTOBER 2, 1995.
8. THE PBHG LIMITED FUND COMMENCED OPERATIONS ON JULY 1, 1996.
9. THE PBHG LARGE CAP 20 FUND COMMENCED OPERATIONS ON DECEMBER 1, 1996.
10. THE PBHG LARGE CAP VALUE FUND AND THE PBHG STRATEGIC SMALL COMPANY FUND COMMENCED OPERATIONS ON
JANUARY 2, 1997.
11. THE PBHG INTERNATIONAL FUND COMMENCED OPERATIONS ON JUNE 14, 1994.
12. AVERAGE 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.
</FN>
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
56
<PAGE>
<TABLE>
<CAPTION>
THE PBHG FUNDS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
NET NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET ASSETS RATIO
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE END OF EXPENSES
BEGINNING INCOME GAINS OR (LOSSES) INVESTMENT CAPITAL END TOTAL OF PERIOD TO AVERAGE
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN (000) NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
1997(9) $10.00 $(0.01) $(0.73) $(0.01) -- $ 9.25 (7.40)%+ $ 69,819 1.50%*
- ---------------------------
PBHG LARGE CAP VALUE FUND
- ---------------------------
PBHG CLASS
1997(10) $10.00 $ 0.02 $ 0.09 -- -- $10.11 1.10%+ $ 26,262 1.50%*
- -----------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- -----------------------------------
PBHG CLASS
1997(10) $10.00 -- $(1.14) -- -- $ 8.86 (11.40)%+ $ 61,382 1.50%*
- -------------------------
PBHG INTERNATIONAL FUND
- -------------------------
PBHG CLASS
1997 $10.55 -- $ 0.71 -- -- $11.26 6.73% $ 21,265 2.22%
1996 9.13 $(0.04) 1.46 -- -- 10.55 15.55% 11,243 2.25%
1995(11) 10.00 (0.03) (0.80) -- $(0.04) 9.13 (8.33)%+ 15,236 2.25%*
- -------------------------
PBHG CASH RESERVES FUND
- -------------------------
PBHG CLASS
1997 $1.00 $ 0.05 -- $(0.05) -- $1.00 4.89% $ 341,576 0.68%
1996(6) 1.00 0.05 -- (0.05) -- 1.00 5.24%* 99,001 0.70%*
</TABLE>
RATIO
RATIO OF NET
OF NET RATIO INVESTMENT
INVESTMENT OF EXPENSES INCOME (LOSS)
INCOME TO AVERAGE TO AVERAGE
(LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS WAIVERS) WAIVERS) RATE RATE 12
- --------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ------------------------
PBHG CLASS
1997(9) 0.17%* 1.50%* 0.17%* 43.98% $0.0550
- ---------------------------
PBHG LARGE CAP VALUE FUND
- ---------------------------
PBHG CLASS
1997(10) 1.61%* 1.74%* 1.37%* 0.00% $0.0588
- -----------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- -----------------------------------
PBHG CLASS
1997(10) 0.18%* 1.50%* 0.18%* 88.88% $0.0562
- -------------------------
PBHG INTERNATIONAL FUND
- -------------------------
PBHG CLASS
1997 (0.32)% 2.22% (0.32)% 74.82% $0.0287
1996 (0.22)% 3.03% (1.00)% 140.26% n/a
1995(11) (0.43)%* 2.36%* (0.54)%* 81.72% n/a
- -------------------------
PBHG CASH RESERVES FUND
- -------------------------
PBHG CLASS
1997 4.79% 0.68% 4.79% n/a n/a
1996(6) 5.05%* 0.88%* 4.87%* n/a n/a
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
AS OF MARCH 31, 1997
1. ORGANIZATION
The PBHG Funds, Inc. (the "Fund"), a Maryland corporation, is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company with fourteen series: the PBHG Growth Fund (the
"Growth Fund"), the PBHG Emerging Growth Fund (the "Emerging Growth Fund"), the
PBHG Core Growth Fund (the "Core Growth Fund"), the PBHG Select Equity Fund (the
"Select Equity Fund"), the PBHG Large Cap Growth Fund (the "Large Cap Growth
Fund"), the PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), the PBHG Limited Fund (the "Limited Fund"), the PBHG
Large Cap 20 Fund (the "Large Cap 20 Fund"), the PBHG Large Cap Value Fund (the
"Large Cap Value Fund"), the PBHG Mid-Cap Value Fund (the "Mid-Cap Value Fund"),
the PBHG Small Cap Value Fund (the "Small Cap Value Fund"), the PBHG Strategic
Small Company Fund ("the Strategic Small Company Fund"), the PBHG International
Fund (the "International Fund"), (collectively referred to as the "Equity
Portfolios"), and the PBHG Cash Reserves Fund (the "Cash Reserves Fund") (each a
"Portfolio" and, collectively, the "Portfolios"). As of March 31, 1997, the
Mid-Cap Value Fund and the Small Cap Value Fund had not commenced operations.
Each Portfolio's prospectus provides a description of the Portfolio's investment
objectives, policies and strategies. The Fund is registered to offer two classes
of shares, PBHG Class and Trust Class. Currently the Trust Class of shares is
only offered by the Growth Fund. The assets of each Portfolio are segregated,
and a shareholder's interest is limited to the Portfolio in which shares are
held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios.
SECURITY VALUATION -- Investment securities of the Equity Portfolios that are
listed on a securities exchange for which market quotations are available are
valued at the last quoted sales price on each business day. If there is no such
reported sale, these securities and unlisted securities for which market
quotations are readily available, are valued at the mean between the most recent
bid and asked prices. Short-term investments may be valued at amortized cost
which approximates market value. Foreign securities in the International Fund
are valued based upon quotations from the primary market in which they are
traded. The values of investment securities held by the Cash Reserves Fund are
stated at amortized cost, which approximates market value. Under this valuation
method, acquisition discounts and premiums are accreted and amortized ratably to
maturity and are included in interest income.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during the respective
holding periods.
