PBHG FUNDS INC /, 497, 1998-03-31

PBHG FUNDS INC /
497, 1998-03-31

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THE PBHG FUNDS, INC.

PROSPECTUS
JUNE 30, 1997

<PAGE>

THE PBHG FUNDS, INC.
PBHG CLASS SHARES

PROSPECTUS DATED JUNE 30, 1997

The PBHG Funds, Inc. (the "Fund") is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers PBHG Class shares of each of the following
portfolios (each a "Portfolio" and, together, the "Portfolios"):

PBHG GROWTH FUNDS PBHG VALUE FUNDS
o PBHG GROWTH FUND o PBHG LARGE CAP VALUE FUND
o PBHG EMERGING GROWTH o PBHG MID-CAP VALUE FUND
FUND o PBHG SMALL CAP VALUE FUND
o PBHG LARGE CAP GROWTH
FUND PBHG SPECIALTY FUNDS
o PBHG SELECT EQUITY FUND o PBHG INTERNATIONAL FUND
o PBHG CORE GROWTH FUND o PBHG CASH RESERVES FUND
o PBHG LIMITED FUND o PBHG TECHNOLOGY &
o PBHG LARGE CAP 20 FUND COMMUNICATIONS FUND
o PBHG STRATEGIC SMALL
COMPANY FUND

This Prospectus sets forth concisely the information about the Fund and the
Portfolios that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. Certain
information in the Prospectus has been updated as of March 31, 1998, to
incorporate several supplements filed with the Securities and Exchange
Commission since the date of the Prospectus and to make certain additional
revisions. A Statement of Additional Information dated January 19, 1998, has
been filed with the Securities and Exchange Commission and is available upon
request and without charge by calling 1-800-433-0051. This Prospectus is also
available on the Fund's Web site at http://www.pbhgfunds.com. The Securities and
Exchange Commission maintains a Web site (http://www.sec.gov) that contains the
Statement of Additional Information, material incorporated by reference and
other information regarding the Fund and other registrants that file
electronically with the Securities and Exchange Commission. The Statement of
Additional Information is incorporated by reference into this Prospectus.

AN INVESTMENT IN THE PBHG CASH RESERVES FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT ANY MONEY MARKET FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

AS OF THE DATE OF THIS PROSPECTUS, THE PBHG CLASS SHARES OF THE PBHG LIMITED
FUND ARE OPEN TO NEW INVESTMENTS ONLY BY EXISTING PBHG CLASS SHAREHOLDERS OF THE
PBHG LIMITED FUND. THE EXISTING PBHG CLASS SHAREHOLDERS OF THE PBHG LIMITED FUND
MAY OPEN NEW ACCOUNTS IN THE PBHG LIMITED FUND, PROVIDED THAT ANY NEW ACCOUNT IS
REGISTERED IN THE SAME NAME OR HAS THE SAME SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER AS THE EXISTING SHAREHOLDER'S ACCOUNT.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, ANY
DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.

<PAGE>

SUMMARY
- ---------------------------------------------------------------------------

The PBHG Funds, Inc. (the "Fund") is an open-end management investment
company which provides a convenient way to invest in professionally managed
portfolios of securities. This Prospectus provides basic information about the
14 separate series of the Fund: PBHG Growth Fund (the "Growth Fund"), PBHG
Emerging Growth Fund (the "Emerging Growth Fund"), PBHG Large Cap Growth Fund
(the "Large Cap Growth Fund"), PBHG Select Equity Fund (the "Select Equity
Fund"), PBHG Core Growth Fund (the "Core Growth Fund"), PBHG Limited Fund (the
"Limited Fund"), PBHG Large Cap 20 Fund (the "Large Cap 20 Fund"), PBHG Large
Cap Value Fund (the "Large Cap Value Fund"), PBHG Mid-Cap Value Fund (the
"Mid-Cap Value Fund"), PBHG Small Cap Value Fund (the "Small Cap Value Fund"),
PBHG International Fund (the "International Fund"), PBHG Cash Reserves Fund (the
"Cash Reserves Fund"), PBHG Technology & Communications Fund (the "Technology &
Communications Fund"), and PBHG Strategic Small Company Fund (the "Strategic
Small Company Fund"). Except for the Large Cap 20 Fund, which is classified as a
non-diversified investment company, each Portfolio is classified as a
diversified investment company.

WHO ARE THE ADVISER AND EACH OF THE SUB-ADVISERS? Pilgrim Baxter &
Associates, Ltd. ("Adviser") serves as the investment adviser to each Portfolio.
Pilgram Baxter Value Investors, Inc. ("Value Investors") serves as the sub-
adviser to the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic
Small Company Funds. Murray Johnstone International Limited ("Murray Johnstone")
serves as the sub-adviser to the International Fund. Wellington Management
Company, LLP ("Wellington") serves as the sub-adviser to the Cash Reserves Fund.
See "The Adviser," "Value Investors," "Murray Johnstone," and "Wellington" under
the caption "General Information."

TABLE OF CONTENTS
- ---------------------------------------------------------------------------

Summary..................................................... 2
Expense Summary............................................. 4
Financial Highlights........................................ 5
The Fund and the Portfolios................................. 9
Investment Objectives and Policies.......................... 9
General Investment Policies and Strategies.................. 21
Risk Factors................................................ 22
Investment Limitations...................................... 24
How to Purchase Fund Shares................................. 25
Shareholder Services........................................ 27
How to Redeem Fund Shares................................... 30
Determination of Net Asset Value............................ 32
Performance Advertising..................................... 32
Taxes....................................................... 33
General Information......................................... 34
Glossary of Permitted Investments........................... 41

<PAGE>

WHO ARE THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services, a
wholly-owned subsidiary of the Adviser, serves as the administrator of the Fund,
and SEI Fund Resources, an affiliate of the Fund's distributor, serves as
sub-administrator of the Fund. See "The Administrator and Sub-Administrator"
under the caption "General Information."

WHO ARE THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS? DST Systems,
Inc. serves as the transfer agent and dividend disbursing agent of the Fund (the
"Transfer Agent"). PBHG Fund Services serves as shareholder servicing agent of
the Fund. UAM Shareholder Service Center, Inc., an affiliate of the Adviser,
serves as a sub-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 Shareholder Servicing Agents"
under the caption "General Information."

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the Fund
with distribution services. See "The Distributor" under the caption "General
Information."

IS THERE A SALES LOAD? No, PBHG Class shares of each Portfolio are offered
on a no-load basis.

IS THERE A MINIMUM INVESTMENT? Each Portfolio (except the Limited Fund and
Strategic Small Company Fund) has a minimum initial investment of $2,500 for
regular accounts and $2,000 for IRAs. The Limited Fund and Strategic Small
Company Fund each have a minimum initial investment of $5,000 for regular
accounts and $2,000 for IRAs. Each Portfolio, however, has a minimum initial
investment of $500 for both regular accounts and IRAs provided a Systematic
Investment Plan is established by the investor with a minimum investment of $25
per month at the same time that the initial investment is made.

HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day on which the New York Stock Exchange is
open for business ("Business Day"). However, shares of the Cash Reserves Fund
cannot be purchased by Federal Reserve wire on federal holidays restricting wire
transfers. A purchase order will be effective as of the Business Day received by
the Transfer Agent if the Transfer Agent receives sufficient information to
execute the order and receives payment by check or readily available funds prior
to 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m. Eastern time
for each of the other Portfolios. Redemption orders placed with the Transfer
Agent prior to 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m.
Eastern time for each of the other Portfolios on any Business Day will be
effective that day. The purchase and redemption price for shares is the net
asset value per share determined as of the end of the day the order is
effective. The Fund also offers a Systematic Investment Plan and a Systematic
Withdrawal Plan. See "Shareholder Services."

<PAGE>

- ------------------------------------------------------------------------------
EXPENSE SUMMARY
- ------------------------------------------------------------------------------

The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in PBHG Class shares.

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable fee waivers)
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL OPERATING
EXPENSES (NET OF
REIMBURSEMENT
AFTER FEE WAIVER
OR EXPENSE
ADVISORY 12B-1 OTHER REIMBURSEMENT,
FEES(1) FEES EXPENSES(1)(2) IF ANY)(3)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
Growth Fund .85% None .40% 1.25%
Emerging Growth Fund .85% None .43% 1.28%
Large Cap Growth Fund .75% None .48% 1.23%
Select Equity Fund .85% None .41% 1.26%
Core Growth Fund .85% None .51% 1.36%
Limited Fund 1.00% None .42% 1.42%
Large Cap 20 Fund .85% None .65% 1.50%
Large Cap Value Fund .65% None .85% 1.50%
Mid-Cap Value Fund .85% None .65% 1.50%
Small Cap Value Fund 1.00% None .50% 1.50%
International Fund 1.00% None 1.22% 2.22%
Cash Reserves Fund .30% None .38% .68%
Technology & Communications
Fund .85% None .48% 1.33%
Strategic Small Company Fund 1.00% None .50% 1.50%
</TABLE>

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) For the Large Cap 20, Large Cap Value, Mid-Cap Value, Small Cap Value and
Strategic Small Company Funds, "Advisory Fees" and "Other Expenses" are
based on estimated amounts for the current fiscal year. Estimated Advisory
Fees and Other Expenses are shown for each of those Portfolios because they
had been in existence for less than ten months as of the end of the initial
fiscal year (March 31, 1997) for each such Portfolio. For the fiscal period
ended March 31, 1997, the actual Advisory Fees and Total Expenses as a
percentage of the average net assets of the Large Cap Value Fund would have
been 0.85% and 1.74%, respectively, absent waivers of fees and expenses. On
March 6, 1997, the Board of Directors of the Fund voted to reduce the
Advisory Fees for the Large Cap Value Fund from 0.85% to 0.65% of average
net assets, effective May 1, 1997.

(2) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder. A charge of $12.00 may be imposed annually on accounts that
fall below the minimum account size as a result of shareholder redemptions.
See "How to Redeem Fund Shares -- Minimum Account Size" for the minimum
account size of each Portfolio.

(3) The Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit annual operating expenses of
the Core Growth, Limited, Large Cap 20, Large Cap Value, Mid-Cap Value,
Small Cap Value and Strategic Small Company Funds to no more than 1.50% of
the average daily net assets of each such Portfolio. In addition, the
Adviser has agreed to waive or limit its Advisory Fees or assume Other
Expenses in an amount that operates to limit the annual operating expenses
of the International Fund to no more than 2.25% of the average daily net
assets of that Portfolio. Each such waiver of Advisory Fees or assumptions
of Other Expenses by the Adviser is subject to a possible reimbursement by
each Portfolio in future years if such reimbursement can be achieved within
the foregoing annual expense limits. Nevertheless, it is not expected that
the Adviser will need to waive or limit its Advisory Fees or to assume Other
Expenses for each of those Portfolios during the current fiscal year,
assuming the average assets of each of those Portfolios is at least $50
million.

<PAGE>

- ------------------------------------------------------------------------------

EXAMPLE An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end
of each period.
- ------------------------------------------------------------------------------

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Growth Fund $13 $40 $ 69 $151
Emerging Growth Fund $13 $41 $ 70 $155
Large Cap Growth Fund $13 $39 $ 68 $149
Select Equity Fund $13 $40 $ 69 $152
Core Growth Fund $14 $43 $ 74 $164
Limited Fund $14 $45 N/A N/A
Large Cap 20 Fund $15 $47 N/A N/A
Large Cap Value Fund $15 $47 N/A N/A
Mid-Cap Value Fund $15 $47 N/A N/A
Small Cap Value Fund $15 $47 N/A N/A
International Fund $23 $69 $119 $255
Cash Reserves Fund $ 7 $22 $ 38 $ 85
Technology & Communications Fund $14 $42 $ 73 $160
Strategic Small Company Fund $15 $47 N/A N/A

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

The example is based upon estimated total operating expenses for the Portfolios,
as set forth in the "Annual Operating Expenses" table above. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist
the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in PBHG Class shares of each
Portfolio. See "The Adviser" and "The Administrator and Sub-Administrator" under
the caption "General Information."

- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------

The following information for the fiscal period ended March 31, 1997 has been
audited by Coopers & Lybrand L.L.P., the Fund's current independent accountants.
The information for the fiscal periods ended March 31, 1994, 1995, and 1996 was
audited by Arthur Andersen LLP, the Fund's former independent public
accountants. Arthur Andersen LLP served as the Fund's independent public
accountants from August 1993 to November 1996. The information with respect to
the Growth Fund for the periods from April 1, 1989 to March 31, 1993, was
audited by the Fund's independent public accountants that preceded Arthur
Andersen LLP for those periods. The information for the periods prior to April
1, 1989, is unaudited. The information for the period ended September 30, 1997,
is unaudited. The Fund's audited financial statements are incorporated by
reference into the Fund's Statement of Additional Information under "Financial
Information." The following tables should be read in conjunction with the Fund's
financial statements and notes thereto. Additional information about each
Portfolio's performance is contained in the Fund's Annual Report, which may be
obtained (without charge) by calling 1-800-433-0051.

