AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1997.
1933 ACT REGISTRATION NO. 2-99810
1940 ACT REGISTRATION NO. 811-4391
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /x/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 27 /x/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 25
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, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 443-0051
HAROLD J. BAXTER
PILGRIM BAXTER & ASSOCIATES, LTD.
1255 DRUMMERS LANE
SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
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(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
JANE A. KANTER, ESQ. JOHN M. ZERR, ESQ.
KATTEN MUCHIN & ZAVIS GENERAL COUNSEL
1025 THOMAS JEFFERSON STREET, N.W. PILGRIM BAXTER & ASSOCIATES, LTD.
EAST LOBBY, SUITE 700 1255 DRUMMERS LANE
WASHINGTON, D.C. 20007 SUITE 300
WAYNE, PENNSYLVANIA 19087-1590
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on May 1, 1996 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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on [date] pursuant to paragraph (a) of Rule 485
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x 75 days after filing pursuant to paragraph (a)
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Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, an indefinite number of shares of common stock is being registered by this
Registration Statement. Registrant's Rule 24f-2 Notice for its most recent
fiscal year will be filed on or before May 30, 1997.
<PAGE>
THE PBHG FUNDS, INC.
PBHG Strategic Small Cap Value Fund
(PBHG Class Shares)
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
<TABLE>
<CAPTION>
THE PBHG FUNDS, INC.
PBHG Small Cap Value Fund
(PBHG Class Shares)
CROSS REFERENCE SHEET
POST-EFFECTIVE AMENDMENT NO. 27
PART A. Item No. and Captions Caption in Prospectus
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant The Fund and the Portfolio; Investment
Objectives and Policies; General
Investment Policies and Strategies; Risk
Factors; Investment Limitations; General
Information--The Fund
5. Management of the Fund General Information--Directors of the
Fund; General Information--The
Adviser and Sub-Adviser; General
Information--The Administrator and
Sub-Administrator; General Information
--The Transfer Agent and Sub-Transfer
Agents; General Information--The
Distributor
6. Capital Stock and Other Securities General Information--Voting Rights;
General Information--Dividends and
Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
8. Redemption or Repurchase How to Purchase Fund Shares; How to
Redeem Fund Shares; Share Price
9. Pending Legal Proceedings Not Applicable
PART B. Item No. and Captions Caption in Statement of Additional
Information
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Registrant Directors and Officers of the Fund; The
Administrator
15. Control Persons and Principal Holders of Directors and Officers of the Fund
Securities
16. Investment Advisory and Other Services The Adviser and Sub-Adviser; The
Administrator and Sub-Administrator;
The Distributor
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares;
Securities Being Offered Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Yield Quotations Computation of Yield; Calculation of
Total Return
23. Financial Statements Not Applicable
</TABLE>
PART C Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C of this Registration
Statement.
This Amendment does not delete, amend, or supersede any information contained in
the Registration Statement or in any previously filed post-effective amendment
to the Registration Statement (whether effective or not), except to the extent
provided herein.
<PAGE>
THE PBHG FUNDS, INC.
PBHG CLASS SHARES
PROSPECTUS DATED APRIL 22, 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 the following portfolio
("Portfolio"):
o PBHG Small Cap Value Fund
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated April 22, 1997 has been filed with the
Securities and Exchange Commission and is available upon request and without
charge by calling 1-800-433-0051. The Statement of Additional Information is
incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
<PAGE>
<TABLE>
<CAPTION>
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TABLE OF CONTENTS
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<S> <C>
Summary.................................................... How to Purchase Fund Shares.................................
Expense Summary............................................ Shareholder Services........................................
Financial Highlights....................................... How to Redeem Fund Shares...................................
The Fund and the Portfolio................................. Share Price.................................................
Investment Objectives and Policies......................... Performance Advertising.....................................
General Investment Policies and Strategies................. Taxes.......................................................
Risk Factors............................................... General Information.........................................
Investment Limitations..................................... Glossary of Permitted Investments...........................
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</TABLE>
SUMMARY
The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
diversified portfolios of securities. This summary provides basic information
about the PBHG Small Cap Value Fund ("Small Cap Value Fund" or "Portfolio").
This summary is qualified in its entirety by reference to the more detailed
information provided elsewhere in this Prospectus and in the Statement of
Additional Information.
What are the Investment Objectives, Program and Policies of the Portfolio?
The Small Cap Value Portfolio 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 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.
What Are The Principal Risks Involved With An Investment In The Portfolio?
The Portfolio invests in securities that fluctuate in value, and investors
should expect the Portfolio's net asset value per share to fluctuate. The
Portfolio may invest in stocks and convertible securities that may be traded in
the over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, because the Portfolio invests extensively
in the securities of small capitalization companies it may experience greater
price volatility than an investment company that invest primarily in more
established, larger capitalized companies. The Portfolio may invest in equity
securities of non-U.S. issuers, which are subject to certain risks not typically
associated with domestic securities. Such risks include changes in currency
rates and in exchange control regulations, costs associated with conversions
between various currencies, limited publicly available information regarding
foreign issuers, lack of uniformity in accounting, auditing and financial
standards and requirements, greater securities market volatility, less
liquidity, less government supervision of securities markets, changes in taxes
on income on securities, and possible seizure, nationalization or expropriation
of the foreign issuer or foreign deposits. The Portfolio also may enter into
futures contracts, which are subject to special risks. Such risks include the
potential of imperfect correlation between the change the in value of a futures
contract purchased or sold and the market value of the securities held by the
Portfolio and the risk that the Portfolio may not be able to close out a
particular futures contract because of a lack of a liquid secondary market in
such futures contract. See "Investment Objectives and Policies", "Risk Factors"
and "Glossary of Permitted Investments."
Who Are The Adviser and Sub-Adviser? Pilgrim Baxter & Associates, Ltd.
("Adviser") serves as the investment adviser to the Portfolio. Newbold's Asset
Management, Inc. ("Sub-Adviser") serves as the investment sub-adviser to the
Portfolio. Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. are collectively referred herein as "Advisers". See "Expense Summary," "The
Adviser" and "The Sub-Adviser."
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<PAGE>
Who Are The Administrator And Sub-Administrator? PBHG Fund Services serves
as the administrator of the Fund, and SEI Fund Resources, an affiliate of the
Fund's distributor, serves as sub-administrator of the Fund. See "The
Administrator and Sub-Administrator."
Who Are The Transfer Agent And Sub-Transfer Agents? DST Systems, Inc. serves
as the transfer agent, dividend disbursing agent and shareholder servicing agent
of the Fund. The Fund may also pay amounts to certain third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund. See "The Transfer Agent And
Sub-Transfer Agents."
Who Is the Distributor? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."
Is There A Sales Load? No, PBHG Class Shares of the Portfolio are offered on
a no-load basis.
Is There A Minimum Initial Investment? The Portfolio has a minimum initial
investment of $2,500 for regular accounts and $2,000 for IRAs.
How Do I Purchase And Redeem Shares? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). A purchase order will be effective as of
theBusiness Day received by the Transfer Agent if the Transfer Agent receives
sufficient information to execute the order and receives payment by check or
readily available funds prior to 4:00 p.m., Eastern time for the Portfolio.
Redemption orders placed with the Transfer Agent prior to 4:00 p.m., Eastern
time for the Portfolio on any Business Day will be effective that day. The
purchase and redemption price for shares is the net asset value per share
determined as of the end of the day the order is effective. Purchases and
redemptions also may be made through certain broker-dealers and other financial
institutions. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."
EXPENSE SUMMARY
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in PBHG Class Shares of the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
================================================================================
Small Cap Value Fund
- - --------------------------------------------------------------------------------
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (1) None
Exchange Fees None
================================================================================
(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a shareholder. A
minimum account charge of $6.00 will be imposed quarterly on accounts that fall
below the minimum account size of $1,000 as a result of shareholder redemptions.
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<PAGE>
Annual Operating Expenses
(as a percentage of average net assets)
================================================================================
Small Cap Value Fund
- - --------------------------------------------------------------------------------
Advisory Fees 1.00%
12b-1 Fees None
Other Expenses .50%
Total Operating Expenses 1.50%
================================================================================
The Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit annual operating expenses of the
Portfolio to not more than 1.50% of the average daily net assets of the
Portfolio. Such waiver of Advisory Fees or assumptions of Other Expenses by the
Adviser is subject to a possible reimbursement by the Portfolio in future years
if such reimbursement can be achieved within the foregoing annual expense limit.
Nevertheless, based on average assets of at least $50 million during the
Portfolio's first year of operations, it is not expected that the Adviser will
need to waive or limit its Advisory Fees or to assume Other Expenses of the
Portfolio.
Example
================================================================================
Portfolio 1 years 3 year
================================================================================
An investor in the Portfolio Small Cap Value Fund $15 $47
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.
================================================================================
This example is based upon estimated other expenses of the Portfolio, as set
forth in the "Annual Operating Expenses" table above. The example should not be
considered a representation of past or future expenses. Actual expenses may be
greater or less than those shown. The purposes of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Portfolio. See "The Adviser," "The
Sub-Adviser" and "The Administrator and Sub-Administrator."
THE FUND AND THE PORTFOLIO
The Fund is an open-end investment company that currently offers shares in
thirteen separate series. This Prospectus relates solely to the PBHG Class
Shares for the Small Cap Value Fund. Each share of the Portfolio represents an
undivided interest in the Portfolio. The Fund's shares are currently divided
into two classes of shares (PBHG Class and Trust Class) having such preferences
and special or relative rights and privileges as the Board of Directors
determines. Only the Fund's PBHG Class Shares are offered by this Prospectus.
Trust Class Shares are generally subject to the same expenses as the PBHG Class
Shares but also bear a Rule 12b-1 shareholder servicing fee of 0.25% of the
average daily net assets attributable to its shares. The Trust Class Shares are
not currently available for the Portfolio. Additional information pertaining to
the Fund may be obtained in writing from the Fund's transfer agent, DST Systems,
Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534, or by calling
1-800-433-0051.
-4-
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
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 in the Russell 2000 Index is
typically between $100 million and $1.5 billion. 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 10% of the sector weightings of that Index.
In selecting investments for the Portfolio, the Advisers emphasize fundamental
investment value and consider the following factors, among others, in
identifying and analyzing a security's fundamental value: 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 Sub-Adviser believe that those companies will react positively to
changing economic conditions or that such companies have taken or are expected
to take actions designed to improve their financial fundamentals or to otherwise
increase the market price of their securities. The utilization of a valuation
approach may result in investment selections that may be out-of-favor or counter
to those of other investors. However, such an approach may also produce
significant capital appreciation.
In addition to the Portfolio's primary investment (i.e., 65% of its total
assets) 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 does not exceed 5% of Portfolio's net assets and (ii) the total market
value of securities underlying all futures contracts does not exceed 50% of the
value of the Portfolio's total assets. In addition, the Portfolio may invest up
to 15% of its net assets in restricted or illiquid securities. This limitation
does not include any Rule 144A security that has been determined to be liquid
pursuant to procedures established by the Board. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "General Investment Policies and Strategies -- Temporary
Defensive Positions" below for a fuller description.
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 American Depositary Receipts
("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" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
There can be no assurance that the Portfolio will be able to achieve its
investment objective.
-5-
<PAGE>
GENERAL INVESTMENT POLICIES AND STRATEGIES
Investment Process
The investment process is both quantitative and fundamental. In seeking to
identify attractive investment opportunities for the Small Cap Value Fund, the
Sub-Adviser first creates a universe of companies each of whose current share
price is low in relation to its real worth or future prospects. Using custom
designed research models and proprietary software, which incorporate certain key
elements of value investing (such as consistency of dividend payment, balance
sheet strength and, low stock price relative to its assets, earnings, cash flow
and business franchise), the Sub-Adviser screens more than 8,000 possible
companies and creates an initial universe of statistically attractive value
companies. Following the creation of this universe of possible investments, the
Sub-Adviser uses its strong fundamental research capabilities to carefully
identify securities that are currently out of favor but which have the potential
to achieve significant appreciation as the marketplace recognizes their
fundamental value. Once constructed, portfolios are continually monitored for
change. The Sub-Adviser follows a disciplined valuation approach that requires
it to sell any portfolio security that becomes overvalued relative to the
market. Sales of portfolio securities are primarily triggered by the relative
change in a company's price/earnings ratio. Adverse changes in other key value
elements are, of course, factors that would also trigger a sale. Of course,
there can be no assurance that use of these techniques will be successful.
Portfolio Turnover
Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rates for the Portfolio may exceed 200%. High rates of
portfolio turnover necessarily result in correspondingly greater brokerage and
portfolio trading costs, which are paid by the Portfolio. 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 the Portfolio's status as a "regulated investment
company" ("RIC") under Section 851 of the Internal Revenue Code of 1986, as
amended ("Code").
Temporary Defensive Positions
Under normal market conditions, the Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Advisers determine that market conditions warrant, the
Portfolio may invest up to 100% of its assets in cash and money market
instruments (consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings and loan
associations having net assets of at least $500 million as stated on their most
recently published financial statements; commercial paper rated in one of the
two highest rating categories by at least one nationally recognized statistical
rating organization ("NRSRO"); repurchase agreements involving such securities;
and, to the extent permitted by applicable law and the Portfolio's investment
restrictions, shares of other investment companies investing solely in money
market securities. To the extent the Portfolio is invested in temporary
defensive instruments, it will not be pursuing its investment objective. See
"Glossary of Permitted Investments" and the Statement of Additional Information
for further information about such investments.
RISK FACTORS
Small Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in the
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Portfolio invests primarily in securities issued by
small capitalization companies. While the Advisers intend to invest in small
capitalization companies that have strong balance sheets and favorable business
prospects, any investment in small 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 size, limited markets and financial
resources, narrow product lines and frequent lack of management depth. The
securities of small capitalization companies are often traded in the
over-the-counter
-6-
<PAGE>
market, and might not be traded in volumes typical of securities traded on a
national securities exchange. Thus, the securities of small capitalization
companies are likely to be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established companies.
Over-The-Counter Market
The Portfolio may invest in over-the-counter stocks. In contrast to the
securities exchanges, the over-the-counter market is not a centralized facility
which limits trading activity to securities of companies which initially satisfy
certain defined standards. Generally, the volume of trading in an unlisted or
over-the-counter common stock is less than the volume of trading in a listed
stock. This means that the depth of market liquidity of some stocks in which the
Portfolio invest may not be as great as that of other securities and if the
Portfolio 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
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and currencies.
Foreign issuers may also be subject to less government regulation than U.S.
companies. Moreover, the dividends and interest payable on foreign securities
may be subject to foreign withholding taxes, thus reducing the net amount of
income available for distribution to the Portfolio's shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.
For additional information regarding permitted investments for the Portfolio,
and their risks see "Glossary of Permitted Investments" and the Statement of
Additional Information.
Futures Contracts
The primary risks associated with the use of futures contracts are: (i)
imperfect correlations between the change in market value of the securities held
by the Portfolio and the prices of futures contracts purchased or sold by the
Portfolio; and (ii) possible lack of a liquid secondary market for a futures
contract and the resulting inability to close a futures position, which could
have an adverse impact on the Portfolio's ability to execute futures and options
strategies.
INVESTMENT LIMITATIONS
The investment objective of the Portfolio, the investment limitations set forth
below and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of the Portfolio. The
Portfolio's fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio, as a fundamental policy, may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and
-7-
<PAGE>
diversified finance will each be considered a separate industry. For purposes of
this limitation, supranational organizations are deemed to be issuers conducting
their principal business activities in the same industry.
3. Borrow money except for temporary or for emergency purposes and then only in
an amount not exceeding 33 1/3% of the value of the Portfolio's total assets.
This borrowing provision is included solely to facilitate the orderly sale of
portfolio securities to accommodate substantial redemption requests if they
should occur and is not for investment purposes. All borrowings in excess of 5%
of the Portfolio's total assets will be repaid before making investments.
The foregoing percentages will apply at the time of the purchase of a security.
HOW TO PURCHASE FUND SHARES
You may purchase shares of the Portfolio directly through DST Systems, Inc.
("DST" or the "Transfer Agent"). Purchases of shares of the Portfolio may be
made on any Business Day. Shares of the Portfolio are offered only to residents
of states in which such shares are eligible for purchase.
You may place orders by mail, wire or telephone if you have elected the
Telephone Purchase Authorization option on your Account Application. If market
conditions are extraordinarily active, or if severe weather or other emergencies
exist, and you experience difficulties placing orders by telephone, you may wish
to consider placing your order by other means, such as mail or overnight
delivery.
You may also purchase shares of the Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolio. Such financial institutions may charge you a fee for this service in
addition the Portfolio's public offering price.
Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instruction or upon telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.
The Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small capitalization companies may from time to time be more
limited than those in other sectors of the stock market. Therefore, in order to
retain adequate investment flexibility, the Adviser and Sub-Adviser may from
time to time recommend to the Board of Directors of the Fund that the Portfolio,
which invests extensively in such companies, indefinitely discontinue the sale
of its shares to new investors (other than directors, officers and employees of
the Adviser, Sub-Adviser and its affiliated companies). In such event, the
Board of Directors would determine whether such discontinuance is in the best
interests of the Portfolio and its shareholders.
Minimum Initial Investment
The minimum initial investment for the Small Cap Value Fund is $2,500 for
regular accounts and $2,000 for IRAs. There is no minimum for subsequent
purchases except for those (1) using the Systematic Investment Plan or (2)
electing to purchase additional shares by telephone. The Distributor may waive
the minimum at its discretion. No minimum applies to subsequent purchases
effected by dividend reinvestment. As described below, subsequent purchases
through the Fund's Systematic Investment Plan and by Telephone Purchase
Authorization must be at least $25 and $1,000, respectively.
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Initial Purchases By Mail
An account may be opened by mailing a check or other negotiable bank draft
payable to -- PBHG Small Cap Value Fund -- for $2,500 or more for regular
accounts and $2,000 for IRAs, together with a completed Account Application to:
The PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City,
Missouri 64141-6534. The Fund will not accept third party checks, i.e., a check
not payable to any Portfolio for initial or subsequent investments.
Additional Purchases By Phone (Telephone Purchase Authorization)
If you have made this election you may purchase additional shares by telephoning
the Transfer Agent at 1-800-433-0051. The telephone purchase authorization is an
election available on the account application. The minimum telephone purchase is
$1,000, and the maximum is five times the net asset value of shares held by the
shareholder on the day preceding such telephone purchase for which payment has
been received. The telephone purchase will be made at the offering price next
computed after the receipt of the call by the Transfer Agent. Payment for the
telephone purchase must be received by the Transfer Agent within seven days. If
payment is not received within seven days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Initial Purchase By Wire
If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolio by requesting your bank
to transmit funds by wire transfer. Before making an initial investment by wire,
you must first telephone 1-800-433-0051 to receive an Application and to be
assigned an account number. The Account Application must be received prior to
receipt of the wire. Your name, account number, taxpayer identification number
or Social Security Number, and address must be specified in the wire. All wires
must be received by 4:00 p.m. Eastern time to be effective on that day. In
addition, an original Account Application should be promptly forwarded to: DST
Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534. All wires must
be sent as follows: United Missouri Bank of Kansas City, N.A.; ABA #10-10-00695;
for Account Number 98705-23469; Further Credit: PBHG Small Cap Value Fund.
Additional Purchases By Wire
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
Purchases by ACH
If you have made this election, shares of the Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to you initiating an ACH
transaction.
General Information Regarding Purchases
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives sufficient information to execute the order and
receives payment before 4:00 p.m., Eastern time for the Portfolio. Payment may
be made by check or readily available funds. The purchase price of shares of the
Portfolio is the net asset value per share next determined after a purchase
order is effective. Purchases will be made in full and fractional shares of the
Portfolio calculated to three decimal places. The Fund will not issue
certificates representing shares of the Portfolio.
In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 4:00 p.m. Eastern Time
for the Portfolio and (ii) promptly transmit the order to the Transfer Agent.
See "Determination of Net Asset Value" below. The broker-dealer or financial
institution is responsible for promptly transmitting purchase orders to the
Transfer Agent so that you may receive the same day's net asset value.
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If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred. The Fund
reserves the right to reject a purchase order when the Fund determines that it
is not in the best interests of the Fund or its shareholders to accept such
order.
SHAREHOLDER SERVICES
Shareholder Inquiries And Services Offered
If you have any questions about the Portfolio or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST SYSTEMS, INC., P.O. BOX 419534, Kansas City, Missouri
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Transfer Agent receives your
notification to discontinue such service(s) at least ten days before the next
scheduled investment or withdrawal date.
Systematic Investment And Systematic Withdrawal Plans
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolio at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolio despite their
fluctuating net asset values through regular purchases of a fixed dollar amount
of shares in the Portfolio. Dollar-cost averaging brings discipline to your
investing. Dollar-cost averaging results in more shares being purchased when the
Portfolio's net asset value is relatively low and fewer shares being purchased
when the Portfolio's net asset value is relatively high, thereby helping to
decrease the average price of your shares.
Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction per Portfolio) from your designated
checking or savings account. Your systematic investment in the Portfolio
designated by you will be processed on a regular basis at your option beginning
on or about either the first or fifteenth day of the month or quarter you
select. This Systematic Investment Plan must be established on your account at
least 15 days prior to the intended date of your first systematic investment.
(2) Systematic Withdrawal Plan. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the Portfolio. The Systematic Withdrawal Plan permits you to have
payments of $50 or more automatically transferred from your account(s) in the
Portfolio to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. This Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $2,500 in any
account utilizing this feature. Your systematic withdrawals will be processed on
a regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.
Exchange Privileges
Once payment for your shares has been received (i.e., an account has been
established), you may exchange some or all of your shares for shares other
portfolios of the Fund currently available for investment by new investors.
However, if you own shares of any portfolio of the Fund other than the PBHG Cash
Reserves Fund, you are limited to four (4) exchanges annually from such
portfolio to the PBHG Cash Reserves Fund. Exchanges are made at net asset value.
The Fund reserves the right to change the terms and conditions of the exchange
privilege discussed herein, or to terminate the exchange privilege, upon sixty
days' notice. Exchanges will be made only after proper instructions in writing
or by telephone (an "Exchange Request") are received for an established account
by the Transfer Agent.
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Tax-Sheltered Retirement Plans
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) Individual Retirement Accounts ("IRAs"). You may save for your retirement
and shelter your investment income from current taxes by either: (a)
establishing a new IRA; or (b) "rolling-over" to the Fund monies from other IRA
accounts or lump sum distributions from a qualified retirement plan. If you are
between 18 and 70 1/2 years of age, you can use an IRA to invest up to $2,000
per year of your earned income in the Portfolio. You may also invest up to $250
per year in a spousal IRA if your spouse has no earned income. There is a $10.00
annual maintenance fee charged to IRA investors. If you maintain IRA accounts in
more than one portfolio of the Fund, you will only be charged one fee. This fee
can be prepaid or will be debited from your account if not received by the
announced deadline.
(2) SEP-IRAs. If you are a self-employed person, you can establish a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide persons with
self-employed income (and their eligible employees) with many of the same tax
advantages as a Keogh, but with fewer administrative requirements.
(3) 401(a) Keogh and Corporate Retirement Plans. Both a prototype money purchase
pension plan and a profit sharing plan, which may be used alone or in
combination, are available for self-employed individuals and their partners, and
corporations to provide tax-sheltered retirement benefits for individuals and
employees.
(4) 401(k) Plans. Through the establishment of a 401(k) plan by a corporation of
any size, employees can invest a portion of their wages in the Portfolio on a
tax-deferred basis in order to help them meet their retirement needs.
(5) 403(b) Plans. Section 403(b) plans are custodial accounts which are
available to employees of most non-profit organizations and public schools.
Other Special Accounts
The Fund also offers the following special accounts to meet your needs:
(1) Uniform Gift to Minors/Uniform Transfers to Minors. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors with the Fund you can
build a fund for your children's education or a nest egg for their future and,
at the same time, potentially reduce your own income taxes.
(2) Custodial and Fiduciary Accounts. The Fund provides a convenient means
of establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.
For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.
HOW TO REDEEM FUND SHARES
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time for the Portfolio on any Business Day will be effective that day. The
redemption price of shares is the net asset value per share of the Portfolio
next determined after the redemption order is effective. Payment on redemption
will be made as promptly as possible and, in any event, within seven days after
the redemption order is received, provided, however, that redemption proceeds
for shares purchased by check (including certified or cashier's checks) will be
forwarded only upon collection of payment for such shares; collection of payment
may take up to 15 days.
You may also redeem shares of the Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
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In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 4:00
p.m. Eastern Time for the Portfolio and (ii) promptly transmit the order to the
Transfer Agent. See "Determination of Net Asset Value" above. The financial
institution is responsible for promptly transmitting redemption orders to the
Transfer Agent so that your shares are redeemed at the same day's net asset
value per share.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH wire transfer.
By Mail
There is no charge for having a check for redemption proceeds mailed.
By Telephone
Redemption orders may be placed by telephone provided that this option has been
elected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery.
By Wire
The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
the Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.
By ACH
The Fund does not charge for ACH transactions; however, such transactions will
not be posted to your bank account until the second Business Day following the
transaction. In order to process a redemption by ACH, banking information must
be established on your account at least 15 days prior to initiating an ACH
transaction. A voided check or deposit slip must accompany requests to establish
this option.
Signature Guarantees
A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; and (3) redemption requests that provide that the redemption proceeds
should be sent to an address other than the address of record or to a person
other than the registered shareholder(s) for the account. Signature guarantees
can be obtained from any of the following institutions: a national or state
bank, a trust company, a federal savings and loan association, or a
broker-dealer that is a member of a national securities exchange. The Fund does
not accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose a $6.00 minimum account charge and reserves the right to redeem shares
in any non-retirement account if, as the result of redemptions, the value of any
account drops below $1,000 for the Small Cap Value Fund. You will be allowed at
least sixty (60) days, after notice by the Fund, to make an additional
investment to bring your account value up to at least $1,000 before the $6.00
minimum account fee is charged and/or the redemption
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of a non-retirement account is processed. The $6.00 minimum account charge will
be imposed quarterly on any such account until the account is brought up to the
minimum account size.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
SHARE PRICE
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m., Eastern time) on any Business Day. The net asset
value per share of the Portfolio is listed under PBHG in the mutual fund section
of most major daily newspapers, including the Wall Street Journal.