DIVIDENDS -- Dividends from net investment income for the Equity Portfolios are
declared annually, if available. Dividends from net investment income for the
Cash Reserves Fund are declared daily and paid monthly. Distributions of net
realized capital gains, for all portfolios, are generally made to shareholders
annually.
Dividends from net investment income and distributions from net realized capital
gains are determined in accordance with U.S. Federal income tax regulations,
which may differ from those amounts determined under generally accepted
accounting principles. These book/tax differences are either temporary or
permanent in nature. To the extent these differences are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain, as
appropriate, in the period that the differences arise. Accordingly, the
following permanent differences as of March 31, 1997, primarily attributable to
certain net operating losses, which for tax purposes, are not available to
offset future income or have been used to offset net short-term capital gains,
have been reclassified to the following accounts:
ACCUMULATED NET
PAID-IN-CAPITAL REALIZED GAIN
(000) (000)
-------------- --------------
Growth Fund $35,930 $--
Emerging Growth Fund 4,584 --
Core Growth Fund 2,603 --
Select Equity Fund 3,669 --
Large Cap Growth Fund 581 --
Technology & Communications Fund -- 2,047
Limited Fund -- 285
International Fund 98 --
In addition, the International Fund had $51,000 of permanent differences
primarily attributable to realized foreign exchange gains and losses, which have
been reclassified from accumulated net realized gain (loss) on foreign currency
transactions to undistributed net investment income.
These reclassifications have no effect on net assets or net asset values per
share.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or continue
to qualify as a regulated investment company for Federal income tax purposes and
to distribute all of its taxable income and net capital gains. Accordingly, no
provision has been made for Federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the market value
of the collateral including accrued interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines, or if the counterparty enters into insolvency
proceedings, realization of the collateral by a Portfolio may be delayed or
limited.
FOREIGN CURRENCY TRANSLATION -- The books and records of the International Fund
are maintained in U.S. dollars. Foreign currency amounts are translated into
U.S. dollars on the following basis:
(I) market value of investment securities, other assets and
liabilities at the current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates
of such transactions.
58
<PAGE>
THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
The International Fund does not isolate that portion of gains and losses on
investment securities that is due to changes in the foreign exchange rates from
that which is due to changes in market prices of such securities.
The International Fund reports gains and losses on foreign currency related
transactions as components of realized gains for financial reporting purposes,
whereas such components are treated as ordinary income or loss for Federal
income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the PBHG
International Fund may enter into forward foreign currency exchange contracts.
Foreign currency exchange contracts are recorded at market value. Certain risks
may arise upon entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts. Realized gains or losses
arising from such transactions are included in net realized gain (loss) from
foreign currency transactions. At March 31, 1997 the International Fund had $766
in unrealized appreciation on such foreign currency contracts.
OTHER -- Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets. Class specific expenses, such as
12b-1 distribution fees, are borne by that class. Income, other expenses and
realized and unrealized gains and losses of a Portfolio are allocated to the
respective class on the basis of the relative net assets each day.
All organizational costs incurred with the start up of the Emerging Growth Fund,
the Core Growth Fund, the Select Equity Fund, the Large Cap Growth Fund, the
Technology & Communications Fund, the Limited Fund, the Large Cap 20 Fund, the
Large Cap Value Fund, the Strategic Small Company Fund, the International Fund
and the Cash Reserves Fund are being amortized on a straight line basis over a
period of sixty months. In the event that any of the initial shares of the
Portfolio are redeemed by any holder thereof during the period that the
Portfolio is amortizing its organizational costs, the redemption proceeds
payable to the holder thereof will be reduced by the unamortized organizational
costs in the same ratio as the number of initial shares being redeemed bears to
the number of initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
paid a monthly fee at an annual rate of 0.85% of the average daily net assets of
the Growth, Emerging Growth, Core Growth, Select Equity, Technology &
Communications, Large Cap 20, and Large Cap Value Funds, 0.75% of the average
daily net assets of the Large Cap Growth Fund, 1.00% of the average daily net
assets of the Limited, Strategic Small Company and International Funds, and
0.30% of the average daily net assets of the Cash Reserves Fund.
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into expense limitation agreements with the Fund ("Expense Limitation
Agreements"), with respect to Core Growth, Technology & Communications, Limited,
Large Cap 20, Large Cap Value, Strategic Small Company and International Fund,
pursuant to which the Adviser has agreed to waive or limit its fees and to
assume other expenses of the Portfolios to the extent necessary to limit the
total annual expenses (expressed as a percentate of the Portfolios' average
daily net assets) to 1.50% for the Core Growth, Technology & Communications,
Limited, Large Cap 20, Large Cap Value and Strategic Small Company and 2.25% for
the International Fund. Reimbursement by the Portfolios of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreements may be made at a later date when the Portfolios have
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual expenses rate of each Portfolio to exceed 1.50% for the
Core Growth, Technology & Communications, Limited, Large Cap 20, Large Cap
Value, and Strategic Small Company and 2.25% for the International Fund.
Consequently, no reimbursement by a Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.50% Core Growth, Technology & Communications, Limited,
Large Cap 20, Large Cap Value and Strategic Small Company and 2.25% for the
International Fund, and (iii) the payment of such reimbursement was approved by
the Board of Directors on a quarterly basis.
Newbold's Asset Management, Inc.("Newbold") serves as the sub-adviser to the
Large Cap Value Fund and the Strategic Small Company Fund. For its services
provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and
the Fund, Newbold receives a fee from the Adviser at an annual rate of 0.50% and
0.30%, respectively, of the average daily net assets of the Large Cap Value Fund
and the Strategic Small Company Fund. Newbold receives no fees directly from the
Large Cap Value Fund or the Strategic Small Company Fund.
Murray Johnstone International, Ltd. ("Murray Johnstone") serves as the
sub-adviser to the International Fund. For its services provided pursuant to its
Investment Sub-Advisory Agreement with the Adviser and the Fund, Murray
Johnstone receives a fee from the Adviser at an annual rate of 0.50% of the
International Fund's average daily net assets. Murray Johnstone receives no fees
directly from the International Fund, and may periodically reduce its
sub-advisory fee.