<PAGE>

FOR A PBHG CLASS SHARE OUTSTANDING THROUGHOUT EACH PERIOD:

<TABLE>
<CAPTION>
REALIZED AND NET
NET ASSET NET UNREALIZED DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE INVESTMENT GAINS OR FROM NET FROM VALUE
BEGINNING INCOME LOSSES INVESTMENT CAPITAL END OF TOTAL
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
PBHG GROWTH FUND
- ----------------------------------------------------------------------------------------------------
1997** $21.06 $ (0.08) $ 6.80 -- -- $27.78 31.91%+
1997 25.30 (0.10) (4.14) -- -- 21.06 (16.76)%
1996 16.70 (0.06) 8.66 -- -- 25.30 51.50%
1995 14.67 (0.05) 2.09 -- $ (0.01) 16.70 13.92%
1994 10.83 (0.03) 4.06 -- (0.19) 14.67 37.28%
1993 10.37 (0.16) 3.07 -- (2.45) 10.83 34.47%
1992 11.51 (0.06) 1.35 -- (2.43) 10.37 13.78%
1991 10.86 (0.01) 1.45 -- (0.79) 11.51 16.94%
1990 10.84 (0.05) 2.92 $ (0.04) (2.81) 10.86 27.11%
1989 10.44 0.02 0.41 -- (0.03) 10.84 3.98%
1988 16.78 0.01 (2.11) -- (4.24) 10.44 (13.10)%
- ----------------------------------------------------------------------------------------------------
PBHG EMERGING GROWTH FUND
- ----------------------------------------------------------------------------------------------------
1997** $19.26 $ (0.07) $ 7.39 -- -- $26.58 38.01%+
1997 23.07 (0.11) (2.87) -- (0.83) 19.26 (13.71)%
1996 16.10 (0.07) 8.03 -- (0.99) 23.07 50.16%
19951,2 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+
19941 13.22 (0.03) 2.38 -- (0.98) 14.59 19.64%
19933 10.00 (0.03) 3.25 -- -- 13.22 32.20%+
- ----------------------------------------------------------------------------------------------------
PBHG LARGE CAP GROWTH FUND
- ----------------------------------------------------------------------------------------------------
1997** $14.26 $ (0.08) $ 5.32 -- -- $19.50 36.75%+
1997 14.53 (0.05) (0.21) -- (0.01) 14.26 (1.77)%
19964 10.00 (0.03) 4.97 -- (0.41) 14.53 50.47%*
- ----------------------------------------------------------------------------------------------------
PBHG SELECT EQUITY FUND
- ----------------------------------------------------------------------------------------------------
1997** $15.91 $ (0.17) $ 6.30 -- -- $22.04 38.53%+
1997 17.27 (0.13) (1.03) -- $ (0.20) 15.91 (6.94)%
19964 10.00 (0.05) 7.68 -- (0.36) 17.27 77.75%*
- ----------------------------------------------------------------------------------------------------
PBHG CORE GROWTH FUND
- ----------------------------------------------------------------------------------------------------
1997** $10.34 $ (0.11) $ 2.66 -- -- $12.89 24.66%+
1997 11.82 (0.09) (1.39) -- -- 10.34 (12.52)%
19965 10.00 -- 1.82 -- -- 11.82 18.20%+
- ----------------------------------------------------------------------------------------------------
PBHG LIMITED FUND
- ----------------------------------------------------------------------------------------------------
1997** $ 9.05 $ (0.05) $ 4.57 -- -- $13.57 49.94%+
19976 10.00 0.02 (0.93) $ (0.03) $ (0.01) 9.05 (9.15)%+
- ----------------------------------------------------------------------------------------------------
PBHG LARGE CAP 20 FUND
- ----------------------------------------------------------------------------------------------------
1997** $ 9.25 $ (0.04) $ 3.69 -- -- $12.90 39.46%+
19977 10.00 (0.01) (0.73) $ (0.01) -- 9.25 (7.40)%+
- ----------------------------------------------------------------------------------------------------
PBHG LARGE CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------
1997** $10.11 $ 0.02 $ 2.32 -- -- $12.45 23.15%+
19978 10.00 0.02 0.09 -- -- 10.11 1.10%+
- ----------------------------------------------------------------------------------------------------
PBHG MID-CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------
19979** $10.00 -- $ 4.30 -- -- $14.30 43.00%+
- ----------------------------------------------------------------------------------------------------
PBHG SMALL CAP VALUE FUND
- ----------------------------------------------------------------------------------------------------
19979** $10.00 -- $ 4.55 -- -- $14,55 45.50%+
- ----------------------------------------------------------------------------------------------------
PBHG INTERNATIONAL FUND
- ----------------------------------------------------------------------------------------------------
1997** $11.26 $ 0.02 $ 1.37 -- -- $12.65 12.85%+
1997 10.55 -- 0.71 -- -- 11.26 6.73%
1996 9.13 (0.04) 1.46 -- -- 10.55 15.55%
199510 10.00 (0.03) (0.80) -- $ (0.04) 9.13 (8.33)%+
- ----------------------------------------------------------------------------------------------------
PBHG CASH RESERVES FUND
- ----------------------------------------------------------------------------------------------------
1997** $ 1.00 $ 0.03 -- $ (0.03) -- $ 1.00 5.02%*
1997 1.00 0.05 -- (0.05) -- 1.00 4.89%
19964 1.00 0.05 -- (0.05) -- 1.00 5.24%*
- ----------------------------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- ----------------------------------------------------------------------------------------------------
1997** $14.63 $ (0.09) $ 7.44 -- -- $21.98 50.17%+
1997 12.48 (0.05) 2.55 -- $ (0.35) 14.63 19.59%
199611 10.00 (0.02) 2.50 -- -- 12.48 24.82%+
- ----------------------------------------------------------------------------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ----------------------------------------------------------------------------------------------------
1997** $ 8.86 $ (0.01) $ 4.59 -- -- $13.44 51.69%+
19978 10.00 -- (1.14) -- -- 8.86 (11.40)%+
</TABLE>

The accompanying notes are an integral part of the financial statements.

<PAGE>

<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
NET RATIO OF INCOME
RATIO OF INVESTMENT EXPENSES TO (LOSS) TO
NET ASSET EXPENSES INCOME AVERAGE AVERAGE
END OF TO (LOSS) TO NET ASSETS NET ASSETS PORTFOLIO AVERAGE
PERIOD AVERAGE AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
(000) NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE PAID++
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$6,232,655 1.25%* (0.67)%* 1.25%* (0.67)%* 44.44% $0.0526
4,634,138 1.25% (0.69)% 1.25% (0.69)% 64.89% 0.0443
3,298,925 1.48% (0.79)% 1.48% (0.79)% 44.64% N/A
1,014,832 1.50% (0.69)% 1.50% (0.69)% 118.75% N/A
319,059 1.55% (0.78)% 1.59% (0.82)% 94.28% N/A
6,069 2.39% (1.69)% 3.04% (2.34)% 209.24% N/A
7,339 1.52% (0.55)% 2.00% (1.03)% 114.54% N/A
10,356 1.50% (0.09)% 1.75% (0.34)% 228.02% N/A
18,849 1.32% (0.35)% 1.32% (0.35)% 219.41% N/A
23,494 1.19% 0.20% 1.19% 0.20% 175.01% N/A
28,407 1.21% 0.02% 1.21% 0.02% 208.41% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$1,837,508 1.27%* (0.72)%* 1.27%* (0.72)%* 48.07% $0.0421
1,195,620 1.28% (0.36)% 1.28% (0.36)% 47.75% 0.0328
689,705 1.47% (0.42)% 1.47% (0.42)% 97.05% N/A
411,866 1.50%* (0.08)%* 1.50%* (0.08)%* 27.50% N/A
113,329 1.45% (0.77)% 1.45% (0.77)% 95.75% N/A
34,517 1.50%* (0.72)%* 1.54%* (0.76)%* 71.18% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 143,008 1.22%* (0.79)%* 1.22%* (0.79)%* 20.59% $0.0511
119,971 1.23% (0.47)% 1.23% (0.47)% 51.70% 0.0547
53,759 1.50%* (0.66)%* 2.07%* (1.23)%* 116.75% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 413,617 1.35%* (1.13)%* 1.35%* (1.13)%* 37.35% $0.0563
372,486 1.26% (0.76)% 1.26% (0.76)% 71.70% 0.0443
202,796 1.50%* (0.74)%* 1.73%* (0.97)%* 206.22% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 259,414 1.33%* (1.06)%* 1.33%* (1.06)%* 25.20% $0.0550
283,995 1.36% (0.77)% 1.36% (0.77)% 46.75% 0.0437
31,092 1.50%* (0.18)%* 2.92%* (1.60)%* 17.00% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 187,555 1.40%* (0.79)%* 1.40%* (0.79)%* 44.01% $0.0379
137,520 1.42%* 0.33%* 1.42%* 0.33%* 75.46% 0.0304
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 109,253 1.49%* (0.83)%* 1.49%* (0.83)%* 56.75% $0.0593
69,819 1.50%* 0.17%* 1.50%* 0.17%* 43.98% 0.0550
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 71,089 1.27%* 0.74%* 1.27%* 0.74%* 46.43% $0.0375
26,262 1.50%* 1.61%* 1.74%* 1.37%* 0.00% 0.0588
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 29,769 1.50%* (0.10)%* 1.52%* (0.12)%* 144.93% $0.0545
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 59,236 1.50%* 0.01%* 1.51%* (0.00)%* 97.58% $0.0530
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 21,420 1.99%* (0.46)%* 1.99%* (0.46)%* 46.80% $0.0304
21,265 2.22% (0.32)% 2.22% (0.32)% 74.82% 0.0287
11,243 2.25% (0.22)% 3.03% (1.00)% 140.26% N/A
15,236 2.25%* (0.43)%* 2.36%* (0.54)%* 81.72% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 167,771 0.68%* 4.98%* 0.68%* 4.98%* N/A N/A
341,576 0.68% 4.79% 0.68% 4.79% N/A N/A
99,001 0.70%* 5.05%* 0.88%* 4.87%* N/A N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 730,333 1.30%* (0.90)%* 1.30%* (0.90)%* 141.77% $0.0434
493,156 1.33% (0.59)% 1.33% (0.59)% 289.91% 0.0365
61,772 1.50%* (0.50)%* 2.00%* (1.00)%* 125.99% N/A
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
$ 129,934 1.45%* (0.82)%* 1.45%* (0.82)%* 123.14% $0.0435
61,382 1.50%* 0.18%* 1.50%* 0.18%* 88.88% 0.0562
</TABLE>

(footnotes on following page)

The accompanying notes are an integral part of the financial statements.

<PAGE>

- ----------------
* Annualized.

** For the six month period ended September 30, 1997 (unaudited).

+ Total returns have not been annualized.

++ Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate paid is only required for
reporting periods beginning after September 1, 1995.

1 The information set forth in this table for the periods prior to June 2,
1994 is the financial data of the Pilgrim Baxter Emerging Growth Fund, a
series of the Advisors' Inner Circle Fund. The PBHG Emerging Growth Fund
acquired the assets and assumed the liabilities of the Pilgrim Baxter
Emerging Growth Fund on June 2, 1994. The PBHG Emerging Growth Fund
retained the October 31 fiscal year end of its predecessor only for fiscal
year 1994. The PBHG Emerging Growth Fund changed its fiscal year end to
March 31, in 1995 and reported financial information for the fiscal period
from November 1, 1994 to March 31, 1995.

2 Per share calculations were performed using average shares for the period.

3 The Pilgrim Baxter Emerging Growth Fund, the predecessor series to the PBHG
Emerging Growth Fund, commenced operations on June 15, 1993.

4 The PBHG Select Equity Fund, the PBHG Large Cap Growth Fund, and the PBHG
Cash Reserves Fund commenced operations on April 5, 1995.

5 The PBHG Core Growth Fund commenced operations on January 2, 1996.

6 The PBHG Limited Fund commenced operations on July 1, 1996.

7 The PBHG Large Cap 20 Fund commenced operations on December 1, 1996.

8 The PBHG Large Cap Value Fund and PBHG Strategic Small Company Fund
commenced operations on January 2, 1997.

9 The PBHG Mid-Cap Value and Small Cap Value Funds commenced operations on
May 1, 1997.

10 The PBHG International Fund commenced operations on June 14, 1994.

11 The PBHG Technology & Communications Fund commenced operations on October
2, 1995.

The accompanying notes are an integral part of the financial statements.

8
<PAGE>

- -------------------------------------
THE FUND AND THE PORTFOLIOS
- -------------------------------------

The Fund is an open-end management investment company that offers by means of
this Prospectus shares in 14 separate series: Growth Fund, Emerging Growth Fund,
Large Cap Growth Fund, Select Equity Fund, Core Growth Fund, Limited Fund, Large
Cap 20 Fund, Large Cap Value Fund, Mid-Cap Value Fund, Small Cap Value Fund,
International Fund, Cash Reserves Fund, Technology & Communications Fund and
Strategic Small Company Fund. Each share of each Portfolio represents an
undivided interest in that Portfolio. The Fund's shares are currently divided
into two classes of shares (PBHG Class and Advisor Class) having such
preferences and special or relative rights and privileges as the Board of
Directors determines. Only the Fund's PBHG Class shares are offered by this
Prospectus. Advisor Class shares are generally subject to the same expenses as
the PBHG Class shares but also are subject to a Rule 12b-1 shareholder servicing
fee of up to 0.25% of the average daily net assets attributable to its shares.
Advisor Class shares are currently available for the Growth Fund only and are
offered by a separate prospectus, which is available without charge by calling
1-800-433-0051. Additional information pertaining to the Fund may be obtained in
writing from the Fund's Transfer Agent at DST Systems, Inc., P.O. Box 419534,
Kansas City, Missouri 64141-6534, or by calling 1-800-433-0051.

- -------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------

PBHG GROWTH FUNDS

PBHG GROWTH FUND

The Growth Fund, a diversified portfolio, seeks capital appreciation. The
Portfolio will normally be as fully invested as practicable in common stocks and
securities convertible into common stocks, but also may invest up to 5% of its
assets in warrants and rights to purchase common stocks. In the opinion of the
Adviser, there may be times when the shareholders' interests are best served and
the investment objective is more likely to be achieved by having varying amounts
of the Portfolio's assets invested in convertible securities. Under normal
market conditions, the Portfolio will invest at least 65% of its total assets in
common stocks and convertible securities of small and medium sized growth
companies (i.e., companies with market capitalization or annual revenues of up
to $2 billion). The average market capitalizations or annual revenues of
holdings in the Portfolio may, however, fluctuate over time as a result of
market valuation levels and the availability of specific investment
opportunities. In addition, the Portfolio may continue to hold securities of
companies whose market capitalizations or annual revenues grow above $2 billion
subsequent to purchase, if the company continues to satisfy the other investment
policies of the Portfolio.

The Portfolio will seek to achieve its objective by investing in companies
believed by the Adviser to have an outlook for strong earnings growth and the
potential for significant capital appreciation. Securities will be sold when the
Adviser believes that anticipated appreciation is no longer probable,
alternative investments offer superior appreciation prospects, or the risk of a
decline in market price is too great. Because of its policy with respect to the
sales of investments, the Portfolio may from time to time realize short-term
gains or losses. The Portfolio will likely have greater volatility than the
stock market in general, as measured by the Standard & Poor's 500 Stock Index
("S&P 500"). Because the investment techniques employed by the Adviser are
responsive to near-term earnings trends of the companies whose securities are
owned by

<PAGE>

the Portfolio, portfolio turnover can be expected to be fairly high.