PERFORMANCE ADVERTISING
From time to time, the Portfolio may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. For the Portfolio, yield refers to the annualized income generated
by an investment in the Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of the Portfolio refers to the average compounded rate of
return on a hypothetical investment for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. The Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
The Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. The Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertisements and may compare these measures to those of other funds.
Measures of volatility attempt to compare historical share price fluctuations or
total returns to a benchmark while measures of benchmark correlation indicate
how valid a comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical data and cannot be
calculated precisely.
The performance of the Fund's Trust Class shares may be lower than that of the
Fund's PBHG Class Shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Trust Class Shares.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the Portfolio
or its shareholders. Accordingly, you are urged to consult your tax advisor
regarding specific questions as to federal, state and local income taxes. See
the Statement of Additional Information for further information.
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Tax Status of the Portfolio
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded a RIC
under Subchapter M of the Code. So long as the Portfolio qualifies for this
special tax treatment, it will be relieved of federal income tax on that part of
its net investment income and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) which it distributes to
shareholders.
Tax Status of Distributions
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net investment income
will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of the
Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The
Portfolio will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Portfolio (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments. The
Portfolio will be required to include as part of its current net investment
income the accrued discount on such obligations for purposes of the distribution
requirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because the Portfolio distributes all of
its net investment income to its shareholders, the Portfolio may have to sell
portfolio securities to distribute such accrued income, which may occur at a
time when the Advisers would not have chosen to sell such securities and which
may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by the Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from the
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. The Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from the Portfolio is considered tax exempt in your
particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.
Tax Treatment of Transactions
Each sale, exchange or redemption of the Portfolio's shares is a taxable event
to the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes.
GENERAL INFORMATION
The Fund
The Fund, an open-end management investment company, was originally incorporated
in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective July 31,
1992, the Fund was reorganized as a Maryland corporation pursuant to an
Agreement and
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Articles of Merger which was approved by Fund shareholders on July 21, 1992. On
September 8, 1993, the Fund's shareholders voted to change the name of the Fund
to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994, the Fund's
shareholders voted to change the name of the Fund to The PBHG Funds, Inc. All
consideration received by the Fund for shares of the Portfolio and all assets of
the Portfolio belong to the Portfolio and would be subject to liabilities
related thereto. The Fund reserves the right to create and issue shares of
additional portfolios.
The Portfolio pays its respective expenses relating to its operation, including
fees of its service providers, audit and legal expenses, expenses of preparing
prospectuses, proxy solicitation material and reports to shareholders, costs of
custodial services and registering its shares under federal and state securities
laws, pricing and insurance expenses and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
The Adviser
Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $15 billion in assets. In addition to advising
the Portfolio, the Adviser provides advisory services to the Fund's other
portfolios and to pension and profit-sharing plans, charitable institutions,
corporations, individual investors, trusts and estates, and other investment
companies. The principal business address of the Adviser is 1255 Drummers Lane,
Suite 300, Wayne, Pennsylvania 19087.
The Adviser serves as the investment adviser to the Portfolio under an
investment advisory agreement with the Fund (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser either continuously reviews, supervises and
administers the investment program of the Portfolio, which includes managing and
selecting investments, or oversees the investment management of the Portfolio by
the Portfolio's Sub-Adviser, subject to the supervision of, and policies
established by, the Board of Directors of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the average daily net assets of
the Small Cap Value Fund. The advisory fee paid by the Portfolio is higher than
those paid by most investment companies, although the Adviser believes the fee
to be comparable to that paid by investment companies with similar investment
objectives and policies.
The Sub-Adviser
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the Adviser,
the controlling shareholder of the Sub-Adviser is UAM. The Sub-Adviser currently
has discretionary management authority with respect to over $5 billion in
assets. In addition to advising the Portfolio, the Sub-Adviser provides advisory
services to pension and profit-sharing plans, charitable institutions, trusts,
estates and other investment companies.
The Sub-Adviser serves as the investment sub-adviser for the Portfolio pursuant
to a sub-advisory agreement with the Fund and the Adviser ("Sub-Advisory
Agreement"). Under the Sub-Advisory Agreement, the Sub-Adviser manages the
investments of the Portfolio, selects investments and places all orders for
purchases and sales of the Portfolio's securities, subject to the general
supervision of the Board of Directors of the Fund and the Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement for the Small Cap Value Fund, the Sub-Adviser is entitled to receive
from the Adviser a fee with respect to the Portfolio which is computed daily and
paid monthly at an annual rate of .30% of the average daily net assets of the
Small Cap Value Fund.
Portfolio Manager
Gary D. Haubold, CFA, has managed the PBHG Small Cap Value Fund since its
inception. Mr. Haubold joined the Sub-Adviser in January 1997. Prior to joining
the Sub-Adviser, Mr. Haubold was employed by Miller Anderson & Sherrerd ("MAS")
from 1993 until January 6, 1997. At MAS, Mr. Haubold served as the co-manager of
the Mid Cap Value Portfolio of the MAS Fund and the
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co-manager of the Small Cap Value Portfolio of the MAS Fund ("MAS Small Cap
Value Portfolio"). Prior to joining MAS, Mr. Haubold was Senior Vice President
of Wood, Struthers & Winthrop.
Although Mr. Haubold co-managed the MAS Small Cap Value Portfolio from June 1,
1993 through January 6, 1997, Mr. Haubold was the person primarily
responsible for the day-to-day management of the MAS Small Cap Value Portfolio
during that period. During the time that Mr. Haubold managed the MAS Small Cap
Value Portfolio, it had an investment objective, policies, and strategies that
were substantially similar to those of the PBHG Small Cap Value Fund. The
cumulative total return for the MAS Small Cap Value Portfolio from January 1,
1995 through December 31, 1996 was ___.___% as compared to ___.__% for the
Russell 2000 Index over the same period. The average annual total returns for
the MAS Small Cap Value Portfolio for one-year and since the inception of Mr.
Haubold's management of the Portfolio (through December 31, 1996) compared with
the performance of the Russell 2000 Index were:
================================================================================
Year MAS Small Cap Value Portfolio(1) Russell 2000 Index(2)
ended 12/31/96
- - --------------------------------------------------------------------------------
1 Year __.__% __.__%
Since the inception __.__% __.__%
of Mr. Haubold's
management of
the Portfolio
================================================================================
(1) Average annual total returns reflect changes in share price of the MAS
Small Cap Value Portfolio, reinvestment of all dividends and distributions
and are net of all fund expenses.
(2) The Russell 2000 Index is an unmanaged index of common stocks generally
representative of the small capitalization U.S. stock market. The index
does not reflect investment management fees, brokerage commissions and
other expenses associated with investing in equity securities.
Historical performance does not indicate future performance. THE MAS SMALL CAP
VALUE PORTFOLIO IS A SEPARATE FUND AND ITS HISTORICAL PERFORMANCE IS NOT
INDICATIVE OF THE POTENTIAL PERFORMANCE OF PBHG SMALL CAP VALUE FUND. Share
prices and investment returns will fluctuate.
Expense Limitation Agreements
In the interest of limiting expenses of the Portfolio, the Adviser has entered
into an expense limitation agreement with the Fund ("Expense Limitation
Agreement"), with respect to the Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolio
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of the Portfolio's average daily net assets) to 1.50%.
Reimbursement by the Portfolio of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolio has reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expenses rate
of the Portfolio to exceed 1.50%. Consequently, no reimbursement by the
Portfolio will be made unless: (i) the Portfolio's assets exceed $75 million;
(ii) the Portfolio's total annual expense ratio is less than 1.50%; and (iii)
the payment of such reimbursement was approved by the Board of Directors on a
quarterly basis.
The Administrator and Sub-Administrator
PBHG Fund Services (the "Administrator") provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the Fund. The
principal place of business of the Administrator is 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087.
SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the
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Administrator pays the Sub-Administrator a fee at the annual rate of 0.07% of
the average daily net assets of the Portfolio with respect to $2.5 billion of
the total average daily net assets of the Fund, and a fee at the annual rate of
0.025% of the average daily net assets of the Portfolio with respect to the
total average daily net assets of the Fund in excess of $2.5 billion.
The Transfer Agent and Sub-Transfer Agents
DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.
From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
401(k) plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering on behalf of the
Fund proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Transfer Agent for providing these services to
shareholders investing directly in the Fund.
The Distributor
SEI Financial Services Company (the "Distributor"), 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services. No compensation is paid to the Distributor for
distribution services for the PBHG Class Shares of the Portfolio.
Directors of the Fund
The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved agreements
under which, as described above, certain companies provide essential management
services to the Fund.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
the Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all portfolios of the Fund will be voted on only by
shareholders of the affected portfolios. Shareholders of all portfolios of the
Fund will vote together on matters affecting the Fund generally, such as the
election of Directors or selection of accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Trust Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of Directors under certain
circumstances. In addition, a Director may be removed by the remaining Directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
Reporting
The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
Shareholder Inquiries
You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009, or by calling 1-800-433-0051.
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Dividends and Distributions
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of annual dividends. If any capital
gain is realized, substantially all of it will be distributed by the Portfolio
at least annually.
Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least fifteen (15) days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve wire or ACH transfer.
Dividends and distributions of the Portfolio are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.
Counsel and Independent Public Accountants
Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, LLP
serves as the independent public accountants of the Fund.
Custodian
CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian for the Portfolio. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended (the "1940 Act").
Miscellaneous
As of the date of this Prospectus, SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658, as the Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding PBHG Class
Shares of the Portfolio, and may be deemed to be a controlling person of the
Portfolio for purposes of the 1940 Act.
GLOSSARY OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments of the
Portfolio:
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") --
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
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.
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Commercial Paper -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.
Convertible Securities -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, the Portfolio's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.
Derivatives -- Derivatives are securities that derive their value from other
securities. The following, among others, may be considered to be derivative
securities: futures, convertible securities and "stripped" U.S. Treasury
securities (e.g., STRIPS). See elsewhere in this "Glossary of Permitted
Investments" for discussions of these various instruments, and see "Investment
Objectives and Policies" for more information about the investment policies and
limitations applicable to their use.
Futures Contracts -- Futures contracts are derivatives. Futures contracts
provide for the sale by one party and purchase by another party of a specified
amount of a specific security, securities index or currency at a specified
future time and price. The Portfolio will maintain assets sufficient to meet its
obligations under such futures contracts in a segregated margin account with the
custodian bank or will otherwise comply with the SEC's position on asset
coverage. The prices of futures contracts are volatile and are influenced by,
among other things, actual and anticipated changes in the market and interest
rates.
Illiquid Securities -- Securities that cannot be disposed of in the ordinary
course of business within seven (7) days at approximately the price at which the
Portfolio has valued the security.
Repurchase Agreements -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. The
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. The Advisers will enter into repurchase agreements on
behalf of the Portfolio only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Directors. Repurchase agreements
are considered loans under the 1940 Act, as well as for federal and state income
tax purposes.
Restricted Securities -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. The Portfolio may invest in restricted
securities that the Advisers determine are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Fund. The
Board of Directors will periodically review such procedures and guidelines and
will monitor the Advisers' implementation of such procedures and guidelines.
Under these procedures and guidelines, the Advisers will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. The
Portfolio may purchase restricted securities sold in reliance upon the exemption
from registration provided by Rule 144A under the 1933 Act. Restricted
securities may be difficult to value because market quotations may not be
readily available. Because of the restrictions on the resale of restricted
securities, they may pose liquidity problems for the Portfolio.
Time Deposit -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. Government Agency Obligations -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Securities issued by these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States (e.g., GNMA securities) or supported
by the issuing agencies' right to borrow from the
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Treasury. The securities issued by other agencies are supported only by the
credit of the instrumentality (e.g., Tennessee Valley Authority securities).
U.S. Government Securities -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.
U.S. Treasury Obligations -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive most of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest ("IO class"), while the other class will receive all
of the principal ("principal-only" or "PO class"). The yield to maturity on IO
classes and PO classes is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the portfolio
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Portfolio may fail to fully recoup its
initial investment in these securities, even if the security is in one of the
highest rating categories.
When-Issued and Delayed-Delivery Securities -- When-issued and delayed-delivery
securities are securities subject to settlement on a future date. For fixed
income securities, the interest rate realized on when-issued or delayed-delivery
securities is fixed as of the purchase date and no interest accrues to the
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and will have the effect of leveraging
the Portfolio's assets. The Portfolio is permitted to invest in the forward
commitments or when-issued securities where such purchases are for investment
and not for leveraging purposes. One or more segregated accounts will be
established with the Custodian, and the Portfolio will maintain liquid assets in
such accounts in an amount at least equal in value to the Portfolio's
commitments to purchase when-issued securities.
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THE PBHG FUNDS, INC.
PBHG SMALL CAP VALUE FUND
INVESTMENT ADVISER:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus and relates only to
the PBHG Small Cap Value Fund (the "Portfolio"). It is intended to provide
additional information regarding the activities and operations of The PBHG
Funds, Inc. (the "Fund") and the Portfolio, and should be read in conjunction
with the Portfolio's Prospectus dated April 22, 1997. The Prospectus for the
Portfolio may be obtained without charge by calling 1-800-431-0051.
TABLE OF CONTENTS
THE FUND....................................................................S-
DESCRIPTION OF PERMITTED INVESTMENTS........................................S-
INVESTMENT LIMITATIONS......................................................S-
THE ADVISER.................................................................S-
THE SUB-ADVISER.............................................................S-
THE ADMINISTRATOR AND SUB-ADMINISTRATOR.....................................S-
THE DISTRIBUTOR.............................................................S-
DIRECTORS AND OFFICERS OF THE FUND..........................................S-
COMPUTATION OF YIELD........................................................S-
CALCULATION OF TOTAL RETURN.................................................S-
PURCHASE AND REDEMPTION OF SHARES...........................................S-
DETERMINATION OF NET ASSET VALUE............................................S-
TAXES.......................................................................S-
PORTFOLIO TRANSACTIONS......................................................S-
DESCRIPTION OF SHARES.......................................................S-
April 22, 1997
<PAGE>
THE FUND
This Statement of Additional Information relates only to the Fund's PBHG Small
Cap Value Fund (the "Portfolio"). The 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 Fund currently offers shares of twelve
other portfolios, i.e., PBHG Growth Fund, PBHG Emerging Growth Fund, PBHG Large
Cap Growth Fund, PBHG Select Equity Fund, PBHG International Fund, PBHG Cash
Reserves Fund, PBHG Technology & Communications Fund, PBHG Core Growth Fund,
PBHG Limited Fund, PBHG Large Cap 20 Fund, PBHG Large Cap Value Fund and PBHG
Strategic Small Company Fund through means of separate prospectuses and
statements of additional information. The Portfolio is a separate mutual fund,
and each share of the Portfolio represents an equal proportionate interest in
the Portfolio. See "Description of Shares." No investment in shares of the
Portfolio should be made without first reading the Portfolio's Prospectus.
Pilgrim Baxter & Associates, Ltd. ("Adviser") serves as the investment adviser
to the Portfolio. Newbold's Asset Management, Inc. ("Sub-Adviser") serves as the
investment sub-adviser to the Portfolio. The Adviser and the Sub-Adviser are
collectively referred herein as the "Advisers." Capitalized terms not defined
herein are defined in the Portfolio's Prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
Illiquid Investments
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Portfolio's investments and, through
reports from the Advisers, the Board monitors investments in illiquid
instruments. In determining the liquidity of the Portfolio's investments,
Advisers may consider various factors including: (1) the frequency of trades and
quotations; (2) the number of dealers and prospective purchasers in the
marketplace; (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features); and (5) the nature of the
market place for trades (including the ability to assign or offset the
Portfolio's rights and obligations relating to the investment). Investments
currently considered by the Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven (7) days and over the-counter options. Also, the Advisers may determine
some government-stripped fixed-rate mortgage backed securities are illiquid. In
the absence of market quotations, illiquid investments are priced at fair value
as determined in good faith by a committee appointed by the Board of Directors.
If, through a change in values, net assets or other circumstances, the Portfolio
was in a position where more than 15% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
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Investment Company Shares
The Portfolio may invest in shares of money market mutual funds, to the extent
set forth under "Investment Limitations" below. Since such funds pay management
fees and other expenses, shareholders of the Portfolio would indirectly pay both
the Portfolio's expenses and the expenses of underlying funds with respect to
the Portfolio's assets invested therein. Applicable regulations prohibit the
Portfolio from acquiring the securities of other investment companies that are
not "part of the same group of investment companies" if, as a result of such
acquisition, the Portfolio owns more than 3% of the total voting stock of the
company; more than 5% of the Portfolio's total assets are invested in securities
of any one investment company; or more than 10% of the total assets of the
Portfolio are invested in securities (other than treasury stock) issued by all
investment companies.
Futures Contracts
Futures Transactions. A futures contract is a bilateral agreement to buy or sell
a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts markets"
by the Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, the Portfolio upon entering into a futures contract (and to maintain
the Portfolio's open positions in futures contracts) would be required to
deposit with its custodian in a segregated account in the name of the futures
broker an amount of cash, or other assets, known as "initial margin." The margin
required for a particular futures contract is set by the exchange on which the
contract is traded, and may be significantly modified from time to time by the
exchange during the term of the contract. Futures contracts are customarily
purchased and sold on margin that may range upward from less than 5% of the
value of the contract being traded. By using futures contracts as a risk
management technique, given the greater liquidity in the futures market than in
the cash market, it may be possible to accomplish certain results more quickly
and with lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." The Portfolio expects to earn interest income on its initial and
variation margin deposits.
The Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.
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While futures positions taken by the Portfolio will usually be liquidated in
this manner, the Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous to the Portfolio to do
so. A clearing organization associated with the exchange on which futures are
traded assumes responsibility for closing out transactions and guarantees that
as between the clearing members of an exchange, the sale and purchase
obligations will be performed with regard to all positions that remain open at
the termination of the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect the Portfolio's current
or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, the Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, the
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. Portfolio will not
purchase or sell futures contracts unless either (1) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts
of initial margin deposits on the Portfolio's existing futures contracts and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts by the Portfolio, an amount of cash or other
liquid assets, equal to the cost of such futures contracts (less any related
margin deposits), will be deposited in a segregated account with its custodian,
thereby insuring that the use of such futures contracts is unleveraged. In
instances involving the sale of futures contracts by the Portfolio, the
securities underlying such futures contracts or options will at all times be
maintained by the Portfolio or, in the case of index futures contracts, the
Portfolio will own securities the price changes of which are, in the opinion of
its Adviser expected to replicate substantially the movement of the index upon
which the futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
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Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., the Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Advisers monitor compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults,
the Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor of the seller and is required to return the underlying
security to the seller's estate.
Restricted Securities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
Options
The Portfolio has no current intention, in the foreseeable future of utilizing
options. However, the types of options transactions that the Portfolio is
permitted to utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call
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option owns the security on which the option is written (or on a security
convertible into such a security without additional consideration) throughout
the option period.
The Portfolio will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Portfolio will give up the opportunity to profit from an increase in the market
price of the underlying security above the exercise price so long as its
obligations under the contract continue, except insofar as the premium
represents a profit. Moreover, in writing the call option, the Portfolio will
retain the risk of loss should the price of the security decline. The premium is
intended to offset that loss in whole or in part. Unlike the situation in which
the Portfolio owns securities not subject to a call option, the Portfolio, in
writing call options, must assume that the call may be exercised at any time
prior to the expiration of its obligation as a writer, and that in such
circumstances the net proceeds realized from the sale of the underlying
securities pursuant to the call may be substantially below the prevailing market
price.
The Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. The Portfolio
when it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
The Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which the Portfolio receives from writing a
put option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
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The Portfolio may effect a closing purchase transaction to realize a profit on
an outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. The Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, the Portfolio will
continue to receive interest or dividend income on the security. The Portfolio
may also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. The Portfolio
may sell put or call options it has previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction cost paid on the put or call
option which was bought.
Securities Index Options. The Portfolio may write covered put and call options
and purchase call and put options on securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting the
value of the Portfolio's securities or securities it intends to purchase. The
Portfolio will only write "covered" options. A call option on a securities index
is considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option, which gives the holder the right to purchase or sell a specified stock
at a specified price, an option on a securities index gives the holder the right
to receive a cash "exercise settlement amount" equal to (i) the difference
between the exercise price of the option and the value of the underlying stock
index on the exercise date, multiplied by (ii) a fixed "index multiplier."
A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.
Over-the-Counter Options. The Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
S-7
<PAGE>
if the option is written "out-of-the-money." The Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which the Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by the Portfolio of futures contracts
as a hedging device. One risk arises because of the imperfect correlation
between movements in the prices of the futures contracts and movements in the
prices of the underlying instruments which are the subject of the hedge. The
Advisers will, however, attempt to reduce this risk by entering into futures
contracts whose movements,
S-8
<PAGE>
in its judgment, will have a significant correlation with movements in the
prices of the Portfolio's underlying instruments sought to be hedged.
Successful use of futures contracts by the Portfolio for hedging purposes is
also subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when the Portfolio has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Portfolio's portfolio might decline. If this
were to occur, the Portfolio would lose money on the futures and also would
experience a decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although the Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options, such as over-the-counter options,
no secondary market on an exchange may exist. If the Portfolio is unable to
effect a closing purchase transaction, the Portfolio will not sell the
underlying security until the option expires or the Portfolio delivers the
underlying security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolio will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by the Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.
S-9
<PAGE>
INVESTMENT LIMITATIONS
Fundamental Policies
The Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Portfolio's shareholders. Such
majority is defined in the 1940 Act as the lesser of (i) 67% or more of the
voting securities of the Portfolio present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Portfolio.
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 33 1/3% of the value of its total assets.
This borrowing provision is included solely to facilitate the orderly
sale of portfolio securities to accommodate substantial redemption
requests if they should occur and is not for investment purposes. All
borrowings in excess of 5% of the Portfolio's total assets will be
repaid before making investments.
4. Make loans, except that the Portfolio, in accordance with the
Portfolio's investment objectives and policies, may (i) purchase or
hold debt instruments, and (ii) enter into repurchase agreements as
described in the Portfolio's Prospectus and Statement of Additional
Information.
5. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by the Portfolio's limitation on permitted
borrowings, or (ii) in connection with permitted transactions regarding
options and futures contracts.
6. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodity contracts,
except that this shall not prevent the Portfolio from: (i) investing in
readily marketable securities of issuers which can invest in real
estate or commodities, institutions that issue mortgages, or real
estate investment trusts which deal in real estate or interests
therein, pursuant to the Portfolio's investment objective and policies,
and (ii) entering into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a
result thereof, no more than 5% of the total assets for the Portfolio
(taken at market value at the time of entering into the futures
contracts) would be committed to margin deposits on such futures
contracts and premiums paid for unexpired options on such futures
contracts; provided that, in the case of an option that is
"in-the-money" at the time of purchase, the "in-the-money" amount, as
defined under Commodity Futures Trading Commission regulations, may be
excluded in computing the 5% limit. The Portfolio (as a matter of
operating policy) will utilize only listed futures contracts and
options thereon.
S-10
<PAGE>
7. Make short sales of securities, maintain a short position or purchase
securities except that the Portfolio may: (i) obtain short-term credits
as necessary for the clearance of security transactions, and (ii)
establish margin accounts as may be necessary in connection with the
Portfolio's use of options and futures contracts.
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 a permitted borrowing of money or pledging, mortgaging
or hypothecating assets, as described in the Portfolio's limitation on
borrowing money, the Portfolio's limitation on permitted borrowings and
the Portfolio's limitation on pledging, mortgaging or hypothecating
assets, or as permitted by rule, regulation or orders of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if, as a result, more
than 5% of the total assets of the Portfolio would be invested in the
securities of such issuer. This restriction applies to 75% of the
Portfolio's total assets.
13. Purchase any securities which would cause 25% or more of the total
assets of the Portfolio to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government or its
agencies and instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will
be divided according to their services, for example, gas distribution,
gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry. For purposes of this limitation,
supranational organizations are deemed to be issuers conducting their
principal business activities in the same industry.
Non-Fundamental Policies
In addition to the foregoing, and the policies set forth in the Portfolio's
Prospectus, the Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
S-11
<PAGE>
The Portfolio may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate,
15% of its net assets. This limitation does not include any Rule 144A
restricted security that has been determined by, or pursuant to
procedures established by, the Board, based on trading markets for such
security, to be liquid.
2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in
such classes of securities will exceed 5% of its total assets.
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides certain
limitations on the Adviser's liability, but also provides that the Adviser shall
not be protected against any liability to the Fund or its shareholders by reason
of willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisory Agreement obligates the Adviser to: (1) provide a program of
continuous investment management for the Portfolio in accordance with the
Portfolio's investment objectives, policies and limitations; (2) make investment
decisions for the Portfolio; and (3) place orders to purchase and sell
securities for the Portfolio, subject to the supervision of the Board of
Directors. The Advisory Agreement provides that the Adviser is not responsible
for other expenses of operating the Fund. (See the Prospectuses for a
description of expenses borne by the Fund.)
The Adviser is entitled to a fee which is calculated daily and paid monthly. The
fees to be paid under the Advisory Agreement are set forth in the Prospectus.
The Adviser has also agreed to waive or limit its advisory fees and to assume
certain operating expenses of the Portfolio in order that the Portfolio's total
annual operating expenses (expressed as a percentage of the Portfolio's average
daily net assets) be limited to 1.50%, as described in greater detail in the
Prospectus.