Wellington Management Company, LLP ("WMC") serves as the sub-adviser to the Cash
Reserves Fund. For its services provided pursuant to the Investment Sub-Advisory
Agreement with the Adviser and the Fund, WMC is entitled to receive a fee from
the Adviser, computed daily and paid monthly, at an annual rate equal to 0.075%
of the Cash Reserves Fund's average daily net assets up to and including $500
million and 0.020% of the Cash Reserves Fund's average daily net assets over
$500 million, but subject to a minimum annual fee of $50,000. WMC may, from time
to time, waive all or a portion of its fee from the Adviser. WMC receives no
fees directly from the Cash Reserves Fund.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of each Portfolio.
SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Investments Company, is the owner of all beneficial interest in SEI Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
- --------------------------------------------------------------------------------
MARCH 31, 1997
pays the Sub-Administrator a fee at the annual rate of 0.07% of the average
daily net assets of each Portfolio with respect to $2.5 billion of the total
average daily net assets of the Fund, and a fee at the annual rate of 0.025% of
the average daily net assets of each Portfolio with respect to the total daily
net assets of the Fund in excess of $2.5 billion.
Prior to July 1, 1996, SEI Fund Resources acted as Administrator to the Funds.
For it services prior to July 1, 1996, SEI Fund Resources received an annual fee
with respect to each Portfolio equal to the greater of $75,000 or 0.20% of the
average daily net assets of the Portfolio.
The Fund and SEI Financial Services Company (the "Distributor") are parties to a
Distribution Agreement. The Distributor receives no fees for its distribution
services in connection with distribution of the PBHG Class. The Trust has
adopted a Distribution Plan (the "Plan") on behalf of the Trust Class shares
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
provides for the payment by the Funds to the Distributor of up to 0.25% of the
average daily net assets of the Trust Class shares. Currently only the Growth
Fund has Trust Class shareholders.
DST Systems, Inc. serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent of the Fund. From time to time, the Fund may pay
amounts to third parties that provide sub-transfer agency and other
administrative services relating to the Fund to persons who beneficially own
interests in the Fund. CoreStates Bank, N.A. serves as the custodian for the
Growth Fund, the Emerging Growth Fund, the Core Growth Fund, the Select Equity
Fund, the Large Cap Growth Fund, the Technology & Communications Fund, the
Limited Fund, the Large Cap 20 Fund, the Large Cap Value Fund, the Strategic
Small Company Fund, and the Cash Reserves Fund. The Northern Trust Company
serves as the custodian for the International Fund.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor received no
compensation from the Fund.
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments, for the Equity Portfolios for the period ended
March 31, 1997 were as follows:
PURCHASES SALES
(000) (000)
-------- --------
Growth Fund 5,379,666 3,016,974
Emerging Growth Fund 1,237,408 496,496
Core Growth Fund 474,463 137,791
Select Equity Fund 552,545 304,687
Large Cap Growth Fund 130,795 56,145
Technology & Communications Fund 1,303,161 870,260
Limited Fund 220,740 91,899
Large Cap 20 Fund 91,659 18,888
Large Cap Value Fund 27,321 --
Strategic Small Company Fund 107,309 39,951
International Fund 20,317 12,143
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolios and the total cost of securities for Federal income tax
purposes at March 31, 1997 are as follows:
TOTAL COST
NET OF SECURITIES
UNREALIZED FOR FEDERAL
UNREALIZED UNREALIZED APPRECIATION/ INCOME TAX
APPRECIATION DEPRECIATION (DEPRECIATION) PURPOSES
(000) (000) (000) (000)
---------- ---------- ------------ ----------
Growth Fund 665,444 (576,333) 89,111 4,544,061
Emerging Growth
Fund 150,412 (190,248) (39,836) 1,232,514
Core Growth
Fund 20,251 (59,979) (39,728) 324,336
Select Equity
Fund 47,377 (58,942) (11,565) 384,049
Large Cap Growth
Fund 12,802 (10,685) 2,117 118,975
Technology &
Communications
Fund 18,742 (70,924) (52,182) 552,030
Limited Fund 8,787 (21,814) (13,027) 149,714
Large Cap 20
Fund 1,230 (6,066) (4,836) 77,118
Large Cap Value
Fund 471 (1,271) (800) 28,468
Strategic Small
Company Fund 1,691 (7,961) (6,270) 66,627
International Fund 2,556 (887) 1,669 19,918
Subsequent to October 31, 1996, the following Portfolios had recognized net
capital losses that have been deferred to 1998 for tax purposes and can be used
to offset future capital gains at March 31, 1998. The Portfolios also had
capital loss carryforwards at March 31, 1997, that can be used to offset future
capital gains.
POST CAPITAL LOSS CAPITAL LOSS
10/31/96 CARRYOVERS CARRYOVERS
LOSS DEFERRAL EXPIRING 2003 EXPIRING 2005
------------- -------------- --------------
Growth Fund 135,849,361 26,625,248 135,427,740
Emerging Growth Fund -- -- 47,805,236
Core Growth Fund 34,525,185 -- 14,962,879
Select Equity Fund 33,676,908 -- --
Large Cap Growth Fund 1,823,244 -- 3,917,935
Cash Reserves Fund -- -- 1,488
5. CONCENTRATION OF CREDIT RISK
The Cash Reserves Fund invests primarily in a portfolio of money market
instruments maturing in 397 days or less whose ratings are within one of the two
highest ratings categories assigned by a nationally recognized statistical
rating agency, or, if not rated, are believed to be of comparable quality. The
ability of the issuers of the securities held by the portfolio to meet their
obligations may be affected by economic developments in a specific industry,
state or region.
The International Fund invests in securities of foreign issuers in various
countries. These investments may involve certain considerations and risks not
typically associated with investments in the United States, as a result of,
among other factors, the possibility of future political and economic
developments and the level of governmental supervision and regulation of
securities markets in the respective countries.
60
<PAGE>
NOTICE TO SHAREHOLDERS (UNAUDITED) THE PBHG FUNDS, INC.
