As filed with the Securities and Exchange Commission
on May 28, 1999
Registration Nos. 2-99810
811-04391
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment [ ]
Post-Effective Amendment No. 36 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 34 [X]
(Check appropriate box or boxes.)
THE PBHG FUNDS, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
825 Duportail Road
Wayne, Pennsylvania 19087
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (800) 433-0051
--------------
Harold J. Baxter
Pilgrim Baxter & Associates, Ltd.
825 Duportail Road
Wayne, Pennsylvania 19087
---------------------------------------
(Name and Address of Agent For Service)
Copies to:
William H. Rheiner, Esq. and to John M. Zerr, Esq.
Ballard Spahr Andrews & Ingersoll Pilgrim Baxter & Associates, Ltd.
1735 Market Street, 51st Floor 825 Duportail Road
Philadelphia, PA 19103-7599 Wayne, PA 19087
(215) 864-8600 (610) 341-9000
<PAGE>
Approximate Date of
Proposed Public Offering:
As soon as practicable after the effective date of this Filing.
It is proposed that this filing will become effective (check appropriate box)
| | immediately upon filing pursuant to paragraph (b)
| | on _____________________ pursuant to paragraph (b)
|X| 60 days after filing pursuant to paragraph (a)(1)
| | on (date) pursuant to paragraph (a)(1)
| | 75 days after filing pursuant to paragraph (a)(2)
| | on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
| | this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Offered: Common Stock
<PAGE>
THE PBHG FUNDS, INC.
CROSS REFERENCE SHEET
(as required by Rule 495(a))
N-1A
- ----
<TABLE>
<S> <C>
Item No. Location
- -------- --------
PART A
1. Cover Page Cover Page
2. Synopsis Summary; Expense Summary
3. Condensed Financial Information Not Applicable
4. General Description of Registrant Investment Objectives and Policies;
General Investment Policies and
Strategies; Risk Factors; Investment
Limitations; General Information--The Fund
5. Management of the Fund General Information--Directors of the
Fund; General Information--The Adviser;
General Information--The Sub-Adviser
(Small Cap Value, Mid-Cap Value, and Large
Cap Value Portfolios); General
Information--The Administrator and the
Sub-Administrator; General
Information--The Transfer Agent and
Shareholder Servicing Agents; General
Information--The Distributor
5A. Management's Discussion of Not Applicable
Fund Performance
6. Capital Stock and Other Securities General Information--Voting Rights; Tax
Status, Dividends and Distributions
7. Purchase of Securities Being Offered Purchases and Redemptions; Net Asset Value
8. Redemption or Repurchase Purchases and Redemptions; Net Asset Value
9. Pending Legal Proceedings Not Applicable
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History The Fund
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Investment Objectives and Policies Description of Permitted Investments;
Investment Limitations; Description of
Shares
14. Management of the Fund Directors and Officers of the Fund; The
Administrator and Sub-Administrator
15. Control Persons and Principal Holders Directors and Officers of the Fund
of Securities
16. Investment Advisory and Other The Adviser; The Sub-Advisers;
Services The Administrator and Sub-Administrator;
Other Service Providers
17. Brokerage Allocation and Other Portfolio Transactions
Practices
18. Capital Stock and Other Securities Description of Shares
19. Purchase, Redemption and Pricing of Purchases and Redemptions of
Securities Being Offered Shares; Determination of Net Asset Value
20. Tax Status Taxes
21. Underwriters The Distributor
22. Calculation of Performance Data Performance Advertising; Computation of
Yield; Calculation of Total Return
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
[LOGO]
The PBHG Funds, Inc.
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG New Opportunities Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Strategic Small Company Fund
Prospectus
July 1, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Portfolio shares as an investment or determined
whether this prospectus is truthful or complete. Anyone who tells you otherwise
is committing a crime.
1
<PAGE>
An Introduction to the PBHG Funds(R) and this Prospectus
The PBHG Funds, Inc. is a mutual fund that offers a convenient and
economical means of investing in professionally managed portfolios of
securities, called Funds.
Each Fund has its own investment goal and strategies for reaching that
goal. Before investing, make sure the Fund's goal matches your own. For example,
the Cash Reserves Fund is designed for conservative investors who want to
receive current income from their investments. This Fund may be suitable for
investors who require stability of principal or who are pursuing a short-term
investment goal, such as investing emergency reserves. In general, the other
Funds are designed for long-term investors, such as those saving for retirement,
or investors that want a fund that seeks to outperform the market in which it
invests over the long-term. These other Funds may not be suitable for investors
who require regular income or stability of principal, or who are pursuing a
short-term investment goal, such as investing emergency reserves.
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") is the investment
adviser for each Fund. Pilgrim Baxter Value Investors, Inc. ("Value Investors"),
a wholly-owned subsidiary of Pilgrim Baxter, is the sub-adviser for the Large
Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and Strategic Small
Company Funds. Murray Johnstone International Limited ("Murray Johnstone") is
the sub-adviser for the International Fund. Wellington Management Company, LLP
("Wellington Management") is the sub-adviser for the Cash Reserves Fund. Pilgrim
Baxter, Value Investors, Murray Johnstone and Wellington Management invest Fund
assets in a way that they believe will help a Fund achieve its goal. However,
there is no guarantee that a Fund will achieve its goal.
This Prospectus contains important information you should know before
investing in any Fund and as a shareholder in a Fund. This information is
arranged into different sections for easy reading and future reference. To
obtain more information about the Funds, please refer to the back cover of this
Prospectus.
Fund Summaries
Growth Fund
Emerging Growth Fund
Large Cap Growth Fund
Select Equity Fund
Core Growth Fund
Limited Fund
Large Cap 20 Fund
New Opportunities Fund
Large Cap Value Fund
Mid-Cap Value Fund
Small Cap Value Fund
Focused Value Fund
2
<PAGE>
International Fund
Cash Reserves Fund
Technology & Communications Fund
Strategic Small Company Fund
More About the Funds
The Investment Adviser and Sub-Advisers
Your Investment
Year 2000
Pricing Fund Shares
Buying Shares
Selling Shares
Distributions and Taxes
Financial Highlights
3
<PAGE>
PBHG Growth Fund
[graphic] Goal:
The Fund seeks to provide investors with capital appreciation.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth securities, such as common stocks, of small sized companies.
These companies generally have market capitalizations or annual revenues of up
to $2 billion. The growth securities in the Fund are primarily common stocks
that Pilgrim Baxter believes have strong earnings growth and capital
appreciation potential. Pilgrim Baxter uses its own research, computer models
and measures of growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes small and medium sized growth companies, so it is likely to
be more volatile than the stock market in general, as measured by the S&P 500(R)
Index. In addition, the growth securities in the Fund may never reach what
Pilgrim Baxter believes are their full earnings growth potential and may even go
down in price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Russell 2000 Growth Index, a widely
recognized, unmanaged index that tracks the performance of those securities in
the Russell 2000 Index with greater-than-average growth orientation. Both the
chart and the table assume reinvestment of dividends and
4
<PAGE>
distributions. Of course, the Fund's past performance does not indicate how it
will perform in the future.
Calendar Year Total Returns
[BAR CHART]
PBHG Class Advisor Class
----------------------------- ----------------------------
1998 0.59% 1998 0.32%
1997 -3.35% 1997 -3.62%
1996 9.82%
1995 50.35%
1994 4.75%
1993 46.71%
1992 28.30%
1991 51.63%
1990 -9.64%
1989 29.29%
The Fund's year-to-date return as of 3/31/99 was: PBHG Class, -4.03%;
Advisor Class, -4.10%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
<TABLE>
<CAPTION>
PBHG Class Advisor Class
---------- -------------
<S> <C> <C> <C>
Best Quarter: 4th Quarter 1992 42.16% 4th Quarter 1998 27.33%
Worst Quarter: 3rd Quarter 1990 -29.05% 3rd Quarter 1998 -26.28%
</TABLE>
Average Annual Total Returns as of 12/31/98:
Past Past Past
1 Year 5 Years 10 Years
------- ------ --------
Growth Fund - PBHG Class 0.59% 10.95% 18.82%
Growth Fund - Advisor Class* 0.32% 10.82% 18.75%
Russell 2000 Growth Index 1.23% 10.22% 11.54%
* The inception date of the PBHG Growth Fund - Advisor Class was August
16, 1996. The performance shown for the Advisor Class prior to its
inception is based on the performance and expenses of the PBHG Class.
The average annual total return of the Advisor Class from its inception
date to December 31, 1999 was -0.05%
5
<PAGE>
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ......................................... None
Maximum Deferred Sales Charge (Load)...................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ...... None
Redemption Fee ........................................................................... None
Exchange Fee ............................................................................. None
Maximum Account Fee ...................................................................... None
</TABLE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses PBHG Advisor
(Expenses that are deducted from Portfolio Assets) Class Class
----- -----
<S> <C> <C>
Management Fees .............................................................. 0.85% 0.85%
Distribution and/or Services (12b-1) Fees .................................... None 0.25%
Other Expenses ............................................................... 0.47% 0.47%
Total Annual Fund Operating Expenses ......................................... 1.32% 1.57%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
PBHG Advisor
Cost Cost
------ ------
1 Year $134 $160
3 Years $418 $496
5 years $723 $855
10 Years $1,590 $1,867
6
<PAGE>
PBHG Emerging Growth Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term growth of capital.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth securities, such as common stocks, of small sized companies.
These companies generally have market capitalizations or annual revenues of up
to $500 million. The growth securities in the Fund are primarily common stocks
that Pilgrim Baxter believes have strong historical earnings growth and expected
earnings higher than the U.S. market as a whole, as measured by S&P 500(R)
Index. Pilgrim Baxter uses its own research, computer models and measures of
growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes small sized growth companies, so it is likely to be more
volatile than the stock market in general, as measured by the S&P 500(R) Index.
In addition, the growth securities in the Fund may never reach what Pilgrim
Baxter believes are their full earnings growth potential and may even go down in
price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
Calendar Year Total Returns
[BAR CHART]
1998 3.00%
1997 -3.67%
1996 17.08%
1995 48.45%
1994 23.78%
7
<PAGE>
The Fund's year-to-date return as of 3/31/99 was -13.95%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 3rd Quarter 1993 25.00%
Worst Quarter: 1st Quarter 1997 -24.42%
Average Annual Total Returns as of 12/31/98:
Past Past Since Inception
1 Year 5 Years (6/14/93)
------ ------ ---------------
Emerging Growth Fund 3.00% 16.38% 20.62%
Russell 2000 Growth Fund 1.23% 10.22% N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ..................................... None
Maximum Deferred Sales Charge (Load).................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .. None
Redemption Fee ....................................................................... None
Exchange Fee ......................................................................... None
Maximum Account Fee .................................................................. None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ...................................................................... 0.85%
Distribution and/or Services (12b-1) Fees ............................................ None
Other Expenses ....................................................................... 0.49%
Total Annual Fund Operating Expenses ................................................. 1.34%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
8
<PAGE>
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $136
3 Years $425
5 years $734
10 Years $1,613
9
<PAGE>
PBHG Large Cap Growth Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term growth of capital.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth securities, such as common stocks, of large capitalization
companies. These companies generally have market capitalizations over $1
billion. The growth securities in the Fund are primarily common stocks that
Pilgrim Baxter believes have strong earnings growth and capital appreciation
potential. Pilgrim Baxter uses its own research, computer models and measures of
growth in managing this Fund.
The Fund also may use options and futures contracts for hedging and risk
management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in financial markets, the company's individual
situation or industry changes.
While the growth securities in the Fund may never reach what Pilgrim Baxter
believes are their full earnings growth and capital appreciation potential and
may even go down in price, the Fund's emphasis on large company securities may
limit some of the risk associated with growth investing because large company
securities tend to be less volatile than smaller company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the S&P 500(R) Index, a widely
recognized, unmanaged index that measures the performance of large cap stocks
across all major industries. Both the chart and the table assume reinvestment of
dividends and distributions. Of course, the Fund's past performance does not
indicate how it will perform in the future.
10
<PAGE>
Calendar Year Total Returns
[BAR CHART]
1998 30.42%
1997 22.36%
1996 23.40%
The Fund's year-to-date return as of 3/31/99 was 4.15%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 2nd Quarter 1997 23.56%
Worst Quarter: 3rd Quarter 1998 -13.69%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (4/05/95)
------- ---------------
Large Cap Growth Fund 30.42% 29.58%
S&P 500(R) Index 28.59% N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ......................................... None
Maximum Deferred Sales Charge (Load)...................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ...... None
Redemption Fee ........................................................................... None
Exchange Fee ............................................................................. None
Maximum Account Fee ...................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees .......................................................................... 0.75%
Distribution and/or Services (12b-1) Fees ................................................ None
Other Expenses ........................................................................... 0.50%
Total Annual Fund Operating Expenses ..................................................... 1.25%
</TABLE>
11
<PAGE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $127
3 Years $397
5 years $686
10 Years $1,511
12
<PAGE>
PBHG Select Equity Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term growth of capital.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund will invest at least 65% of its total
assets in growth securities, such as common stocks, of no more than 30 small,
medium or large capitalization companies. The growth securities in the Fund are
primarily common stocks that Pilgrim Baxter believes have strong earnings growth
and capital appreciation potential. Pilgrim Baxter uses its own research,
computer models and measures of growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The Fund invests in a limited number of stocks in order to achieve a potentially
greater investment return. As a result, the price change of a single security,
positive or negative, has a greater impact on the Fund's net asset value than it
would in a fund investing in a larger number of stocks.
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in financial markets, company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The growth securities in the Fund may never reach what Pilgrim Baxter believes
are their full earnings growth and capital appreciation potential and may even
go down in price. In addition, the Fund may emphasize small, medium or large
sized growth companies. An investment in small or medium sized growth companies
is likely to make the Fund more volatile than the stock market in general, as
measured by the S&P 500(R) Index. However, the Fund may also emphasize large
company securities which may limit some of the risks associated with growth
investing because large company securities tend to be less volatile than smaller
company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
13
<PAGE>
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the S&P 500(R) Index, a widely
recognized, unmanaged index that measures the performance of large cap stocks
across all major industries. Both the chart and the table assume reinvestment of
dividends and distributions. Of course, the Fund's past performance does not
indicate how it will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 19.02%
1997 6.84%
1996 27.99%
The Fund's year-to-date return as of 3/31/99 was 4.09%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 3rd Quarter 1995 24.48%
Worst Quarter: 3rd Quarter 1998 -18.80%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (4/05/95)
------ ----------------
Select Equity Funds 19.02% 28.81%
S&P 500(R) Index 28.59% N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
14
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....................................... None
Maximum Deferred Sales Charge (Load).................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .... None
Redemption Fee ......................................................................... None
Exchange Fee ........................................................................... None
Maximum Account Fee .................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ........................................................................ 0.85%
Distribution and/or Services (12b-1) Fees .............................................. None
Other Expenses ......................................................................... 0.49%
Total Annual Fund Operating Expenses ................................................... 1.34%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: (1) you invest $10,000 in the
Fund for the time periods shown; (2) you redeem all your shares at the end of
those time periods; (3) you earn a 5% return on your investment each year; and
(4) the Fund's operating expenses remain the same for the time periods shown.
The example is hypothetical. Your actual costs and returns may be higher or
lower.
Your
Cost
-------
1 Year $136
3 Years $425
5 years $734
10 Years $1,613
15
<PAGE>
PBHG Core Growth Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term capital appreciation.
[graphic] Main Investment Strategies:
Under normal market conditions, the fund invests at least 65% of its total
assets in growth securities, such as common stocks, of small, medium or large
capitalization companies. The growth securities in the Fund are primarily common
stocks that Pilgrim Baxter believes have strong earnings growth and capital
appreciation potential. Pilgrim Baxter uses its own research, computer models
and measures of growth in managing this Fund.
The Fund also may use options and futures contracts for hedging and risk
management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in financial markets, the company's individual
situation or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The growth securities in the Fund may never reach what Pilgrim Baxter believes
are their full earnings growth and capital appreciation potential and may even
go down in price. In addition, the fund may emphasize small, medium or large
sized companies. An investment in small and medium sized companies is likely to
make the Fund more volatile than the stock market in general, as measured by the
S&P 500(R) Index. However, the Fund may also emphasize large company securities
which may limit some of the risk associated with growth investing because large
company securities tend to be less volatile than smaller company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
16
<PAGE>
Fund's performance over time to that of the Russell Mid Cap Growth Index, a
widely recognized, unmanaged index that measures the performance of the 800
smallest securities in the Russell 1000 Index with a greater-than-average growth
orientation. Both the chart and the table assume reinvestment of dividends and
distributions. Of course, the Fund's past performance does not indicate how it
will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 7.42%
1997 -9.71%
1996 32.80%
The Fund's year-to-date return as of 3/31/99 was 9.16%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 19.37%
Worst Quarter: 3rd Quarter 1998 -20.43%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (12/29/95)
------ ---------------
Core Growth Fund 7.42% 8.79%
Russell Mid Cap Growth Index 17.87% 19.28%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
17
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ..................................... None
Maximum Deferred Sales Charge (Load).................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions... None
Redemption Fee ....................................................................... None
Exchange Fee ......................................................................... None
Maximum Account Fee .................................................................. None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ...................................................................... 0.85%
Distribution and/or Services (12b-1) Fees ............................................ None
Other Expenses ....................................................................... 0.60%
Total Annual Fund Operating Expenses ................................................. 1.45%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $148
3 Years $459
5 years $792
10 Years $1,735
18
<PAGE>
PBHG Limited Fund
This fund is currently offered only to existing shareholders. Existing
shareholders may open new accounts, 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.
[graphic] Goal:
The Fund seeks to provide investors with long-term capital appreciation.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth securities, such as common stocks, of small sized companies.
These companies generally have market capitalizations or annual revenues of up
to $250 million. The growth securities in the Fund are primarily common stocks
that Pilgrim Baxter believes have strong historical earnings growth and expected
earnings higher than the U.S. market as a whole, as measured by S&P 500(R)
Index. Pilgrim Baxter uses its own research, computer models and measures of
growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes small sized growth companies, so it is likely to be more
volatile than the stock market in general, as measured by the S&P 500(R) Index.
In addition, the growth securities in the Fund may never reach what Pilgrim
Baxter believes are their full earnings growth potential and may even go down in
price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
19
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Russell 2000 Growth Index, a widely
recognized, unmanaged index that tracks the performance of those securities in
the Russell 2000 Index with greater-than-average growth orientation. Both the
chart and the table assume reinvestment of dividends and distributions. Of
course, the Fund's past performance does not indicate how it will perform in the
future.
Calendar Year Total Returns
[BAR CHART]
1998 13.05%
1997 16.07%
The Fund's year-to-date return as of 3/31/99 was -10.62%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 2nd Quarter 1997 26.08%
Worst Quarter: 1st Quarter 1997 -18.03%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (6/28/96)
------ ---------------
Limited Fund 13.05% 16.09%
Russell 2000 Growth Index 1.23% 5.25%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
20
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ..................................... None
Maximum Deferred Sales Charge (Load).................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .. None
Redemption Fee ....................................................................... None
Exchange Fee ......................................................................... None
Maximum Account Fee .................................................................. None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ...................................................................... 1.00%
Distribution and/or Services (12b-1) Fees ............................................ None
Other Expenses ....................................................................... 0.40%
Total Annual Fund Operating Expenses ................................................. 1.40%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $143
3 Years $443
5 years $766
10 Years $1,680
21
<PAGE>
PBHG Large Cap 20 Fund
[graphic] Goal:
The Fund, a non-diversified fund, seeks to provide investors with long-term
growth of capital.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund will invest at least 65% of its total
assets in growth securities, such as common stocks, of no more than 20 large
capitalization companies. These companies generally have market capitalizations
over $1 billion. The growth securities in the Fund are primarily common stocks
that Pilgrim Baxter believes have strong earnings growth and capital
appreciation potential. Pilgrim Baxter uses its own research, computer models
and measures of growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The Fund is non-diversified which means as compared to a diversified fund, it
invests a higher percentage of its assets in a limited number of stocks in order
to achieve a potentially greater investment return. As a result, the price
change of a single security, positive or negative, has a greater impact on the
Fund's net asset value than it would in a diversified fund.
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in financial markets, company's individual
situation, or industry changes.
While the growth securities in the Fund may never reach what Pilgrim Baxter
believes are their full earnings growth and capital appreciation potential and
may even go down in price, the Fund's emphasis on large company securities may
limit some of the risks associated with growth investing because large company
securities tend to be less volatile than smaller company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
22
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the S&P(R) 500 Index, a widely
recognized, unmanaged index that measures the performance of large cap stocks
across all major industries. Both the chart and the table assume reinvestment of
dividends and distributions. Of course, the Fund's past performance does not
indicate how it will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 67.83%
1997 32.96%
The Fund's year-to-date return as of 3/31/99 was 11.11%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 31.43%
Worst Quarter: 1st Quarter 1997 -5.90%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (11/29/96)
------ ---------------
Large Cap 20 Fund 67.83% 45.76%
S&P 500(R)Index 28.59% 28.25%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ..................................... None
Maximum Deferred Sales Charge (Load).................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .. None
Redemption Fee ....................................................................... None
Exchange Fee ......................................................................... None
Maximum Account Fee .................................................................. None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ...................................................................... 0.85%
Distribution and/or Services (12b-1) Fees ............................................ None
Other Expenses ....................................................................... 0.42%
Total Annual Fund Operating Expenses ................................................. 1.27%
</TABLE>
23
<PAGE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $129
3 Years $403
5 years $697
10 Years $1,534
24
<PAGE>
PBHG New Opportunities Fund
This fund will close to new investors at the close of business on the Business
Day on which its net assets first exceed $150 million (Closing Day). After
Closing Day, only the following investments will be accepted: (a) subsequent
investments by persons who were shareholders on Closing Day; (b) new and
subsequent investments made by discretionary advised clients of the Adviser and
its affiliates and by employees of the Adviser and its affiliates; and (c) new
and subsequent investments by pension, profit-sharing or other employee benefit
plans created pursuant to a plan qualified under Section 401 of the Internal
Revenue Code (the Code) or plans under Section 457 of the Code, or employee
benefit plans created pursuant to Section 403(b) of the Code and sponsored by
nonprofit organizations defined under Section 501(c)(3) of the Code.
[graphic] Goal:
The Fund seeks to provide investors with capital appreciation.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth securities, such as common stocks, of companies in economic
sectors which the Adviser believes have above-average long-term growth
potential. These companies generally have market capitalizations under $1
billion. The growth securities in the Fund are primarily common stocks. The
sectors that the Adviser believes have above-average long-term growth potential
will change as the economy changes. As a result, the Fund may or may not be
invested in these or other sectors at any time. In addition, the Fund may
emphasize one or more sectors. For example, the Fund may invest 100% of its
total assets in one sector. Pilgrim Baxter uses its own research, computer
models and measures of growth in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund's emphasis on certain sectors of the economy may make the Fund's
performance more susceptible to economic, political or regulatory developments
in that sector. As a result, the Fund's net asset value may fluctuate more than
other equity investments.
25
<PAGE>
The Fund may emphasize small and medium sized growth companies, so it may be
more volatile than the stock market in general, as measured by the S&P 500(R)
Index. In addition, the growth securities in the Fund may never reach what
Pilgrim Baxter believes are their full long-term growth potential and may even
go down in price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The performance table below illustrates the risks and volatility of an
investment in the Fund by comparing the Fund's performance from its inception on
February 2, 1999 through March 31, 1999 to that of the Russell 2000 Growth
Index, a widely recognized, unmanaged index that tracks the performance of those
securities in the Russell 2000 Index with greater-than-average growth
orientation. The table assumes reinvestment of dividends and distributions. Of
course, the Fund's past performance does not indicate how it will perform in the
future.
Cumulative Total Returns as of 3/31/99:
Since Inception
(2/12/99)
----------------
New Opportunities Fund 21.82%
Russell 2000 Growth Index N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. Since the Fund did not
commence investment operations until February 2, 1999, "Other Expenses" is based
on estimated amounts the Fund expects to pay during the current fiscal year.
26
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ........................................ None
Maximum Deferred Sales Charge (Load)..................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ..... None
Redemption Fee .......................................................................... None
Exchange Fee ............................................................................ None
Maximum Account Fee ..................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ......................................................................... 1.00%
Distribution and/or Services (12b-1) Fees ............................................... None
Other Expenses .......................................................................... 0.59%
Total Annual Fund Operating Expenses .................................................... 1.59%
Fee Waiver (and/or Expense Reimbursement) ............................................... 0.09%
Net Expenses ............................................................................ 1.50% *
</TABLE>
* This is the actual total fund operating expense you will pay as an investor in
this Fund for the current fiscal year ending March 31, 2000. That's because
Pilgrim Baxter has contractually agreed to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of the
Fund to the extent necessary to ensure that the total annual fund operating
expenses do not exceed 1.50%. You should know that in any fiscal year in which
the Fund's assets are greater than $75 million and its total annual fund
operating expenses are less than 1.50%, the Fund's Board of Directors may elect
to reimburse Pilgrim Baxter for any fees it waived or expenses it reimbursed on
the Fund's behalf during the previous two fiscal years. To date, the Board has
made no reimbursement election.
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost*
-------
1 Year $153
3 Years $493
* The costs assume the 1.50% expense cap is in place only for 1 year. If the
Fund's expenses were capped at 1.50% for all years, your cost would be:
1 Year $153
3 Years $474
27
<PAGE>
PBHG Large Cap Value Fund
[graphic] Goal:
The Fund seeks to provide investors long-term growth of capital and income.
Current income is a secondary objective.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in value securities, such as common stocks, issued by companies with
large market capitalizations. These companies generally have market
capitalizations greater than $1 billion. The value securities in the Fund are
primarily common stocks that Pilgrim Baxter and Value Investors believe are
currently underpriced using certain financial measurements, such as their
price-to-earnings ratios. Pilgrim Baxter and Value Investors use their own
research, computer models and measures of value in managing this Fund.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes.
While the value securities in the Fund may never reach what Pilgrim Baxter and
Value Investors believe are their full worth and may even go down in price, the
Fund's emphasis on large company securities may limit some of the risk
associated with value investing because large company securities tend to be less
volatile than smaller company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the S&P 500(R) Index, a widely
recognized, unmanaged index that measures the performance of large cap stocks
28
<PAGE>
across all major industries. Both the chart and the table assume reinvestment of
dividends and distributions. Of course, the Fund's past performance does not
indicate how it will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 34.74%
1997 25.62%
The Fund's year-to-date return as of 3/31/99 was 0.22 %.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 28.21%
Worst Quarter: 3rd Quarter 1998 -7.94%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (12/31/96)
------- ----------------
Large Cap Value Fund 34.74% 30.10%
S&P 500(R)Index 28.59% 28.25%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....................................... None
Maximum Deferred Sales Charge (Load).................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .... None
Redemption Fee ......................................................................... None
Exchange Fee ........................................................................... None
Maximum Account Fee .................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ........................................................................ 0.65%
Distribution and/or Services (12b-1) Fees .............................................. None
Other Expenses ......................................................................... 0.36%
Total Annual Fund Operating Expenses ................................................... 1.01%
</TABLE>
29
<PAGE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
-------
1 Year $103
3 Years $322
5 years $558
10 Years $1,236
30
<PAGE>
PBHG Mid-Cap Value Fund
[graphic] Goal:
The Fund seeks to provide investors with above-average total return over a 3 to
5 year market cycle, consistent with reasonable risk.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in value securities, such as common stocks, issued by companies with
market capitalizations within the range of the S&P Mid Cap 400 Index. Currently,
the companies in the S&P Mid Cap 400 have market capitalizations between $200
million and $5 billion. The value securities in the Fund are primarily common
stocks that Pilgrim Baxter and Value Investors believe are currently underpriced
using certain financial measurements, such as their price-to-earnings ratios.
Pilgrim Baxter and Value Investors use their own research, computer models and
measures of value in managing this Fund. The Fund's sector weightings are
generally within 5% of the S&P Mid Cap 400's sector weightings. In addition, the
Fund generally has a lower price-to-earnings ratio than the S&P Mid Cap 400.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes value securities of medium sized companies, so it is likely
to be more volatile than the stock market in general, as measured by the S&P
500(R) Index. In addition, the value securities in the Fund may never reach what
Pilgrim Baxter and Value Investors believe are their full worth and may even go
down in price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
31
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the S&P Mid Cap 400 Index, a widely
recognized, unmanaged index that tracks the performance of 400 mid-cap stocks.
Both the chart and the table assume reinvestment of dividends and distributions.
Of course, the Fund's past performance does not indicate how it will perform in
the future.
Calendar Year Total Returns
[BAR CHART]
1998 27.84%
The Fund's year-to-date return as of 3/31/99 was -3.52%.
During the period shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 30.07%
Worst Quarter: 3rd Quarter 1998 -12.52%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (4/30/97)
------ ---------------
Mid-Cap Value Fund 27.84% 42.56%
S&P Mid Cap 400 Index 19.06% 30.36%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
32
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....................................... None
Maximum Deferred Sales Charge (Load).................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .... None
Redemption Fee ......................................................................... None
Exchange Fee ........................................................................... None
Maximum Account Fee .................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ........................................................................ 0.85%
Distribution and/or Services (12b-1) Fees .............................................. None
Other Expenses ......................................................................... 0.48%
Total Annual Fund Operating Expenses ................................................... 1.33%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $135
3 Years $421
5 years $729
10 Years $1,601
33
<PAGE>
PBHG Small Cap Value Fund
[graphic] Goal:
The Fund seeks to provide investors with above-average total return over a 3 to
5 year market cycle, consistent with reasonable risk.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in value securities, such as common stocks, issued by companies with
market capitalizations within the range of the Russell 2000 Index. Currently,
the companies in the Russell 2000 have market capitalizations between $100
million and $1.5 billion. The value securities in the Fund are primarily common
stocks that Pilgrim Baxter and Value Investors believe are currently underpriced
using certain financial measurements, such as their price-to-earnings ratios.
Pilgrim Baxter and Value Investors use their own research, computer models and
measures of value in managing this Fund. The Fund's sector weightings are
generally within 10% of the Russell 2000's sector weightings. In addition, the
Fund generally has lower price-to-earnings and price-to-book value ratios than
the Russell 2000.
