THE PBHG FUNDS, INC.
P.O. BOX 219534
KANSAS CITY, MISSOURI 64121-9534
December 20, 2000
Dear Shareholder:
Enclosed is a combined proxy statement and prospectus seeking your
approval of a proposed combination of PBHG International Fund ("International
Fund"), an investment portfolio of The PBHG Funds, Inc. ("PBHG Funds"), with
PBHG Global Technology & Communications Fund ("GTC Fund"), which is also an
investment portfolio of PBHG Funds.
You have recently received a proxy statement and related proxy card on
proposals to approve a new investment advisory agreement and sub-advisory
agreement for International Fund, to approve changes to certain of its
investment policies and to approve the redomestication of PBHG Funds as a
Delaware business trust. THE COMBINATION OF INTERNATIONAL FUND WITH GTC FUND IS
A SEPARATE PROPOSAL THAT REQUIRES YOUR APPROVAL.
GTC Fund seeks long-term growth of capital as its investment objective.
International Fund seeks to provide investors with long-term capital
appreciation. GTC Fund seeks to meet its objective by investing at least 65% of
its total assets in common stocks of U.S. and non-U.S. companies located in at
least three different countries doing business in the technology and
communications sectors of the market. International Fund seeks to meet its
objective by investing at least 65% of its total assets in a broader range of
foreign equity securities in at least three countries other than the United
States. Pilgrim Baxter & Associates, Ltd. serves as the investment adviser to
both funds. Murray Johnstone International Limited is sub-adviser to the
International Fund.
International Fund, since its inception, has underperformed its
benchmark, the Morgan Stanley Capital International Europe, Australia and Far
East Index. The net assets of International Fund have decreased from
approximately $21.3 million at March 31, 1997 to approximately $9.5 million at
September 30, 2000. Pilgrim Baxter has advised the Board of Directors that in
its opinion, International Fund will not be able to attract sufficient assets
for continued long-term viability. After considering various alternatives, the
Board of Directors concluded that combining International Fund with GTC Fund
would serve the best interests of International Fund and its shareholders. The
accompanying document describes the proposed transaction and compares the
investment policies, operating expenses and performance of the two funds for
your evaluation.
You are being asked to approve a Plan of Reorganization for
International Fund which provides for the reclassification and change of the
outstanding shares of International Fund into shares of GTC Fund based upon
their respective net asset values. After careful consideration, the Board of
Directors recommends that you vote FOR the proposal after carefully reviewing
the enclosed materials.
YOUR VOTE IS IMPORTANT. Please take a moment now to sign and return
your proxy card in the enclosed postage paid return envelope. This action is
required even if you have previously returned your proxy card relating to
approval of the new investment advisory agreement and sub-advisory agreement for
International Fund, changes to certain investment policies and the
redomestication of PBHG Funds. If we do not hear from you after a reasonable
amount of time you may receive a telephone call from our proxy solicitor,
reminding you to vote your shares. You may also vote your shares on the web at
www.proxyvote.com, by following the instructions that appear on the enclosed
proxy insert, or by calling the telephone number printed on your proxy card and
following the instructions provided.
Sincerely,
/s/ HAROLD J. BAXTER
Harold J. Baxter
Chairman
<PAGE>
PBHG INTERNATIONAL FUND
A PORTFOLIO OF
THE PBHG FUNDS, INC.
P.O. BOX 219534
KANSAS CITY, MISSOURI 64121-9534
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 25, 2001
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PBHG
International Fund ("International Fund"), an investment portfolio of The PBHG
Funds, Inc. ("PBHG Funds"), will be held at the Peninsula Hotel, La Grande Salle
Room, 700 Fifth Avenue, New York, New York 10019, on January 25, 2001, at 10:45
a.m., local time, for the following purposes:
1. To approve a Plan of Reorganization (the "Plan of Reorganization")
for International Fund and the consummation of the transactions
contemplated therein. The Plan of Reorganization provides for the
reclassification and change of the issued and outstanding
International Fund shares into shares of PBHG Global Technology &
Communications Fund ("GTC Fund") of the same class (the
"Reorganization"). The value of each International Fund
shareholder's account with GTC Fund immediately after the
Reorganization will be the same as the value of such shareholder's
account with International Fund immediately prior to the
Reorganization. The Reorganization has been structured as a
tax-free transaction. An amendment to the Charter of PBHG Funds
will be filed in connection with the Reorganization to effect the
reclassification of the International Fund shares.
2. To transact any other business, not currently contemplated, that
may properly come before the Special Meeting, in the discretion of
the proxies or their substitutes.
Shareholders of record as of the close of business on November 17,
2000, are entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof.
YOU ARE INVITED TO ATTEND THE SPECIAL MEETING, BUT IF YOU CANNOT DO SO,
PLEASE COMPLETE AND RETURN IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY AS
PROMPTLY AS POSSIBLE, WHICH IS BEING SOLICITED BY THE MANAGEMENT OF PBHG FUNDS.
THIS IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE SPECIAL MEETING.
YOU MAY ALSO VOTE YOUR SHARES BY CALLING THE TELEPHONE NUMBER ON YOUR PROXY
CARD, OR ON THE INTERNET AT WWW.PROXYVOTE.COM. YOU MAY REVOKE YOUR PROXY AT ANY
TIME BEFORE IT IS EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A
REVISED PROXY, BY GIVING WRITTEN NOTICE OF REVOCATION TO PBHG FUNDS AT ANY TIME
BEFORE THE PROXY IS EXERCISED OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
Sincerely,
/s/ JOHN M. ZERR
John M. Zerr
Secretary
December 20, 2000
<PAGE>
PBHG INTERNATIONAL FUND
PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND
EACH A PORTFOLIO OF
THE PBHG FUNDS, INC.
P.O. BOX 219534
KANSAS CITY, MISSOURI 64121-9534
TOLL FREE: (800) 433-0051
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: December 20, 2000
This document is being furnished to you in connection with the Special
Meeting of Shareholders of PBHG International Fund ("International Fund"), an
investment portfolio of The PBHG Funds, Inc. ("PBHG Funds"), to be held on
January 25, 2001 (the "Special Meeting"). At the Special Meeting you will be
asked to consider and approve a Plan of Reorganization (the "Plan of
Reorganization") for International Fund and the consummation of the transactions
described therein, as further described in this Combined Proxy Statement and
Prospectus (the "Reorganization"). THE BOARD OF DIRECTORS OF PBHG FUNDS HAS
UNANIMOUSLY APPROVED THE PLAN OF REORGANIZATION AS BEING IN THE BEST INTEREST OF
INTERNATIONAL FUND SHAREHOLDERS.
You have already received a proxy statement and related proxy card on
proposals to approve a new investment advisory agreement and sub-advisory
agreement for International Fund, to approve changes to certain of its
investment policies and to approve the redomestication of PBHG Funds as a
Delaware business trust. THE COMBINATION OF INTERNATIONAL FUND WITH GTC FUND IS
A SEPARATE PROPOSAL THAT REQUIRES YOUR APPROVAL.
The Plan of Reorganization provides for the reclassification of the
shares of International Fund and the change of the outstanding shares of
International Fund into shares of PBHG Global Technology & Communications Fund
("GTC Fund") based upon the net asset values of the two funds. All of the assets
and liabilities of International Fund will become assets and liabilities of GTC
Fund. The value of your account with GTC Fund immediately after the
Reorganization will be the same as the value of your account with International
Fund immediately before the Reorganization.
GTC Fund is an investment portfolio of PBHG Funds, an open-end, series
management investment company. The investment objective of International Fund is
to provide investors with long-term capital appreciation. The investment
objective of GTC Fund is to provide investors with long-term growth of capital.
GTC Fund seeks to obtain that objective by investing at least 65% of its total
assets in common stocks of U.S. and non-U.S. companies and American Depositary
Receipts ("ADRs") of non-U.S. companies located in at least three different
countries doing business in the technology and communications sectors of the
market. International Fund invests at least 65% of its assets in a broader range
of foreign equity securities of companies located in at least three countries
other than the United States. Pilgrim Baxter & Associates, Ltd. ("Pilgrim
Baxter") serves as the investment adviser to both funds. Murray Johnstone
International Limited is sub-advisor to the International Fund. See "Comparison
of Investment Objectives, Policies and Restrictions."
This Combined Proxy Statement and prospectus ("Proxy
Statement/Prospectus") sets forth concisely the information that you should know
before voting on the Plan of Reorganization. It should be read and retained for
future reference.
The current prospectus for both International Fund and GTC Fund, dated
July 31, 2000, as supplemented October 16, 2000, together with the related
Statement of Additional Information also dated July 31, 2000, are on file with
the Securities and Exchange Commission (the "SEC") and are incorporated into
this Proxy Statement/Prospectus by this reference. A copy of the current
prospectus of PBHG Funds is attached as Appendix II to this Proxy
Statement/Prospectus. These documents, as well as the Annual Report, and
Semi-Annual Report, if any, of PBHG Funds and the Statement of Additional
Information to this Proxy Statement/Prospectus, are also available without
charge by writing to The PBHG Funds, Inc., P.O. Box 219534, Kansas City,
Missouri 64121-9534, or by calling (800) 433-0051. The SEC maintains a Web site
at http://www.sec.gov that contains the prospectus and statement of additional
information described above, material incorporated by reference, and other
information about PBHG Funds. You can obtain additional information about
International Fund and GTC Fund on the Web at http://www.pbhgfunds.com.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED
WHETHER THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
THE PBHG FUNDS, INC.
TABLE OF CONTENTS
Page
INTRODUCTION ............................................................... 1
SUMMARY .................................................................... 2
Reorganization ..................................................... 2
Background and Reasons for the Reorganization ...................... 2
Comparison of GTC Fund and International Fund ...................... 2
RISK FACTORS ............................................................... 5
Comparative Risks .................................................. 5
Risks Associated with GTC Fund ..................................... 5
COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS ............. 6
Investment Objectives .............................................. 6
Investment Policies ................................................ 6
Investment Restrictions ............................................ 7
ADDITIONAL INFORMATION ABOUT THE PLAN OF REORGANIZATION .................... 8
The Reorganization ................................................. 8
Board Considerations ............................................... 8
Other Terms ........................................................ 9
Federal Tax Consequences ........................................... 10
OPERATION OF GTC FUND FOLLOWING THE REORGANIZATION ......................... 12
General ............................................................ 12
Change in Control of Pilgrim Baxter ................................ 12
Redomestication of PBHG Funds as a Delaware Business Trust ......... 12
ACTION REQUESTED ........................................................... 13
OWNERSHIP OF INTERNATIONAL FUND AND GTC FUND SHARES ........................ 14
Significant Holders ................................................ 14
Ownership of Officers and Officers Directors ....................... 14
CAPITALIZATION ............................................................. 15
LEGAL MATTERS .............................................................. 15
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION .............. 15
ADDITIONAL INFORMATION ABOUT GTC FUND ...................................... 15
APPENDIX I ............................ Plan of Reorganization
APPENDIX II ........................... Prospectus of The PBHG Funds, Inc.
APPENDIX III .......................... Description of Investment Limitations
i
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INTRODUCTION
This Proxy Statement/Prospectus is furnished to you in connection with
the solicitation of proxies by PBHG Funds' Board of Directors for use at the
Special Meeting of Shareholders of International Fund to be held at the
Peninsula Hotel, La Grande Salle Room, 700 Fifth Avenue, New York, New York
10019, on January 25, 2001, at 10:45 a.m., local time. That meeting and any
adjournments thereof are referred to as the "Special Meeting".
We expect to solicit proxies principally by mail, but we may also
solicit proxies by telephone, facsimile, telegraph or personal interview. Our
officers will not receive any additional or special compensation for
solicitation activities. We have also engaged the services of Shareholder
Communications Corporation ("SCC") to assist in the solicitation of proxies. We
estimate that the cost of SCC's services will be approximately $10,000. Pilgrim
Baxter & Associates, Ltd. ("Pilgrim Baxter"), the investment adviser for each
fund, will reimburse International Fund and GTC Fund for the costs and expenses
they incur in connection with the Reorganization. For International Fund, this
will include expenses incurred in preparing, printing and mailing proxy
materials for the Special Meeting of shareholders and proxy solicitation costs.
Those costs (including fees paid to SCC) are anticipated to be $75,000.
All properly executed and unrevoked proxies received in time for the
Special Meeting will be voted in accordance with the instructions they contain.
If no instructions are given, shares represented by proxies will be voted FOR
the proposal to approve the Plan of Reorganization and in accordance with
management's recommendation on other matters. The presence in person or by proxy
of one-third of the outstanding shares of International Fund entitled to vote at
the Special Meeting will constitute a quorum. Approval of the Plan of
Reorganization requires the affirmative vote of a majority of the total number
of shares of International Fund outstanding and entitled to vote at the Special
Meeting. Abstentions and broker non-votes will be counted as shares present at
the Special Meeting for quorum purposes but will be considered votes against
approval of the Reorganization at the Special Meeting. Broker non-votes arise
from a proxy returned by a broker holding shares for a customer which indicates
that the broker has not been authorized by the customer to vote on a proposal.