- --------------------------------------------------------------------------------
FOR SHAREHOLDERS THAT DO NOT HAVE A MARCH 31, 1997 TAXABLE YEAR END, THIS NOTICE
IS FOR INFORMATIONAL PURPOSES ONLY. FOR SHAREHOLDERS WITH A MARCH 31, 1997
TAXABLE YEAR END, PLEASE CONSULT YOUR TAX ADVISER AS TO THE PERTINENCE OF THIS
NOTICE.
FOR THE FISCAL YEAR ENDED MARCH 31, 1997, THE FUNDS ARE DESIGNATING LONG-TERM
CAPITAL GAINS, QUALIFYING DIVIDENDS AND EXEMPT INTEREST INCOME WITH REGARD TO
DISTRIBUTIONS PAID DURING THE YEAR AS FOLLOWS:
<TABLE>
<CAPTION>
(A) (B)
LONG TERM ORDINARY (C)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth .................................................... 0% 0% 0%
Emerging Growth ........................................... 44% 56% 100%
Core Growth ............................................... 0% 0% 0%
Select Equity ............................................. 0% 100% 100%
Large Cap ................................................. 0% 100% 100%
Technology & Communications ............................... 0% 100% 100%
Limited ................................................... 0% 100% 100%
Large Cap 20 .............................................. 0% 100% 100%
Large Cap Value ........................................... 0% 0% 0%
Strategic Small Company ................................... 0% 0% 0%
International ............................................. 0% 0% 0%
Cash Reserves ............................................. 0% 100% 100%
====================================================================================================================================
(D) (E)
QUALIFYING TAX EXEMPT
PORTFOLIO DIVIDENDS(1) INTEREST
- ------------------------------------------------------------------------------------------------------------------------------------
Growth 0% 0%
Emerging Growth .......................................... 0% 0%
Core Growth .............................................. 0% 0%
Select Equity ............................................ 0% 0%
Large Cap ................................................ 0% 0%
Technology & Communications .............................. 0% 0%
Limited .................................................. 4% 0%
Large Cap 20 ............................................. 44% 0%
Large Cap Value .......................................... 0% 0%
Strategic Small Company .................................. 0% 0%
International ............................................ 0% 0%
Cash Reserves ............................................ 0% 0%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.
* Items (A) and (B) are based on a percentage of each portfolio's distributions.
** Items (D) and (E) are based on a percentage of ordinary income distributions of each portfolio.
None of the Portfolios qualify in California, Connecticut, or New York to
pass through exempt interest dividends from U.S. government obligations.
</FN>
</TABLE>
61
- --------------------------------------------------------------------------------
UAM FUNDS
NEWBOLD'S EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Norton H. Reamer Michael E. DeFao
Trustee, President and Chairman Secretary
John T. Bennett, Jr. Karl O. Hartmann
Trustee Assistant Secretary
Philip D. English Gary L. French
Trustee Treasurer
William A. Humenuk Robert R. Flaherty
Trustee Assistant Treasurer
Peter M. Whitman, Jr. Gordon M. Shone
Trustee Assistant Treasurer
William H. Park
Vice President
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
Newbold's Asset Management, Inc.
950 Haverford Road
Bryn Mawr, PA 19010
- --------------------------------------------------------------------------------
ADMINISTRATOR
UAM Fund Services, Inc.
211 Congress Street
Boston, MA 02110
- --------------------------------------------------------------------------------
CUSTODIAN
The Chase Manhattan Bank
3 Chase MetroTech Center
Brooklyn, NY 11245
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young LLP
2600 One Commerce Square
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
- --------------------------------------------------------------------------------
DISTRIBUTOR
UAM Fund Distributors, Inc.
211 Congress Street
Boston, MA 02110
- --------------------------------------------------------------------------------
This report has been prepared for shareholders and may be distributed to
others only if preceded or accompanied by a current prospectus.
================================================================================
[LOGO OF UAM FUNDS APPEARS HERE]
NEWBOLD'S
EQUITY
PORTFOLIO
================================================================================
ANNUAL REPORT
APRIL 30, 1997
<PAGE>
Fellow Shareholder:
During Newbold's Equity Portfolio's 1997 fiscal year, which ended on April
30, the stock market extended its long-running rally. The S&P 500 Index posted
a total return of 25.12% in this period, and the average Growth & Income fund
as calculated by Lipper Analytical Services delivered a return of 18.51%. The
Portfolio provided a return of 19.89% during the fiscal year.
MARKET PERSPECTIVE
The fiscal year ended April 30, 1997, marked a continuation in the historic
rise in equity prices that began in August 1982. If we turned back the clock
to July 31, 1982, we would find that the yield on the 30-year Treasury bond
stood at 13.4% (vs. 7.0% as of April 30, 1997), the year-over-year increase in
the Consumer Price Index was 6.6% (vs. 2.5% as of April 30), and the
annualized total return of the S&P 500 Index over the previous fourteen years
was under 6%. Over the subsequent 14+ years from August 1982 through April
1997, a period that included two of the longest economic expansions in the
last half-century, the S&P 500 Index produced an astonishing annualized return
of 18.54%.
It is worth noting that the performance record of the S&P 500 Index since
1994 has been dominated by relatively few of the very largest capitalization
stocks that are members of the Index. To illustrate, while the return of the
capitalization-weighted S&P 500 Index was 25.12% for the twelve months ended
April 30, 1997, the return of the average stock in the S&P 500 Index on an
equal-weighted basis was a mere 10.52%. Under these unusual conditions, it has
proven to be difficult for most active managers like Newbold's, who manage
broadly diversified portfolios, to keep pace with the popular averages.
The powerful forces that contributed to this unprecedented rise in the value
of financial assets have been well documented and may continue to propel
equity returns to above-average levels for some time to come. We believe,
however, that overall market returns are bound to regress eventually toward
the long-term average and that indexing strategies will eventually be less
successful as the market broadens. More traditional value considerations, such
as dividend yields and price relative to earnings, will not be as outdated a
notion as they have appeared in recent times, and our fundamental value
approach should continue to produce solid returns.