The continuance of the Advisory Agreement with respect to the Portfolio after
the first two years must be specifically approved at least annually (i) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of the Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement with respect to the Portfolio may be terminated: (i) at any
time without penalty by the Fund upon the vote of a majority of the Directors or
by vote of the majority of the outstanding voting securities of the Portfolio
upon sixty (60) days' written notice to the Adviser or (ii) by the Adviser at
any time without penalty upon sixty (60) days' written notice to the Fund. The
Advisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
S-12
<PAGE>
THE SUB-ADVISER
The Fund, on behalf of the Portfolio, and the Adviser have entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Newbold's Asset
Management, Inc. The Sub-Advisory Agreement provides certain limitations on the
Sub-Adviser's liability, but also provides that the Sub-Adviser shall not be
protected against any liability to the Fund or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Sub-Advisory Agreement obligates the Sub-Adviser to: (1) manage the
investment operations of the Portfolio and the composition of the Portfolio's
investment portfolios, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objective, policies and
limitation; (2) provide supervision of the Portfolio's investments and to
determine from time to time what investment and securities will be purchased,
retained or sold by the Portfolio and what portion of the assets will be
invested or held uninvested in cash; and (3) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.
The continuance of the Sub-Advisory Agreement with respect to the Portfolio
after the first two years must be specifically approved at least annually: (i)
by the Fund's Board of Directors or by vote of a majority of the outstanding
voting securities of the Portfolio and (ii) by the affirmative vote of a
majority of the Directors who are not parties to the agreement or interested
persons of any such party by votes cast in person at a meeting called for such
purpose. The Sub-Advisory Agreement with respect to the Portfolio may be
terminated (i) by the Fund, without the payment of any penalty, by the vote of a
majority of the Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the Portfolio, (ii) by the Adviser at any time,
without the payment of any penalty, on not more than sixty (60) days' nor less
than thirty (30) days' written notice to the other parties, or (iii) by the
Sub-Adviser at any time, without the payment of any penalty, on ninety (90)
days' written notice to the other parties. The Sub-Advisory Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July
1,1996, pursuant to which the Administrator oversees the administration of the
business and affairs of the Fund, including services provided to it by various
third parties. The Administrator was organized as a Pennsylvania business trust
and has its principal place of business at 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087. Under the Administrative Agreement, the Administrator is
entitled to a fee from the Fund, which is calculated daily and paid monthly, at
an annual rate of 0.15% of the average daily net assets of each series of the
Fund, including the Portfolio. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance,
S-13
<PAGE>
bad faith or negligence on the part of the Administrator in the performance of
its duties. The Administrative Agreement shall remain in effect until December
31, 1998 and shall thereafter continue in effect for successive periods of one
year, unless terminated by either party upon not less than ninety (90) days'
prior written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement ("Sub-Administrative
Agreement") on July 1, 1996 pursuant to which the Sub-Administrator assists the
Administrator in connection with the administration of the business and affairs
of the Fund. Prior to July 1, 1996, the Sub-Administrator served as the
administrator of the Fund. The Sub-Administrator is a wholly-owned subsidiary of
SEI Financial Management Company ("SEI Financial"), which is a wholly-owned
subsidiary of SEI Corporation ("SEI"). The Sub-Administrator was organized as a
Delaware business trust, and has its principal business offices at 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658. Under the Sub-Administrative
Agreement, the Sub-Administrator is entitled to a fee from the Administrator,
which is calculated daily and paid monthly, (i) at an annual rate of 0.07% of
the average daily net assets of each series of the Fund, including the
Portfolio, with respect to the first $2.5 billion of the total average daily net
assets of the Fund; and (ii) at the annual rate of .025% of average daily net
assets of each series of the Fund, including the Portfolio, with respect to the
total average daily net assets of the Fund in excess of $2.5 billion. The
Sub-Administrative Agreement provides that the Sub-Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Sub-Administrative
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or negligence on the part of the Sub-Administrator in the performance of its
duties. The Sub-Administrative Agreement shall remain in effect until December
31, 1998 and shall thereafter continue in effect for successive periods of one
year, unless terminated by either party upon not less than ninety (90) days'
prior written notice to the other party.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI Corporation, and the Fund are parties to a distribution agreement
(the "Distribution Agreement") dated July 1, 1996 pursuant to which the
Distributor serves as principal underwriter for the Fund. The Distributor will
receive no compensation for serving in such capacity.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than sixty (60) days' written notice by either party or upon assignment
by the Distributor.
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and the principal occupations for the last five years are set forth below. Each
may have held other positions with
S-14
<PAGE>
the named companies during that period. The age of each Director and officer is
indicated in the parenthesis.
JOHN R. BARTHOLDSON (51) - Director - Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, The Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.
HAROLD J. BAXTER (50)* - Director - Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Trustee, the Administrator since May 1996 and Chief Executive Officer, Newbold's
Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010, since June
1996.
JETTIE M. EDWARDS (49) - Director - Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.
ALBERT A. MILLER (62) - Director - 7 Jennifer Drive, Holmdel, New Jersey 07733.
Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co. 1958-1995 (retired).
GARY PILGRIM (55) - President - President, Treasurer and Director, the Adviser
since 1982. Trustee, the Administrator since May 1996.
SANDRA K. ORLOW (42) - Vice President, Assistant Secretary - Vice President and
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1983
and SEI Financial since June 1996.
KEVIN P. ROBINS (35) - Vice President, Assistant Secretary - Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992 and SEI Financial since June
1996. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
KATHRYN L. STANTON (37) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1994
and SEI Financial since June 1996. Associate, Morgan, Lewis & Bockius LLP (law
firm), 1989-1994.
TODD CIPPERMAN (30) - Vice President, Assistant Secretary - Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1995
and SEI Financial since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.
JOSEPH LYDON (36) - Vice President, Assistant Secretary - Director of Business
Administration, SEI since April, 1995. Vice President of Fund Group, Vice
President of the
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<PAGE>
Advisor - Dreman Value Management, LP, President of Dreman Financial Services,
Inc., 1989-1995.
BARBARA A. NUGENT (40) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service Company,
Inc. (transfer agent), 1988-1993.
STEPHEN G. MEYER (31) - Chief Financial Officer and Controller - Director of
Internal Audit and Risk Management at SEI Corporation since 1992. Senior
Associate at Coopers & Lybrand, LLP (accounting firm), 1990-1992.
MICHAEL HARRINGTON (27) - Assistant Vice President - Mutual Fund Coordinator,
the Adviser since 1994. Secretary, the Administrator since May 1996. Account
Manager, SEI, 1991-1994.
LEE T. CUMMINGS (32) - Vice President - Director of Mutual Fund Operations, the
Adviser since 1996. Treasurer, the Administrator since May 1996. Investment
Accounting Officer, Delaware Group of Funds, 1994-1996. Vice President,
Fund/Plan Services, Inc., 1992-1994. Assistant Vice President, Fund/Plan
Services, Inc., 1990-1992.
BRIAN BEREZNAK (34) - Vice President and Assistant Secretary - Trustee and
President, the Administrator since May 1996, Chief Operating Officer, the
Adviser from 1989 through December 31, 1996.
JOHN M. ZERR (34) - Vice President - General Counsel and Secretary, the Adviser
since November 1996. Vice President and Assistant Secretary, Delaware Management
Company, Inc. and the Delaware Group of Funds, 1995-1996. Associate, Ballard
Spahr Andrews & Ingersoll (law firm), 1987-1995.
DARLENE DEREMER (40) - Vice President - President, DeRemer Associates (financial
consulting), 155 South Street, Wrentham, MA 02093 since 1987.
JANE A. KANTER (47) - Secretary - Partner, Katten Muchin & Zavis, 1025 Thomas
Jefferson Street, N.W., East Lobby - Suite 700, Washington, D.C. 20007 (law
firm) since 1994. Partner, Freedman Levy Kroll & Simonds (law firm), 1987-1994.
- - ---------------------
*Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund as that term is defined in the 1940 Act.
Each current Director of the Fund who is not an "interested person" of the Fund
is expected to receive the following compensation during the fiscal year ending
March 31, 1998:
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<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Pension or
Retirement
Aggregate Benefits Total
Compensation Accrued as Part Estimated Annual Compensation
Name of Person, from of Fund Benefits Upon from the Fund
Position the Portfolio* Expenses Retirement Paid to Directors*
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. less than $1,500 N/A N/A $29,000
Bartholdson,
Director
- - --------------------------------------------------------------------------------------------------------------------------------
Harold J. Baxter, N/A N/A N/A N/A
Director**
- - --------------------------------------------------------------------------------------------------------------------------------
Jettie M. Edwards, less than $1,500 N/A N/A $29,000
Director
- - --------------------------------------------------------------------------------------------------------------------------------
Albert A. Miller, less than $1,500 N/A N/A $29,000
Director
================================================================================================================================
</TABLE>
- - -------------------
* The Fund is expected to pay approximately $29,000 to each Director who is not
an "interested person" of the Fund for the fiscal year ending March 31, 1998. In
addition, the Fund will compensate each committee member $500 for each committee
meeting attended. The Portfolio is expected to pay its proportionate share of
the total compensation, based on its total net assets relative to the total net
assets of the Fund.
**Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.
As the Portfolio's initial shareholder, SEI Financial, 680 East Swedesford Road,
Wayne, PA 19087-1658, holds all of the outstanding shares, both beneficially and
of record, of the Portfolio as of the date of this Statement of Additional
Information.
COMPUTATION OF YIELD
From time to time, the Portfolio may advertise yield. These figures will be
based on historical earnings and are not intended to indicate future
performance. The yield of the Portfolio refers to the annualized income
generated by an investment in the Portfolio over a specified 30-day period. The
yield is calculated by assuming that the income generated by the investment
during that period generated each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = (2 (a-b/cd + 1)6 - 1) where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
S-17
<PAGE>
CALCULATION OF TOTAL RETURN
From time to time, the Portfolio may advertise total return. The total return of
the Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on any day on
which the New York Stock Exchange is open for business. Currently, the following
holidays are observed by the Fund: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Shares of the Portfolio are offered on a continuous basis.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of the Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the mean
between the most recent bid and
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asked prices. In the event a listed security is traded on more than one
exchange, it is valued at the last sale price on the exchange on which it is
principally traded. If there are no transactions in a security during the day,
it is valued at the mean between the most recent bid and asked prices. However,
debt securities (other than short-term obligations) including listed issues, are
valued on the basis of valuations furnished by a pricing service which utilizes
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities, without exclusive reliance
upon exchange or over-the-counter prices. Short-term obligations are valued at
amortized cost. Securities for which market quotations are not readily available
and other assets held by the Fund, if any, are valued at their fair value as
determined in good faith by the Board of Directors.
TAXES
The following is only a summary of certain income tax considerations generally
affecting the Portfolio and its shareholders and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local income tax liabilities.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, the Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of
anyone issuer or of two or more issuers which are engaged in the same,
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similar or related trades or businesses if the Portfolio owns at least 20% of
the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts.
In certain cases, the Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (1) has failed
to provide a correct taxpayer identification number, (2) is subject to backup
withholding by the Internal Revenue Service, or (3) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of the Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
State Taxes
Distributions by the Portfolio to shareholders and the ownership of shares maybe
subject to state and local taxes.
PORTFOLIO TRANSACTIONS
The Advisers are authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Advisers will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Advisers generally seek
reasonably competitive commissions, the Fund will not necessarily be paying the
lowest spread or commission available. The Advisers seek to select brokers or
dealers that offer the Portfolio best price and execution or other services
which are of benefit to the Portfolio. Certain brokers or dealers assist their
clients in the purchase of shares from the Distributor and charge a fee for this
service in addition to the Portfolio's public offering price. In the case of
securities traded in the over-the-counter market, the Advisers expect normally
to seek to select primary market makers.
The Advisers may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Advisers. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by the Advisers will be in addition to and not in lieu of the
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<PAGE>
services required to be performed by the Advisers under the Advisory Agreement.
If, in the judgment of the Adviser, the Portfolio or other accounts managed by
the Advisers will be benefitted by supplemental research services, the Advisers
are authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Advisers will not necessarily be reduced as a result of the receipt of such
information, and such services may not be used exclusively, or at all, with
respect to the Portfolio or account generating the brokerage, and there can be
no guarantee that the Advisers will find all of such services of value in
advising the Portfolio.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Portfolio expressly permitting the Distributor
to receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." In addition, the Adviser may direct commission business to one
or more designated broker-dealers, including the Distributor, in connection with
such broker-dealer's payment of certain of the Portfolio's or the Fund's
expenses. However, the Adviser may place orders for the purchase or sale of
portfolio securities of the Portfolio with qualified broker-dealers that refer
prospective shareholders to the Portfolio. The Directors, including those who
are not "interested persons" of the Fund, have adopted procedures for evaluating
the reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking best execution and such other policies as
the Board of Directors may determine, the Adviser 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 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.
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<PAGE>
DESCRIPTION OF SHARES
The Fund is authorized to issue an unlimited number of shares of the Portfolio
and to create additional portfolios of the Fund. Each share of the Portfolio
represents an equal proportionate interest in the Portfolio with each other
share. Shareholders are entitled upon liquidation to a pro rata share in the net
assets of the Portfolio available for distribution to shareholders. Shareholders
have no preemptive rights. All consideration received by the Fund for shares of
the Portfolio and all assets in which such consideration is invested belong to
the Portfolio and would be subject to the liabilities related thereto.
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<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibit
(a) Financial Statements:
To be filed by amendment.
(b) Exhibits:
1(a) Certificate of Incorporation(1)
1(b) Certificate of Amendment dated October 28, 1985(2)
1(c) Certificate of Amendment to Certificate of Incorporation(3)
1(d) Agreement and Articles of Merger of PBHG Growth Fund, Inc., a
Maryland corporation(5)
1(e) Articles of Incorporation of The PBHG Funds, Inc.(5)
1(f) Articles of Amendment to the Articles of Incorporation of The
PBHG Funds, Inc., dated November 12, 1993(6)
1(g) Articles of Amendment to the Articles of Incorporation of The
PBHG Funds, Inc. dated May 5, 1994(7)
1(h) Articles of Amendment of the Articles of Incorporation of The
PBHG Funds, Inc. dated December 28, 1995(12)
1(i) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated May 25, 1994(7)
1(j) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 5, 1994(8)
1(k) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. dated December 9, 1994(8)
1(l) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to the Advisers Class Shares
dated December 28, 1995(12)
1(m) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to the PBHG Mid-Cap Growth Fund
dated December 28, 1995(12)
1(n) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to an increase in number of
shares dated May 20, 1996(13)
1(o) Articles Supplementary to the Articles of Incorporation of THE
PBHG Funds, Inc. with respect to the PBHG Limited Fund dated
July 1, 1996(13)
1(p) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to the PBHG Large Cap 20 Fund
dated September 6, 1996(13)
1(q) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to the PBHG Large Cap Value
Fund, Mid-Cap Value Fund and the Strategic Small Company Fund
dated October 2, 1996(14)
1(r) Articles Supplementary to the Articles of Incorporation of The
PBHG Funds, Inc. with respect to the PBHG Small Cap Value Fund
dated January 31, 1997
2 By-Laws(5)
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3 Voting trust agreement - none
4 Specimen Common Stock Certificate(1)
5(a)(1) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated November 23, 1996(13)
5(a)(2) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated December 16, 1996(14)
5(a)(3) Investment Advisory Agreement dated April 28, 1995 and
Schedule A dated April __, 1997
5(b) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the PBHG Cash Reserves Fund, Pilgrim
Baxter & Associates, Ltd. and Wellington Management Company
dated April 4, 1995(12)
5(c) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of the International Fund, Pilgrim
Baxter & Associates, Ltd. and Murray Johnstone International
Limited dated June 30, 1995(12)
5(d)(1) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Large Cap Value Fund, Pilgrim
Baxter & Associates, Ltd. and Newbold's Asset Management, Inc.
dated December 16, 1996
5(d)(2) Form of Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Mid-Cap Value Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated December __, 1996(14)
5(d)(3) Investment Sub-Advisory Agreement between and among The PBHG
Funds, Inc., on behalf of PBHG Strategic Small Company Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated December 16, 1996
5(d)(4) Form of Investment Sub-Advisory Agreement between and among
The PBHG Funds, Inc., on behalf of PBHG Small Cap Value Fund,
Pilgrim Baxter & Associates, Ltd. and Newbold's Asset
Management, Inc. dated April __, 1997
6(a)(1) Distribution Agreement between The PBHG Funds, Inc., and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated December 16, 1996(14)
6(a)(2) Distribution Agreement between The PBHG Funds, Inc. and SEI
Financial Services Company dated July 1, 1996 and Schedule A
dated April __, 1997
6(b) Copy of Selling Group Agreement(4)
7 Bonus, profit sharing or pension plans - none
8(a) Custodian Agreement between The PBHG Funds, Inc., on behalf of
the International Fund, and The Northern Trust Company(6)
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8(b) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. dated September __, 1996 and Schedule A
dated December 16, 1996(14)
8(c) Custodian Agreement between The PBHG Funds, Inc. and
CoreStates Bank, N.A. dated September ___, 1996 and Schedule A
dated April __, 1997
9(a) Transfer Agency Agreement between Registrant and Supervised
Service Company dated December 16, 1993(6)
9(b)(1) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
December 16, 1996(14)
9(b)(2) Administrative Services Agreement between The PBHG Funds, Inc.
and PBHG Fund Services dated July 1, 1996 and Exhibit A dated
April __, 1997
9(c)(1) Sub-Administrative Services Agreement by and among The PBHG
Funds, Inc., PBHG Fund Services, and SEI Fund Resources dated
July 1, 1996 and Schedule A dated December 16, 1996(14)
9(c)(2) Sub-Administrative Services Agreement by and among The PBHG
Funds, Inc., PBHG Fund Services, and SEI Fund Resources dated
July 1, 1996 and Schedule A dated April __, 1997
9(d)(1) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Core Growth Fund and Pilgrim Baxter &
Associates, Ltd. dated September 24, 1996(14)
9(d)(2) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Limited Fund and Pilgrim Baxter & Associates,
Ltd. dated September 24, 1996(14)
9(d)(3) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap 20 Fund and Pilgrim Baxter &
Associates, Ltd. dated November 24, 1996
9(d)(4) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Large Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated December 16, 1996
9(d)(5) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Mid-Cap Value Fund and Pilgrim Baxter &
Associates, Ltd. dated December __, 1996(14)
9(d)(6) Expense Limitation Agreement between The PBHG Funds, Inc. on
behalf of PBHG Strategic Small Company Fund and Pilgrim Baxter
& Associates, Ltd. dated December 16, 1996
9(d)(7) Form of Expense Limitation Agreement between The PBHG Funds,
Inc. on behalf of PBHG Small Cap Value Fund and Pilgrim Baxter
& Associates, Ltd. dated April __, 1997
10(a) Opinion of Counsel(5)
10(b) Opinion of Counsel with respect to the legality of the shares
of the PBHG Core Growth Fund(12)
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10(c) Opinion of Counsel with respect to the legality of the shares
of the PBHG Limited Fund(12)
10(d) Opinion of Counsel with respect to the legality of the shares
of the PBHG Large Cap 20 Fund(13)
10(e) Opinion of Counsel with respect to the legality of the shares
of the PBHG Large Cap Value Fund, PBHG Mid-Cap Value Fund and
PBHG Strategic Small Company Fund(14)
10(f) Opinion of Counsel with respect to the legality of the shares
of the PBHG Small Cap Value Fund
11 Consent of Independent Public Accountants(12)
12 Financial Statements omitted from Part B - none
13 Letter from Philadelphia Life Insurance Company to the
Registrant with respect to the initial capitalization of the
Registrant(2)
14(a) Southwestern Life Insurance Company Defined Benefit Pension
Plan and Trust(1)
14(b) Adoption Agreement for Southwestern Life Insurance Company
Standardized Integrated Defined Benefit Pension Plan and Trust
(with Pairing Provisions)(1)
14(c) Adoption Agreement for Southwestern Life Insurance Company
Standardized Non-Integrated Defined Benefit Pension Plan and
Trust (with Pairing Provisions)(1)
14(d) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Integrated Defined Benefit Pension Plan and
Trust(1)
14(e) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Non-Integrated Defined Benefit Pension Plan
and Trust(1)
14(f) Southwestern Life Insurance Company Combination Profit
Sharing-Money Purchase Plan and Trust(1)
14(g) Adoption Agreement for Southwestern Life Insurance Company
Standardized Money Purchase Plan and Trust (with Pairing
Provisions)(1)
14(h) Adoption Agreement for Southwestern Life Insurance Company
Standardized Profit Sharing Plan and Trust (with Pairing
Provisions)(1)
14(i) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Money Purchase Plan and Trust(1)
14(j) Adoption Agreement for Southwestern Life Insurance Company
Non-Standardized Profit Sharing Plan and Trust(1)
14(k) Form 5305, Simplified Employee Pension-Individual Retirement
Accounts Contribution Agreement(1)
14(l) Form 5305-A, Individual Retirement Custodial Account(1)
14(m) Southwestern Life Insurance Company Tax Deferred Annuity
Program Custodial Agreement(1)
14(n) Amendment to Application for Investment Plans under a
403(b)(7) Plan(9)
15 Plan pursuant to Rule 12b-1 with respect to Trust Class
Shares(10)
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16 Schedule for computation of Performance Quotation provided in
the Registration Statement - none for the PBHG Small Cap Value
Fund
18 Rule 18f-3 Multiple Class Plan dated November 20, 1995 and
Schedule A dated April ___, 1997
24(a) Power of Attorney(11)
24(b) Power of Attorney(13)
27 Financial Data Schedule(12)
<TABLE>
<S> <C>
---------------
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(2) Incorporated herein by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(3) Incorporated herein by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(4) Incorporated herein by reference to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(5) Incorporated herein by reference to Post-Effective Amendment No. 11 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(6) Incorporated herein by reference to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(7) Incorporated herein by reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(8) Incorporated herein by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(9) Incorporated herein by reference to Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(10) Incorporated herein by reference to Post-Effective Amendment No. 21 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(11) Incorporated herein by reference to Post-Effective Amendment No. 22 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(12) Incorporated herein by reference to Post-Effective Amendment No. 23 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(13) Incorporated herein by reference to Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
(14) Incorporated herein by reference to Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A (File No. 2-99810).
</TABLE>
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Item 25. Persons Controlled by or under Common Control with Registrant
There are no persons that are controlled by or under common control with the
Registrant.
Item 26. Number of Holders of Securities
As of December 31, 1996:
Title of Class Number of Record Holders
PBHG Class
PBHG Growth Fund 238,728
PBHG Emerging Growth Fund 79,672
PBHG International Fund 3,426
PBHG Large Cap Growth Fund 9,840
PBHG Select Equity Fund 32,615
PBHG Cash Reserves Fund 11,844
PBHG Technology & Communications Fund 23,225
PBHG Core Growth Fund 31,156
PBHG Large Cap 20 Fund 5,564
PBHG Large Cap Value Fund 1
PBHG Limited Fund 11,856
PBHG Strategic Small Company Fund 1
PBHG Small Cap Value Fund 0
Trust Class 1
PBHG Growth Fund
Item 27. Indemnification
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification shall be in addition to any
other right or
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<PAGE>
claim to which any director, officer, employee or agent may otherwise be
entitled. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan,
against any liability (including, with respect to employee benefit plans, excise
taxes) asserted against and incurred by such person in any such capacity or
arising out of such person's position, whether or not the Corporation would have
had the power to indemnify against such liability. The rights provided to any
person by this Article 7.4 shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon such rights in serving or
continuing to serve in the capacities indicated herein. No amendment of these
Articles of Incorporation shall impair the rights of any person arising at any
time with respect to events occurring prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE VI
Indemnification
---------------
"The Corporation shall indemnify (a) its
Directors and officers, whether serving
the Corporation or at its request any
other entity, to the full extent required
or permitted by (i) Maryland law now or
hereafter in force, including the advance
of expenses under the procedures and to
the full extent permitted by law, and
(ii) the Investment Company Act of 1940,
as amended, and (b) other employees and
agents to such extent as shall be
authorized by the Board of Directors and
be permitted by law. The foregoing rights
of indemnification shall not be exclusive
of any other rights to which those
seeking indemnification may be entitled.
The Board of Directors may take such
action as is necessary to carry out these
indemnification provisions and is
expressly empowered to adopt, approve and
amend from time to time such resolutions
or contracts implementing such provisions
nor such further indemnification
arrangement as may be permitted by law."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suite or proceeding) is asserted by
such director, officer or controlling person in connection with
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<PAGE>
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the
Investment company Act of 1940, as amended, and Release No. IC-11330 issued
thereunder.
Item 28. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of Pilgrim Baxter &
Associates, Ltd. is or has been, at any time during the last two fiscal years,
engaged for his own account or in the capacity of director, officer, employee,
partner or trustee are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position with
Pilgrim Baxter & Connection with Other
Associates, Ltd. Name of Other Company Company
- - ---------------- --------------------- -------
Harold J. Baxter PBHG Fund Services Trustee
Director, Chairman & Chief
Executive Officer United Asset Management Member, Board of
Corporation Directors
Newbold's Asset Chief Executive Officer
Management, Inc.
Gary L. Pilgrim PBHG Fund Services Trustee
Director, President,
Treasurer & Chief
Investment Officer
Brian F. Bereznak PBHG Fund Services President and Trustee
Chief Operating Officer
(from 1989 through 1996)
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Eric C. Schneider Newbold's Asset Chief Financial Officer
Chief Financial Officer Management, Inc.
Business and Other Connections of Sub-Advisers:
- - -----------------------------------------------
Name and Position with
Newbold's Asset Name of Other
Management, Inc. Company Connection with Other Company
- - ---------------- ------- -----------------------------
Harold J. Baxter Pilgrim Baxter & Director, Chairman & Chief
Chief Executive Officer Associates, Ltd. Executive Officer
PBHG Fund Trustee
Services
United Asset Member, Board of
Management Directors
Corporation
Brian F. Bereznak Pilgrim Baxter & Chief Operating Officer
Director Associates, Ltd. (from 1989 through 1996)
PBHG Fund President and Trustee
Services
Gary L. Pilgrim Pilgrim Baxter & Director, President, Treasurer &
Director Associates, Ltd. Chief Investment Officer
PBHG Fund Trustee
Services
Timothy M. Havens None None
Chairman
James Farrell Farrell Seiwell, President
Chief Investment Officer Inc.