The Fund also may use options and futures contracts for hedging and risk
management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, a company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes value securities of smaller sized companies, so it is likely
to be more volatile than the stock market in general, as measured by the S&P
500(R) Index. In addition, the value securities in the Fund may never reach what
Pilgrim Baxter and Value Investors believe are their full worth and may even go
down in price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
34
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Russell 2000 Index, a widely
recognized, unmanaged index that tracks the performance of 2000 small cap
stocks. Both the chart and the table assume reinvestment of dividends and
distributions. Of course, the Fund's past performance does not indicate how it
will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 1.13%
The Fund's year-to-date return as of 3/31/99 was -12.73%.
During the calendar year shown in the bar chart, the highest and lowest returns
for a calendar quarter were:
Best Quarter: 4th Quarter 1998 24.20%
Worst Quarter: 3rd Quarter 1998 -21.59%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (4/30/97)
------ ---------------
Small Cap Value Fund 1.13% 25.94%
Russell 2000 Index -2.56% 14.54%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
35
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ...................................... None
Maximum Deferred Sales Charge (Load)................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ... None
Redemption Fee ........................................................................ None
Exchange Fee .......................................................................... None
Maximum Account Fee ................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ....................................................................... 1.00%
Distribution and/or Services (12b-1) Fees ............................................. None
Other Expenses ........................................................................ 0.48%
Total Annual Fund Operating Expenses .................................................. 1.48%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
-------
1 Year $151
3 Years $468
5 years $808
10 Years $1,768
36
<PAGE>
PBHG Focused Value Fund
[graphic] Goal:
The Fund, a non-diversified fund, seeks to provide investors with above-average
total return over a 3 to 5 year market cycle.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in value securities, such as common stocks of small, medium or large
capitalization companies. The value securities in the Fund are primarily common
stocks that Pilgrim Baxter and Value Investors believe are currently underpriced
using certain financial measurements, such as their price-to-earnings ratios.
Pilgrim Baxter and Value Investors use their own research, computer models and
measures of value in managing this Fund.
The Fund also may use options and futures contracts for hedging and risk
management.
[graphic] Main Investment Risks:
The Fund is non-diversified which means as compared to a diversified fund, it
invests a higher percentage of its assets in a limited number of stocks in order
to achieve a potentially greater investment return. As a result, the price
change of a single security, positive or negative, has a greater impact on the
Fund's net asset value than it would in a diversified fund.
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, a company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The value securities in the Fund may never reach what Pilgrim Baxter and Value
Investors believe are their full worth and may even go down in price. In
addition, the Fund may emphasize small, medium or large sized value companies.
An investment in smaller and medium sized companies is likely to make the Fund
more volatile than the stock market in general, as measured by the S&P 500(R)
Index. However, the Fund may also emphasize large company securities which may
limit some of the risks associated with value investing because large company
securities tend to be less volatile than smaller company securities.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
37
<PAGE>
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
[graphic] Performance Information:
The performance table below illustrates the risks and volatility of an
investment in the Fund by comparing the Fund's performance from its inception on
February 2, 1999 through March 31, 1999 to that of the S&P 500(R) Index, a
widely recognized, unmanaged index that measures the performance of large cap
stocks across all major industries. The table assumes reinvestment of dividends
and distributions. Of course, the Fund's past performance does not indicate how
it will perform in the future.
Cumulative Total Returns as of 3/31/99:
Since Inception
(2/2/99)
---------------
Focused Value Fund 1.36%
S&P 500(R) Index N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ...................................... None
Maximum Deferred Sales Charge (Load)................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ... None
Redemption Fee ........................................................................ None
Exchange Fee .......................................................................... None
Maximum Account Fee ................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ....................................................................... 0.85%
Distribution and/or Services (12b-1) Fees ............................................. None
Other Expenses ........................................................................ 1.82%
Total Annual Fund Operating Expenses .................................................. 2.67%
Fee Waiver (and/or Expense Reimbursement) ............................................. 1.17%
Net Expenses .......................................................................... 1.50%*
</TABLE>
38
<PAGE>
* This is the actual total fund operating expense you will pay as an investor in
this Fund for the fiscal year ending March 31, 2000. That's because Pilgrim
Baxter has contractually agreed to waive that portion, if any, of the annual
management fees payable by the Fund and to pay certain expenses of the Fund to
the extent necessary to ensure that the total annual fund operating expenses do
not exceed 1.50%. You should know that in any fiscal year in which the Fund's
assets are greater than $75 million and its total annual fund operating expenses
are less than 1.50%, the Fund's Board of Directors may elect to reimburse
Pilgrim Baxter for any fees it waived or expenses it reimbursed on the Fund's
behalf during the previous two fiscal years. To date, the Board has made no
reimbursement election.
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost*
------
1 Year $153
3 Years $718
* The costs assume the 1.50% expense cap is in place only for 1 year. If the
Fund's expenses were capped at 1.50% for all years, your cost would be:
1 Year $153
3 Years $474
39
<PAGE>
PBHG International Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term capital appreciation.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in foreign equity securities of companies in at least three countries
other than the United States. In addition, more than 25% of the Fund's total
assets may be invested in companies whose principal activities are in specific
countries or geographic regions, including countries generally considered to be
an emerging or developing country by the international finance community.
The Fund generally will not hedge its currency exposure. However, the Fund 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.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for foreign equity
securities and companies with smaller market capitalizations. Investments in
foreign securities involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject. Companies
with smaller market capitalizations tend to have more limited product lines,
markets and financial resources and may be dependent on a smaller management
group than larger, more established companies.
The foreign equity securities in the Fund may never reach what Murray Johnstone
believes are their full capital appreciation potential and may even go down in
price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
40
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the MSCI EAFE Index, a widely
recognized, unmanaged index that tracks the performance of 60% of the publicly
traded companies in Europe, Australia and the Far East. Both the chart and the
table assume reinvestment of dividends and distributions. Of course, the Fund's
past performance does not indicate how it will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 12.74%
1997 3.48%
1996 12.66%
1995 2.05%
The Fund's year-to-date return as of 3/31/99 was 2.56%.
During the periods shown in the chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 15.36%
Worst Quarter: 3rd Quarter 1998 -12.24%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (6/05/94)
------ ----------------
International Fund 12.74% 6.18%
MSCI EAFE Index 20.00% N/A
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
41
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ...................................... None
Maximum Deferred Sales Charge (Load)................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ... None
Redemption Fee ........................................................................ None
Exchange Fee .......................................................................... None
Maximum Account Fee ................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ....................................................................... 1.00%
Distribution and/or Services (12b-1) Fees ............................................. None
Other Expenses ........................................................................ 0.97%
Total Annual Fund Operating Expenses .................................................. 1.97%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $200
3 Years $618
5 years $1,062
10 Years $2,296
42
<PAGE>
PBHG Cash Reserves Fund
[graphic] Goal:
The Fund seeks to provide investors with current income while preserving
principal and maintaining liquidity.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests exclusively in short-term U.S.
dollar-denominated debt obligations of US or foreign issuers. These obligations
must be rated in one of the two highest rating categories by any two nationally
recognized rating organizations or unrated securities that the Adviser or
Wellington Management determines are of comparable quality. The Fund's holdings
are primarily U.S. money market instruments, such as CDs, commercial paper and
corporate obligations, that Pilgrim Baxter and Wellington Management believe
offer the most attractive income potential without undue risk.
[graphic] Main Investment Risks:
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
The price of the money market instruments in the Fund will fluctuate. These
price movements may occur because of changes in the financial markets, the
issuer's individual situation, or industry changes. These risks are greater for
foreign money market instruments. Investments in foreign money market
instruments involve risks relating to political, social and economic
developments abroad, as well as risks resulting from the differences between the
regulations to which U.S. and foreign issuers and markets are subject.
The money market instruments in the Fund may never reach what Pilgrim Baxter and
Wellington Management believe are their full income potential.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Lipper Money Market Funds Average, a
widely recognized, composite of money market funds that invest in the highest
credit quality short-term money market instruments. Both the chart and the table
assume reinvestment of dividends and distributions. Of course, the Fund's past
performance does not indicate how it will perform in the future.
43
<PAGE>
Calendar Year Total Returns
[BAR CHART]
1998 5.00%
1997 5.08%
1996 4.91%
The Fund's year-to-date return as of 3/31/99 was 1.09%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1997 1.28%
Worst Quarter: 1st Quarter 1999 1.09%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (4/04/95)
------ ---------------
Cash Reserves Fund 5.00% 5.07%
Lipper Money Market Funds Average 4.84% N/A
To obtain information about the Fund's yield, call 1-800-433-0051.
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ...................................... None
Maximum Deferred Sales Charge (Load)................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions ... None
Redemption Fee ........................................................................ None
Exchange Fee .......................................................................... None
Maximum Account Fee ................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ....................................................................... 0.30%
Distribution and/or Services (12b-1) Fees ............................................. None
Other Expenses ........................................................................ 0.40%
Total Annual Fund Operating Expenses .................................................. 0.70%
</TABLE>
44
<PAGE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $72
3 Years $224
5 years $390
10 Years $871
45
<PAGE>
PBHG Technology & Communications Fund
[graphic] Goal:
The Fund seeks to provide investors with long-term growth of capital. Current
income is incidental to the Fund's goal.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund will invest at least 65% of its total
assets in common stocks of companies that rely extensively on technology or
communications in their product development or operations, are expected to
benefit from technological advances and improvements, or may be experiencing
exceptional growth in sales and earnings driven by technology or communications
related products and services. These companies may be in different industries,
such as computer software and hardware, network and cable broadcasting, defense
and data storage and retrieval, and biotechnology. The Fund offers investors
significant growth potential because it invests in companies that may be
responsible for breakthrough products or technologies or may be positioned to
take advantage of cutting-edge developments. The Fund's holdings may range from
smaller companies developing new technologies or pursuing scientific
breakthroughs to large, blue chip firms with established track records in
developing and marketing scientific advances.
The Fund may use options and futures contracts for hedging and risk management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, the company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
Securities of technology companies are strongly affected by worldwide scientific
and technological developments and governmental policies and, therefore, are
generally more volatile than securities of companies not dependent upon or
associated with technology issues.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
46
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Soundview Technology Index, a widely
recognized, unmanaged index that measures the performance of 100 major
technology stocks, as chosen by Soundview Financial Group. Both the chart and
the table assume reinvestment of dividends and distributions. Of course, the
Fund's past performance does not indicate how it will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 26.00%
1997 3.32%
1996 54.42%
The Fund's year-to-date return as of 3/31/99 was 28.62%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 29.60%
Worst Quarter: 4th Quarter 1997 -17.42%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (10/02/95)
------ ---------------
Technology & Communications Fund 26.00% 29.72%
Soundview Technology Index 42.33% 26.63%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
47
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....................................... None
Maximum Deferred Sales Charge (Load).................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .... None
Redemption Fee ......................................................................... None
Exchange Fee ........................................................................... None
Maximum Account Fee .................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ........................................................................ 0.85%
Distribution and/or Services (12b-1) Fees .............................................. None
Other Expenses ......................................................................... 0.49%
Total Annual Fund Operating Expenses ................................................... 1.34%
</TABLE>
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost
------
1 Year $136
3 Years $425
5 years $734
10 Years $1,613
48
<PAGE>
PBHG Strategic Small Company Fund
[graphic] Goal:
The Fund seeks to provide investors with growth of capital.
[graphic] Main Investment Strategies:
Under normal market conditions, the Fund invests at least 65% of its total
assets in growth and value securities, such as common stocks of small sized
companies. These companies generally have market capitalizations or annual
revenues of up to $750 million. The growth securities in the Fund are primarily
common stocks that Pilgrim Baxter believes have strong earnings growth and
capital appreciation potential. The value securities in the Fund are primarily
common stocks that Pilgrim Baxter and Value Investors believe are currently
underpriced using certain financial measurements, such as their
price-to-earnings ratios. Pilgrim Baxter and Value Investors strategically
adjust the mix of growth and value securities in the Fund, depending upon
economic and market conditions. As a result, at times the Fund may be more
heavily invested in growth securities and at other times the Fund may be more
heavily invested in value securities. Pilgrim Baxter and Value Investors use
their own research computer models and measures of growth and value in managing
this Fund.
The Fund also may use options and futures contracts for hedging and risk
management.
[graphic] Main Investment Risks:
The value of your investment in the Fund will go up and down, which means you
could lose money, but you also have the potential to make money.
The price of the securities in the Fund will fluctuate. These price movements
may occur because of changes in the financial markets, a company's individual
situation, or industry changes. These risks are greater for companies with
smaller market capitalizations because they tend to have more limited product
lines, markets and financial resources and may be dependent on a smaller
management group than larger, more established companies.
The Fund emphasizes growth and value securities of smaller sized companies, so
it is likely to be more volatile than the stock market in general, as measured
by the S&P 500(R) Index. In addition, the growth and value securities in the
Fund may never reach what Pilgrim Baxter and Value Investors believe are their
full potential worth and may even go down in price.
The Fund's use of options and futures contracts may reduce returns or increase
volatility.
Although the Fund strives to achieve its goal, it cannot offer guaranteed
results.
Your investment in the Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
49
<PAGE>
[graphic] Performance Information:
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The bar chart shows you how the Fund's
performance has varied from year to year. The performance table compares the
Fund's performance over time to that of the Russell 2000 Index, a widely
recognized, unmanaged index that tracks the performance of 2000 small cap
stocks. Both the chart and the table assume reinvestment of dividends and
distributions. Of course, the Fund's past performance does not indicate how it
will perform in the future.
Calendar Year Total Returns
[BAR CHART]
1998 2.13%
1997 25.67%
The Fund's year-to-date return as of 3/31/99 was -7.62%.
During the periods shown in the bar chart, the highest and lowest returns for a
calendar quarter were:
Best Quarter: 4th Quarter 1998 28.30%
Worst Quarter: 3rd Quarter 1998 -23.48%
Average Annual Total Returns as of 12/31/98:
Past Since Inception
1 Year (12/31/96)
------ ----------------
Strategic Small Company Fund 2.13% 13.29%
Russell 2000 Index -2.56% 9.19%
[graphic] Fees and Expenses:
This table summarizes the shareholder transaction fees and annual operating
expenses you would pay as an investor in the Fund. Shareholder transaction fees
are paid from your account. Annual operating expenses are paid out of the Fund's
assets, so their effect is included in the share price. The expenses listed
below are based on the Fund's last fiscal year.
50
<PAGE>
Expense Table
<TABLE>
<S> <C>
Shareholder Transaction Fees
(Fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases ....................................... None
Maximum Deferred Sales Charge (Load).................................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and Other Distributions .... None
Redemption Fee ......................................................................... None
Exchange Fee ........................................................................... None
Maximum Account Fee .................................................................... None
Annual Fund Operating Expenses
(Expenses that are deducted from Portfolio Assets)
Management Fees ........................................................................ 1.00%
Distribution and/or Services (12b-1) Fees .............................................. None
Other Expenses ......................................................................... 0.54%
Total Annual Fund Operating Expenses ................................................... 1.54%
Fee Waiver (and/or Expense Reimbursement) .............................................. 0.04%
Net Expenses ........................................................................... 1.50%*
</TABLE>
* This is the actual total fund operating expense you would have paid as an
investor in this Fund for the fiscal year ended March 31, 1999. That's because
Pilgrim Baxter has contractually agreed to waive that portion, if any, of the
annual management fees payable by the Fund and to pay certain expenses of the
Fund to the extent necessary to ensure that the total annual fund operating
expenses do not exceed 1.50%. You should know that in any fiscal year in which
the Fund's assets are greater than $75 million and its total annual fund
operating expenses are less than 1.50%, the Fund's Board of Directors may elect
to reimburse Pilgrim Baxter for any fees it waived or expenses it reimbursed on
the Fund's behalf during the previous two fiscal years. To date, the Board has
made no reimbursement election.
[graphic] Example:
This example translates the "Total Annual Fund Operating Expenses" shown in the
preceding table into dollar amounts. With this information, you can more easily
compare the cost of investing in the Fund to the cost of investing in other
mutual funds. This example makes four assumptions: 1) you invest $10,000 in the
Fund for the time periods shown; 2) you redeem all your shares at the end of
those time periods; 3) you earn a 5% return on your investment each year; and 4)
the Fund's operating expenses remain the same for the time periods shown. The
example is hypothetical. Your actual costs and returns may be higher or lower.
Your
Cost*
------
1 Year $153
3 Years $483
5 years $836
10 Years $1,831
* The costs assume the 1.50% expense cap is in place only for 1 year. If the
Fund's expenses were capped at 1.50% for all years, your cost would be:
1 Year $153
3 Years $474
5 years $818
10 Years $1,791
51
<PAGE>
MORE ABOUT THE FUNDS
[logo]Risks and Rewards:
This section takes a closer look at the investment strategies that make up each
Fund's risk and reward characteristics.
In addition to the main investment strategies described in the Fund Summaries
section of this Prospectus, each Fund may make other types of investments that
have different risk/reward characteristics. These investments, the Funds' main
investment strategies and their risk/reward characteristics are described in the
table set forth below. From time to time, a Fund may make investments and pursue
strategies different from those described in this Prospectus. Those investments
and strategies are described in the Statement of Additional Information. The
back cover of this Prospectus explains how you can get a copy of the Statement
of Additional Information.
INVESTMENT TABLE
<TABLE>
<CAPTION>
Policies to Balance Risk
Investment Potential Risks Potential Rewards and Reward
---------- --------------- ----------------- -------------------------
<S> <C> <C> <C>
Securities
Shares representing o Security prices o Securities have o Pilgrim Baxter,
ownership in a fluctuate over time. generally outperformed Value Investors and
corporation. Each Fund more stable Murray Johnstone
may invest in the o Security prices investments (such as maintain a long-term
following types of may fall as a result bonds and cash investment approach
securities: common and of factors that relate equivalents) over the and focus on
preferred stocks, to the company, such long term. securities they
convertible securities, as management believe can appreciate
warrants and rights. decisions or lower over an extended time
demand for the frame, regardless of
company's products or interim fluctuations.
services.
o Under normal
o Security prices circumstances, each
may fall because of Fund intends to remain
factors affecting fully invested, with
companies in a number at least 65% of its
of industries, such as total assets in
production costs. securities.
o Security prices o Pilgrim Baxter,
may fall because of Value Investors and
changes in the Murray Johnstone focus
financial markets, their active
such as interest rates management on
or currency exchange securities selection,
rate changes. the area they believe
their commitment to
fundamental research
can most enhance a
Fund's performance.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C> <C> <C>
Growth Securities
Securities that Pilgrim o See securities. o See securities. o See securities.
Baxter believes have
strong earnings growth o Growth securities o Growth securities o In managing a Fund,
and capital appreciation may be more sensitive may appreciate faster Pilgrim Baxter
potential and will grow to earnings changes than non-growth uses its own software
faster than the economy than other securities securities. and research models
as a whole. because they typically which incorporate
trade at higher important attributes
earnings multiples. of successful growth.
A key attribute of
o The growth securities successful growth is
in the Fund may earnings growth.
never reach what Pilgrim Baxter's
Pilgrim Baxter investment process is
believes are their extremely focused on
full value and may earnings growth.
even go down in price.
o Pilgrim Baxter considers
selling a security when
its anticipated appreciation
is no longer probable,
alternative investments offer
more superior appreciation
prospects or the risk
of a decline in its
market price is too
great.
Value Securities
Securities that Value o See securities. o See securities. o See securities.
Investors believes are
currently underpriced o Value companies o Value securities o In managing a Fund,
using certain financial may have experienced may produce Value Investors
measurements, such as adverse business significant capital uses its own research,
their price-to-earnings developments or may be appreciation as the computer models and
ratio, earnings power, subject to special market recognizes measures of value.
dividend income risks that have caused their full value.
potential, and their securities to be Value Investors
competitive advantages. out of favor. considers selling a
security when it
o The value securities becomes overvalued
in the Fund may relative to the
never reach what market, shows
Value Investors deteriorating
believes are their fundamentals or falls
full value and may short of Value
even go down in price. Investors'
expectations.
Foreign Equity Securities
Securities of foreign o Foreign security o Favorable exchange o In managing the
issuers, including ADRs. prices may fall due to rate movements could International Fund,
ADRs are certificates political instability, generate gains or Murray Johnstone uses
issued by a U.S. bank changes in currency reduce losses. its own software and
that represent a stated exchange rates, research module.
number of shares of a foreign economic o Foreign investments, Murray Johnstone seeks
foreign corporation that conditions or which represent to invest in companies
the bank holds in its inadequate regulatory a major portion with strong growth
vault. An ADR is bought and accounting of the world's potential in those
and sold in the same standards. securities, offer countries with the
manner as U.S. securities. attractive potential best investment
o These risks tend performance and opportunities.
to be greater in opportunities for
emerging markets. As diversification. o Murray Johnstone
a result, the considers selling a
International Fund's security when another
investments in company or country
emerging markets may offer superior
be considered investment
speculative. opportunities, the
risk associated with
a particular currency
becomes too great or
the security falls
short of Murray
Johnstone's expectations.
o Every other Fund does
not invest in emerging
markets and limits the
amount of total assets
it invests in foreign
securities as follows:
Growth/Emerging
Growth/Large Cap
Growth/Select
Equity/Limited/Large
Cap 20/New
Opportunities/Technology
& Communications: 10%
and Core Growth/Large
Cap Value/Mid-Cap
Value/Small Cap
Value/Focused
Value/Strategic
Small Company: 15%.
ADRs are not included
in these limits.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C>
Money Market Instruments
High quality, short-term o Money market o Money market o The Cash Reserve
U.S. and foreign debt instrument prices instruments may have Fund follows strict
instruments denominated fluctuate over time. greater short-term SEC rules about credit
in U.S. dollars, liquidity and capital risk, maturity and
including bank o Money market preservation potential diversification of its
obligations (such as CDs, instrument prices may than longer term investments.
time deposits, bankers' fall as a result of investments such as
acceptances and bank factors that relate to stocks.
notes) commercial paper, the issuer, such as a
corporate obligations rating downgrade.
(including asset-backed
securities), government o Money market
obligations (such as U.S. instrument prices may
Treasury, agency or fall because of
foreign government changes in the
securities), short-term financial markets,
obligations issued by such as interest rate
state and local changes.
governments and
repurchase agreements. o The money market
instruments in the
Cash Reserve Fund may
never reach what Pilgrim
Baxter and Wellington Management
believe are their full
income potential.
Small and Medium Sized
Company Securities
o Smaller company o Smaller company o See securities/growth
securities involve securities may securities/value
greater risk and price appreciate faster than securities.
volatility than those of larger, more
larger, more established companies
established companies for many reasons. For o Pilgrim Baxter and
because they tend to example, smaller Value Investors focus
have more limited companies tend to have on smaller companies
product lines, markets younger product lines with strong balance
and financial whose distribution and sheets that they
resources and may be revenues are still expect to exceed
dependent on a smaller maturing. consensus earnings
management group. expectations.
Technology Company
Securities
Securities of companies o Technology company o Technology company o Each Fund seeks to
that rely extensively on securities are securities offer strike a balance among
technology in their strongly affected by investors significant the industries in
product development or worldwide scientific growth potential which it invests so
operations or are and technological because they may be that no one industry
expected to benefit from developments and responsible for dominates the Fund's
technological advances governmental policies, breakthrough products investments.
and improvements. and, therefore, are or technologies or may
generally more be positioned to take
volatile than advantage of
companies not cutting-edge,
dependent upon or technology-related
associated with developments.
technology issues.
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
Futures and Options
A futures contract is an o A futures or option o A futures or option o Each Fund may use
agreement to buy or sell contract used to contract that futures and options
a set quantity of an hedge the Fund or correlates well with contracts for hedging
underlying instrument at special securities may the underlying and risk management,
a future date, or to make not fully offset the position can reduce or i.e., to establish or
or receive a cash payment underlying position. eliminate losses at adjust exposure to
based on changes in the low cost. particular securities,
value of a securities o A futures or option markets or currencies;
index. An option contract used for o A Fund could make to manage a Fund's
contract is the right to risk management money and protect exposure relative to
buy or sell a set may not have the against losses if its benchmark.
quantity of an underlying intended effects and Pilgrim Baxter's,
instrument at a may result in losses Value Investors' or o The International
pre-determined price. A or missed investment Murray Johnstone's Fund generally will
forward foreign currency opportunities. analysis proves not hedge its currency
contract is an obligation correct. exposure because
to buy or sell a given o The counterparty to currency considerations
currency on a future date a futures or option are an integral part
and at a set price. contract could default. of Murray Johnstone's
investment process.
However, the Fund
may use forward
foreign currency
contracts to hedge
exchange rates, a
particular security
or position.
o A Fund only
establishes hedges
that it expects
will be highly
correlated with
underlying securities
positions.
o No Fund considers
using futures or
options contracts
unless it would
be cost-effective.
o Each Fund maintains
assets sufficient
to meet its
obligations under
the contract in
a segregated margin
account with a
custodian bank.
OTC Securities
Securities not listed and o OTC securities are o Increases the number o Pilgrim Baxter,
traded on an organized not traded as often as of potential investments Value Investors and
exchange, but bought and securities listed on for a Fund. Murray Johnstone use a
sold through a computer an exchange. So, if highly disciplined
network. the Fund were to sell o OTC securities may investment process
an OTC security, it appreciate faster than that seeks to, among
might have to offer exchange-traded other things, identify
the security at a securities because quality investments
discount or sell it in they are typically that will enhance a
smaller share lots securities of younger, Fund's performance.
over an extended growing companies.
period of time.
Illiquid Securities
Securities that do not o A Fund may have o Illiquid securities o The Cash Reserves
have a ready market and difficulty valuing may offer more Fund may not invest
cannot be easily sold, if these securities attractive yields more than 10% of its
at all, at approximately precisely. or potential growth net assets in illiquid
the price that the Fund than comparable widely securities.
has valued them. o A Fund may be traded securities.
unable to sell these o Every other Fund
securities at the time may not invest more
or price it desires. than 15% of its net
assets in illiquid
securities.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C>
Restricted Securities
Privately placed o Restricted o Restricted o Each Fund limits
securities whose resale securities may be securities may offer the amount of total
is restricted under difficult to value more future growth assets it invests in
securities law. because market potential than restricted securities
quotations may not be publicly traded as follows: Large Cap
readily available. securities. Growth/Select
Equity/Core
o Because of the Growth/Limited/Large
restrictions in resale Cap 20/New
of these securities, a Opportunities/International/
Fund may not be able Cash Reserves/Technology &
to find a qualified Communications: 10%
buyer or may not be and Large Cap
able to sell these Value/Mid-Cap
securities at the time Value/Small Cap
or price it desires. Value/Focused
Value/Strategic Small
Company: 15%. The
Growth and Emerging
Growth Funds are not
currently permitted to
invest in restricted
securities.
When Issued and Delayed
Securities
Securities subject to o When a Fund buys o A Fund can take o Only the Small Cap
settlement on a future these securities, it advantage of Value, Mid-Cap Value
date. could be exposed to attractive investment and Large Cap Value
leverage risk if it opportunities. Funds are permitted to
does not use invest in these
segregated accounts. securities. These
Funds use segregated
accounts to offset
leverage risk.
</TABLE>
Each Fund may invest 100% of its total assets in cash or U.S. dollar-denominated
high quality short-term instruments for temporary defensive purposes, to
maintain liquidity or when economic or market conditions are unfavorable for
profitable investing. These types of investments typically have a lower yield
than other longer-term investments and lack the capital appreciation potential
of equity securities, like stocks. In addition, while these investments are
generally designed to limit a Fund's losses, they can prevent a Fund from
achieving its investment goal.
Each Fund is actively managed, which means a Fund's manager may frequently buy
and sell securities. Frequent trading increases a Fund's turnover rate and may
increase transaction costs, such as brokerage commissions. Increased transaction
costs could detract from a Fund's performance. In addition, the sale of Fund
securities may generate capital gains which, when distributed, may be taxable to
you.
THE INVESTMENT ADVISER AND SUB-ADVISER
[logo]The Investment Adviser
Pilgrim Baxter & Associates, Ltd., 825 Duportail Road, Wayne, Pa 19087, is the
investment advisor for each Fund. Founded in 1982, Pilgrim Baxter currently
manages approximately $11.0 billion in assets for pension and profit-sharing
plans, charitable institutions, corporations, trusts, estates and other
investment companies.
Pilgrim Baxter believes that discipline and consistency are important to
long-term investment success. This belief is reflected in its investment
process. Pilgrim Baxter uses a quantitative and fundamental investment process
that is extremely focused on earnings growth.
56
<PAGE>
Pilgrim Baxter begins its investment process by creating a universe of rapidly
growing companies that possess certain growth characteristics. That universe is
continually updated. Pilgrim Baxter then ranks each company in its universe
using propriety software and research models that incorporate attributes of
successful growth like positive earnings surprises, upward earnings estimate
revisions, and accelerating sales and earnings growth. Finally, using its own
fundamental research and a bottom-up approach to investing, Pilgrim Baxter
evaluates each company's earnings quality and whether the company can sustain
its current growth trend. Pilgrim Baxter believes that through this highly
disciplined investment process, it is able to construct a portfolio of
investments with strong growth characteristics.
Pilgrim Baxter's decision to sell a security depends on many factors. Generally
speaking, however, Pilgrim Baxter considers selling a security when its
anticipated appreciation is no longer probable, alternative investments offer
more superior appreciation prospects or the risk of a decline in its market
price is too great.
As investment adviser, Pilgrim Baxter makes investment decisions for the Growth,
Emerging Growth, Large Cap Growth, Select Equity, Core Growth, Limited, Large
Cap 20, New Opportunities and Technology & Communications Funds, and for the
growth portion of the Strategic Small Company Fund. Pilgrim Baxter oversees the
investment decisions made by Value Investors as sub-adviser for the Large Cap
Value, Mid-Cap Value, Small Cap Value and Focused Value Funds, and for the value
portion of the Strategic Small Company Fund, Murray Johnstone as sub-adviser for
the International Fund and Wellington Management as sub-adviser for the Cash
Reserves Funds. The Funds' Board of Directors supervises Pilgrim Baxter and the
sub-advisers and establishes policies that Pilgrim Baxter and the sub-advisers
must follow in their day-to-day investment management activities.
[logo]The Sub-Advisers
Pilgrim Baxter Value Investors, Inc., 825 Duportail Road, Wayne, PA 19087, is a
wholly-owned subsidiary of Pilgrim Baxter. Founded in 1940, Value Investors
currently manages $1.5 billion for pension and profit sharing plans, charitable
institutions, trusts, estates and other investment companies.