PORTFOLIO COMMENTS AND STRATEGY
Newbold's investment approach seeks to earn a solid return for investors
primarily through the careful selection of stocks that we believe are
undervalued by the market. During the fiscal year, favorable stock selection
in the computers and health care segments contributed positively to the
Portfolio's performance relative to the S&P 500 Index. The beverages, food and
tobacco segment produced lagging results during the period.
During the second half of the fiscal year we significantly increased the
Portfolio's weighting in bank and insurance stocks. The financial sector
currently represents a significant share of our holdings. In spite of the
strong performance of the sector in recent years, we feel that this part of
the market may still offer good value with the potential for above-average
earnings gains. Over the same period we also trimmed the Portfolio's exposure
to utilities and telecommunications stocks by a substantial amount. Although
these industries appear by some measures to offer low valuations and
attractive dividend yields, the potentially treacherous waters of industry
deregulation make us cautious.
1
<PAGE>
Your investment team is focused on uncovering promising investment
opportunities among companies that possess compelling valuations, healthy
balance sheets and improving fundamental outlooks. As usual, the
characteristics of the Portfolio are distinguished by an above-average
dividend yield and a below-average price-to earnings ratio. While we have some
concerns regarding the lofty valuation levels of the equity market, we
continue to remain fully invested in the belief that our value-oriented
strategy will enable us to participate in the market's generally upward trend
while offering some protection from declines.
NEWBOLD'S ASSET MANAGEMENT, INC.
The investment results presented in the Adviser's letter represent past
performance and should not be construed as a guarantee of future results. If
the Adviser did not have temporary fee waivers and did not assume expenses on
behalf of the Portfolio, total return for the Portfolio would have been lower.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
2
<PAGE>
Performance Comparison
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 PURCHASE IN THE
NEWBOLD'S EQUITY PORTFOLIO AND THE STANDARD & POOR'S 500 INDEX (S&P 500)
-----------------------------------------
AVERAGE ANNUAL TOTAL RETURN**
FOR PERIOD ENDED APRIL 30, 1997
-----------------------------------------
1 YEAR SINCE 9/13/95*++
-----------------------------------------
19.89% 19.33%
-----------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NEWBOLD'S
EQUITY PORTFOLIO S&P 500 INDEX+
<S> <C> <C>
9/13/95*++ 10,000 10,000
4/30/96 11,131 11,813
4/30/97 13,345 14,780
</TABLE>
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate. When shares are redeemed, they may
be worth more or less than the original cost.
* Commencement of Operations
** Total return of the Portfolio reflects fees waived and expenses assumed by
the Adviser. Without such reduction of expenses, total return would be
lower.
+ The comparative index is not adjusted to reflect expenses or other fees that
the SEC requires to be reflected in the Portfolio's performance. The fees,
if reflected, would reduce the performance quoted. The Portfolio's
performance assumes the reinvestment of all dividends and distributions. The
comparative index has been adjusted to reflect reinvestment of dividends on
securities in the index.
++ For comparative purposes, the value of the S&P 500 Index on 8/31/95 is used
as the beginning value on 9/13/95.
Definition of the Comparative Index
-----------------------------------
The S&P 500 Index is an unmanaged index composed of 400 industrial, 40
financial, 40 utilities and 20 transportation stocks.
Please note that one cannot invest in an unmanaged index.
3
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
April 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (99.6%)
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE (1.4%)
United Technologies Corp. .................................. 2,400 $ 181,500
- --------------------------------------------------------------------------------
AUTOMOTIVE (0.9%)
Borg-Warner Automotive, Inc. ............................... 2,700 113,400
- --------------------------------------------------------------------------------
BANKS (15.4%)
Banc One Corp. ............................................. 3,600 152,550
BankBoston Corp. ........................................... 4,200 305,550
Chase Manhattan Corp. ...................................... 4,500 416,812
First Union Corp. .......................................... 4,600 386,400
Fleet Financial Group, Inc. ................................ 6,300 384,300
NationsBank Corp. .......................................... 5,000 301,875
----------
1,947,487
- --------------------------------------------------------------------------------
BEVERAGES, FOOD & TOBACCO (2.6%)
RJR Nabisco Holdings Corp. ................................. 11,100 330,225
- --------------------------------------------------------------------------------
CHEMICALS (0.5%)
Rohm & Haas Co. ............................................ 700 58,275
- --------------------------------------------------------------------------------
COMPUTERS (5.0%)
Avnet, Inc. ................................................ 3,900 237,412
International Business Machines Corp. ...................... 2,500 401,875
----------
639,287
- --------------------------------------------------------------------------------
CONSTRUCTION (1.7%)
Masco Corp. ................................................ 5,650 213,287
- --------------------------------------------------------------------------------
ENERGY (13.1%)
Amoco Corp. ................................................ 3,750 313,594
Atlantic Richfield Co. ..................................... 900 122,512
Exxon Corp. ................................................ 5,970 338,051
Mobil Corp. ................................................ 2,500 325,000
Repsol S.A. ADR ............................................ 6,500 272,188
USX-Marathon Group ......................................... 10,200 281,775
----------
1,653,120
- --------------------------------------------------------------------------------
HEALTH CARE (3.3%)
Aetna, Inc. ................................................ 4,600 419,175
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
April 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
INDUSTRIAL (5.4%)
AGCO Corp. ................................................ 10,400 $ 269,100
Case Corp. ................................................ 7,500 415,312
-----------
684,412
- --------------------------------------------------------------------------------
INSURANCE (9.3%)
Allstate Corp. ............................................ 3,900 255,450
Equitable of Iowa Cos. .................................... 2,600 127,075
ITT Hartford Group, Inc. .................................. 6,200 461,900
Travelers, Inc. ........................................... 6,000 332,250
-----------
1,176,675
- --------------------------------------------------------------------------------
MANUFACTURING (3.8%)
Harnischfeger Industries, Inc. ............................ 9,100 378,787
Parker-Hannifin Corp. ..................................... 2,000 99,500
-----------
478,287
- --------------------------------------------------------------------------------
METALS (3.0%)
Aluminum Company of America ............................... 2,700 188,663
Reynolds Metals Co. ....................................... 2,800 190,050
-----------
378,713
- --------------------------------------------------------------------------------
OFFICE EQUIPMENT (3.1%)
Xerox Corp. ............................................... 6,300 387,450
- --------------------------------------------------------------------------------
OIL & GAS (2.0%)
*Noble Drilling Corp. ..................................... 7,300 126,838
*Reading & Bates Corp. .................................... 5,600 125,300
-----------
252,138
- --------------------------------------------------------------------------------
REAL ESTATE (2.8%)
Meditrust ................................................. 5,000 182,500
Simon Debartolo Group Inc. ................................ 6,200 177,475
-----------
359,975
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (1.7%)
Equity Residential Properties Trust ....................... 4,800 210,000
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
April 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE+
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(CONTINUED)
- --------------------------------------------------------------------------------
RETAIL (4.9%)
American Stores Co. ...................................... 4,800 $ 218,400
Dillard Department Stores, Class A ....................... 6,500 200,688