If you return a proxy, you may revoke it at any time prior to its exercise by
executing a superseding proxy or by submitting a notice of revocation to the
Secretary of PBHG Funds. In addition, although mere attendance at the Special
Meeting will not revoke a proxy, if you attend the Special Meeting, you may
revoke your proxy by requesting a ballot and voting in person. Shareholders may
also transact any other business not currently contemplated that may properly
come before the Special Meeting in the discretion of the proxies or their
substitutes.
Shareholders of record as of the close of business on November 17, 2000
(the "Record Date"), are entitled to vote at the Special Meeting. On the Record
Date, there were outstanding 791,873.67 PBHG Class shares of International Fund.
Each share is entitled to one vote for each full share held, and a fractional
vote for a fractional share held.
We intend to mail this Proxy Statement/Prospectus and the accompanying
proxy on or about December 22, 2000.
1
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SUMMARY
REORGANIZATION
The Plan of Reorganization provides for the reclassification and change
of the issued and outstanding International Fund shares into GTC Fund shares
(the "Reorganization"). If shareholders of International Fund approve the Plan
of Reorganization and other closing conditions are satisfied, all of the assets
and liabilities of International Fund will become the assets and liabilities of
GTC Fund, and the issued and outstanding PBHG Class shares of International Fund
will be changed into PBHG Class shares of GTC Fund that have a net asset value
equal to the net value of the International Fund assets immediately prior to the
Reorganization. The value of each International Fund shareholder's account with
GTC Fund immediately after the Reorganization will be the same as the value of
such shareholder's account with International Fund immediately prior to the
Reorganization. A copy of the Plan of Reorganization is attached as Appendix I
to this Proxy Statement/Prospectus. See "Additional Information About the Plan
of Reorganization" below.
We will receive an opinion of Ballard Spahr Andrews & Ingersoll, LLP,
to the effect that the Reorganization will constitute a tax-free reorganization
for Federal income tax purposes. Thus, shareholders will not have to pay Federal
income taxes as a result of the Reorganization. See "Additional Information
About the Plan of Reorganization - Federal Tax Consequences" below.
GTC Fund is a non-diversified investment portfolio of PBHG Funds, an
open-end series management investment company registered under the Investment
Company Act of 1940 (the "1940 Act"). The principal offices of PBHG Funds are
located in Kansas City, Missouri (telephone: (800) 433-0051).
BACKGROUND AND REASONS FOR THE REORGANIZATION
The Board of Directors of PBHG Funds, including each of the independent
directors, has determined that the reorganization of International Fund into GTC
Fund is in the best interests of both funds and their shareholders and that the
interests of the shareholders of each fund will not be diluted as a result of
the Reorganization.
In making that determination, the Board of Directors considered the
fact that the total net assets of International Fund have decreased by more than
50% since the fiscal year ended March 31, 1997. International Fund has
consistently underperformed its benchmark index since inception. Pilgrim Baxter
advised the Board of Directors that it did not believe that International Fund
could attract sufficient assets within a reasonable period of time to remain
viable as a separate investment portfolio. After considering alternatives for
the future of International Fund, the Board of Directors concluded that
International Fund should be combined with GTC Fund.
In evaluating the proposed Reorganization, the Board of Directors
considered a number of factors, including:
o The compatibility of the investment objectives and principal
investment strategies of the two funds.
o The performance track records of the two funds.
o The potential for greater operating efficiencies of the
combined funds.
o The tax-free nature of the Reorganization for income tax
purposes.
o The undertaking by Pilgrim Baxter to bear the expenses of the
Reorganization.
o The comparative expenses of the two funds.
For additional information concerning the deliberations of the Board of
Directors on the Plan of Reorganization see "Additional Information About the
Plan of Reorganization."
COMPARISON OF GTC FUND AND INTERNATIONAL FUND
INVESTMENT OBJECTIVE AND POLICIES
International Fund seeks to provide its investors with long-term
capital appreciation. GTC Fund seeks to provide investors with long-term growth
of capital. GTC Fund and International Fund follow different investment
strategies to achieve their similar investment objectives.
2
<PAGE>
GTC Fund normally invests at least 65% of its total assets in common
stocks of U.S. and non-U.S. companies doing business in the technology and
communications sectors of the market. These companies will be in at least three
different countries, one of which may be the U.S. GTC Fund is concentrated,
which means that it invests 25% or more of its total assets in one or more of
the industries within those sectors. GTC Fund generally invests in companies
that may be responsible for breakthrough products or technologies or may be
positioned to take advantage of cutting-edge developments.
International Fund generally invests at least 65% of its assets in
foreign equity securities of companies in at least three countries other than
the United States. Currently, International Fund principally focuses its
investments in those countries represented in the Morgan Stanley Capital
International Europe, Australia and Far East Index.
INVESTMENT ADVISORY SERVICES
Pilgrim Baxter serves as investment adviser to International Fund and
GTC Fund. Murray Johnstone International Limited, Glasgow, Scotland, is the
sub-adviser to International Fund. If the Reorganization is consummated, the
investments of International Fund will no longer be sub-advised by Murray
Johnstone.
Pilgrim Baxter is a wholly-owned subsidiary of United Asset Management
Corporation ("UAM"). Old Mutual plc, an English public limited company, recently
acquired all of the outstanding shares of UAM through a tender offer and short
form merger, which is later defined in this Proxy Statement/Prospectus as the
"Transaction." Because this Transaction resulted in a change in control of UAM,
and indirectly Pilgrim Baxter, it caused the automatic termination of the
investment advisory agreement between PBHG Funds and Pilgrim Baxter. The Board
of Directors has approved a new investment advisory agreement with Pilgrim
Baxter that contains provisions identical to those in the current investment
advisory agreement. The shareholders of GTC Fund are expected to approve the new
advisory agreement with Pilgrim Baxter at a separate meeting held on the same
date as the Special Meeting. See "Operation of GTC Fund Following the
Reorganization" for more information concerning the change in control of Pilgrim
Baxter.
SALES CHARGES
No sales charges are applicable to the Reorganization.
The PBHG Class shares of GTC Fund and International Fund are both sold
without an initial or other sales charge.
OPERATING EXPENSES
A comparison of the operating expense of International Fund and GTC
Fund is provided below.
GTC Fund(1) International Fund(2)
Management Fees 1.50% 1.00%
12b-1 Fees None None
Other Expenses 0.50% 1.00%
Total Fund Operating Expenses 2.00% 2.00%
(1) Other Expenses for GTC Fund are based upon estimated amounts the fund
expects to pay during its current fiscal year. In connection with the
Transaction, Old Mutual and Pilgrim Baxter have represented that they will
maintain GTC Fund's existing expense limitation agreement for a period of
two years. Therefore, for a period of two years from the date of
consummation of the Transaction, Pilgrim Baxter has agreed to waive that
portion, if any, of the annual management fees payable by GTC Fund and to
pay certain expenses of the GTC Fund to the extent necessary to ensure that
the total annual fund operating expenses do not exceed 2.15%. You should
know that in any fiscal year in which the GTC Fund's assets are greater
than $75 million and its total annual fund operating expenses are less than
2.15%, the GTC Fund's Board of Directors may elect to reimburse Pilgrim
Baxter for any fees it waived or expenses it reimbursed on GTC Fund's
behalf during the previous two fiscal years.
(2) The expenses for International Fund are based upon those incurred by the
fund during its fiscal year ended March 31, 2000. In connection with the
Transaction, Old Mutual and Pilgrim Baxter have represented that they will
maintain International Fund's existing expense limitation agreement for a
period of two years. Therefore, for a period of two years from the date of
consummation of the Transaction, Pilgrim Baxter has agreed to waive that
portion, if any, of the annual management fee payable by International Fund
and to pay certain expenses of International Fund to the extent necessary
to ensure that the total annual fund operating expenses do not exceed
2.25%. You should know that in any fiscal year in which the International
Fund's assets are greater than $75 million and its total annual fund
operating expenses are less than 2.25%, the International Fund's Board of
Directors may elect to reimburse Pilgrim Baxter for any fees it waived or
expenses it reimbursed on International Fund's behalf during the previous
two fiscal years.
3
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DISTRIBUTION; PURCHASE, EXCHANGE AND REDEMPTION
Shares of GTC Fund and International Fund are both distributed by SEI
Investments Distribution Co. Purchase and redemption procedures are the same for
GTC Fund and International Fund. Shares of GTC Fund and International Fund may
be exchanged for shares of other funds of The PBHG Funds, Inc.
FURTHER INFORMATION
Additional information concerning GTC Fund is contained in this Proxy
Statement/Prospectus and in the current prospectus for PBHG Funds that is
attached hereto as Appendix II. Further information concerning International
Fund can also be found in the PBHG Funds prospectus. The cover page describes
how you may obtain further information.
4
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RISK FACTORS
COMPARATIVE RISKS
International Fund seeks to provide investors with long-term capital
appreciation while GTC Fund seeks to provide investors with long-term growth of
capital. GTC Fund seeks to meet this objective by investing in equity securities
of foreign and domestic companies doing business in the technology and
communications sectors, while International Fund invests in a broader range of
securities of foreign issuers.
The price of the securities held by International Fund and GTC will
fluctuate, which means the value of your investment in either fund will go up
and down, and you could lose money. Both funds invest in foreign equity
securities, including investments in companies located in emerging or developing
countries, and in companies with smaller market capitalization, which present
greater risks than investments in securities of larger U.S. based issuers.
GTC Fund is not diversified and is concentrated, which means that it
may invest a higher percentage of its total assets in a limited number of stocks
and in securities issued by companies in the industries within the technology or
communications sectors of the market. After the Reorganization, a down-turn in
prospects of those companies or market sectors could have a larger impact on the
price of the GTC Fund shares you own than if it were more diversified and
invested in a wider range of industries or sectors. The greater asset
diversification of International Fund might provide some protection against the
risk of loss in times of declining markets.
The risks associated with ownership of GTC Fund shares are described
below.
RISKS ASSOCIATED WITH GTC FUND
GTC 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 than a more
diversified fund. As a result, the price change of a single security, positive
or negative, has a greater impact on GTC Fund's net asset value and will cause
its shares to fluctuate in value more than it would in a diversified fund.
GTC Fund is concentrated which means, as compared to a non-concentrated
fund, it invests a higher percentage of its assets in specific industries within
the technology and communications sectors of the market in order to achieve a
potentially greater investment return. As a result, the economic, political and
regulatory developments in a particular industry, positive or negative, have a
greater impact on GTC Fund's net asset value and will cause its shares to
fluctuate more than if the fund did not concentrate its investments.
The value of an investment in GTC Fund will go up and down, which means
you could lose money.
The price of the securities in GTC 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 equity 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.
Securities of technology and communications companies are strongly
affected by worldwide scientific and technological developments and governmental
laws, regulations and policies and, therefore, are generally more volatile than
securities of companies not dependent upon or associated with technology and
communications issues.
Investments in emerging or developing countries may be subject to
extreme volatility because, in general, these countries' economies are more
under-developed, their political structures are less stable and their financial
markets are less liquid than more developed nations.
Although GTC Fund strives to achieve its goal, it cannot guarantee that
the goal will be achieved.
An investment in GTC Fund is not a bank deposit. It is not insured or
guaranteed by the FDIC or any other government agency.
5
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COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS
INVESTMENT OBJECTIVES
The investment objective of GTC Fund is to provide investors with
long-term capital appreciation, while International Fund seeks to provide
long-term growth of capital.
INVESTMENT POLICIES
A description of the investment policies of each of GTC Fund and
International Fund is provided below.
GTC FUND
Under normal market conditions, GTC Fund, a non-diversified fund, will
invest at least 65% of its total assets in common stocks of U.S. and non-U.S.
companies and American Depositary Receipts ("ADRs ") of non-U.S. companies doing
business in the technology and communications sectors of the market. In
addition, GTC Fund is concentrated which means it will invest 25% or more of its
total assets in one or more of the industries within these sectors. These
industries may include computer software and hardware, network and cable
broadcasting, semiconductors, defense and data storage and retrieval, and
biotechnology.
GTC Fund invests in companies that may be responsible for breakthrough
products or technologies or may be positioned to take advantage of cutting-edge
developments. These companies will be in at least three different countries, one
of which may include the U.S. Some of these countries may be considered emerging
or developing by the international finance community. GTC 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, using or marketing scientific advances.
Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth and business momentum in managing GTC Fund.