Value Investors' investment process, like that of Pilgrim Baxter, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the Small Cap Value, Mid-Cap Value, Large Cap Value and
Focused Value Funds and the value portion of the Small Company Fund, Value
Investors first creates a universe of more than 8,000 companies whose current
share price seems lower than the current or future worth. Then, using its own
computer models and measures of value, Value Investors creates a sub-universe of
57
<PAGE>
statistically attractive value companies. Value Investors considers factors like
a company's earnings power vs. its current stock price, its dividend income
potential, its price-to-earnings ratio vs. similar companies, its competitive
advantages, like brand or trade name or market niche, its management team and
its current and future business prospects. Lastly, using its own fundamental
research and a bottom-up approach to investing, Value Investors identifies those
companies which are currently out of market favor but have the potential to
achieve significant appreciation as the marketplace recognizes their fundamental
value.
Value Investors' decision to sell a security depends on many factors. Generally
speaking, however, Value Investors considers selling a security when it becomes
overvalued relative to the market, shows deteriorating fundamentals or falls
short of Value Investors' expectations.
Murray Johnstone International Limited, 11 West Nile Street, Glasgow, Scotland
is a U.S. registered investment adviser. Founded in 1989, Murray Johnstone
currently manages $6 billion for institutional clients worldwide.
The investment process of Murray Johnstone, like that of Pilgrim Baxter, is both
quantitative and fundamental. In seeking to identify attractive investment
opportunities for the International Fund, Murray Johnstone uses twenty factors,
like currency considerations, to score and rank a universe of countries and
geographic regions according to investment potential. Then, using its own
fundamental research, Murray Johnstone identifies individual companies with
superior growth records and expectations, sound balance sheets and high cash
flow generation. Each company's investment value is evaluated based on factors
like relative price performance, upward earnings estimate revisions, improving
balance sheets and strength of management. Murray Johnstone's decision to sell a
security depends on many factors. Generally speaking, however, Murray Johnstone
considers selling a security when another company or country offers superior
investment opportunities, the risk associated with a particular currency becomes
too great, or the security falls short of Murray Johnstone's expectations.
Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts is
the sub-adviser for the Cash Reserves Fund. Wellington Management and its
predecessor organizations have provided investment advisory services to
investment companies since 1928 and to investment counseling clients since 1960.
As of April 30, 1999, Wellington Management held discretionary management
authority with respect to more than $221 billion of assets.
In managing the PBHG Cash Reserves Fund, Wellington Management uses a top-down
strategy and bottom-up security selection, to seek securities with an acceptable
maturity, that are marketable and liquid, offer competitive yields and are
issued by issuers that are on a sound financial footing. Wellington Management
also considers factors such as the anticipated level of interest rates and the
maturity of individual securities relative to the maturity of the Fund as a
whole. The purchase of single rated or unrated securities by the Adviser or
Wellington Management is subject to the approval or ratification by the Funds
Board of Directors.
58
<PAGE>
For the fiscal year ended March 31, 1999, Pilgrim Baxter waived a portion of its
fee so that the effective management fee paid by each Fund was as follows:
<TABLE>
<S> <C> <C> <C>
Growth Fund 0.85% Large Cap Value Fund 0.65%
Emerging Growth Fund 0.85% Mid-Cap Value Fund 0.85%
Large Cap Growth Fund 0.75% Small Cap Value Fund 1.00 %
Select Equity Fund 0.85% International Fund 1.00%
Core Growth Fund 0.85% Cash Reserves Fund 0.30%
Limited Fund 1.00% Technology & Communications Fund 0.85%
Large Cap 20 Fund 0.85%
Strategic Small Company Fund 0.96%
</TABLE>
The New Opportunities and Focused Value Funds did not begin investment
operations until February 16, 1999. As investment adviser to this Fund, Pilgrim
Baxter is entitled to receive a fee, calculated daily and payable monthly, at
the annual rate of 1.00% of the New Opportunities Fund's and 0.85% of the
Focused Value Fund's average daily net assets.
Each sub-adviser is entitled to receive a fee from Pilgrim Baxter equal to a
percentage of the daily net assets of each of these Portfolios.
Growth Fund
Gary L. Pilgrim, CFA and CIO/Director of Pilgrim Baxter, has managed the Growth
Fund since its inception. He has been a growth stock manager for over 25 years
and today manages other funds at Pilgrim Baxter.
Emerging Growth Fund
Christine M. Baxter, CFA, has managed the Emerging Growth Fund since its
inception. She has been a growth stock manager and analyst specializing in
micro-cap stocks for 8 years.
Large Cap Growth Fund/Select Equity Fund/Core Growth Fund/Large Cap 20 Fund
James D. McCall, CFA, has managed the Large Cap Growth, Select Equity and Large
Cap 20 Funds since their inception. Mr. McCall co-managed the Core Growth Fund
from March 1997 to May 1998 and became the sole manager in October 1998. Mr.
McCall has been a portfolio manager with Pilgrim Baxter since 1994. Prior to
that, Mr. McCall worked as a portfolio manager with the First National Bank of
Maryland.
59
<PAGE>
New Opportunities Fund
Frank P. "Quint" Slattery has managed the New Opportunities Fund since its
inception. He joined Pilgrim Baxter in 1998 as a growth stock analyst after
working for two years as a financial analyst at Merrill Lynch & Co.
Limited Fund
Erin Piner has managed the Limited Fund since October, 1998. She joined Pilgrim
Baxter in 1995 as an equity analyst after four years in the client services
group of PaineWebber, Inc.
Small Cap Value Fund/Mid-Cap Value Fund/Large Cap Value Fund/Focused Value Fund
Gary D. Haubold, CFA, has managed the Small Cap Value, Mid-Cap Value, and
Focused Value Funds since their inception and has managed the Large Cap Value
Fund since December, 1997. He joined Value Investors in 1997 after 16 years of
experience as a small and mid-cap value portfolio manager, most recently with
Miller Anderson & Sherred. Today Mr. Haubold manages several other funds at
Value Investors.
International Fund
Andrew V. Preston has managed this Fund since April, 1999. He co-managed this
Fund from July, 1995 through April, 1999. Mr. Preston joined Murray Johnstone
International Limited in 1985 and has served as a portfolio manager and director
of that company since 1993.
Technology & Communications Fund
Jeffrey Wrona, CFA, has managed this Fund since May, 1998. He co-managed this
Fund from May, 1998 through May, 1999. Mr. Wrona joined Pilgrim Baxter in 1997
after seven years as a senior portfolio manager with Munder Capital Management
and today manages several other funds at Pilgrim Baxter.
Strategic Small Company Fund
James M. Smith, CFA and Gary D. Haubold, CFA have co-managed this Fund since its
inception. Mr. Haubold manages the value portion of this Fund. His experience is
discussed under the Value Funds. Mr. Smith manages the growth portion of this
Fund. He joined Pilgrim Baxter in 1993 and has over 20 years of equity portfolio
management experience.
Your Investment
60
<PAGE>
[logo] YEAR 2000
A Fund could be adversely affected if the computer systems used by Pilgrim
Baxter, the Fund's sub-advisers or the Fund's other service providers do not
properly process and calculate date-related information relating to the end of
this century and the beginning of the next. While year 2000-related computer
problems could have a negative effect on a Fund, both in its operations and in
its investments, The PBHG Funds, Inc. is working with Pilgrim Baxter, the Funds'
sub-advisers and the Funds' other service providers to avoid such problems.
Testing of year 2000-related computer problems on the Funds' mission-critical
systems should be completed by summer, 1999. The Funds do not expect to incur
any material costs related to their year 2000 initiatives. No assurances,
though, can be provided that a Fund will not be adversely impacted by year
2000-related computer problems.
[logo] PRICING FUND SHARES
Cash Reserves Fund
The Cash Reserves Fund uses its best efforts to maintain a constant net asset
value (NAV) of $1.00 per share. However, there is no guarantee that this Fund
will be able to maintain a NAV of $1.00 per share on a continuing basis.
Cash Reserves Fund shares are priced at 2:00 p.m. Eastern time on each day the
New York Stock Exchange is open. Cash Reserves Fund shares are not priced on
days that the New York Stock Exchange is closed. The Cash Reserves Fund prices
its investments at amortized cost, which approximates market value.
The price of a Fund's shares is based on that Fund's net asset value (NAV). A
Fund's NAV equals the value of its assets, less its liabilities, divided by the
number of its outstanding shares. Fund shares are priced every day at the close
of regular trading on the New York Stock Exchange. Fund shares are not priced on
days that the New York Stock Exchange is closed.
A Fund prices its investments for which market quotations are readily available
at market value. It prices short-term investments at amortized cost, which
approximates market value. It prices all other investments at fair value as
determined in good faith by the Fund's Board of Directors. If a Fund holds
securities quoted in foreign currencies, it translates that price into U.S.
dollars at current exchange rates. Because foreign markets may be open at
different times than the New York Stock Exchange, the price of a Fund's shares
may change on days when its shares are not available for purchase or sale.
[logo]BUYING SHARES
You may purchase shares of each fund directly through the Fund's transfer agent.
The price per share you will pay to invest in a Fund is its net asset value per
61
<PAGE>
share (NAV) next calculated after the transfer agent or other authorized
representative accepts your order. Except for the Cash Reserves Fund, each
Fund's NAV is calculated at the close of trading on the New York Stock Exchange,
normally 4:00 p.m. Eastern time, each day the exchange is open for business.
Each Fund's assets are generally valued at their market price. However, if a
market price is unavailable or if the assets have been affected by events
occurring after the close of trading, the Fund's board of directors may use
another method that it believes reflects fair value. The Cash Reserves Fund uses
the amortized cost method to value its securities and generally calculates its
NAV at 2:00 p.m. Eastern time each day the exchange is open.
You may also purchase shares of each Fund through certain broker-dealers or
other financial institutions that are authorized to sell you shares of the
Funds. Such financial institutions may charge you a fee for this service in
addition to the Fund's NAV.
- --------------------------------------------------------------------------------
Minimum investments
- --------------------------------------------------------------------------------
Initial Additional
- --------------------------------------------------------------------------------
Regular Accounts $2,500 $25
- --------------------------------------------------------------------------------
Traditional IRAs $2,000 no minimum
- --------------------------------------------------------------------------------
Roth IRAs $2,000 no minimum
- --------------------------------------------------------------------------------
Educational IRAs $500 no minimum
- --------------------------------------------------------------------------------
Systematic Investment Plans*
(SIP) $500 $25
- --------------------------------------------------------------------------------
Note: Minimum initial investment for regular accounts in New Opportunities Fund
is $10,000. The Limited Fund and Strategic Small Company Funds' minimum initial
investments are both $5,000.
- --------------------------------------------------------------------------------
* Provided a SIP is established, the minimum initial investment for each
portfolio is $500 along with a monthly systematic investment of $25.
- --------------------------------------------------------------------------------
Concepts to Understand
Traditional IRA: an individual retirement account. Your contributions may or may
not be deductible depending on your circumstances. Assets grow tax-deferred;
withdraws and distributions are taxable in the year they are made. Spousal IRA:
an IRA funded by a working spouse in the name of a nonworking spouse. Roth IRA:
an IRA funded with non-deductible contributions, and tax-free growth of assets
and distributions to pay retirement expenses, provided certain conditions are
met. Education IRA: an IRA with nondeductible contributions, and tax-free growth
of assets and distributions, if used to pay certain educational expenses. For
more complete information, consult a PBHG representative or a tax advisor.
[logo] SELLING SHARES
You may sell your shares at NAV any day the New York Stock Exchange is open for
business. Sale orders received by the Fund's transfer agent or other authorized
representative by 4:00 p.m. Eastern time (2:00 p.m. Eastern time for the Cash
Reserves Fund) will be priced at the Fund's next calculated NAV. The Fund
62
<PAGE>
generally sends payment for your shares the business day after your order is
received. Under unusual circumstances, the Fund may suspend redemptions or
postpone payment for up to seven days. Also, If the Fund has not yet collected
payment for the shares you are selling, it may delay paying out the proceeds on
your sale until payment has been collected.
Limitations on selling shares by phone:
Proceeds sent by Minimum Maximum
Check no minimum $50,000
Wire* no minimum no maximum
ACH no minimum no maximum
* Wire fee is $10 per Federal Reserve Wire
Written Redemption Orders
Some circumstances require written sell orders along with signature guarantees.
These include: Redemptions in excess of $50,000; Request to send proceeds to a
different address or payee; Request to send proceeds to an address that has been
changed within the last 30 days; Request to wire proceeds to a different bank. A
signature guarantee helps protect you against fraud. You can obtain one from
most banks or securities dealers. For joint accounts, each signature must be
guaranteed. Please call us to ensure that your signature guarantee is authentic.
General policies
o Each Fund may reject or suspend acceptance of purchase orders.
o Payment for telephone purchases must be received by the Fund's transfer
agent within seven days or you may be liable for any losses the Fund incurs
as a result of the cancellation of your purchase order.
o When placing a purchase, sale or exchange order through an authorized
representative, it is the representatives responsibility to promptly
transmit your order to the Fund's transfer agent so that you may receive
that same day's NAV.
o Because of the relatively high cost of maintaining smaller accounts, the
Fund charges an annual fee of $12 if your account balance drops below the
minimum investment amount because of redemptions. Minimum investment
amounts are identified in the table on page ___. For non-retirement
accounts, the Fund may close your account and send you the proceeds if your
account balance remains below the minimum investment amount for over or 60
days.
63
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
- ----------------------------------------------------------------------------------------------------------
In Writing
Complete the application. Fill out an investment slip:
- ----------------------------------------------------------------------------------------------------------
Mail your completed application and a check to: Mail the slip and the check to:
The PBHG Funds, Inc. The PBHG Funds, Inc.
P.O. Box 419534 P.O. Box 419534
Kansas City, Missouri 64141-6534 Kansas City, Missouri 64141-6534
- ----------------------------------------------------------------------------------------------------------
By Telephone
Call us at 1-800-433-0051 to receive an account
application and receive an account number.
Wire. Have your bank send your investment to: Wire. Have your bank send your investment to:
o United Missouri Bank of Kansas City, N.A. o United Missouri Bank of Kansas City, N.A.
o ABA# 10-10-00695 o ABA# 10-10-00695
o Account # 98705-23469 o Account # 98705-23469
o Fund Name o Fund Name
o Your name o Your name
o Your Social Security or tax ID number o Your Social Security or tax ID number
o Your account number o Your account number
Return the account application.
- ---------------------------------------------------------------------------------------------------------
By Automated Clearing House (ACH)*
o Complete the bank information section on the
account application . o Complete the bank information section on
o Attach a voided check or deposit slip to the the account application.
account application . o Attach a voided check or deposit slip to
the account application.
* The maximum purchase allowed through ACH is $100,000
and must be established on your account 15 days
prior to initiating a transaction.
- ---------------------------------------------------------------------------------------------------------
Via the Internet
o Visit the PBHG Funds website at o Complete the bank information section on
http://www.pbhgfunds.com. the account application.
o Enter the "open account" screen and follow o Enter the "Your Account" section of the
the instructions for completing an account website and follow the instructions for
application. purchasing shares.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
TO SELL SHARES
- ---------------------------------------------------------------------------------------------------------
By Mail By Telephone
Write a letter of instruction that includes: Sales orders may be placed by telephone provided
o your name(s) and signature(s) this option was selected on your account
o your account number application.
o the fund name
o the dollar amount your wish to sell Note: sales from IRA accounts may not be made by
o how and where to sent the proceeds telephone and must be made in writing.
If required, obtain a signature guarantee (see
"Selling Shares")
Mail your request to:
The PBHG Funds, Inc.
P.O. Box 419534
Kansas City, Missouri 64141-6534
- ---------------------------------------------------------------------------------------------------------
Wire ACH
Sale proceeds may be wired at your request. Be sure o Complete the bank information section on
the Fund has your wire instructions on file. the account application .
o Attach a voided check or deposit slip to
the account application .
Note: sale proceeds sent via ACH will not be
posted to your bank account until the second
business day following the transaction.
- ---------------------------------------------------------------------------------------------------------
Systematic Withdraw Plan
Permits you to have payments of $50 or more
automatically transferred from your Fund accounts
to your designated checking or savings account
o Complete the applicable section in the
account application
Note: Must maintain a minimum account balance of
$5,000 or more.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Exchanges Between Funds
You may exchange some or all of your shares in a fund with any other fund
identified in this prospectus. Simply mail, telephone or use the Fund's internet
website to provide your exchange instructions to the transfer agent. There is
currently no fee for exchanges, however, the Fund may change or terminate this
privilege on 60 days notice. Please note that exchanges into the PBHG Cash
Reserves Fund from another PBHG fund may be made only four (4) times a year.
[logo]DISTRIBUTIONS AND TAXES
Each Fund pays shareholders dividends from its net investment income and
distributions from its net realized capital gains at least once a year. These
dividends and distributions will be reinvested in the Fund unless you instruct
the Fund otherwise. There are no fees on reinvestments.
Unless your investment is an IRA or other tax-exempt account, your dividends and
distributions will be taxable whether you receive them in cash or reinvest them.
Dividends are taxed at the ordinary income rate. Distributions are taxable at
the long-term capital gains rate, regardless of how long you have been in the
Fund. Long-term capital gains tax rates are described in the table below.
65
<PAGE>
A sale or exchange of a Fund may also generate a tax liability unless your
account is tax-exempt. There are two types of tax liabilities you may incur from
a sale or exchange. (1) Short-term capital gains will apply if you sell or
exchange a Fund up to 12 months after buying it. (2) Long-term capital gains
will apply to Funds sold or exchanged after 12 months. The table below contains
the tax rates for each.
----------------------------------------------------------------------------
Type of Tax Rate for Tax rate for 28%
Distribution 15% bracket bracket or above
----------------------------------------------------------------------------
Dividends Ordinary income Ordinary income
rate rate
----------------------------------------------------------------------------
Short-term capital gains Ordinary income Ordinary income
rate rate
----------------------------------------------------------------------------
Long-term capital gains 10% 20%
----------------------------------------------------------------------------
The tax status of your distributions for each calendar year will be detailed in
your annual tax statement from the Fund. Because everyone's tax situation is
unique, always consult your tax professional about federal, state and local tax
consequences.
FINANCIAL HIGHLIGHTS
A Fund's financial highlights help you understand its recent financial
performance. The total returns represent the rate that you would have earned or
lost on an investment in the Fund, assuming you reinvested all Fund
distributions. PricewaterhouseCoopers, LLP has audited the information contained
in these financial highlights. Its report and the Fund's financial statements
are included in the Fund's Annual Report to Shareholders, which is available,
free of charge, upon request.
[logo] FINANCIAL HIGHLIGHTS
For the period ended March 31, 1999 For a Share Outstanding Throughout each
Fiscal Year or period
66
<PAGE>
THE PBHG FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------
For a Share Outstanding Throughout Each Period
For the Period Ended March 31, 1999
<TABLE>
<CAPTION>
Ratio
of Net
Net Net Net Investment
Asset Net Realized and Distributions Distributions Asset Assets Ratio Income
Value Investment Unrealized from Net from Value End of Expenses (Loss)
Beginning Income Gains or (Losses) Investment Capital End Total of Period to Average to Average
of Period (Loss) on Securities Income Gains of Period Return (000) Net Assets Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
- ----------------
PBHG GROWTH FUND
- ----------------
PBHG CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 4 $28.23 $(0.24) $ (3.48) -- -- $24.51 (13.18)% $3,228,740 1.32% (0.99)%
1998 21.06 (0.26) 7.43 -- -- 28.23 34.05 % 5,338,380 1.26% (0.74)%
1997 25.30 (0.10) (4.14) -- -- 21.06 (16.76)% 4,634,138 1.25% (0.69)%
1996 16.70 (0.06) 8.66 -- -- 25.30 51.50% 3,298,666 1.48% (0.79)%
1995 1 14.67 (0.05) 2.09 -- $(0.01) 16.70 13.92% 1,014,832 1.50% (0.69)%
PBHG ADVISOR CLASS
1999 4 $28.12 $(0.30) $ (3.47) -- -- $24.35 (13.41)% $66,235 1.57% (1.24)%
1998 21.03 (0.15) 7.24 -- -- 28.12 33.71% 89,227 1.51% (1.02)%
1997 2 25.42 (0.06) (4.33) -- -- 21.03 (17.27)%+ 12,991 1.53%* (1.11)%*
- -------------------------
PBHG EMERGING GROWTH FUND
- -------------------------
PBHG CLASS
1999 4 $25.83 $(0.18) $ (4.96) -- $(0.08) $20.61 (19.91)% $ 736,008 1.34% (0.80)%
1998 19.26 (0.24) 6.81 -- -- 25.83 34.11 % 1,404,157 1.27% (0.80)%
1997 23.07 (0.11) (2.87) -- (0.83) 19.26 (13.71)% 1,195,620 1.28% (0.36)%
1996 16.10 (0.07) 8.03 -- (0.99) 23.07 50.16% 689,705 1.47% (0.42)%
1995 3,4 14.59 (0.01) 1.56 -- (0.04) 16.10 10.64%+ 411,866 1.50%* (0.08)%*
- --------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------
PBHG CLASS
1999 4 $22.69 $(0.16) $ 3.53 -- $(1.49) $24.57 15.90% $144,089 1.25% (0.71)%
1998 14.26 (0.19) 8.82 -- (0.20) 22.69 60.80% 145,662 1.22% (0.79)%
1997 14.53 (0.05) (0.21) -- (0.01) 14.26 (1.77)% 119,971 1.23% (0.47)%
1996 6 10.00 (0.03) 4.97 -- (0.41) 14.53 50.47%* 53,759 1.50%* (0.66)%*
- -----------------------
PBHG SELECT EQUITY FUND
- -----------------------
PBHG CLASS
1999 4 $24.15 $(0.21) $ 1.99 -- -- $25.93 7.37% $235,904 1.34% (0.90)%
1998 15.91 (0.44) 8.68 -- -- 24.15 51.79% 336,076 1.35% (1.15)%
1997 17.27 (0.13) (1.03) -- $(0.20) 15.91 (6.94)% 372,486 1.26% (0.76)%
1996 6 10.00 (0.05) 7.68 -- (0.36) 17.27 77.75%* 202,796 1.50%* (0.74)%*
- ---------------------
PBHG CORE GROWTH FUND
- ---------------------
PBHG CLASS
1999 4 $13.53 $(0.14) $0.67 -- -- $14.06 3.92% $ 86,485 1.45% (1.16)%
1998 10.34 (0.33) 3.52 -- -- 13.53 30.85% 165,510 1.35% (1.07)%
1997 11.82 (0.09) (1.39) -- -- 10.34 (12.52)% 283,995 1.36% (0.77)%
1996 5 10.00 -- 1.82 -- -- 11.82 18.20%+ 31,092 1.50%* (0.18)%*
- -----------------
PBHG LIMITED FUND
- -----------------
PBHG CLASS
1999 4 $14.08 $(0.10) $(1.45) -- $(0.58) $11.95 (11.01)% $108,011 1.40% (0.81)%
1998 9.05 (0.10) 5.53 -- (0.40) 14.08 60.78% 178,168 1.40% (0.72)%
1997 8 10.00 0.02 (0.93) $(0.03) (0.01) 9.05 (9.15)%+ 137,520 1.42%* 0.33%*
- ----------------------
PBHG LARGE CAP 20 FUND
- ----------------------
PBHG CLASS
1999 4 $15.98 $(0.12) $8.46 -- $(0.22) $24.10 52.52% $603,077 1.27% (0.64)%
1998 9.25 (0.07) 6.80 -- -- 15.98 72.76% 192,631 1.41% (0.79)%
1997 9 10.00 (0.01) (0.73) $(0.01) -- 9.25 (7.40)%+ 69,819 1.50%* 0.17%*
- ---------------------------
PBHG NEW OPPORTUNITIES FUND
- ---------------------------
PBHG CLASS
1999 4,13 $13.52 $(0.01) $2.96 -- -- $16.47 21.82%+ $16,742 1.50%* (0.80)%*
- -------------------------
PBHG LARGE CAP VALUE FUND
- -------------------------
PBHG CLASS
1999 $13.01 $0.08 $2.45 $(0.10) $(1.59) $13.85 20.29% $44,922 1.01% 0.59%
1998 10.11 0.02 3.84 (0.06) (0.90) 13.01 39.47% 76,476 1.17% 0.98%
1997 10 10.00 0.02 0.09 -- -- 10.11 1.10%+ 26,262 1.50%* 1.61%*
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio Investment
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
- --------------------------------------------------
- ----------------
PBHG GROWTH FUND
- ----------------
PBHG CLASS
<S> <C> <C> <C> <C>
1999 4 1.32% (0.99)% 80.51%
1998 1.26% (0.74)% 94.21%
1997 1.25% (0.69)% 64.89%
1996 1.48% (0.79)% 44.64%
1995 1 1.50% (0.69)% 118.75%
PBHG ADVISOR CLASS
1999 4 1.57% (1.24)% 80.51%
1998 1.51% (1.02)% 94.21%
1997 2 1.53%* (1.11)%* 64.89%
- -------------------------
PBHG EMERGING GROWTH FUND
- -------------------------
PBHG CLASS
1999 4 1.34% (0.80)% 101.53%
1998 1.27% (0.80)% 95.21%
1997 1.28% (0.36)% 47.75%
1996 1.47% (0.42)% 97.05%
1995 3,4 1.50%* (0.08)%* 27.50%
- --------------------------
PBHG LARGE CAP GROWTH FUND
- --------------------------
PBHG CLASS
1999 4 1.25% (0.71)% 46.16%
1998 1.22% (0.79)% 46.56%
1997 1.23% (0.47)% 51.70%
1996 6 2.07%* (1.23)%* 116.75%
- -----------------------
PBHG SELECT EQUITY FUND
- -----------------------
PBHG CLASS
1999 4 1.34% (0.90)% 56.59%
1998 1.35% (1.15)% 72.16%
1997 1.26% (0.76)% 71.70%
1996 6 1.73%* (0.97)%* 206.22%
- ---------------------
PBHG CORE GROWTH FUND
- ---------------------
PBHG CLASS
1999 4 1.45% (1.16)% 120.93%
1998 1.35% (1.07)% 72.78%
1997 1.36% (0.77)% 46.75%
1996 5 2.92%* (1.60)%* 17.00%
- -----------------
PBHG LIMITED FUND
- -----------------
PBHG CLASS
1999 4 1.40% (0.81)% 111.07%
1998 1.40% (0.72)% 81.36%
1997 8 1.42%* 0.33%* 75.46%
- ----------------------
PBHG LARGE CAP 20 FUND
- ----------------------
PBHG CLASS
1999 4 1.27% (0.64)% 76.41%
1998 1.41% (0.79)% 98.27%
1997 9 1.50%* 0.17%* 43.98%
- ---------------------------
PBHG NEW OPPORTUNITIES FUND
- ---------------------------
PBHG CLASS
1999 4,13 1.59%* (0.89)%* 109.43%
- -------------------------
PBHG LARGE CAP VALUE FUND
- -------------------------
PBHG CLASS
1999 1.01% 0.59% 568.20%
1998 1.17% 0.98% 403.59%
1997 10 1.74%* 1.37%* 0.00%
</TABLE>
67
<PAGE>
THE PBHG FUNDS, INC.
<TABLE>
<CAPTION>
Ratio
of Net
Net Net Net Investment
Asset Net Realized and Distributions Distributions Asset Assets Ratio Income
Value Investment Unrealized from Net from Value End of Expenses (Loss)
Beginning Income Gains or (Losses) Investment Capital End Total of Period to Average to Average
of Period (Loss) on Securities Income Gains of Period Return (000) Net Assets Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
- -----------------------
PBHG MID-CAP VALUE FUND
- -----------------------
PBHG CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $15.30 -- $0.92 -- $(1.13) $15.09 8.35% $56,981 1.33% 0.01%
1998 12 10.00 $(0.01) 6.00 -- (0.69) 15.30 61.06%+ 54,173 1.47%* (0.17)%*
- -------------------------
PBHG SMALL CAP VALUE FUND
- -------------------------
PBHG CLASS
1999 4 $15.38 $(0.09) $(3.06) -- $(0.85) $11.38 (20.93)% $ 69,787 1.48% (0.71)%
1998 12 10.00 (0.03) 6.15 -- (0.74) 15.38 62.27%+ 125,834 1.49%* (0.52)%*
- -----------------------
PBHG FOCUSED VALUE FUND
- -----------------------
PBHG CLASS
1999 13 $10.32 -- $0.14 -- -- $10.46 1.36%+ $3,658 1.50%* 0.09%*
- -----------------------
PBHG INTERNATIONAL FUND
- -----------------------
PBHG CLASS
1999 14 $12.04 $(0.14) $0.29 $(0.17) $(0.42) $11.60 1.42% $12,220 1.97% (0.35)%
1998 11.26 (0.03) 1.83 -- (1.02) 12.04 17.46% 20,905 2.00% (0.13)%
1997 10.55 -- 0.71 -- -- 11.26 6.73% 21,265 2.22% (0.32)%
1996 9.13 (0.04) 1.46 -- -- 10.55 15.55% 11,243 2.25% (0.22)%
1995 11 10.00 (0.03) (0.80) -- (0.04) 9.13 (8.33)%+ 15,236 2.25%* (0.43)%*
- -----------------------
PBHG CASH RESERVES FUND
- -----------------------
PBHG CLASS
1999 $1.00 $0.05 -- $(0.05) -- $1.00 4.84% $144,239 0.70% 4.72%
1998 1.00 0.05 -- (0.05) -- 1.00 5.13% 117,574 0.68% 5.00%
1997 1.00 0.05 -- (0.05) -- 1.00 4.89% 341,576 0.68% 4.79%
1996 6 1.00 0.05 -- (0.05) -- 1.00 5.24%* 99,001 0.70%* 5.05%*
- -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- -------------------------------------
PBHG CLASS
1999 4 $19.27 $(0.19) $8.80 -- $(0.29) $27.59 45.33% $536,405 1.34% (0.96)%
1998 14.63 (0.23) 5.72 -- (0.85) 19.27 38.29% 495,697 1.30% (0.91)%
1997 12.48 (0.05) 2.55 -- (0.35) 14.63 19.59% 493,156 1.33% (0.59)%
1996 7 10.00 (0.02) 2.50 -- -- 12.48 24.82%+ 61,772 1.50%* (0.50)%*
- ---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ---------------------------------
PBHG CLASS
1999 4 $12.89 $(0.11) $(1.78) -- $(0.46) $10.54 (14.52)% $ 48,029 1.50% (0.97)%
1998 8.86 (0.11) 5.01 -- (0.87) 12.89 56.54% 111,983 1.45% (0.92)%
1997 10 10.00 -- (1.14) -- -- 8.86 (11.40)%+ 61,382 1.50%* 0.18%*
</TABLE>
<TABLE>
<CAPTION>
Ratio
of Net
Ratio Investment
of Expenses Income (Loss)
to Average to Average
Net Assets Net Assets Portfolio
(Excluding (Excluding Turnover
Waivers) Waivers) Rate
- ----------------------------------------------
- -----------------------
PBHG MID-CAP VALUE FUND
- -----------------------
PBHG CLASS
<S> <C> <C> <C>
1999 1.33% 0.01% 732.73%
1998 12 1.47%* (0.17)%* 399.96%
- -------------------------
PBHG SMALL CAP VALUE FUND
- -------------------------
PBHG CLASS
1999 4 1.48% (0.71)% 273.87%
1998 12 1.49%* (0.52)%* 263.04%
- -----------------------
PBHG FOCUSED VALUE FUND
- -----------------------
PBHG CLASS
1999 13 2.67%* (1.08)%* 173.09%
- -----------------------
PBHG INTERNATIONAL FUND
- -----------------------
PBHG CLASS
1999 14 1.97% (0.35)% 59.74%
1998 2.00% (0.13)% 85.94%
1997 2.22% (0.32)% 74.82%
1996 3.03% (1.00)% 140.26%
1995 11 2.36%* (0.54)%* 81.72%
- -----------------------
PBHG CASH RESERVES FUND
- -----------------------
PBHG CLASS
1999 0.70% 4.72% n/a
1998 0.68% 5.00% n/a
1997 0.68% 4.79% n/a
1996 6 0.88%* 4.87%* n/a
- -------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
- -------------------------------------
PBHG CLASS
1999 4 1.34% (0.96)% 276.07%
1998 1.30% (0.91)% 259.89%
1997 1.33% (0.59)% 289.91%
1996 7 2.00%* (1.00)%* 125.99%
- ---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
- ---------------------------------
PBHG CLASS
1999 4 1.54% (1.01)% 140.89%
1998 1.45% (0.92)% 215.46%
1997 10 1.50%* 0.18%* 88.88%
<FN>
* Annualized
+ Total returns have not been annualized.