*Nine West Group, Inc. ................................... 5,000 198,125
-----------
617,213
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS (5.7%)
GTE Corp. ................................................ 7,800 357,825
NYNEX Corp. .............................................. 7,000 362,250
-----------
720,075
- --------------------------------------------------------------------------------
TRANSPORTATION (7.8%)
Burlington Northern Santa Fe ............................. 2,700 212,625
Delta Air Lines, Inc. .................................... 1,400 128,975
Hertz Corp., Class A ..................................... 4,000 116,000
Southwest Airlines Co. ................................... 9,600 264,000
*Team Rental Group, Inc. ................................. 11,600 261,000
-----------
982,600
- --------------------------------------------------------------------------------
UTILITIES (6.2%)
Entergy Corp. ............................................ 10,850 253,619
GPU, Inc. ................................................ 4,650 149,963
PanEnergy Corp. .......................................... 2,950 130,538
TransCanada Pipelines Ltd. ............................... 13,800 251,850
-----------
785,970
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $10,875,956)..................... 12,589,264
- --------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENT (0.3%)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (0.3%)
Chase Securities, Inc. 5.20%, dated 04/30/97, due
05/01/97, to be repurchased at $45,007, collateralized by
$45,258 of various U.S. Treasury Notes, 4.75%-6.125%, due
from 08/31/98-10/31/98, valued at $45,036 (COST $45,000). $45,000 45,000
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS (99.9%) (COST $10,920,956)(a)............ 12,634,264
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS--(CONTINUED)
April 30, 1997
<TABLE>
<CAPTION>
VALUE+
- ---------------------------------------------------------------------------------
<S> <C> <C>
OTHER ASSETS AND LIABILITIES (NET) (0.1%).................... $ 7,563
- ---------------------------------------------------------------------------------
NET ASSETS (100%)............................................ $12,641,827
================================================================================
</TABLE>
+ See Note A to Financial Statements.
* Non--Income Producing Security.
ADR--American Depositary Receipt.
(a) The cost for federal income tax purposes was $10,901,697. At April 30,
1997, net unrealized appreciation for all securities based on tax cost
was $1,732,567. This consisted of aggregate gross unrealized appreciation
for securities of $1,894,511 and aggregate gross unrealized depreciation
for all securities of $161,944.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at Cost.............................................. $10,920,956
===========
Investments, at Value............................................. $12,634,264
Cash.............................................................. 18,350
Receivable due from Investment Adviser--Note B.................... 14,959
Dividends and Interest Receivables................................ 14,712
Other Assets...................................................... 149
- --------------------------------------------------------------------------------
Total Assets..................................................... 12,682,434
- --------------------------------------------------------------------------------
LIABILITIES
Payable for Administrative Fees--Note C........................... 7,938
Payable for Trustees' Fees--Note G................................ 478
Other Liabilities................................................. 32,191
- --------------------------------------------------------------------------------
Total Liabilities................................................ 40,607
- --------------------------------------------------------------------------------
NET ASSETS......................................................... $12,641,827
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSETS CONSISTS OF:
Paid in Capital................................................... $ 9,624,341
Undistributed Net Investment Income............................... 19,698
Accumulated Net Realized Gain..................................... 1,284,480
Unrealized Appreciation........................................... 1,713,308
- --------------------------------------------------------------------------------
NET ASSETS......................................................... $12,641,827
================================================================================
INSTITUTIONAL CLASS SHARES
Shares Issued and Outstanding (Unlimited Authorization, no par
value)........................................................... 1,098,695
Net Asset Value, Offering and Redemption Price Per Share.......... $ 11.51
================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended April 30, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 412,939
Interest.................................................. 29,553
- ----------------------------------------------------------------------------------
Total Income............................................. 442,492
- ----------------------------------------------------------------------------------
EXPENSES
Investment Advisory Fees--Note B
Basic Fees............................................... $ 73,749
Less: Fees Waived........................................ (73,749) --
--------
Administrative Fees--Note C............................... 70,748
Registration Fees......................................... 25,546
Printing Fees............................................. 18,559
Auditing Fees............................................. 10,386
Legal Fees................................................ 10,340
Trustees' Fees--Note G.................................... 2,190
Custodian Fees--Note D.................................... 1,924
Other Expenses............................................ 1,156
Expenses Assumed by Adviser--Note B....................... (7,973)
- ----------------------------------------------------------------------------------
Total Expenses........................................... 132,876
Expense Offset--Note A.................................... (80)
Net Expenses............................................. 132,796
- ----------------------------------------------------------------------------------
NET INVESTMENT INCOME...................................... 309,696
- ----------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS........................... 1,768,701
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON IN-
VESTMENTS................................................. 741,741
- ----------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS.................................... 2,510,442
- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $2,820,138
=================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR SEPTEMBER 13,
ENDED 1995* TO
APRIL 30, APRIL 30,
1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net Investment Income............................... $ 309,696 $ 163,403
Net Realized Gain................................... 1,768,701 128,335
Net Change in Unrealized Appreciation/Depreciation.. 741,741 971,567
- ---------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations....................................... 2,820,138 1,263,305
- ---------------------------------------------------------------------------------
DISTRIBUTIONS:
Net Investment Income............................... (319,779) (133,247)
Net Realized Gain................................... (1,673,443) (23,745)
- ---------------------------------------------------------------------------------
Total Distributions................................ (1,993,222) (156,992)
- ---------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS: (1)
Issued--Regular..................................... 1,122,250 18,446,170
--In Lieu of Cash Distributions............... 1,944,748 134,188
Redeemed............................................ (5,341,743) (5,597,015)
- ---------------------------------------------------------------------------------
Net Increase (Decrease) from Capital Share
Transactions...................................... (2,274,745) 12,983,343
- ---------------------------------------------------------------------------------
Total Increase (Decrease)........................... (1,447,829) 14,089,656
Net Assets:
Beginning of Period................................. 14,089,656 --
- ---------------------------------------------------------------------------------
End of Period (including undistributed net
investment income of $19,698 and $30,156,
respectively)...................................... $12,641,827 $14,089,656
=================================================================================
(1) Shares Issued and Redeemed:......................