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.

PBHG EMERGING GROWTH FUND

The Emerging Growth Fund, a diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be as fully invested as practicable in
common stocks (including ADRs), but also may invest in equity securities such as
warrants and rights to purchase common stocks, preferred stocks, and securities
convertible into or exchangeable for common stocks. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in common
stocks of domestic emerging growth companies that have historically exhibited
exceptional or strong growth characteristics and, in the Adviser's opinion, have
an expected trend of earnings higher than that of the U.S. market as a whole.
Such companies generally have market capitalizations or annual revenues of up to
$500 million. The average market capitalizations or annual revenues of holdings
in the Portfolio may, however, fluctuate over time as a result of market
valuation levels and the availability of specific investment opportunities. In
addition, the Portfolio may continue to hold securities of companies whose
market capitalizations or annual revenues grow above $500 million subsequent to
purchase, if the company continues to satisfy the other investment policies of
the Portfolio. The Adviser will not consider dividend income when selecting
common stocks for the Portfolio.

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio reserves the right to invest, in the aggregate, up to 10% of its net
assets in restricted securities and securities of foreign issuers traded outside
the United States and Canada and, for hedging purposes only, to purchase and
sell options on stocks or stock indices. The Portfolio may also invest up to 15%
of its net assets in illiquid securities. The Portfolio may invest in restricted
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.

<PAGE>

PBHG LARGE CAP GROWTH FUND

The Large Cap Growth Fund, a diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign securities). The equity securities in
which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, preferred stocks and securities convertible into or
exchangeable for common stocks. Normally, the Portfolio will purchase
exchange-traded and over-the-counter equity securities, including foreign
securities traded in the United States. The Portfolio may invest in convertible
debt securities rated investment grade by a nationally recognized statistical
rating organization ("NRSRO") (i.e., within one of the four highest rating
categories).

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of large capitalization companies that, in the
Adviser's opinion, have an outlook for strong growth in earnings and potential
for capital appreciation. Such companies have market capitalizations in excess
of $1 billion (with a median market capitalization of approximately $2.75
billion). The Adviser also will consider the diversity of industries in choosing
investments for the Portfolio.

The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks and
stock indices. The Portfolio may also invest up to 15% of its net assets in
illiquid securities, but will not invest more than 5% of its net assets in
restricted securities that the Adviser determines are illiquid based on
guidelines approved by the Board of Directors of the Fund. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" for a fuller
description. The Portfolio may purchase securities on a when-issued or delayed
delivery basis. See "Risk Factors" and "Glossary of Permitted Investments" for
additional information.

PBHG SELECT EQUITY FUND

The Select Equity Fund, a diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign equity securities). The equity securities
in which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, preferred stocks and securities that are convertible
into or exchangeable for common stocks. The Portfolio may invest in convertible
debt securities rated investment grade by an NRSRO (i.e., within one of the
four highest rating categories). Normally, the Portfolio will purchase
exchange-traded and over-the-counter equity securities, including foreign
securities traded in the United States. The Adviser will consider the diversity
of industries in choosing investments for the Portfolio.

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in common stocks of a limited number of companies that, in the
Adviser's opinion, have a strong earnings growth outlook and potential for
capital appreciation. Normally, the Portfolio's investments will be limited to a
relatively small number of stocks (e.g., no more than 30 stocks) of small,
medium and large capitalization companies. Because the Portfolio focuses on a
small number of stocks, the impact of a change in value of a stock holding may
be magnified.

The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada

<PAGE>

and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Risk
Factors" and "Glossary of Permitted Investments" for additional information.

PBHG CORE GROWTH FUND

The Core Growth Fund, a diversified portfolio, seeks long-term capital
appreciation. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in a diversified portfolio of equity securities (i.e.,
common stocks, preferred stocks, rights, warrants and securities convertible
into or exchangeable for common stocks) of companies, without regard to market
capitalization, that are believed by the Adviser to have superior long-term
growth prospects and potential for long-term capital appreciation.

The Adviser seeks to invest in companies poised for rapid growth that have an
historical record of above-average earnings growth, demonstrate the ability to
sustain strong earnings growth, and operate in industries or markets that may be
experiencing increased demand for their products or services. Such companies may
include ones that the Adviser has invested in or believes are good prospects for
certain of its other Portfolios. The Adviser will consider diversity of
industries in choosing investments for the Portfolio and will not limit the
number of small, medium and large capitalization companies in which the
Portfolio will invest.

The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may use high-quality money market investments or short-term bonds to reduce
downside volatility during uncertain or declining market conditions and for
temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" for a
fuller description. The Portfolio may purchase securities on a when-issued or
delayed delivery basis. See "Risk Factors" and "Glossary of Permitted
Investments" for additional information.

PBHG LIMITED FUND

The Limited Fund, a diversified portfolio, seeks long-term capital appreciation.
Under normal conditions, the Portfolio will invest primarily in a diversified
portfolio of equity securities (i.e., common stocks, preferred stocks, rights,
warrants and securities convertible into or exchangeable for common stocks) of
companies, with smaller market capitalizations or annual revenues of up to $250
million, that are believed by the Adviser

<PAGE>

to have superior long-term growth prospects and potential for long-term capital
appreciation. The average and median market capitalizations of holdings in the
Portfolio may, however, fluctuate over time as a result of market valuation
levels and the availability of specific investment opportunities. In addition,
the Portfolio may continue to hold securities of companies whose market
capitalizations or revenues grow above $250 million subsequent to purchase, if
such companies continue to satisfy the other investment policies of the
Portfolio.

The Portfolio seeks to invest in smaller capitalization companies poised for
rapid and dynamic growth. In selecting holdings for the Portfolio, the Adviser
focuses on companies that possess exceptional or strong historical growth
characteristics and whose trend of earnings and stock prices are expected by the
Adviser to grow faster than those of the U.S. stock market as a whole. Dividend
income will not be considered in selecting holdings for the Portfolio.

The securities of smaller companies are usually less actively followed by
analysts and may be undervalued by the market, which can provide significant
opportunities for capital appreciation. However, the securities of such smaller
companies may also involve greater risks and may be subject to more volatile
market movements than securities of larger, more established companies. See
"Risk Factors" for more information about smaller company securities.

The Portfolio will normally be as fully invested as practicable in common stocks
and investment grade securities convertible into common stocks (i.e., within one
of the four highest rating categories by an NRSRO). The Portfolio also may
invest up to 5% of its assets in warrants and rights to purchase common stocks.
Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs) and forward foreign currency exchange contracts, and
may invest up to 15% of its net assets in illiquid securities, but will not
invest more than 10% of its net assets in restricted securities. The Portfolio
may also engage in securities lending. The Portfolio may use high-quality money
market investments or short-term bonds to reduce downside volatility during
uncertain or declining market conditions and for temporary defensive purposes,
may invest in money market securities or short-term bonds without limitation.
See "Temporary Defensive Positions" for a fuller description. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. See "Glossary of
Permitted Investments" for additional information.

PBHG LARGE CAP 20 FUND

The Large Cap 20 Fund, a non-diversified portfolio, seeks long-term growth of
capital. The Portfolio will normally be substantially invested in equity
securities (including ADRs and foreign equity securities). The equity securities
in which the Portfolio will invest are common stocks, warrants and rights to
purchase common stocks, and debt securities and preferred stock that are
convertible into common stocks. The Portfolio may invest in convertible debt
securities rated investment grade by an NRSRO (i.e., within one of the four
higher rating categories). The Adviser will consider the diversity of industries
in choosing investments for the Portfolio.

Under normal market conditions, the Portfolio will invest substantially all of
its assets in equity securities of a limited number (i.e., no more than 20
issuers) of large capitalization companies that, in the Adviser's opinion, have
a strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because the
Portfolio focuses on equity securities of a small number of

<PAGE>

companies, the impact of a change in value of a single stock holding may be
magnified. Although the Fund is classified as a non-diversified investment
company under the Investment Company Act of 1940, the Fund intends to conduct
its operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended, which requires that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's total assets be invested in cash, U.S. Government securities, the
securities of other regulated investment companies, and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets, and (ii) not more than 25% of the value of its total assests be invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies).

The Portfolio may invest up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the United States and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio may also invest up to 15% of its net assets in illiquid
securities, but will not invest more than 5% of its net assets in restricted
securities that the Adviser determines are illiquid based on guidelines approved
by the Board of Directors of the Fund. The Portfolio may also engage in
securities lending. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

PBHG VALUE FUNDS

PBHG LARGE CAP VALUE FUND

The Large Cap Value Fund, a diversified portfolio, seeks long-term growth of
capital and income. Current income is a secondary objective. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in a
diversified portfolio of equity securities (i.e.,common stocks, preferred
stocks, rights, warrants and securities convertible into or exchangeable for
common stocks) of large capitalization companies which, in the opinion of the
Adviser and Value Investors, are undervalued or overlooked by the market. Such
large companies have market capitalizations in excess of $1 billion at the time
of purchase.

In selecting investments for the Portfolio, the Adviser and Value Investors
emphasize fundamental investment value and consider the following factors, among
others, in identifying and analyzing a security's fundamental value: the
relationship of a company's potential earnings power to the current market price
of its stock; continuing dividend income and the potential for increasing
dividend growth; a strong balance sheet with low financial leverage; low
price/earnings ratio relative to either that company's historical results or the
current ratios for other similar companies; and potential for favorable business
developments. The Portfolio may invest in equity securities of companies that
are considered to be financially sound and attractive investments based on their
long-term operations which may be experiencing temporary earnings declines due
to adverse economic conditions that may be company or industry specific or due
to unfavorable publicity. The Portfolio may invest in such companies when the
Adviser and Value Investors believe that those companies will react positively
to changing economic

<PAGE>

conditions or that such companies have taken or are expected to take actions
designed to return their earnings to historical levels or otherwise increase the
market price of their securities.

The equity securities in which the Portfolio invests normally will be
traded in the United States or Canada on a registered securities exchange or
established over-the-counter market. The Portfolio may invest up to 15% of its
total asset in securities of foreign issuers, including ADRs, and may also
invest up to 15% of its net assets in restricted or illiquid securities. The
Portfolio may also utilize futures contracts (i.e., purchase and sell futures
contracts) to the extent that (i) aggregate initial margin deposits to establish
other than "bona fide hedging" positions do not exceed 5% of the Portfolio's net
assets and (ii) the total market value of securities underlying all futures
contracts does not exceed 50% of the value of the Portfolio's total assets. The
Portfolio may also engage in securities lending. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions. For temporary
defensive purposes, the Portfolio may invest in money market securities or
short-term bonds without limitation. See "Temporary Investments" for a fuller
description. The Portfolio may purchase securities on a when-issued or delayed
delivery basis.

The use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

PBHG MID-CAP VALUE FUND

The Mid-Cap Value Fund, a diversified portfolio, seeks to achieve above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, by investing in common stocks and other equity securities of
companies with market capitalizations in the range of companies represented in
the Standard & Poor's Mid-Cap 400 Index ("S&P 400"), which are considered to be
relatively undervalued based on certain proprietary measures of value.

The current market capitalization of companies represented in the S&P 400 is
typically between $200 million and over $5 billion. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings ratios than the average of those in the S&P 400. Under normal
circumstances, the Portfolio will be structured taking into account the economic
sector weighings of the S&P 400 with the Portfolio's sector weightings normally
within 5% of the sector weightings of that Index.

In selecting investments for the Portfolio, the Adviser and Value Investors
emphasize fundamental investment value and consider the following factors, among
others, in identifying and analyzing a security's fundamental value and capital
appreciation potential: the relationship of a company's potential earnings power
to its current stock price; current dividend income and the potential for
dividend growth; low price/earnings ratio relative to other similar companies;
strong competitive advantages, including a recognized brand or trade name or
niche market position; sufficient resources for expansion; capability of
management; and favorable overall business prospects. The Portfolio may invest
in securities of companies that are considered to be financially sound and
attractive investments based on their operating history, but which may be
experiencing temporary earnings declines due to adverse economic conditions that
may be company or industry specific or due to unfavorable publicity. The
Portfolio may invest in such companies when the Adviser and Value Investors
believe that those companies will react positively to changing economic
conditions or that such companies have taken or are expected to take actions
designed to improve their financial fundamentals or to otherwise increase the
market price of their securities. The use of a valuation approach may result in
investment selections that may be out-of-favor or counter to those of other
investors. However, such an approach may also produce significant capital
appreciation.

<PAGE>

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities (i.e., common stocks, preferred stocks,
warrants and securities convertible into or exchangeable for common stocks) of
undervalued medium capitalization issuers. The equity securities in which the
Portfolio invests normally will be traded in the United States or Canada on a
registered securities exchange or established over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers, including ADRs and other similar instruments. The Portfolio may also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of Portfolio's net assets and (ii) the
total market value of securities underlying all futures contracts does not
exceed 50% of the value of the Portfolio's total assets. In addition, the
Portfolio may invest up to 15% of its net assets in restricted or illiquid
securities. This limitation does not include any Rule 144A security that has
been determined to be liquid pursuant to procedures established by the Board.
The Portfolio may also engage in securities lending. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions and, for temporary
defensive purposes, may invest in money market securities or short-term bonds
without limitation. See "Temporary Defensive Positions" below for a fuller
description. In addition, the Portfolio may purchase securities on a when-issued
or delayed delivery basis.

See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.

PBHG SMALL CAP VALUE FUND

The Small Cap Value Fund, a diversified 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 of small companies with market capitalizations in the
range of companies represented in the Russell 2000 Index, which are considered
to be relatively undervalued based on certain proprietary measures of value.