1 The information set forth in this table for the period prior to June 2, 1994
is the financial data of the Pilgrim Baxter Growth Fund, a series of the
Advisor's Inner Circle II Fund. PBHG Growth Fund acquired the assets and
assumed the liabilities of the Pilgrim Baxter Growth Fund on June 2, 1994.
2 The PBHG Growth Fund Advisor Class commenced operations on August 16, 1996.
3 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 Advisor's Inner Circle Fund. 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.
PBHG Emerging Growth 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.
4 Per share calculations were performed using average shares for the period.
5 The PBHG Core Growth Fund commenced operations on December 29, 1995.
6 The PBHG Large Cap Growth Fund, the PBHG Select Equity Fund, and the PBHG
Cash Reserves Fund commenced operations on April 5, 1995.
7 The PBHG Technology & Communications Fund commenced operations on September
29, 1995.
8 The PBHG Limited Fund commenced operations on June 28, 1996.
9 The PBHG Large Cap 20 Fund commenced operations on November 29, 1996.
10 The PBHG Large Cap Value Fund and the PBHG Strategic Small Company Fund
commenced operations on December 31, 1996.
11 The PBHG International Fund commenced operations on June 15, 1994.
12 The PBHG Mid-Cap Value and the PBHG Small Cap Value Funds commenced
operations April 30, 1997.
13 The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced
operations on February 12, 1999.
14 Distributions from net investment income include $0.1659 of distribution in
excess of net investment income.
</FN>
</TABLE>
Amounts designated as "-" are either $0 or have been rounded to $0.
68
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED __________, 1999
Fund:
THE PBHG FUNDS, INC.
Portfolios:
PBHG GROWTH FUND
PBHG EMERGING GROWTH FUND
PBHG NEW OPPORTUNITIES FUND
PBHG LARGE CAP GROWTH FUND
PBHG SELECT EQUITY FUND
PBHG CORE GROWTH FUND
PBHG LIMITED FUND
PBHG LARGE CAP 20 FUND
PBHG LARGE CAP VALUE FUND
PBHG MID-CAP VALUE FUND
PBHG SMALL CAP VALUE FUND
PBHG FOCUSED VALUE FUND
PBHG INTERNATIONAL FUND
PBHG CASH RESERVES FUND
PBHG TECHNOLOGY & COMMUNICATIONS FUND
PBHG STRATEGIC SMALL COMPANY FUND
Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of The
PBHG Funds, Inc. (the "Fund" or "Registrant") and the Portfolios named above. It
should be read in conjunction with the Prospectus for the Portfolios' PBHG Class
shares dated __________, 1999 and with the Prospectus for the Advisor Class of
the PBHG Growth Fund shares dated ____________, 1998. The Prospectuses may be
obtained without charge by calling 1-800-433-0051.
The Annual Report for each Portfolio, except for pages 1 through 9 thereof, is
incorporated herein by reference and made a part of this document. The Annual
Report may be obtained without charge by calling 1-800-433-0051.
TABLE OF CONTENTS
Page
----
THE FUND.............................................................. 3
DESCRIPTION OF PERMITTED INVESTMENTS.................................. 3
INVESTMENT LIMITATIONS................................................ 16
DIRECTORS AND OFFICERS OF THE FUND.................................... 22
5% AND 25% SHAREHOLDERS............................................... 24
THE ADVISER........................................................... 29
THE SUB-ADVISERS...................................................... 32
<PAGE>
THE DISTRIBUTOR....................................................... 34
THE ADMINISTRATOR AND SUB-ADMINISTRATOR............................... 35
OTHER SERVICE PROVIDERS............................................... 37
PORTFOLIO TRANSACTIONS................................................ 38
DESCRIPTION OF SHARES................................................. 41
PURCHASES AND REDEMPTIONS OF SHARES................................... 42
DETERMINATION OF NET ASSET VALUE...................................... 49
TAXES................................................................. 51
PERFORMANCE ADVERTISING............................................... 57
COMPUTATION OF YIELD ................................................. 57
CALCULATION OF TOTAL RETURN........................................... 58
FINANCIAL STATEMENTS.................................................. 60
2
<PAGE>
THE FUND
The Fund is an open-end management investment company which was originally
incorporated in Delaware on August 2, 1985 under the name PBHG Growth Fund, Inc.
and commenced business shortly thereafter as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
On July 21, 1992, shareholders of the Fund approved an Agreement and Articles of
Merger pursuant to which the Fund was reorganized and merged into a new Maryland
corporation, also named PBHG Growth Fund, Inc. On September 8, 1993, the
shareholders of the Fund voted to change the name of the Fund to The Advisors'
Inner Circle Fund II, Inc. On May 2, 1994, the shareholders voted to change the
Fund's name to The PBHG Funds, Inc.
This Statement of Additional Information relates to all Portfolios of the Fund.
Shareholders may purchase shares through two separate classes, i.e., PBHG Class
and Advisor Class (formerly the Trust Class) shares, which provide for
differences in distribution costs, voting rights and dividends. Except for these
differences, each PBHG Class share and each Advisor Class share of each
Portfolio represents an equal proportionate interest in that Portfolio. See
"Description of Shares." Currently only the PBHG Growth Fund offers Advisor
Class shares. This Statement of Additional Information relates to both classes
of shares of the Fund. No investment in shares of a Portfolio should be made
without first reading the Portfolio's Prospectus. Capitalized terms not defined
in this Statement of Additional Information are defined in each Prospectus
offering shares of the Portfolios.
Pilgrim Baxter & Associates, Ltd. ("Adviser") serves as the investment adviser
to each Portfolio. Pilgrim Baxter Value Investors, Inc. ("Value Investors" or
"Sub-Adviser") serves as the investment sub-adviser to the PBHG Large Cap Value,
Mid-Cap Value, Small Cap Value, Focused Value and Strategic Small Company Funds.
Murray Johnstone International Ltd. ("Murray Johnstone" or "Sub-Adviser") serves
as the sub-adviser to the PBHG International Fund. Wellington Management
Company, LLP ("Wellington" or "Sub-Adviser") serves as the sub-adviser to the
PBHG Cash Reserves Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
Repurchase Agreements
Repurchase agreements are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by the
Portfolios will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement. With
respect to all repurchase agreements entered into by a Portfolio, the Fund's
custodians or their agents must take possession of the underlying collateral.
However, if the seller defaults, the Portfolio could realize a loss on the sale
of the underlying security to the extent that the proceeds of the sale,
including accrued interest, are less than the resale price provided in the
agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency
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proceedings, the Portfolio may incur delay and costs in selling the underlying
security or may suffer a loss of principal and interest if the Portfolio is
treated as an unsecured creditor of the seller and is required to return the
underlying security to the seller's estate.
Futures Contracts
A futures contract is a bilateral agreement to buy or sell a security (or
deliver a cash settlement price, in the case of a contract relating to an index
or otherwise not calling for physical delivery at the end of trading in the
contracts) for a set price in the future. Futures contracts are designated by
boards of trade which have been designated "contracts markets" by the
Commodities Futures Trading Commission ("CFTC").
No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain that
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded. By using futures contracts as a risk management
technique, given the greater liquidity in the futures market than in the cash
market, it may be possible to accomplish certain results more quickly and with
lower transaction costs.
If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss. While futures
positions taken by a Portfolio will usually be liquidated in this manner, a
Portfolio may instead make or take delivery of underlying securities whenever it
appears economically advantageous to that Portfolio to do so. A clearing
organization associated with the exchange on which futures are traded assumes
responsibility for closing out transactions and guarantees that as between the
clearing members of an exchange, the sale and purchase obligations will be
performed with regard to all positions that remain open at the termination of
the contract.
Securities Index Futures Contracts. Purchases or sales of securities index
futures contracts may be used in an attempt to protect each of the Portfolio's
current or intended investments from broad fluctuations in securities prices. A
securities index futures contract does not require the physical delivery of
securities, but merely provides for profits and losses resulting from changes in
the market value of the contract to be credited or debited at the close of each
trading day to the respective accounts of the parties to the contract. On the
contract's expiration date a final cash settlement occurs and the futures
positions are simply closed out. Changes in the market value of a particular
index futures contract reflect changes in the specified index of securities on
which the future is based.
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By establishing an appropriate "short" position in index futures, a Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.
Limitations on Purchase and Sale of Futures Contracts. A Portfolio will not
purchase or sell futures contracts unless either (i) the futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (ii) if purchased for other than "bona fide hedging"
purposes, the sum of the amounts of initial margin deposits on a Portfolio's
existing futures contracts and premiums required to establish non-hedging
positions would not exceed 5% of the liquidation value of that Portfolio's total
assets. In instances involving the purchase of futures contracts by a Portfolio,
an amount of cash or other liquid assets, equal to the cost of such futures
contracts (less any related margin deposits), will be deposited in a segregated
account with its custodian, thereby insuring that the use of such futures
contracts is unleveraged. In instances involving the sale of futures contracts
by a Portfolio, the securities underlying such futures contracts or options will
at all times be maintained by that Portfolio or, in the case of index futures
contracts, the Portfolio will own securities the price changes of which are, in
the opinion of its Adviser expected to replicate substantially the movement of
the index upon which the futures contract is based.
For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts Options"
below.
Options
Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period. The types of options
transactions that each Portfolio may utilize are discussed below.
Writing Call Options. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.
A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, a Portfolio will give
up the opportunity to profit from an increase in the market price of the
underlying security above the exercise price so long as its obligations under
the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, a Portfolio will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which a Portfolio owns
securities not subject to a call option, a Portfolio, in writing call options,
must assume that the call may be exercised at any time prior to the expiration
of its obligation as a writer, and that in such circumstances the net proceeds
realized from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price.
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A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." A Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from a Portfolio's securities
portfolio, that Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.
Writing Put Options. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.
A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by such Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which a Portfolio receives from writing a put
option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.
A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.
Purchasing Put and Call Options. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable a Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intend to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.
Securities Index Options. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by a Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid obligations having a value
equal to or greater than the exercise price of the option. Unlike a stock
option,
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which gives the holder the right to purchase or sell a specified stock at a
specified price, an option on a securities index gives the holder the right to
receive a cash "exercise settlement amount" equal to (i) the difference between
the exercise price of the option and the value of the underlying stock index on
the exercise date, multiplied by (ii) a fixed "index multiplier." A securities
index fluctuates with changes in the market value of the securities so included.
For example, some securities index options are based on a broad market index
such as the S&P 500 or the NYSE Composite Index, or a narrower market index such
as the S&P 100. Indexes may also be based on an industry or market segment such
as the AMEX Oil and Gas Index or the Computer and Business Equipment Index.
Over-the-Counter Options. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by a Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Such Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.
For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.
Risks of Transactions in Futures Contracts and Options
Futures. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is
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deposited as margin, a subsequent 10% decrease in the value of the futures
contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit, if
the futures contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract.
A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks in connection with the use by a Portfolio of futures contracts as
a hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Advisers
will, however, attempt to reduce this risk by entering into futures contracts
whose movements, in its judgment, will have a significant correlation with
movements in the prices of the Portfolio's underlying instruments sought to be
hedged.
Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Portfolio's ability to correctly predict movements in the
direction of the market. It is possible that, when a Portfolio has sold futures
to hedge its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in that Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.
Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although a Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.
Options. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange. There is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options, such as over-the-counter options, no
secondary market on an exchange may exist. If a Portfolio is unable to effect a
closing purchase transaction, that Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. The Portfolio will engage in
such transactions only with firms of sufficient credit so as to minimize these
risks. Such options and the securities used as "cover" for such options may be
considered illiquid securities.
The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by a
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Portfolio will not exactly match the composition of the securities indexes on
which options are written. In the purchase of securities index options the
principal risk is that the premium and transaction costs paid by a Portfolio in
purchasing an option will be lost if the changes (increase in the case of a
call, decrease in the case of a put) in the level of the index do not exceed the
cost of the option.
An exchange may establish limitations governing the maximum number of calls and
puts in each class (whether or not covered) which may be written by a single
investor or group of investors acting in concert (regardless of whether the
options are written on the same or different exchanges or are held or written in
one or more accounts or through one or more brokers). It is possible that the
Portfolio and clients advised by the Adviser or the applicable Sub-Adviser may
constitute such a group. An exchange may order the liquidation of positions
found to be in violation of these limits, and it may impose certain other
sanctions. These position limits may limit the number of options which a
Portfolio can write on a particular security.
Investment Company Shares
Investment company shares that each Portfolio may invest in are limited to
shares of money market mutual funds, except as set forth under "Investment
Limitations" below. Since such mutual funds pay management fees and other
expenses, shareholders of the Portfolios would indirectly pay both Portfolio
expenses and the expenses of underlying funds with respect to Portfolio assets
invested therein. Applicable regulations prohibit a Portfolio from acquiring the
securities of other investment companies that are not "part of the same group of
investment companies" if, as a result of such acquisition; (i) the Portfolio
owns more than 3% of the total voting stock of the company; (ii) more than 5% of
the Portfolio's total assets are invested in securities of any one investment
company; or (iii) more than 10% of the total assets of the Portfolio are
invested in securities (other than treasury stock) issued by all investment
companies. Each Portfolio has no current intention, in the foreseeable future,
of investing more than 5% of its assets in investment company securities.
Illiquid Investments
Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at
which they are valued. Under the supervision of the Board of Directors, the
Adviser or Sub-Advisers determine the liquidity of the Fund's investments and,
through reports from the Adviser or Sub-Advisers, the Board monitors investments
in illiquid instruments. In determining the liquidity of a Portfolio's
investments, the Adviser or Sub-Advisers may consider various factors including:
(i) the frequency of trades and quotations; (ii) the number of dealers and
prospective purchasers in the marketplace; (iii) dealer undertakings to make a
market; (iv) the nature of the security (including any demand or tender
features); and (v) the nature of the market place for trades (including the
ability to assign or offset a Portfolio's rights and obligations relating to the
investment). Investments currently considered by a Portfolio to be illiquid
include repurchase agreements not entitling the holder to payment of principal
and interest within seven days, over-the-counter options, and non-government
stripped fixed-rate mortgage backed securities. Also, the Adviser or
Sub-Advisers may determine some government-stripped fixed-rate mortgage backed
securities, loans and other direct debt instruments, and swap agreements to be
illiquid. However, with respect to over-the-counter options a Portfolio writes,
all or a portion of the value of the underlying instrument may be illiquid
depending on the assets held to cover the option and the nature and terms of any
agreement a Portfolio may have to close out the option before expiration. In the
absence of market quotations, illiquid investments are priced at fair value as
determined in good faith by a committee appointed by the Board of Directors. If,
through a change in values, net assets or other circumstances, a Portfolio was
in a position where more than 15% of its net assets were invested in illiquid
securities, it would seek to take appropriate steps to protect liquidity.
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Restricted Securities
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act"), or in a registered public offering.
Where registration is required, a Portfolio may be obligated to pay all or part
of the registration expense and a considerable period may elapse between the
time it decides to seek registration and the time a Portfolio may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, a Portfolio might obtain a
less favorable price than prevailed when it decided to seek registration of the
security. Moreover, investing in Rule 144A securities (i.e., securities that
qualify for resale under Rule 144A under the Securities Act of 1933) would have
the effect of increasing the level of a Portfolio's illiquidity to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Foreign Currency Transactions
A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.
A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.
In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Adviser or the applicable Sub-Advisers may enter into
settlement hedges in the normal course of managing the Portfolio's foreign
investments. A Portfolio may also enter into forward contracts to purchase or
sell a foreign currency in anticipation of future purchases or sales of
securities denominated in foreign currency, even if the specific investments
have not yet been selected by the Adviser or the applicable Sub-Adviser.
A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling - for example, by
entering into a forward contract to sell Deutschemark or European Currency Units
in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could offer advantages in terms of cost, yield, or efficiency,
but generally would not hedge currency exposure as effectively as a simple hedge
into U.S. dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged securities
are denominated.
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Under certain conditions, guidelines of the Securities Exchange Commission
("SEC") require mutual funds to set aside appropriate liquid assets in a
segregated account to cover currency forward contracts. As required by SEC
guidelines, each Portfolio will segregate assets to cover currency forward
contracts, if any, whose purpose is essentially speculative. A Portfolio will
not segregate assets to cover forward contracts entered into for hedging
purposes, including settlement hedges, position hedges, and proxy hedges.
Successful use of forward currency contracts will depend on the skill of the
Adviser or the applicable Sub-Adviser in analyzing and predicting currency
values. Forward contracts may substantially change a Portfolio's investment
exposure to changes in currency exchange rates, and could result in losses to a
Portfolio if currencies do not perform as the Adviser or the applicable
Sub-Adviser anticipates. For example, if a currency's value rose at a time when
the Adviser or Sub-Adviser had hedged a Portfolio by selling that currency in
exchange for dollars, a Portfolio would be unable to participate in the
currency's appreciation. If the Adviser or a Sub-Adviser hedges a Portfolio's
currency exposure through proxy hedges, the Portfolio could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Adviser or the applicable
Sub-Adviser increases a Portfolio's exposure to a foreign currency and that
currency's value declines, the Portfolio will realize a loss. There is no
assurance that the use of forward currency contracts by the Adviser or the
Sub-Advisers will be advantageous to a Portfolio or that it will hedge at an
appropriate time.
American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the
receipts voting rights with respect to the deposited securities.
Bankers' Acceptance
A bill of exchange or time draft drawn on and accepted by a commercial bank. It
is used by corporations to finance the shipment and storage of goods and to
furnish dollar exchange. Maturities are generally six months or less.
Certificate of Deposit
A negotiable interest bearing instrument with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market prior to
maturity. Certificates of deposit generally carry penalties for early
withdrawal.
Commercial Paper
The term used to designate unsecured short-term promissory notes issued by
corporations and other entities.
11
<PAGE>
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, a
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.
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-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.
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.
Time Deposit
A non-negotiable receipt issued by a bank in exchange for the deposit of funds.
Like a certificate of deposit, it earns a specified rate of interest over a
definite period of time; however, it cannot be traded in the secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities.
U.S. Government Agency Obligations
Certain Federal agencies such as the Government National Mortgage Association
("GNMA") have been established as instrumentalities of the United States
Government to supervise and finance certain types of activities. Securities
issued by these agencies, while not direct obligations of the United States
Government, are either backed by the full faith and credit of the United States
(e.g., GNMA securities) or supported by the issuing agencies' right to borrow
from the Treasury. The securities issued by other agencies are supported only
by the credit of the instrumentality (e.g., Tennessee Valley Authority
securities).
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<PAGE>
U.S. Government Securities
Bills, notes and bonds issued by the U.S. Government and backed by the full
faith and credit of the United States.
U.S. Treasury Obligations
Bills, notes and bonds issued by the U.S. Treasury, and separately traded
interest and principal component parts of such obligations that are transferable
through the Federal book-entry system known as Separately Traded Registered
Interest and Principal Securities ("STRIPS"). Under the STRIPS program, a
Portfolio will be able to have its beneficial ownership of securities recorded
directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities. When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the stripped coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. The principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the securities that the Treasury sells itself. Other
facilities are available to facilitate the transfer of ownership of non-Treasury
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on such securities through a book-entry
record-keeping system.
Variable and Floating Rate Instruments
Certain of the obligations purchased by a Portfolio 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.
Warrants
Instruments giving holders the right, but not the obligation, to buy shares of a
company at a given price during a specified period.
When-Issued and Delayed-Delivery Securities
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 a Portfolio before settlement. These securities are
subject to market fluctuation due to changes in market interest rates and will
have the effect of leveraging a 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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<PAGE>
Small and Medium Capitalization Stocks
Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio (other than the Cash Reserves Fund) may be more suitable for long-term
investors who can bear the risk of these fluctuations. The Growth Fund, Emerging
Growth Fund, Limited Fund, New Opportunities 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, Focused
Value 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
14
<PAGE>
any emerging country, there may be greater potential for nationalization,
expropriation or confiscatory taxation, political changes, government
regulation, social instability or diplomatic developments (including war) which
could affect adversely the economies of such countries or the value of the
International Fund's investments in those countries. In addition, it may be
difficult to obtain and enforce a judgment in the courts of such countries.
Further, the economies of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to be
adversely affected by trade barriers, exchange controls, managed adjustments in
relative currency values and other protectionist measures imposed or negotiated
by the countries with which they trade.
Investments in Technology Companies
Each Portfolio (except the Cash Reserves Fund) may invest in equity securities
of technology companies. Such securities have tended to be subject to greater
volatility than securities of companies that are not dependent upon or
associated with technological issues. Although the Technology & Communications
Fund will invest primarily in the securities of technology companies operating
in various industries, many of these industries share common characteristics.
Therefore, an event or issue affecting one such industry may have a significant
impact on these other, related industries and, thus, may affect the value of the
Technology & Communications Fund's investments in technology companies. For
example, the technology companies in which the Technology & Communications 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.
INVESTMENT LIMITATIONS
Fundamental Policies
Each Portfolio has adopted certain investment restrictions which, in addition to
those restrictions in the Prospectus, are fundamental and may not be changed
without approval by a majority vote of the Portfolio's shareholders. Such
majority is defined in the 1940 Act as the lesser of (i) 67% or more of the
voting securities of the Portfolio present in person or by proxy at a meeting,
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Portfolio.
PBHG Growth Fund
The PBHG Growth Fund may not:
1. Make loans, except that the Portfolio, in accordance with its investment
objective and policies, may (i) purchase debt instruments, and (ii) enter into
repurchase agreements, provided that the Portfolio will not make any investment
in repurchase agreements maturing in more than seven days if such investments,
together with any other illiquid securities held by the Portfolio, would exceed
15% of the value of its net assets.
2. Act as an underwriter of securities of other issuers, except as it may be
deemed an underwriter under the 1933 Act in connection with the sale of
portfolio securities.
15
<PAGE>
3. Purchase or sell commodities or commodity contracts, except that the
Portfolio, in accordance with its investment objective and policies, may enter
into futures contracts and options thereon.
4. Purchase or sell real estate, or real estate investment partnerships.
5. Purchase more than 10% of the voting securities of any one issuer or purchase
securities of any one issuer if, at the time of purchase, more than 5% of its
total assets will be invested in that issuer, except with respect to the
Portfolio, up to 25% of its assets may be invested without regard to these
limits.
6. Pledge any of its assets, except that the Portfolio may pledge assets having
a value of not more than 10% of its total assets in order to (i) secure
permitted borrowings, or (ii) as may be necessary in connection with the
Portfolio's use of options and futures contracts.
7. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
8. Invest in interests in oil, gas or other mineral exploration or development
programs.
9. Purchase or write puts, calls or combinations thereof, except that the
Portfolio may invest in and commit its assets to writing and purchasing only put
and call options that are listed on a national securities exchange and issued by
the Options Clearing Corporation to the extent permitted by the Prospectus and
this Statement of Additional Information. In order to comply with the securities
laws of several states, the Portfolio (as a matter of operating policy) will not
write a covered call option if, as a result, the aggregate market value of all
portfolio securities covering call options or subject to put options for that
Portfolio exceeds 25% of the market value of that Portfolio's net assets.
PBHG Emerging Growth Fund, PBHG Large Cap Growth Fund, PBHG Select Equity Fund,
PBHG Core Growth Fund, PBHG Limited Fund, PBHG Large Cap 20 Fund, PBHG Large Cap
Value Fund, PBHG Mid-Cap Value Fund, PBHG Small Cap Value Fund, PBHG
International Fund, PBHG Cash Reserves Fund, PBHG Technology & Communications
Fund, PBHG Strategic Small Company Fund.
Each of the foregoing Portfolios may not:
1. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements. In addition, the PBHG Limited Fund,
the PBHG Large Cap 20 Fund, the PBHG Large Cap Value Fund, the PBHG Mid-Cap
Value Fund, the PBHG Small Cap Value Fund, the PBHG International Fund and the
PBHG Strategic Small Company Fund may each lend its portfolio securities in an
amount not exceeding one-third the value of its total assets.
2. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter under the 1933 Act in connection with the purchase and
sale of portfolio securities.
3. Purchase or sell commodities or commodity contracts, except that a Portfolio,
in accordance with its objectives and policies, may: (i) invest in readily
marketable securities of issuers which invest or engage in such activities; and
(ii) enter into futures contracts and options thereon.
4. Purchase or sell real estate or real estate partnership interests, except
that this limitation shall not prevent a
16
<PAGE>
Portfolio from investing directly or indirectly in readily marketable securities
of issuers which can invest in real estate, institutions that issue mortgages,
or real estate investment trusts that deal with real estate or interests
therein.
5. Issue senior securities (as defined in the 1940 Act) except as permitted in
connection with the Portfolio's policies on borrowing and pledging, or as
permitted by rule, regulation or order of the SEC.
6. Purchase more than 10% of the voting securities of any one issuer or purchase
securities of any one issuer if, at the time of purchase, more than 5% of its
total assets will be invested in that issuer, except with respect to the
Portfolio, up to 25% of its assets may be invested without regard to these
limits. This limitation does not apply to the PBHG Large Cap 20 Fund or the PBHG
Cash Reserves Fund.
This limitation does not apply to the PBHG Large Cap 20 Fund or the PBHG Cash
Reserves Fund. In addition, for purposes of this investment limitation, the term
"issuer" does not include obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements
collaterlaized by such obligations.
7. Invest 25% or more of its total assets at the time of purchase in securities
of one or more issuers (other than obligations issued or guaranteed by the U.S.
Government or its agencies and instrumentalities and repurchase agreements
collaterlized by such obligations) whose principal business activities are in
the same industry. For purposes of this limitation, supranational organizations
are deemed to be issuers conducting their principal business activities in the
same industry; state and municipal governments and their agencies and
authorities are not deemed to be industries; 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
financial service companies will be classified according to the end users of
their services (e.g. automobile finance, bank finance and diversified finance).
8. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets (except not exceeding 33
1/3% of the value of total assets with respect to the PBHG Mid-Cap Value Fund
and the PBHG Small Cap Value Fund). 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.
9. Invest in companies for the purpose of exercising control.
10. Pledge, mortgage or hypothecate assets, except: (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings; or
(ii) in connection with permitted transactions regarding options and futures
contracts and, except for the PBHG Mid-Cap Value Fund and the PBHG Small Cap
Value Fund, in aggregate amounts not to exceed 10% of total assets taken at
current value at the time of the occurrence of such pledge, mortgage or
hypothecation.
11. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may: (i) obtain short-term
credits as necessary for the clearance of security transactions; and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.
12. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
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<PAGE>
13. Invest in interests in oil, gas or other mineral exploration or development
programs and, except for the PBHG Mid-Cap Value Fund and the PBHG Small Cap
Value Fund, invest in oil, gas or mineral leases.
PBHG Focused Value Fund and PBHG New Opportunities Fund
Each of the foregoing Portfolios may not:
1. Make loans except that each such Portfolio, in accordance with its investment
objective and policies, may (i) purchase debt obligations, (ii) enter into
repurchase agreements and (iii) lend its portfolio securities.
2. Act as an underwriter of securities of other issuers, except as it may be
deemed to be an underwriter under the 1933 Act in connection with the purchase
and sale of portfolio securities.
3. Purchase or sell commodities or commodity contracts, except that each such
Portfolio, in accordance with its investment objective and policies, may: (i)
invest in readily marketable securities of issuers which invest or engage in
such activities; and (ii) enter into forward contracts, futures contracts and
options thereon.
4. Purchase or sell real estate, or real estate partnership interests, except
that this limitation shall not prevent any such Portfolio from investing
directly or indirectly in readily marketable securities of issuers which can
invest in real estate, institutions that issue mortgages, or real estate
investment trusts which deal with real estate or interests therein.
5. Issue senior securities (as defined in the 1940 Act) except as permitted in
connection with the Portfolio's policies on borrowing and pledging, or as
permitted by rule, regulation or order of the SEC.
6. Purchase more than 10% of the voting securities of any one issuer or purchase
securities of any one issuer if, at the time of purchase, more than 5% of its
total assets will be invested in that issuer, except that up to 25% of its
assets may be invested without regard to these limits.