David W. Jennings Pilgrim Baxter & Director of Client Service
President & Chief Associates, Ltd.
Operating Officer
Eric C. Schneider Pilgrim Baxter & Chief Financial Officer
Chief Financial Officer Associates, Ltd.
</TABLE>
C-9
<PAGE>
The list required by this Item 28 of officers and directors of Murray
Johnstone International Limited, together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by Murray Johnstone
International Limited pursuant to the Investment Advisers Act of 1940 (SEC File
No. 801-34926).
The list required by this Item 28 of officers and directors of
Wellington Management, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by Wellington Management pursuant to the
Investment Advisers Act of 1940 (SEC File No. 801-15908).
Item 29. Principal Underwriters
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently
distributing the securities of the Registrant also acts as a
principal underwriter, distributor or investment adviser.
Registrant's distributor, SEI Financial Services Company
("SFS"), acts as distributor for:
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
C-10
<PAGE>
1784 Funds (R) June 1, 1993
MarquisSM Funds August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
Turner Funds April 30, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
SFS provides numerous financial services to investment managers, pension plan
sponsors, and bank trust departments. These services include portfolio
evaluation, performance measurement and consulting services ("Funds Evaluation")
and automated execution, clearing and settlement of securities transactions
("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal
underwriter named in the answer to Item 21 of Part B.
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
Alfred P. West, Jr. Director, Chairman & Chief Executive -
Officer
Henry H. Greer Director, President & Chief Operating -
Officer
Carmen V. Romeo Director, Executive Vice President & -
Treasurer
C-11
<PAGE>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
Gilbert L. Beebower Executive Vice President -
Richard B. Lieb Executive Vice President, President - -
Investment Services Division
Leo J. Dolan, Jr. Senior Vice President -
Carl A. Guarino Senior Vice President -
Jerome Hickey Senior Vice President -
Larry Hutchinson Senior Vice President
David G. Lee Senior Vice President -
Steven Kramer Senior Vice President -
William Madden Senior Vice President -
Jack May Senior Vice President
A. Keith McDowell Senior Vice President -
Dennis J. McGonigle Senior Vice President -
Hartland J. McKeown Senior Vice President -
Barbara J. Moore Senior Vice President -
James V. Morris Senior Vice President -
Steven Onofrio Senior Vice President -
Kevin P. Robins Senior Vice President, General Counsel & Vice President
Secretary & Assistant
Secretary
Robert Wagner Senior Vice President -
Patrick K. Walsh Senior Vice President -
Kenneth Zimmer Senior Vice President -
Marc H. Cahn Vice President & Assistant Secretary
Robert Crudup Vice President & Managing Director -
Vic Galef Vice President & Managing Director -
Kim Kirk Vice President & Managing Director -
John Krzeminski Vice President & Managing Director -
C-12
<PAGE>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
Carolyn McLaurin Vice President &Managing Director -
Donald Pepin Vice President & Managing Director -
Mark Samuels Vice President & Managing Director -
Wayne M. Withrow Vice President & Managing Director -
Mick Duncan Vice President & Team Leader -
Vicki Malloy Vice President & Team Leader -
Robert Aller Vice President -
Gordon W. Carpenter Vice President -
Todd Cipperman Vice President & Assistant Secretary -
Ed Daly Vice President -
Jeff Drennen Vice President -
Kathy Heilig Vice President -
Michael Kantor Vice President -
Samuel King Vice President -
Donald H. Korytowski Vice President -
Robert S. Ludwig Vice President & Team Leader -
W. Kelso Morrill Vice President -
Barbara A. Nugent Vice President & Assistant Secretary Vice President
& Assistant
Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President
& Assistant
Secretary
Larry Pokora Vice President -
Kim Rainey Vice President -
Paul Sachs Vice President -
Steve Smith Vice President -
Daniel Spaventa Vice President -
C-13
<PAGE>
Position and
Name and Principal Offices with
Business Address Position and Office with Underwriter Registrant
- - ---------------- ------------------------------------ ----------
Kathryn L. Stanton Vice President & Assistant Secretary Vice President
& Assistant
Secretary
William Zawaski Vice President -
James Dougherty Director of Brokerage Services -
c. None.
Item 30. Location of Accounts and Records
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the Rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-1(d), the required books and records are maintained
at the offices of Registrant's Custodian:
CoreStates Bank, N.A. The Northern Trust Company
Broad and Chestnut Streets 50 South LaSalle Street
P.O. Box 7618 Chicago, IL 60675
Philadelphia, PA 19101
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4);
(5); (6); (8); (9); (10); (11) and 31a-1(f), the required books and
records are currently maintained at the offices of Registrant's
Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of
the Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone
1255 Drummers Lane, Suite 300 International Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
C-14
<PAGE>
Wellington Management Company Newbold's Asset Management, Inc.
75 State Street 950 Haverford Road
Boston, MA 02109 Bryn Mawr, PA 19010
Item 31. Management Services: None.
Item 32. Undertakings
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940
inform the Board of Directors of their desire to communicate with
Shareholders of the Fund, the Directors will inform such
Shareholders as to the approximate number of Shareholders of record
and the approximate costs of mailing or afford said Shareholders
access to a list of Shareholders.
Registrant undertakes to call a meeting of Shareholders for the
purpose of voting upon the question of removal of a Director(s)
when requested in writing to do so by the holders of at least 10%
of Registrant's outstanding shares and in connection with such
meetings to comply with the provisions of Section 16(c) of the
Investment Company Act of 1940 relating to Shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report
to Shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment,
including financial statements which need not be audited, within
4-6 months from the later of the commencement of operations of the
PBHG Small Cap Value Fund of the Registrant or the effective date
of Post-Effective Amendment No. 27 to the Registrant's 1933 Act
Registration Statement.
C-15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this Post
Effective Amendment No. 27 to Registration Statement No. 2-99810 to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Wayne,
and Commonwealth of Pennsylvania on the 5th day of February, 1997.
THE PBHG FUNDS, INC.
Registrant
By: /s/ Harold J. Baxter
----------------------------------------
Harold J. Baxter
Chairman and Chief Executive Officer
ATTEST:
/s/ Brian F. Bereznak
- - ---------------------
Brian F. Bereznak, Vice President
and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
/s/ Harold J. Baxter Chairman and Chief
- - -------------------- Executive Officer,
Harold J. Baxter and Director February 5, 1997
* Director
- - -------------------- --------------
John R. Bartholdson
* Director
- - -------------------- --------------
Jettie M. Edwards
* Director
- - -------------------- --------------
Albert A. Miller
* Chief Financial --------------
- - -------------------- Officer and Controller
Stephen G. Meyer
* By: /s/ Harold J. Baxter February 5, 1997
--------------------
Harold J. Baxter
(Attorney-in-Fact)
C-16
<PAGE>
EXHIBIT LIST
Sequentially
Exhibit Number Description Numbered Pages
- - -------------- ----------- --------------
1(r) Articles Supplementary to the Articles
of Incorporation of The PBHG Funds,
Inc. with respect to the PBHG Small Cap
Value Fund dated January 31, 1997
5(a)(3) Investment Advisory Agreement dated
April 28, 1995 and Schedule A dated
April __, 1997
5(d)(1) Investment Sub-Advisory Agreement
between and among 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
5(d)(3) Investment Sub-Advisory Agreement
between and among PBHG Funds, Inc.,
on behalf of PBHG Strategic Small
Company Fund, Pilgrim Baxter &
Associates, Ltd. and Newbold's Asset
Management, Inc. dated December 16,
1996
5(d)(4) Form of Investment Sub-Advisory
Agreement between and among PBHG
Funds, Inc., on behalf of PBHG Small
Cap Value Fund, Pilgrim Baxter &
Associates, Ltd. and Newbold's Asset
Management, Inc. dated April __, 1997
6(a)(2) Distribution Agreement between The
PBHG Funds, Inc. and SEI Financial
Services Company dated July 1, 1996
and Exhibit A dated April __, 1997
8(c) Custodian Agreement between The
PBHG Funds, Inc. and CoreStates Bank
N.A. dated September __, 1996 and
Schedule A dated April __, 1997
C-17
<PAGE>
Sequentially
Exhibit Number Description Numbered Pages
- - -------------- ----------- --------------
9(b)(2) Administrative Services Agreement
between The PBHG Funds, Inc., and
PBHG Fund Services dated July 1,
1996 and Exhibit A dated April __,
1997
9(c)(2) Sub-Administrative Services
Agreement between The PBHG Funds,
Inc., and SEI Fund Resources dated
July 1, 1996 and Schedule A dated
April __, 1997
9(d)(3) Expense Limitation Agreement between
The PBHG Funds, Inc. on behalf of
PBHG Large Cap 20 Fund and Pilgrim
Baxter & Associates, Ltd. dated
November 24, 1996
9(d)(4) Expense Limitation Agreement between
the PBHG Funds, Inc. on behalf of The
PBHG Large Cap Value Fund and
Pilgrim Baxter & Associates, Ltd. dated
December 16, 1996
9(d)(6) Expense Limitation Agreement between
The PBHG Funds, Inc. on behalf of the
PBHG Strategic Small Company Fund
and Pilgrim Baxter & Associates, Ltd.
dated December 16, 1996
9(d)(7) Form of Expense Limitation Agreement
between The PBHG Funds, Inc. on
behalf of PBHG Small Cap Value Fund
and Pilgrim Baxter & Associates, Ltd.
dated April __, 1997
10(f) Opinion of Counsel with respect to the
legality of the shares of the PBHG
Small Cap Value Fund being registered
18 Rule 18f-3 Multiple Class Plan dated
November 20, 1995 and Schedule A
dated April __, 1997.
C-18
EXHIBIT 1(r)
ARTICLES SUPPLEMENTARY
To the Articles of Incorporation
The PBHG Funds, Inc.
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"),
having its principal office in the City of Baltimore, certifies that:
First: The Corporation's Board of Directors in accordance with Section
2-105(a) of the Maryland General Corporation Law and Article V Section
5.4 of the Articles of Incorporation, has adopted a resolution adding
one new series of shares as the PBHG Small Cap Value Fund. All such
series of shares have the same voting powers, preferences, other
rights, qualifications, restrictions, limitations and terms and
conditions of redemption, as currently set forth in Article V Section
5.5 of the Articles of Incorporation.
Second: The Corporation's Board of Directors, in accordance with
Section 2-208.1 of the Maryland General Corporation Law and Article V
Section 5.1 of the Articles of Incorporation, has adopted a resolution
increasing from Eight Billion Eight Hundred Million (8,800,000,000), to
Nine Billion Two Hundred Million (9,200,000,000), and a par value of
One Tenth of One Cent ($.001) per share, the aggregate number of shares
of Common Stock that the Corporation is authorized to issue.
Third: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law and Article V Section
5.4 of the Articles of Incorporation has adopted a resolution
classifying and redesignating the Corporation's Nine Billion Two
Hundred Million (9,200,000,000) shares of Common Stock, par value one
tenth of one cent ($.001) per share, having an aggregate par value of
Nine Million Two Hundred Thousand Dollars ($9,200,000), as set forth
below. Immediately prior to the classification, the Eight Billion Eight
Hundred Million (8,800,000,000) shares of the Corporation's Common
Stock, par value one tenth of one cent ($.001) per share, having an
aggregate par value of Eight Billion Eight Hundred Thousand Dollars
($8,800,000) all of which previously classified shares of the
Corporation's Common Stock were designated as follows:
Designation Number of Shares
PBHG Growth Fund PBHG Class Shares 400 million
PBHG Emerging Growth Fund PBHG Class Shares 400 million
PBHG International Fund PBHG Class Shares 200 million
PBHG Cash Reserves Fund PBHG Class Shares 1 billion, 800 million
PBHG Select Equity Fund PBHG Class Shares 200 million
PBHG Large Cap Growth Fund PBHG Class Shares 200 million
PBHG Technology & Communications Fund 200 million
PBHG Class Shares
<PAGE>
Designation Number of Shares
PBHG Core Growth Fund PBHG Class Shares 200 million
PBHG Limited Fund PBHG Class Shares 200 million
PBHG Large Cap 20 Fund PBHG Class Shares 200 million
PBHG Large Cap Value Fund PBHG Class Shares 200 million
PBHG Mid-Cap Value Fund PBHG Class Shares 200 million
PBHG Strategic Small Company Fund 200 million
PBHG Class Shares
PBHG Growth Fund Trust Class Shares 200 million
PBHG Emerging Growth Fund Trust Class Shares 200 million
PBHG International Fund Trust Class Shares 200 million
PBHG Cash Reserves Fund Trust Class Shares 1 billion, 800 million
PBHG Select Equity Fund Trust Class Shares 200 million
PBHG Large Cap Growth Fund Trust Class Shares 200 million
PBHG Technology & Communications Fund 200 million
Trust Class Shares
PBHG Core Growth Fund Trust Class Shares 200 million
PBHG Limited Fund Trust Class Shares 200 million
PBHG Large Cap 20 Fund Trust Class Shares 200 million
PBHG Large Cap Value Fund Trust Class Shares 200 million
PBHG Mid-Cap Value Fund Trust Class Shares 200 million
PBHG Strategic Small Company Fund 200 million
Trust Class Shares
The Nine Billion Two Hundred Million (9,200,000,000) shares of the Corporation's
Common Stock are classified and designated as follows:
Designation Number of Shares
PBHG Growth Fund PBHG Class Shares 400 million
PBHG Emerging Growth Fund PBHG Class Shares 400 million
PBHG International Fund PBHG Class Shares 200 million
PBHG Cash Reserves Fund PBHG Class Shares 1 billion, 8 million
PBHG Select Equity Fund PBHG Class Shares 200 million
PBHG Large Cap Growth Fund PBHG Class Shares 200 million
PBHG Technology & Communications Fund 200 million
PBHG Class Shares
PBHG Core Growth Fund PBHG Class Shares 200 million
PBHG Limited Fund PBHG Class Shares 200 million
PBHG Large Cap 20 Fund PBHG Class Shares 200 million
PBHG Large Cap Value Fund PBHG Class Shares 200 million
PBHG Mid-Cap Value Fund PBHG Class Shares 200 million
<PAGE>
Designation Number of Shares
PBHG Strategic Small Company Fund 200 million
PBHG Class Shares
PBHG Small Cap Value Fund PBHG Class Shares 200 million
PBHG Growth Fund Trust Class Shares 200 million
PBHG Emerging Growth Fund Trust Class Shares 200 million
PBHG International Fund Trust Class Shares 200 million
PBHG Cash Reserves Fund Trust Class Shares 1 billion, 800 million
PBHG Select Equity Fund Trust Class Shares 200 million
PBHG Large Cap Growth Fund Trust Class Shares 200 million
PBHG Technology & Communications Fund 200 million
Trust Class Shares
PBHG Core Growth Fund Trust Class Shares 200 million
PBHG Limited Fund Trust Class Shares 200 million
PBHG Large Cap 20 Fund Trust Class Shares 200 million
PBHG Large Cap Value Fund Trust Class Shares 200 million
PBHG Mid-Cap Value Fund Trust Class Shares 200 million
PBHG Strategic Small Company Fund 200 million
Trust Class Shares
PBHG Small Cap Value Fund 200 million
Trust Class Shares
Fourth: The Corporation's Board of Directors in accordance with Section 2-210 of
the Maryland General Corporation Law and Article V Section 5.2 of the Articles
of Incorporation, has adopted a resolution approving the specimen stock
certificate for PBHG Small Cap Value Fund.
Fifth: The Corporation is registered as an open-end investment company under the
Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, The PBHG Funds, Inc. has caused these Articles
Supplementary to be executed by one of its Vice Presidents and its corporate
seal to be affixed and attested by its Secretary on this 31st day of January,
1997.
[CORPORATE SEAL]
The PBHG Funds, Inc.
By:
----------------------
Brian Bereznak
Vice President
Attest:
-----------------------------
Jane A. Kanter
Secretary
The undersigned, Vice President of THE PBHG FUNDS, INC., who executed
on behalf of said Corporation the foregoing Articles Supplementary to the
Articles of Incorporation of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said Corporation, the foregoing
Articles Supplementary to the Articles of Incorporation to be the corporate act
of said Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth herein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
--------------------
Brian Bereznak
Vice President
Dated: January 31, 1997
EXHIBIT 5(a)(3)
THE PBHG FUNDS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, effective commencing on April 28, 1995, between Pilgrim
Baxter & Associates (the "Adviser") and The PBHG Funds, Inc. (the "Fund").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992, (the "Articles") and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end,
diversified management investment company;
WHEREAS, the Fund wishes to retain the Adviser to render investment
advisory services to the Fund and the Adviser is willing to furnish such
services to the portfolios listed on Schedule A hereto (the "Portfolios");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Fund and the Adviser as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as investment
adviser to the Fund for the periods and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to furnish the
services herein set forth, for the compensation herein provided.
2. Investment Advisory Duties. Subject to the supervision of the Directors of
the Fund, the Adviser will, (a) provide a program of continuous investment
management for the Portfolios in accordance with the Portfolios' investment
objectives, policies and limitations as stated in each Portfolio's prospectus
and Statement of Additional Information included as part of the Fund's
Registration Statement filed with the Securities and Exchange Commission, as
they may be amended from time to time, copies of which shall be provided to the
Adviser by the Fund; (b) make investment decisions for the Portfolios; and (c)
place orders to purchase and sell securities for the Portfolios.
In performing its investment management services to the Portfolios
hereunder, the Adviser will provide the Portfolios with ongoing investment
guidance and policy direction, including oral and written research, analysis,
advice, statistical and economic data and judgments regarding individual
investments, general economic conditions and trends and long-range investment
policy. The Adviser will determine the securities, instruments, repurchase
agreements, options, futures and other investments and techniques that the
Portfolios will purchase, sell, enter into or use, and will provide an ongoing
evaluation of the Portfolios' investments. The Adviser will determine what
portion of the Portfolios' investments shall be invested in securities and other
assets, and what portion, if any, should be held uninvested. The
<PAGE>
Adviser shall furnish to the Fund adequate (i) office space, which may be space
within the offices of the Adviser or in such other places as may be agreed upon
from time to time and (ii) office furnishings, facilities and equipment as may
be reasonably required for managing the corporate affairs and conducting the
business of the Fund, including complying with the corporate reporting
requirements of the various states in which the Fund does business, and
conducting correspondence and other communications with the stockholders of the
Fund. The Adviser shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such services. Subject
to the approval of the Board of Directors (including a majority of the Fund's
Directors who are not "interested persons" of the Fund as defined in the 1940
Act) and of the shareholders of the Fund, the Adviser may delegate to a
sub=adviser its duties enumerated in Section 2 hereof. The Adviser shall
continue to supervise the performance of any such sub-adviser and shall report
regularly thereon to the Fund's Board of Directors. The Adviser further agrees
that, in performing its duties hereunder, it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code (the "Code") and all other
applicable federal and state laws and regulations, and with any applicable
procedures adopted by the Directors;
(b) use reasonable efforts to manage each Portfolio so that it will
qualify, and continue to qualify, as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder;
(c) place orders pursuant to its investment determinations for each
Portfolio directly with the issuer, or with any broker or dealer, in accordance
with applicable policies expressed in each Portfolio's prospectus and/or
Statement of Additional Information and in accordance with applicable legal
requirements;
(d) furnish to the Fund whatever statistical information the Fund may
reasonably request with respect to each Portfolio's assets or contemplated
investments. In addition, the Adviser will keep the Fund and the Directors
informed of developments materially affecting each Portfolio's investments and
shall, on the Adviser's own initiative, furnish to the Fund from time to time
whatever information the Adviser believes appropriate for this purpose;
(e) make available to the Fund, promptly upon its request, such copies
of the Adviser's investment records and ledgers with respect to the Portfolios
as may be required to assist the Fund in its compliance with applicable laws and
regulations. The Adviser will furnish the Directors with such periodic and
special reports regarding each Portfolio as they may reasonably request; and
(f) immediately notify the Fund in the event that the Adviser or any of
its affiliates; (1) becomes aware that it is subject to a statutory
disqualification that prevents the Adviser from serving as investment adviser
pursuant to this Agreement; or (2) becomes aware that it is the subject of an
administrative proceeding or enforcement action by the Securities and Exchange
Commission ("SEC") or other regulatory authority. The Adviser further agrees to
notify the Fund immediately of any material fact known to the Adviser respecting
or relating to the Adviser that is not contained in the Fund's Registration
Statement, or any amendment or supplement
<PAGE>
thereto, but that is required to be disclosed therein, and of any statement
contained therein that becomes untrue in any material respect.
3. Additional Services. If the Fund so requests, the Adviser shall also maintain
all internal bookkeeping, accounting and auditing services and records in
connection with maintaining the Fund's financial books and records, and shall
calculate each Portfolio's daily net asset value. For these services, each
Portfolio shall pay to the Adviser a monthly fee, which shall be in addition to
the fees payable pursuant to Section 5 hereof, to reimburse the Adviser for its
costs, without profit, for performing such services.
4. Allocation of Charges and Expenses. Except as otherwise specifically provided
in this Section 4, the Adviser shall pay the compensation and expenses of all
its directors, officers and employees who serve as officers and executive
employees of the Fund (including the Fund's share of payroll taxes for such
persons), and the Adviser shall make available, without expense to the Fund, the
service of its directors, officers and employees who may be duly-elected
officers of the Fund, subject to their individual consent to serve and to any
limitations imposed by law.
The Adviser shall not be required to pay any expenses of the Fund other
than those specifically allocated to the Adviser in this Section 4. In
particular, but without limiting the generality of the foregoing, the Adviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Fund's employees as are officers or employees of the Adviser whose
services may be involved, for the following expenses of the Fund; organization
and certain offering expenses of the Fund (including out-of-pocket expenses, but
not including the Adviser's overhead and employee costs); fees payable to the
Adviser and to any other Fund advisers or consultants; legal expenses; auditing
and accounting expenses; interest expenses; telephone, telex, facsimile, postage
and other communications expenses; taxes and governmental fees; fees, dues and
expenses incurred by or with respect to the Fund in connection with membership
in investment company trade organizations; costs of insurance relating to
fidelity coverage for the Fund's officers and employees; fees and expenses of
the Fund's custodian, any sub-custodian, transfer agent registrar, or dividend
disbursing agent; payments to the Adviser for maintaining the Fund's financial
books and records and calculating the daily net asset value pursuant to Section
3 hereof, other payments for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates; other expenses in connection with the issuance,
offering, distribution, sale or redemption of securities issued by the Fund;
expenses relating to investor and public relations; expenses of registering and
qualifying shares of the Fund for sale; freight, insurance and other charges in
connection with the shipment of the Fund's portfolio securities; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
or other assets of the Fund, or of entering into other transactions or engaging
in any investment practices with respect to the Fund; expenses of printing and
distributing prospectuses, Statements of Additional Information, reports,
notices and dividends to stock-holders; costs of stationery; any litigation
expenses; costs of stockholders' meetings; the compensation and all expenses
(specifically including travel expenses relating to the Fund's business) of
officers, directors and employees of the Fund who are not interested persons of
the Adviser; and travel expenses (or an appropriate portion thereof) of officers
or directors of the Fund who are officers, directors or
<PAGE>
employees of the Adviser to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund with respect to matters
concerning the Fund, or any committees thereof or advisers thereto.
5. Compensation. As compensation for the services provided and expenses assumed
by the Adviser under this Agreement, except for any additional services provided
by the Adviser pursuant to Section 3 hereof, each Portfolio will pay the Adviser
at the end of each calendar month an advisory fee as set forth in Schedule A
hereto. The advisory fee is computed daily as a percentage of each Portfolio's
average daily net assets. The "average daily net assets" of a Portfolio shall
mean the average of the values placed on the Portfolio's net assets as of 4:00
p.m. (Eastern time) on each day on which the net asset value of the Portfolio is
determined consistent with the provisions of Rule 22c-1 under the 1940 Act or,
if the Portfolio lawfully determines the value of its net assets as of some
other time on each business day, as of such other time. The value of net assets
of the Portfolio shall always be determined pursuant to the applicable
provisions of the Articles and the Registration Statement. If, pursuant to such
provisions, the determination of net asset value is suspended for any particular
business day, then for the purposes of this Section 5, the value of the net
assets of the Portfolio as last determined shall be deemed to be the value of
its net assets as of the close of regular trading on the New York Stock
Exchange, or as of such other time as the value of the net assets of the
Portfolio's securities may lawfully be determined, on that day. If the
determination of the net asset value of the shares of a Portfolio has been so
suspended for a period including any month and when the Adviser's compensation
is payable at the end of such month, then such value shall be computed on the
basis of the value of the net assets of the Portfolio as last determined
(whether during or prior to such month). If the Portfolio determines the value
of the net assets more than once on any day, then the last such determination
thereof on that day shall be deemed to be the sole determination thereof on that
day for the purposes of this Section 5.