The current market capitalization of companies represented in the Russell 2000
Index is typically between $57 million and $610 million. It is expected that
securities purchased by the Portfolio will typically exhibit lower
price/earnings and price/book value ratios than the average of those in the
Russell 2000 Index. Under normal circumstances, the Portfolio will be structured
taking into account the economic sector weightings of the Russell 2000 Index,
with the Portfolio's sector weightings normally within 5% of the sector
weightings of that Index.

<PAGE>

invest in such companies when the Adviser and Value Investors believe that those
companies will react positively to changing economic conditions or that such
companies have taken or are expected to take actions designed to improve their
financial fundamentals or to otherwise increase the market price of their
securities. The use of a valuation approach may result in investment selections
that may be out-of-favor or contrary to those of other investors. However, such
an approach may also produce significant capital appreciation.

In addition to the Portfolio's primary investment (i.e.,under normal market
conditions, at least 65% of its total assets will be invested in common stocks
of undervalued small capitalization companies), the Portfolio may also invest in
other equity securities (i.e., preferred stocks, warrants and securities
convertible into or exchangeable for common stocks) of such small capitalization
issuers. The Portfolio may also utilize futures contracts (i.e., purchase and
sell futures contracts) to the extent that (i) aggregate initial margin deposits
to establish other than "bona fide hedging" positions do not exceed 5% of the
Portfolio's net assets and (ii) the total market value of securities underlying
all futures contracts does not exceed 50% of the value of the Portfolio's total
assets. In addition, the Portfolio may invest up to 15% of its net assets in
restricted or illiquid securities. This limitation does not include any Rule
144A security that has been determined to be liquid pursuant to procedures
established by the Board. The Portfolio may also engage in securities lending.
The Portfolio may use high-quality money market investments or short-term bonds
to reduce downside volatility during uncertain or declining market conditions
and, for temporary defensive purposes, may invest in money market securities or
short-term bonds without limitation. See "Temporary Defensive Positions" below
for a fuller description.

The securities in which the Portfolio invests normally will be traded in the
United States or Canada on a registered securities exchange or established over-
the-counter market. The Portfolio may invest up to 15% of its total asset in
securities of foreign issuers, including ADRs and other similar instruments. In
addition, the Portfolio may purchase securities on a when-issued or delayed
delivery basis.

See "Risk Factors" and "Glossary of Permitted Investments" for additional
information.

PBHG SPECIALTY FUNDS

PBHG INTERNATIONAL FUND

The International Fund, a diversified portfolio, seeks to provide long-term
capital appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Country selection is a significant part of the
investment process. Under normal market conditions, at least 65% of the
Portfolio's total assets will be invested in securities of issuers in at least
three countries other than the United States. The Portfolio may invest more than
25% of its total assets in the securities of issuers whose principal activities
are in specific countries or geographic regions, including emerging markets. The
term "emerging markets" applies to any country which is generally considered to
be an emerging or developing country by the international financial community.

Under normal circumstances, the Portfolio's assets will be fully invested in the
following equity securities of non-U.S. companies: common stocks, securities
convertible into or exchangeable for common stocks, preferred stocks, warrants
and rights to subscribe to common stocks. The Portfolio may purchase securities
of foreign issuers sold in foreign markets, on United States registered
exchanges, in the over-the-counter market, or in the form of sponsored or
unsponsored ADRs or Global Depositary Receipts. The Portfolio's investments

<PAGE>

in equity securities are not based on company size and can range from small
capitalization companies to large, established companies.

The Portfolio generally will not hedge its currency exposure, since currency
considerations are an important part of the Portfolio's country and company
selection process. Nevertheless, the Portfolio may on occasion enter into
forward foreign currency contracts as a hedge against possible variations in
foreign exchange rates or to hedge a specific security transaction or portfolio
position. (A forward foreign currency contract is a commitment to purchase or
sell a specified currency, at a specified future date, at a specified price.)

In addition, when, in the opinion of the Adviser or Murray Johnstone, market
conditions so warrant, the Portfolio may invest, without limitation, in U.S. or
non-U.S. money market securities and short-term debt securities, including
securities issued or guaranteed by U.S. or non-U.S. governments or the agencies
or instrumentalities of such governments, and securities issued by supranational
agencies. Such securities will be of comparable quality to U.S. securities rated
in one of the four highest rating categories by an NRSRO.

Under normal market conditions, the Portfolio expects to be fully invested in
the equity securities described above. However, it may invest up to 15% of its
total assets in: swaps, options on securities, non-U.S. indices and currencies,
and futures contracts, including stock index futures contracts, and options on
futures contracts. The Portfolio is permitted to acquire floating and variable
rate debt securities, when-issued securities and illiquid and restricted
securities. The Portfolio will not invest more than 15% of its net assets in
illiquid securities. The Portfolio may invest in common stocks of closed-end
investment companies that invest primarily in international common stocks. If
the Portfolio invests in closed-end investment companies, the Portfolio's
shareholders will bear not only their proportionate share of the expenses of the
Portfolio (including fees of the Adviser), but also will indirectly bear similar
expenses of the underlying closed-end fund. The Portfolio may also engage in
securities lending. The Portfolio may use high-quality money market investments
or short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

PBHG CASH RESERVES FUND

The Cash Reserves Fund, a diversified portfolio, seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
Under normal market conditions the Portfolio invests in obligations denominated
in U.S. dollars consisting of: (i) commercial paper issued by U.S. and foreign
issuers rated in one of the two highest rating categories by any two NRSROs at
the time of investment, or, if not rated, determined by the Adviser or
Wellington to be of comparable quality; (ii) obligations (including certificates
of deposit, time deposits, bank notes and bankers' acceptances) of U.S. savings
and loan and thrift institutions, U.S. commercial banks (including foreign
branches of such banks), and U.S. and foreign branches of foreign banks,
provided that such institutions (or, in the case of a branch, the parent
institution) have total assets of $500 million or more as shown on their last
published financial statements at the time of investment; (iii) short-term
corporate obligations of U.S. and foreign issuers with a remaining term of not
more than one year of issuers with commercial paper of comparable priority and
security meeting the above

<PAGE>

ratings; (iv) U.S. Treasury obligations and obligations issued or guaranteed as
to principal and interest by the agencies or instrumentalities of the U.S.
government; (v) securities issued by foreign governments, including Canadian and
Provincial Government and Crown Agency Obligations; (vi) short-term obligations
issued by state and local governmental issuers which are rated at the time of
investment by at least two NRSROs in one of the two highest municipal bond
rating categories, and carry yields that are competitive with those of other
types of money market instruments of comparable quality; and (vii) repurchase
agreements involving any of the foregoing obligations. The Portfolio complies
with regulations of the Securities and Exchange Commission (the "SEC")
applicable to money market funds. These regulations impose certain quality,
maturity and diversification restraints on investments. Under these regulations,
the Portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less and generally, may invest only in securities with maturities of 397
days or less. The purchase of single rated or unrated securities by the Adviser
or Wellington is subject to the approval or ratification by the Board of
Directors.

It is a fundamental policy of the Portfolio to use its best efforts to maintain
a constant net asset value of $1.00 per share. There can be no assurance that
the Portfolio will be able to maintain a net asset value of $1.00 per share on a
continuing basis. The Portfolio may invest up to 10% of its net assets in
illiquid securities. However, restricted securities, including Rule 144A
securities and Section 4(2) commercial paper, that meet the criteria established
by the Board of Directors of the Fund will be considered liquid. In addition,
the Portfolio may invest in U.S. Treasury STRIPS. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

PBHG TECHNOLOGY & COMMUNICATIONS FUND

The Technology & Communications Fund, a diversified portfolio, seeks
long-term growth of capital. Current income is incidental to the Portfolio's
objective. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements, and
that may be experiencing exceptional growth in sales and earnings driven by
technology- or communication-related products and services.

Such technology and communications companies may be in many different industries
or fields, including computer software and hardware, electronic components and
systems, network and cable broadcasting, telecommunications, mobile
communications, satellite communications, defense and aerospace, transportation
systems, data storage and retrieval, biotechnology and medical, and
environmental. As a result of this focus, the Portfolio offers investors the
significant growth potential of companies that may be responsible for
breakthrough products or technologies or that are positioned to take advantage
of cutting-edge developments.

The Portfolio will normally be fully invested in common stocks (including ADRs)
of such technology and communications companies, but also may invest in warrants
and rights to purchase common stocks and debt securities and preferred stocks
convertible into or exchangeable for common stocks. Stock selections will not be
based on company size, but rather on an assessment of a company's fundamental
prospects. As a result, the Portfolio's stock holdings can range from small
companies developing new technologies or pursuing scientific breakthroughs to
large, established firms with track records in developing and marketing such
scientific advances.

<PAGE>

Normally, the Portfolio will purchase only securities traded in the U.S. or
Canada on registered exchanges or in the over-the-counter market. The Portfolio
may also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and Canada
and, for hedging purposes only, may purchase and sell options on stocks or stock
indices. The Portfolio also may invest up to 15% of its net assets in illiquid
securities. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

PBHG STRATEGIC SMALL COMPANY FUND

The Strategic Small Company Fund, a diversified portfolio, seeks growth of
capital. Under normal market conditions, the Portfolio will invest at least 65%
of its total assets in a diversified portfolio of equity securities (as
previously defined herein) of small capitalization companies. Such small
companies have market capitalizations or annual revenues of up to $750 million
at the time of purchase. The Portfolio may continue to hold securities of
companies whose market capitalization or revenues grow above that level if such
companies continue to satisfy the other investment policies of the Portfolio.

In selecting investments for the Portfolio, the Adviser or Newbold's may
emphasize securities poised for rapid and dynamic growth ("growth securities")
or securities that are undervalued or overlooked by the market ("value
securities") depending on the views of the Adviser and Newbold's of current
economic or market conditions and their long-term investment outlook. The
Portfolio is flexibly and strategically managed so that depending on the views
of the Adviser and Newbold's of economic or market conditions they will adjust
the mix of growth and value securities held by the Portfolio. Consequently, at
times it may be more heavily invested in growth securities and at other times it
may be more heavily invested in value securities.

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including ADRs), and may invest up to 15% of its net assets in
restricted or illiquid securities. The Portfolio may also engage in securities
lending. The Portfolio may use high-quality money market investments or
short-term bonds to reduce downside volatility during uncertain or declining
market conditions and, for temporary defensive purposes, may invest in money
market securities or short-term bonds without limitation. See "Temporary
Defensive Positions" for a fuller description. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. See "Risk Factors" and
"Glossary of Permitted Investments" for additional information.

THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL BE ABLE TO ACHIEVE ITS
INVESTMENT OBJECTIVE.

<PAGE>

- --------------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- --------------------------------------------

INVESTMENT PROCESS OF THE ADVISER

The Adviser's investment process is both quantitative and fundamental, and is
extremely focused on quality earnings growth. In seeking to identify investment
opportunities, the Adviser begins by creating a universe of rapidly growing
companies with market capitalizations within the parameters described for each
Portfolio and that possess certain quality characteristics. Using proprietary
software and research models that incorporate important attributes of successful
growth, such as positive earnings surprises, upward earnings estimate revisions,
and accelerating sales and earnings growth, the Adviser creates a universe of
growing companies. Then, using fundamental research, the Adviser evaluates each
company's earnings quality and assesses the sustainability of the company's
current growth trends. Through this highly disciplined process, the Adviser
seeks to construct investment portfolios that possess strong growth
characteristics. The Adviser tries to keep each Portfolio fully invested at all
times. Because the universe of companies will undoubtedly experience volatility
in stock price, it is important that shareholders in the Portfolios maintain a
long-term investment perspective. Of course, there can be no assurance that use
of these techniques will be successful, even over the long term.

INVESTMENT PROCESS OF VALUE INVESTORS

Value Investors' investment process, like that of the Adviser, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities, Value Investors 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), Value Investors 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, Value Investors 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. Value Investors follows a disciplined
valuation approach that requires it to sell any portfolio security that it
believes has become overvalued relative to the market. Sales of portfolio
securities are primarily triggered by the relative change in price/earnings
ratio. Adverse changes in other key value elements are, of course, factors that
would also trigger a sale. Of course, there can be no assurance that use of
these techniques will be successful, even over the long term.

INVESTMENT PROCESS OF MURRAY JOHNSTONE

The investment process of Murray Johnstone, like that of the Adviser, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the International Fund, Murray Johnstone starts by determining
the countries or geographic regions that, on the basis of its model criteria,
can provide the best investment opportunities for the International Fund. Murray
Johnstone's criteria for country selection incorporates twenty factors that are
used to score and rank each market. Following the creation of this investment
universe, Murray Johnstone uses its strong fundamental research capabilities to
identify individual companies having superior growth records and expectations,
sound

<PAGE>

balance sheets and high cash flow generation. After this identification process,
each company's investment value is evaluated by taking into account such factors
as relative price performance, upward earnings estimate revisions, improving
balance sheets and strength of management. Currency considerations play a part
in both country and company selection. Since the companies in which the
International Fund invests may experience greater price volatility than a
domestic stock portfolio, it is important that shareholders of the International
Fund maintain a long-term investment perspective. Of course, there can be no
assurance that the use of these techniques will be successful, even over the
long term.

PORTFOLIO TURNOVER

Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g.,brokerage commissions) and increases realized
gains and losses. The portfolio turnover rate for the fiscal year or period
ended March 31, 1997 for each of the Portfolios (except the Mid-Cap Value and
Small Cap Value Funds), and for the period ended September 30, 1997, for each of
the Portfolios, is specified in the Financial Highlights table. It is expected
that under normal market conditions, the annual portfolio turnover rates for the
Mid-Cap Value and Small Cap Value Funds will not exceed 400%. High rates of
portfolio turnover necessarily result in correspondingly greater brokerage and
portfolio trading costs, which are paid by the Portfolio. Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition to
portfolio trading costs, higher rates of portfolio turnover may result in the
realization of capital gains. To the extent net short-term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. In addition, high rates of portfolio
turnover may adversely affect each Portfolio's status as a "regulated investment
company" ("RIC") under Section 851 of the Internal Revenue Code of 1986, as
amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or a sub-adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets in
cash and money market instruments (consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations having net assets of at least $500 million as stated on their
most recently published financial statements; commercial paper rated in one of
the two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the extent a Portfolio is
invested in temporary defensive instruments, it will not be pursuing its
investment objective. See "Glossary of Permitted Investments" and the Statement
of Additional Information for additional information.