This limitation does not apply to the PBHG Focused Value Fund. For purposes of
this investment limitation, the term "issuer" does not include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements collateralized by such obligations.
7. Invest 25% or more of its total assets at the time of purchase in securities
of issuers (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements collateralized by
such obligations) whose principal business activities are in the same industry.
For purposes of this investment limitation, state and municipal governments and
their agencies and authorities are not deemed to be industries; utility
companies will be divided according to their services (e.g., gas, gas
transmission, electric, electric and gas, and telephone) and financial service
companies will be classified according to end use of their service (e.g.,
automobile finance, bank finance, and diversified finance).
8. Borrow money (other than pursuant to reverse repurchase agreements) except
for temporary or emergency purposes and then only in amounts up to 33 1/3% of
the total assets of the PBHG Focused Value Fund and the PBHG New Opportunities
Fund. The temporary borrowing will include, for example, borrowing to facilitate
the orderly sale of portfolio securities to accommodate substantial redemption
requests if they should occur, to
18
<PAGE>
facilitate the settlement of securities transactions, and is not for investment
purposes. All borrowings in excess of 5% of a Portfolio's total assets will be
repaid before making additional investments.
The foregoing percentages will apply at the time of each purchase of a security
(except with respect to borrowings in excess of limitation 8(c) above which will
be reduced consistent with the requirements of Section 18(f) of the 1940 Act).
Non-fundamental Policies
In addition to the foregoing, and the policies set forth in each Portfolio's
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.
19
<PAGE>
PBHG Growth Fund
The PBHG Growth Fund may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of the its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid.
2. Invest in the securities of foreign issuers if, at the time of acquisition,
more than 15% of the value of the Portfolio's total assets would be invested in
such securities.
3. Make short sales or purchase securities on margin; but it may obtain such
short-term credits as are necessary for the clearance of purchases and sales of
securities.
PBHG Large Cap Growth Fund and PBHG Select Equity Fund, PBHG Core Growth Fund,
PBHG Limited Fund, PBHG Large Cap 20 Fund, PBHG Large Cap Value Fund, PBHG
Mid-cap Value Fund, PBHG Small Cap Value Fund, PBHG International Fund, PBHG
Cash Reserves Fund, PBHG Technology & Communications Fund, PBHG Strategic Small
Company Fund.
Each of the foregoing Portfolios may not:
1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board of Directors, based on trading markets for such security, to be
liquid.
2. Purchase puts, calls, straddles, spreads, and any combination thereof, except
to the extent permitted by the 1940 Act or the rules or regulations thereunder.
The foregoing percentages will apply at the time of each purchase of a security.
PBHG Focused Value Fund and PBHG New Opportunities Fund
Each of the foregoing Portfolios may not:
1. Pledge more than 10% of it's total assets, except that each such Portfolio
may pledge assets to the extent permitted by the 1940 Act in order to (i) secure
permitted borrowings or (ii) as may be necessary in connection with the
Portfolio's use of options and futures contracts.
2. Purchase or hold the securities of an issuer if, at the time thereof, any
such purchase or holding would cause more than 15% of the Portfolio's net assets
to be invested in illiquid securities. This limitation does not include any Rule
144A security that has been determined by, or pursuant to procedures established
by, the Board, based on trading markets for such security, to be liquid.
3. Purchase or sell puts, calls, straddles, spreads, and any combination thereof
except that each such Portfolio may, in accordance with its investment objective
and policies, write covered call options wit respect to all of its portfolio
securities, write covered put options and enter into closing purchase
transactions with respect to such
20
<PAGE>
options, engage in put and call option transactions and engage in interest rate
and stock index futures contracts and related options transactions.
4. Purchase securities of open-end or closed-end investment companies, except to
the extent permitted by the 1940 Act.
5. Invest in companies for the purpose of exercising control.
6. Purchase securities on margin, except that each such Portfolio may: (i)
obtain short-term credits as necessary for the clearance of security
transactions; and (ii) establish margin accounts as may be necessary in
connection with the Fund's use of options and futures contracts.
7. Invest in interests in oil, gas or other mineral leases, exploration or
development programs, except that this shall not prevent a Portfolio from
investing in readily marketable securities of issuers that invest or engage in
oil, gas or other mineral leases, exploration or development programs or issuers
secured by interest in such activities.
The foregoing percentages will apply at the time of each purchase of a security
(except with respect to the limitation on investments in illiquid securities).
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.
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, 1999 for each of the Portfolios is specified in the Financial
Highlights table. 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.
21
<PAGE>
DIRECTORS AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors have approved contracts under
which, as described above, certain companies provide essential management
services to the Fund. The Directors and executive officers of the Fund and the
principal occupations for the last five years are set forth below. Each may have
held other positions with the named companies during that period. Each Director
serves as a Director and each officer serves as an officer in a similar capacity
for The PBHG Insurance Series Fund, Inc., a registered investment company
advised by the Adviser.
<TABLE>
<CAPTION>
Position Held with
Name , Address, and Age the Fund Principal Occupation(s) During Past 5 Years
- ----------------------- -------- -------------------------------------------
<S> <C> <C>
John R. Bartholdson, Director Chief Financial Officer and Director, the Triumph Group
1255 Drummers Lane, Suite 200, Holdings, Inc. since 1992. Senior Vice President and Chief
Wayne,PA 19087 Financial Officer, Lukens, Inc., 19781992.
(51)
Harold J. Baxter*, Director Officer and Director, the Adviser, 825 Duportail Road,
825 Duportail Road, Wayne, PA 19087. Trustee, the Administrator since May
Wayne, PA 19087, 1996. Chief Executive Officer, Value Investors, since June
(51) 1996.
Jettie M. Edwards, Director Consultant, Syrus Associates since 1986. Trustee,
76 Seaview Drive, Santa Barbara, Provident Investment Counsel Trust (investment company)
California 93108, since 1992.
(49)
Albert A. Miller, Director Principal and Treasurer, JK Equipment Exporters since
7 Jennifer Drive, 1995. Advisor and Secretary, the Underwoman Shoppes Inc.
Holmdel, New Jersey 07733, (retail clothing stores) since 1980. Merchandising Group
(62) Vice President, R.H. Macy & Co., 1958-1995 (retired).
Gary L. Pilgrim, President Chief Investment Officer and Director, the Adviser since
825 Duportail Road, 1982. Trustee, the Administrator since May 1996.
Wayne, PA 19087, Director, Value Investors since June 1996. President, Value
(57) Investors since December 1998.
Brian F. Bereznak Vice-President Trustee and President, the Administrator since May 1996.
825 Duportail Road, Chief Operating Officer, the Adviser from 1989 through
Wayne, PA 19087, December 31, 1996. Director, Value Investors from June
(36) 1996 to January 1998.
Lee T. Cummings Treasurer, Chief Vice President, Treasurer and Director of Mutual Fund
825 Duportail Road, Financial Officer, Operations, the Administrator since May 1996. Investment
Wayne, PA 19087, Controller Accounting Officer, Delaware Group of Funds, 1994-1996.
(34) Vice President, Fund/Plan Services, Inc., 1992-1994
Michael J. Harrington Vice-President Vice President and Director of Mutual Fund Services, the
825 Duportail Road, Administrator since 1994. Account Manager, SEI, 1991-1994.
Wayne, PA 19087,
(29)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Position Held with
Name , Address, and Age the Fund Principal Occupation(s) During Past 5 Years
- ----------------------- -------- -------------------------------------------
<S> <C> <C>
John M. Zerr Vice-President and General Counsel and Secretary, the Adviser since November
825 Duportail Road, Secretary 1996. General Counsel and Secretary, Value Investors since
Wayne, PA 19087, November 1996. General Counsel and Secretary, the
(35) Administrator since January 1998. Vice President and
Assistant Secretary, Delaware Management Company, Inc. and
the Delaware Group of Funds, 1995-1996. Associate, Ballard
Spahr Andrews & Ingersoll (law firm), 1987-1995.
Meghan M. Mahon Vice-President Counsel and Assistant Secretary, the Adviser since April
825 Duportail Road, and Assistant 1998. Assistant Vice President, Assistant Secretary and
Wayne, PA 19087, Secretary Counsel, Delaware Management Company Inc. and the Delaware
(30) Group of Funds, 1997-1998. Associate, Drinker Biddle & Reath,
LLP (law firm) 1994-1997. Associate, McAleese, McGoldrick &
Susanin (law firm) 1993-1994.
Todd Cipperman Vice President Vice President and Assistant Secretary of SEI Corporation
One Freedom Valley Road and Assistant ("SEI"), SEI Investments Mutual Fund Services, since 1995
Oaks, PA 19456 Secretary and SEI Investments since 1996. Associate, Dewey
(33) Ballantine (law firm) 1994-1995. Associate, Winston
& Strawn, (law firm) 1991-1994.
Sandra K. Orlow Vice President Vice President and Assistant Secretary of SEI,
SEI One Freedom Valley Road Investments Mutual Fund Services, since 1983 and SEI
Oaks, PA 19456 Investments since 1996.
(45)
Kathryn L. Stanton Vice President Vice President and Assistant Secretary of SEI, SEI
One Freedom Valley Road Investments Mutual Fund Services, since 1994 and SEI
Oaks, PA 19456 Investments since 1996. Associate, Morgan, Lewis & Bockius
(40) LLP (law firm), 19891994.
</TABLE>
Each current Director of the Company who is not an "interested person" of the
Company received the following compensation during the fiscal year ended
December 31, 1999:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Company
Name of Person, from of Company Benefits Upon and Company Complex
Position Company Expenses Retirement Paid to Directors
- -------- ------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
John R. Bartholdson, N/A N/A $91,000
Director $40,000 for services on three
boards
Harold J. Baxter, N/A N/A N/A N/A
Director*
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued as Part Annual from Company
Name of Person, from of Company Benefits Upon and Company Complex
Position Company Expenses Retirement Paid to Directors
- -------- ------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Jettie M. Edwards, $40,000 N/A N/A $91,000
Director for services on three
boards
Albert A. Miller, $40,000 N/A N/A $91,000
Director for services on three
boards
</TABLE>
* Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Company, as that term is defined in the 1940 Act, and consequently
will be receiving no compensation from the Company.
5% AND 25% SHAREHOLDERS
As of _____________, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolios. The Fund believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency or custodial clients. Persons owning of record or beneficially
25% or more of the outstanding share class of a Portfolio may be deemed to be a
controlling person of that Portfolio for purposes of the 1940 Act.
PBHG Core Growth Fund - PBHG Class
Charles Schwab & Co., Inc. 16.97%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 11.90%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Emerging Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 14.73%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 10.25%
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Salomon Smith Barney Inc. 5.63%
NAV Program
333 W. 34th Street
New York, NY 10001-2483
24
<PAGE>
PBHG Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 14.33%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 7.29%
P.O. 3908
Church Street Station
New York, New York 10008-3908
Fidelity Investments Institutional 6.43%
Operations Co.
100 Magellan Way
Covington, KY 41015-3987
Connecticut General Life Insurance 5.34%
350 Church Street
PO Box 2975
Hartford, CT 06104
The Manufacturers Life Insurance Co. 6.37%
PO Box 600
Buffalo, NY 14201
PBHG Growth Fund - Advisor Class
The Travelers Insurance Company 49.30%
ATTN: Roger Ferland
1 Tower Square
Hartford, CT 06183-9001
Wilmington Trust Co. 9.10%
FBO General Cable Resource Plan
c/o Mutual Funds
1100 N. Market Street
Wilmington, DE 19801-3029
Wilmington Trust Company 5.18%
FBO Allied Waste 401(k) Plan
1100 N. Market Street
Wilmington, DE 19801-3029
Sisters of Mercy 7.63%
2300 Adeline Drive
Burlingame, CA 94010-5599
25
<PAGE>
Fleet National Bank, Custodian 6.86%
FBO Hoag Memorial Hospital Growth
ATTN: 0004683070
P.O. Box 92800
Rochester, NY 14692-8900
PBHG Large Cap Growth Fund - PBHG Class
Charles Schwab & Co. Inc. 22.08%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp 14.71%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Limited Fund - PBHG Class
Charles Schwab & Co., Inc. 7.73%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Northern Trust TR 14.61%
FBO J. Paul Getty Trust
P.O. Box 92956
Chicago, IL 60675-2956
PBHG Large Cap 20 Fund - PBHG Class
Charles Schwab & Co., Inc. 20.26%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 14.72%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Select Equity Fund - PBHG Class
Charles Schwab & Co. Inc. 20.35%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
26
<PAGE>
National Financial Services Corp. 16.71%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Large Cap Value Fund - PBHG Class
Compass Bank, Trustee 47.67%
Alfa Mutual Insurance Company
P.O. Box 11000
Montgomery, AL 36191-0001
Charles Schwab & Co., Inc. 10.03%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104
PBHG Mid-Cap Value - PBHG Class
National Financial Services Corp. 26.63%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co, Inc. 25.64%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
Donaldson Lufkin & Jenrette 9.34%
PO Box 2052
Jersey City, NJ 07303
PBHG Small Cap Value - PBHG Class
National Financial Services Corp. 10.26%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Charles Schwab & Co., Inc. 24.15%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
27
<PAGE>
The Northern Trust Co., Custodian 23.75%
FBO Arthur Andersen
P.O. Box 92956
Chicago, IL 60675-2956
Donaldson Lufkin & Jenrette 9.91%
Transfer Dept., 5th Floor
P.O. Box 2052
Jersey City, NJ 07303-2052
PBHG International Fund - PBHG Class
Charles Schwab & Co., Inc. 11.85%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 6.96%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Donaldson Lufkin & Jenrette 7.57%
PO Box 2052
Jersey City, NJ 07303
PBHG Strategic Small Company Fund
Charles Schwab & Co., Inc. 15.29%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
PBHG Technology & Communications Fund - PBHG Clas
Charles Schwab & Co., Inc. 25.46%
Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 14.13%
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
PBHG Cash Reserves Fund - PBHG Class
Harold J. Baxter & 16.12%
Christine E. Baxter JTTEN
825 Duportail Road
Wayne, PA 19087
28
<PAGE>
THE ADVISER
The Fund and Pilgrim Baxter & Associates, Ltd. have entered into an advisory
agreement with respect to each Portfolio (the "Advisory Agreement"). The
Advisory Agreement provides certain limitations on the Adviser's liability, but
also provides that the Adviser shall not be protected against any liability to
the Fund or each of its Portfolios or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The sole 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. PBHG Fund Services, the Fund's Administrator, is a wholly
owned subsidiary of the Adviser (See "The Administrator" for more detial on PBHG
Fund Services). PBHG Fund Services also serves as administrator to PBHG
Insurance Series Fund, Inc., an investment company also managed by the Adviser.
The Adviser currently has discretionary management authority with respect to
over $12 billion in assets. In addition to advising the Portfolios, the Adviser
provides advisory services to pension and profit-sharing plans, charitable
institutions, corporations, trusts and estates, and other investment companies.
The principal business address of the Adviser is 825 Duportail Road, Wayne,
Pennsylvania 19087.
The Advisory Agreement obligates the Adviser to: (i) provide a program of
continuous investment management for the Fund in accordance with the Fund's
investment objectives, policies and limitations; (ii) make investment decisions
for the Fund; and (iii) place orders to purchase and sell securities for the
Fund, subject to the supervision of the Board of Directors. The Advisory
Agreement also requires the Adviser to pay its overhead and employee costs and
the compensation and expenses of all its partners, officers and employees who
serve as officers and executive employees of the Fund. The Advisory Agreement
provides that the Adviser is not responsible for other expenses of operating the
Fund (See the Prospectuses for a description of expenses borne by the Fund).
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Advisory Agreement may be terminated (i) at
any time without penalty by the Fund upon the vote of a majority of the
directors or by vote of the majority of the Fund's outstanding voting securities
upon 60 days' written notice to the Adviser or (ii) by the Adviser at any time
without penalty upon 60 days' written notice to the Fund. The Advisory Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act).
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, Focused 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, New
Opportunities, Small Cap Value, International and Strategic Small Company Funds'
29
<PAGE>
average daily net assets; and 0.30% of the Cash Reserves Fund's average daily
net assets. The investment advisory fees paid by certain of the Portfolios are
higher than those paid by most investment companies, although the Adviser
believes the fees to be comparable to those paid by investment companies with
similar investment objectives and policies.
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, with respect to the PBHG Class
shares, 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, New Opportunities, Large Cap 20, Large Cap Value, Mid-Cap
Value, Small Cap Value, Focused 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.
With respect to the Advisor Class shares of the PBHG Growth Fund, the Adviser
has entered into an Expense Limitation Agreement with the Fund. Pursuant to such
Expense Limitation Agreement, the Adviser has agreed to waive or limit its
advisory fees and to assume other expenses of the Advisor Class shares of such
Portfolio to the extent necessary to limit the total operating expenses
(exclusive of Rule 12b-1 expenses) to 1.50% of average daily net assets of the
Portfolio. Reimbursement by the Portfolio of the advisory fees waived or limited
and other expenses paid by the Adviser pursuant to the Expense Limitation
Agreement may be made at a later date when the Portfolio has reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual expense ratio (exclusive of Rule 12b-1 expenses) of the Advisor
Class shares of the Portfolio to exceed 1.50%. Consequently, no reimbursement by
the Portfolio will be made unless: (i) the Portfolio's assets exceed $75
million; (ii) the Portfolio's total annual expense ratio (exclusive of Rule
12b-1 expenses) with respect to the Advisor Class shares is less than 1.50%; and
(iii) the payment of such reimbursement was approved by the Board of Directors
on a quarterly basis.
For the fiscal years and periods ended March 31, 1997, 1998, and 1999 each of
the other Portfolios paid or waived the following advisory fees:
30
<PAGE>
<TABLE>
<CAPTION>
Fees Paid Fees Waived
Portfolio ------------------------------------------ --------------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $44,149,035 $47,429,208 $34,407,239 $ 0 $ 0 $ 0
PBHG Emerging Growth $10,774,907 $12,965,521 $ 8,746,681 $ 0 $ 0 $ 0
PBHG New Opportunities * * $ 15,512(5) * * $ 1,340
PBHG Large Cap Growth $ 930,649 $ 1,014,896 $ 1,056,270 $ 0 $ 0 $ 0
PBHG Select Equity $ 4,101,441 $ 3,228,253 $ 2,394,153 $ 3,228,253 $ 0 $ 0
PBHG Core Growth $ 2,918,000 $ 2,095,945 $ 972,422 $ 0 $ 0 $ 0
PBHG Limited $ 1,415,935(1) $ 1,658,981 $ 1,399,136 $ 0 $ 0 $ 0
PBHG Large Cap 20 $ 183,335(2) $ 924,747 $ 3,317,545 $ 0 $ 0 $ 0
PBHG Large Cap Value $ 32,059(3) $ 371,529 $ 459,033 $ 0 $ 0 $ 0
PBHG MidCap Value * $ 207,661(4) $ 551,502 * $ 0 $ 0
PBHG Small Cap Value * $ 501,946(4) $ 1,023,869 * $ 0 $ 0
PBHG Focused Value * * $ 2,796(5) * * $ 2,796
PBHG International $ 176,992 $ 210,622 $ 159,777 $ 0 $ 0 $ 0
PBHG Cash Reserves $ 678,965 $ 559,846 $ 393,152 $ 0 $ 0 $ 0
PBHG Technology &
Communications $ 2,970,000 $ 5,105,411 $ 3,440,370 $ 0 $ 0 $ 0
PBHG Strategic Small
Company $ 153,886(3) $ 1,029,083 $ 730,370 $ 0 $ 0 $ 27,500
</TABLE>
- ---------------
* Not in operation during the period.
(1) For the period from June 28, 1996 (commencement of operations) through
March 31, 1997.
(2) For the period from November 29, 1996 (commencement of operations) through
March 31, 1997.
(3) For the period from December 31, 1996 (commencement of operations) through
March 31, 1997.
(4) For the period from April 30, 1997 (commencement of operations) through
March 31, 1998.
(5) For the period February 12, 1999 (commencement of operations) through
March 31, 1999.
THE SUB-ADVISERS
Pilgrim Baxter Value Investors, Inc.
The Fund, on behalf of each of the PBHG Large Cap Value Fund, PBHG Mid-Cap Value
Fund, PBHG Small Cap Value Fund, PBHG Focused Value Fund and PBHG Strategic
Small Company Fund, and the Adviser have entered into sub-advisory agreements
(each, a "Sub-Advisory Agreement") with Pilgrim Baxter Value Investors,
31
<PAGE>
Inc. ("Value Investors"), a wholly owned subsidiary of the Adviser. Each
Sub-Advisory Agreement provides certain limitations on Value Investors'
liability, but also provides that Value Investors shall not be protected against
any liability to the Fund or its shareholders by reason of willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard of its obligations or duties thereunder.
Each Sub-Advisory Agreement obligates Value Investors to: (i) manage the
investment operations of the relevant Portfolio and the composition of the
Portfolio's investment portfolios, including the purchase, retention and
disposition thereof in accordance with the Portfolio's investment objective,
policies and limitations; (ii) provide supervision of the Portfolio's
investments and to determine from time to time what investment and securities
will be purchased, retained or sold by the Portfolio and what portion of the
assets will be invested or held uninvested in cash; and (iii) determine the
securities to be purchased or sold by the Portfolio and will place orders with
or through such persons, brokers or dealers to carry out the policy with respect
to brokerage set forth in the Portfolio's Prospectus or as the Board of
Directors or the Adviser may direct from time to time, in conformity with
federal securities laws.
The continuance of each Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Portfolio and
(ii) by the affirmative vote of a majority of the Directors who are not parties
to the agreement or interested persons of any such party by votes cast in person
at a meeting called for such purpose. Each Sub-Advisory Agreement may be
terminated (i) by the Fund, without the payment of any penalty, by the vote of a
majority of the Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the relevant Portfolio, (ii) by the Adviser at
any time, without the payment of any penalty, on not more than 60 days' nor less
than 30 days' written notice to the other parties, or (iii) by Value Investors
at any time, without the payment of any penalty, on 90 days' written notice to
the other parties. Each Sub-Advisory Agreement will also terminate automatically
in the event of its assignment (as defined in the 1940 Act).
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreements for the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused
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%, 0.85% and 0.30%, respectively.
Murray Johnstone International Ltd.
The Fund, on behalf of the PBHG International Fund, and the Adviser have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement") with Murray
Johnstone International Ltd. ("Murray Johnstone"). The Sub-Advisory Agreement
provides certain limitations on Murray Johnstone's liability, but also provides
that Murray Johnstone shall not be protected against any liability to the Fund
or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from a breach of
fiduciary duty with respect to the receipt of compensation for services
thereunder.
The Sub-Advisory Agreement obligates Murray Johnstone to: (i) manage the
investment operations of the PBHG International Fund and the composition of the
Portfolio's portfolio, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objectives, policies and
limitations; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place
32
<PAGE>
orders with or through such persons, brokers or dealers to carry out the policy
with respect to brokerage set forth in the Portfolio's Prospectus or as the
Board of Directors or the Adviser may direct from time to time, in conformity
with federal securities laws.
The continuance of the Sub-Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the Fund's Board of Directors or
by vote of a majority of the Fund's outstanding voting securities and (ii) by
the affirmative vote of a majority of the Directors who are not parties to the
agreement or interested persons of any such party by votes cast in person at a
meeting called for such purpose. The Sub-Advisory Agreement may be terminated
(i) by the Portfolio at any time, without the payment of any penalty, by the
vote of a majority of Directors of the Fund or by the vote of a majority of the
outstanding voting securities of the Portfolio, (ii) by the Adviser at any time,
without the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the other parties, or (iii) by Murray Johnstone at any
time, without the payment of any penalty, on 90 days' written notice to the
other parties. The Sub-Advisory Agreement will also terminate automatically in
the event of its assignment (as defined in the 1940 Act).
For the services provided pursuant to the Sub-Advisory Agreement, Murray
Johnstone receives a fee from the Adviser at an annual rate of to 0.50% of the
Portfolio's average daily net assets. Murray Johnstone recieves no fees directly
from the Portfolio.
Wellington Management Company, LLP
The Fund, on behalf of the PBHG Cash Reserves Fund, and the Adviser have entered
into a sub-advisory agreement (the "Sub-Advisory Agreement") with Wellington
Management Company, LLP ("Wellington Management"). The Sub-Advisory Agreement
provides certain limitations on Wellington Management's liability, but also
provides that Wellington shall not be protected against any liability to the
Portfolio or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from a breach
of fiduciary duty with respect to the receipt of compensation for services
thereunder.
The Sub-Advisory Agreement obligates Wellington Management to: (i) manage the
investment operations of the PBHG Cash Reserves Fund and the composition of the
Portfolio's portfolio, including the purchase, retention and disposition thereof
in accordance with the Portfolio's investment objectives, policies and
restrictions; (ii) provide supervision of the Portfolio's investments and
determine from time to time what investments and securities will be purchased,
retained or sold by the Portfolio, and what portion of the assets will be
invested or held uninvested in cash; and (iii) determine the securities to be
purchased or sold by the Portfolio and will place orders with or through such
persons, brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement or as the Board of Directors
or the Adviser may direct from time to time, in conformity with federal
securities laws.
The Sub-Advisory Agreement will continue in effect for a period of more than two
years from the date thereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that this
Agreement may be terminated with respect to the Fund (i) by the Fund at any
time, without the payment of any penalty, by the vote of a majority of Directors
of the Fund or by the vote of a majority of the outstanding voting securities of
the Fund, (ii) by the Adviser at any time, without the payment of any penalty,
on not more than 60 days' nor less than 30 days' written notice to the other
parties, or (iii) by Wellington Management at any time, without the payment of
any penalty, on 90 days' written notice to the other parties. The Sub-Advisory
Agreement shall terminate automatically and immediately in the event of its
assignment as defined in the 1940 Act.
33
<PAGE>
For the services provided and expenses incurred pursuant to the sub-advisory
agreement, Wellington Management 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.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), One Freedom Valley Road,
Oaks, PA 19456, a wholly owned subsidiary of SEI, and the Fund are parties to a
distribution agreement (the "Distribution Agreement"). The Distributor is not
entitled to receive any compensation for the distribution services it provides
with respect to either class of shares.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Directors who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Fund upon
not more than 60 days' written notice by either party or upon assignment by the
Distributor.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 under the 1940 Act to
enable the Advisor Class shares of the PBHG Growth Fund to directly and
indirectly bear certain expenses relating to the distribution of such Shares.
Pursuant to such Service Plan, the Fund shall be entitled to pay to financial
intermediaries, plan fiduciaries, and investment professionals ("Service
Providers") a shareholder servicing fee at the aggregate annual rate of up to
0.25% of such Portfolio's average daily net assets attributable to Advisor Class
shares. The shareholder servicing fee is intended to compensate Service
Providers for providing to shareholders or the underlying beneficial owners of
Advisor Class shares: (i) personal support services; (ii) distribution
assistance and distribution support services; and (iii) account maintenance
services. In addition, insurance companies or their affiliates may be paid a
shareholder servicing fee described for providing similar services to variable
annuity or variable life insurance contract holders ("Contract Holders") or
their participants for which such insurance companies are not otherwise
compensated by Contract Holders or participants.
The Distributor shall prepare and deliver written reports to the Board of
Directors of the Fund on a regular basis (at least quarterly) setting forth the
payments made to Service Providers pursuant to the Service Plan, and the
purposes for which such expenditures were made, as well as any supplemental
reports as the Board of Directors may from time to time reasonably request.
Except to the extent that the Administrator, Sub-Administrator or Adviser may
benefit through increased fees from an increase in the net assets of the Fund
which may have resulted in part from the expenditures, no interested person of
the Fund nor any Director of the Fund who is not an interested person of the
Fund had a direct or indirect financial interest in the operation of the Service
Plan or any related agreement.
No compensation was paid to the Distributor for distribution services for the
fiscal years ended March 31, 1997, 1998 and 1999. For the fiscal year ended
March 31, 1999, $192,562 was paid to Service Providers pursuant to the Service
Plan for the Advisor Class shares of the PBHG Growth Fund.
34
<PAGE>
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
The Fund and PBHG Fund Services (the "Administrator") entered into the
Administrative Services Agreement (the "Administrative Agreement") on July 1,
1996 pursuant to which the Administrator oversees the administration of the
Fund's and each Portfolio's business and affairs, including regulatory reporting
and all necessary office space, equipment, personnel and facilities, as well as
services performed by various third parties. The Administrator, a wholly-owned
subsidiary of the Adviser, was organized as a Pennsylvania business trust and
has its principal place of business at 825 Duportail Road, Wayne, Pennsylvania
19087. The Administrator is entitled to a fee from the Fund, which is calculated
daily and paid monthly at an annual rate of 0.15% of the average daily net
assets of each Portfolio. The Administrative Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
Administrative Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence on the part of the Administrator in the
performance of its duties. The Administrative Agreement shall remain in effect
until December 31, 1999, and shall thereafter continue in successive periods of
one year, unless terminated by either party upon not less than 90 days' prior
written notice to the other party.
The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement on July 1, 1996, as
amended, pursuant to which the Sub-Administrator assists the Administrator in
connection with the administration of the business and affairs of the Fund.
Prior to July 1, 1996, the Sub-Administrator served as the administrator of the
Fund. The Sub-Administrator is an indirect wholly-owned subsidiary of SEI
Investments Company ("SEI"). The Sub-Administrator was organized as a Delaware
business trust, and has its principal business offices at One Freedom Valley
Road, Oaks, Pennsylvania 19456. The Sub-Administrative Services Agreement
provides that the Sub-Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Sub-Administrative Agreement relates, except a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Sub-Administrator in the performance of its duties. The Sub-Administrative
Agreement shall remain in effect until December 31, 2000, and shall continue in
successive periods of one year, unless terminated by either party upon not less
than 90 days' prior written notice to the other party.
Under the Sub-Administrative Services Agreement, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily net
assets of the Fund, PBHG Advisor Funds, Inc., and PBHG Insurance Series Fund,
Inc., calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii)
0.025% of the next $7.5 billion, plus (iii) 0.020% of the excess over $10
billion.