In the event that the Adviser's gross compensation hereunder shall,
when added to the other expenses of a Portfolio, cause the aggregate expenses of
the Portfolio to exceed the maximum expenses permitted under the lowest
applicable expense limitation established pursuant to the statutes or
regulations of any jurisdiction in which the shares of the Portfolio may be
qualified for offer and sale, the total compensation paid or payable to the
Adviser shall be reduced (but not below zero), to the extent necessary to cause
the Portfolio not to exceed such expense limitation. Except to the extent that
such reduction has been reflected in lowered monthly payments to the Adviser,
the Adviser shall refund to the Portfolio the amount by which the total of
payments received by the Adviser are in excess of such expense limitation as
promptly as practicable after the end of such fiscal year, provided that the
Adviser shall not be required to pay the Portfolio an amount greater than the
fee otherwise payable to the Adviser in respect of such year. As used in this
Section 5, "expenses" shall mean those expenses included in the applicable
expense limitation having the broadest specifications thereof, and "expense
limitation" mean a limitation on the maximum annual expenses which may be
incurred by an investment company as determined by applicable law. The words
"lowest applicable expense limitation" shall be deemed to be that which results
in the largest reduction of the Adviser's compensation for any fiscal year of a
Portfolio; provided, however, that nothing in this Agreement shall limit the
Adviser's fees if not required by an applicable statute or regulation referred
to above in this Section 5.
<PAGE>
6. Books and Records. The Adviser agrees to maintain such books and records with
respect to its services to the Fund as are required by Section 31 under the 1940
Act, and rules adopted thereunder, and by other applicable legal provisions, and
to preserve such records for the periods and in the manner required by that
Section, and those rules and legal provisions. The Adviser also agrees that
records it maintains and preserves pursuant to Rules 31a-1 and 31a-2 under the
1940 Act as otherwise in connection with its services hereunder are the property
of the Fund and will be surrendered promptly to the Fund upon its request. And
the Adviser further agrees that it will furnish to regulatory authorities having
the requisite authority any information or reports in connection with its
services hereunder which may be requested in order to determine whether the
operations of the Fund are being conducted in accordance with applicable law and
regulations.
7. Standard of Care and Limitation of Liability. The Adviser shall exercise its
best judgment in rendering the services provided by it under this Agreement. The
Adviser shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund or the holders of the Fund's shares in connection
with the matters to which this Agreement relates, provided that nothing in this
Agreement shall be deemed to protect or purport to protect the Adviser against
any liability to the Fund or to holders of the Fund's shares to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or by reason of
the Adviser's reckless disregard of its obligations and duties under this
Agreement. As used in this Section 7, the term "Adviser" shall include any
officers, directors, employees or other affiliates of the Adviser performing
services with respect to the Fund.
8. Services Not Exclusive. It is understood that the services of the Adviser are
not exclusive, and that nothing in this Agreement shall prevent the Adviser from
providing similar services to other investment companies or to other series of
investment companies, or from engaging in other activities, provided such other
services and activities do not, during the term of the Agreement, interfere in a
material manner with the Adviser's ability to meet its obligations to the Fund
hereunder. When the Adviser recommends the purchase or sale of the same security
for a Portfolio, it is understood that in light of its fiduciary duty to the
Portfolio, such transactions will be executed on a basis that is fair and
equitable to the Portfolio. In connection with purchases or sales of portfolio
securities for the account of a Portfolio, neither the Adviser nor any of its
directors, officers or employees shall act as a principal or agent or receive
any commission, provided that portfolio transactions for a Portfolio may be
executed through firms affiliated with the Adviser, in accordance with
applicable legal requirements. If the Adviser provides any advice to its clients
concerning the shares of the Fund, the Adviser shall act solely as investment
counsel for such clients and not in any way on behalf of the Fund.
9. Duration and Termination. This Agreement shall continue until April 28, 1997,
and thereafter shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) a vote of a "majority" (as defined in the 1940 Act) of each
Portfolio's outstanding voting securities (as defined in the 1940 Act), provided
that in either event the continuance is also approved by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of any
party to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such
<PAGE>
approval. Notwithstanding the foregoing, this Agreement may be terminated as to
a Portfolio (a) at any time without penalty by the Fund upon the vote of a
majority of the Directors or by vote of the majority of the Portfolio's
outstanding voting securities, upon sixty (60) days' written notice to the
Adviser or (b) by the Adviser at any time without penalty, upon sixty (60) days'
written notice to the Fund. This Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
10. Amendments. No provision of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) a majority of the outstanding
voting securities of the Fund, and (ii) a majority of the Directors, including a
majority of Directors who are not interested persons of any party to this
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
11. Miscellaneous.
a. This Agreement shall be governed by the laws of the State of
Maryland, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
c. If any provision of this Agreement shall be held or made invalid by
a court decision statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Adviser as an
agent of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of April 28, 1995.
THE PBHG FUND, INC.
By: /s/
--------------------------
Title: Vice President
PILGRIM BAXTER & ASSOCIATES
By: /s/
--------------------------
Title:
<PAGE>
Schedule A dated April __, 1997
to the Investment Advisory Agreement dated
April 28, 1995 between The PBHG
Funds, Inc.
and
Pilgrim Baxter & Associates, Ltd.
Pursuant to Section 5 of this Agreement, each Portfolio shall pay the
Adviser, at the end of each calendar month, compensation computed daily at an
annual rate of the Portfolio's average daily net assets as follows:
Portfolio Fee
--------- ---
PBHG Growth Fund .85%
PBHG Emerging Growth Fund .85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund .75%
PBHG Select Equity Fund .85%
PBHG Cash Reserves Fund .30%
PBHG Technology & Communications Fund .85%
PBHG Core Growth Fund .85%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund .85%
PBHG Large Cap Value Fund .85%
PBHG Mid-Cap Value Fund .85%
PBHG Strategic Small Company Fund .85%
PBHG Small Cap Value Fund 1.00%
EXHIBIT 5(d)(1)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG LARGE CAP VALUE FUND
AGREEMENT made as of this 16th day of December, 1996, by and among
Pilgrim Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management,
Inc. (the "Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the
"Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated December 16, 1996 between the Adviser and the Company,
the Adviser will act as investment adviser to the PBHG Large Cap Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's
Board of Directors, the Sub-Adviser shall manage the
investment operations of the Portfolio and the composition of
the Portfolio's portfolio, including the purchase, retention
and disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
-1-
<PAGE>
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
-2-
<PAGE>
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
-3-
<PAGE>
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.50% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than
two years from the date hereof only so long as continuance is
specifically approved at least annually in conformance with the 1940
Act; provided, however, that this Agreement may be terminated (a) by
the Portfolio at any time, without the payment of any penalty, by the
vote of a majority of Directors of the company or by the vote of a
majority of the outstanding voting securities of the Portfolio, (b) by
the Adviser at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the other
parties, or (c) by the Sub-Adviser at any time, without the payment of
any penalty, on 90 days' written notice to the other parties. This
Agreement shall terminate automatically and immediately in the event of
its assignment. As used in this Section 6, the terms "assignment" and
"vote of a majority of the outstanding voting securities" shall have
the respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its
-4-
<PAGE>
employees or agents or its affiliates that refer to the Sub-Adviser or
its clients in any way are consistent with those materials previously
approved by the Sub-Adviser as referenced in the first sentence of this
paragraph. Sales literature may be furnished to the Sub-Adviser by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
-------------------------------- ---------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
---------------------------------
Title:
-6-
EXHIBIT 5(d)(3)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG STRATEGIC SMALL COMPANY FUND
AGREEMENT made as of this 16th day of December, 1996, by and among
Pilgrim Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management,
Inc. (the "Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the
"Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated December 16, 1996 between the Adviser and the Company,
the Adviser will act as investment adviser to the PBHG Strategic Small Company
Fund (the "Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's
Board of Directors, the Sub-Adviser shall manage the
investment operations of the Portfolio and the composition of
the Portfolio's portfolio, including the purchase, retention
and disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
-1-
<PAGE>
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
-2-
<PAGE>
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on th date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
-3-
<PAGE>
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.50% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by the Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of the Portfolio, (b) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days'
nor less than 30 days' written notice to the other parties, or (c) by
the Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its
-4-
<PAGE>
employees or agents or its affiliates that refer to the Sub-Adviser or
its clients in any way are consistent with those materials previously
approved by the Sub-Adviser as referenced in the first sentence of this
paragraph. Sales literature may be furnished to the Sub-Adviser by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: /s/ By: /s/
------------------------- -------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By: /s/
-------------------------
Title:
-6-
EXHIBIT 5(d)(4)
THE PBHG FUNDS, INC.
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
PBHG SMALL CAP VALUE FUND
AGREEMENT made as of this ___ day of April, 1997, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Newbold's Asset Management, Inc. (the
"Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the "Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28,
1995 and Schedule A dated February __, 1997 between the Adviser and the Company,
the Adviser will act as investment adviser to the PBHG Small Cap Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the
Sub-Adviser to provide investment advisory services to the Company in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's
Board of Directors, the Sub-Adviser shall manage the
investment operations of the Portfolio and the composition of
the Portfolio's portfolio, including the purchase, retention
and disposition thereof, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in
the Portfolio's Prospectus (such Prospectus and Statement of
Additional Information, as currently in effect and as amended
or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments
and securities will be purchased, retained or sold by the
Portfolio, and what portion of the assets will be invested or
held uninvested in cash.
(2) In the performance of its duties and obligations under this
Agreement, the Sub-Adviser shall act in conformity with the
Company's Articles of Incorporation and the Prospectus and
with the instructions and directions of the Adviser and of the
Board of Directors and will conform and comply with the
requirements of the 1940 Act, the Internal Revenue Code of
1986, as amended, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
-1-
<PAGE>
(3) The Sub-Adviser shall determine the securities to be purchased
or sold by the Portfolio and will place orders with or through
such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's Registration
Statement (as defined herein) and Prospectus or as the Board
of Directors or the Adviser may direct from time to time, in
conformity with federal securities laws. In providing the
Portfolio with investment supervision, the Sub-Adviser will
give primary consideration to securing the most favorable
price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial
responsibility, research and investment information and other
services provided by brokers or dealers who may effect or be a
party to any such transaction or other transactions to which
the Sub-Adviser's other clients may be a party. It is
understood that it is desirable for the Portfolio that the
Sub-Adviser have access to supplemental investment and market
research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher
cost to the Portfolio than may result when allocating
brokerage to other brokers on the basis of seeking the most
favorable price and efficient execution. Therefore, the
Sub-Adviser is authorized to place orders for the purchase and
sale of securities for the Portfolio with such brokers,
subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of
this practice. It is understood that the services provided by
such brokers may be useful to the Sub-Adviser in connection
with the Sub-Adviser's services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale
of a security to be in the best interest of the Portfolio as
well as other clients of the Sub-Adviser, the Sub-Adviser, to
the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities
to be so purchased or sold in order to obtain the most
favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its
fiduciary obligations to the Portfolio and to such other
clients.
(4) The Sub-Adviser shall maintain all books and records with
respect to the Portfolio's portfolio transactions required by
subparagraphs (b)(5), (6), (7), (9), (10) and (11) and
paragraph (f) of Rule 31a-1 under the 1940 Act and shall
render to the Company's Board of Directors such periodic and
special reports as the Company's Board of Directors may
reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on
each business day with information relating to all
transactions concerning the Portfolio's assets and shall
provide the Adviser with such information upon request of the
Adviser.
(6) The investment management services provided by the Sub-Adviser
under this Agreement are not to be deemed exclusive and the
Sub-Adviser shall be free to render similar services to
others, as long as such services do not impair the services
rendered to the Adviser or the Company.
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<PAGE>
(b) Services to be furnished by the Sub-Adviser under this
Agreement may be furnished through the medium of any of the
Sub-Adviser's officers or employees. It is understood that the
Sub-Adviser may obtain certain administrative services,
including, without limitation, services relating to trade
reconciliation and the production of client reports, from its
parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records
required to be maintained by the Sub-Adviser pursuant to
paragraph 1(a) of this Agreement and shall timely furnished to
the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep
the other books and records of the Portfolio required by Rule
31a-1 under the 1940 Act. The Sub-Adviser agrees that all
records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the
Portfolio's request; provided, however, that the Sub-Adviser
may retain a copy of such records. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to
be provided to the Portfolio pursuant to the Advisory Agreement and
shall oversee and review the Sub-Adviser's performance of its duties
under this Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of
State of Maryland (such Articles of Incorporation as in effect
on the date of this Agreement and as amended from time to
time, are herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on the date
of this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
(d) Registration Statement under the 1940 Act and the Securities
Act of 1933, as amended, on form N-1A (the "Registration
Statement"), as filed with the Securities and Exchange
Commission (the "Commission") relating to the Portfolio and
shares of the Portfolio's beneficial shares, and all
amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940
Act on form N-8A as filed with the Commission, and all
amendments thereto; and
(f) Prospectus of the Portfolio.
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<PAGE>
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.50% of the Portfolio's average
daily net assets, less 50% of any fee waivers borne by the Adviser.
This fee will be paid to the Sub-Adviser from the Adviser's advisory
fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for
any loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt
of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3)
of the 1940 Act), or a loss resulting from willful misfeasance, bad
faith or gross negligence on the Sub-Adviser's part in the performance
of its duties or from reckless disregard of its obligations and duties
under this Agreement, except as may otherwise be provided under
provisions of applicable state law which cannot be waived or modified
hereby.
6. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated (a) by the Portfolio at
any time, without the payment of any penalty, by the vote of a majority
of Directors of the company or by the vote of a majority of the
outstanding voting securities of the Portfolio, (b) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days'
nor less than 30 days' written notice to the other parties, or (c) by
the Sub-Adviser at any time, without the payment of any penalty, on 90
days' written notice to the other parties. This Agreement shall
terminate automatically and immediately in the event of its assignment.
As used in this Section 6, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of
the Sub-Adviser's directors, officers, or employees to engage in any
other business or to devote his or her time and attention in part to
the management or other aspects of any business, whether of a similar
or dissimilar nature, nor limit or restrict the Sub-Adviser's right to
engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared
for distribution to shareholders of the Portfolio, the Company or the
public that refers to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as
may be mutually agreed) after receipt thereof. The Sub-Adviser's right
to object to such materials is limited to the portions of such
materials that expressly relate to the Sub-Adviser, its services and
its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its
-4-
<PAGE>
employees or agents or its affiliates that refer to the Sub-Adviser or
its clients in any way are consistent with those materials previously
approved by the Sub-Adviser as referenced in the first sentence of this
paragraph. Sales literature may be furnished to the Sub-Adviser by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of the majority of the outstanding
voting securities of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among
the parties hereto, and supersedes all prior agreements and
understandings relating to this Agreement's subject matter. This
Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors.
13. Any notice, advice or report to be given pursuant to this Agreement
shall be delivered or mailed:
To the Adviser at:
1255 Drummers Lane, Suite 300
Wayne, PA 19087
To the Sub-Adviser at:
950 Haverford Road
Bryn Mawr, PA 19010
To the Company or the Portfolio at:
680 East Swedesford Road
Wayne, PA 19087
Attention: General Counsel
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order
of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By:
---------------------------- ----------------------------
Title: Title:
NEWBOLD'S ASSET MANAGEMENT, INC.
By:
----------------------------
Title:
-6-
EXHIBIT 6(a)(2)
DISTRIBUTION AGREEMENT
THE PBHG FUNDS, INC.
THIS AGREEMENT is made as of this 1st day of July, 1996 between The
PBHG Funds, Inc. (the "Company"), a Maryland corporation, and SEI Financial
Services Company (the "Distributor"), a Pennsylvania corporation.
WHEREAS, the Company is registered as an investment company with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940, as amended (the "1940 Act"), and is authorized to issue shares of common
stock ("Shares") in separately designated series ("Funds"), each with its own
objectives, investment program, policies and restrictions; and
WHEREAS, the Company has registered the Shares of the Funds under the
Securities Act of 1933, as amended (the "1933 Act"), pursuant to a registration
statement on Form N-1A (the "Registration Statement"), including a prospectus
("Prospectus") and a statement of additional information ("Statement of
Additional Information"); and
WHEREAS, the Company has adopted a Service Plan Pursuant to Rule 12b-1
under the 1940 Act (the "Service Plan") with respect to one of its classes of
shares, i.e., the Trust Class, and may enter into related agreements providing
for the distribution of the Shares of the Funds; and
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
WHEREAS, the Company wishes to continue to engage the services of the
Distributor as principal underwriter and distributor of the Shares of the Funds
that now exist and that hereafter may be established, which are listed on
Exhibit A to this Agreement as may be amended from time to time, and the
Distributor is willing to continue to serve in that capacity.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Appointment of Distributor.
(a) The Company hereby appoints the Distributor as principal
underwriter and distributor of the Funds of the Company to sell the
Shares of the Funds in jurisdictions wherein the Shares may be legally
offered for sale. The Distributor shall be the exclusive agent for the
distribution of Shares of the Funds; provided, however, that the
Company in its absolute discretion may issue Shares of the Funds
otherwise than through the Distributor in connection with (i) the
payment or reinvestment of dividends or distributions, (ii) any merger
or consolidation of the Company or a Fund with any other investment
company or trust or any personal holding company, or the acquisition of
the
<PAGE>
assets of any such entity by the Company or any Fund, and (iii) any
offer of exchange authorized by the Board of Directors of the Company.
Notwithstanding any other provision hereof, the Company may terminate,
suspend, or withdraw the offering of the Shares of a Fund whenever, in
its sole discretion, it deems such action to be desirable.
(b) The Distributor agrees that it will use all reasonable
efforts, consistent with its other business, in connection with the
distribution of Shares of the Company; provided, however, that the
Distributor shall not be prevented from entering into like arrangements
with other issuers. The provisions of this paragraph do not obligate
the Distributor to register as a broker or dealer under the state Blue
Sky laws of any jurisdiction when it determines it would be
uneconomical for it to do so or to maintain its registration in any
jurisdiction in which it is now registered nor obligate the Distributor
to sell any particular number of Shares. The Distributor is currently
registered as a broker-dealer or exempt from registration in all
jurisdictions listed in Exhibit B hereto. The Distributor shall
promptly notify the Company in the event it fails to maintain its
registration in any jurisdiction in which it is currently registered.
The Distributor shall sell Shares of the Funds as agent for the Company
at prices determined as hereinafter provided and on the terms set forth
herein, all according to applicable federal and state Blue Sky laws and
regulations and the Articles of Incorporation and ByLaws of the
Company. The Distributor may sell Shares of the Funds to or through
qualified brokers, dealers or others and shall require each such person
to conform to the provisions hereof, the Registration Statement, the
then current Prospectus and Statement of Additional Information, and
applicable law. Neither the Distributor nor any such person shall
withhold the placing of purchase orders for Shares so as to make a
profit thereby.
(c) The Distributor shall order Shares of the Funds from the
Company only to the extent that it shall have received purchase orders
therefor. The Distributor will not make, or authorize any brokers,
dealers, or others to make, (i) any short sales of Shares or (ii) any
sales of Shares to any Director or officer of the Company, the
Distributor, or any corporation or association furnishing investment
advisory, managerial, or supervisory services to the Company, or to any
such corporation or association, unless such sales are made in
accordance with the Company's then current Prospectus and Statement of
Additional Information.
(d) The Distributor is not authorized by the Company to give
any information or to make any representation other than those
contained in the then current Prospectus, Statement of Additional
Information, and Fund shareholder reports ("Shareholder Reports"), or
in supplementary sales materials specifically approved by the Company.
The Distributor may prepare and distribute sales literature and other
material as it may deem appropriate, provided that such literature and
materials have been approved by the Company prior to their use.
2. Offering Price of Shares. All Shares of each Fund sold under this
Agreement shall be sold at the public offering price per Share in effect at the
time of the sale as described in the Company's then current Prospectus and
Statement of Additional Information; provided, however, that any public offering
price for the Shares shall be the net asset value per Share, as
-2-
<PAGE>
determined in the manner described in the Company's then current Prospectus
and/or Statement of Additional Information. At no time shall the Company receive
less than the full net asset value of the Shares, determined in the manner set
forth in the then current Prospectus and/or Statement of Additional Information.
3. Registration of Shares. The Company agrees that it will take all
actions necessary to register Shares under the Federal and state Blue Sky
securities laws so that there will be available for sale the number of Shares
the Distributor may reasonably be expected to sell and to pay all fees
associated with said registration.
4. Service Plan Payments.
(a) The Company has adopted a Service Plan pursuant to Rule
12b-1 under 1940 Act to enable the Trust Class Shares of each Fund to
directly and indirectly bear certain expenses relating to the
distribution of such Shares. Pursuant to such Service Plan, the Company
shall be entitled to pay to financial intermediaries, plan fiduciaries,
and investment professionals ("Service Providers") a shareholder
servicing fee at the aggregate annual rate of up to 0.25% of each
Fund's average daily net assets attributable to Trust Class Shares. The
shareholder servicing fee is intended to compensate Service Providers
for providing to shareholders or the underlying beneficial owners of
Trust Class Shares: (a) personal support services; (b) distribution
assistance and distribution support services; and (c) account
maintenance services. In addition, insurance companies or their
affiliates may be paid the shareholder servicing fee described in this
Section 5 for providing similar services to variable annuity or
variable life insurance contract holders ("Contract Holders") or their
participants for which such insurance companies are not otherwise
compensated by Contract Holders or participants.
(b) The Distributor shall prepare and deliver written reports
to the Board of Directors of the Company on a regular basis (at least
quarterly) setting forth the payments made to Service Providers
pursuant to the Service Plan, and the purposes for which such
expenditures were made, as well as any supplemental reports as the
Board of Directors of the Company may from time to time reasonably
request.
5. Payment of Expenses.
(a) Except as otherwise provided herein, the Distributor shall
pay, or arrange for others to pay, all of the following expenses: (i)
payments to sales representatives of the Distributor and at the
discretion of the Distributor to qualified brokers, dealers and others
in respect of the sale of Shares of the Funds; (ii) compensation and
expenses of employees of the Distributor who engage in or support
distribution of Shares of the Funds or render shareholder support
services not otherwise provided by the Company's transfer and
shareholder servicing agent; and (iii) the cost of obtaining such
information, analyses, and reports with respect to marketing and
promotional activities as the Company may from time to time reasonably
request.
(b) The Company shall pay, or arrange for others to pay, the
following expenses: (i) preparation, printing, and distribution to
shareholders of Prospectuses and
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<PAGE>
Statements of Additional Information; (ii) preparation, printing, and
distribution of Shareholder Reports and other communications required
by law to shareholders; (iii) registration of the Shares of the Funds
under the federal securities laws; (iv) qualification of the Shares of
the Funds for sale in such states as the Distributor and the Company
may approve; (v) maintaining facilities for the issue and transfer of
Shares; (vi) supplying information, prices, and other data to be
furnished by the Company under this Agreement; and (vii) taxes
applicable to the sale or delivery of the Shares of the Funds or
certificates therefor.
(c) In connection with the Distributor's distribution of sales
materials, Prospectuses, Statements of Additional Information, and
Shareholder Reports to potential investors in the Company, the Company
shall make available to the Distributor such number of copies of such
materials as the Distributor may reasonably request. The Company shall
also furnish to the Distributor copies of all information, financial
statements and other documents the Distributor may reasonably request
for use in connection with the distribution of Shares of the Company.
The Company will enter into arrangements providing that persons other
than the Company will bear any and all expenses of preparing, printing
and providing to the Distributor, sales materials, Prospectuses,
Statements of Additional Information and Shareholder Reports for
distribution to potential investors in the Company.
6. Compensation. It is understood that the Distributor will not receive
any commissions or other compensation for acting as the Company's principal
underwriter and distributor.
7. Repurchase of Shares. The Distributor as agent and for the account
of the Company may repurchase Shares of the Funds offered for resale to it and
redeem such Shares at their net asset value determined as set forth in the then
current Prospectus and Statement of Additional Information.
8. Indemnification of Distributor. The Company agrees to indemnify and
hold harmless the Distributor and each of its directors and officers and each
person, if any, who controls the Distributor within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages or expense (including
the reasonable cost of investigating or defending any alleged loss, liability,
damages, claim, or expense, and any reasonable counsel fees and disbursements
incurred in connection therewith) arising by reason of any person acquiring any
Shares, based upon the ground that the Registration Statement, Prospectuses,
Statements of Additional Information, Shareholder Reports or other information
filed or made public by the Company (as from time to time amended) included an
untrue statement of a material fact or omitted to state a material fact required
to be stated or necessary in order to make the statements made not misleading.
However, the Company does not agree to indemnify the Distributor or hold it
harmless to the extent that the statements or omission was made in reliance
upon, and in conformity with, information furnished to the Company by or on
behalf of the Distributor.
In no case (i) is the indemnity of the Company to be deemed to protect
the Distributor against any liability to the Company or its shareholders to
which the Distributor or such person otherwise would be subject by reason of
willful misfeasance, bad faith or negligence in the
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<PAGE>
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the Company
to be liable to the Distributor under the indemnity agreement contained in this
section with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or other person shall have notified the
Company in writing of the claim within a reasonable time after the summons or
other first written notification giving information of the nature of the claim
shall have been served upon the Distributor or such other person (or after the
Distributor or the person shall have received notice of service on any
designated agent). However, failure to notify the Company of any claim shall not
relieve the Company from any liability which it may have to the Distributor or
any person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this section.
The Company shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Company elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Company and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Company
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Company does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Company agrees to notify the Distributor promptly of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issuance or sale of any of its Shares.
9. Indemnification of Company. The Distributor covenants and agrees
that it will indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or defending
any alleged loss, liability, damages, claim or expense, and reasonable counsel
fees and disbursements incurred in connection therewith) based upon the 1933 Act
or any other statute or common law and arising by reason of any person acquiring
any Shares, and alleging (i) a wrongful act or deed of the Distributor or any of
its employees or sales representatives, or (ii) that the Registration Statement,
Prospectuses, Statements of Additional Information, shareholder reports or other
information filed or made public by the Company (as from time to time amended)
included an untrue statement of a material fact or omitted to state a material
fact required to be stated or necessary in order to make the statements not
misleading, insofar as any such statements or omissions were made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the
Company or any other person indemnified to be deemed to protect the Company or
any other person against any liability to which the Company or such other person
would otherwise be subject by reason of willful misfeasance or bad faith in the
performance of its duties or by reason of its failure to exercise due care in
rendering its services and duties under this Agreement, or (ii) is the
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<PAGE>
Distributor to be liable under its indemnity agreement contained in this section
with respect to any claim made against the Company or any person indemnified
unless the Company or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the summons
or other first written notification giving information of the nature of the
claim shall have been served upon the Company or upon any person (or after the
Company or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Company or
any person against whom the action is brought otherwise than on account on its
indemnity agreement contained in this section.