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 proprietary 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 business momentum, 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 may
sell a security held by GTC Fund for a variety of reasons, such as a
deterioration in fundamentals or to invest in a company with more attractive
growth prospects.
INTERNATIONAL FUND
Under normal market conditions, International 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. Currently, International Fund
principally focuses its investments in those countries represented in the Morgan
Stanley Capital International Europe Australia and Far East Index. Nonetheless,
more than 25% of International 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. International Fund may sell a security
for a variety of reasons, such as to invest in another company or country
offering superior investment opportunities.
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 attempts to identify 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 is believed to offer superior investment opportunities, the
risk associated with a particular currency becomes too great, or the security
falls short of Murray Johnstone's expectations.
6
<PAGE>
INVESTMENT RESTRICTIONS
Although International Fund and GTC Fund are each a separate series of
PBHG Funds, they are generally subject to the same investment restrictions.
There are, however, two differences in their investment restrictions.
o International Fund may not invest more than 25% of its total assets
in securities of one or more issuers whose business activities are
in the same industry. Only 50% of the assets of GTC Funds are
subject to that limitation, as required by the diversification test
of the Internal Revenue Code.
o With respect to 75% of International Fund's net assets,
International Fund is restricted from investing in the securities
of any one issuer (other than the obligations of the U.S.
government, its agencies, authorities and instrumentalities) if
immediately after such investment more than 5% of the value of the
fund's total assets, taken at market value, would be invested in
such issuer or more than 10% of such issuers outstanding voting
securities would be owned by the fund. This restriction does not
apply to GTC Fund.
The Board of Directors has approved changes to certain of GTC's
fundamental investment limitations and adopted corresponding non-fundamental
investment limitations as internal operating guidelines applicable to GTC Fund.
Changes in fundamental investment limitations must be approved by GTC Fund
shareholders before they become effective. A separate meeting of the
shareholders of GTC Fund has been called to consider the new fundamental
investment limitations on the same date as the Special Meeting.
The changes to the fundamental investment limitations of GTC Fund were
proposed because some are no longer necessary under applicable law and others
are unnecessary or unwarranted under current business or industry conditions.
The new limitations will provide greater flexibility in managing GTC Fund and
will eliminate differences in the phrasing of limitations for different
investment portfolios of PBHG Funds.
If approved, the new investment limitations would have the following
effect for GTC Fund:
o Money could be borrowed to the extent permitted under the 1940 Act,
currently in an amount up to 33-1/3% of assets, rather than subject
to a 10% of assets limitation.
o The fundamental limitation on making loans would be revised to
allow loans to the extent permitted by the 1940 Act.
o The fundamental limitation on investments in oil, gas and other
mineral exploration programs would be eliminated.
o The fundamental limitation on investing for purposes of controlling
an issuer would
be eliminated.
o The fundamental limitation on short sales of securities would be
eliminated.
The proposed changes will not affect the investment objective of GTC
Fund or its principal investment strategies. Although the proposed investment
limitations would provide greater investment flexibility to respond to future
investment opportunities, the changes, individually and in the aggregate, are
not anticipated to result in a material change in the level of risk associated
with GTC Fund or the manner in which GTC Fund is currently managed.
A description of the new investment limitations for GTC Fund is
attached as Appendix III. If the new investment limitations are not approved,
GTC Fund will continue to operate under its current investment limitations.
7
<PAGE>
ADDITIONAL INFORMATION ABOUT THE PLAN OF REORGANIZATION
The terms and conditions under which the Reorganization may be
consummated are set forth in the Plan of Reorganization. The deliberations of
the Board of Directors concerning the Reorganization and significant provisions
of the Plan of Reorganization are summarized below. A copy of the Plan of
Reorganization is attached as Appendix I to this Proxy Statement/Prospectus.
THE REORGANIZATION
Pursuant to the Plan of Reorganization the issued and outstanding PBHG
Class shares of International Fund will be changed into PBHG Class shares of GTC
Fund having an aggregate net asset value equal to the net value of the assets of
the International Fund immediately prior to the Reorganization. The value of
each International Fund shareholder's account with GTC Fund immediately after
the Reorganization will be the same as the value of such shareholder's account
with International Fund immediately prior to the Reorganization. Shareholders
will not pay any sales charge in connection with the Reorganization.
The Reorganization will be consummated through filing Articles of
Amendment to the Charter of PBHG Funds in the form attached to the Plan of
Reorganization. All of the assets and liabilities of International Fund will
become assets and liabilities of GTC Fund. The outstanding shares of
International Fund will be deemed to have been redeemed upon issuance of GTC
Fund shares to International Fund shareholders. Then, all of the authorized but
unissued shares of International Fund will be reclassified as authorized shares
of PBHG Funds without any further designation or classification.
Each share of GTC Fund is entitled to one vote, to participate equally
in dividends and distributions declared by the Board of Directors with respect
to a class of shares of GTC Fund and, upon liquidation of GTC Fund, to
participate proportionately in its net assets allocable to a class after
satisfaction of the outstanding liabilities allocable to that class. Fractional
shares of GTC Fund have proportionately the same rights, including voting rights
as are provided for full shares.
Consummation of the Reorganization is expected to occur on January 25,
2001, at 5:00 p.m. Eastern Time on the basis of values calculated as of the
close of regular trading on the New York Stock Exchange on that day.
BOARD CONSIDERATIONS
The Board of Directors of PBHG Funds determined that the proposed
Reorganization of International Fund is in the best interests of the
shareholders of International Fund and GTC Fund, and recommended approval of the
Plan of Reorganization by International Fund shareholders at the Special
Meeting. A summary of the information that was presented to, and considered by,
the Board of Directors in making their determination is provided below.
At a meeting of the Board of Directors held on November 13, 2000,
Pilgrim Baxter proposed that the Board of Directors approve the proposed
Reorganization of International Fund. The Directors received from Pilgrim Baxter
written materials that described the structure and tax consequences of the
proposed Reorganization and contained information concerning International Fund
and GTC Fund, including comparative historical total returns, fee and expense
information and a comparison of the investment policies of the two funds.
In considering the proposed Reorganization, the Board of Directors
noted that International Fund and GTC Fund have substantially the same
investment objective. GTC Fund seeks to meet that objective by investing in
common stocks of U.S. and non-U.S. companies and ADRs of non-U.S. companies
doing business in the technology and communications sectors of the market, while
International Fund invests in a broader range of foreign securities.
The Reorganization was proposed by Pilgrim Baxter because investors
have not viewed International Fund as an attractive investment alternative. The
net assets of International Fund decreased significantly from approximately $21
million at March 31, 1997 to approximately $8.7 million at October 31, 2000. GTC
Fund's total assets at October 31, 2000 were approximately $95.5 million. The
combined assets of the two funds should provide a more stable base for
management because daily purchases and redemptions of shares should have a less
significant impact on the size of the combined fund. The Reorganization could
also result in greater economies of scale for GTC Fund by lowering its ratio of
total operating expenses to total net assets.
The information presented to the Board of Directors by Pilgrim Baxter
demonstrated that International Fund has consistently underperformed its
benchmark index, the Morgan Stanley Capital International Europe, Australia and
Far East Index (the "MSCI EAFE Index") since inception.
8
<PAGE>
INTERNATIONAL FUND
Average Annual Total Returns as of 9/30/00
Past 1 Year Past 5 Years Since Inception
(6/15/94)
International Fund 0.83% 7.62% 5.42%
MSCI EAFE Index 3.18% 8.58% 7.79%*
* The since inception return was calculated from June 30, 1994
GTC Fund commenced operations on May 31, 2000. Based upon its
performance since inception, the Board of Directors concluded that GTC Fund had
the potential to provide a better return to shareholders than International Fund
after the Reorganization is completed.
The Board of Directors noted that the total operating expenses of
International Fund, expressed as a percentage of net assets, are approximately
the same as those of GTC Fund. Although the investment advisory fee paid by GTC
Fund is higher than the investment advisory fee paid by International Fund,
International Fund's other operating expenses are higher than those projected
for GTC Fund.
Pilgrim Baxter advised the Board of Directors that because of
substandard performance and declining net assets, it intended to terminate its
subadvisory contract with Murray Johnstone. The Board of Directors considered
alternatives for the future of International Fund, including engaging a new
investment sub-adviser, liquidating International Fund and combining
International Fund with another investment portfolio of PBHG Funds. Pilgrim
Baxter advised the Board of Directors that it did not believe International Fund
would be able to attract sufficient assets to remain viable even if another
sub-adviser were engaged. Liquidation of International Fund would result in
shareholders potentially having to recognize a gain for tax purposes, requiring
them to pay additional income taxes. After a review of the other investment
portfolios of PBHG Funds, the Board of Directors concluded that the investment
policies of GTC Fund were most compatible with those of International Fund.
The Board of Directors further noted that the value of each
shareholder's account with GTC Fund immediately after the Reorganization will be
the same as the value of that shareholder's account with International Fund
immediately prior to the Reorganization meaning that there will be no dilution
of the value of the shares of either fund. No initial sales or other charges
will be imposed on any of the shares of GTC Fund acquired by the shareholders of
International Fund in connection with the Reorganization. The Board also noted
that Pilgrim Baxter has agreed to pay the costs and expenses that would
otherwise be incurred by International Fund and GTC Fund in connection with the
Reorganization.
Finally, the Board of Directors reviewed the principal terms of the
Plan of Reorganization. The Board of Directors noted that International Fund
would be provided with an opinion of counsel that the Reorganization would be
tax-free as to International Fund and its shareholders.
At the meeting of the Board of Directors, based upon their evaluation
of the information presented to them, the Board of Directors determined that the
proposed Reorganization will not dilute the interests of International Fund or
GTC Fund shareholders and is in the best interest of shareholders of
International Fund and GTC Fund in light of the above-mentioned factors.
Therefore, the Board of Directors recommended the approval of the Plan of
Reorganization by the shareholders at a Special Meeting.
OTHER TERMS
Completion of the Reorganization is subject to various conditions,
including the following:
o An amendment to the Charter of PBHG Funds shall have been filed
with the Maryland Department of Assessments and Taxation.
o All consents, approvals, permits and authorizations required to be
obtained from governmental authorities, including the SEC and state
securities commissions, to permit the parties to carry out the
transactions contemplated by the Plan of Reorganization shall have
been received.
9
<PAGE>
o The Plan of Reorganization, the amendment to the Charter and
related corporate matters shall have been approved by the
shareholders of International Fund at the Special Meeting by the
affirmative vote of a majority of the total number of International
Fund shares.
o The assets of International Fund to be acquired by GTC Fund shall
constitute at least 90% of the fair market value of the net assets
and at least 70% of the fair market value of the gross assets held
by International Fund immediately prior to the reclassification,
o The dividend or dividends as described in the Plan of
Reorganization shall have been declared,
o PBHG Funds shall have received an opinion of Ballard Spahr Andrews
& Ingersoll, LLP ("BSA&I") to the effect that consummation of the
transactions contemplated by the Plan of Reorganization will
constitute a "reorganization" within the meanings of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and
that the shareholders of International Fund will recognize no gain
or loss to the extent that they receive shares of GTC Fund in
exchange for their shares of International Fund in accordance with
the Plan of Reorganization,
o PBHG Funds shall have received an opinion of BSA&I addressed to and
in form and substance satisfactory to PBHG Funds, to the effect
that the Plan of Reorganization has been duly authorized and
approved by all requisite action of PBHG Funds and the holders of
the shares of International Fund.
FEDERAL TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Code, the existing Treasury regulations thereunder, current administrative
rulings of the Internal Revenue Service ("IRS") and judicial decisions, all of
which are subject to change. The principal Federal income tax consequences that
are expected to result from the Reorganization, under currently applicable law,
are as follows:
o The Reorganization will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code;
o No gain or loss will be recognized by International Fund upon the
reclassification of its assets to GTC Fund;
o No gain or loss will be recognized by any shareholder of
International Fund upon the exchange of shares of International
Fund solely for shares of GTC Fund;
o The tax basis of the shares of GTC Fund to be received by a
shareholder of International Fund will be the same as the tax basis
of the shares of International Fund surrendered in exchange
therefor;
o The holding period of the shares of GTC Fund to be received by a
shareholder of International Fund will include the holding period
for which such shareholder held the shares of International Fund
exchanged therefor, provided that such shares of International Fund
are capital assets in the hands of such shareholder as of the date
the Reorganization is consummated;
o No gain or loss will be recognized by GTC Fund upon the
reclassification of the assets of International Fund as part of the
assets of GTC Fund;
o The tax basis of the assets of International Fund in the hands of
GTC Fund will be the same as the tax basis of such assets in the
hands of International Fund immediately prior to the
Reorganization; and
o The holding period of the assets of International Fund to be
received by GTC Fund will include the holding period of such assets
in the hands of International Fund immediately prior to the
Reorganization.