For the fiscal years and periods ended March 31, 1997, 1998 and 1999 each of the
other Portfolios paid the following administration fees:
<TABLE>
<CAPTION>
Fees Paid Fees Waived
Portfolio -------------------------------------- --------------------------------------
1997+ 1998 1999 1997+ 1998 1999
----- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PBHG Growth $8,325,330 $8,369,860 $6,054,219 $0 $0 $0
PBHG Emerging Growth $2,026,934 $2,288,033 $1,543,532 $0 $0 $0
PBHG New Opportunities * * $ 2,327(5) * * $0
PBHG Large Cap Growth $ 194,580 $ 202,979 $ 211,254 $0 $0 $0
PBHG Select Equity $ 762,481 $ 569,691 $ 422,498 $0 $0 $0
PBHG Core Growth $ 527,363 $ 369,872 $ 171,604 $0 $0 $0
PBHG Limited $ 212,390(1) $ 248,847 $ 209,870 $0 $0 $0
PBHG Large Cap 20 $ 32,353(2) $ 163,191 $ 585,449 $0 $0 $0
PBHG Large Cap Value $ 5,658(1) $ 84,777 $ 103,870 $0 $0 $0
PBHG Mid-Cap Value * $ 36,646(4) $ 97,324 * $0 $0
PBHG Small Cap Value * $ 75,292(4) $ 153,580 * $0 $0
PBHG Focused Value * * $ 493(5) * * $0
PBHG International $ 40,069 $ 31,592 $ 23,997 $0 $0 $0
PBHG Cash Reserves $ 354,921 $ 279,921 $ 196,574 $0 $0 $0
PBHG Technology &
Communications $ 537,851 $ 900,954 $ 607,124 $0 $0 $0
PBHG Strategic Small
Company $ 23,083(3) $ 154,362 $ 109,556 $0 $0 $0
</TABLE>
* Not in operation during the period.
+ From March 31, 1996 to June 30, 1996, SEI Fund Resources served as the
Fund's Administrator. From July 1, 1996 to March 31, 1997, PBHG Fund
Services served as the Fund's Administrator.
(1) For the period from June 28, 1996 (commencement of operations) through
March 31, 1997.
(2) For the period from November 29, 1996 (commencement of operations) through
March 31, 1997.
(3) For the period from December 31, 1996 (commencement of operations) through
March 31, 1997.
(4) For the period from April 30, 1997 (commencement of operations) through
March 31, 1998.
(5) For the period February 12, 1999 (commencement of operations) through
March 31, 1999.
36
<PAGE>
OTHER SERVICE PROVIDERS
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.
Custodians
First Union National Bank (successor to CoreStates Bank, N.A.), 530 Walnut
Street, Philadelphia, Pennsylvania 19106, 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
1940 Act.
Counsel and Independent Accountants
Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Fund.
PricewaterhouseCoopers, LLP serves as the independent accountants of the Fund.
PORTFOLIO TRANSACTIONS
The Adviser or Sub-Advisers are authorized to select brokers and dealers to
effect securities transactions for the Portfolios. The Adviser or Sub-Advisers
will seek to obtain the most favorable net results by taking into account
various factors, including price, commission, if any, size of the transactions
and difficulty of executions, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved. While the
Adviser or Sub-Advisers generally seek reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available. The Adviser or Sub-Advisers seek to select brokers or
dealers that offer the Portfolios best price and execution or other services
which are of benefit to the Portfolios. Certain brokers or dealers assist their
clients in the purchase of shares from the Distributor and charge a fee for this
service in addition to a Portfolio's public offering price. In the case of
securities traded in the over-the-counter market, the Adviser or Sub-Advisers
expect normally to seek to select primary market makers.
37
<PAGE>
The Adviser or Sub-Advisers may, consistent with the interests of the
Portfolios, select brokers on the basis of the research services they provide to
the Adviser or Sub-Advisers. Such services may include analyses of the business
or prospects of a company, industry or economic sector, or statistical and
pricing services. Information so received by the Adviser will be in addition to
and not in lieu of the services required to be performed by the Adviser under
the Advisory Agreement. If, in the judgment of the Adviser or Sub-Adviser, a
Portfolio or other accounts managed by the Adviser or Sub-Adviser will be
benefited by supplemental research services, the Adviser or Sub-Advisers are
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. These research services include advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser or Sub-Advisers will not necessarily be reduced as a result of the
receipt of such information, and such services may not be used exclusively, or
at all, with respect to the Portfolio or account generating the brokerage, and
there can be no guarantee that the Adviser or Sub-Advisers will find all of such
services of value in advising the Portfolios.
It is expected that the Portfolios may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolios on an exchange if a written contract
is in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." In addition, the
Adviser or Sub-Advisers may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Portfolio's or the Fund's expenses. In
addition, the Adviser or Sub-Adviser may place orders for the purchase or sale
of Portfolio securities with qualified broker-dealers that refer prospective
shareholders to the Portfolios. The Directors, including those who are not
"interested persons" of the Fund, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD") and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Advisers may consider
sales of the Portfolio's shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the Portfolio.
The Fund's Board of Directors has adopted a Code of Ethics governing personal
trading by persons who manage, or who have access to trading activity by the
Portfolio. The Code of Ethics allows trades to be made in securities that may be
held by the Portfolio, however, it prohibits a person from taking advantage of
Portfolio trades or from acting on inside information.
38
<PAGE>
For the fiscal year and periods ended March 31, 1999, 1998, and 1997, for each
of the other Portfolios paid brokerage fees as follows:
<TABLE>
<CAPTION>
Total Amount of Brokerage
Commissions Paid
---------------------------------------
Portfolio 1999 1998 1997
- --------- ---- ---- ----
<S> <C> <C> <C>
PBHG Growth $4,483,812 $6,867,275 $4,696,917
PBHG Emerging Growth $1,199,910 $ 822,133 $ 408,039
PBHG New Opportunities $ 3,859(5) * *
PBHG Large Cap Growth $ 153,260 $ 124,206 $ 138,111
PBHG Select Equity $ 189,316 $ 355,670 $ 329,054
PBHG Core Growth $ 219,995 $ 336,589 $ 306,218
PBHG Limited $ 123,471 $ 81,540 $ 80,602(1)
PBHG Large Cap 20 $ 452,760 $ 167,891 $ 67,122(2)
PBHG Large Cap Value $ 795,638 $ 490,469 $ 40,128(3)
PBHG Mid-Cap Value $1,099,445 $ 301,165(4) *
PBHG Small Cap Value $ 769,954 $ 407,791(4) *
PBHG Focused Value $ 14,330(5) * *
<CAPTION>
Total Amount of Brokerage
Commissions Paid
---------------------------------------
Portfolio 1999 1998 1997
- --------- ---- ---- ----
<S> <C> <C> <C>
PBHG International $ 69,525 $ 110,586 *110,586
PBHG Cash Reserves $ 0 $ 0 $ 0
PBHG Technology & Communications $1,115,574 $ 773,750 $ 646,233
PBHG Strategic Small Company $ 279,693 $ 361,158 $ 162,617(3)
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Percent of Aggregate
Amount of
Transactions
Percent of Total Amount of Involving Payment of
Brokerage Commissions Paid Commissions to the
to the Distributor Distributor
-------------------------------------- ------------------------
Portfolio 1997+ 1998+ 1999+ 1999
- --------- ----- ----- ----- ----
<S> <C> <C> <C> <C>
PBHG Growth 3% 3% 36%
PBHG Emerging Growth + 7% 4% 39%
PBHG New Opportunities(5) * * 0% 34%
PBHG Large Cap Growth 2% 3% 46%
PBHG Select Equity 2% 6% 38%
PBHG Core Growth 1% 1% 40%
PBHG Limited1 12% 6% 30%
PBHG Large Cap 20(2) 3% 4% 43%
PBHG Large Cap Value(3) 1% 0% 38%
PBHG Mid-Cap Value(4) * 1% 0% 40%
PBHG Small Cap Value(4) * 1% 0% 35%
PBHG Focused Value(5) * * 0% 40%
PBHG International 0% 0% 0%
PBHG Cash Reserves 0% 0% 0%
PBHG Technology & Communications 3% 1% 39%
PBHG Strategic Small Company(3) 1% 0% 36%
</TABLE>
* Not in operation during the period.
+ These commissions were paid to the Distributor in connection with
repurchase agreement transactions.
(1) For the period from June 28, 1996 (commencement of operations) through
March 31, 1997.
(2) For the period from November 29, 1996 (commencement of operations) through
March 31, 1997.
(3) For the period from December 31, 1996 (commencement of operations) through
March 31, 1997.
(4) For the period from April 30, 1997 (commencement of operations) through
March 31, 1998.
(5) For the period February 12, 1999 (commencement of operations) through
March 31, 1999.
DESCRIPTION OF SHARES
The Fund may increase the number of shares which each Portfolio is authorized to
issue and may create
40
<PAGE>
additional portfolios of the Fund. Each share of a Portfolio represents an
equal proportionate interest in that Portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the Portfolio
available for distribution to shareholders. Shareholders have no preemptive
rights. All consideration received by the Fund for shares of any Portfolio and
all assets in which such consideration is invested would belong to that
Portfolio and would be subject to the liabilities related thereto.
Voting Rights
Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected series. Shareholders of all series of the Fund will
vote together in matters affecting the Fund generally, such as the election of
Directors or selection of independent accountants. Shareholders of the PBHG
Class of the Fund will vote separately on matters relating solely to the PBHG
Class and not on matters relating solely to the Advisor Class of the Fund. As a
Maryland corporation, the Fund is not required to hold annual meetings of
shareholders but shareholder approval will be sought for certain changes in the
operation of the Fund and for the election of directors under certain
circumstances. In addition, a director may be removed by the remaining directors
or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
PURCHASES AND REDEMPTIONS OF SHARES
Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Shares of the Portfolios are offered on a continuous basis.
Purchases
You may purchase shares of each Portfolio directly through DST Systems, Inc.,
the Fund's Transfer Agent. 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.
41
<PAGE>
Each Portfolio reserves the right to reject any purchase order or to suspend or
modify the continuous offering of its shares. For example, the investment
opportunities for small or medium capitalization companies may from time to time
be more limited than those in other sectors of the stock market. Therefore, in
order to retain adequate investment flexibility, the Adviser may from time to
time recommend to the Board of Directors of the Fund that a Portfolio which
invests extensively in such companies indefinitely discontinue the sale of its
shares to new investors (other than directors, officers and employees of the
Adviser, each of the sub-advisers and their affiliated companies). In such
event, the Board of Directors would determine whether such discontinuance is in
the best interests of the applicable Portfolio and its shareholders. Shares of
the PBHG Limited Fund are currently offered only to existing shareholders of the
PBHG Class shares of the Portfolio. The PBHG Limited Fund may recommence
offering its shares to new investors in the future, provided that the Board of
Directors determines that doing so would be in the best interest of the
Portfolio and its shareholders.
Minimum Investment
The minimum initial investment in each Portfolio (other than the Limited Fund
and Strategic Small Company Fund) is $2,500 for regular accounts and $2,000 for
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
42
<PAGE>
assigned an account number. The Account Application must be received prior to
receipt of the wire. Your name, account number, taxpayer identification number
or Social Security Number, and address must be specified in the wire. All wires
must be received by 2:00 p.m. Eastern time for the Cash Reserves Fund and 4:00
p.m. Eastern time for all other Portfolios to be effective on that day. In
addition, an original Account Application should be promptly forwarded to: The
PBHG Funds, Inc. c/o DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. All wires must be sent as follows: United Missouri Bank of Kansas
City, N.A.; ABA #10-10-00695; for Account Number 98705-23469; Further Credit:
[name of Portfolio and your assigned account number].
Additional Purchases by Wire
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire.
Purchase by ACH
If you have made this election, shares of each Portfolio may be purchased via
Automated Clearing House ("ACH"). Investors purchasing via ACH should complete
the bank information section on the Account Application and attach a voided
check or deposit slip to the Account Application. This option must be
established on your account at least 15 days prior to your 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 Reserves 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 Reserves 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.
Redemptions
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,
43
<PAGE>
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 will take 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.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolios
in lieu of cash. Each PBHG Fund has made an election pursuant to Rule 18f-1
under the 1940 Act by which such Portfolio has committed itself to pay in cash
all requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any 90-day period to the lesser of (1)
$250,000 or (2) one percent of the net asset value of the Portfolio at the
beginning of such 90-day period. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Portfolio's securities is not reasonably practicable,
or for such other periods as the SEC has by order permitted. The Fund also
reserves the right to suspend sales of shares of a Portfolio for any period
during which the New York Stock Exchange, the Adviser, the Administrator,
Sub-Administrator, the Transfer Agent and/or the Custodian are not open for
business.
You may receive redemption payments in the form of a check or by Federal Reserve
wire or ACH transfer.
By Mail
There is no charge for having a check for redemption proceeds mailed to you.
By Telephone
Redemption orders may be placed by telephone, provided that this option has been
selected. Shares held in IRA accounts are not eligible for this option and must
be redeemed by written request. Neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for acting upon wire
instructions or upon telephone instructions that it reasonably believes to be
genuine. The Fund and the Transfer Agent will each employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, including
requiring a form of personal identification prior to acting upon instructions
received by telephone and recording telephone instructions. If reasonable
procedures are not employed, the Fund and the Transfer Agent may be liable for
any losses due to unauthorized or fraudulent telephone transactions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist and you experience
44
<PAGE>
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) redemptions
requesting proceeds to be sent to a new address or an address that has been
changed within the past 30 days; (5) requests to transfer the registration of
shares to another owner; (6) written requests to add telephone exchange and
telephone redemption options to an account; and (7) changes in previously
designated wiring instructions. These requirements may be waived or modified
upon notice of shareholders. 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.
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Shareholder Inquiries and Services Offered
If you have any questions about the Portfolios or the shareholder services
described below, please call the Fund at 1-800-433-0051. Written inquiries
should be sent to DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri
64141-6534. The Fund reserves the right to amend the shareholder services
described below or to change the terms or conditions relating to such services
upon 60 days' notice to shareholders. You may, however, discontinue any service
you select, provided that with respect to the Systematic Investment and
Systematic Withdrawal Plans described below, the Fund's Transfer Agent receives
your notification to discontinue such service(s) at least ten (10) days before
the next scheduled investment or withdrawal date.
Systematic Investment and Systematic Withdrawal Plans
For your convenience, the Fund provides plans that enable you to add to your
investment or withdraw from your account(s) with a minimum of paperwork. You can
utilize these plans by simply completing the appropriate section of the Account
Application.
(1) Systematic Investment Plan. The Systematic Investment Plan is a convenient
way for you to purchase shares in the Portfolios at regular monthly or quarterly
intervals selected by you. The Systematic Investment Plan enables you to achieve
dollar-cost averaging with respect to investments in the Portfolios despite
their fluctuating net asset values through regular purchases of a fixed dollar
amount of shares in the Portfolios. Dollar-cost averaging brings discipline to
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 are received for an
established
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account by the Transfer Agent.
The exchange privilege may be exercised only in those states where the shares of
the new Portfolio may legally be sold.
Tax-Sheltered Retirement Plans
A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and
corporate money purchase pension and profit sharing plans, and 401(k) and 403(b)
plans are available to investors in the Fund.
(1) 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,
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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 Education IRA accounts. 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.
Minimum Account Size
Due to the relatively high cost of maintaining smaller accounts, the Fund will
impose an annual $12.00 minimum account charge and reserves the right to redeem
shares in any non-retirement account if, as the result of redemptions, the value
of any account drops below the minimum initial investment amount, specified
above, for each Portfolio. See "Minimum Investment" and "Systematic Investment
and Systematic Withdrawal Plans" for minimum investments. You will be allowed at
least 60 days, after notice from the Fund, to make an additional investment to
bring your account value up to at least the applicable minimum account size
before the annual $12.00 minimum account fee is charged and/or the redemption of
a non-retirement account is processed. The applicable minimum account charge
will be imposed annually on any such account until the account is brought up to
the applicable minimum account size.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
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.
The securities of each Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Directors.
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the last bid
price. In the event a listed security is traded on more than one exchange, it is
valued at the last sale price on the exchange on which it is principally traded.
If there are no
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transactions in a security during the day, it is valued at the most recent
bid price. However, debt securities (other than short-term obligations),
including listed issues, are valued on the basis of valuations furnished by a
pricing service which utilizes electronic data processing techniques to
determine valuations for normal institutional size trading units of debt
securities, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations are valued at amortized cost. Securities for which market
quotations are not readily available and other assets held by the Fund, if any,
are valued at their fair value as determined in good faith by the Board of
Directors.
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 values have been materially affected by events occurring
after the closing of a foreign market, assets may be valued by another method
that the Board of Directors believes accurately reflects fair value.
The net asset value per share of the PBHG Cash Reserves Fund is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price the Fund would receive if it sold the instrument. Net asset
value per share is determined daily as of 2:00 p.m. Eastern time on each
Business Day. During periods of declining interest rates, the daily yield of the
PBHG Cash Reserves Fund may tend to be higher than a like computation made by a
company with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
securities. Thus, if the use of amortized cost by the PBHG Cash Reserves Fund
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the PBHG Cash Reserves Fund would be able to obtain a somewhat
higher yield than would result from investment in a company utilizing solely
market values, and existing investors in the Portfolio would experience a lower
yield. The converse would apply in a period of rising interest rates.
The use of amortized cost valuation by the PBHG Cash Reserves Fund and the
maintenance of the Portfolio's net asset value at $1.00 are permitted by
regulations set forth in Rule 2a-7 under the 1940 Act, provided that certain
conditions are met. Under Rule 2a-7 as amended, a money market portfolio must
maintain a dollar-weighted average maturity in the Fund of 90 days or less and
not purchase any instrument having a remaining maturity of more than 397 days.
In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized security rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Directors.
The Directors must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of a Portfolio's assets may be invested in such securities in the
aggregate, and (ii) any investment in such securities of one issuer is limited
to the greater of 1% of the Portfolio's total assets or $1 million. The
regulations also require the Directors to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Portfolio. However, there is no assurance that the Fund will be able to meet
this objective.
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The Fund's procedures include the determination of the extent of deviation,
if any, of the Portfolio's current net asset value per unit calculated using
available market quotations from the Portfolio's amortized cost price per share
at such intervals as the Directors deem appropriate and reasonable in light of
market conditions and periodic reviews of the amount of the deviation and the
methods used to calculate such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Directors are required to consider promptly what action,
if any, should be initiated. If the Directors believe that the extent of any
deviation may result in material dilution or other unfair results to
shareholders, the Directors are required to take such corrective action as they
deem appropriate to eliminate or reduce such dilution or unfair results to the
extent reasonably practicable. In addition, if any Portfolio incurs a
significant loss or liability, the Directors have the authority to reduce pro
rata the number of shares of that Portfolio in each shareholder's account and to
offset each shareholder's pro rata portion of such loss or liability from the
shareholder's accrued but unpaid dividends or from future dividends.
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.
Federal Income Tax
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
Qualification as a Regulated Investment Company
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 as a "regulated investment company" ("RIC") as defined under Subchapter
M of the Code. In order to qualify for treatment as a RIC under the Code, each
Portfolio must distribute annually to its shareholders at least the sum of 90%
of its net interest income excludable from gross income plus 90% of its
investment company taxable income (generally, net investment income plus net
short-term capital gain) ("Distribution Requirement"). In addition to the
Distribution Requirement, each Portfolio must meet several other requirements.
Among these requirements are the following: (i) each Portfolio must derive at
least 90% of its gross income in each taxable year from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies and other income
(including but not limited to gains from options, futures or forward contracts
derived with respect to the Portfolio's business of investing in such stock,
securities or currencies) (the "Income Requirement"); (ii) at the close of each
quarter of the Portfolio's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government securities,
securities of other RICs and securities of other issuers, with such securities
of other issuers limited, in respect to any one issuer, to an amount that does
not exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) no
more than 25% of the value of a Portfolio's total assets may be invested in the
securities of any one issuer (other than U.S.
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Government securities and securities of other regulated investment companies),
or in two or more issuers which the Portfolio controls and which are engaged in
the same or similar trades or businesses (the "Asset Diversification Test").
For purposes of the Asset Diversification Test, it is unclear under present law
who should be treated as the issuer of forward foreign currency exchange
contracts, of options on foreign currencies, or of foreign currency futures and
related options. It has been suggested that the issuer in each case may be the
foreign central bank or foreign government backing the particular currency.
Consequently, a Portfolio may find it necessary to seek a ruling from the
Internal Revenue Service on this issue or to curtail its trading in forward
foreign currency exchange contracts in order to stay within the limits of the
Asset Diversification Test.
For purposes of the Income Requirement, foreign currency gains (including gains
from options, futures or forward contracts on foreign currencies) that are not
"directly related" to a Portfolio's principal business may, under regulations
not yet issued, be excluded from qualifying income.
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.
Portfolio Distributions
Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts. Each Portfolio intends to make sufficient distributions prior to
the end of each calendar year to avoid liability for the federal excise tax.
Treasury regulations permit a RIC in determining its investment company taxable
income and undistributed net capital gain for any taxable year to elect to treat
all or part of any net capital loss, any net long-term capital loss, or any net
foreign currency loss incurred after October 31 as if it had been incurred in
the succeeding year.
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
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.
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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.
Withholding
In certain cases, a Portfolio will be required to withhold, and remit to the
U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed
to provide a correct taxpayer identification number, (ii) is subject to backup
withholding by the Internal Revenue Service, or (iii) has not certified to the
Portfolio that such shareholder is not subject to backup withholding.
Redemption or Exchange of Shares
Upon a redemption or exchange of shares, a shareholder will recognize a taxable
gain or loss depending upon his or her basis in the shares. Unless the shares
are disposed of as part of a conversion transaction, such gain or loss will be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's holding period for the shares. Any loss recognized by a
shareholder on the sale of Portfolio shares held six months or less will be
treated as a long-term capital loss to the extent of any distributions of net
capital gains received by the shareholder with respect to such shares.
Any loss recognized on a sale or exchange will be disallowed to the extent that
Portfolio shares are sold and replaced within the 61-day period beginning 30
days before and ending 30 days after the disposition of such shares. In such a
case, the basis of the shares acquired will be increased to reflect the
disallowed loss. Shareholders should particularly note that this loss
disallowance rule applies even where shares are automatically replaced under the
dividend reinvestment plan.
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Investment in Foreign Financial Instruments.
Under Code Section 988, gains or losses from certain foreign currency forward
contracts or fluctuations in currency exchange rates will generally be treated
as ordinary income or loss. Such Code Section 988 gains or losses will increase
or decrease the amount of a Portfolio's investment company taxable income
available to be distributed to shareholders as ordinary income, rather than
increasing or decreasing the amount of the Portfolio's net capital gains.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Portfolio would not be able to pay any
ordinary income dividends, and any such dividends paid before the losses were
realized, but in the same taxable year, would be recharacterized as a return of
capital to shareholders, thereby reducing the tax basis of Portfolio shares.
Hedging Transactions
Some of the forward foreign currency exchange contracts, options and futures
contracts that the Portfolios may enter into will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, regardless of whether a taxpayer's obligations (or rights) under
such contracts have terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end deemed disposition of Section 1256 contracts is
combined with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. The net amount
of such gain or loss for the entire taxable year (including gain or loss arising
as a consequence of the year-end deemed sale of such contracts) is deemed to be
60% long-term and 40% short-term gain or loss. However, in the case of Section
1256 contracts that are forward foreign currency exchange contracts, the net
gain or loss is separately determined and (as discussed above) generally treated
as ordinary income or loss.
Generally, the hedging transactions in which the Portfolios may engage may
result in "straddles" or "conversion transactions" for U.S. federal income tax
purposes. The straddle and conversion transaction rules may affect the character
of gains (or in the case of the straddle rules, losses) realized by the
Portfolios. In addition, losses realized by the Portfolios on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the taxable income for the taxable year in
which the losses are realized. Because only a few regulations implementing the
straddle rules and the conversion transaction rules have been promulgated, the
tax consequences to the Portfolios of hedging transactions are not entirely
clear. The hedging transactions may increase the amount of short-term capital
gain realized by the Portfolios (and, if they are conversion transactions, the
amount of ordinary income) which is taxed as ordinary income when distributed to
shareholders.
Each Portfolio may make one or more of the elections available under the Code
which are applicable to straddles. If a Portfolio makes any of the elections,
the amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Transactions that may be engaged in by certain of the Portfolios (such as short
sales "against the box") may be subject to special tax treatment as
"constructive sales" under section 1259 of the Code if a Portfolio holds certain
"appreciated financial positions" (defined generally as any interest (including
a futures or forward contract, short sale or option) with respect to stock,
certain debt instruments, or partnership interests if there would be a gain were
such interest sold, assigned, or otherwise terminated at its fair market value).
Upon
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entering into a constructive sales transaction with respect to an appreciated
financial position, a Portfolio will be deemed to have constructively sold such
appreciated financial position and will recognize gain as if such position were
sold, assigned, or otherwise terminated at its fair market value on the date of
such constructive sale (and will take into account any gain for the taxable year
which includes such date).
Because application of the straddle, conversion transaction and constructive
sale rules may affect the character of gains or losses, defer losses and/or
accelerate the recognition of gains or losses from the affected straddle or
investment positions, the amount which must be distributed to shareholders and
which will be taxed to shareholders as ordinary income or long-term capital gain
may be increased or decreased as compared to a fund that did not engage in such
transactions.
Requirements relating to each Portfolio's tax status as a RIC may limit the
extent to which a Portfolio will be able to engage in transactions in options
and futures contracts.
State Taxes
Distributions by a Portfolio to shareholders and the ownership of shares may be
subject to state and local taxes.
Foreign Income Tax
Investment Income received by the PBHG International Fund may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on the Portfolio's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by foreign investors. If the PBHG
International Fund meets the Distribution Requirement and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, the Portfolio will be eligible
to file an election with the Internal Revenue Service that will enable
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Portfolio
(with respect to income derived from securities for which applicable holding
period requirements have been satisifed the "Foreign Tax Credit Election").
Pursuant to the Foreign Tax Credit Election, the Portfolio will treat those
taxes as dividends paid to its shareholders. Each shareholder will be required
to include a proportionate share of those taxes in gross income as income
received from a foreign source and must treat the amount so included as if the
shareholder had paid the foreign tax directly. The shareholder may then either
deduct the taxes deemed paid by him or her in computing his or her taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit against the shareholder's federal income tax. However, there
are certain holding period requirements that must be satisfied by a shareholder
before such shareholder will be allowed a deduction or credit. If the Portfolio
makes the Foreign Tax Credit Election, it will report annually to its
shareholders the respective amounts per share of the Portfolio's income from
sources within, and taxes paid to, foreign countries and U.S. possessions.
Foreign Shareholders
Dividends from a Portfolio's investment company taxable income and distributions
constituting returns of capital paid to a nonresident alien individual, a
foreign trust or estate, foreign corporation, or foreign partnership (a "foreign
shareholder") generally will be subject to U.S. withholding tax at a rate of 30%
(or lower treaty rate) upon the gross amount of the dividend. Foreign
shareholders may be subject to U.S. withholding tax at a rate of 30% on the
income resulting from a Portfolio's Foreign Tax Credit Election, but may not be
able to claim a
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credit or deduction with respect to the withholding tax for the foreign taxes
treated as having been paid by them.
A foreign shareholder generally will not be subject to U.S. taxation on gain
realized upon the redemption or exchange of shares of a Portfolio or on capital
gain dividends. In the case of a foreign shareholder who is a nonresident alien
individual, however, gain realized upon the sale or redemption of shares of a
Portfolio and capital gain dividends ordinarily will be subject to U.S. income
tax at a rate of 30% (or lower applicable treaty rate) if such individual is
physically present in the U.S. for 183 days or more during the taxable year and
certain other conditions are met. In the case of a foreign shareholder who is a
nonresident alien individual, the Portfolios may be required to withhold U.S.
federal income tax at a rate of 31% unless proper notification of such
shareholder's foreign status is provided.
Notwithstanding the foregoing, if distributions by the Portfolios are
effectively connected with a U.S. trade or business of a foreign shareholder,
then dividends from such Portfolio's investment company taxable income, capital
gains, and any gains realized upon the sale of shares of the Portfolio will be
subject to U.S. income tax at the graduated rates applicable to U.S. citizens or
domestic corporations.
Transfers by gift of shares of a Portfolio by a foreign shareholder who is a
nonresident alien individual will not be subject to U.S. federal gift tax. An
individual who, at the time of death, is a foreign shareholder will nevertheless
be subject to U.S. federal estate tax with respect to shares at the graduated
rates applicable to U.S. citizens and residents, unless a treaty exception
applies. In the absence of a treaty, there is a $13,000 statutory estate tax
credit.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisors with respect to the
particular tax consequences to them of an investment in any of the Portfolios.
Miscellaneous Considerations
The foregoing general discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on May 28, 1998.
Future legislative or administrative changes or court decisions may
significantly change the conclusions expressed herein, and any such changes or
decisions may have a retroactive effect with respect to the transactions
contemplated herein.
Prospective shareholders are encouraged to consult their tax advisors as to the
consequences of these and other U.S., state, local, and foreign tax rules
affecting investments in the Portfolio.
55
<PAGE>
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.
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.
COMPUTATION OF YIELD
From time to time the PBHG Cash Reserves Fund may advertise its "current yield"
and "effective compound yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
PBHG Cash Reserves Fund refers to the income generated by an investment in the
PBHG Cash Reserves Fund over a seven-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the PBHG Cash Reserves Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
The current yield of the PBHG Cash Reserves Fund will be calculated daily based
upon the seven days ending on the date of calculation ("base period"). The yield
is computed by determining the net change (exclusive of capital changes and
income other than investment income) in the value of a hypothetical pre-existing
shareholder account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing such net change by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7). Realized and unrealized gains and losses are not included
in the calculation of the yield. The effective
56
<PAGE>
compound yield of the PBHG Cash Reserves Fund is determined by computing the
net change, exclusive of capital changes and income other than investment
income, in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula: Effective Yield = ((Base Period Return + 1)
365/7) - 1. The current and the effective yields reflect the reinvestment of net
income earned daily on portfolio assets.
The yield of the PBHG Cash Reserves Fund fluctuates, and the annualization of a
week's dividend is not a representation by the Fund as to what an investment in
the PBHG Cash Reserves Fund will actually yield in the future. Actual yields
will depend on such variables as asset quality, average asset maturity, the type
of instruments the PBHG Cash Reserves Fund invests in, changes in interest rates
on money market instruments, changes in the expenses of the PBHG Cash Reserves
Fund and other factors.