Shares Issued.................................... 99,728 1,820,335
In Lieu of Cash Distributions.................... 183,735 12,814
Shares Redeemed.................................. (467,635) (550,282)
- ---------------------------------------------------------------------------------
(184,172) 1,282,867
=================================================================================
</TABLE>
* Commencement of Operations
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA & RATIOS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR SEPTEMBER 13,
ENDED 1995* TO
APRIL 30, APRIL 30,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................. $ 10.98 $ 10.00
- --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................................ 0.24 0.14
Net Realized and Unrealized Gain on Investments...... 1.79 0.98
- --------------------------------------------------------------------------------
Total From Investment Operations.................... 2.03 1.12
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DISTRIBUTIONS
Net Investment Income................................ (0.25) (0.12)
Net Realized Gain.................................... (1.25) (0.02)
- --------------------------------------------------------------------------------
Total Distributions................................. (1.50) (0.14)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $ 11.51 $ 10.98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN+......................................... 19.89% 11.31%***
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (Thousands)................ $12,642 $14,090
Ratio of Expenses to Average Net Assets.............. 0.90% 0.90%**
Ratio of Net Investment Income to Average Net
Assets.............................................. 2.10% 2.27%**
Portfolio Turnover Rate.............................. 83% 75%
Average Commission Rate.............................. $0.0599 $0.0566
- --------------------------------------------------------------------------------
Voluntarily Waived Fees and Expenses Assumed by the
Adviser Per Share.................................... $ 0.06 $ 0.06
Ratio of Expenses to Average Net Assets Including
Expense Offsets...................................... 0.90% 0.90%**
- --------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
** Annualized
*** Not Annualized
+ Total return would have been lower had certain fees not been waived and
expenses assumed by the Adviser.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
UAM Funds Trust and UAM Funds, Inc. (collectively the "UAM Funds") are
registered under the Investment Company Act of 1940, as amended. The Newbold's
Equity Portfolio (the "Portfolio"), a portfolio of UAM Funds Trust, is a
diversified, open-end management investment company. At April 30, 1997, the
UAM Funds were comprised of forty-two active portfolios. The financial
statements of the remaining portfolios are presented separately. The Portfolio
is authorized to offer two separate classes of shares--Institutional Class
Shares and Institutional Service Class Shares. Both classes of shares have
identical voting rights (except Institutional Service Class shareholders have
exclusive voting rights with respect to matters relating to distribution and
shareholder servicing of such shares), dividend, liquidation and other rights.
At April 30, 1997, Institutional Class Shares are the only active class of
shares for the Newbold's Equity Portfolio. The objective of the Newbold's
Equity Portfolio is to achieve maximum long-term total return, consistent with
reasonable risk to principal, by investing primarily in a diversified
portfolio of undervalued equity securities of statistically attractive
companies.
A. SIGNIFICANT ACCOUNTING POLICIES: The following significant accounting
policies are in conformity with generally accepted accounting principles. Such
policies are consistently followed by the Portfolio in the preparation of its
financial statements. Generally accepted accounting principles may require
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results may differ from
those estimates.
1. SECURITY VALUATION: Securities listed on a securities exchange for which
market quotations are readily available are valued at the last quoted sales
price as of the close of the exchange on the day the valuation is made or,
if no sale occurred on such day, at the bid price on such day. Price
information on listed securities is taken from the exchange where the
security is primarily traded. Over-the-counter and unlisted securities are
valued at the current bid price. Short-term investments that have remaining
maturities of sixty days or less at time of purchase are valued at amortized
cost, if it approximates market value. The value of other assets and
securities for which no quotations are readily available is determined in
good faith at fair value using methods determined by the Board of Trustees.
2. FEDERAL INCOME TAXES: It is the Portfolio's intention to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
and to distribute all of its taxable income. Accordingly, no provision for
Federal income taxes is required in the financial statements.
3. REPURCHASE AGREEMENTS: In connection with transactions involving
repurchase agreements, the Portfolio's custodian bank takes possession of
the underlying securities, the value of which exceeds the principal amount
of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is monitored on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the proceeds
in satisfaction of the obligation. In the event of default or bankruptcy by
the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission, the UAM Funds may transfer their daily uninvested cash balances
into a joint trading account which invests in one or more repurchase
agreements. This joint repurchase agreement is covered by the same
collateral requirements as discussed above.
4. DISTRIBUTIONS TO SHAREHOLDERS: The Portfolio will normally distribute
substantially all of its net investment income quarterly. Any realized net
capital gains will be distributed annually. All distributions are recorded
on ex-dividend date.
12
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The amount and character of income and capital gain distributions to be paid
are determined in accordance with Federal income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments in the timing of the
recognition of gains or losses on investments, return of capital dividends,
and in-kind contributions.
Permanent book and tax basis differences relating to shareholder
distributions resulted in reclassifications of $375 to decrease
undistributed net investment income and $365,127 to increase accumulated net
realized gain, with a decrease to paid in capital of $364,752.
Current year permanent book-tax differences, if any, are not included in
ending undistributed net investment income (loss) for the purpose of
calculating net investment income (loss) per share in the financial
highlights.