As a condition to closing, BSA&I will render a favorable opinion to
PBHG Funds as to the foregoing
10
<PAGE>
Federal income tax consequences of the Reorganization, which opinion will be
conditioned upon the accuracy, as of the date of closing, of certain
representations made by PBHG Funds upon which BSA&I will rely in rendering its
opinion, which representations include, but are not limited to, the following
(taking into account for purposes thereof any events that are part of the Plan
of Reorganization, regardless of their date of occurrence):
o There is no plan or intention by the shareholders of International
Fund to redeem a number of shares of GTC Fund received in the
Reorganization that would reduce the International Fund
shareholders' ownership of GTC Fund shares to a number of shares
having a value, as of the date the Reorganization is consummated,
of less than 50% of the value of all of the formerly outstanding
shares of International Fund as of the date the Reorganization is
consummated;
o Following the Reorganization, GTC Fund will continue the historic
business of International Fund (for this purpose "historic
business" shall mean the business most recently conducted by
International Fund which was not entered into in connection with
the Reorganization) or use a significant portion of International
Fund's historic business assets in its business;
o At the direction of International Fund, GTC Fund will issue
directly to each International Fund shareholder in the
Reorganization shares of GTC Fund having a net asset value equal to
the net asset value of the International Fund shares exchanged
therefor; International Fund will transfer all of its assets and
liabilities to GTC Fund in the Reorganization; and International
Fund will terminate its existence as an investment portfolio of
PBHG Funds on, or as soon as practicable after, the date the
Reorganization is consummated.
o GTC Fund and certain persons related to GTC Fund have no plan or
intention to reacquire any of the shares of GTC Fund issued in the
Reorganization, except to the extent that GTC Fund is required by
the 1940 Act to redeem any of its shares presented for redemption;
o GTC Fund does not plan or intend to sell or otherwise dispose of
any of the assets of International Fund acquired in the
Reorganization, except that GTC Fund may sell up to 66% of such
assets in the ordinary course of its business in a manner
consistent with its investment objectives and policies or in order
to maintain its status as a "regulated investment company" ("RIC")
under the Code;
o GTC Fund, International Fund and the shareholders of International
Fund will pay their respective expenses, if any, incurred in
connection with the Reorganization in accordance with current IRS
guidelines, provides however, that Pilgrim Baxter may agree to bear
certain such expenses;
o GTC Fund will acquire at least 90 percent of the fair market value
of the net assets, and at least 70 percent of the fair market value
of the gross assets, held by International Fund immediately before
the Reorganization, including for this purpose any amounts used by
International Fund to pay its reorganization expenses and all
redemptions and distributions made by International Fund after the
commencement of negotiations regarding the Reorganization (other
than redemptions pursuant to a demand of a shareholder in the
ordinary course of International Fund's business as an open-end
diversified management investment company under the 1940 Act and
regular, normal dividends not in excess of the requirements of
Section 852 of the Code); and
o GTC Fund and International Fund have each elected to be taxed as a
RIC under Section 851 of the Code and will each have qualified for
the special Federal tax treatment afforded RICs under the Code for
all taxable periods (including the last short taxable period of
International Fund ending on the date the Reorganization is
consummated and the taxable year of GTC Fund that includes the date
the Reorganization is consummated.
THE DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION PROVIDED ABOVE IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF ANY SHAREHOLDER OF INTERNATIONAL FUND. INTERNATIONAL FUND
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
11
<PAGE>
OPERATION OF GTC FUND FOLLOWING THE REORGANIZATION
GENERAL
There are differences in the investment strategies of the funds.
However, GTC Fund will not revise its investment strategies to reflect those of
International Fund. In addition, International Fund will not be required to
dispose of any of its portfolio securities in anticipation of the
Reorganization. All of the assets of International Fund will be transferred to
and held by GTC Fund. Although Pilgrim Baxter has no current plan or intention
to dispose of the assets of International Fund transferred to GTC Fund after the
Reorganization, Pilgrim Baxter, as investment adviser, will continue to evaluate
the portfolio holdings of GTC Fund.
After the Reorganization, Pilgrim Baxter will continue to serve as
investment adviser to GTC Fund. Michael K. Ma is primarily responsible for the
day-to-day management of GTC Fund. Mr. Ma has managed GTC Fund since its
inception on May 31, 2000. Mr. Ma joined Pilgrim Baxter in October 1999 as a
senior technology analyst. Prior to joining Pilgrim Baxter, Mr. Ma worked for
two and one-half years as an Equity Research Analyst in the Telecommunications
Services Group of Deutsche Bank Securities, Inc. Prior to that, he worked for
four years as a Portfolio Manager and Research Assistant with United States
Trust Company of New York, first as a research assistant and then after 1994 as
a portfolio manager.
CHANGE IN CONTROL OF PILGRIM BAXTER
Through a tender offer completed on September 26, 2000, and a merger
completed on October 5, 2000, Old Mutual plc, an English public limited company,
("Old Mutual"), acquired all of the outstanding common stock of United Asset
Management Corporation ("UAM"), the parent company of Pilgrim Baxter. Old Mutual
is an international financial services group based in London with operations in
life assurance, asset management, banking and general insurance.
Consummation of the Transaction resulted in a change in control of UAM,
and indirectly, of Pilgrim Baxter. This change in control constituted an
"assignment," as that term is defined in the 1940 Act, of the PBHG Funds'
current Investment Advisory Agreement. As required by the 1940 Act, PBHG Funds'
current Investment Advisory Agreement automatically terminated in the event of
its assignment. In anticipation of the Transaction, the Board has approved
continuation of the advisory services under an Interim Investment Advisory
Agreement between PBHG Funds and Pilgrim Baxter. The Board also proposed
continuation of the advisory services longer term under a Long Term Investment
Advisory Agreement between PBHG Funds and Pilgrim Baxter. The Long Term
Investment Advisory Agreement has been submitted for approval by shareholders of
GTC Fund at a separate meeting to be held immediately prior to the Special
Meeting.
Compensation earned by an investment adviser under an Interim
Investment Advisory Agreement is held in an interest-bearing escrow account
pending shareholder approval of a new investment advisory agreement for a period
of up to 150 days from the termination of the current investment advisory
agreement. If shareholders approve the Long Term Investment Advisory Agreement,
the amount held in the escrow account, plus interest, will be paid to Pilgrim
Baxter. If shareholders do not approve the proposed investment advisory
agreement, Pilgrim Baxter will be paid the lesser of the costs incurred in
performing its services under the interim agreement or the total amount in the
escrow account, plus interest earned. The Long Term Investment Advisory
Agreement will be identical in all material respects to the current investment
advisory agreement. In addition, GTC Fund's advisory fee rate will remain
unchanged.
REDOMESTICATION OF PBHG FUNDS AS A DELAWARE BUSINESS TRUST
The Board of Directors has approved a plan to reorganize PBHG Funds as
a Delaware business trust. You have already received a copy of a proxy statement
that describes the proposed move to Delaware, which is referred to as a
"redomestication."
The redomestication has been proposed to provide increased flexibility
in the business structure of PBHG Funds. PBHG Funds is currently organized as a
Maryland corporation, and is governed by the detailed requirements imposed by
Maryland corporate law and the terms of its Charter. Delaware's business trust
law contains provisions that are well suited to mutual funds and provides
greater flexibility for mutual fund operations.
The redomestication will take effect only if approved by PBHG Funds
shareholders. You have the opportunity to vote on the redomestication on a
separate proxy ballot previously mailed to you. The Reorganization of
12
<PAGE>
International Fund into GTC Fund is a separate proposal that you are requested
to vote on by completing and mailing the proxy ballot enclosed with this Proxy
Statement Prospectus. If the redomestication is not approved, PBHG Funds will
continue to operate as a Maryland corporation. If approved by International Fund
shareholders, the Reorganization will be completed even though the
redomestication is not approved.
ACTION REQUESTED
You are being asked to approve the proposed combination of
International Fund with GTC Fund pursuant to the Plan of Reorganization
described in this Proxy Statement/Prospectus. The Board of Directors of PBHG
Funds recommends that you vote FOR the proposal.
13
<PAGE>
OWNERSHIP OF INTERNATIONAL FUND AND GTC FUND SHARES
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who as of October 5, 2000, to the knowledge of PBHG Funds, owned of record 5% or
more of the outstanding shares of International Fund. PBHG Funds has no
knowledge of shares held beneficially.
<TABLE>
<CAPTION>
INTERNATIONAL FUND
PERCENT
NUMBER OF SHARES PERCENT OWNERSHIP AFTER
NAME AND ADDRESS OWNED OWNERSHIP REORGANIZATION
<S> <C> <C> <C>
Charles Schwab & Co., Inc. 86,977 10.74% 0.89%
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. 67,529 8.34% 0.69%
For the Exclusive Benefit of Customers
1055 Franklin Ave., Suite 100
Garden City, New York 11530-2903
</TABLE>
Listed below is the name, address and percent ownership of each person
who as of October 5, 2000 to the knowledge of PBHG Funds, owned of record 5% or
more of the outstanding shares of GTC Fund. PBHG Funds has no knowledge of
shares held beneficially.
<TABLE>
<CAPTION>
GTC FUND
PERCENT
NUMBER OF SHARES PERCENT OWNERSHIP AFTER
NAME AND ADDRESS OWNED OWNERSHIP REORGANIZATION
<S> <C> <C> <C>
National Financial Services Corp. 1,477,530 15.90% 14.55%
For the Exclusive Benefit of Customers
P.O. Box 3908
Church Street Station
New York, New York 10008-3908
Charles Schwab & Co., Inc. 942,494 10.14% 9.28%
Reinvest Account
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
OWNERSHIP OF DIRECTORS AND OFFICERS
To the best of the knowledge of PBHG Funds, the record and beneficial
ownership of shares of International Fund or of GTC Fund by Directors and
Officers of PBHG Funds as a group constituted less than 1% of the outstanding
shares of such fund as of the date of this Proxy Statement/Prospectus.
14
<PAGE>
CAPITALIZATION
The following tables set forth as of October 31, 2000, (i) the
capitalization of GTC Fund PBHG Class shares, (ii) the capitalization of
International Fund PBHG Class shares and (iii) the pro forma capitalization of
GTC Fund PBHG Class shares as adjusted to give effect to the transactions
contemplated by the Plan of Reorganization.
<TABLE>
<CAPTION>
INTERNATIONAL GTC FUND
GTC FUND SHARES FUND SHARES PRO FORMA
<S> <C> <C> <C>
Net Assets $95,560,683 $8,796,484 $104,357,167
Shares Outstanding 9,458,282 805,911 10,329,221
Net Asset Value Per Share 10.10 10.91 10.10
</TABLE>
LEGAL MATTERS
Certain legal matters concerning PBHG Funds and its participation in
the Reorganization, the issuance of shares of GTC Fund in connection with the
Reorganization and the tax consequences of the Reorganization will be passed
upon by Ballard Spahr Andrews & Ingersoll, LLP, 1735 Market Street, 51st Floor,
Philadelphia, PA 19103-7599.
INFORMATION FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual reports which PBHG Funds
has filed with the SEC pursuant to the requirements of the 1933 Act and the 1940
Act, to which reference is hereby made. The SEC file number for PBHG Funds'
registration statement containing the current prospectus and statement of
additional information relating to both International Fund and GTC Fund is
Registration No. 2-99810.
PBHG Funds is subject to the informational requirements of the 1940 Act
and in accordance therewith files reports and other information with the SEC.
Reports, proxy statements, registration statements and other information filed
by PBHG Funds (including the Registration Statement of PBHG Funds relating to
GTC Fund on Form N-14 of which this Proxy Statement/Prospectus is a part and
which is hereby incorporated by reference) may be inspected without charge and
copied at the public reference facilities maintained by the SEC at Room 1014,
Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the
following regional offices of the SEC: 7 World Trade Center, New York, New York
10048; and 500 West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies
of such material may also be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, NW, Washington, DC 20549 at the prescribed rates. The
SEC maintains a Web site at http://www.sec.gov that contains information
regarding PBHG Funds and other registrants that file electronically with the
SEC.
ADDITIONAL INFORMATION ABOUT GTC FUND
For more information with respect to PBHG Funds and GTC Fund concerning
the following topics, please refer to the current prospectus of GTC Fund
attached as Appendix II as indicated: (i) see the discussion "Performance
Information" and "Fees and Expenses" and "Example" for further information
regarding GTC Fund performance and expenses; (ii) see the discussion "The
Investment Adviser" for further information regarding management of GTC Fund;
and (iii) see the discussion "Your Investment" for further information regarding
share pricing, purchase and redemption of shares, dividends and distribution
arrangements for the shares.