Yields are one basis upon which investors may compare the PBHG Cash Reserves
Fund with other money market funds; however, yields of other money market funds
and other investment vehicles may not be comparable because of the factors set
forth above and differences in the methods used in valuing portfolio
instruments.
For the 7-day period ended September 30, 1998, the yield for the PBHG Cash
Reserves Fund was 4.91% and the 7-day effective yield was 5.03%.
CALCULATION OF TOTAL RETURN
From time to time, each of the Portfolios may advertise its total returns. The
total return refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including, but not limited to, the
period from which the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
designated time period as of the end of such period.
Based on the foregoing, the average annual total returns for each of the
Portfolios (other than the Cash Reserves Fund) from its inception through
December 31, 1998, and for the one, five and ten year periods ended December 31,
1998, and the aggregate total returns for the Portfolios since inception, were
as follows:
<TABLE>
<CAPTION>
Aggregate
Average Annual Total Return Total Return
--------------------------- ------------
Since Since
Portfolio One Year Five Year Ten Year Inception Inception
- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
PBHG Growth(1) (Advisor) 0.32% n/a n/a -0.05% -0.12%
PBHG Growth(1) (PBHG) 0.59% 10.95% 18.82% 17.62% 729.20%
PBHG Emerging Growth(2) 3.00% 16.38% * 20.62% 183.0%
PBHG New Opportunities(13) * * * * *
57
<PAGE>
<CAPTION>
Aggregate
Average Annual Total Return Total Return
--------------------------- ------------
Since Since
Portfolio One Year Five Year Ten Year Inception Inception
- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
PBHG Large Cap Growth(3) 30.42% * * 29.58% 163.53*
PBHG Select Equity(4) 9.02% * * 28.81% 157.73%
PBHG Core Crowth(5) 7.42% * * 8.79% 28.80%
PBHG Limited(6) 13.05% * * 16.09% 45.42%
PBHG Large Cap 20(7) 67.83% * * 45.76% 119.60%
PBHG Large Cap Value(8) 34.74% * * 30.10% 69.25%
PBHG Mid-Cap Value(12) 27.84% * * 42.56% 80.87%
PBHG Small Cap Value(12) 1.13% * * 25.94% 47.03%
PBHG Focused Value(13) * * * * *
PBHG Internationa(l9) 12.74% * * 6.18* 31.31%
PBHG Technology &
Communications(10) 26.00% * * 29.72* 133.24%
PBHG Strategic Small Company(11) 2.13% * * 13.29* 28.35%
</TABLE>
* The Portfolio was not in operation for the full period.
(1) The PBHG Growth Fund commenced operations on December 19, 1985. The Advisor
Class shares of this Portfolio commenced operations on August 19, 1996.
(2) The PBHG Emerging Growth Fund commenced operations with its predecessor on
June 15, 1993.
(3) The PBHG Large Cap Growth Fund commenced operations on April 5, 1995.
(4) The PBHG Select Equity Fund commenced operations on April 5, 1995.
(5) The PBHG Core Growth Fund commenced operations on January 2, 1996.
(6) The PBHG Limited Fund commenced operations on July 1, 1996.
(7) The PBHG Large Cap 20 Fund commenced operations on December 1, 1996.
(8) The PBHG Large Cap Value Fund commenced operations on January 1, 1997.
(9) The PBHG International Fund commenced operations on June 14, 1994.
(10) The PBHG Technology & Communications Fund commenced operations on October
2, 1995.
(11) The PBHG Strategic Small Company Fund commenced operations on January 1,
1997.
58
<PAGE>
(12) The PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund commenced
operations on May 1, 1997.
(13) The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced
operations on February 19, 1999.
Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.
FINANCIAL STATEMENTS
PricewaterhouseCoopers LLP ("PWC") located at 2400 Eleven Penn Center,
Philadelphia, Pennsylvania, serves as the independent accountants for the Fund.
PWC provides audit services, tax return preparation and assistance and
consultation in connection with review of SEC filings.
The audited financial statements for the fiscal year ended March 31, 1999 and
the report of the independent accountants for that year are included in the
Fund's Annual Report to Shareholders dated March 31, 1999. The Annual Report,
except for pages one through nine thereof, is incorporated herein by reference
and made a part of this document. These financial statements have been audited
by PricewaterhouseCoopers LLP and incorporated by reference into the Statement
of Additional Information in reliance on the report of PWC, independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
59
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) Articles of Restatement of the Articles of Incorporation of the Registrant
filed October 21, 1998. Incorporated herein by reference to Post-Effective
Amendment No. 35 to Registrants Registration Statement on Form N-1A ("PEA
No. 35").
Articles Supplementary of the Registrant filed November 12, 1998.
Incorporated herein by reference to PEA No. 35.
Articles of Restatement of the Registrant filed January 21, 1999.
(b) Amended and Restated By-Laws of the Registrant adopted effective April 9,
1998. Incorporated herein by reference to Post-Effective Amendment No. 34
to Registrant's Registration Statement on Form N-1A ("PEA No. 34").
(c) Articles of Incorporation filed as (a)
(d) Investment Advisory Agreement dated April 28, 1995 and Schedule A dated
April 1, 1997, by and between the Registrant, on behalf of each portfolio
of the Registrant, and Pilgrim Baxter & Associates, Ltd. Incorporated
herein by reference to Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A ("PEA No. 30").
Form of Amendment to Investment Advisory Agreement between Pilgrim Baxter &
Associates, Ltd. and the Registrant. Incorporated herein by reference to
PEA No. 35.
Schedule A dated December 3, 1998 to Investment Advisory Agreement dated
April 28, 1995 by and between the Registrant and Pilgrim Baxter &
Associates, Ltd.
Schedule A dated January 25, 1999 to Investment Advisory Agreement dated
April 28, 1995 by and between the Registrant and Pilgrim Baxter &
Associates, Ltd.
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of the PBHG Cash Reserves Fund, Pilgrim Baxter & Associates, Ltd. and
Wellington Management Company dated April 4, 1995 Incorporated herein by
reference to Post-Effective Amendment No. 23 to Registrant's Registration
Statement on Form N-1A ("PEA No. 23").
Form of Investment Sub-Advisory Agreement between the Registrant, Pilgrim
Baxter & Associates, Ltd. and Pilgrim Baxter Value Investors, Inc.
Incorporated herein by reference to PEA No. 35.
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Focused Value Fund, Pilgrim Baxter & Associates, Ltd. and Pilgrim
Baxter Value Investors, Inc. dated December 3, 1998.
Investment Sub-Advisory Agreement between and among the Registrant, on
behalf of the International Fund, Pilgrim Baxter & Associates, Ltd. and
Murray Johnstone International Limited dated June 30, 1995. Incorporated
herein by reference to PEA No. 23
<PAGE>
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Large Cap Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated December 16, 1996 (as revised
effective May 1, 1997). Incorporated herein by reference to PEA No. 30.
Investment Sub-Advisory Agreement between and among the Registrant, on
behalf of PBHG Strategic Small Company Fund, Pilgrim Baxter & Associates,
Ltd. and Newbold's Asset Management, Inc., dated December 16, 1996.
Incorporated herein by reference to PEA No. 30. Investment Sub-Advisory
Agreement by and between the Registrant, on behalf of PBHG Mid-Cap Value
Fund, Pilgrim Baxter & Associates, Ltd. and Newbold's Asset Management,
Inc. dated April 1, 1997. Incorporated herein by reference to PEA No. 30.
Investment Sub-Advisory Agreement by and between the Registrant, on behalf
of PBHG Small Cap Value Fund, Pilgrim Baxter & Associates, Ltd. and
Newbold's Asset Management, Inc. dated April 1, 1997. Incorporated herein
by reference to PEA No. 30.
(e) Distribution Agreement between the Registrant and SEI Financial Services
Company dated July 1, 1996 and Schedule A dated April 1, 1997. Incorporated
herein by reference to PEA No. 30.
Form of Amendment to Distribution Agreement between the Registrant and SEI
Financial Services Company. Incorporated herein by reference to PEA No. 35.
Schedule A dated December 3, 1998 to Distribution Agreement dated April 1,
1997 by and between the Registrant and SEI Financial Services Company.
Schedule A dated January 25, 1999 to Distribution Agreement dated April 1,
1997 by and between the Registrant and SEI Financial Services Company.
Form of Selling Group Agreement. Incorporated herein by reference to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on
Form N-1A ("PEA No. 10").
(f) Not Applicable
(g) Custodian Agreement between the Registrant and The Northern Trust Company,
on behalf of the International Fund. Incorporated herein by reference to
PEA No. 30.
First Amendment to Custody Agreement between the Registrant and The
Northern Trust Company dated June 4, 1998 on behalf of the International
Fund. Incorporated herein by reference to PEA No. 35.
Custodian Agreement between the Registrant and CoreStates Bank, N.A. and
Schedule A dated April 1, 1997. Incorporated herein by reference to PEA No.
30.
Form of Amendment to the Custodian Agreement between the Registrant and
First Union National Bank, successor by merger to CoreStates Bank, N.A.
Incorporated herein by reference to PEA No. 35.
C-2
<PAGE>
Schedule A dated December 3, 1998 to Custodian Agreement dated April 1,
1997 by and between the Registrant and First Union National Bank .
Schedule A dated January 25, 1999 to Custodian Agreement dated April 1,
1997 by and between the Registrant and First Union National Bank .
(h) Administrative Services Agreement between the Registrant and PBHG Fund
Services dated July 1, 1996 and Exhibit A dated April 1, 1997. Incorporated
herein by reference to PEA No. 30.
Form of Amendment to the Administrative Services Agreement between the
Registrant and PBHG Fund Services. Incorporated herein by reference to PEA
No. 35.
Schedule A dated December 3, 1998 to Administrative Services Agreement
dated July 1, 1996 by and between the Registrant and PBHG Fund Services.
Schedule A dated January 25, 1999 to Administrative Services Agreement
dated July 1, 1996 by and between the Registrant and PBHG Fund Services.
Sub-Administrative Services Agreement between the Registrant and SEI Fund
Resources dated July 1, 1996 and Schedule A dated April 1, 1997.
Incorporated herein by reference to PEA No. 30.
Amendment dated May 1, 1998 to Sub-Administrative Services Agreement
between the Registrant, PBHG Fund Services and SEI Fund Resources dated
July 1, 1996. Incorporated herein by reference to PEA No. 35.
Form of Amendment to the Sub-Administrative Services Agreement between the
Registrant, PBHG Fund Services and SEI Fund Resources. Incorporated herein
by reference to PEA No. 35.
Schedule A dated December 3, 1998 to Sub-Administrative Services Agreement
dated July 1, 1996 by and between the Registrant, PBHG Fund Services and
SEI Fund Resources.
Schedule A dated January 25, 1999 to Sub-Administrative Services Agreement
dated July 1, 1996 by and between the Registrant, PBHG Fund Services and
SEI Fund Resources.
Schedule A dated December 3, 1998 to Agency Agreement dated January 1, 1998
by and between the Registrant and DST Systems, Inc.
Schedule A dated January 25, 1999 to Agency Agreement dated January 1, 1998
by and between the Registrant and DST Systems, Inc.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Core Growth Fund dated September 24,
1996. Incorporated herein by reference to Post-Effective Amendment No. 25
to Registrant's Registration Statement on Form N-1A ("PEA No. 25").
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<PAGE>
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Limited Fund dated September 24, 1996.
Incorporated herein by reference to PEA No. 25.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Large Cap 20 Fund dated November 24,
1996. Incorporated herein by reference to Post-Effective Amendment No. 27
to Registrant's Registration Statement on Form N-1A ("PEA No. 27").
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Large Cap Value Fund dated December 16,
1996. Incorporated herein by reference to PEA No. 27.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Strategic Small Company Fund dated
December 16, 1996. Incorporated herein by reference to PEA No. 27.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG International Fund dated March 6, 1997.
Incorporated herein by reference to PEA No. 30.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Mid-Cap Value Fund dated April 1, 1997.
Incorporated herein by reference to PEA No. 30.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Small Cap Value Fund dated April 1,
1997. Incorporated herein by reference to PEA No. 30.
Form of Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd on behalf of each Portfolio with respect to its
Advisor Class shares. Incorporated herein by reference to Post-Effective
Amendment No. 31 to Registrant's Registration Statement on Form N-1A.
Form of Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. on behalf of each Portfolio listed on Schedule A.
Incorporated herein by reference to PEA No. 35.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG Focused Value Fund dated December 3,
1998.
Expense Limitation Agreement between the Registrant and Pilgrim Baxter &
Associates, Ltd. on behalf of PBHG New Opportunities Fund dated January 25,
1999.
Shareholder Services Agreement between the Registrant and PBHG Fund
Services dated January 1, 1998. Incorporated herein by reference to PEA No.
35.
Schedule A dated December 3, 1998 to Shareholder Services Agreement dated
January 1, 1998 by and between the Registrant and PBHG Fund Services.
Schedule A dated January 25, 1999 to Shareholder Services Agreement dated
January 1, 1998 by and between the Registrant and PBHG Fund Services.
C-4
<PAGE>
Southwestern Life Insurance Company Defined Benefit Pension Plan and Trust.
Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A ("PEA No. 1").
Adoption Agreement for Southwestern Life Insurance Company Standardized
Integrated Defined Benefit Pension Plan and Trust (with Pairing
Provisions). Incorporated herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Non-Integrated Defined Benefit Pension Plan and Trust (with Pairing
Provisions). Incorporated herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Integrated Defined Benefit Pension Plan and Trust. Incorporated herein by
reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Non-Integrated Defined Benefit Pension Plan and Trust. Incorporated herein
by reference to PEA No. 1.
Southwestern Life Insurance Company Combination Profit Sharing-Money
Purchase Plan and Trust. Incorporated by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Money Purchase Plan and Trust (with Pairing Provisions). Incorporated
herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Standardized
Profit Sharing Plan and Trust (with Pairing Provisions). Incorporated
herein by reference to PEA No. 1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Money Purchase Plan and Trust. Incorporated herein by reference to PEA No.
1.
Adoption Agreement for Southwestern Life Insurance Company Non-Standardized
Profit Sharing Plan and Trust. Incorporated herein by reference to PEA No.
1.
Form 5305, Simplified Employee Pension-Individual Retirement Accounts
Contribution Agreement. Incorporated herein by reference to PEA No. 1.
Form 5305-A, Individual Retirement Custodial Account. Incorporated herein
by reference to PEA No. 1.
Southwestern Life Insurance Company Tax Deferred Annuity Program Custodial
Agreement. Incorporated herein by reference to PEA No. 1.
Amendment to Application for Investment Plans under a 403(b)(7) Plan.
Incorporated herein by reference to Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A.
Schedule for computation of Performance Quotation provided in the
Registration Statement. Incorporated herein by reference to PEA No. 30.
C-5
<PAGE>
(i) Consent of Counsel
(j) Consent of Independent Accountants
(k) Financial Highlights incorporated herein by reference to Prospectus dated
June 1, 1998.
The following financial statements are incorporated herein by reference to
the Annual Report of The PBHG Funds, Inc. (the "Fund") dated March 31,
1998:
Statement of Net Assets as of March 31, 1998
Statement of Operations for the period ended March 31, 1998
Statement of Changes in Net Assets for the period ended March 31, 1998
Financial Highlights for the fiscal year or period ended March 31, 1998
Notes to Financial Statements as of March 31, 1998
The following financial statements (unaudited) are incorporated herein by
reference by reference to the Semi-Annual Report of the Fund dated
September 30, 1998:
Statement of Net Assets as of September 30, 1998
Statements of Assets and Liabilities as of September 30, 1998
Statements of Operations as of September 30, 1998
Statements of Changes in Net Assets as of September 30, 1998
Financial Highlights for the fiscal year or period ended September 30, 1998
Notes to Financial Statements as of September 30, 1998
(l) Letter from Philadelphia Life Insurance Company to the Registrant with
respect to the initial capitalization of the Registrant. Incorporated
herein by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A.
(m) Plan pursuant to Rule 12b-1 with respect to Advisor Class shares.
Incorporated herein by reference to Post-Effective Amendment No. 21 to
Registrant's Registration Statement on Form N-1A.
(n) Financial Data Schedules. Incorporated herein by reference to PEA No. 34.
(o) Rule 18f-3 Multiple Class Plan dated November 20, 1995 and Schedule A dated
April 1, 1997. Incorporated herein by reference to PEA No. 30.
Schedule A dated December 3, 1998 to Rule 18f-3 Multiple Class Plan dated
November 20, 1995 by and between Registrant and Pilgrim Baxter &
Associates, Ltd.
Schedule A dated January 25, 1999 to Rule 18f-3 Multiple Class Plan dated
November 20, 1995 by and between Registrant and Pilgrim Baxter &
Associates, Ltd.
24 (a) Directors' Power of Attorney. Incorporated herein by reference to PEA
No. 34.
(b) Officers' Power of Attorney. Incorporated herein by reference to PEA
No. 34.
C-6
<PAGE>
Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons that are controlled by or under common control with the
Registrant.
Item 25. INDEMNIFICATION
The Articles of Incorporation of the Registrant include the following:
ARTICLE VII
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940, as amended ("1940 Act"). The By-Laws may provide that the
Corporation shall indemnify its employees and/or agents in any manner and within
such limits as permitted by applicable law. Such indemnification shall be in
addition to any other right or claim to which any director, officer, employee or
agent may otherwise be entitled. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise
or employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
The By-Laws of the Registrant include the following:
ARTICLE IX
INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 1. Indemnification of Directors and Officers. The Corporation shall
indemnify its directors to the fullest extent that indemnification of directors
is permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall indemnify its directors
and officers who, while serving as directors or officers, also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, real
estate investment trust, trust, other enterprise or employee benefit plan to the
fullest extent consistent with law. The indemnification and other rights
provided for by this Article shall continue as to a person who has ceased to be
a director or officer, and shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office ("disabling conduct").
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended ("1933 Act") may be permitted to directors, officers and
C-7
<PAGE>
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suite or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
To the extent that the Articles of Incorporation, By-Laws or any other
instrument pursuant to which the Registrant is organized or administered
indemnify any director or officer of the Registrant, or that any contract or
agreement indemnifies any person who undertakes to act as investment adviser or
principal underwriter to the Registrant, any such provision protecting or
purporting to protect such persons against any liability to the Registrant or
its security holders to which he would otherwise by subject by reason of willful
misfeasance, bad faith, or gross negligence, in the performance of his duties,
or by reason of his contract or agreement, will be interpreted and enforced in a
manner consistent with the provisions of Sections 17(h) and (i) of the 1940 Act,
as amended, and Release No. IC-11330 issued thereunder.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Other business, profession, vocation, or employment of a substantial nature in
which each director or principal officer of Pilgrim Baxter & Associates, Ltd.
and Pilgrim Baxter Value Investors, Inc. is or has been, at any time during the
last two fiscal years, engaged for his own account or in the capacity of
director, officer, employee, partner or trustee are as follows:
<TABLE>
<CAPTION>
Name and Position with Pilgrim
Baxter & Associates, Ltd. Name of Other Company Connection with Other Company
- ------------------------------ --------------------- -----------------------------
<S> <C> <C>
Harold J. Baxter Pilgrim Baxter Value Investors, Inc. Director, Chairman and Chief
Director, Chairman and Executive Officer
Chief Executive Officer
PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Director
United Asset Management Director
Corporation
Gary L. Pilgrim PBHG Fund Services Trustee
Director and Chief Investment 825 Duportail Road
Officer, President (4/95 - 10/97), Wayne, PA 19087
Secretary (5/95 - 12/96)
Pilgrim Baxter Value Investors, Inc. Director, President
C-8
<PAGE>
Brian F. Bereznak PBHG Fund Services President and Trustee
Chief Operating Officer
(5/95 - 10/97)
Eric C. Schneider Pilgrim Baxter Value Investors, Inc. Director, Chief Financial Officer and
Chief Financial Officer and Treasurer
Treasurer PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. President
John M. Zerr Pilgrim Baxter Value Investors, Inc. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Services General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Secretary
Name and Position with Pilgrim Baxter
Value Investors, Inc. Name of Other Company Connection with Other Company
- ------------------------------------- --------------------- -----------------------------
Harold J. Baxter Pilgrim Baxter & Associates, Ltd. Director, Chairman and Chief Executive
Director, Chairman and Chief Executive Officer
Officer PBHG Fund Services Trustee
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Director
United Asset Management Corporation Director
Brian F. Bereznak Pilgrim Baxter & Associates, Ltd. Chief Operating Officer (5/95 - 10/97)
Director
PBHG Fund Services President and Trustee
Gary L. Pilgrim Pilgrim Baxter & Associates, Ltd. Director, Chief Investment Officer,
Director, President President, (4/95 - 10/97), Secretary
(5/95 - 12/96)
PBHG Fund Services Trustee
825 Duportail Road
Wayne, PA 19087
C-9
<PAGE>
David W. Jennings Pilgrim Baxter & Associates, Ltd. Director of Client
Director, President and Chief Operating 825 Duportail Road Services
Officer (10/96 - 1/98) Wayne, PA 19087
Eric C. Schneider Pilgrim Baxter & Associates, Ltd. Chief Financial Officer and Treasurer
Director, Chief Financial Officer
and Treasurer PBHG Fund Services Chief Financial Officer
PBHG Fund Distributors Trustee
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. President
John M. Zerr Pilgrim Baxter & Associates, Ltd. General Counsel and Secretary
General Counsel and Secretary
PBHG Fund Services General Counsel and Secretary
PBHG Fund Distributors General Counsel and Secretary
825 Duportail Road
Wayne, PA 19087
PBA Funding, Inc. Secretary
</TABLE>
The list required by this Item 28 of officers and directors of Murray Johnstone
International Limited, together with information as to any other business,
profession, vocation or employment of a substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV, filed by Murray Johnstone International
Limited pursuant to the Investment Advisers Act of 1940, as amended ("Advisers
Act"), (SEC File No. 801-34926).
The list required by this Item 28 of officers and directors of Wellington
Management, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV, filed by Wellington Management pursuant to the Advisers Act
(SEC File No. 801-15908).
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Registrant's distributor, SEI Investments Distribution Co., acts as
distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
C-10
<PAGE>
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFund May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds (R) June 1, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
Ark Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
TIP Institutional Funds January 1, 1998
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
Expedition Funds June 9, 1997
Oak Associates Funds February 25, 1998
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) The principal business address of each person named in the table below is
SEI Investments Distribution Co., One Freedom Valley Road, Oaks,
Pennsylvania 19456.
<TABLE>
<CAPTION>
Positions and Offices
Name Positions and Offices with Underwriter with Registrant
- ---- -------------------------------------- ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board --
of Directors
Henry H. Greer Director --
Mark J. Held President & Chief Operating Officer --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Carmen V. Romeo Director, Executive Vice President --
Gilbert L. Beebower Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Richard B. Lieb Executive Vice President, President --
Investment Services Division
C-11
<PAGE>
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchinson Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President, --
General Counsel & Secretary
Patrick K. Walsh Senior Vice President --
Robert Crudup Vice President & Managing Director --
Vic Galef Vice President & Managing Director --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President &Managing Director --
W. Kelso Morrill Vice President & Managing Director --
Mark Samuels Vice President & Managing Director --
Wayne M. Withrow Vice President & Managing Director --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Joanne Nelson Vice President --
Mark Nagle Vice President --
Sandra K. Orlow Vice President & Secretary --
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Reinhart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Joseph M. O'Donnell Vice President Vice President & Assistant
Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary --
Lynda J. Striegel Vice President & Assistant Secretary Vice President & Assistant
Secretary
Lori White Vice President & Assistant Secretary --
c. None.
</TABLE>
C-12
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
Books or other documents required to be maintained by Section 31(a) of the 1940
Act, and the rules promulgated thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a), 31a-1(b)(1), (2)(a) and (b), (3), (6), (8),
(12); and 31a-1(d), the required books and records are maintained at the
offices of Registrant's Custodians:
First Union National Bank The Northern Trust Company
530 Walnut Street 50 South LaSalle Street
Philadelphia, PA 19106 Chicago, IL 60675
(b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5);
(6); (8); (9); (10); (11) and 31a-1(f), the required books and records are
currently maintained at the offices of Registrant's Sub-Administrator:
SEI Fund Resources
One Freedom Valley Road
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Adviser or Sub-Adviser:
Pilgrim Baxter & Associates, Ltd. Murray Johnstone
825 Duportail Road International Limited
Wayne, PA 19087 11 West Nile Street
Glasgow, Scotland G12PX
Wellington Management Company, LLP Pilgrim Baxter Value Investors, Inc.
75 State Street 825 Duportail Road
Boston, MA 02109 Wayne, PA 19087
ITEM 29. MANAGEMENT SERVICES:
None
ITEM 30. UNDERTAKINGS:
Not Applicable
C-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment No. ___ to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Wayne,
and Commonwealth of Pennsylvania on the ______ day of _______________, 1999.
THE PBHG FUNDS, INC.
Registrant
By: ______________________
Harold J. Baxter
Chairman and Director
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
______________________ Chairman and Director May 31, 1999
Harold J. Baxter
______________________ Director May 31, 1999
John R. Bartholdson
______________________ Director May 31, 1999
Jettie M. Edwards
______________________ Director May 31, 1999
Albert A. Miller
______________________ President May 31, 1999
Gary L. Pilgrim
______________________ Vice President May 31, 1999
Brian F. Bereznak
______________________ Treasurer, Chief Financial May 31, 1999
Lee T. Cummings Officer and Controller
</TABLE>
* By: ________________________
John M. Zerr
Attorney-in-Fact
<PAGE>
EXHIBIT LIST
Exhibit Number Description
- -------------- -----------
EX-99.B(a) Articles of Restatement of the Registrant filed January 21, 1999.
EX-99.B(d) Schedule A dated December 3, 1998 to Investment Advisory Agreement
dated April 28, 1995 by and between the Registrant and Pilgrim Baxter
& Associates, Ltd.
Schedule A dated January 25, 1999 to Investment Advisory Agreement
dated April 28, 1995 by and between the Registrant and Pilgrim Baxter
& Associates, Ltd.
Investment Sub-Advisory Agreement by and between the Registrant, on
behalf of PBHG Focused Value Fund, Pilgrim Baxter & Associates, Ltd.
and Pilgrim Baxter Value Investors, Inc. dated December 3, 1998.
EX-99.B(e) Schedule A dated December 3, 1998 to Distribution Agreement dated
April 1, 1997 by and between the Registrant and SEI Financial
Services Company.
Schedule A dated January 25, 1999 to Distribution Agreement dated
April 1, 1997 by and between the Registrant and SEI Financial
Services Company.
EX-99.B(g) Schedule A dated December 3, 1998 to Custodian Agreement dated
April 1, 1997 by and between the Registrant and First Union National
Bank.
Schedule A dated January 25, 1999 to Custodian Agreement dated April
1, 1997 by and between the Registrant and First Union National Bank.
EX-99.B(h) Schedule A dated December 3, 1998 to Administrative Services
Agreement dated July 1, 1996 by and between the Registrant and PBHG
Fund Services.
Schedule A dated January 25, 1999 to Administrative Services
Agreement dated July 1, 1996 by and between the Registrant and PBHG
Fund Services.
Schedule A dated December 3, 1998 to Sub-Administrative Services
Agreement dated July 1, 1996 by and between the Registrant, PBHG Fund
Services and SEI Fund Resources.
Schedule A dated January 25, 1999 to Sub-Administrative Services
Agreement dated July 1, 1996 by and between the Registrant, PBHG Fund
Services and SEI Fund Resources.
Schedule A dated December 3, 1998 to Agency Agreement dated January
1, 1998 by and between the Registrant and DST Systems, Inc.
Schedule A dated January 25, 1999 to Agency Agreement dated January
1, 1998 by and between the Registrant and DST Systems, Inc.
Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. on behalf of PBHG Focused Value Fund
dated December 3, 1998.
<PAGE>
Expense Limitation Agreement between the Registrant and Pilgrim
Baxter & Associates, Ltd. on behalf of PBHG New Opportunities Fund
dated January 25, 1999.
Schedule A dated December 3, 1998 to Shareholder Services Agreement
dated January 1, 1998 by and between the Registrant and PBHG Fund
Services.
Schedule A dated January 25, 1999 to Shareholder Services Agreement
dated January 1, 1998 by and between the Registrant and PBHG Fund
Services.
EX-99.B(i) Consent of Counsel.
EX-99.B(j) Consent of Independent Accountants.
EX-99.B(o) Schedule A dated December 3, 1998 to Rule 18f-3 Multiple Class Plan
dated November 20, 1995 by and between Registrant and Pilgrim Baxter
& Associates, Ltd.
Schedule A dated January 25, 1999 to Rule 18f-3 Multiple Class Plan
dated November 20, 1995 by and between Registrant and Pilgrim Baxter
& Associates, Ltd.
EX-99.B(a)
THE PBHG FUNDS, INC.
ARTICLES OF AMENDMENT
The PBHG Funds, Inc., a Maryland corporation (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
FIRST: The charter of the Corporation is hereby amended by changing the
name of the "PBHG Core Value Fund" to the "PBHG Focused Value Fund".
SECOND: The foregoing amendment was approved by a majority of the entire
Board of Directors of the Corporation and is limited to a change expressly
permitted by Section 2-605(a)(4) of the Maryland General Corporation Law to be
made without action by the stockholders.
THIRD: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended.
FOURTH: The undersigned Vice President of the Corporation acknowledges
these Articles of Amendment to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned Vice
President acknowledges that, to the best of his knowledge, information and
belief, these matters and facts are true in all material respects under the
penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed under seal in its name and on its behalf by one of its
Vice Presidents and its corporate seal to be affixed and attested to by its
Secretary on this ___ day of __________, 1999.
ATTEST: THE PBHG FUNDS, INC.
By:
- ----------------------- -------------------------------
John M. Zerr, Secretary Brian Bereznak, Vice President
(SEAL)
EX-99.B(d)
SCHEDULE A DATED DECEMBER 3, 1998
TO THE INVESTMENT ADVISORY AGREEMENT DATED
April 28, 1995 BETWEEN
THE PBHG FUNDS, INC.
AND
PILGRIM BAXTER & ASSOCIATES, LTD.