The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor and satisfactory
to the indemnified defendants, whose approval shall not be unreasonably
withheld. In the event that the Distributor elects to assume the defense of any
suit and retain counsel, the defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them. If the Distributor does not
elect to assume the defense of any suit, it will reimburse the indemnified
defendants in the suit for the reasonable fees and expenses of any counsel
retained by them.
The Distributor agrees to notify the Company promptly of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any of the Company's Shares.
10. Term and Termination.
(a) This Agreement shall become effective as of the date
hereof. Unless sooner terminated as herein provided, this Agreement
shall remain in full force and effect for two (2) years from the
effective date and thereafter for successive periods of one year, but
only so long as each such continuance is specifically approved at least
annually (i) either by vote of a majority of the Board of Directors of
the Company or by vote of a majority of the outstanding voting
securities of the company, and (ii) by vote of a majority of the
Directors of the Company who are not interested persons of the Company
and who have no direct or indirect financial interest in the operation
of the Service Plan or in this Agreement or any other agreement related
to the Service Plan (the "Rule 12b-1 Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Directors of the Company or a
majority of the Rule 12b-1 Directors, by vote of a majority of the
outstanding voting securities of the Company, or by the Distributor, on
not less than ninety (90) days' written notice to the other party or
upon such shorter notice as may be mutually agreed upon.
(c) This Agreement shall automatically terminate in the event
of its assignment.
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<PAGE>
(d) The indemnification provisions contained in Sections 8 and
9 of this Agreement shall remain in full force and effect regardless of
any termination of this Agreement.
11. Amendment. No provisions of this Agreement may be changed, waived,
discharged, or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge, or
termination is sought. If the Company should at any time deem it necessary or
advisable in the best interests of the Company that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to assent to such
amendment, the Company may terminate this Agreement forthwith. If Distributor
should at any time request that a change be made in the Company's Articles of
Incorporation or By-Laws or in its methods of doing business, in order to comply
with any requirements of Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a member relating to
the sale of Shares, and the Fund should not make such necessary change within a
reasonable time, Distributor may terminate this Agreement forthwith.
12. Independent Contractor. Distributor shall be an independent
contractor and neither Distributor nor any of its officers, directors,
employees, or representatives is or shall be an employee of the Company in the
performance of Distributor's duties hereunder. Distributor shall be responsible
for its own conduct and the employment, control, and conduct of its agents and
employees and for injury to such agents or employees or to others through its
agents or employees. Distributor assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all employee taxes
thereunder.
13. Definition of Certain Terms. For purposes of this Agreement the
terms "assignment," "interested person," "majority of the outstanding voting
securities," and "principal underwriter" shall have their respective meanings
defined in the 1940 Act and the rules and regulations thereunder, subject,
however, to such exemptions as may be granted to either the Distributor or the
Company by the SEC, or such interpretative positions as may be taken by the SEC
or its staff under the 1940 Act.
14. Notice. Any notice under this Agreement shall be deemed to be
sufficient if it is given in writing, addressed and delivered, or mailed
postpaid (a) if to the Distributor, to SEI Financial Services Company, 680 East
Swedesford Road, Wayne, Pennsylvania 19087-1658; and (b) if to the Company, to
Pilgrim Baxter & Associates, Ltd., 1255 Drummers Lane, Suite 300,
Wayne, Pennsylvania 19087-1590, Attention: Michael Harrington.
15. Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect construction or effect.
16. Interpretation. Nothing herein contained shall be deemed to require
the Company or the Distributor to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which
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<PAGE>
it is bound, or to relieve or deprive the Board of Directors of its
responsibility for and control of the conduct of the affairs of the Company.
17. Governing Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Pennsylvania and the applicable provisions of
the 1940 Act. To the extent that the applicable laws of the Commonwealth of
Pennsylvania or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
18. Multiple Originals. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the Company and Distributor have each duly executed
this Agreement, as of the day and year above written.
ATTEST: THE PBHG FUNDS, INC.
By:
- - ----------------------- ----------------------------
Title: Title:
----------------- --------------------------
ATTEST: SEI FINANCIAL SERVICES COMPANY
By:
- - ----------------------- ----------------------------
Title: Title:
----------------- --------------------------
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<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April ___, 1997
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<PAGE>
EXHIBIT B
The Distributor is currently registered as a broker-dealer or exempt from
registration in the following jurisdictions:
[TO BE PROVIDED]
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EXHIBIT 8(c)
CUSTODIAN AGREEMENT
This Agreement, dated as of the ____ day of September, 1996 by and
between The PBHG Funds, Inc. ("Fund"), a corporation operating as an open-end
management investment company and duly organized under the laws of the State of
Maryland, and CoreStates Bank N.A.;
WITNESSETH
WHEREAS, the Fund desires to deposit cash and securities of certain of
its series ("Portfolios"), which Portfolios shall be set forth in Schedule A
hereto attached, with CoreStates Bank N.A. as custodian; and
WHEREAS, CoreStates Bank N.A. is qualified and authorized to act as
custodian for the cash and securities of an open-end management investment
company and is willing to act in such capacity upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
SECTION 1. The terms as defined in this Section wherever used in this Agreement,
or in any amendment or supplement hereto, shall have meanings herein specified
unless the context otherwise requires.
CUSTODIAN: The term Custodian shall mean CoreStates Bank N.A. in its capacity as
Custodian under this Agreement.
PROPER INSTRUCTIONS: For purposes of this Agreement the Custodian shall be
deemed to have received Proper Instructions upon receipt of written (including
instructions received by means of computer terminals), telephone or telegraphic
instructions from a person or persons authorized from time to time by the
Directors of the Fund to give the particular class of instructions. Telephone or
telegraphic instructions shall be confirmed in writing by such person or persons
as said Board of Directors shall have from time to time authorized to give the
particular class of instructions in question. The Custodian may act upon
telephone or telegraphic instructions without awaiting receipt of written
confirmation, and shall not be liable for the Fund's or its investment adviser's
failure to confirm such instructions in writing.
SHAREHOLDERS: The term Shareholders shall mean the registered owners from time
to time of the Shares of the Fund in accordance with the registry records
maintained by the Fund or agents on its behalf.
SHARES: The term Shares of the Fund shall mean the shares of the Fund.
<PAGE>
SECTION 2. The Fund shall from time to time file with the Custodian a certified
copy of each resolution of its Board of Directors authorizing the person or
persons to give Proper Instructions (as defined in Section 1) and specifying the
class of instructions that may be given by each person to the Custodian under
this Agreement, together with certified signatures of such persons authorized to
sign, which shall constitute conclusive evidence of the authority of the
officers and signatories designated therein to act, and shall be considered in
full force and effect with the Custodian fully protected in acting in reliance
thereon until it receives written notice to the contrary; provided, however,
that if the certifying officer is authorized to give Proper Instructions, the
certification shall be also signed by a second officer of the Fund.
SECTION 3. The Fund hereby appoints the Custodian as custodian of cash and
securities of the Portfolios from time to time on deposit hereunder, to be held
by the Custodian and applied as provided in this Agreement. The Custodian hereby
accepts such appointment subject to the terms and conditions hereinafter
provided. Such cash and securities shall, however, be segregated from the assets
of others and shall be and remain the sole property of the company and the
Custodian shall have only the bare custody thereof.
The Custodian may perform some or all of its duties hereunder through a
subcustodian.
The Custodian may deposit the Fund's portfolio securities with a U.S. securities
depository or in U.S. Federal book-entry systems pursuant to rules and
regulations of the Securities and Exchange Commission.
SECTION 4. The Fund will make an initial deposit of cash to be held and applied
by the Custodian hereunder. Thereafter the Fund will cause to be deposited with
the Custodian hereunder the applicable net asset value of Shares sold from time
to time whether representing initial issue, other stock or reinvestments of
dividends and/or distributions payable to Shareholders.
SECTION 5. The Custodian is hereby authorized and directed to disburse cash from
time to time upon receipt of and in accordance with Proper Instructions.
SECTION 6. The Custodian's compensation shall be as set forth in Schedule B
hereto attached, and the Custodian will charge fees for specific transactions as
set forth in Schedule C hereto attached, or as shall be set forth in amendments
to such Schedules approved by the Fund and the Custodian.
SECTION 7. In connection with its functions under this Agreement, the Custodian
shall:
(a) render to the Fund a daily report of all monies received or
paid on behalf of the Fund.
(b) create, maintain and retain all records relating to its
activities and obligations under this Agreement in such manner
as will meet the obligations of the Fund
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<PAGE>
with respect to said Custodian's activities in accordance with
generally accepted accounting principles. All records
maintained by the Custodian in connection with the performance
of its duties under this Agreement will remain the property of
the Fund and in the event of termination of this Agreement
will be relinquished to the Fund.
SECTION 8. No liability of any kind shall be attached to or incurred by the
Custodian by reason of its custody of the assets held by it from time to time
under this Agreement, or otherwise by reason of its position as Custodian
hereunder except only for its own negligence, bad faith, or willful misconduct
in the performance of its duties as specifically set forth in the Agreement.
Without limiting the generality of the foregoing sentence, the Custodian:
(a) may rely upon the advice of counsel, who may be counsel for
the Fund or for the Custodian, and upon statements of
accountants, brokers and other persons believed by it in good
faith to be expert in the matters upon which they are
consulted; and for any action taken or suffered in good faith
based upon such advice or statements the Custodian shall not
be liable to anyone;
(b) shall not be liable for anything done or suffered to be done
in good faith in accordance with any request or advice of, or
based upon information furnished by, the Fund or its
authorized officers or agents;
(c) is authorized to accept a certificate of the Secretary or
Assistant Secretary of the Fund, or Proper Instructions, to
the effect that a resolution in the form submitted has been
duly adopted by its Board of Directors or by the Shareholders,
as conclusive evidence that such resolution has been duly
adopted and is in full force and effect; and
(d) may rely and shall be protected in acting upon any signature,
written (including telegraph or other mechanical)
instructions, request, letter of transmittal, certificate,
opinion of counsel, statement, instrument, report, notice,
consent, order, or other paper or document reasonably believed
by it to be genuine and to have been signed, forwarded or
presented by the purchaser, Fund or other proper party or
parties.
SECTION 9. The Fund, its successors and assignees hereby indemnify and hold
harmless the Custodian, its successors and assignees, of and from any and all
liability whatsoever arising out of or in connection with the Custodian's
status, acts, or omissions under this Agreement, except only for liability
arising out of the Custodian's own negligence, bad faith, or willful misconduct
in the performance of its duties specifically set forth in this Agreement.
Without limiting the generality of the foregoing, the Fund, its successors and
assignees do hereby fully indemnify and hold harmless the Custodian its
successors and assignees from any and all loss, liability, claims, demand,
actions, suits and expenses of any nature as the same may
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<PAGE>
arise from the failure of the Fund to comply with any law, rule, regulation or
order of the United States, any state or any other jurisdiction, governmental
authority, body, or board relating to the sale, registration, qualification of
units of beneficial interest in the Fund, or from the failure of the Fund to
perform any duty or obligation under this Agreement.
Upon written request of the Custodian, the Fund shall assume the entire defense
of any claim subject to the foregoing indemnity, or the joint defense with the
Custodian of such claim, as the Custodian shall request. The indemnities and
defense provisions of this Section 9 shall indefinitely survive termination of
this Agreement.
SECTION 10. This Agreement may be amended from time to time without notice to or
any approval of the Shareholders by a supplemental agreement executed by the
Fund and the Custodian and amending and supplementing this Agreement in the
manner mutually agreed.
SECTION 11. Either the Fund or the Custodian may give one hundred twenty (120)
days' written notice to the other of the termination of this Agreement, such
termination to take effect at the time specified in the notice. In case such
notice of termination is given either by the Fund or by the Custodian, the
Directors of the Fund shall, by resolution duly adopted, promptly appoint a
Successor Custodian which Successor Custodian shall be a bank, trust company, or
a bank and trust company in good standing, with legal capacity to accept custody
of the cash and securities of a mutual fund.
Upon receipt of written notice from the company of the appointment of such
successor and upon receipt of Proper Instructions, the Custodian shall deliver
such cash and securities as it may then be holding hereunder directly and only
to the Successor Custodian. Unless or until a Successor Custodian has been
appointed as above provided, the Custodian then acting shall continue to act as
Custodian under this Agreement.
Every Successor Custodian appointed hereunder shall execute and deliver an
appropriate written acceptance of its appointment and shall thereupon become
vested with the rights, powers, obligations and custody of its predecessor
Custodian. The Custodian ceasing to act shall nevertheless, upon request of the
company and the Successor Custodian and upon payment of its charges and
disbursements, execute an instrument in form approved by its counsel
transferring to the Successor Custodian all the predecessor Custodian's rights,
duties, obligations and custody.
In case the Custodian shall consolidate with or merge into any other
corporation, the corporation remaining after or resulting from such
consolidation or merger shall ipso facto without the execution or filing of any
papers or other documents, succeed to and be substituted for the Custodian with
like effect as though originally named as such.
SECTION 12. This Agreement shall take effect when assets of the Fund are first
delivered to the Custodian.
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<PAGE>
SECTION 13. This Agreement may be executed in two or more counterparts, each of
which when so executed shall be deemed to be an original, but such counterparts
shall together constitute but one and the same instrument.
SECTION 14. A copy of the Amended Articles of Incorporation of the Fund are on
file with the Secretary of State of Maryland, and notice is hereby given that
this instrument is executed on behalf of the Directors of the Fund as Directors
and not individually and that the obligations of this instrument are not binding
upon any of the Directors, officers or Shareholders of the Fund individually,
but binding only upon the assets and property of the Fund.
SECTION 15. The Custodian shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Fund Act of 1940, with particular
attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable
Federal and state tax laws and any other law or administrative rules or
procedures which may be applicable to the Fund.
Subject to security requirements of the Custodian applicable to its own
employees having access to similar records within the Custodian and such
regulations as to the conduct of such monitors as may be reasonably imposed by
the Custodian after prior consultation with an officer of the Fund, the books
and records of the Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at any reasonable times by officers of,
attorneys for, and auditors employed by, the Fund.
SECTION 16. Nothing contained in this Agreement is intended to or shall require
the Custodian in any capacity hereunder to perform any functions or duties on
any holiday or other day of special observance on which the Custodian is closed.
Functions or duties normally scheduled to be performed on such days shall be
performed on, and as of, the next business day the Custodian is open.
SECTION 17. This Agreement shall extend to and shall be binding upon the parties
hereto and their respective successors and assignees; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of its Board of Directors.
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<PAGE>
IN WITNESS WHEREOF, the Fund and the Custodian have caused this Agreement to be
signed by their respective officers as of the day and year first above written.
THE PBHG FUNDS, INC.
By: /s/
-----------------------------------
Attest:
--------------------------------
CORESTATES BANK N.A.
By: /s/
-----------------------------------
Attest:
--------------------------------
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<PAGE>
SCHEDULE A
PORTFOLIOS OF THE PBHG FUNDS, INC.
This Custodian Agreement is by and between CoreStates Bank N.A. and the
Fund, on behalf of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Mid-Cap Growth Fund
PBHG Limited Fund
PBHG Cash Reserves Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April __, 1997
<PAGE>
SCHEDULE B
FEE SCHEDULE
1.00 BASIS POINTS ON THE FIRST $2.5 BILLION
.75 BASIS POINTS ON THE NEXT $2.5 BILLION
.50 BASIS POINTS ON THE NEXT $4 BILLION
.40 BASIS POINTS ON THE REMAINDER
Transactions billed separately by Portfolio at the now current rates. Asset
level charges billed as one invoice covering all Portfolios custodied at
CoreStates Bank N.A. Pilgrim Baxter Fund Services will allocate charges back to
individual Portfolios. Transaction charges are subject to change.
<PAGE>
SCHEDULE C
CUSTODY SERVICES
TRANSACTION FEES
$ 4.00 Per trade and maturity clearing through Depository Trust
Company.
$10.00 Per trade and maturity clearing book-entry through Federal
Reserve.
$15.00 Per trade and maturity for assets requiring physical settlement.
$10.00 Per trade and maturity clearing through Participants Trust
Company.
$ 4.00 Paydowns on Mortgage Backed securities.
$ 5.50 Fed wire charge on Repo Collateral in/out.
$ 5.50/7.50 Other cash wire transfers in/out.
$ 5.50 Dividend Re-Investment.
$ 2.50 Fed charge for sale/return of Collateral.
EXHIBIT 9(b)(2)
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st day
of July, 1996 by and between The PBHG Funds, Inc., a Maryland corporation (the
"Fund"), and PBHG Fund Services, a Pennsylvania business trust (the
"Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Administrator to provide
administrative services to the Fund and each of its several series (the
"Portfolios"), which are identified in Schedule A hereto, in the manner and on
the terms and conditions hereinafter set forth; and
WHEREAS, the Fund and the Administrator propose to engage a
sub-administrator (the "Sub-Administrator") to provide certain administrative
services to the Fund and the Portfolios, subject to the approval of the Fund's
Board of Directors;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Duties and Responsibilities of the Administrator.
The Administrator shall oversee the administration of the Fund's and
each Portfolio's business and affairs as set forth herein and shall provide
certain services required for effective administration of the Fund and the
Portfolios. In connection therewith, the Administrator shall:
1.1. Office and Other Facilities. Furnish, without cost to the Fund, or
provide and pay the cost of, such office facilities, furnishings, and office
equipment as are necessary for the performance of the Administrator's duties to
the Fund under this Agreement.
1.2. Personnel. Provide, without additional remuneration from or other
cost to the Fund, the services of individuals competent to perform all of the
Administrator's obligations under this Agreement.
1.3. Agents. Assist the Fund in selecting, coordinating the activities
of, supervising and acting as liaison with any other person or agent engaged by
the Fund, including the Fund's depository agent or custodian, consultants,
transfer agent, sub-transfer agents, intermediaries
<PAGE>
with respect to mutual fund alliance programs, dividend disbursing agent,
Sub-Administrator, independent accountants, and independent legal counsel. The
Administrator shall also monitor the functions of such persons and agents,
including without limitation the compliance of the Fund and the Fund's
custodians with Rule 17f-5 under the 1940 Act, if appropriate.
1.4. Directors and Officers. Authorize and permit the Administrator's
directors, officers, and employees that may be elected or appointed as directors
or officers of the Fund to serve in such capacities, without remuneration from
or additional cost to the Fund.
1.5. Books and Records. Maintain customary records, on behalf of the
Fund, in connection with the performance of the Administrator's duties under
this Agreement. The Administrator also will monitor and oversee the performance
of the agents specified in Section 1.3. above, to ensure that all financial,
accounting, corporate, and other records required to be maintained and preserved
by the Fund or on its behalf will be maintained in accordance with applicable
laws and regulations.
1.6. Cost Oversight. Monitor and review activities and procedures of
the Fund and its agents identified in Section 1.3. above, in order to identify
and seek to obtain possible service improvements and cost reductions. In
connection therewith, the Administrator shall, on a quarterly basis, prepare and
submit to the Fund a pro forma budget or similar document concerning the
estimated costs of providing the services to the Fund and shall monitor and
periodically report to the Fund's Board of Directors information and analysis
about the actual expenses incurred in providing such services.
1.7. Fund Accounting and Compliance Policies and Procedures. Assist in
developing, reviewing, maintaining, and monitoring the effectiveness of Fund
accounting and compliance policies and procedures, including portfolio valuation
procedures, expense allocation procedures, and personal trading procedures, and
the Fund's Code of Ethics. The Administrator also will assist and coordinate
participation by the Fund and its agents in any audit by its outside auditors or
any examination by federal or state regulatory authorities or any
self-regulatory organization. The Administrator also will oversee and coordinate
the activities of Fund accountants, outside counsel, and other experts in these
audits or examinations.
1.8. Fund Systems. Assist in developing, implementing, and monitoring
the Fund's use of automated systems for the purchase, sale, redemption and
transfer of Fund shares and the payment of Rule 12b-1 service fees to
broker-dealers and others that provide personal services, distribution support
services, and/or account maintenance services to shareholders, and for recording
and tracking such transactions and/or payments. The Administrator also will
assist in developing, implementing, and monitoring the Fund's use of automated
communications systems with brokers, dealers, custodians, and other service
providers, including without limitation trade clearance systems.
1.9. Reports to the Fund. Furnish to or place at the disposal of the
Fund such information, reports, evaluations, analyses, and opinions relating to
its administrative functions and the administrative functions performed by the
Sub-Administrator, as the Fund may, at any time or from time to time, reasonably
request or as the Administrator may deem helpful to the
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Fund. The Administrator also will assist in the preparation of agendas and other
materials for meetings of the Fund's Board of Directors and will attend such
meetings.
1.10. Reports and Filings. Provide appropriate assistance in the
development and/or preparation of all reports and communications by the Fund to
Fund shareholders and all reports and filings necessary to maintain the
registrations and qualifications of the Fund's shares under federal securities
law.
1.11. Shareholder Inquiries. Respond to all inquiries from Fund
shareholders or otherwise answer communications from Fund shareholders if such
inquiries or communications are directed to the Administrator. If any such
inquiry or communication would be more properly answered by one of the agents
listed in Section 1.3. above, the Administrator will coordinate, as needed, the
provision of their response.
2. Allocation of Expenses.
2.1. Expenses Paid by the Administrator.
2.1.1. In General. The Administrator shall bear all of its own
expenses in connection with the performance of its duties under this
Agreement.
2.1.2. Salaries and Fees of Directors and Officers. The
Administrator shall pay all salaries, expenses, and fees, if any, of
the directors, officers, and employees of the Administrator who are
directors, officers, or employees of the Fund.
2.1.3. Waiver or Assumption and Reimbursement of Fund Expenses
by the Administrator. The waiver or assumption and reimbursement by the
Administrator of any expense of the Fund that the Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not
obligate the Administrator to waive, assume, or reimburse the same or
any similar expense of the Fund on any subsequent occasion, unless so
required pursuant to a separate agreement between the Fund and the
Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator as provided in this Agreement or any
other agreement between the Fund and the Administrator, and as described in the
Fund's then-current Prospectuses and Statements of Additional Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Administrator, the Fund shall pay the Administrator a fee per
Portfolio at the annual rate of .15% of the average daily net assets of each
Portfolio.
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3.2. Method of Computation. The Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Administrator by the fifth (5th) business day of the next calendar month.
The daily fee accruals shall be computed by multiplying the fraction of one (1)
over the number of calendar days in the year by the applicable annual rates
described in Section 3.1. above, and multiplying this product by the net assets
of the Portfolios, as determined in accordance with the current Prospectuses of
the Fund, as of the close of business on the last preceding business day on
which the Fund was open for business.
3.3. Proration of Fee. If this Agreement becomes effective or
terminates before the end of any month, the fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
4. Administrator's Use of the Services of Others.
The Administrator may at its own cost employ, retain, or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing the Administrator or the Fund with such information,
advice, or assistance as the Administrator may deem necessary, appropriate, or
convenient for the discharge of its obligations hereunder or otherwise helpful
to the Administrator, including consulting, monitoring, and evaluation services
concerning the Fund and the Portfolios.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund,
pursuant to rules or regulations of the Securities and Exchange Commission under
Section 31(a) of the 1940 Act, and maintained and preserved by the Administrator
on behalf of the Fund, are the property of the Fund and shall be surrendered by
the Administrator promptly on request by the Fund. The Administrator shall not
disclose or use any record or information obtained pursuant to this Agreement in
any manner whatsoever except as expressly authorized by this Agreement and
applicable law. The Administrator shall keep confidential any information
obtained in connection with its duties hereunder and shall disclose such
information only if the Fund has authorized such disclosure or if such
disclosure is expressly required by applicable law or federal or state
regulatory authorities.
6. Reports to the Administrator.
The Fund shall furnish or otherwise make available to the Administrator
such Prospectuses, Statements of Additional Information, financial statements,
proxy statements, reports, and other information relating to the business and
affairs of the Fund, as the Administrator may, at any time or from time to time,
reasonably require in order to discharge its obligations under this Agreement.
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<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the Administrator
or any affiliated person of the Administrator to render corporate administrative
services to other investment companies or to engage in other business
activities; however, so long as this Agreement or any extension, renewal, or
amendment hereof shall remain in effect or until the Administrator shall
otherwise consent, the Administrator shall be the only administrator to the
Fund.
8. Limitation of Liability of the Administrator and Indemnification by the
Fund.
8.1. Limitation of Liability.
8.1.1. Neither the Administrator nor any of its directors,
officers, employees or agents performing services for the Fund, at the
direction or request of the Administrator in connection with the
Administrator's discharge of its obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any act or
omission in the course of or in connection with the Administrator's
services hereunder, including any error of judgment or mistake of law
or for any loss suffered by the Fund, in connection with the matters to
which this Agreement relates; provided, that nothing herein contained
shall be construed to protect the Administrator or any such person
against any liability to the Fund or its shareholders to which the
Administrator or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the performance of its
or their duties on behalf of the Fund.
8.1.2. The Administrator's directors, officers, employees and
agents performing services for the Fund shall be covered by errors and
omissions and directors and officers liability insurance, as
appropriate, under a policy maintained by the Administrator or an
affiliate of the Administrator.
8.1.3. The Administrator may apply to the Board of Directors
of the Fund at any time for instructions and may consult counsel for
the Fund or its own counsel and with accountants and other experts with
respect to any matter arising in connection with the Administrator's
duties, and the Administrator shall not be liable or accountable for
any action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants, or other
experts.
8.1.4. The Administrator shall at all times have the right to
mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments and liabilities to the Fund and its
shareholders.