15
<PAGE>
APPENDIX II
PLAN OF REORGANIZATION
FOR
PBHG INTERNATIONAL FUND
AN INVESTMENT PORTFOLIO OF
THE PBHG FUNDS, INC.
This Plan of Reorganization provides for the reorganization of PBHG
International Fund ("International Fund"), an investment portfolio of The PBHG
Funds, Inc. (the "Company"), into PBHG Global Technology & Communications Fund
(the "GTC Fund"), another investment portfolio of the Company.
WHEREAS, the Company is a Maryland corporation and a registered
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the International Fund and the GTC Fund are each investment
portfolios of the Company representing separate series of shares of the capital
stock of the Company;
WHEREAS, the International Fund is authorized to issue two classes of
its shares, Advisor Class shares and PBHG Class shares, but only PBHG Class
shares have been issued and are outstanding.
WHEREAS, the Board of Directors of the Company has determined that it
would be in the best interests of the International Fund and GTC Fund
shareholders to reorganize the International Fund by reclassifying the shares of
the International Fund as shares of the GTC Fund pursuant to an amendment to the
Charter of the Company, all in the manner described below.
NOW, THEREFORE, the International Fund shall be reorganized into the
GTC Fund on the following terms and conditions.
1. PLAN OF REORGANIZATION.
(a) RECLASSIFICATION OF SHARES. At the Effective Time described in
Section 3 below, all of the issued and outstanding PBHG Class shares of the
International Fund shall be reclassified and changed into and become PBHG Class
shares of the GTC Fund based upon their respective net asset values, and
thereafter shall have the attributes of PBHG Class shares of the GTC Fund. The
issued and outstanding PBHG Class shares of International Fund shall be deemed
to have been redeemed upon their reclassification and change into PBHG Class
shares of GTC Fund.
All authorized but unissued PBHG Class shares (including the previously
issued and outstanding shares which were changed into shares of GTC Fund), and
all of the Advisor Class shares, of the International Fund shall be reclassified
as authorized shares of the Company without further designation or
classification. The stock transfer books of the International Fund will be
permanently closed at the Effective Time and only requests for the redemption of
shares of the International Fund received in proper form prior to the close of
trading on the New York Stock Exchange on the date of the Effective Time shall
be accepted. Thereafter, redemption requests received by the International Fund
shall be deemed to be redemption requests for the GTC Fund shares into which
such International Fund shares were reclassified under this Plan of
Reorganization.
(b) ATTRIBUTION OF ASSETS AND LIABILITIES. At the Effective Time
described in Section 3 below, the proportionate undivided interest in the net
assets of the International Fund attributable to its PBHG Class shares shall
become a part of the proportionate undivided interest in the net assets of the
GTC Fund attributable to its PBHG Class shares and the expenses, costs, charges
and reserves allocated to the PBHG Class shares of the International Fund
immediately prior to the Effective Time shall become expenses, costs, charges
and reserves of PBHG Class shares of the GTC Fund. The Company shall instruct
its custodian to reflect in the custodian's records for the GTC Fund the
attribution of the assets of the International Fund in the manner described
above.
(c) SHAREHOLDER ACCOUNTS. At the Effective Time described in Section 3
below each shareholder of record of PBHG Class shares of the International Fund
will receive that number of PBHG Class shares of the GTC Fund having an
aggregate net asset value equal to the aggregate net value of the assets of the
PBHG Class shares of the International Fund held by such shareholder immediately
prior to the Effective Time.
<PAGE>
The Company will establish an open account on the records of the GTC
Fund in the name of each shareholder of the International Fund to which will be
credited the respective number of shares of the GTC Fund due such shareholder.
Fractional shares of the GTC Fund will be carried to the third decimal place.
Certificates representing shares of the GTC Fund will not be issued. The net
asset value of the shares of the International Fund and the net value of the
assets of the GTC Fund will be determined at the Effective Time in accordance
with the policies and procedures of the Company.
2. AMENDMENT TO CHARTER. The Company shall effect the reorganization of
the International Fund by amending its Charter to provide for the
reclassification of issued and outstanding PBHG Class shares of the
International Fund as PBHG Class shares of the GTC Fund, based upon their
respective net asset values, to provide for the reclassification of all
authorized but unissued PBHG Class shares and all Advisor Class shares of
International Fund as authorized shares of the Company without further
designation, to provide for transfer of assets and liabilities from the
International Fund to the GTC Fund, and to provide for the crediting of shares
of the GTC Fund to the account of shareholders of the International Fund, all in
the manner provided in paragraph 1.
3. EFFECTIVE TIME OF THE REORGANIZATION. The reorganization of the
International Fund contemplated by this Plan of Reorganization shall occur on
January 25, 2001, at 5:00 p.m. Eastern Time, or such other date and time as the
officers of the Company shall determine (the "Effective Time").
4. APPROVAL OF SHAREHOLDERS. A meeting of the holders of the
International Fund shares shall be duly called and constituted for the purpose
of acting upon this Plan of Reorganization and the transactions contemplated
herein, including approval of the amendment to the Charter of the Company
described above. Approval by such shareholders of this Plan of Reorganization
shall authorize the Company to take the actions required to effect the Plan of
Reorganization.
5. CONDITIONS PRECEDENT. The Company will consummate the Plan of
Reorganization only after satisfaction of each of the following conditions:
(a) The amendment to the Charter of the Company described in
paragraph 2 shall have been filed with the Maryland Department of Assessments
and Taxation specifying the Effective Time as the effective date thereof.
(b) All consents, approvals, permits and authorizations
required to be obtained from governmental authorities, including the Securities
and Exchange Commission and state securities commissions, to permit the parties
to carry out the transactions contemplated by this Plan of Reorganization shall
have been received.
(c) This Plan of Reorganization, the amendment to the Charter
and related corporate matters shall have been approved by the shareholders of
the International Fund at a special meeting by the affirmative vote of a
majority of the total number of votes entitled to be cast.
(d) The assets of the International Fund to be acquired by the
GTC Fund shall constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross assets held by the
International Fund immediately prior to the reclassification. For purposes of
this paragraph 5(d), any assets used by the International Fund to pay the
expenses it incurs in connection with this Plan of Reorganization and to effect
all shareholder redemptions and distributions (other than regular, normal
dividends and regular, normal redemptions pursuant to the 1940 Act, and not in
excess of the requirements of Section 852 of the Code, occurring in the ordinary
course of the International Fund's business as a series of an open-end
management investment company) after the commencement of negotiations regarding
the Reorganization shall be included as assets of the International Fund held
immediately prior to the reclassification.
(e) The dividend or dividends described in the last sentence of
paragraph 6(a) shall have been declared.
(f) The Company shall have received an opinion of Ballard Spahr
Andrews & Ingersoll, LLP ("BSA&I") to the effect that consummation of the
transactions contemplated by this Plan of Reorganization will constitute a
"reorganization" within the meanings of Section 368(a) of the Internal Revenue
Code (the "Code"), and that the shareholders of the International Fund will
recognize no gain or loss to the extent that they receive shares of the GTC Fund
in exchange for their shares of the International Fund in accordance with this
Plan of Reorganization. In rendering such opinion, BSA&I may request and rely
upon representations contained in certificates of officers of the Company and
others, and the officers of the Company shall use their best efforts to make
available such truthful certificates.
2
<PAGE>
(g) The Company shall have received an opinion of BSA&I, dated
as of the Effective Time, addressed to and in form and substance satisfactory to
the Company, to the effect that this Plan of Reorganization has been duly
authorized and approved by all requisite action of the Company and the holders
of the shares of the International Fund.
At any time prior to the Effective Time, any of the foregoing
conditions may be waived by the Company if, in the judgment of its Board of
Directors, such waiver will not have a material adverse effect on the benefits
intended under this Plan of Reorganization for the International Fund
shareholders.
6. INTERNATIONAL FUND TAX MATTERS.
(a) The International Fund has elected to be a regulated
investment company under Subchapter M of the Code. The International Fund has
qualified as such for each taxable year since inception and that has ended prior
to the Effective Time and will have satisfied the requirements of Part I of
Subchapter M of the Code to maintain such qualification for the period beginning
on the first day of its current taxable year and ending at the Effective Time.
The International Fund has no earnings and profits accumulated in any taxable
year in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of the International Fund as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of the International Fund arising by reason of undistributed
investment company taxable income or net capital gain, the International Fund
will declare on or prior to the Effective Time to the shareholders of the
International Fund a dividend or dividends that, together with all previous such
dividends, shall have the effect of distributing (A) all of the International
Fund's investment company taxable income (determined without regard to any
deductions for dividends paid) for the taxable year ended March 31, 2000 and for
the short taxable year beginning on April 1, 2000 and ending at the Effective
Time and (B) all of the International Fund's net capital gain recognized in its
taxable year ended March 31, 2000 and in such short taxable year (after
reduction for any capital loss carryover).
(b) The International Fund has timely filed all tax returns
required to be filed by it and all taxes with respect thereto have been paid. No
deficiencies for any taxes have been proposed, assessed or asserted in writing
by any taxing authority against the International Fund, and no deficiency has
been proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a material
adverse effect on the condition, financial or otherwise, property, assets or
prospects of the International Fund.
(c) The fiscal year of the International Fund has not been
changed for tax purposes since the date on which it commenced operations.
7. THE GTC FUND TAX MATTERS.
(a) The GTC Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code. The GTC Fund has qualified as
such for each taxable year since inception that has ended prior to the Effective
Time and will satisfy the requirements of Part I of Subchapter M of the Code to
maintain such qualification for its current taxable year. The GTC Fund has no
earnings or profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it.
(b) The GTC Fund has timely filed all returns required to be
filed by it and all taxes with respect thereto have been paid. No deficiencies
for any taxes have been proposed, assessed or asserted in writing by any taxing
authority against the GTC Fund, and no deficiency has been proposed, assessed or
asserted, in writing, where such deficiency would reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
condition, financial or otherwise, property, assets or prospects of the GTC
Fund.
(c) The fiscal year of the GTC Fund has not been changed for
tax purposes since the date on which it commenced operations.
8. TERMINATION. The Company may terminate this Plan of Reorganization
with the approval of its Board of Directors at any time prior to the Effective
Time, notwithstanding approval thereof by the International Fund shareholders
if, in the judgment of the Board, proceeding with the Plan of Reorganization
would be inadvisable.
9. FURTHER ASSURANCES. The Company shall take such further action as
may be necessary or desirable and proper to consummate the transactions
contemplated hereby.
10. EXPENSES. The International Fund and the GTC Fund shall each bear
any expenses it incurs in connection with this Plan of Reorganization and the
transactions contemplated hereby.
This Plan of Reorganization was approved and adopted by the Board of
Directors of The Company on the 13th day of November, 2000.
3
<PAGE>
THE PBHG FUNDS, INC.
ARTICLES OF AMENDMENT
THE PBHG FUNDS, INC., a Maryland corporation registered as an open-end
investment company under the Investment Company Act of 1940, as amended,
(hereinafter called the "Corporation"), hereby certifies to the State Department
of Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Board of Directors of the Corporation has duly advised and
adopted, and the shareholders of the PBHG International Fund ("International
Fund") have duly approved, a Plan of Reorganization for International Fund, an
investment portfolio of the Corporation, that provides for the filing of these
Articles of Amendment pursuant to which: (i) the issued and outstanding PBHG
Class shares of International Fund will be reclassified and changed into PBHG
Class shares of PBHG Global Technology & Communications Fund ("GTC Fund"),
another investment portfolio of the Corporation; and (ii) after such change, the
authorized PBHG Class shares of International Fund (including the previously
issued and outstanding shares which were changed into shares of GTC Fund) and
the authorized Advisor Class of shares of International Fund will be
reclassified as authorized shares of the Corporation without further designation
or classification, on the following terms:
(1) RECLASSIFICATION AND CHANGE OF OUTSTANDING SHARES. On the
Effective Date of these Articles of Amendment all of the issued and outstanding
PBHG Class shares of International Fund shall be changed into PBHG Class shares
of GTC Fund currently authorized based upon their respective net asset values,
and thereafter shall have the attributes of PBHG Class shares of GTC Fund;
(2) RECLASSIFICATION INTERNATIONAL FUND SHARES. On the
Effective Date of these Articles of Amendment all authorized but unissued shares
of the International Fund shall be reclassified as authorized shares of the
Corporation without further designation or classification;
(3) ATTRIBUTION OF ASSETS AND LIABILITIES. On the Effective
Date of these Articles of Amendment the proportionate undivided interest in the
net assets of the International Fund attributable to its PBHG Class shares shall
become a part of the proportionate undivided interest in the net assets of the
GTC Fund attributable to its PBHG Class shares and the expenses, costs, charges
and reserves allocated to the PBHG Class shares of the International Fund
immediately prior to the Effective Date shall become expenses, costs, charges
and reserves of PBHG Class shares of the GTC Fund.