5. OTHER: Security transactions are accounted for on trade date, the date
the trade was executed. Costs used in determining realized gains and losses
on the sale of investment securities are based on the specific
identification method. Dividend income is recorded on the ex-dividend date.
Interest income is recognized on the accrual basis. Most expenses of the UAM
Funds can be directly attributed to a particular portfolio. Expenses which
cannot be directly attributed are apportioned among the portfolios of the
UAM Funds based on their relative net assets. Income, expenses (other than
class specific expenses) and realized and unrealized gains or losses are
allocated to each class of shares based upon their relative net assets.
Custodian fees for the Portfolio have been increased to include expense
offsets, if any, for custodian balance credits.
B. ADVISORY SERVICES: Under the terms of an investment advisory agreement,
Newbold's Asset Management Inc. (the "Adviser"), a wholly-owned subsidiary of
United Asset Management Corporation ("UAM"), provides investment advisory
services to the Portfolio at a fee calculated at an annual rate of 0.50% of
average daily net assets. The Adviser has voluntarily agreed to waive a
portion of its advisory fees and to assume expenses, if necessary, in order to
keep the Portfolio's total annual operating expenses, after the effect of
expense offset arrangements, from exceeding 0.90% of average daily net assets.
C. ADMINISTRATION SERVICES: UAM Fund Services, Inc. (the "Administrator"), a
wholly-owned subsidiary of UAM, provides and oversees administrative, fund
accounting, dividend disbursing and transfer agent services to the UAM Funds
under a Fund Administration Agreement (the "Agreement"). Pursuant to the
Agreement, the Administrator is entitled to receive annual fees, computed
daily and payable monthly, of 0.19% of the first $200 million of the combined
aggregate net assets; plus 0.11% of the next $800 million of the combined
aggregate net assets; plus 0.07% of the next $2 billion of the combined
aggregate net assets; plus 0.05% of the combined aggregate net assets in
excess of $3 billion. The fees are allocated among the portfolios of the UAM
Funds on the basis of their relative net assets and are subject to a graduated
minimum fee schedule per portfolio which rises from $2,000 per month, upon
inception of a portfolio, to $70,000 annually after two years. For portfolios
with more than one class of shares, the minimum annual fee increases to
$90,000. In addition, the Administrator receives a Portfolio-specific monthly
fee at an annual rate of 0.06% of average daily net assets of the Portfolio.
The Administrator has entered into a Mutual Funds Service Agreement with Chase
Global Funds Services Company ("CGFSC"), an affiliate of The Chase Manhattan
Bank, under which CGFSC agrees to provide certain
13
<PAGE>
NEWBOLD'S EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
services, including but not limited to, administration, fund accounting,
dividend disbursing and transfer agent services. Pursuant to the Mutual Funds
Service Agreement, the Administrator pays CGFSC a monthly fee. For the year
ended April 30, 1997, $61,963 was paid to CGFSC for its services.
D. CUSTODIAN: Effective July 17, 1996, The Chase Manhattan Bank (the "Bank"),
an affiliate of CGFSC, is custodian for the Portfolio's assets held in
accordance with the custodian agreement. For the period July 17, 1996 to April
30, 1997, the amount charged to the Portfolio by the Bank aggregated $1,844,
all of which is unpaid at April 30, 1997.
E. DISTRIBUTION SERVICES: UAM Fund Distributors, Inc. (the "Distributor"), a
wholly owned subsidiary of UAM, distributes the shares of the Portfolio. The
Distributor does not receive any fee or other compensation with respect to the
Portfolio.
F. ACCOUNT SERVICES: Effective February 28, 1997, the UAM Funds entered into
an Account Services Agreement (the "Services Agreement") with UAM Retirement
Plan Services, Inc. ("Service Provider"), a wholly-owned subsidiary of UAM.
Under the Services Agreement, the Service Provider agrees to perform certain
services for participants in a self-directed, defined contribution plan, and
for whom the Service Provider provides participant recordkeeping. Pursuant to
the Services Agreement, the Service Provider is entitled to receive, after the
end of each month, a fee at the annual rate of 0.15% of the average aggregate
daily net asset value of shares of the UAM Funds in the accounts for which
they provide services. For the period February 28, 1997 to April 30, 1997, the
Portfolio was not charged a fee under the Services Agreement.
G. TRUSTEES' FEES: Each Trustee, who is not an officer or affiliated person,
receives $2,000 per meeting attended, which is allocated proportionally among
the active portfolios of UAM Funds, plus a quarterly retainer of $150 for each
active portfolio of the UAM Funds, and reimbursement of expenses incurred in
attending Trustee meetings.
H. PURCHASES AND SALES: For the year ended April 30, 1997, the Portfolio made
purchases of $11,713,353 and sales of $14,555,693 of investment securities
other than long-term U.S. Government and short-term securities. There were no
purchases or sales of long-term U.S. Government securities.
I. LINE OF CREDIT: The Portfolio, along with certain other Portfolios of UAM
Funds, collectively entered into an agreement which enables them to
participate in a $100 million unsecured line of credit with several banks.
Borrowings will be made solely to temporarily finance the repurchase of
Capital shares. Interest is charged to each participating Portfolio based on
its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%.
In addition, a commitment fee of 1/8th of 1% per annum, payable at the end of
each calendar quarter is accrued by each participating Portfolio based on its
average daily unused portion of the line of credit. During the year ended
April 30, 1997, the Portfolio had no borrowings under the agreement.
J. OTHER: At April 30, 1997, 31.6% of total shares outstanding were held by 2
record shareholders owning more than 10% of the aggregate total shares
outstanding.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
UAM Funds Trust and Shareholders of
Newbold's Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Newbold's
Equity Portfolio (the "Portfolio"), a Portfolio of UAM Funds Trust, at April
30, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at April 30, 1997 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
June 9, 1997
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED):
At April 30, 1997, the Portfolio hereby designates approximately $1,018,000 as
a long-term capital gain dividend for the purpose of the dividend paid
deduction on its Federal income tax return.
For the year ended April 30, 1997, the percentage of dividends paid from
investment company taxable income that qualify for the 70% dividend received
deduction for corporate shareholders is 38.38%.
15