- -------------------------------------
RISK FACTORS
- -------------------------------------

SMALL AND MEDIUM CAPITALIZATION STOCKS

Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio (other than the Cash Reserves Fund)

<PAGE>

may be more suitable for long-term investors who can bear the risk of these
fluctuations. The Growth Fund, Emerging Growth Fund, Limited Fund, Small Cap
Value Fund and Strategic Small Company Fund invest extensively in small
capitalization companies. The Mid-Cap Value Fund invests extensively in medium
capitalization companies. In certain cases, the Core Growth Fund, Select Equity
Fund and Technology & Communications Fund invest in securities of issuers with
small or medium market capitalizations. While the Adviser and Value Investors
intend to invest in small and medium capitalization companies that have strong
balance sheets and favorable business prospects, any investment in small and
medium capitalization companies involves greater risk and price volatility than
that customarily associated with investments in larger, more established
companies. This increased risk may be due to the greater business risks of their
small or medium size, limited markets and financial resources, narrow product
lines and frequent lack of management depth. The securities of small and medium
capitalization companies are often traded in the over-the-counter market, and
might not be traded in volumes typical of securities traded on a national
securities exchange. Thus, the securities of small and medium capitalization
companies are likely to be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established companies.

OVER-THE-COUNTER MARKET

Each Portfolio (except the Cash Reserves Fund) may invest in over-the-counter
stocks. In contrast to the securities exchanges, the over-the-counter market is
not a centralized facility which limits trading activity to securities of
companies which initially satisfy certain defined standards. Generally, the
volume of trading in an unlisted or over-the-counter common stock is less than
the volume of trading in a listed stock. This means that the depth of market
liquidity of some stocks in which each Portfolio invests may not be as great as
that of other securities and, if the Portfolios were to dispose of such a stock,
they might have to offer the shares at a discount from recent prices, or sell
the shares in small lots over an extended period of time.

FOREIGN SECURITIES AND EMERGING MARKETS

Each of the Portfolios may invest in foreign securities. Investing in the
securities of foreign issuers involves special risks and considerations not
typically associated with investing in U.S. companies. These risks and
considerations include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability
which could affect U.S. investment in foreign countries and potential
restrictions on the flow of international capital and currencies. Foreign
issuers may also be subject to less government regulation than U.S. companies.
Moreover, the dividends and interest payable on foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Portfolio's shareholders. Further, foreign
securities often trade with less frequency and volume than domestic securities
and, therefore, may exhibit greater price volatility. Changes in foreign
exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.

The International Fund's investments in emerging markets may be considered
speculative, and therefore may offer higher potential for gains and losses than
investments in developed markets of the world. With respect to any emerging
country, there may be greater potential

<PAGE>

for nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of the International Fund's investments in those countries. In addition, it may
be difficult to obtain and enforce a judgment in the courts of such countries.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.

INVESTMENTS IN TECHNOLOGY COMPANIES

Each Portfolio (except the Cash Reserves Fund) may invest in equity securities
of technology companies. Such securities have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Fund will invest primarily in the securities of technology companies operating
in various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related industries and, thus, may affect the value of the
Technology & Communications Fund's investments in technology companies. For
example, the technology companies in which the Technology & Communication Fund
invests may be strongly affected by worldwide scientific or technological
developments and their products and services may be subject to governmental
regulation or adversely affected by governmental policies.

OPTIONS AND FUTURES CONTRACTS

Certain of the Portfolios may utilize futures contracts, and may write and
purchase call and put options. The risk of loss in trading futures contracts can
be substantial because of the low margin deposits required and the extremely
high degree of leveraging involved in futures trading. As a result, a relatively
small price movement in a futures contract may cause an immediate and
substantial loss or gain. The primary risks associated with the use of options
and futures contracts are (i) imperfect correlations between the change in
market value of the securities held by the Portfolio and the prices of the
options or futures contracts purchased or sold by the Portfolio; and (ii)
possible lack of a liquid secondary market for an over-the-counter option or
futures contract and the resulting inability to close the over-the-counter
option or futures position prior to its maturity date, which could have an
adverse impact on the Portfolio's ability to execute futures and options
strategies.

For additional information regarding permitted investments for each Portfolio
and other risks, see "Glossary of Permitted Investments" and the Statement of
Additional Information.

- -------------------------------------
INVESTMENT LIMITATIONS
- -------------------------------------

The investment objectives of each Portfolio and the investment limitations set
forth herein and certain investment limitations contained in the Statement of
Additional Information are fundamental policies of each Portfolio. A Portfolio's
fundamental policies cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares.

A Portfolio, as a fundamental policy, may not:

1. Except for the Large Cap 20 Fund, purchase securities of any issuer (except
securities issued or guaranteed by the

<PAGE>

United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. With the
exception of the Cash Reserves Fund, this restriction applies to 75% of each
Portfolio's total assets.

2. Purchase any securities which would cause 25% or more of the total assets of
a Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. government or its agencies and instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry. For purposes of this limitation, supranational organizations are
deemed to be issuers conducting their principal business activities in the same
industry.

3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of each Portfolio's total assets (or 33
1/3% of the value of each of the Growth, Mid-Cap Value and Small Cap Value
Funds' total assets). This borrowing provision is included solely to facilitate
the orderly sale of portfolio securities to accommodate substantial redemption
requests if they should occur and is not for investment purposes. All borrowings
in excess of 5% of the Portfolio's total assets will be repaid before making
investments.

The foregoing percentages apply at the time of the purchase of a security.

- -------------------------------------
HOW TO PURCHASE FUND SHARES
- -------------------------------------

You may purchase shares of each Portfolio directly through DST Systems, Inc.,
the Fund's Transfer Agent. Purchases of shares of each Portfolio may be made on
any Business Day. Shares of each Portfolio are offered only to residents of
states in which such shares are eligible for purchase.

You may place orders by mail, wire or telephone. If market conditions are
extraordinarily active, or if severe weather or other emergencies exist, and you
experience difficulties placing orders by telephone, you may wish to consider
placing your order by other means, such as mail or overnight delivery.

You may also purchase shares of each Portfolio through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Portfolios. Such financial institutions may charge you a fee for this service in
addition to each Portfolio's public offering price.

Neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expenses for acting upon wire instructions, or telephone
instructions that it reasonably believes to be genuine. The Fund and the
Transfer Agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine including requiring a form of
personal identification prior to acting upon instructions received by telephone
and recording telephone instructions.

Each Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small or medium capitalization companies may from time to time
be more limited than those in other sectors of the stock market. Therefore, in
order

<PAGE>

to retain adequate investment flexibility, the Adviser may from time to time
recommend to the Board of Directors of the Fund that a Portfolio, which invests
extensively in such companies, indefinitely discontinue the sale of its shares
to new investors (other than directors, officers and employees of the Adviser,
each of the sub-advisers and their affiliated companies). In such event, the
Board of Directors would determine whether such discontinuance is in the best
interests of the applicable Portfolio and its shareholders. Shares of the PBHG
Limited Fund are currently offered only to existing shareholders of the PBHG
Class shares of the Portfolio. The PBHG Limited Fund may recommence offering its
shares to new investors in the future, provided that the Board of Directors
determines that doing so would be in the best interest of the Portfolio and its
shareholders.

MINIMUM INVESTMENT

The minimum initial investment in each Portfolio (other than the Limited Fund
and Strategic Small Company Fund) is $2,500 for regular accounts and $2,000 for
Traditional or Roth IRAs. The minimum initial investment in the Limited Fund and
the Strategic Small Company Fund is $5,000 for regular accounts and $2,000 for
Traditional or Roth IRAs. However, investors who establish a Systematic
Investment Plan, as described below, with a minimum investment of $25 per month
may at the same time open a regular account or Traditional or Roth IRA with any
Portfolio with a minimum initial investment of $500. There is no minimum for
subsequent investments. The Distributor may waive the minimum initial investment
amount at its discretion. No minimum applies to subsequent purchases effected by
dividend reinvestment. As described below, subsequent purchases through the
Fund's Systematic Investment Plan must be at least $25.

INITIAL PURCHASE BY MAIL

An account may be opened by mailing a check or other negotiable bank draft
payable to The PBHG Funds, Inc. for at least the minimum initial amount
specified above for regular and IRA accounts, and a completed Account
Application to THE PBHG FUNDS, INC. C/O DST SYSTEMS, INC., P.O. BOX 419534,
KANSAS CITY, MISSOURI 64141-6534. The Fund will not accept third-party checks,
i.e., a check not payable to The PBHG Funds, Inc. or a Portfolio for initial or
subsequent investments.

ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE)

You may purchase additional shares by telephoning the Transfer Agent at
1-800-433-0051. THE MINIMUM TELEPHONE PURCHASE IS $1,000, AND THE MAXIMUM IS
FIVE TIMES THE NET ASSET VALUE OF SHARES HELD BY THE SHAREHOLDER ON THE DAY
PRECEDING SUCH TELEPHONE PURCHASE FOR WHICH PAYMENT HAS BEEN RECEIVED. The
telephone purchase will be made at the offering price next computed after the
receipt of the call by the Transfer Agent. Payment for the telephone purchase
must be received by the Transfer Agent within seven days. If payment is not
received within seven days, you will be liable for all losses incurred by the
Fund as a result of the cancellation of such purchase.

INITIAL PURCHASE BY WIRE

If you have an account with a commercial bank that is a member of the Federal
Reserve System, you may purchase shares of the Portfolios by requesting your
bank to transmit funds by wire. Before making an initial investment by wire, you
must first telephone 1-800-433-0051 to receive an Account Application and be
assigned an account number. The Account Application must be received prior to
receipt of the wire. Your name, account number, taxpayer identification number
or Social Security Number, and address must be specified in the wire. All wires
must be

<PAGE>

received by 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m.
Eastern time for all other Portfolios to be effective on that day. In addition,
an original Account Application should be promptly forwarded to: The PBHG Funds,
Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534.
All wires must be sent as follows: United Missouri Bank of Kansas City, N.A.;
ABA #10-10-00695; for Account Number 98705-23469; Further Credit: [name of
Portfolio and your assigned account number].

ADDITIONAL PURCHASES BY WIRE

Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.

PURCHASE BY ACH

If you have made this election, shares of each Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to you initiating an ACH
transaction. The maximum purchase allowed through ACH is $100,000.

GENERAL INFORMATION REGARDING PURCHASES

A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives sufficient information to execute the order and
receives payment before 2:00 p.m., Eastern time for the Cash Fund and 4:00 p.m.,
Eastern time for all other Portfolios. Payment may be made by check or readily
available funds. The purchase price of shares of a Portfolio is the net asset
value per share next determined after a purchase order is effective. Purchases
will be made in full and fractional shares of a Portfolio calculated to three
decimal places. The Fund will not issue certificates representing shares of the
Portfolios.

In order for your purchase order to be effective on the day you place your order
with your broker-dealer or other financial institution, such broker-dealer or
financial institution must (i) receive your order before 2:00 p.m., Eastern time
for the Cash Fund and 4:00 p.m. Eastern time for all other Portfolios and (ii)
promptly transmit the order to the Transfer Agent. See "Determination of Net
Asset Value" below. The broker-dealer or financial institution is responsible
for promptly transmitting purchase orders to the Transfer Agent so that you may
receive the same day's net asset value.

If a check received for the purchase of shares does not clear, the purchase will
be canceled, and you could be liable for any losses or fees incurred by the
Fund. The Fund reserves the right to reject a purchase order when the Fund
determines that it is not in the best interests of the Fund or its shareholders
to accept such an order.

- -------------------------------------
SHAREHOLDER SERVICES
- -------------------------------------

SHAREHOLDER INQUIRIES AND SERVICES OFFERED

If you have any questions about the Portfolios or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST SYSTEMS, INC., P.O. BOX 419534, KANSAS CITY, MISSOURI
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described

<PAGE>

below, the Fund's Transfer Agent receives your notification to discontinue such
service(s) at least ten (10) days before the next scheduled investment or
withdrawal date.

SYSTEMATIC INVESTMENT AND SYSTEMATIC WITHDRAWAL PLANS

For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.

(1) SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolios at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolios despite
their fluctuating net asset values through regular purchases of a fixed dollar
amount of shares in the Portfolios. Dollar-cost averaging brings discipline to
your investing. Dollar-cost averaging results in more shares being purchased
when a Portfolio's net asset value is relatively low and fewer shares being
purchased when a Portfolio's net asset value is relatively high, thereby helping
to decrease the average price of your shares. Investors who establish a
Systematic Investment Plan may open an account with a minimum balance of $500.

Through the Systematic Investment Plan, shares are purchased by transferring
monies (minimum of $25 per transaction per Portfolio) from your designated
checking or savings account. Your systematic investment in the Portfolio(s)
designated by you will be processed on a regular basis at your option beginning
on or about either the first or fifteenth day of the month or quarter you
select. This Systematic Investment Plan must be established on your account at
least 15 days prior to the intended date of your first systematic investment.

(2) SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan provides a
convenient way for you to receive current income while maintaining your
investments in the Portfolio(s). The Systematic Withdrawal Plan permits you to
have payments of $50 or more automatically transferred from your account(s) in
the Portfolio(s) to your designated checking or savings account on a monthly,
quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides
the option of having a check mailed to the address of record for your account.
In order to start this Plan, you must have a minimum balance of $5,000 in any
account using this feature. Your systematic withdrawals will be processed on a
regular basis beginning on or about either the first or fifteenth day of the
month, quarter or semi-annual period you select.

EXCHANGE PRIVILEGES

Once payment for your shares has been received (i.e., an account has been
established) and your payment has been converted to Federal funds, you may
exchange some or all of your shares for shares of the other Portfolios of the
Fund currently available to the public. However, if you own shares of any
Portfolio other than the Cash Reserves Fund, you are limited to four (4)
exchanges annually from such Portfolio to the Cash Reserves Fund. Exchanges are
made at net asset value. The Fund reserves the right to change the terms and
conditions of the exchange privilege discussed herein, or to terminate the
exchange privilege, upon sixty (60) days' notice. Exchanges will be made only
after proper instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Transfer Agent.