(4) SHAREHOLDER ACCOUNTS.. On the Effective Date of these
Articles of Amendment each shareholder of record of PBHG Class shares of the
International Fund will receive that number of PBHG Class shares of the GTC Fund
having an aggregate net asset value equal to the aggregate net value of the
assets of the PBHG Class shares of the International Fund held by such
shareholder immediately prior to the Effective Date.
The charter of the Corporation is hereby amended as provided in
this Article First.
SECOND: These Articles of Amendment are adopted under the authority
contained in Section 2-602(b)(3) and Section 2-602(b)(8) of the Maryland General
Corporation Law (the "MGCL"). The amendments to the Charter of the Corporation
set forth herein were duly advised and adopted by the Board of Directors of the
Corporation, and duly approved by the stockholders of the Corporation entitled
to vote thereon, as required by law.
THIRD: The amendments to the Charter set forth herein do not increase
the authorized stock of the Corporation.
FOURTH: The Effective Date of these Articles of Amendment shall be
January 26, 2001, at 5:00 p.m. Eastern Time.
The undersigned President acknowledges these Articles of Amendment to
be the corporate act of the Corporation and states that to the best of his
knowledge, information and belief, the matters and facts set forth in these
Articles of Amendment with respect to authorization and approval are true in all
material respects and that this statement is made under the penalties for
perjury.
4
<PAGE>
IN WITNESS WHEREOF, THE PBHG FUNDS, INC. has caused these Articles of
Amendment to be executed in its name and on its behalf by its President and
witnessed by its Secretary on December ___, 2000.
THE PBHG FUNDS, INC.
Witness:
---------------------------------- ------------------------------------
John M. Zerr Gary L. Pilgrim
Secretary President
5
<PAGE>
APPENDIX II
[PBHG LOGO OMITTED]
THE PBHG FUNDS, INC.
PROSPECTUS
July 31, 2000
(as Supplemented October 16, 2000)
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
PBHG Global Technology & Communications Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any Fund shares or determined whether this prospectus is
truthful or complete. Anyone who tells you otherwise is committing a crime.
<PAGE>
[This page intentionally left blank]
<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. This prospectus offers PBHG Class Shares of each Fund listed on the
cover.
Each Fund has its own investment goal and strategies for reaching that goal.
Before investing, make sure the Fund's goal matches your own.
o PBHG 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.
o Other PBHG Funds are generally 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.
INVESTMENT ADVISER
Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") is the investment adviser
for each Fund. Pilgrim Baxter has retained certain sub-advisers to assist in
managing the Funds. For information about the sub advisers, see page 61 of the
prospectus.
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.
1
<PAGE>
[This page intentionally left blank]
2
<PAGE>
CONTENTS
FUND SUMMARIES
--------------------------------------------------------------------------------
PBHG Growth Fund ................................ 4
PBHG Emerging Growth Fund ....................... 7
PBHG Large Cap Growth Fund ...................... 10
PBHG Select Equity Fund ......................... 13
PBHG Core Growth Fund ........................... 16
PBHG Limited Fund ............................... 19
PBHG Large Cap 20 Fund .......................... 22
PBHG New Opportunities Fund ..................... 25
PBHG Large Cap Value Fund ....................... 27
PBHG Mid-Cap Value Fund ......................... 30
PBHG Small Cap Value Fund ....................... 33
PBHG Focused Value Fund ......................... 36
PBHG International Fund ......................... 38
PBHG Cash Reserves Fund ......................... 41
PBHG Technology & Communications Fund ........... 44
PBHG Strategic Small Company Fund ............... 48
PBHG Global Technology &
Communications Fund ........................ 51
MORE ABOUT THE FUNDS
--------------------------------------------------------------------------------
Risks & Returns ................................. 54
THE INVESTMENT ADVISER
& SUB-ADVISERS
--------------------------------------------------------------------------------
The Investment Adviser .......................... 60
Pilgrim Baxter & Associates, Ltd.
The Sub-Advisers ................................ 61
Pilgrim Baxter Value Investors, Inc.
("Value Investors")
Murray Johnstone International Limited
("Murray Johnstone")
Wellington Management Company, Ltd.
("Wellington Management")
YOUR INVESTMENT
--------------------------------------------------------------------------------
Pricing Fund Shares ............................. 65
Buying Shares ................................... 66
Selling Shares .................................. 67
General Policies ................................ 68
Distribution & Taxes ............................ 71
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Financial Highlights ............................ 72
3
<PAGE>
PBHG Growth Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with capital appreciation.
[GRAPHIC OMITTED] 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 and medium 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 business momentum,
earnings growth and capital appreciation potential. Pilgrim Baxter uses its own
fundamental research, computer models and proprietary measures of growth in
determining which securities to buy and when to sell them for this Fund. The
Fund may sell a security for a variety of reasons, such as to invest in a
company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down
in price.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
4 PBHG GROWTH FUND
<PAGE>
[GRAPHIC OMITTED] 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 characteristics. The
Russell 2000 Index is an unmanaged index that measures the performance of 2,000
small cap companies. 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 OMITTED]
1990 -9.64%
1991 51.63%
1992 28.39%
1993 46.71%
1994 4.75%
1995 50.35%
1996 9.82%
1997 -3.35%
1998 0.59%
1999 92.45%
The Fund's year-to-date return as of 6/30/00 was 13.42%.
BEST QUARTER: Q4 1999 64.55%
WORST QUARTER: Q3 1990 -29.05%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Past 1 Year Past 5 Years Past 10 Years
--------------------------------------------------------------------------------
PBHG CLASS 92.45% 25.31% 23.64%
Russell 2000 Growth Index 43.10% 18.99% 13.51%
Note: The inception date of the Growth Fund was December 19, 1985.
PBHG GROWTH FUND 5
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.23%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
PBHG Class $125 $390 $676 $1,489
6 PBHG GROWTH FUND
<PAGE>
PBHG Emerging Growth Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital.
[GRAPHIC OMITTED] 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 the S&P 500(R)
Index. Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth in determining which securities to buy and when
to sell them for this Fund. The Fund may sell a security for a variety of
reasons, such as to invest in a company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in
price.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
PBHG EMERGING GROWTH FUND 7
<PAGE>
[GRAPHIC OMITTED] 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. The Russell
2000 Index is an unmanaged index that measures the performance of 2,000 small
cap companies. 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 OMITED]
1994 23.78%
1995 48.45%
1996 17.08%
1997 -3.67%
1998 3.00%
1999 48.34%
The Fund's year-to-date return as of 6/30/00 was 13.20%.
BEST QUARTER: Q4 1999 45.85%
WORST QUARTER: Q1 1997 -20.51%
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year Past 5 Years (6/14/93)
--------------------------------------------------------------------------------
Emerging Growth Fund 48.34% 20.67% 24.48%
Russell 2000 Growth Index 43.10% 18.99% 15.74%*
* The since inception return for the Russell 2000 Growth Index was calculated
from May 31, 1993.
8 PBHG EMERGING GROWTH FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.39%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.24%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$126 $393 $681 $1,500
PBHG EMERGING GROWTH FUND 9
<PAGE>
PBHG Large Cap Growth Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital.
[GRAPHIC OMITTED] 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 business momentum, earnings growth and
capital appreciation potential. Pilgrim Baxter uses its own fundamental
research, computer models and proprietary measures of growth in determining
which securities to buy and when to sell them for this Fund. The Fund may sell a
security for a variety of reasons, such as to invest in a company with more
attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 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.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
10 PBHG LARGE CAP GROWTH FUND
<PAGE>
[GRAPHIC OMITTED] 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 OMITTED]
1996 23.40%
1997 22.36%
1998 30.42%
1999 67.06%
The Fund's year-to-date return as of 6/30/00 was 20.01%.
BEST QUARTER: Q4 1999 59.55%
WORST QUARTER: Q3 1998 -13.69%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (4/5/95)
--------------------------------------------------------------------------------
Large Cap Growth Fund 67.06% 36.81%
S&P 500(R) Index 21.04% 27.74%*
*The since inception return for the S&P 500[R] Index was calculated from March
31, 1995.
PBHG LARGE CAP GROWTH FUND 11
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.75%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.42%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.17%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$119 $372 $644 $1,420
12 PBHG LARGE CAP GROWTH FUND
<PAGE>
PBHG Select Equity Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital.
[GRAPHIC OMITTED] 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 business
momentum, earnings growth and capital appreciation potential. Pilgrim Baxter
uses its own fundamental research, computer models and proprietary measures of
growth in determining which securities to buy and when to sell them for this
Fund. The Fund may sell a security for a variety of reasons, such as to invest
in a company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The Fund invests in a limited number of stocks in order to achieve a potentially
greater investment return than a more widely diversified fund. As a result, the
price change of a single security, positive or negative, has a greater impact on
the Fund's net asset value and will cause its shares to fluctuate in value more
than it would in a more widely diversified fund. The value of your investment in
the Fund will go up and down, which means you could lose 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 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. Although the Fund strives to
achieve its goal, it cannot guarantee that the goal will be achieved. 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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
PBHG SELECT EQUITY FUND 13
<PAGE>
[GRAPHIC OMITTED] 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 OMITTED]
1996 27.99%
1997 6.84%
1998 19.02%
199 160.89%
The Fund's year-to-date return as of 6/30/00 was 28.33%.
BEST QUARTER: Q4 1999 130.62%
WORST QUARTER: Q3 1998 -18.80%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (4/5/95)
--------------------------------------------------------------------------------
Select Equity Fund 160.89% 49.62%
S&P 500(R) Index 21.04% 27.74%*
* The since inception return for the S&P 500(R) Index was calculated from March
31, 1995.
14 PBHG SELECT EQUITY FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.33%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.18%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$120 $375 $649 $1,432
PBHG SELECT EQUITY FUND 15
<PAGE>
PBHG Core Growth Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with capital appreciation.
[GRAPHIC OMITTED] 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 business momentum, earnings
growth and capital appreciation potential. Pilgrim Baxter uses its own
fundamental research, computer models and proprietary measures of growth in
determining which securities to buy and when to sell them for this Fund. The
Fund may sell a security for a variety of reasons, such as to invest in a
company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 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.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
16 PBHG CORE GROWTH FUND
<PAGE>
[GRAPHIC OMITTED] 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 Midcap Growth Index. The
Russell Midcap Growth Index is a widely recognized, unmanaged index that
measures the performance of the 800 smallest issuers in the Russell 1000 Index
with greater-than-average growth characteristics. The Russell 1000 Index is an
unmanaged index that measures the performance of 1,000 large cap companies. 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 OMITTED]
1996 32.80%
1997 -9.71%
1998 7.42%
1999 97.59%
The Fund's year-to-date return as of 6/30/00 was 17.49%.
BEST QUARTER: Q4 1999 54.71%
WORST QUARTER: Q1 1997 -22.14%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (12/29/95)
--------------------------------------------------------------------------------
Core Growth Fund 97.59% 26.33%
Russell Midcap Growth Index 51.30% 26.58%
PBHG CORE GROWTH FUND 17
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.48%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.33%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$135 $421 $729 $1,601
18 PBHG CORE GROWTH FUND
<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 OMITTED] GOAL
The Fund seeks to provide investors with long-term capital appreciation.
[GRAPHIC OMITTED] 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 the S&P 500(R)
Index. Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth in determining which securities to buy and when
to sell them for this Fund. The Fund may sell a security for a variety of
reasons, such as to invest in a company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in price. Although the Fund
strives to achieve its goal, it cannot guarantee that the goal will be achieved.
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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
PBHG LIMITED FUND 19
<PAGE>
[GRAPHIC OMITTED] 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 characteristics. The
Russell 2000 Index is an unmanaged index that measures the performance of 2,000
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 OMITTED]
1997 16.07%
1998 13.05%
1999 71.70%
The Fund's year-to-date return as of 6/30/00 was 19.94%.
BEST QUARTER: Q4 1999 49.84%
WORST QUARTER: Q1 1997 -18.03%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (6/28/96)
--------------------------------------------------------------------------------
Limited Fund 71.70% 29.79%
Russell 2000 Growth Index* 43.10% 14.91%
* The since inception returns for the Russell 2000 Growth Index was calculated
as of June 30, 1996.
20 PBHG LIMITED FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES NONE
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.32%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.32%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$134 $418 $723 $1,590
PBHG LIMITED FUND 21
<PAGE>
PBHG Large Cap 20 Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital.
[GRAPHIC OMITTED] MAIN INVESTMENT STRATEGIES
Under normal market conditions, the Fund, a non-diversified 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 business
momentum earnings growth and capital appreciation potential. Pilgrim Baxter uses
its own fundamental research, computer models and proprietary measures of growth
in determining which securities to buy and when to sell them for this Fund. The
Fund may sell a security for a variety of reasons, such as to invest in a
company with more attractive growth prospects.