Pursuant to Section 5 of the Agreement, each Fund shall pay the Adviser, at
the end of each calendar month, compensation computed daily at an annual rate of
the Fund's average daily net assets as follows:
FUND FEE
PBHG Growth Fund 0.85%
PBHG Emerging Growth Fund 0.85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund 0.75%
PBHG Select Equity Fund 0.85%
PBHG Cash Reserves Fund 0.30%
PBHG Technology & Communications Fund 0.85%
PBHG Core Growth Fund 0.85%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund 0.85%
PBHG Large Cap Value Fund 0.65%
PBHG Mid-Cap Value Fund 0.85%
PBHG Strategic Small Company Fund 0.85%
PBHG Small Cap Value Fund 1.00%
PBHG Focused Value Fund 0.85%
<PAGE>
EX-99.B(d)
SCHEDULE A DATED JANUARY 25, 1999
TO THE INVESTMENT ADVISORY AGREEMENT DATED
April 28, 1995 BETWEEN
THE PBHG FUNDS, INC.
AND
PILGRIM BAXTER & ASSOCIATES, LTD.
Pursuant to Section 5 of the Agreement, each Fund shall pay the Adviser, at
the end of each calendar month, compensation computed daily at an annual rate of
the Fund's average daily net assets as follows:
FUND FEE
PBHG Growth Fund 0.85%
PBHG Emerging Growth Fund 0.85%
PBHG International Fund 1.00%
PBHG Large Cap Growth Fund 0.75%
PBHG Select Equity Fund 0.85%
PBHG Cash Reserves Fund 0.30%
PBHG Technology & Communications Fund 0.85%
PBHG Core Growth Fund 0.85%
PBHG Limited Fund 1.00%
PBHG Large Cap 20 Fund 0.85%
PBHG Large Cap Value Fund 0.65%
PBHG Mid-Cap Value Fund 0.85%
PBHG Strategic Small Company Fund 0.85%
PBHG Small Cap Value Fund 1.00%
PBHG Focused Value Fund 0.85%
PBHG New Opportunities Fund 1.00%
<PAGE>
EX-99.B(d)
THE PBHG FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
PBHG FOCUSED VALUE FUND
AGREEMENT made as of this 3rd day of December, 1998, by and among Pilgrim
Baxter & Associates, Ltd. (the "Adviser"), Pilgrim Baxter Value Investors, Inc.
(the "Sub-Adviser") and The PBHG Funds, Inc., a Maryland corporation (the
"Company").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, pursuant to the Investment Advisory Agreement dated April 28, 1995
and Schedule A dated December 3, 1998 between the Adviser and the Company, the
Adviser will act as investment adviser to the PBHG Focused Value Fund (the
"Portfolio"); and
WHEREAS, the Adviser and the Company each desire to retain the Sub-Adviser
to provide investment advisory services to the Company in connection with the
management of the Portfolio, and the Sub-Adviser is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. (a) Subject to supervision by the Adviser and the Company's Board of
Directors, the Sub-Adviser shall manage the investment operations of
the Portfolio and the composition of the Portfolio's portfolio,
including the purchase, retention and disposition thereof, in
accordance with the Portfolio's investment objectives, policies and
restrictions as stated in the Portfolio's Prospectus (such Prospectus
and Statement of Additional Information, as currently in effect and as
amended or supplemented from time to time, being herein called the
"Prospectus"), and subject to the following understandings:
(1) The Sub-Adviser shall provide supervision of the Portfolio's
investments and determine from time to time what investments and
securities will be purchased, retained or sold by the Portfolio, and
what portion of the assets will be invested or held uninvested in
cash.
(2) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Company's Articles of
Incorporation and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Directors and will
conform and comply with the requirements of the 1940 Act, the Internal
<PAGE>
Revenue Code of 1986, as amended, and all other applicable federal and
state laws and regulations, as each is amended from time to time.
(3) The Sub-Adviser shall determine the securities to be purchased or sold
by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage
set forth in the Portfolio's Registration Statement (as defined
herein) and Prospectus or as the Board of Directors or the Adviser may
direct from time to time, in conformity with federal securities laws.
In providing the Portfolio with investment supervision, the
Sub-Adviser will give primary consideration to securing the most
favorable price and efficient execution. Within the framework of this
policy, the Sub-Adviser may consider the financial responsibility,
research and investment information and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which the Sub-Adviser's other
clients may be a party. It is understood that it is desirable for the
Portfolio that the Sub-Adviser have access to supplemental investment
and market research and security and economic analysis provided by
brokers who may execute brokerage transactions at a higher cost to the
Portfolio than may result when allocating brokerage to other brokers
on the basis of seeking the most favorable price and efficient
execution. Therefore, the Sub-Adviser is authorized to place orders
for the purchase and sale of securities for the Portfolio with such
brokers, subject to review by the Company's Board of Directors from
time to time with respect to the extent and continuation of this
practice. It is understood that the services provided by such brokers
may be useful to the Sub-Adviser in connection with the Sub-Adviser's
services to other clients.
On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be so purchased or sold in
order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities so purchased or sold, as well as the expenses incurred in
the transaction, will be made by the Sub-Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary
obligations to the Portfolio and to such other clients.
(4) The Sub-Adviser shall maintain all books and records with respect to
the Portfolio's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act and shall render to the Company's Board of
Directors such periodic and special reports as the Company's Board of
Directors may reasonably request.
(5) The Sub-Adviser shall provide the Portfolio's Custodian on each
business day with information relating to all transactions concerning
the Portfolio's assets and shall provide the Adviser with such
information upon request of the Adviser.
<PAGE>
(6) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Company.
(b) Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's officers
or employees. It is understood that the Sub-Adviser may obtain certain
administrative services, including, without limitation, services
relating to trade reconciliation and the production of client reports,
from its parent company in carrying out its obligations under this
Agreement.
(c) The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser pursuant to paragraph 1(a) of this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Portfolio
required by Rule 31a-1 under the 1940 Act. The Sub-Adviser agrees that
all records that it maintains on behalf of the Portfolio are property
of the Portfolio and the Sub-Adviser will surrender promptly to the
Portfolio any of such records upon the Portfolio's request; provided,
however, that the Sub-Adviser may retain a copy of such records. The
Sub-Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any such records as are required to be
maintained by it pursuant to paragraph 1(a) of this Agreement.
2. The Adviser shall continue to have responsibility for all services to be
provided to the Portfolio pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under this
Agreement.
3. The Adviser has delivered to the Sub-Adviser copies of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
(a) Articles of Incorporation, as filed with the Secretary of State
of Maryland (such Articles of Incorporation as in effect on the
date of this Agreement and as amended from time to time, are
herein called the "Articles of Incorporation");
(b) By-Laws of the Company (such By-Laws, as in effect on th date of
this Agreement and as amended from time to time, are herein
called the "By-Laws");
(c) Certified resolutions of the Company's Board of Directors
authorizing the appointment of the Adviser and the Sub-Adviser
and approving the form of this Agreement;
<PAGE>
(d) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on form N-1A (the "Registration Statement"),
as filed with the Securities and Exchange Commission (the
"Commission") relating to the Portfolio and shares of the
Portfolio's beneficial shares, and all amendments thereto;
(e) Notification of Registration of the Portfolio under the 1940 Act
on form N-8A as filed with the Commission, and all amendments
thereto; and
(f) Prospectus of the Portfolio.
4. For the services to be provided by the Sub-Adviser pursuant to this
Agreement, the Adviser will pay to the Sub-Adviser as full compensation
therefor a fee at an annual rate of 0.40% of the Portfolio's average daily
net assets, less 50% of any fee waivers borne by the Adviser. This fee will
be paid to the Sub-Adviser from the Adviser's advisory fee.
5. The Sub-Adviser shall not be liable for any error of judgment or for any
loss suffered by the Portfolio or the Adviser in connection with
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Adviser's part in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby.
6. This Agreement shall continue in effect for a period of more than two years
from the date hereof only so long as continuance is specifically approved
at least annually in conformance with the 1940 Act; provided, however, that
this Agreement may be terminated (a) by the Portfolio at any time, without
the payment of any penalty, by the vote of a majority of Directors of the
company or by the vote of a majority of the outstanding voting securities
of the Portfolio, (b) by the Adviser at any time, without the payment of
any penalty, on not more than 60 days' nor less than 30 days' written
notice to the other parties, or (c) by the Sub-Adviser at any time, without
the payment of any penalty, on 90 days' written notice to the other
parties. This Agreement shall terminate automatically and immediately in
the event of its assignment. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the 1940 Act and the rules
and regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
7. Nothing in this Agreement shall limit or restrict the right of any of the
Sub-Adviser's directors, officers, or employees to engage in any other
business or to devote his or her time and attention in part to the
management or other aspects of any business, whether of a similar or
dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage
in any other business or to render services of any kind to any other
corporation, firm, individual or association.
<PAGE>
8. During the term of this Agreement, the Adviser agrees to furnish the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature or other materials prepared for
distribution to shareholders of the Portfolio, the Company or the public
that refers to the Sub-Adviser or its clients in any way prior to use
thereof and not to use material if the Sub-Adviser reasonably objects in
writing within five business days (or such other period as may be mutually
agreed) after receipt thereof. The Sub-Adviser's right to object to such
materials is limited to the portions of such materials that expressly
relate to the Sub-Adviser, its services and its clients. The Adviser agrees
to use its reasonable best efforts to ensure that materials prepared by its
employees or agents or its affiliates that refer to the Sub-Adviser or its
clients in any way are consistent with those materials previously approved
by the Sub-Adviser as referenced in the first sentence of this paragraph.
Sales literature may be furnished to the Sub-Adviser by first-class or
overnight mail, facsimile transmission equipment or hand delivery.
9. No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no amendment of this Agreement shall be effective until
approved by the vote of the majority of the outstanding voting securities
of the Portfolio.
10. This Agreement shall be governed by the laws of the state of Maryland;
provided, however, that nothing herein shall be construed as being
inconsistent with the 1940 Act.
11. This Agreement embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings
relating to this Agreement's subject matter. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an
original, but such counterparts shall, together, constitute only one
instrument.
12. Should any part of this Agreement be held invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors.
13. Any notice, advice or report to be given pursuant to this Agreement shall
be delivered or mailed:
To the Adviser at:
825 Duportail Road
Wayne, PA 19087
<PAGE>
To the Sub-Adviser at:
825 Duportail Road
Wayne, PA 19087
To the Company or the Portfolio at:
825 Duportail Road
Wayne, PA 19087
14. Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of
the Commission, whether of special or general application, such provision
shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
PILGRIM BAXTER & ASSOCIATES, LTD. THE PBHG FUNDS, INC.
By: ________________________ By: __________________________
Title: Title:
PILGRIM BAXTER VALUE INVESTORS, INC.
By: _____________________________
Title: __________________________
EX-99.B(e)
SCHEDULE A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds, each of which is
subject to this Agreement:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
Dated: December 3, 1998
<PAGE>
SCHEDULE A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds, each of which is
subject to this Agreement:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
Dated: January 25, 1999
EX-99.B(g) EX
SCHEDULE A
PORTFOLIOS OF THE PBHG FUNDS, INC.
This Custodian Agreement is by and between First Union National Bank and
the Fund, on behalf of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
Date: December 3, 1998
<PAGE>
SCHEDULE A
PORTFOLIOS OF THE PBHG FUNDS, INC.
This Custodian Agreement is by and between First Union National Bank and
the Fund, on behalf of the following Portfolios:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
Date: January 25, 1999
EX-99.B(h)
SCHEDULE A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds, each of which is
subject to this Agreement:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
Dated: December 3, 1998
<PAGE>
SCHEDULE A
THE PBHG FUNDS, INC.
The PBHG Funds, Inc. consists of the following Funds, each of which is
subject to this Agreement:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
Dated: January 25, 1999
<PAGE>
SCHEDULE A
The following Portfolios are included under the terms of this Amendment:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
Dated: December 3, 1998
<PAGE>
SCHEDULE A
The following Portfolios are included under the terms of this Amendment:
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Large Cap Growth Fund
PBHG Select Equity Fund
PBHG Cash Reserves Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
Dated: January 25, 1999
<PAGE>
Exhibit A dated December 3, 1998 to the
Agency Agreement dated January 1,
1998 between
The PBHG Funds, Inc. and DST Systems, Inc.
<TABLE>
<CAPTION>
Type of Open/ State of Taxpayer
Fund Name Organization Closed Organization I.D. No.
--------- ------------ ------ ------------ --------
<S> <C> <C> <C> <C>
PBHG Growth Fund corporation Open Maryland 76-0163417
PBHG Emerging Growth Fund corporation Open Maryland 23-2765951
PBHG Large Cap Growth Fund corporation Open Maryland 23-2798372
PBHG Select Equity Fund corporation Open Maryland 23-2798367
PBHG Core Growth Fund corporation Open Maryland 23-2829101
PBHG Limited Fund corporation Open Maryland 23-2846976
PBHG Large Cap 20 Fund corporation Open Maryland 23-2860860
PBHG Large Cap Value Fund corporation Open Maryland 23-2862589
PBHG Mid-Cap Value Fund corporation Open Maryland 23-2862587
PBHG Small Cap Value Fund corporation Open Maryland 23-2882099
PBHG International Fund corporation Open Maryland 23-2759465
PBHG Cash Reserves Fund corporation Open Maryland 23-2798368
PBHG Technology &
Communications Fund corporation Open Maryland 23-2815873
PBHG Strategic Small Company Fund corporation Open Maryland 23-2882099
PBHG Focused Value Fund corporation Open Maryland 23-2988594
</TABLE>
Dated: December 3, 1998
<PAGE>
Exhibit A dated January 25, 1999 to the
Agency Agreement dated January 1,
1998 between
The PBHG Funds, Inc. and DST Systems, Inc.
<TABLE>
<CAPTION>
Type of Open/ State of Taxpayer
Fund Name Organization Closed Organization I.D. No.
--------- ------------ ------ ------------ --------
<S> <C> <C> <C> <C>
PBHG Growth Fund corporation Open Maryland 76-0163417
PBHG Emerging Growth Fund corporation Open Maryland 23-2765951
PBHG Large Cap Growth Fund corporation Open Maryland 23-2798372
PBHG Select Equity Fund corporation Open Maryland 23-2798367
PBHG Core Growth Fund corporation Open Maryland 23-2829101
PBHG Limited Fund corporation Open Maryland 23-2846976
PBHG Large Cap 20 Fund corporation Open Maryland 23-2860860
PBHG Large Cap Value Fund corporation Open Maryland 23-2862589
PBHG Mid-Cap Value Fund corporation Open Maryland 23-2862587
PBHG Small Cap Value Fund corporation Open Maryland 23-2882099
PBHG International Fund corporation Open Maryland 23-2759465
PBHG Cash Reserves Fund corporation Open Maryland 23-2798368
PBHG Technology &
Communications Fund corporation Open Maryland 23-2815873
PBHG Strategic Small Company Fund corporation Open Maryland 23-2882099
PBHG Focused Value Fund corporation Open Maryland 23-2988594
PBHG New Opportunities Fund corporation Open Maryland 23-2988593
</TABLE>
Dated: January 25, 1999
<PAGE>
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of December 3, 1998, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of each portfolio of the Fund set forth in Schedule
A (each a "Portfolio", and collectively, the "Portfolios").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31,1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company of the series type and each Portfolio is one of
the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to each Portfolio for compensation based on the
value of the average daily net assets of each such Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of each Portfolio and its shareholders to maintain
certain expenses of each Portfolio at a level below the level to which each such
Portfolio would normally be subject during its start-up period.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMITATION.
1.1 APPLICABLE EXPENSE LIMIT. To the extent that the aggregate expenses
incurred by a Portfolio in any fiscal year, including but not limited to
investment advisory fees of the Adviser (but excluding: (i) interest, taxes,
brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles; and (ii) other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
<PAGE>
1.2 OPERATING EXPENSE LIMIT. The Operating Expense Limit in any year shall
be as set forth in Schedule A as to each Portfolio, or such other rate as may be
agreed to in writing by the parties.
1.3 METHOD OF COMPUTATION. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month of a Portfolio exceed the
Operating Expense Limit of such Portfolio, the Adviser shall first waive or
reduce its investment management fee for such month by an amount sufficient to
reduce the annualized Portfolio Operating Expenses to an amount no higher than
the Operating Expense Limit. If the amount of the waived or reduced investment
advisory fee for any such month is insufficient to pay the Excess Amount, the
Adviser may also remit to the appropriate Portfolio or Portfolios an amount
that, together with the waived or reduced advisory fee, is sufficient to pay
such Excess Amount.
1.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.
2.1 REIMBURSEMENT. If in any year during which the total assets of a
Portfolio are greater than $75 million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Operating Expense Limit for that
year, subject to quarterly approval by the Fund's Board of Directors as provided
in Section 2.2 below, the Adviser shall be entitled to reimbursement by such
Portfolio, in whole or in part as provided below, of the advisory fees waived or
reduced and other payments remitted by the Adviser to such Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Adviser and all
other payments remitted by the Adviser to the Portfolio, pursuant to Section 1
hereof, during any of the previous two (2) fiscal years, less any reimbursement
previously paid by such Portfolio to the Adviser, pursuant to Sections 2.2 or
2.3 hereof, with respect to such waivers, reductions, and payments. The
Reimbursement Amount shall not include any additional charges or fees
whatsoever, including, e.g., interest accruable on the Reimbursement Amount.
2.2 BOARD APPROVAL. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
<PAGE>
of the Portfolio or Portfolios and their shareholders. The Fund's Board of
Directors shall determine quarterly in advance whether any reimbursement may be
paid to the Adviser in such quarter.
2.3 METHOD OF COMPUTATION. To determine each Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Operating Expense Limit of such Portfolio, such
Portfolio, only with the prior approval of the Board, shall pay to the Adviser
an amount sufficient to increase the annualized Portfolio Operating Expenses of
that Portfolio to an amount no greater than the Operating Expense Limit of that
Portfolio, provided that such amount paid to the Adviser will in no event exceed
the total Reimbursement Amount.
2.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the 1940 Act, and (ii) have no direct or indirect financial interest
in the operation of this Agreement ("Non-Interested Directors"). Nevertheless,
this Agreement may be terminated as to any one or all Portfolios by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Fund, such action shall be authorized by resolution of a
majority of the Non-Interested Directors of the Fund or by a vote of a majority
of the outstanding voting securities of the Fund.
4. MISCELLANEOUS.
4.1 CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 INTERPRETATION. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Pennsylvania without reference to conflicts of
law rules. Nothing herein contained shall be deemed to require the Fund or any
Portfolio to take any action contrary to the Fund's Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Fund's Board of Directors of its
<PAGE>
responsibility for and control of the conduct of the affairs of the Fund or the
Portfolios.
4.3 DEFINITIONS. Any questions of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
on behalf of each of the
Portfolios listed on Schedule A
By: __________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
By: __________________________
Secretary
<PAGE>
SCHEDULE A
TO
EXPENSE LIMITATION AGREEMENT
Operating
Expense
Limit
---------
This Agreement relates to the following
Portfolios of the Fund:
PBHG Focused Value Fund 1.50%
DATED: December 3, 1998
<PAGE>
THE PBHG FUNDS, INC.
EXPENSE LIMITATION AGREEMENT
EXPENSE LIMITATION AGREEMENT, effective as of January 25, 1999, by and
between Pilgrim Baxter & Associates, Ltd. (the "Adviser") and The PBHG Funds,
Inc. (the "Fund"), on behalf of each portfolio of the Fund set forth in Schedule
A (each a "Portfolio", and collectively, the "Portfolios").
WHEREAS, the Fund is a Maryland corporation organized under Articles of
Incorporation dated July 31,1992 (the "Articles"), and is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company of the series type and each Portfolio is one of
the series of the Fund; and
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement (the "Advisory Agreement"), pursuant to which the Adviser will render
investment advisory services to each Portfolio for compensation based on the
value of the average daily net assets of each such Portfolio; and
WHEREAS, the Fund and the Adviser have determined that it is appropriate
and in the best interests of each Portfolio and its shareholders to maintain
certain expenses of each Portfolio at a level below the level to which each such
Portfolio would normally be subject during its start-up period.
NOW, THEREFORE, the parties hereto agree as follows:
1. EXPENSE LIMITATION.
1.1 APPLICABLE EXPENSE LIMIT. To the extent that the aggregate expenses
incurred by a Portfolio in any fiscal year, including but not limited to
investment advisory fees of the Adviser (but excluding: (i) interest, taxes,
brokerage commissions, and other expenditures which are capitalized in
accordance with generally accepted accounting principles; and (ii) other
extraordinary expenses not incurred in the ordinary course of such Portfolio's
business) ("Portfolio Operating Expenses"), exceed the Operating Expense Limit,
as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall
be the liability of the Adviser.
<PAGE>
1.2 OPERATING EXPENSE LIMIT. The Operating Expense Limit in any year shall
be as set forth in Schedule A as to each Portfolio, or such other rate as may be
agreed to in writing by the parties.
1.3 METHOD OF COMPUTATION. To determine the Adviser's liability with
respect to the Excess Amount, each month the Portfolio Operating Expenses for
each Portfolio shall be annualized as of the last day of the month. If the
annualized Portfolio Operating Expenses for any month of a Portfolio exceed the
Operating Expense Limit of such Portfolio, the Adviser shall first waive or
reduce its investment management fee for such month by an amount sufficient to
reduce the annualized Portfolio Operating Expenses to an amount no higher than
the Operating Expense Limit. If the amount of the waived or reduced investment
advisory fee for any such month is insufficient to pay the Excess Amount, the
Adviser may also remit to the appropriate Portfolio or Portfolios an amount
that, together with the waived or reduced advisory fee, is sufficient to pay
such Excess Amount.
1.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the amount of the advisory fees waived or
reduced and other payments remitted by the Adviser to the Portfolio or
Portfolios with respect to the previous fiscal year shall equal the Excess
Amount.
2. REIMBURSEMENT OF FEE WAIVERS AND EXPENSE REIMBURSEMENTS.
2.1 REIMBURSEMENT. If in any year during which the total assets of a
Portfolio are greater than $75 million and in which the Advisory Agreement is
still in effect, the estimated aggregate Portfolio Operating Expenses of such
Portfolio for the fiscal year are less than the Operating Expense Limit for that
year, subject to quarterly approval by the Fund's Board of Directors as provided
in Section 2.2 below, the Adviser shall be entitled to reimbursement by such
Portfolio, in whole or in part as provided below, of the advisory fees waived or
reduced and other payments remitted by the Adviser to such Portfolio pursuant to
Section 1 hereof. The total amount of reimbursement to which the Adviser may be
entitled (the "Reimbursement Amount") shall equal, at any time, the sum of all
investment advisory fees previously waived or reduced by the Adviser and all
other payments remitted by the Adviser to the Portfolio, pursuant to Section 1
hereof, during any of the previous two (2) fiscal years, less any reimbursement
previously paid by such Portfolio to the Adviser, pursuant to Sections 2.2 or
2.3 hereof, with respect to such waivers, reductions, and payments. The
Reimbursement Amount shall not include any additional charges or fees
whatsoever, including, e.g., interest accruable on the Reimbursement Amount.
2.2 BOARD APPROVAL. No reimbursement shall be paid to the Adviser pursuant
to this provision in any fiscal quarter, unless the Fund's Board of Directors
has determined that the payment of such reimbursement is in the best interests
of the Portfolio or Portfolios and their shareholders. The Fund's Board of
Directors shall determine quarterly in advance whether any reimbursement may be
paid to the Adviser in such quarter.
<PAGE>
2.3 METHOD OF COMPUTATION. To determine each Portfolio's payments, if any,
to reimburse the Adviser for the Reimbursement Amount, each month the Portfolio
Operating Expenses of each Portfolio shall be annualized as of the last day of
the month. If the annualized Portfolio Operating Expenses of a Portfolio for any
month are less than the Operating Expense Limit of such Portfolio, such
Portfolio, only with the prior approval of the Board, shall pay to the Adviser
an amount sufficient to increase the annualized Portfolio Operating Expenses of
that Portfolio to an amount no greater than the Operating Expense Limit of that
Portfolio, provided that such amount paid to the Adviser will in no event exceed
the total Reimbursement Amount.
2.4 YEAR-END ADJUSTMENT. If necessary, on or before the last day of the
first month of each fiscal year, an adjustment payment shall be made by the
appropriate party in order that the actual Portfolio Operating Expenses of a
Portfolio for the prior fiscal year (including any reimbursement payments
hereunder with respect to such fiscal year) do not exceed the Operating Expense
Limit.
3. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall continue in effect for a period of one year from the
date of its execution and from year to year thereafter provided such continuance
is specifically approved by a majority of the Directors of the Fund who (i) are
not "interested persons" of the Fund or any other party to this Agreement, as
defined in the 1940 Act, and (ii) have no direct or indirect financial interest
in the operation of this Agreement ("Non-Interested Directors"). Nevertheless,
this Agreement may be terminated as to any one or all Portfolios by either party
hereto, without payment of any penalty, upon 90 days' prior written notice to
the other party at its principal place of business; provided that, in the case
of termination by the Fund, such action shall be authorized by resolution of a
majority of the Non-Interested Directors of the Fund or by a vote of a majority
of the outstanding voting securities of the Fund.
4. MISCELLANEOUS.
4.1 CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no other way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
4.2 INTERPRETATION. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Pennsylvania without reference to conflicts of
law rules. Nothing herein contained shall be deemed to require the Fund or any
Portfolio to take any action contrary to the Fund's Articles or By-Laws, or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Fund's Board of Directors of its
responsibility for and control of the conduct of the affairs of the Fund or the
Portfolios.
<PAGE>
4.3 DEFINITIONS. Any questions of interpretation of any term or provision
of this Agreement, including but not limited to the investment advisory fee, the
computations of net asset values, and the allocation of expenses, having a
counterpart in or otherwise derived from the terms and provisions of the
Advisory Agreement or the 1940 Act, shall have the same meaning as and be
resolved by reference to such Advisory Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunto duly authorized and their respective
corporate seals to be hereunto affixed, as of the day and year first above
written.
ATTEST: THE PBHG FUNDS, INC.
on behalf of each of the
Portfolios listed on Schedule A
By: __________________________
Secretary
ATTEST: PILGRIM BAXTER & ASSOCIATES, LTD.
By: __________________________
Secretary
<PAGE>
SCHEDULE A
TO
EXPENSE LIMITATION AGREEMENT
Operating
Expense
Limit
---------
This Agreement relates to the following
Portfolios of the Fund:
PBHG New Opportunities Fund 1.50%
DATED: January 25, 1999
EX-99.B(i)
CONSENT OF COUNSEL
We hereby consent to the use of our name under the caption "Other Service
Providers - Counsel and Independent Accountants" in the Statement of Additional
Information incorporated by reference in Post-Effective-Amendment No. 36 to the
Registration Statement on Form N-1A of The PBHG Funds, Inc. under the Securities
Act of 1933 (File No. 2-99810) and Amendment No. 34 under the Investment Company
Act of 1940 (File No. 811-04391)
/s/ Ballard Spahr Andrews & Ingersoll, LLP
--------------------------------------
Ballard Apahr Andrews & Ingersoll, LLP
Philadelphia, PA
May 28, 1999
EX-99.B(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Post-Effective Amendment No. 36
to the Registration Statement of: PBHG Growth Fund, PBHG Emerging Growth Fund,
PBHG Large Cap Growth Fund, PBHG Select Equity Fund, PBHG Core Growth Fund, PBHG
Limited Fund, PBHG Large Cap 20 Fund, and PBHG Strategic Small Company Fund,
including the statements of assets and liabilities of the PBHG New Opportunities
Fund, PBHG Large Cap Value Fund, PBHG Mid-Cap Value Fund, PBHG Small Cap Value
Fund, PBHG Focused Value Fund, PBHG International Fund, PBHG Cash Reserves Fund,
and PBHG Technology & Communications Fund (collectively the "Fund") on Form N-1A
under the Securities Act of 1933 (File No. 2-99810) of our report dated April
29, 1999, on our audit of the financial statements and financial highlights of
The PBHG Funds, Inc. appearing in the Registrant's 1999 Annual Report which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference of our Firm under the captions
"Financial Highlights" in the Prospectus and "Other Service Providers - Counsel
and Independent Accountants" in the Statement of Additional Information.
/s/ PriceWaterhouseCoopers LLP
--------------------------
PriceWaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA
May 27,1999
EX-99.B(o)
Schedule A
The PBHG Funds, Inc.
Multiple Class Plan
Name of Portfolios
- ------------------
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
Date: December 3, 1998
<PAGE>
EX-99.B(o)
Schedule A
The PBHG Funds, Inc.
Multiple Class Plan
Name of Portfolios
- ------------------
PBHG Growth Fund
PBHG Emerging Growth Fund
PBHG International Fund
PBHG Cash Reserves Fund
PBHG Select Equity Fund
PBHG Large Cap Growth Fund
PBHG Technology & Communications Fund
PBHG Core Growth Fund
PBHG Limited Fund
PBHG Large Cap 20 Fund
PBHG Large Cap Value Fund
PBHG Mid-Cap Value Fund
PBHG Strategic Small Company Fund
PBHG Small Cap Value Fund
PBHG Focused Value Fund
PBHG New Opportunities Fund
Date: January 25, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NET-INVESTMENT-INCOME> (8193)
<REALIZED-GAINS-CURRENT> (34951)
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ACCUM-APPREC-OR-DEPREC> 3668
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<NET-INVESTMENT-INCOME> 5
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000775180
<NAME> PILGRIM BAXTER
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<NAME> CORE GROWTH
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<CIK> 0000775180
<NAME> PILGRIM BAXTER
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[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 100
<NAME> LARGE CAP 20 FUND
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<S> <C>
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 110
<NAME> STRATEGIC SMALL COMPANY FUND
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<S> <C>
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 120
<NAME> LARGE CAP VALUE FUND
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<S> <C>
<PERIOD-TYPE> YEAR
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<EXPENSES-NET> (702)
<NET-INVESTMENT-INCOME> 405
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 130
<NAME> MID CAP VALUE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
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<ACCUMULATED-NET-GAINS> 11822
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<ACCUM-APPREC-OR-DEPREC> 1154
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<GROSS-EXPENSE> 861
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 140
<NAME> SMALL CAP VALUE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
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[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
<SERIES>
<NUMBER> 150
<NAME> NEW OPPORTUNITIES FUND
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[AVG-DEBT-OUTSTANDING] 0
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000775180
<NAME> PILGRIM BAXTER
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<NAME> FOCUSED VALUE FUND
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<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.32
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 1.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