<PAGE>

The exchange privilege may be exercised only in those states where the shares of
the new Portfolio may legally be sold.

TAX-SHELTERED RETIREMENT PLANS

A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
Corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.

(1) TRADITIONAL IRAS. You may save for your retirement and shelter your
investment income from current taxes by either: (a) establishing a new
Traditional IRA; or (b) "rolling-over" to the Fund monies from other IRAs or
lump sum distributions from a qualified retirement plan. If you are between 18
and 70 1/2 years of age, you can use a Traditional IRA to invest up to $2,000
per year of your earned income in any of the Portfolios. You may also invest up
to $2,000 per year in a spousal IRA if your spouse has no earned income. There
is a $10.00 annual maintenance fee charged to Traditional 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) ROTH IRAS. Roth IRAs are similar to Traditional IRAs in many respects and
provide a unique opportunity for qualifying individuals to accumulate investment
earnings tax-free. Contributions to Roth IRAs are not tax-deductible (while
contributions to traditional IRAs may be), however, if you meet the distribution
requirements, you can withdraw your investments without paying any taxes on the
earnings. In addition to establishing a new Roth IRA, you may be eligible to
convert a Traditional IRA into a Roth IRA. Maintenance fees charged for Roth
IRAs are similar to those for Traditional IRAs.

(3) 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.

(4) 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.

(5) 401(K) PLANS. Through the establishment of a 401(k) plan by a corporation
of any size, employees can invest a portion of their wages in the Portfolios on
a tax-deferred basis in order to help them meet their retirement needs.

(6) 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) EDUCATION IRAS. Education IRAs allow you to save for qualified higher
education expenses of designated beneficiaries. Like Traditional and Roth IRAs,
Education IRAs provide an opportunity for your investment to grow tax-free until
distributed. Contributions to an Education IRA are not tax deductible, however,
distributions from an Education IRA which are used to pay qualified higher
education expenses are tax-free. You may contribute up to $500 per year for the
benefit of each prospective student under the age of 18. There is a $7.00 annual
maintenance fee charged to the Education IRA accounts.

<PAGE>

The fee can be prepaid or will be deducted from your account if not received by
the announced deadline.

(2) UNIFORM GIFT TO MINORS/UNIFORM TRANSFERS TO MINORS. By establishing a
Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the Fund
you can build a fund for your children's education or a nest egg for their
future and, at the same time, potentially reduce your own income taxes.

(3) CUSTODIAL AND FIDUCIARY ACCOUNTS. The Fund provides a convenient means of
establishing custodial and fiduciary accounts for investors with fiduciary
responsibilities.

For further information regarding any of the above retirement plans and
accounts, please call toll free at 1-800-433-0051. Retirement investors may,
however, wish to consult with their own tax counsel or adviser.

- -------------------------------------
HOW TO REDEEM FUND SHARES
- -------------------------------------

Redemption orders received by the Transfer Agent prior to 2:00 p.m., Eastern
time for the Cash Reserves Fund and 4:00 p.m., Eastern time for each of the
other Portfolios on any Business Day will be effective that day. The redemption
price of shares is the net asset value per share of a Portfolio next determined
after the redemption order is effective. Payment of redemption proceeds will be
made as promptly as possible and, in any event, within seven days after the
redemption order is received, provided, however, that redemption proceeds for
shares purchased by check (including certified or cashier's checks) or by ACH
will be forwarded only upon collection of payment for such shares; collection of
payment may take up to 15 days.

You may also redeem shares of each Portfolio through certain broker-dealers and
other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.

In order for your redemption order to be effective on the day you place your
redemption order with your broker-dealer or other financial institution, such
broker-dealer or financial institution must (i) receive your order before 2:00
p.m. Eastern time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for each
other Portfolio and (ii) promptly transmit the order to the Transfer Agent. See
"Determination of Net Asset Value" below. The financial institution is
responsible for promptly transmitting redemption orders to the Transfer Agent so
that your shares are redeemed at the same day's net asset value per share.

You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.

BY MAIL

There is no charge for having a check for redemption proceeds mailed to you.

BY TELEPHONE

Redemption orders may be placed by telephone, provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.

<PAGE>

If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience difficulties placing redemption orders by
telephone, you may wish to consider placing your order by other means, such as
mail or overnight delivery. The Fund will not accept redemption requests for an
amount greater than $50,000 by telephone instruction, except for cases where the
proceeds of the redemption request are transmitted by Federal wire to a pre-
established checking account. Such redemption requests must be received in
writing and be signature guaranteed.

BY WIRE

The Transfer Agent will deduct a wire charge, currently $10.00, from the amount
of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot receive proceeds from redemptions of shares of
a Portfolio by Federal Reserve wire on federal holidays restricting wire
transfers.

BY ACH

The Fund does not charge for ACH transactions; however, proceeds from such
transactions will not be posted to your bank account until the second Business
Day following the transaction. In order to process a redemption by ACH, banking
information must be established on your account at least 15 days prior to
initiating a transaction. A voided check or deposit slip must accompany requests
to establish this option.

CHECK WRITING (CASH RESERVES FUND ONLY)

Check writing service is offered free of charge to shareholders of the Cash
Reserves Fund. If you have an account balance of $5,000 or more, you may redeem
shares by writing checks on your account for $250 or more. To establish this
privilege, please call 1-800-433-0051 to request a signature card. Once you have
signed and returned a signature card, you will receive a supply of checks. A
check may be made payable to any person, and your account will continue to earn
dividends until the check clears. Because of the difficulty of determining in
advance the exact value of your account, you may not use a check to close your
account. Your account will be charged a fee for stopping payment of a check upon
your request, or if the check cannot be honored because of insufficient funds or
other valid reasons.

SIGNATURE GUARANTEES

A signature guarantee is a widely accepted way to protect you by verifying the
signature on certain redemption requests. The Fund requires signature guarantees
to be provided in the following circumstances: (1) written requests for
redemptions in excess of $50,000; (2) all written requests to wire redemption
proceeds; (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; and (4) redemption
requests that are received within 30 days of a request to change the address of
record on a shareholder's account. Signature guarantees can be obtained from any
of the following institutions: a national or state bank, a trust company, a
federal savings and loan association, or a broker-dealer that is a member of a
national securities exchange. The Fund does not accept guarantees from notaries
public or organizations that do not provide reimbursement in the case of fraud.

MINIMUM ACCOUNT SIZE

Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $12.00 minimum account charge and reserves the right to redeem
shares in any non-retirement account if, as the result of redemptions, the value
of any account drops below the

<PAGE>

minimum initial investment amount, specified above, for each Portfolio. See
"Minimum Investment" and "Systematic Investment and Systematic Withdrawal Plans"
for minimum investments. You will be allowed at least 60 days, after notice from
the Fund, to make an additional investment to bring your account value up to at
least the applicable minimum account size before the annual $12.00 minimum
account fee is charged and/or the redemption of a non-retirement account is
processed. The applicable minimum account charge will be imposed annually on any
such account until the account is brought up to the applicable minimum account
size.

The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.

- -------------------------------------
DETERMINATION OF NET ASSET VALUE
- -------------------------------------

The net asset value per share of each Portfolio, other than the Cash Reserves
Fund, is determined by dividing the total market value of the Portfolio's
investments and other assets, less any liabilities, by the total outstanding
shares of the Portfolio. Net asset value per share is determined daily, normally
as of the close of trading on the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) on any Business Day. The net asset value per share of each
Portfolio, other than the Cash Reserves Fund, is listed under PBHG in the mutual
fund section of most major daily newspapers, including The Wall Street Journal.
Each Portfolio's assets (other than the Cash Reserves Fund) are primarily valued
on the basis of market quotations. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded, and are translated
from the local currency into U.S. dollars using current exchange rates. In
addition, if quotations are not readily available, or if the assets have been
materially affected by events occurring after the close of the foreign markets,
assets may be valued by another method that the Board of Directors believes
accurately reflects fair value.

The Cash Reserves Fund values its portfolio securities using the amortized cost
method of valuation, approximating market value. Net asset value per share is
determined daily as of 2:00 p.m., Eastern time on each Business Day.

- -------------------------------------
PERFORMANCE ADVERTISING
- -------------------------------------

From time to time, each Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. For Portfolios other than the Cash Reserves Fund,
yield refers to the annualized income generated by an investment in the
Portfolio over a specified 30-day period. The yield is calculated by assuming
that the same amount of income generated by the investment during that period is
generated in each 30-day period over one year and is shown as a percentage of
the investment.

The "current yield" of the Cash Reserves Fund refers to the income generated by
an investment in the Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield") is
calculated similarly but, when annualized, the income earned by an investment in
the Portfolio is assumed to be reinvested. The effective yield will be slightly
higher than the current yield because of the compounding effect of this assumed
reinvestment.

<PAGE>

The total return of each Portfolio other than the Cash Reserves Fund refers to
the average compounded rate of return on a hypothetical investment for
designated time periods (including but not limited to the period from which the
Portfolio commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period and assuming the
reinvestment of all dividend and capital gain distributions.

Each Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.) or by financial and business publications and periodicals, broad
groups of comparable mutual funds, unmanaged indices which may assume investment
of dividends but generally do not reflect deductions for administrative and
management costs and other investment alternatives. Each Portfolio may quote
services such as Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital markets in the U.S.
Each Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include the
value of a hypothetical investment in any of the capital markets. Each Portfolio
may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy, and investment techniques.

Each Portfolio may quote various measures of volatility and benchmark
correlation in advertising and may compare these measures to those of other
funds. Measures of volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures of benchmark
correlation indicate how valid a comparative benchmark might be. Measures of
volatility and correlation are calculated using averages of historical data and
cannot be calculated precisely.

The performance of the Fund's Advisor Class shares will be lower than that of
the Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder
servicing expenses charged to Advisor Class shares.

- -------------------------------------
TAXES
- -------------------------------------

The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of the
Portfolios or their shareholders. Accordingly, you are urged to consult your tax
advisors regarding specific questions as to federal, state and local income
taxes. See the Statement of Additional Information.

TAX STATUS OF THE PORTFOLIOS

Each Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other Portfolios. Each Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded RICs as
defined under Subchapter M of the Code. So long as a Portfolio qualifies for
this special tax treatment, it will be relieved of federal income tax on that
part of its net investment income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) which it distributes to
shareholders.

TAX STATUS OF DISTRIBUTIONS

Each Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Dividends from net investment income

<PAGE>

will qualify for the dividends-received deduction for corporate shareholders
only to the extent such distributions are derived from dividends paid by
domestic corporations. It can be expected that only certain dividends of a
Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as long-term capital
gains, regardless of how long the shareholder has held shares and regardless of
whether the distributions are received in cash or in additional shares. The
Portfolios will make annual reports to shareholders of the federal income tax
status of all distributions, including the amount of dividends eligible for the
dividends-received deduction.

Certain securities purchased by the Portfolios (such as U.S. Treasury STRIPS,
defined in "Glossary of Permitted Investments" below) are sold with original
issue discount and thus do not make periodic cash interest payments. Each
Portfolio will be required to include as part of its current net investment
income the accrued discount on such obligations for purposes of the distribution
requirement even though the Portfolio has not received any interest payments on
such obligations during that period. Because a Portfolio distributes all of its
net investment income to its shareholders, the Portfolio may have to sell
portfolio securities to distribute such accrued income, which may occur at a
time when the Adviser or sub-adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.

Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly by a Portfolio and may be exempt, depending
on the state, when received by a shareholder as income dividends from a
Portfolio provided certain state-specific conditions are satisfied. Not all
states permit such income dividends to be tax exempt and some require that a
certain minimum percentage of an investment company's income be derived from
state tax-exempt interest. Each Portfolio will inform shareholders annually of
the percentage of income and distributions derived from direct U.S. obligations.
You should consult your tax advisor to determine whether any portion of the
income dividends received from a Portfolio is considered tax exempt in your
particular state.

Dividends declared by a Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.

Each Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for the federal excise tax applicable to
regulated investment companies.

TAX TREATMENT OF TRANSACTIONS

Each sale, exchange or redemption of a Portfolio's shares is a taxable event to
the shareholder.

Income derived by a Portfolio from securities of foreign issuers may be subject
to foreign withholding taxes. The International Fund expects to be able to treat
shareholders as having paid their proportionate share of such foreign taxes.

- -------------------------------------
GENERAL INFORMATION
- -------------------------------------

THE FUND

The Fund, an open-end management investment company, was originally incorporated
in Delaware in 1985 under the name PBHG Growth Fund, Inc. Effective July 31,
1992, the Fund was reorganized as a Maryland corporation pursuant to an
Agreement and Articles of Merger which

<PAGE>

was approved by Fund shareholders on July 21, 1992. On September 8, 1993, the
Fund's shareholders voted to change the name of the Fund to The Advisors' Inner
Circle Fund II, Inc. On May 2, 1994, the Fund's shareholders voted to change the
name of the Fund to The PBHG Funds, Inc. The Fund currently has an authorized
capitalization of 9.2 billion shares of common stock with a par value of $0.001
per share. All consideration received by the Fund for shares of any Portfolio
and all assets of such Portfolio belong to that Portfolio and would be subject
to liabilities related thereto. The Fund reserves the right to create and issue
shares of additional portfolios. Each Portfolio of the Fund pays its respective
expenses relating to its operation, including fees of its service providers,
audit and legal expenses, expenses of preparing prospectuses, proxy solicitation
material and reports to shareholders, costs of custodial services and
registering the shares of its Portfolios under federal and state securities
laws, pricing and insurance expenses and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses. Each Portfolio's expense ratios are disclosed
under "Financial Highlights" in this Prospectus.

THE ADVISER

Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to approximately $12 billion in assets. In addition to
advising the Portfolios, the Adviser provides advisory services to pension and
profit-sharing plans, charitable institutions, corporations, individual
investors, trusts and estates, and other investment companies. The principal
business address of the Adviser is 825 Duportail Road, Wayne, Pennsylvania
19087.