[GRAPHIC OMITTED] 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 than a more diversified fund.
As a result, the price change of a single security, positive or negative, has a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate in value more 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.
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 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. Although the Fund strives to achieve its goal, it cannot
guarantee that the goal will be achieved. 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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
22 PBHG LARGE CAP 20 FUND
<PAGE>
[GRAPHIC OMITTED] 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 OMITTED]
1997 32.96%
1998 67.83%
1999 102.94%
The Fund's year-to-date return as of 6/30/00 was 12.03%.
BEST QUARTER: Q4 1999 75.65%
WORST QUARTER: Q1 1997 -5.90%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (11/29/96)
--------------------------------------------------------------------------------
Large Cap 20 Fund 102.94% 62.25%
S&P 500(R)Index* 21.04% 25.91%
* The since inception returns for the S&P 500(R) Index was calculated as of
November 30, 1996.
PBHG LARGE CAP 20 FUND 23
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.38%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.23%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$125 $390 $676 $1,489
24 PBHG LARGE CAP 20 FUND
<PAGE>
PBHG New Opportunities Fund
THIS FUND IS CURRENTLY OFFERED ONLY TO THE FOLLOWING INVESTORS: (1) SUBSEQUENT
INVESTMENTS BY PERSONS WHO WERE SHAREHOLDERS ON OR BEFORE NOVEMBER 12, 1999; (B)
NEW AND SUBSEQUENT INVESTMENTS MADE BY CERTAIN CLIENTS AND EMPLOYEES OF PILGRIM
BAXTER AND ITS AFFILIATES; AND (C) NEW AND SUBSEQUENT INVESTMENTS BY CERTAIN
PENSIONS PLANS.
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with capital appreciation.
[GRAPHIC OMITTED] 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 or annual
revenues 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
fundamental research, computer models and proprietary measures of growth in
determining which securities to buy and when to sell them for this Fund. The
Fund may sell a security for a variety of reasons, such as to invest in a
company with more attractive growth prospects.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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. The
Fund may emphasize companies with market capitalizations under $1 billion, 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
go down in price. Although the Fund strives to achieve its goal, it cannot
guarantee that the goal will be achieved. 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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
PBHG NEW OPPORTUNITIES FUND 25
<PAGE>
[GRAPHIC OMITTED] PERFORMANCE INFORMATION
Performance information for the Fund will be presented once the Fund has
completed investment operations for a full calendar year.
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.34%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.34%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$136 $425 $734 $1,613
26 PBHG NEW OPPORTUNITIES FUND
<PAGE>
PBHG Large Cap Value Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital and income.
Current income is a secondary objective.
[GRAPHIC OMITTED] 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, dividend income potential and earnings power. Pilgrim
Baxter and Value Investors use their own fundamental research, computer models
and proprietary measures of value in managing this Fund. The Fund may sell a
security for a variety of reasons, such as when it becomes overvalued or shows
deteriorating fundamentals.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 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. Although
the Fund strives to achieve its goal, it cannot guarantee that the goal will be
achieved. 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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
PBHG LARGE CAP VALUE FUND 27
<PAGE>
[GRAPHIC OMITTED] 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 OMITTED]
1997 25.62%
1998 34.74%
1999 11.06%
The Fund's year-to-date return as of 6/30/00 was 7.84%.
BEST QUARTER: Q4 1998 28.21%
WORST QUARTER: Q3 1998 -7.94%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (12/31/96)
--------------------------------------------------------------------------------
Large Cap Value Fund 11.06% 23.41%
S&P 500(R)Index 21.04% 27.56%
28 PBHG LARGE CAP VALUE FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.65%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.46%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.11%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$113 $353 $612 $1,352
PBHG LARGE CAP VALUE FUND 29
<PAGE>
PBHG Mid-Cap Value Fund
[GRAPHIC OMITTED] 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 OMITTED] 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 Midcap 400 Index. Currently,
the companies in the S&P Midcap 400 Index 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, dividend income potential and earnings power. Pilgrim
Baxter and Value Investors use their own fundamental research, computer models
and proprietary measures of value in managing this Fund. The Fund may sell a
security for a variety of reasons, such as when it becomes overvalued or shows
deteriorating fundamentals. The Fund's sector weightings are generally within
10% of the S&P Midcap 400's sector weightings. In addition, the Fund generally
has a lower price-to-earnings ratio than the S&P Midcap 400 Index.
[GRAPHIC OMITTED] Main Investment Risks
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in price.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, risks, please refer to the More About the Funds section beginning on page
54.
30 PBHG MID-CAP VALUE FUND
<PAGE>
[GRAPHIC OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The performance table compares the
Fund's performance over time to that of its benchmark, the S&P Midcap 400 Index,
a widely recognized, unmanaged index that tracks the performance of 400 mid-cap
stocks, and the S&P BARRA MidCap Value Index, a widely recognized, unmanaged
index that tracks the performance of those S&P MidCap 400 companies with lower
price-to-book ratios and forecasted growth rates. 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 OMITTED]
1998 27.84%
1999 21.72%
The Fund's year-to-date return as of 6/30/00 was 16.72%.
BEST QUARTER: Q4 1998 30.07%
WORST QUARTER: Q3 1998 -12.52%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (4/30/97)
--------------------------------------------------------------------------------
Mid-Cap Value Fund 21.72% 34.37%
S&P Midcap 400 Index 14.72% 24.34%
S&P Midcap 400/BARRA Value Index 2.32% 13.69%
PBHG MID-CAP VALUE FUND 31
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.59%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.44%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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
ALSO 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
--------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$147 $456 $787 $1,724
32 PBHG MID-CAP VALUE FUND
<PAGE>
PBHG Small Cap Value Fund
[GRAPHIC OMITTED] 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 OMITTED] 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,
dividend income potential and earnings power. Pilgrim Baxter and Value Investors
use their own fundamental research, computer models and proprietary measures of
value in managing this Fund. The Fund may sell a security for a variety of
reasons, such as when it becomes overvalued or shows deteriorating fundamentals.
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 Index.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in price.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved. 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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
PBHG SMALL CAP VALUE FUND 33
<PAGE>
[GRAPHIC OMITTED] PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The performance table compares the
Fund's performance over time to that of its benchmark, the Russell 2000 Index, a
widely recognized, unmanaged index that tracks the performance of 2,000 small
cap stocks, and the Russell 2000 Value Index, a widely-recognized, unmanaged
index that tracks the performance of those Russell 2000 companies with lower
price-to-book ratios and forecasted growth rates. 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 OMITTED]
1998 1.13%
1999 18.63%
The Fund's year-to-date return as of 6/30/00 was 28.12%.
BEST QUARTER: Q4 1998 24.20%
WORST QUARTER: Q3 1998 -21.59%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (4/30/97)
--------------------------------------------------------------------------------
Small Cap Value Fund 18.63% 23.15%
Russell 2000 Index 21.26% 17.02%
Russell 2000 Value Index -1.49% 7.07%
34 PBHG SMALL CAP VALUE FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.58%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.58%
--------------------------------------------------------------------------------
Fee Waiver (and/or Expense Reimbursement) 0.08%
Net Expenses 1.50%*
--------------------------------------------------------------------------------
* THIS IS THE ACTUAL TOTAL FUND OPERATING EXPENSE YOU WOULD HAVE PAID AS AN
INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2001. THAT'S BECAUSE
FOR THE FISCAL YEAR ENDING MARCH 31, 2001, 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING FISCAL YEAR ENDED
MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$153 $491 $853 $1,872
PBHG SMALL CAP VALUE FUND 35
<PAGE>
PBHG Focused Value Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with above-average total returns over a 3
to 5 year market cycle.
[GRAPHIC OMITTED] MAIN INVESTMENT STRATEGIES
Under normal market conditions, the Fund, a non-diversified 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, dividend income potential and earnings power. Pilgrim
Baxter and Value Investors use their own fundamental research, computer models
and proprietary measures of value in managing this Fund. The Fund may sell a
security for a variety of reasons, such as when it becomes overvalued or shows
deteriorating fundamentals.
[GRAPHIC OMITTED] 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 than a more diversified fund.
As a result, the price change of a single security, positive or negative, has a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate in value more 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.
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 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. Although the Fund strives to achieve
its goal, it cannot guarantee that the goal will be achieved. 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 OMITTED]
For more information on this Fund's investment strategies and the associated
risks, please refer to the More About the Funds section beginning on page 54.
36 PBHG FOCUSED VALUE FUND
<PAGE>
[GRAPHIC OMITTED] PERFORMANCE INFORMATION
Performance information for the Fund will be presented once the Fund has
completed investment operations for a full calendar year.
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.70%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.55%
--------------------------------------------------------------------------------
Fee Waiver (and/or Expense Reimbursement) 0.05%
Net Expenses 1.50%*
--------------------------------------------------------------------------------
* 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, 2001. THAT'S BECAUSE
FOR THE FISCAL YEAR ENDING MARCH 31, 2001, 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING
FISCAL YEAR MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$153 $485 $840 $1,841
PBHG FOCUSED VALUE FUND 37
<PAGE>
PBHG International Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term capital appreciation.
[GRAPHIC OMITTED] 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. Currently, the Fund principally focuses its
investments in those countries represented in the Morgan Stanley Capital
International Europe Australia and Far East Index. Nonetheless, 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 may sell a security for a variety of reasons, such as to
invest in another company or country offering superior investment opportunities.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in price.
Investments in emerging or developing countries may be subject to extreme
volatility because, in general, these countries economies are less well
developed, their political structures are less stable and their financial
markets are less liquid than more developed nations.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
38 PBHG INTERNATIONAL FUND
<PAGE>
[GRAPHIC OMITTED] 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 Morgan Stanley Capital International
Europe Australia and Far East Index (MSCIEAFE). The MSCI EAFE is 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 OMITTED]
1995 2.05%
1996 12.66%
1997 3.48%
1998 12.74%
1999 26.51%
The Fund's year-to-date return as of 6/30/00 was -10.54%.
BEST QUARTER: Q4 1999 20.13%
WORST QUARTER: Q3 1998 -12.24%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year Past 5 Years (6/15/94)
--------------------------------------------------------------------------------
International Fund 26.51% 11.15% 9.58%
MSCI EAFE Index 26.96% 12.83% 11.42%*
*The since inception return for the MSCI EAFE Index was calculated from June
30, 1994.
PBHG INTERNATIONAL FUND 39
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution and/or Service (12b-1) Fees None
Other Expenses 1.00%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 2.00%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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 2.25%. YOU SHOULD
ALSO 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 2.25%,
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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you compare the cost of inve sting 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$203 $627 $1,078 $2,327
40 PBHG INTERNATIONAL FUND
<PAGE>
PBHG Cash Reserves Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with current income while preserving
principal and maintaining liquidity.
[GRAPHIC OMITTED] MAIN INVESTMENT STRATEGIES
Under normal market conditions, the Fund invests exclusively in short-term U.S.
dollar-denominated debt obligations of U.S. 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 Pilgrim
Baxter 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. The Fund
may sell a security for a variety of reasons, such as to respond to a change in
an issuer's financial condition.
[GRAPHIC OMITTED] 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, among other things, changes in the
financial markets or the issuer's individual financial situation. 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.
Although the Fund strives to maintain a consistent share price and to achieve
its goal, it cannot guarantee that the constant share price or goal will be
achieved.
[GRAPHIC OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
PBHG CASH RESERVES FUND 41
<PAGE>
[GRAPHIC OMITTED] 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.
--------------------------------------------------------------------------------
CALENDAR YEAR TOTAL RETURNS
[BAR CHART OMITTED]
1996 4.91%
1997 5.08%
1998 5.00%
1999 4.60%
The Fund's year-to-date return as of 6/30/00 was 2.75%.
--------------------------------------------------------------------------------
BEST QUARTER: Q4 1997 1.28%
WORST QUARTER: Q2 1999 1.06%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (4/4/95)
--------------------------------------------------------------------------------
Cash Reserves Fund 4.60% 4.98%
Lipper Money Market Funds Average 4.49% 4.91%*
* The since inception return for the Lipper Money Market Funds Average was
calculated from March 31, 1995.
TO OBTAIN INFORMATION ABOUT THE FUND'S YIELD, CALL 1-800-433-0051.
42 PBHG CASH RESERVES FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.30%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.39%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 0.69%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$70 $221 $384 $859
PBHG CASH RESERVES FUND 43
<PAGE>
PBHG Technology & Communications Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital. Current
income is incidental to the Fund's goal.