8.2. Indemnification by the Fund.
8.2.1. As long as the Administrator acts in good faith and
with due diligence and without negligence, the Fund shall indemnify the
Administrator and hold it harmless from and against any and all
actions, suits, and claims, whether groundless or otherwise, and from
and against any and all losses, damages (excluding consequential,
punitive or other
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<PAGE>
indirect damages), costs, charges, reasonable counsel fees and
disbursements, payments, expenses, and liabilities (including
reasonable investigation expenses) arising directly or indirectly out
of the administrative services or any other service rendered to the
Fund hereunder. The indemnity and defense provisions set forth herein
shall indefinitely survive the termination of this Agreement.
8.2.2. The rights hereunder shall include the right to
reasonable advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification hereunder
may ultimately be merited. In order that the indemnification provision
contained herein shall apply, however, it is understood that if in any
case the Fund may be asked to indemnify or hold the Administrator
harmless, the Board of Directors of the Fund shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Administrator will use
all reasonable care to identify and notify the Board of Directors of
the Fund promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification
against the Fund, but failure to do so in good faith shall not affect
the rights hereunder.
8.2.3. The Administrator shall secure and maintain a fidelity
bond, or be covered by an affiliate's blanket fidelity bond, in at
least the amount required by Rule 17g-1 under the 1940 Act for joint
insurance bonds of investment companies.
9. Indemnification by the Administrator.
9.1. The Administrator shall indemnify the Fund, its officers and
directors and hold them harmless from and against any and all actions, suits,
and claims, whether groundless or otherwise, and from and against any and all
losses, damages (excluding consequential, punitive or other indirect damages),
costs, charges, reasonable counsel fees and disbursements, payments, expenses,
and liabilities (including reasonable investigation expenses) arising directly
or indirectly out of the administrative services or any other service rendered
to the Fund hereunder and arising or based upon the willful misfeasance, bad
faith, or negligence of the Administrator, its directors, officers, employees,
and agents in the performance of its or their duties on behalf of the Fund. The
indemnity and defense provisions set forth herein shall indefinitely survive the
termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Administrator may be
asked to indemnify or hold the Fund, its officers, and directors harmless, the
Administrator shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that the Fund
will use all reasonable care to identify and notify the Administrator promptly
concerning any situation which presents or appears likely to present the
probability of such a claim for indemnification against the Administrator, but
failure to do so in good faith shall not affect the rights hereunder.
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<PAGE>
10. Force Majeure.
In the event the Administrator is unable to perform its obligations or
duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Administrator shall not be liable for any and
all losses, damages, costs, charges, counsel fees, payments, expenses or
liability to any other party (whether or not a party to this Agreement)
resulting from such failure to perform its obligations or duties under this
Agreement or otherwise from such causes. This provision, however, shall in no
way excuse the Administrator from being liable to the Fund for any and all
losses, damages, costs, charges, counsel fees, payments and expenses incurred by
the Fund due to the non-performance or delay in performance by the Administrator
of its duties and obligation under this Agreement if such non-performance or
delay in performance could have been reasonably been prevented by the
Administrator through back-up systems and other procedures commonly employed by
other administrators in the mutual fund industry, provided that the
Administrator shall have the right, at all times, to mitigate or cure any
losses, including by making adjustments or corrections to any current or former
shareholder accounts.
11. Retention of Sub-Administrator.
The Administrator may retain a Sub-Administrator to perform corporate
administrative services to the Fund. The retention of a Sub-Administrator shall
be at the cost and expense of the Administrator. The Administrator shall pay and
shall be solely responsible for the payment of the fees of the Sub-Administrator
for the performance of its services for the Fund.
12. Term of Agreement.
The term of this Agreement shall begin on the day and year first
written above, and unless sooner terminated as hereinafter provided, shall
continue in effect for an initial period that will expire on December 31, 1998.
Thereafter, this Agreement shall continue in effect from year to year, subject
to the termination provisions and all other terms and conditions hereof. The
Administrator shall furnish to the Fund, promptly upon its request, such
information as may be reasonably necessary to evaluate the terms of this
Agreement or any extension, renewal, or amendment thereof.
The assignment (as that term is defined in Section 2(a)(4) of the 1940
Act and rules thereunder) of this Agreement or any rights or obligations
thereunder shall be prohibited by either party without the written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
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<PAGE>
(a) for a material breach of this Agreement, upon thirty (30)
days prior written notice to the other parties; provided, that
this Agreement shall not terminate if such material breach is
cured within such thirty (30) day period.
(b) following the initial term of this Agreement, for any
reason upon ninety (90) days' prior written notice to the
other parties; provided, that in the case of termination by
the Fund such action shall have been authorized by resolution
of the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund or,
in the case of termination with respect to a particular
Portfolio, by a resolution of the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting
securities of such Portfolio. In the case of termination by
the Administrator, such termination shall not be effective
until the Fund and the Administrator shall have contracted
with one or more persons to serve as successor
Administrator(s) for the Fund and such person(s) shall have
assumed such position.
14. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by resolution of the Board of Directors of the Fund or by a majority
of the outstanding voting securities of the Fund or, in the case of an amendment
to this Agreement with respect to a particular Portfolio, by a resolution of the
Board of Directors of the Fund or a vote of a majority of the outstanding voting
securities of such Portfolio.
15. Miscellaneous.
15.1. Notices. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, (i) if to the
Administrator, to Pilgrim Baxter Fund Services, 1255 Drummers Lane Suite 300,
Wayne, PA 19087, Attention: Brian Bereznak, and (ii) if to the Fund, to The PBHG
Funds, Inc., 1255 Drummers Lane Suite 300, Wayne, PA 19087, Attention: Michael
Harrington.
15.2. Captions. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
15.3. Interpretation. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
15.4. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940
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<PAGE>
Act shall be resolved by reference to such term or provision of the 1940 Act and
to interpretations thereof, if any, by the United States courts or, in the
absence of any controlling decision of any such court by rules, regulations, or
orders of the Securities and Exchange Commission validly issued pursuant to the
1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is relaxed by a rule, regulation,
or order of the Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation, or order.
15.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
15.6. Governing law. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
By:
- - --------------------------------- ------------------------------
Title: Title:
-------------------------- ---------------------------
ATTEST: PBHG FUND SERVICES
By:
- - --------------------------------- ------------------------------
Title: Title:
-------------------------- ---------------------------
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<PAGE>
EXHIBIT A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Core Growth Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April ___, 1997
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EXHIBIT 9(c)(2)
SUB-ADMINISTRATIVE SERVICES AGREEMENT
SUB-ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") made as of the 1st
day of July, 1996, by and among The PBHG Funds, Inc., a Maryland corporation
(the "Fund"), PBHG Fund Services, a Pennsylvania business trust (the
"Administrator"), and SEI Fund Resources, a Delaware business trust (the
"Sub-Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end management
investment company of the series type and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator and the Fund have entered into an
Administrative Services Agreement (the "Administrative Services Agreement")
pursuant to which the Administrator will provide administrative services to the
Fund and each of its several series (the "Portfolios"), which are identified in
Schedule A to the Administrative Services Agreement; and
WHEREAS, the Fund and the Administrator desire to retain the
Sub-Administrator to provide certain administrative services to the Fund, and
each of its series (the "Portfolios"), and the Administrator in the manner and
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Duties and Responsibilities of the Sub-Administrator.
The Sub-Administrator shall assist the Administrator in connection with
the Administrator's duties and responsibilities to the Fund specified in the
Administrative Services Agreement. In addition, the Sub-Administrator shall
perform or supervise the performance by others of all administrative services in
connection with the operations of the Portfolios, other than those
administrative services to be provided by the Administrator pursuant to the
Administrative Services Agreement. The administrative services to be provided by
the Sub-Administrator pursuant to this Agreement shall include general
administrative services, regulatory reporting services, fund accounting
services, and such services as set forth herein. The duties of the
Sub-Administrator shall be confined to those expressly set forth herein and no
implied duties are assumed by or may be asserted against the Sub-Administrator
hereunder. Without limiting the generality of the foregoing, the
Sub-Administrator shall provide the services described below:
<PAGE>
1.1. General Administrative Services.
1.1.1. Office and Other Facilities. Furnish, without cost to
the Fund or the Administrator, or provide and pay the cost of, such office
facilities, furnishings, and office equipment as are necessary for the
performance of the Sub-Administrator's duties to the Fund under this Agreement.
1.1.2. Personnel. Provide, without additional remuneration
from or other cost to the Fund or the Administrator, the services of individuals
competent to perform all of the Sub-Administrator's duties under this Agreement.
1.1.3. Books and Records. Maintain customary records, on
behalf of the Fund, in connection with the performance of the
Sub-Administrator's duties under this Agreement. In connection with this, the
Sub-Administrator shall monitor and oversee the performance of its agents and
the Fund's independent auditors with respect to all financial, accounting,
corporate, and other records required to be maintained and preserved by the Fund
or on its behalf so that such records will be maintained in accordance with the
provisions of rules and regulations of the Securities and Exchange Commission
("SEC") under Section 31(a) of the 1940 Act.
1.1.4. Reports to the Fund. Assist the Administrator in
furnishing to or placing at the disposal of the Fund such information, reports,
evaluations, analyses, and opinions relating to its duties as the Fund may at
any time or from time to time reasonably request, or as the Administrator may
reasonably deem helpful to the Fund. The Sub-Administrator also shall assist the
Administrator in the preparation of all necessary agendas and related meeting
materials for meetings of the Board of Directors.
1.1.5. Shareholder Inquiries. Respond to all inquiries from
Fund shareholders or otherwise answer communications from Fund shareholders if
such inquiries or communications are directed to the Sub-Administrator. If any
such inquiry or communication would be more properly answered by one of its
agents or those agents of the Fund listed in Section 1 above, the
Sub-Administrator will refer the inquiry to the Administrator to direct to the
appropriate party for response.
1.1.6. Automated Fund Systems. Assist in implementing and
monitoring the Fund's use of automated systems for: (i) the purchase, sale,
redemption and transfer of Fund shares; (ii) the payment of Rule 12b-1 service
fees to broker-dealers and others that provide personal services, distribution
support services, and/or account maintenance services to shareholders; and (iii)
the recording and tracking of such transactions and/or payments. The
Sub-Administrator also shall assist in developing, implementing, and monitoring
the Fund's use of automated communications systems with brokers, dealers,
custodians, and other service providers, including without limitation trade
clearance systems.
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<PAGE>
1.2. Fund Accounting. The Sub-Administrator shall on a continuing basis
perform the fund accounting services and other functions described below.
1.2.1. Financial Statements. Maintain the Fund's general
ledger, including expense accruals and payments, and prepare the Fund's and each
Portfolio's annual and semi-annual financial statements. On a monthly basis,
with respect to each Portfolio, the Sub-Administrator shall prepare and provide
to the Administrator and the Fund monthly reports as mutually agreed to by the
parties (in U.S. dollars) which may include the following items: schedule of
investments; statement of assets and liabilities; statement of operations;
statement of changes in net assets; cash statement; and schedule of capital
gains and losses.
1.2.2. Oversight. Assist in developing, reviewing,
maintaining, and monitoring the effectiveness of Fund accounting policies and
procedures, in light of industry standards and the "Audits of Investment
Companies" of the American Institute of Certified Public Accountants and, in
this regard, devote particular attention to areas where accounting standards may
change or develop. In this capacity, the Sub-Administrator shall assist in the
resolution of recommendations made by the Fund's independent auditors to improve
internal controls and shall implement such recommendations as required by the
Board.
1.2.3. Portfolio Valuation and Accounting. Conduct, or monitor
and oversee, portfolio valuation procedures, including without limitation
procedures for the calculation of expenses and the control of disbursements of
each Portfolio. The Sub-Administrator shall calculate, or monitor and oversee
the calculation of, the daily net asset value ("NAV") of each Portfolio in
accordance with the procedures described in the Fund's then-current registration
statement and such other procedures as may be established by the Fund's Board of
Directors. The Sub-Administrator, on a daily basis, shall provide by electronic
transmission or other mutually agreed upon means, such NAV information to: (i)
the investment adviser and sub-adviser for each Portfolio; (ii) the NASD for
reporting to newspapers and other news media; and (iii) all sub-transfer agents
that have entered into agreements with the Fund. In connection with this
responsibility, the Sub-Administrator shall determine or oversee the
determination of the value of each Portfolio's assets, and shall review and
monitor pricing methodologies relating to such valuation, procedures, including:
(i) oversight of any third-party pricing services used by them; (ii)
establishment and maintenance of appropriate "back up" pricing service
arrangements so that the NAV for each Portfolio will be provided to each
required party specified above; (iii) assistance in the review and verification
of daily securities price changes in excess of percentages specified by the
Sub-Administrator (and promptly reported to the Administrator); (iv) review for
"stale" prices; and (v) assistance in determining the resolution of any NAV
calculation errors. Notwithstanding the foregoing, the Sub-Administrator shall
bear no responsibility for incorrect prices provided by a third party pricing
service, provided the Sub-Administrator fulfills its obligation as described
above.
The Sub-Administrator shall also prepare annual Fund and/or Portfolio
expense budgets and the determination of related daily accruals. In addition,
the Sub-Administrator shall: determine the Fund's and each Portfolio's net
income both in terms of U.S. dollars and, if appropriate, foreign currencies;
calculate capital gains and losses and, if appropriate, foreign
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<PAGE>
exchange gains and losses; control all disbursements from the Fund and authorize
such disbursements upon written instructions, which may be continuing
instructions, from the Administrator or such other persons authorized by the
Fund's Board of Directors; calculate various contractual expenses for budget and
accrual purposes; reconcile cash and investment balances of each Portfolio with
the Fund's custodian and provide each Portfolio's investment adviser or, if
applicable, sub-adviser with the beginning cash balance available for investment
purposes in both U.S. dollars and, if appropriate, foreign currency; and
maintain historical tax lots for each security and foreign currency. The
Sub-Administrator shall also for each Portfolio: monitor timely income
collection and tax reclaims; monitor daily expense accruals and the related
calculation of investment advisory fee waivers and/or expense reimbursements (if
any) and notify the Administrator of any proposed adjustments thereto; and
assist in developing and reviewing daily accounting reports for the Portfolios.
1.2.4. Performance Data. Calculate performance data of each
Portfolio for dissemination to information services covering the investment
company industry, including, as appropriate, each Portfolio's average annual
total return, cumulative total return, expense ratio, and portfolio turnover
rate. In connection with this function, the Sub-Administrator shall, as
reasonably requested by the Fund's Board of Directors, develop fund performance
and other databases to facilitate internal and external reporting and shall
monitor the calculation of financial information.
1.2.5. Fund Operations. Participate, as reasonably requested,
in the development of policies and procedures, including operational,
accounting, reporting, and monitoring procedures, to effectuate securities and
other transactions on behalf of the Fund and the Portfolios, including, stated
objectives as appropriate, securities lending programs, the establishment and
use of lines of credit on behalf of the Fund and/or inter-Portfolio lending
capabilities, and the establishment and use of inter-Portfolio securities
trading capabilities. In connection with the foregoing, the Sub-Administrator
shall, upon reasonable request, assist in the preparation of any application for
exemptive or no-action relief, if required.
1.2.6. Cash Balances. Participate, as reasonably requested, in
the development of policies and procedures, including operational, accounting,
reporting, and monitoring procedures, regarding the management of the
Portfolios' cash balances, including procedures regarding the use of "sweep"
transactions and repurchase agreements, the temporary reinvestment of credits to
cash balances, and the processing of dividends and other disbursements to the
Portfolios. In connection with the foregoing, the Sub-Administrator shall assist
in the preparation of any application for exemptive or no-action relief, if
required. The Sub-Administrator shall also provide the cash availability
throughout each day, as required by each Portfolio's investment adviser or, if
applicable, sub-adviser.
1.3. Oversight of Agents and Service Providers.
1.3.1. In General. Assist the Administrator and Fund counsel
in the preparation, negotiation, and administration of contracts on behalf of
the Fund with third-party service providers, such as the Fund's distributor,
custodian, transfer agent, sub-transfer agents,
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and intermediaries with respect to mutual fund alliance programs. At the
reasonable request of the Fund or the Administrator, the Sub-Administrator shall
assist in the preparation of reports to the Fund on the performance and service
quality of these service providers, as more fully described in Section 1.3.2.
below. The Sub-Administrator shall review the performance of each Portfolio's
custodian or custodians regarding the timely recording of cash receipts and
disbursements and position reconciliation and shall periodically report to the
Administrator its findings in that regard, as mutually agreed to by the parties.
The Sub-Administrator shall also monitor and review compliance as documented and
reported by each Portfolio's custodian or custodians with Rule 17f-5 under the
1940 Act, as applicable. The Sub-Administrator shall have no responsibility for
supervising the performance of investment adviser or sub-adviser for each
Portfolio.
1.3.2. Service Quality Standards. Assist the Administrator in
establishing service quality standards and developing and implementing
procedures for monitoring and benchmarking the performance of third-party
service providers, such as those specified in Section 1.3.1. above, against
industry standards. Upon reasonable request, the Sub-Administrator shall
provide the Administrator and the Fund's Board of Directors with periodic
reports concerning the results of monitoring of the performance and service
quality of these service quality of these service providers.
1.4. Oversight of Transfer Agent and Dividend Disbursing Agent.
1.4.1. Policies and Procedures. Assist the Administrator in
the development of policies and procedures concerning the transfer agent's
processing of shareholder transactions, including policies and procedures
concerning inactive or dormant accounts and compliance with related escheatment
requirements, telephone exchanges and redemptions, effectuation of transactions
through the use of facsimile transmissions, name and address changes, and the
receipt and maintenance of appropriate legal documentation. The
Sub-Administrator also shall participate in the establishment of policies and
procedures for ensuring that shareholder redemption requests are timely honored,
even in periods of significant or unusual market activity. The Sub-Administrator
also shall assist in the development of controls over, and policies and
procedures governing, the Fund's cash remittance processing, and the processing
of dividend and distribution payments, check writing, wire redemptions and other
disbursements.
1.4.2. Compliance with Service Quality Standards. Assist the
Administrator in establishing service quality standards and developing and
implementing procedures for monitoring and benchmarking the transfer agent's
performance against industry standards in areas such as: compliance with initial
and subsequent investment minimums; accuracy of the establishment of new
accounts, including the establishment of shareholder privileges and dividend
reinvestment options; accuracy of transaction processing, including monetary and
non-monetary transactions; timeliness of problem resolution and correspondence,
including review of shareholder complaints; compliance with document completion
and retention requirements; timeliness and accuracy of confirmations and
periodic shareholder statements; and quality of telephonic communications with
shareholders, including a review of abandon rates, response times, and average
talk time. The Sub-Administrator also shall review and participate in
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determinations concerning the resolution of "as of" transactions in accordance
with the Fund's policies as approved by the Administrator and the Board of
Directors of the Fund.
1.4.3. Oversight of Shareholder Transactions. Assist the Fund,
as requested, in developing and implementing procedures with respect to omnibus
accounts, in order to ensure that such accounts are properly serviced and that
Fund expenses are allocated appropriately.
1.4.4. Transfer Agent Expenses. Assist the Administrator, as
requested, in reviewing the level and allocation of transfer agent out-of-pocket
expenses charged to the Fund with respect to whether particular expenses are
appropriately charged to the Fund and appropriately allocated among the
Portfolios.
1.5. Reports, Filings, and Communications.
1.5.1. Reports and Filings. Assist in the development,
preparation, and filing of all reports and communications by the Fund to Fund
shareholders and all reports and filings necessary to maintain the registrations
and qualifications of the Fund's shares under federal and state "Blue Sky"
securities laws, including registration statements, prospectuses, statements of
additional information, proxy statements, semi-annual reports for the Fund on
Form N-SAR, all sales reports, and all required notices pursuant to Rule 24f-2
of the 1940 Act. The Sub-Administrator also shall assist with and coordinate
the layout and printing of publicly disseminated prospectuses and the Fund's
semi-annual and annual reports to shareholders.
1.5.2. State Blue Sky Filings. Prepare all reports,
applications, and documents (including reports regarding the sale and redemption
of the Fund's shares as may be required in order to comply with state Blue Sky
securities laws) as may be necessary or desirable to: (i) register and maintain
the registration of the Fund's shares with state securities authorities; and
(ii) monitor the sale of the Fund's shares for compliance with state Blue Sky
securities laws. The Sub-Administrator shall file with the appropriate state
securities authorities all registration statements and reports for the Fund and
the Fund's shares, and all amendments thereto and other filings as may be
necessary or convenient to register the Fund and the Fund's shares and keep such
registration effective with state security authorities so as to enable the Fund
to make a continuous offering of its shares in all 50 states and the District of
Columbia.
1.5.3. Shareholder Communications. Coordinate mailing Fund
prospectuses, notices, proxy statements, proxies and other reports to Fund
shareholders, and supervise and facilitate the solicitation of proxies solicited
by the Fund for all shareholder meetings, including tabulation process for
shareholder meetings.
1.5.4. Tax Returns. Coordinate and supervise the preparation
and filing of all required tax returns for the Fund and monitor the accuracy of
all tax reports sent to shareholders of the Fund.
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1.6. Legal and Audit Services.
1.6.1. Independent Audits. Assist in the coordination of the
Fund audit process and provide, upon request, account analyses, fiscal year
summaries, and other audit-related schedules. In connection with this
responsibility, the Sub-Administrator shall take all actions to assure that
necessary information is made available to the Fund's independent auditor for
the expression of their opinion, as such may be required by the Fund from time
to time. The Sub-Administrator also shall assist and participate in the
resolution of issues raised in the audit process.
1.6.2. 1940 Act. The Sub-Administrator shall obtain and keep
in effect, at the Fund's expense, fidelity bonds and directors and
officers/errors and omissions insurance policies for the Fund in accordance with
the requirements of Rules 17g-1 and 17d-1(d)(7) under the 1940 Act, as such
bonds and policies are approved by the Fund's Board of Directors. The Sub-
Administrator also shall develop and maintain fund manager "handbooks" to
facilitate compliance by portfolio managers with respect to investment
restrictions. In addition, the Sub-Administrator shall assist the Fund's
Administrator in monitoring the Fund's compliance with provisions of the 1940
Act and the rules and regulations thereunder as well as compliance with each
Portfolio's investment objectives, program, policies and restrictions. In
connection with this responsibility, the Sub-Administrator shall promptly advise
the Fund and the Administrator as to any compliance problems or issues detected.
1.6.3. Tax Compliance. Monitor compliance with the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and
regulations thereunder, applicable to regulated investment companies, including:
portfolio diversification requirements and minimum distribution requirements;
review of expense allocations to individual classes to ensure compliance with
applicable IRS pronouncements regarding preferential dividends; wash sales;
short-short income; qualifying income; asset diversification; and investments in
Passive Foreign Investment Companies. In connection with this responsibility,
the Sub-Administrator shall monitor and advise the Fund and the Portfolios as to
their status as "regulated investment companies" under the Code.
1.6.4. Regulatory Examinations. Assist in the Fund's
participation in regulatory examinations, including examinations by the SEC, the
National Association of Securities Dealers, Inc., and/or state securities
regulators. In connection therewith, the Sub-Administrator, on behalf of the
Fund, shall provide such information as the regulator may reasonably request,
and shall assist and participate in the resolution of any issues raised in
connection with such examinations.
1.7. Disaster Recovery. Employ, monitor and oversee disaster recovery
and related back-up procedures and facilities commonly utilized by others in the
mutual fund industry. In this regard, the Sub-Administrator shall enter into and
maintain in effect with appropriate parties, at no additional expense to the
Fund, one or more agreements making appropriate and reasonable provision for
emergency use of electronic data processing equipment and other
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equipment and/or facilities necessary for the performance of its duties and
obligations under this Agreement in the event of emergency conditions or
equipment failures.
2. Expenses.
2.1. Expenses Paid by the Sub-Administrator.
2.1.1. In General. The Sub-Administrator shall bear all of its
expenses in connection with the performance of its duties under this Agreement,
except documented out-of-pocket expenses or expenses associated with telephone
support relating to shareholder services.
2.1.2. Waiver or Assumption and Reimbursement of Fund Expenses
by the Sub-Administrator. The waiver or assumption and reimbursement by the
Sub-Administrator of any expense of the Fund that the Sub-Administrator is not
required by this Agreement to waive, or assume or reimburse, shall not obligate
the Sub-Administrator to waive, assume, or reimburse the same or any similar
expense of the Fund on any subsequent occasion, unless so required pursuant to a
separate agreement between the Fund and the Sub-Administrator.
2.2. Expenses Paid by the Fund. The Fund shall bear all expenses of its
organization, operation, and business not specifically waived, assumed, or
agreed to be paid by the Administrator or the Sub-Administrator, as provided in
this Agreement, the Administrative Services Agreement or any other agreement
between the Fund and the Administrator or the Sub-Administrator, and as
described in the Fund's then-current Prospectuses and Statements of Additional
Information.
3. Fees.
3.1. Compensation Rate. As compensation for all services rendered,
facilities provided, and expenses paid and any expense waived or assumed and
reimbursed by the Sub-Administrator, the Administrator shall pay the
Sub-Administrator a fee per Portfolio: (i) at the annual rate of .07% of the
average daily assets of each Portfolio with respect to $2.5 billion of the total
average daily net assets of the Fund; and (ii) at the annual rate of .025% of
the average daily net assets of each Portfolios with respect to the total
average daily net assets of the Fund in excess of $2.5 billion.
3.2. Method of Computation. The Sub-Administrator's fee shall accrue on
each calendar day and the sum of the daily fee accruals shall be paid monthly to
the Sub-Administrator by the fifth (5th) business day of the next calendar
month. The daily fee accruals shall be computed by multiplying the fraction of
one (1) over the number of calendar days in the year by the applicable annual
rates described in Section 3.1. above, and multiplying this product by the net
assets of the Portfolios, as determined in accordance with the current
Prospectuses of the Fund, as of the close of business on the last preceding
business day on which the Fund was open for business.