The Adviser serves as the investment adviser to each Portfolio under an
investment advisory agreement with the Fund (the "Advisory Agreement"). The
Adviser makes the investment decisions for the assets of each Portfolio and
continuously reviews, supervises and administers the investment program of each
Portfolio, subject to the supervision of, and policies established by, the Board
of Directors of the Fund.

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of: 0.85% of each of the Growth, Emerging
Growth, Select Equity, Core Growth, Large Cap 20, Mid-Cap Value and Technology &
Communications Funds' average daily net assets; 0.75% of the Large Cap Growth
Fund's average daily net assets; 0.65% of the Large Cap Value Fund's average
daily net assets; 1.00% of each of the Limited, Small Cap Value, International
and Strategic Small Company Funds' average daily net assets; and 0.30% of the
Cash Reserves Fund's average daily net assets. On March 6, 1997, the Board of
Directors approved a reduction in the annual rate of the advisory fee applicable
to the Large Cap Value Fund from 0.85% of its average daily net assets to 0.65%
of its average daily net assets, effective May 1, 1997. The investment advisory
fees paid by certain of the Portfolio are higher than those paid by most
investment companies, although the

<PAGE>

Adviser believes the fees to be comparable to those paid by investment companies
with similar investment objectives and policies.

In the interest of limiting the expenses of the Portfolios, the Adviser has
voluntarily entered into expense limitation agreements with the Fund ("Expense
Limitation Agreements") pursuant to which the Adviser has agreed to waive or
limit a portion of its fee and to assume other expenses in an amount necessary
to limit total annual operating expenses to not more than 1.50% of the average
daily net assets of each of the Core Growth, Limited, Large Cap 20, Large Cap
Value, Mid-Cap Value, Small Cap Value and Strategic Small Company Funds, and to
not more than 2.25% of the average daily net assets of the International Fund.
Reimbursement by the Portfolios of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreements may
be made at a later date when the Portfolios have reached a sufficient asset size
to permit reimbursement to be made without causing the total annual expense rate
of each Portfolio to exceed 1.50% (or 2.25% for the International Fund).
Consequently, no reimbursement by a Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.50% (or 2.25% for the International Fund); and (iii) the
payment of such reimbursement was approved by the Board of Directors on a
quarterly basis.

For the fiscal year ended March 31, 1997, the Adviser received a fee equal to
0.85% of the Growth Fund's average daily net assets, 0.85% of the Emerging
Growth Fund's average daily net assets, 0.75% of the Large Cap Growth Fund's
average daily net assets, 0.85% of the Select Equity Fund's average daily net
assets, 0.85% of the Core Growth Fund's average daily net assets, 1.00% of the
Limited Fund's average daily net assets, 0.85% of the Large Cap 20 Fund's
average daily net assets, 0.61% of the Large Cap Value Fund's average daily net
assets, 1.00% of the International Fund's average daily net assets, 0.30% of the
Cash Reserves Fund's average daily net assets, 0.85% of the Technology &
Communications Fund's average daily net assets and 1.00% of the Strategic Small
Company Fund's average daily net assets.

Christine M. Baxter, CFA, Portfolio Manager, has managed the Emerging Growth and
Limited Funds since their inception. Ms. Baxter has worked as an equity analyst
and portfolio manager for the Adviser since 1991. Gary L. Pilgrim, CFA has
served as the portfolio manager of the Growth Fund since its inception. Mr.
Pilgrim has served as the Chief Investment Officer for the Adviser for the past
six years, and has been its President since 1993. James D. McCall, CFA, managed
the Large Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds from
their inception until March 1997 and has co-managed each of those Portfolios
since March 1997. Mr. McCall has been a portfolio manager with the Adviser since
1994. Prior to joining the Adviser, Mr. McCall was a portfolio manager with
First National Bank of Maryland. Ellen A. McGee, CFA, has co-managed the Large
Cap Growth, Select Equity, Core Growth and Large Cap 20 Funds since March 1997.
Ms. McGee joined the Adviser in March 1997 and is a portfolio manager/analyst.
Prior to joining the Adviser, Ms. McGee was Vice President and Senior Portfolio
Manager with First Union Capital Management from August 1995 until March 1997,
Vice President and Portfolio Manager with NationsBank Private Client Group from
May 1994 until August 1995, and Vice President and Senior Institutional
Portfolio Manager with First National Bank of Maryland from April 1991 until May
1994. John F. Force, CFA, has co-managed the Technology &

<PAGE>

Communications Fund since its inception. Mr. Force joined the Adviser in 1993,
and is a portfolio manager/analyst. Prior to joining the Adviser, Mr. Force was
Vice President/Portfolio Manager at Fiduciary Management Associates from July,
1987 to September, 1992. James M. Smith, CFA, has served as co-manager of both
the Technology & Communications Fund and the Strategic Small Company Fund since
their inception. Mr. Smith has over twenty years of investment experience in
equity portfolio management and research. Mr. Smith joined the Adviser in 1993.
Prior to joining the Adviser, Mr. Smith was Senior Vice President/Portfolio
Manager at Selected Financial Services, a registered investment advisory firm.

VALUE INVESTORS

Value Investors, 825 Duportail Road, Wayne, Pennsylvania, 19087, is a registered
investment adviser that was formed in 1940. Value Investors is a wholly owned
subsidiary of the Adviser. Value Investors currently has discretionary
management authority with respect to over $4 billion in assets. In addition to
sub-advising certain of the Portfolios, Value Investors provides advisory
services to pension and profit-sharing plans, charitable institutions, trusts,
estates and other investment companies. Value Investors serves as the investment
sub-adviser for the Large Cap Value, Mid-Cap Value, Small Cap Value and
Strategic Small Company Funds pursuant to sub-advisory agreements with the Fund
and the Adviser ("Sub-Advisory Agreements"). Under each Sub-Advisory Agreement,
Value Investors manages the investments of each of those Portfolios, selects
investments and places all orders for purchases and sales of each Portfolio's
securities, subject to the general supervision of the Board of Directors of the
Fund and the Adviser.

For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreements for the Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic
Small Company Funds, Value Investors is entitled to receive from the Adviser a
sub-advisory fee with respect to the average daily net assets of each Portfolio
that is computed daily and paid monthly at annual rates of 0.40%, 0.50%, 0.65%
and 0.30%, respectively. On March 6, 1997, the Board of Directors approved a
reduction in the annual rate of the sub-advisory fee with respect to the average
daily net assets of the Large Cap Value Fund from 0.50% to 0.40%, effective May
1, 1997.

Gary D. Haubold, CFA, has managed the Mid-Cap Value and Small Cap Value Funds
and co-managed the Strategic Small Company Fund since each Portfolio's
inception. Mr. Haubold has managed the Large Cap Value Fund since December 9,
1997. Mr. Haubold joined Value Investors in January 1997. Prior to joining Value
Investors, Mr. Haubold was employed by Miller Anderson & Sherrerd ("MAS") from
1993 until January 6, 1997. At MAS, Mr. Haubold served as the co-manager of the
Mid-Cap Value Portfolio of the MAS Fund from its inception on December 30, 1994
through January 6, 1997 and the co-manager of the Small Cap Value Portfolio of
the MAS Fund from December 31, 1994 through January 6, 1997. Mr. Haubold was the
person primarily responsible for the day-to-day management of those two mutual
funds during the periods noted. Prior to joining MAS, Mr. Haubold was Senior
Vice President of Wood, Struthers & Winthrop.

MURRAY JOHNSTONE INTERNATIONAL, LTD.

Murray Johnstone, 11 West Nile Street, Glasgow, Scotland, is a U.S. registered
investment adviser that was founded in 1989 under the laws of Scotland. Murray
Johnstone is a wholly-owned subsidiary of Murray Johnstone Holdings Limited,

<PAGE>

which together have under management approximately $7 billion in assets, as of
March 31, 1997, for institutional clients worldwide. Murray Johnstone Holdings
Limited, along with its predecessors, has been in business since 1907, and is an
indirect wholly-owned subsidiary of UAM. Murray Johnstone has been advising
open-end investment companies since 1992. For its services provided pursuant to
its investment sub-advisory agreement with the Adviser and the Fund, Murray
Johnstone receives a fee from the Adviser at an annual rate of 0.50% of the
International Fund's average daily net assets. Murray Johnstone receives no fees
directly from the International Fund.

Rodger F. Scullion, MSI, has served as the portfolio manager of the
International Fund since July 3, 1995. Mr. Scullion has been associated with
Murray Johnstone since November, 1992, and serves as its Managing Director,
Chief Executive Officer and Chief Investment Officer. Prior to that, Mr.
Scullion served as Investment Director of Murray Johnstone Limited.

WELLINGTON MANAGEMENT COMPANY, LLP

Wellington serves as the investment sub-adviser for the Cash Reserves Fund
pursuant to a sub-advisory agreement with the Fund and the Adviser. Under the
sub-advisory agreement, Wellington manages the investments of the Portfolio,
selects investments, and places all orders for purchases and sales of the
Portfolio's securities, subject to the general supervision of the Board of
Directors of the Fund and the Adviser.

For the services provided and expenses incurred pursuant to the sub-advisory
agreement, Wellington is entitled to receive from the Adviser a fee, computed
daily and paid monthly, at the annual rate equal to 0.075% of the Portfolio's
average daily net assets up to and including $500 million and 0.020% of the
Portfolio's average daily net assets over $500 million, but subject to a minimum
annual fee of $50,000.

Wellington is a professional investment counseling firm which provides
investment services to investment companies, employee benefit plans, endowments,
foundations, and other institutions and individuals. As of March 31, 1997,
Wellington had discretionary management authority with respect to approximately
$136 billion of assets. Wellington and its predecessor organizations have
provided investment advisory services to investment companies since 1933 and to
investment counseling clients since 1960. Wellington, 75 State Street, Boston,
Massachusetts 02109, is a Massachusetts general partnership, of which the
following persons are managing partners: Robert W. Doran, Duncan M. McFarland
and John R. Ryan.

THE ADMINISTRATOR AND SUB-ADMINISTRATOR

PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Fund. The principal place of business of the
Administrator is 825 Duportail Road, Wayne, PA 19087.

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Fund's
distributor, assists the Administrator in providing administrative services to
the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total

<PAGE>

average daily net assets of the Fund and the PBHG Insurance Series Fund, Inc.
taken together and a fee at the annual rate of 0.025% of the average daily net
assets of each Portfolio with respect to the total average daily net assets of
the Fund and the PBHG Insurance Series Fund, Inc. taken together in excess of
$2.5 billion.

THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS

DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent and dividend disbursing agent for the Fund under a transfer
agency agreement with the Fund. The Administrator serves as shareholder
servicing agent for the Fund under a shareholder servicing agreement with the
Fund. UAM Shareholder Service Center, Inc. ("UAM SSC"), an affiliate of the
Adviser, serves as sub-shareholder servicing agent for the Fund under a sub-
shareholder servicing agreement between UAM SSC and the Administrator. The
principal place of business of UAM SSC is 825 Duportail Road, Wayne
Pennsylvania, 19087. From time to time, the Fund may pay amounts to third
parties that provide sub-transfer agency and other administrative services
relating to the Fund to persons who beneficially own interests in the Fund, such
as participants in 401(k) plans. These services may include, among other things,
sub-accounting services, answering inquiries relating to the Fund, delivering,
on behalf of the Fund, proxy statements, annual reports, updated Prospectuses,
other communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request. In such cases, the Fund will not
compensate such third parties at a rate that is greater than the rate the Fund
is currently paying the Fund's Transfer Agent for providing these services to
shareholders investing directly in the Fund.

THE DISTRIBUTOR

SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly-owned subsidiary of SEI, provides the Fund with
distribution services. No compensation is paid to the Distributor for
distribution services for the PBHG Class shares of the Portfolios.

DIRECTORS OF THE FUND

The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund.

VOTING RIGHTS

Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected series. Shareholders of all series of the Fund will
vote together in matters affecting the Fund generally, such as the election of
Directors or selection of independent accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Advisor Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of directors under certain
circumstances. In addition, a director may be removed by the remaining directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of

<PAGE>

the Fund. In the event that such a meeting is requested, the Fund will provide
appropriate assistance and information to the shareholders requesting the
meeting.

REPORTING

The Fund issues unaudited financial information semi-annually, and audited
financial statements annually for each Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.

SHAREHOLDER INQUIRIES

You may direct inquiries to the Fund by writing to The PBHG Funds, Inc., P.O.
Box 419534, Kansas City, Missouri 64141-6534, or by calling 1-800-433-0051.

DIVIDENDS AND DISTRIBUTIONS

Substantially all of the net investment income (exclusive of capital gains) of a
Portfolio (except the Cash Reserves Fund) is distributed in the form of annual
dividends. If any capital gain is realized, substantially all of it will be
distributed by each Portfolio at least annually. The Cash Reserves Fund accrues
dividends daily and pays them monthly to shareholders.

Shareholders automatically receive all dividends and capital gain distributions
in additional shares at the net asset value determined on the next Business Day
after the record date, unless the shareholder has elected to take such payment
in cash. Shareholders may change their election by providing written notice to
the Transfer Agent at least 15 days prior to the distribution. Shareholders may
receive payments for cash distributions in the form of a check or by Federal
Reserve wire or ACH transfer. If a shareholder has elected to receive dividends
and/or capital gain distributions in cash and the postal or other delivery
service is unable to deliver checks to the shareholder's address of record, such
shareholder's distribution option will automatically be converted to having all
dividend and other distributions reinvested in additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.

Dividends and distributions of the Portfolios are paid on a per share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable dividend or distribution.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Fund. Coopers &
Lybrand L.L.P. serves as the independent accountants of the Fund.

CUSTODIANS

CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, serves as the custodian for the Fund and each Portfolio
other than the International Fund. The Northern Trust Company, 50 South LaSalle
Street, Chicago, Illinois 60675 serves as the custodian for the International
Fund (together, the "Custodians"). The Custodians hold cash, securities and
other assets of the Fund as required by the Investment Company Act of 1940, as
amended (the "1940 Act").

MISCELLANEOUS

As of October 31, 1997, Pilgrim Baxter Partners I LP, 825 Duportail Road, Wayne,
Pennsylvania 19087, owned of record or beneficially, at least 25% of the
outstanding PBHG Class shares of the Cash Reserves Fund, and may be deemed to be
a controlling person of this Portfolio for purposes of the 1940 Act.

<PAGE>

- -------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- -------------------------------------

The following is a description of permitted investments for certain of the
Portfolios:

AMERICAN DEPOSITARY RECEIPTS AND GLOBAL DEPOSITARY RECEIPTS ("GDRS") -- ADRs are
securities, typically issued by a U.S. financial institution (a "depositary"),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer and deposited with the depositary. ADRs include American
Depositary Shares and New York Shares. GDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership interests in a security
or a pool of securities issued by either a U.S. or foreign issuer. ADRs, GDRs
and CDRs may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the receipt's underlying security. Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.

BANKERS' ACCEPTANCE -- A bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.

CERTIFICATE OF DEPOSIT -- A negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
generally carry penalties for early withdrawal.

COMMERCIAL PAPER -- The term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
typically vary from a few days to nine months.

CONVERTIBLE SECURITIES -- Securities such as rights, bonds, notes and preferred
stocks which are convertible into or exchangeable for common stocks. Convertible
securities have characteristics similar to both fixed income and equity
securities. Because of the conversion feature, the market value of convertible
securities tends to move together with the market value of the underlying common
stock. As a result, the Portfolio's selection of convertible securities is
based, to a great extent, on the potential for capital appreciation that may
exist in the underlying stock. The value of convertible securities is also
affected by prevailing interest rates, the credit quality of the issuer, and any
call provisions.

DEMAND INSTRUMENTS -- Certain instruments may involve a conditional or
unconditional demand feature which permits the holder to demand payment of the
principal amount of the instrument. Demand instruments may include variable
amount master demand notes.

<PAGE>

DERIVATIVES -- Derivatives are securities that derive their value from other
securities. The following are considered derivative securities: futures, options
on futures, options (e.g., puts and calls), swap agreements, mortgage-backed
securities (e.g., CMOs, REMICs, IOs and POs), when-issued securities and forward
commitments, floating and variable rate securities, convertible securities,
"stripped" U.S. Treasury securities (e.g., Receipts and STRIPS) and privately
issued stripped securities (e.g., TGRs, TRs and CATS). See elsewhere in this
"Glossary of Permitted Investments" for discussions of these various
instruments, and see "Investment Objectives and Policies" for more information
about the investment policies and limitations applicable to their use.

EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. Changes in the value of
portfolio securities will not necessarily affect cash income derived from these
securities but will affect a Portfolio's net asset value.

FORWARD FOREIGN CURRENCY CONTRACTS -- Foreign currency exchange transactions may
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering into forward currency
contracts to protect against uncertainty in the level of future exchange rates
between a particular foreign currency and the U.S. dollar, or between foreign
currencies in which a Portfolio's portfolio securities are or may be
denominated. A forward foreign currency contract involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. Under normal circumstances,
consideration of the prospect for changes in currency exchange rates will be
incorporated into each Portfolio's long-term investment strategies. However,
the Adviser and the sub-advisers believe that it is important to have the
flexibility to enter into forward foreign currency contracts when they determine
that the best interests of any Portfolio will be served. The International Fund
will convert currency on a spot basis, and investors should be aware of the
costs of currency conversion.

When the Adviser or a sub-adviser believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Portfolio in question may enter into a forward foreign
currency contract to sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency approximating the value of
some or all of the Portfolio's securities denominated in such foreign currency.

At the maturity of a forward foreign currency contract, a Portfolio may either
sell a portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader, obligating it to purchase, on the same maturity date, the same amount of
the foreign currency. A Portfolio may realize a gain or loss from currency
transactions.

Generally, a Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to hedge
a specific security transaction or portfolio position. If a Portfolio enters
into forward

<PAGE>

foreign currency contracts to cover activities which are essentially
speculative, the Portfolio will segregate cash or readily marketable securities
with its custodian, or a designated sub-custodian, in an amount at all times
equal to or exceeding the Portfolio's commitment with respect to such contracts.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- No Portfolio, except the
International Fund, Strategic Small Company Fund, Large Cap Value Fund, Mid-Cap
Value Fund and Small Cap Value Fund, has a current intention of utilizing
futures contracts. The International Fund, Strategic Small Company Fund, Mid-Cap
Value Fund and Small Cap Value Fund may enter into futures contracts for the
purchase or sale of securities, including, for the International Fund, index
contracts on foreign currencies. A purchase of a futures contract means the
acquisition of a contractual right to obtain delivery of the securities or
foreign currency, called for by the contract at a specified price during a
specified future month. When a futures contract is sold, the Portfolio incurs a
contractual obligation to deliver the securities or foreign currency underlying
the contract at a specified price on a specified date during a specified future
month. Each of the specified Portfolios may sell stock index futures contracts
in anticipation of, or during, a market decline to attempt to offset the
decrease in market value of its common stocks that might otherwise result; and
it may purchase such contracts in order to offset increases in the cost of
common stocks that it intends to purchase. Each of the specified Portfolios may
enter into futures contracts, and with respect to the International Fund options
thereon, to the extent that (i) aggregate initial margin deposits to establish
positions other than "bona fide hedging" positions (and premiums paid for
unexpired options on futures contracts) do not exceed 5% of the Portfolio's net
assets and (ii) the total market value of obligations underlying all futures
contracts does not exceed 20% of the value of the International Fund's total
assets or 50% of the value of each of the other specified Portfolio's total
assets.

The International Fund may also purchase and write options to buy or sell
futures contracts. The International Fund may write options on futures only on a
covered basis. Options on futures are similar to options on securities except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract, rather than actually to
purchase or sell the futures contract, at a specified exercise price at any time
during the period of the option.

Each Portfolio will maintain assets sufficient to meet its obligations under
such futures contracts in a segregated margin account with the custodian bank or
will otherwise comply with the SEC's position on asset coverage. The prices of
futures contracts are volatile and are influenced by, among other things, actual
and anticipated changes in the market and interest rates.

ILLIQUID SECURITIES -- Securities that cannot be disposed of in the ordinary
course of business within seven days at approximately the price at which the
Portfolio has valued the security.

MORTGAGE-BACKED SECURITIES -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped mortgage-

<PAGE>

backed securities. The value of these securities may be significantly affected
by changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved. Some securities may have a structure
that makes their reaction to interest rates and other factors difficult to
predict, making their value highly volatile. These securities may also be
subject to prepayment risk.

OPTIONS -- No Portfolio, except the International Fund, has a current intention
of utilizing options on stocks and stock indices. The International Fund may
invest in put and call options for various stocks and stock indices that are
traded on national securities exchanges, from time to time as the Adviser deems
to be appropriate. Options will be used for hedging purposes and will not be
engaged in for speculative purposes. The aggregate value of option positions may
not exceed 10% of the International Fund's net assets as of the time the
International Fund enters into such options.

A put option gives the purchaser of the option the right to sell, and the writer
the obligation to buy, the underlying security at any time during the option
period. A call option gives the purchaser of the option the right to buy, and
the writer of the option the obligation to sell, the underlying security at any
time during the option period. The premium paid to the writer is the
consideration for undertaking the obligations under the option contract.
Although the International Fund will engage in option transactions only as
hedging transactions and not for speculative purposes, there are risks
associated with such investment including the following: (i) the success of a
hedging strategy may depend on the ability of the Adviser or a sub-adviser to
predict movements in the prices of the individual securities, fluctuations in
markets and movements in interest rates; (ii) there may be an imperfect
correlation between the changes in market value of the stocks held by the
International Fund and the prices of options; (iii) there may not be a liquid
secondary market for options; and (iv) while the International Fund will receive
a premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security. When writing options (other
than covered call options), the International Fund must establish and maintain a
segregated account with the Fund's Custodian containing cash or other liquid
assets in an amount at least equal to the market value of the option.

RECEIPTS -- Separately traded interest and principal component parts of U.S.
Treasury obligations that are issued by banks or brokerage firms and are created
by depositing U.S. Treasury obligations into a special account at a custodian
bank. The custodian bank holds the interest and principal payments for the
benefit of the registered owners of the receipts. The custodian bank arranges
for the issuance of the receipts evidencing ownership and maintains the
register.

REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Fund's Custodians or their agents will hold
the security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral

<PAGE>

securities or if the Portfolio realizes a loss on the sale of the collateral
securities. The Adviser or a sub-adviser will enter into repurchase agreements
on behalf of a Portfolio only with financial institutions deemed to present
minimal risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Directors. Repurchase agreements
are considered loans under the 1940 Act, as well as for federal and state income
tax purposes.

RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by the Cash
Reserves Fund are subject to limitations imposed under regulations adopted by
the SEC. These regulations generally require the Cash Reserves Fund to acquire
only U.S. dollar obligations maturing in 397 days or less and to maintain a
dollar-weighted average portfolio maturity of 90 days or less. In addition, the
Cash Reserves Fund may acquire only obligations that present minimal credit
risks and that are "eligible securities."

RESTRICTED SECURITIES -- Securities that may not be sold freely to the public
absent registration under the Securities Act of 1933, as amended ("1933 Act"),
or an exemption from registration. A Portfolio may invest in restricted
securities that the Adviser determines are not illiquid, based on guidelines and
procedures developed and established by the Board of Directors of the Fund. The
Board of Directors will periodically review such procedures and guidelines and
will monitor the Adviser's implementation of such procedures and guidelines.
Under these procedures and guidelines, the Adviser will consider the frequency
of trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. The Fund
may purchase restricted securities sold in reliance upon the exemption from
registration provided by Rule 144A under the 1933 Act. Restricted securities may
be difficult to value because market quotations may not be readily available.
Because of the restrictions on the resale of restricted securities, they may
pose liquidity problems for the Portfolios.

SECURITIES LENDING -- In order to generate additional income, certain of the
Portfolios may lend the securities in which they are invested pursuant to
agreements requiring that the loan be continuously secured by cash, securities
of the U.S. Government or its agencies or any combination of cash and such
securities as collateral equal at all times to 100% of the market value of the
securities lent. Each Portfolio will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of cash
collateral in U.S. Government securities. Collateral is marked to market daily
to provide a level of collateral at least equal to the value of the securities
lent. There may be risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans will only be made to borrowers deemed by the Adviser or
sub-advisers to be of good standing and when, in the judgment of the Adviser or
sub-advisers, the consideration which can be earned currently from such
securities loans justifies the attendant risk.

SWAPS -- As a way of managing its exposure to different types of investments,
the International Fund may enter into interest rate swaps, currency swaps and
other types of swap agreements such as caps, collars and floors. In a typical
interest rate swap, one party agrees to make

<PAGE>

regular payments equal to a floating interest rate times a "notional principal
amount." In return for payments equal to a fixed rate times the same amount, for
a specific period of time. If a swap agreement provides for payment in different
currencies, the parties might agree to exchange the notional principal amount as
well. Swaps may also depend on other prices or rates, such as the value of an
index or mortgage prepayment rates.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an agreed-
upon level, while the seller of an interest rate floor is obligated to make
payments to the extent that a specified interest rate falls below an agreed-upon
level. An interest rate collar combines elements of buying a cap and selling a
floor.

Swap agreements will tend to shift the Portfolio's investments exposure from one
type of investment to another. For example, if the Portfolio agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Portfolio's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of investments
and their share price and yield.

Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and have a considerable impact on the
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform and may decline in value if the counterparty's
creditworthiness deteriorates. The Portfolio may also suffer losses if it is
unable to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. Any obligation the Portfolio may have under these types
of arrangements will be covered by setting aside high quality liquid securities
in a segregated account. The Portfolio will enter into swaps only with
counterparties deemed creditworthy by the Adviser.

TIME DEPOSIT -- A non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.

U.S. GOVERNMENT AGENCY OBLIGATIONS -- Certain Federal agencies such as the
Government National Mortgage Association ("GNMA") have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Issues of these agencies, while not direct
obligations of the United States Government, are either backed by the full faith
and credit of the United States (e.g., GNMA securities) or supported by the
issuing agencies' right to borrow from the Treasury. The issues of other
agencies are supported by the credit of the instrumentality (e.g., Federal
National Mortgage Association securities).

U.S. GOVERNMENT SECURITIES -- Bills, notes and bonds issued by the U.S.
Government and backed by the full faith and credit of the United States.

<PAGE>

U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are
usually structured with two classes that receive different proportions of the
interest and principal distributions on a pool of mortgage assets. One type of
STRIPS will have one class receiving some of the interest and most of the
principal from the mortgage assets, while the other class will receive all of
the principal ("principal-only" or "PO class"). The yield to maturity on IO
classes and PO classes is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on the portfolio
yield to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Portfolio may fail to fully recoup its
initial investment in these securities, even if the security is in one of the
highest rating categories.

VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain of the obligations purchased
by the International Fund may carry variable or floating rates of interest, may
involve a conditional or unconditional demand feature and may include variable
amount master demand notes. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices,
such as a Federal Reserve composite index. The interest rates on these
securities may be reset daily, weekly, quarterly or some other reset period, and
may have a floor or ceiling on interest rate changes. There is a risk that the
current interest rate on such obligations may not accurately reflect existing
market interest rates. A demand instrument with a demand notice exceeding seven
days may be considered illiquid if there is no secondary market for such
securities.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES -- When-issued and delayed-delivery
securities are securities subject to settlement on a future date. For fixed
income securities, the interest rate realized on when-issued or delayed-delivery
securities is fixed as of the purchase date and no interest accrues to the
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and will have the effect of leveraging
the Portfolio's assets. The Portfolios are permitted to invest in forward
commitments or when-issued securities where such purchases are for investment
and not for leveraging purposes. One or more segregated accounts will be
established with the Custodian, and the Portfolios will maintain liquid assets
in such accounts in an amount at least equal in value to each Portfolio's
commitments to purchase when-issued securities.

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The PBHB Funds, Inc.
P.O. Box 419534
Kansas City, MO 64141-6534

Investment Adviser:
Pilgrim Baxter & Associates, Ltd.

Distributor:
SEI Investments Distribution Co.

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The Power of Discipline:
The rewards of time.(Servicemark)

To open an account, receive information,
make inquiries or request literature:

1-800-433-0051