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<PAGE>
3.3. Proration of Fee. If this Agreement becomes effective or
terminates before the end of any month, the fee for the period from the
effective date to the end of such month or from the beginning of such month to
the date of termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such effectiveness
or termination occurs.
3.4. Responsibility for Payment. The Sub-Administrator shall not be
entitled to receive any payment for the performance of its services hereunder
from the Fund and shall look solely and exclusively to the Administrator for
payment of all fees for such services.
4. Sub-Administrator's Use of the Services of Others.
The Sub-Administrator may at its own cost employ, retain, or otherwise
avail itself of the services and facilities of other persons or organizations
for the purpose of providing the Sub-Administrator, the Administrator, or the
Fund with such information or assistance as the Sub-Administrator may deem
necessary, appropriate, or convenient for the discharge of its duties hereunder
or otherwise helpful to the Administrator.
5. Ownership and Confidentiality of Records.
All records required to be maintained and preserved by the Fund,
pursuant to rules or regulations of the SEC under Section 31(a) of the 1940 Act
and maintained and preserved by the Sub-Administrator on behalf of the Fund, are
the property of the Fund and shall be surrendered by the Sub-Administrator
promptly on request by the Fund. The Sub-Administrator shall not disclose or use
any record or information obtained pursuant to this Agreement in any manner
whatsoever except as expressly authorized by this Agreement and applicable law.
The Sub-Administrator shall keep confidential any information obtained in
connection with its duties and shall disclose such information only if the Fund
has authorized such disclosure or if such disclosure is expressly required by
applicable law or federal or state regulatory authorities.
6. Reports to the Sub-Administrator.
The Fund and/or the Administrator shall furnish or otherwise make
available to the Sub-Administrator such Prospectuses, Statements of Additional
Information, financial statements, proxy statements, reports, and other
information relating to the business and affairs of the Fund as the
Sub-Administrator may, at any time or from time to time, require in order to
discharge its duties under this Agreement.
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<PAGE>
7. Services to Other Clients.
Nothing herein contained shall limit the freedom of the
Sub-Administrator or any affiliated person of the Sub-Administrator to render
similar corporate administrative services to other investment companies, or to
engage in other business activities.
8. Limitation of Liability of the Sub-Administrator and Indemnification by
the Fund and the Administrator.
8.1. Limitation of Liability of the Sub-Administrator.
8.1.1. Neither the Sub-Administrator nor any of its directors,
officers, employees, or agents performing services for the Fund and the
Administrator at the direction or request of the Sub-Administrator in connection
with the Sub-Administrator's discharge of its duties undertaken or assumed with
respect to this Agreement, shall be liable for any act or omission in the course
of or in connection with the Sub-Administrator's services hereunder, including
any error of judgment or mistake of law or for any loss suffered by the Fund or
the Administrator in connection with the matters to which this Agreement
relates; provided, that nothing herein contained shall be construed to protect
the Sub-Administrator or any such persons against any liability to the Fund or
its shareholders or the Administrator to which the Sub-Administrator or such
persons would otherwise be subject by reason of willful misfeasance, bad faith,
or negligence in the performance of its or their duties on behalf of the Fund or
the Administrator or for failure by the Sub-Administrator or any such persons to
exercise due care in rendering other services to the Fund or the Administrator.
The limitation and liability provisions set forth herein shall indefinitely
survive the termination of this Agreement.
8.1.2. The Sub-Administrator may apply to the Board of
Directors of the Fund or to the Administrator at any time for instructions and
may consult counsel for the Fund or the Administrator or the Sub-Administrator's
own counsel and with accountants and other experts with respect to any matter
arising in connection with the Sub-Administrator's duties, and the
Sub-Administrator shall not be liable or accountable for any action taken or
omitted by it in good faith in accordance with such instructions or with the
opinion of such counsel, accountants, or other experts.
8.1.3. The Sub-Administrator shall at all times have the right
to mitigate or cure any and all losses, damages, costs, charges, fees,
disbursements, payments, expenses and liabilities to the Fund, its shareholders
or the Administrator.
8.2. Indemnification by the Fund and the Administrator.
8.2.1. As long as the Sub-Administrator acts in good faith and
with due diligence and without negligence, the Fund and the Administrator shall
indemnify the Sub-Administrator, its directors, officers, employees, and agents
and hold them harmless from and against any and all actions, suits, and claims,
whether groundless or otherwise, and from and against any and
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all losses, damages (excluding consequential, punitive or other indirect
damages), costs, charges, reasonable counsel fees and disbursements, payments,
expenses, and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of the administrative services or any other service
rendered to the Fund or the Administrator hereunder. The indemnity and defense
provisions set forth herein shall indefinitely survive the termination of this
Agreement.
8.2.2. The rights hereunder shall include the right to
reasonable advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification hereunder may
ultimately be merited. In order that the indemnification provision contained
herein shall apply, however, it is understood that if in any case the Fund or
the Administrator may be asked for indemnification under Section 8.2.1., the
Board of Directors of the Fund or the Administrator shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it is
further understood that the Sub-Administrator will use all reasonable care to
identify and notify the Board of Directors of the Fund or the Administrator
promptly concerning any situation which presents or appears likely to present
the probability of such a claim for indemnification against the Fund or the
Administrator, but failure to do so in good faith shall not affect the rights
hereunder. The rights hereunder shall be limited, during each term of this
Agreement, to no more than six (6) months of fees of the Sub-Administrator (as
computed in accordance with Section 3.1 of this Agreement) either (i) payable to
the Sub-Administrator in accordance with Section 3 hereof or (ii) if the
Agreement has been terminated, those fees paid to the Sub-Administrator for the
six (6) month period prior to termination.
9. Indemnification by the Sub-Administrator.
9.1. The Sub-Administrator shall indemnify the Fund, the Administrator,
and their directors, officers, employees, and agents and hold them harmless from
and against any and all actions, suits, and claims, whether groundless or
otherwise, and from and against any and all losses, damages (excluding
consequential, punitive or other indirect damages), costs, charges, reasonable
counsel fees and disbursements, payments, expenses, and liabilities (including
reasonable investigation expenses) arising directly or indirectly out of the
administrative services or any other service rendered to the Fund and the
Administrator hereunder and arising or based upon the willful misfeasance or bad
faith of the Sub-Administrator, its directors, officers, employees, and agents
in the performance of its or their duties on behalf of the Fund and the
Administrator. The indemnity and defense provisions set forth herein shall
indefinitely survive the termination of this Agreement.
9.2. The rights hereunder shall include the right to reasonable
advances of defense expenses in the event of any pending or threatened
litigation with respect to which indemnification hereunder may ultimately be
merited. In order that the indemnification provision contained herein shall
apply, however, it is understood that if in any case the Sub-Administrator may
be asked for indemnification under Section 9.1, the Sub-Administrator shall be
fully and promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Fund and the Administrator will
use all reasonable care to identify
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and notify the Sub-Administrator promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Sub-Administrator, but failure to do so in good
faith shall not affect the rights hereunder. The rights hereunder shall be
limited, during each term of this Agreement, to no more than six (6) months of
fees to the Sub-Administrator (as computed in accordance with Section 3.1 of
this Agreement) either (i) payable to the Sub-Administrator in accordance with
Section 3 hereof or (ii) if the Agreement has been terminated, those fees paid
to the Sub-Administrator for the six (6) month period prior to termination.
10. Force Majeure.
In the event the Sub-Administrator is unable to perform its obligations
or duties under the terms of this Agreement because of any act of God, strike,
riot, act of war, equipment failure, power failure or damage or other causes
reasonably beyond its control, the Sub-Administrator shall not be liable for
any loss, damage, cost, charge, counsel fee, payment, expense or liability to
any other party (whether or not a party to this Agreement) resulting from such
failure to perform its obligations or duties under this Agreement or otherwise
from such causes. This provision, however, shall in no way excuse the
Sub-Administrator from being liable to the Administrator or the Fund for any and
all losses, damages, costs, charges, counsel fees, payments and expenses
incurred by the Administrator or the Fund due to the non-performance or delay in
performance by the Sub-Administrator of its duties and obligation under this
Agreement if such non-performance or delay in performance could have been
reasonably been prevented by the Sub-Administrator through back-up systems and
other procedures commonly employed by other administrators and
sub-administrators in the mutual fund industry, provided that the
Sub-Administrator shall have the right, at all times, to mitigate or cure any
losses, including the making of adjustments or corrections to any current or
former shareholder accounts.
11. Term of Agreement.
The term of this Agreement shall begin on the day and year first
written above, and unless sooner terminated as hereinafter provided, shall
continue in effect for an initial period that will expire on December 31, 1998.
Thereafter, this Agreement shall continue in effect from year to year, subject
to the termination provisions and all other terms and conditions hereof. The
Sub-Administrator shall furnish to the Fund or the Administrator, promptly upon
a request by the Fund or the Administrator, such information as may be
reasonably necessary to evaluate the terms of this Agreement or any extension,
renewal, or amendment thereof.
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12. Amendment and Assignment of Agreement.
Any amendment to this Agreement shall be in writing and signed by the
parties hereto; provided, that no material amendment shall be effective unless
authorized by a resolution of the Board of Directors of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund or, in the case of
an amendment to this Agreement with respect to a particular Portfolio, by a
resolution of the Board of Directors of the Fund or by a vote of a majority of
the outstanding voting securities of such Portfolio.
The assignment (as that term is defined in Section 2(a)(4) of the 1940
Act and rules thereunder) of this Agreement or any rights or obligations
thereunder shall be prohibited by either party without the written consent of
the other party. This Agreement shall inure to the benefit of and be binding
upon the parties and their respected permitted successors and assigns.
13. Termination of Agreement.
This Agreement may be terminated by any of the parties hereto, without
the payment of any penalty:
(a) for a material breach of this Agreement, upon thirty (30)
days prior written notice to the breaching party; provided
that the breaching party has not cured the material breach of
this Agreement during such thirty (30) day period.
(b) following the initial term of this Agreement, for any
reason upon ninety (90) days' prior written notice to the
other parties; provided, that in the case of termination by
the Fund such action shall have been authorized by resolution
of the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund or,
in the case of termination with respect to a particular
Portfolio, by a resolution of the Board of Directors of the
Fund or by a vote of a majority of the outstanding voting
securities of such Portfolio. In the case of termination by
the Sub-Administrator, such termination shall not be effective
until the Fund and the Administrator shall have contracted
with one or more persons to serve as successor
Sub-Administrator(s) for the Fund and such person(s) shall
have assumed such position.
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<PAGE>
14. Miscellaneous.
14.1. Notices. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid: (a) if to the
Sub-Administrator, to SEI Fund Resources, 680 East Swedesford Road, Wayne, PA
19087-1658, Attention: General Counsel; (b) if to the Administrator, to Pilgrim
Baxter Fund Services, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590,
Attention: Brian Bereznak; and (c) if to the Fund, to The PBHG Funds, Inc., 1255
Drummers Lane, Suite 300, Wayne, PA 19087-1590, Attention: Michael Harrington.
14.2. Captions. The captions contained in this Agreement are included
for convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
14.3. Interpretation. Nothing herein contained shall be deemed to
require the Fund to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which it is
subject or by which it is bound, or to relieve or deprive the Board of Directors
of its responsibility for and control of the conduct of the affairs of the Fund.
14.4. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or, in the absence of any controlling decision of any such court,
by rules, regulations, or orders of the SEC validly issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is relaxed by a rule, regulation, or order of
the SEC, whether of special or of general application, such provision shall be
deemed to incorporate the effect of such rule, regulation, or order.
14.5. Severability. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
14.6. Governing Law. Except insofar as the 1940 Act or other federal
laws and regulations may be controlling, this Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
/s/ By: /s/
- - ---------------------------- ------------------------------------
Title: Title:
---------------------- ---------------------------------
ATTEST: PBHG FUND SERVICES
/s/ By: /s/
- - ---------------------------- ------------------------------------
Title: Title:
---------------------- ---------------------------------
ATTEST: SEI FUND RESOURCES
/s/ By: /s/
- - ---------------------------- ------------------------------------
Title: Title:
---------------------- ---------------------------------
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SCHEDULE A
The Portfolios of the Fund that will receive services pursuant to this Agreement
are:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Technology & Communications Fund
PBHG International Fund
PBHG Core Growth Fund
PBHG Cash Reserves Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April __, 1997
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EXHIBIT 9(d)(3)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of November 24, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Large Cap 20 Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG LARGE CAP 20 FUND
/s/ By: /s/
- - ----------------------------- ------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- - ----------------------------- ------------------------------
Secretary
4
EXHIBIT 9(d)(4)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December 16, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Large Cap Value Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG LARGE CAP VALUE FUND
/s/ By: /s/
- - -------------------------------- --------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- - -------------------------------- --------------------------------
Secretary
4
EXHIBIT 9(d)(6)
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December 16, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Strategic Small Company Fund (the
"Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG STRATEGIC SMALL COMPANY FUND
/s/ By: /s/
- - ------------------------------- --------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- - ------------------------------- --------------------------------
Secretary
4
EXHIBIT 9(d)(7)
THE PBHG FUNDS, INC.
FORM OF EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of April __, 1996, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of the PBHG Small Cap Value Fund (the "Portfolio").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31, 1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open
end-diversified management company of the series type, and the Portfolio is one
of the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment
Advisory Agreement (the "Advisory Agreement"), pursuant to which the Adviser
will render investment advisory services to the Portfolio for compensation based
on the value of the average daily net assets of the Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is
appropriate and in the best interests of the Portfolio and its shareholders to
maintain the expenses of the Portfolio at a level below the level to which the
Portfolio would normally be subject during its start-up period.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation
1.1 Applicable Expense Limit. To the extent that the aggregate expenses
of every character incurred by the Portfolio in any fiscal year, including but
not limited to investment advisory fees of the Adviser (but excluding interest,
taxes, brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of the Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
1.2 Operating Expense Limit. The Operating Expense Limit in any year
shall be 1.50% of the average daily net assets of the Portfolio, or such other
rate as may be agreed to in writing by the parties.
1.3 Method of Computation. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
the Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month exceed the Operating
Expense Limit, the Adviser shall first waive or reduce its investment management
fee for such month by an amount sufficient to reduce the annualized Portfolio
Operating Expenses to an amount no higher than the Operating Expense Limit. If
the
<PAGE>
amount of the waived or reduced investment advisory fee for any such month is
insufficient to pay the Excess Amount, the Adviser may also remit to the
Portfolio an amount that, together with the waived or reduced advisory fee, is
sufficient to pay such Excess Amount.
1.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio with respect
to the previous fiscal year shall equal the Excess Amount.
2. Reimbursement of Fee Waivers and Expense Reimbursements.
2.1 Reimbursement. If in any year during which total Portfolio assets
are greater than $75 million and in which the Advisory Agreement is still in
effect, the estimated aggregate Portfolio Operating Expenses for the fiscal year
are less than the Operating Expense Limit for that year, subject to quarterly
approval by the Fund's Board of Directors as provided in Section 2.2 below, the
Adviser shall be entitled to reimbursement by the Portfolio, in whole or in part
as provided below, of the advisory fees waived or reduced and other payments
remitted by the Adviser to the Portfolio pursuant to Section 1 hereof. The total
amount of reimbursement to which the Adviser may be entitled (the "Reimbursement
Amount") shall equal, at any time, the sum of all investment advisory fees
previously waived or reduced by the Adviser and all other payments remitted by
the Adviser to the Portfolio, pursuant to Section 1 hereof, during any of the
previous two (2) fiscal years, less any reimbursement previously paid by the
Portfolio to the Adviser, pursuant to Sections 2.2 or 2.3 hereof, with respect
to such waivers, reductions, and payments. The Reimbursement Amount shall not
include any additional charges or fees whatsoever, including, e.g., interest
accruable on the Reimbursement Amount.
2.2 Board Approval. No reimbursement shall be paid to the Adviser
pursuant to this provision in any fiscal quarter, unless the Fund's Board of
Directors has determined that the payment of such reimbursement is in the best
interests of the Portfolio and its shareholders. The Fund's Board of Directors
shall determine quarterly in advance whether any reimbursement may be paid to
the Adviser in such quarter.
2.3 Method of Computation. To determine the Portfolio's payments, if
any, to reimburse the Adviser for the Reimbursement Amount, each month the
Portfolio Operating Expenses shall be annualized as of the last day of the
month. If the annualized Portfolio Operating Expenses for any month are less
than the Operating Expense Limit, the Portfolio, only with the prior approval of
the Board, shall pay to the Adviser an amount sufficient to increase the
annualized Portfolio Operating Expenses to an amount no greater than the
Operating Expense Limit, provided that such amount paid to the Adviser will in
no event exceed the total Reimbursement Amount.
2.4 Year-End Adjustment. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that
2
<PAGE>
the actual Portfolio Operating Expenses for the prior fiscal year (including any
reimbursement payments hereunder with respect to such fiscal year) do not exceed
the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall continue in effect for a period of one year from
the date of its execution and from year to year thereafter provided such
continuance is specifically approved by a majority of the Directors of the Fund
who (i) are not "interested persons" of the Fund or any other party to this
Agreement, as defined in the Act, and (ii) have no direct or indirect financial
interest in the operation of this Agreement ("Non-Interested Directors").
Nevertheless, this Agreement may be terminated by either party hereto, without
payment of any penalty, upon 90 days' prior written notice to the other party at
its principal place of business; provided that, in the case of termination by
the Fund, such action shall be authorized by resolution of a majority of the
Non-Interested Directors of the Fund or by a vote of a majority of the
outstanding voting securities of the Fund.
4. Miscellaneous.
4.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 Interpretation. Nothing herein contained shall be deemed to require
the Fund or the Portfolio to take any action contrary to the Fund's Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory requirement
to which it is subject or by which it is bound, or to relieve or deprive the
Fund's Board of Directors of its responsibility for and control of the conduct
of the affairs of the Fund or the Portfolio.
4.3 Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
advisory fee, the computations of net asset values, and the allocation of
expenses, having a counterpart in or otherwise derived from the terms and
provisions of the Advisory Agreement or the 1940 Act, shall have the same
meaning as and be resolved by reference to such Advisory Agreement or the 1940
Act.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC. ON BEHALF OF
PBHG SMALL CAP VALUE FUND
/s/ By: /s/
- - ------------------------------ --------------------------------
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
/s/ By: /s/
- - ------------------------------ --------------------------------
4
EXHIBIT 10(f)
February 5, 1997
Opinion and Consent of Counsel
The PBHG Funds, Inc.
1255 Drummers Lane
Suite 300
Wayne, Pennsylvania 19087-1590
Gentlemen:
This opinion is given in connection with the filing by The PBHG Funds,
Inc., a Maryland corporation ("Fund"), of Post-Effective Amendment No. 27 to its
Registration Statement on Form N-1A (the "Registration Statement") under the
Securities Act of 1933 ("1933 Act") and Amendment No. 25 under the Investment
Company Act of 1940 ("1940 Act") relating to an indefinite amount of authorized
shares of common stock, at a par value of one tenth of one cent ($.001) per
share, of one new separate series of the Fund, the PBHG Small Cap Value Fund
(the "Portfolio"). The authorized shares of common stock of the Portfolio are
hereinafter referred to as the "Shares."
We have examined the following: the Fund's Articles of Incorporation;
the Fund's ByLaws; the Fund's Articles Supplementary to the Articles of
Incorporation, dated January 31, 1997, certifying that, among other things, the
Fund's Board of Directors has adopted a resolution authorizing the establishment
and designation of the shares of common stock of the Portfolio; Post-Effective
Amendment No. 27 to the Registration Statement under the 1933 Act and Amendment
No. 25 under the 1940 Act on Form N-1A to be filed with the Securities and
Exchange Commission on or about February 6, 1997; the Fund's Certificate of
Incorporation, as filed with the Secretary of State of the State of Maryland;
the Fund's By-Laws; pertinent provisions of the laws of the State of Maryland;
and such other corporate records, certificates, documents and statutes that we
have deemed relevant in order to render the opinion expressed herein.
Based on such examination, we are of the opinion that:
1. The Fund is a Maryland corporation duly organized, validly
existing, and in good standing under the laws of the State of
Maryland; and
2. The Shares of the Portfolio to be offered for sale by the Fund,
when issued in the manner contemplated by the Registration
<PAGE>
Statement (including the post-effective amendments thereto)
will be legally issued, fully-paid and non-assessable.
This letter expresses our opinion as to the Maryland General
Corporation Code governing matters such as the due organization of the Fund and
the authorization and issuance of shares of common stock, but does not extend to
the securities or "Blue Sky" laws of the State of Maryland or to federal
securities or other laws.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to Katten Muchin & Zavis under the caption
"Counsel and Independent Public Accountants" in the Prospectus.
Very truly yours,
KATTEN MUCHIN & ZAVIS
EXHIBIT 18
THE PBHG FUNDS, INC.
Rule 18f-3
Multiple Class Plan
(the "Plan")
November 25, 1995
The PBHG Funds, Inc. (the "Fund"), a registered investment company that
currently consists of the separately managed portfolios listed in Schedule A
hereto (each, a "Portfolio" and, collectively, the "Portfolios"), have elected
to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), in offering multiple classes of shares in each Portfolio.
A. Attributes of Share Classes
1. The rights of each class of the Portfolios shall be as set forth in
the respective Certificate of Class Designation for each Class (each a
"Certificate") as each such Certificate is approved by the Fund's Board of
Directors and as attached as Schedule B hereto.
2. With respect to each class of shares created hereunder, each share
of a Portfolio will represent an equal pro rata interest in the Portfolio and
will have identical terms and conditions, except that: (i) each new class will
have a different class name (or other designation) that identifies the class as
separate from any other class; (ii) each class will separately bear any
shareholder servicing fees ("Rule 12b-1 fees") in connection with a plan adopted
pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan") and will
separately bear any other service fees ("service fees") that are made under any
servicing agreement entered into with respect to that class, which are not
contemplated by or within the scope of the Rule 12b-1 Plan; (iii) each class may
bear, consistent with rulings and other published statements of position by the
Internal Revenue Service, the expenses of the Portfolio's operations which are
directly attributable to such class ("Class Expenses"); and (iv) shareholders of
the class will have exclusive voting rights regarding the Rule 12b-1 Plan and
the servicing agreements relating to such class, and will have separate voting
rights on any matter submitted to shareholders in which the interests of that
class differ from the interests of any other class.
B. Expense Allocations
Expenses of each class shall be allocated as follows: (i) any Rule
12b-1 fees relating to each class of shares associated with any Rule 12b-1 Plan
or any service fees relating to each class of shares are (or will be) borne
exclusively by that class; (ii) any incremental transfer agency fees relating to
a particular class are (or will be) borne exclusively by that class; and (iii)
Class Expenses relating to a particular class are (or will be) borne exclusively
by that class.
Non-class specific expenses shall be allocated in accordance with Rule
18f-3(c).
<PAGE>
C. Amendment of Plan; Periodic Review
This Plan must be amended to describe properly (through additional
exhibits hereto) each new class of shares, upon the approval of each new class
by the Board of Directors.
The Board of Directors of the Fund, including a majority of the
independent Directors, must periodically review this Plan for its continued
appropriateness, and must approve any material amendment of the Plan as it
relates to any class of any Portfolio covered by the Plan.
-2-
<PAGE>
SCHEDULE A
THE PBHG FUNDS, INC.
Name of Portfolios
------------------
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
Date: April __, 1997
A-1
<PAGE>
SCHEDULE B
THE PBHG FUNDS, INC.
CERTIFICATE OF CLASS DESIGNATION
PBHG Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
PBHG Class Shares are sold without a sales charge and are not subject
to any Rule 12b-1 fee or service fees.
2. Exchange Privileges.
PBHG Class Shares of each Portfolio may be exchanged for PBHG Class
Shares of each other Portfolio of the Fund. Shareholders are limited to four
exchanges into and out of the PBHG Cash Reserves Fund per year.
3. Voting Rights.
Each PBHG Class shareholder will have one vote for each full PBHG Class
Share held and a fractional vote for each fractional PBHG Class Share held. PBHG
Class shareholders will be entitled to vote on issues relating to PBHG Class
Rule 12b-1 expenses (including any Rule 12b-1 Plan), and on other matters
submitted to shareholders in which the interests of PBHG Class differ from the
interests on any other class.
4. Conversion Rights.
PBHG Class Shares do not have a conversion feature.
B-1
<PAGE>
THE PBHG FUNDS, INC.
CERTIFICATE OF CLASS DESIGNATION
Trust Class Shares
1. Class-Specific Distribution Arrangements; Other Expenses
Trust Class Shares are sold without a sales charge, but are subject to
a Rule 12b-1 fee. This fee will be paid to compensate financial intermediaries,
plan fiduciaries and investment professionals ("Service Providers") at an annual
rate of up to .25% of each Fund's average daily net assets attributable to Trust
Class Shares as compensation for providing personal services, distribution
support services, and/or account maintenance services to shareholders or to the
underlying beneficial owners of Trust Class Shares or to insurance companies or
their affiliates for providing similar services for which they are not otherwise
compensated by variable annuity or variable life insurance contract holders. The
Fund, on behalf of the applicable Fund, will make monthly payments to Service
Providers under the Service Plan based on the average net asset value of Trust
Class Shares that are serviced or supported by such Service Providers.
2. Exchange Privileges.
Trust Class Shares of each Fund may be exchanged for Trust Class Shares
of each other Portfolio offering Trust Class Shares. Shareholders are limited to
four exchanges into and out of the PBHG Cash Reserves Fund per year.
3. Voting Rights.
Each Trust Class shareholder will have one vote for each full Trust
Class Share held and one fractional vote for each fractional Trust Class Share
held. Trust Class shareholders will be entitled to vote on issues relating to
Trust Class Rule 12b-1 fees (including any Rule 12b-1 plan), and on other
matters submitted to shareholders in which the interests of Trust Class differ
from the interests of any other class.
4. Conversion Rights.
Trust Class Shares do not have a conversion feature.
B-2