[GRAPHIC OMITTED] MAIN INVESTMENT STRATEGIES
Under normal market conditions, the Fund, a non-diversified fund, will invest at
least 65% of its total assets in common stocks of companies doing business in
the technology and communications sectors of the market. In addition, the Fund
is concentrated which means it will invest 25% or more of its total assets in
one or more of the industries within these sectors. These industries may include
computer software and hardware, network and cable broadcasting, semiconductors,
defense and data storage and retrieval, and biotechnology. The Fund 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, using or marketing scientific advances. The Fund
may sell a security for a variety of reasons, such as to invest in a company
with more attractive growth prospects.
Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth and business momentum in managing this Fund. The
Fund may sell a security for a variety of reasons, such as a deterioration in
fundamentals or to invest in a company with more attractive growth prospects.
[GRAPHIC OMITTED] 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 than a more diversified fund.
As a result, the price change of a single security, positive or negative, has a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate in value more than it would in a diversified fund.
The Fund is concentrated which means, compared to a non-concentrated fund, it
invests a higher percentage of its assets in specific industries within the
technology and communications sectors of the market in order to achieve a
potentially greater investment return. As a result, the economic, political and
regulatory developments in a particular industry, positive or negative, have a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate more that if the Fund did not concentrate its investments.
44 PBHG TECHNOLOGY & COMMUNICATIONS FUND
<PAGE>
The value of your investment in the Fund will go up and down, which means you
could lose 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 and communications companies are strongly affected by
worldwide scientific and technological developments and governmental laws,
regulations and policies and, therefore, are generally more volatile than
securities of companies not dependent upon or associated with technology and
communications issues.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
PBHG TECHNOLOGY & COMMUNICATIONS FUND 45
<PAGE>
[GRAPHIC OMITTED] 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 OMITTED]
1996 54.42%
1997 3.32%
1998 26.00%
1999 243.89%
The Fund's year-to-date return as of 6/30/00 was 16.53%.
--------------------------------------------------------------------------------
BEST QUARTER: Q4 1999 111.54%
WORST QUARTER: Q4 1997 -17.42%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (9/29/95)
--------------------------------------------------------------------------------
Technology & Communications Fund 243.89% 63.29%
Soundview Technology Index 129.79% 45.68%*
* The since inception return for the Soundview Technology Index was September
30, 1995.
Prior to November 2, 1999, the Fund was diversified and did not concentrate its
investments. Therefore, the Fund's performance prior to November 2, 1999 may not
be indicative of how it will perform in the future.
46 PBHG TECHNOLOGY & COMMUNICATIONS FUND
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 0.85%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.34%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.19%
--------------------------------------------------------------------------------
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$121 $378 $654 $1,443
PBHG TECHNOLOGY& COMMUNICATIONS FUND 47
<PAGE>
PBHG Strategic Small Company Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with growth of capital.
[GRAPHIC OMITTED] 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 business momentum,
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 fundamental research, computer models and proprietary measures of
growth and value in managing this Fund.
[GRAPHIC OMITTED] MAIN INVESTMENT RISKS
The value of your investment in the Fund will go up and down, which means you
could lose 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 go down in price.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED] For more information on this Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
48 PBHG STRATEGIC SMALL COMPANY FUND
<PAGE>
[GRAPHIC OMITTED] 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, 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 OMITTED]
1997 25.67%
1998 2.13%
1999 51.79%
The Fund's year-to-date return as of 6/30/00 was 26.40%.
--------------------------------------------------------------------------------
BEST QUARTER: Q4 1999 36.16%
WORST QUARTER: Q3 1998 -23.48%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
Since Inception
Past 1 Year (12/31/96)
--------------------------------------------------------------------------------
Strategic Small Company Fund 51.79% 24.89%
Russell 2000 Index 21.26% 13.08%
PBHG STRATEGIC SMALL COMPANY FUND 49
<PAGE>
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. The
expenses listed below are based on the Fund's last fiscal year, ended March 31,
2000
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.00%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.55%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 1.55%
--------------------------------------------------------------------------------
Fee Waiver (and/or Expense Reimbursement) 0.05%
Net Expenses 1.50%*
--------------------------------------------------------------------------------
* 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, 2001. THAT'S BECAUSE
FOR THE FISCAL YEAR ENDING MARCH 31, 2001, 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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 Year 3 Years 5 Years 10 Years
--------------------------------------------------------------------------------
$153 $485 $840 $1,841
50 PBHG STRATEGIC SMALL COMPANY FUND
<PAGE>
PBHG Global Technology & Communications Fund
[GRAPHIC OMITTED] GOAL
The Fund seeks to provide investors with long-term growth of capital.
[GRAPHIC OMITTED] MAIN INVESTMENT STRATEGIES
Under normal market conditions, the Fund, a non-diversified fund, will invest at
least 65% of its total assets in common stocks of U.S. and non-U.S. companies
and American Depository Receipts ("ADRs") of non-U.S. companies doing business
in the technology and communications sectors of the market. In addition, the
Fund is concentrated which means it will invest 25% or more of its total assets
in one or more of the industries within these sectors. These industries may
include computer software and hardware, network and cable broadcasting,
semiconductors, defense and data storage and retrieval, and biotechnology.
The Fund invests in companies that may be responsible for breakthrough products
or technologies or may be positioned to take advantage of cutting-edge
developments. These companies will be in at least three different countries, one
of which may include the U.S. Some of these countries may be considered emerging
or developing by the international finance community. 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, using or marketing scientific advances.
Pilgrim Baxter uses its own fundamental research, computer models and
proprietary measures of growth and business momentum in managing this Fund. The
Fund may sell a security for a variety of reasons, such as a deterioration in
fundamentals or to invest in a company with more attractive growth prospects.
[GRAPHIC OMITTED] 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 than a more diversified fund.
As a result, the price change of a single security, positive or negative, has a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate in value more than it would in a diversified fund.
PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 51
<PAGE>
The Fund is concentrated which means, compared to a non-concentrated fund, it
invests a higher percentage of its assets in specific industries within the
technology and communications sectors of the market in order to achieve a
potentially greater investment return. As a result, the economic, political and
regulatory developments in a particular industry, positive or negative, have a
greater impact on the Fund's net asset value and will cause its shares to
fluctuate more than if the Fund did not concentrate its investments.
The value of your investment in the Fund will go up and down, which means you
could lose 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 equity 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.
Securities of technology and communications companies are strongly affected by
worldwide scientific and technological developments and governmental laws,
regulations and policies and, therefore, are generally more volatile than
securities of companies not dependent upon or associated with technology and
communications issues.
Investments in emerging or developing countries may be subject to extreme
volatility because, in general, these countries' economies are more
under-developed, their political structures are less stable and their financial
markets are less liquid than more developed nations.
Although the Fund strives to achieve its goal, it cannot guarantee that the goal
will be achieved.
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 OMITTED] For more information on the Fund's investment strategies and
the associated risks, please refer to the More About the Funds section beginning
on page 54.
52 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND
<PAGE>
[GRAPHIC OMITTED] PERFORMANCE INFORMATION
Performance information for the Fund will be presented once the Fund has
completed investment operations for a full calendar year.
[GRAPHIC OMITTED] FEES AND EXPENSES
This table summarizes the shareholder fees and annual operating expenses you
would pay as an investor in the Fund. Shareholder fees are paid directly from
your account. Annual operating expenses are paid out of the Fund's assets. Since
the Fund commenced operations on June 1, 2000, "Other Expenses" is based on
estimated amounts the Fund expects to pay during the current fiscal year.
--------------------------------------------------------------------------------
FEES AND EXPENSES TABLE
SHAREHOLDER FEES None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
Management Fees 1.50%
Distribution and/or Service (12b-1) Fees None
Other Expenses 0.50%
--------------------------------------------------------------------------------
Total Annual Operating Expenses 2.00%*
--------------------------------------------------------------------------------
* THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND
FOR THE FISCAL YEAR ENDING MARCH 31, 2001. HOWEVER, YOU SHOULD KNOW THAT FOR
THE FISCAL YEAR ENDING MARCH 31, 2001, 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 2.15%. YOU SHOULD
ALSO 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 2.15%,
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. THE BOARD MADE NO REIMBURSEMENT ELECTION DURING THE
FISCAL YEAR ENDED MARCH 31, 2000.
[GRAPHIC OMITTED] EXAMPLE
This example is intended to help you 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 may be higher or lower.
--------------------------------------------------------------------------------
YOUR COST OVER
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
$203 $627
PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 53
<PAGE>
MORE ABOUT THE FUNDS
[LOGO OMITTED] RISKS AND RETURNS
This section takes a closer look at the investment strategies that make up each
Fund's risk and return 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/return characteristics. These investments, the Funds' main
investment strategies and their risk/return characteristics are described in the
table set forth on the following pages. From time to time, a Fund may make
investments and pursue strategies different from those described in this
Prospectus. Those non-principal 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.
Each Fund may invest 100% of its total assets in cash or U.S. dollar-denominated
high quality short-term debt 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.
54
<PAGE>
--------------------------------------------------------------------------------
SECURITIES
Shares representing ownership or the right to ownership in a corporation. Each
Fund (except the Cash Reserves Fund) may invest in the following types of
securities: common and preferred stocks, convertible securities, warrants and
rights.
POTENTIAL RISKS
--------------------------------------------------------------------------------
Security prices fluctuate over time. Security prices may fall as a result of
factors that relate to the company, such as management decisions or lower demand
for the company's products or services.
Security prices may fall because of factors affecting companies in a number of
industries, such as increased production costs.
Security prices may fall because of changes in the financial markets, such as
interest rates or currency exchange rate changes.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
Pilgrim Baxter, Value Investors and Murray Johnstone maintain a long-term
investment approach and focus on securities they believe can appreciate over an
extended time frame, regardless of interim fluctuations.
Under normal circumstances, each Fund (except the Cash Reserves Fund) intends to
remain fully invested, with at least 65% of its total assets in securities.
Pilgrim Baxter, Value Investors and Murray Johnstone focus their active
management on securities selection, the area they believe their commitment to
fundamental research can most enhance a Fund's performance.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Securities have generally outperformed more stable investments (such as bonds
and cash equivalents) over the long term.
--------------------------------------------------------------------------------
GROWTH SECURITIES
Securities that Pilgrim Baxter believes have or are expected to have strong
sales and earnings growth and capital appreciation potential and will grow
faster than the economy as a whole.
POTENTIAL RISKS
--------------------------------------------------------------------------------
See Securities.
Growth securities may be more sensitive to changes in business momentum and
earnings than other securities because they typically trade at higher earnings
multiples.
The growth securities in the Fund may never reach what Pilgrim Baxter believes
are their full value and may even go down in price.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
See Securities.
Growth securities may appreciate faster than non-growth securities.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
See Securities.
In managing a Fund, Pilgrim Baxter uses its own software and research models
which incorporate important attributes of successful growth. A key attribute of
successful growth is positive business momentum as demonstrated by earnings or
revenue and sales growth, among other factors. Pilgrim Baxter's investment
process is extremely focused on companies which exhibit positive business
momentum.
Pilgrim Baxter considers selling a security when its anticipated appreciation is
no longer probable, alternative investments offer superior appreciation
prospects or the risk of a decline in its market price is too great or a
deterioration in business fundamentals occurs or is expected to occur.
55
<PAGE>
--------------------------------------------------------------------------------
VALUE SECURITIES
Securities that Value Investors believes are currently underpriced using certain
financial measurements, such as their price-to-earnings ratio, earnings power,
dividend income potential, and competitive advantages.
POTENTIAL RISKS
--------------------------------------------------------------------------------
See Securities.
Value companies may have experienced adverse business developments or may be
subject to special risks that have caused their securities to be out of favor.
The value securities in the Fund may never reach what Value Investors believes
are their full value and may even go down in price.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
See Securities.
In managing a Fund, Value Investors uses its own research, computer models and
measures of value.
Value Investors considers selling a security when it becomes overvalued relative
to the market, shows deteriorating fundamentals or falls short of Value
Investors' expectations.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
See Securities.
Value securities may produce significant capital appreciation as the market
recognizes their full value.
--------------------------------------------------------------------------------
FOREIGN EQUITY SECURITIES
Securities of foreign issuers, including ADRs, EDRs and GDRs. ADRs are
certificates issued by a U.S. bank that represent a stated number of shares of a
foreign corporation that the bank holds in its vault. An ADR is bought and sold
in the same manner as U.S. securities. EDRs and GDRs are also receipts that
represent a stated number of shares of a foreign corporation, only that they are
issued by a non-U.S. bank or a foreign branch of U.S. bank. An ADR is bought and
sold in the same manner as U.S. securities and is priced in U.S. dollars. EDRs
and GDRs are generally designed for use on foreign exchanges and are typically
not priced in U.S. dollars. ADRs, EDRs and GDRs each carry most of the risks of
investing directly in foreign equity securities.
POTENTIAL RISKS
--------------------------------------------------------------------------------
Foreign security prices may fall due to political instability, changes in
currency exchange rates, foreign economic conditions or inadequate regulatory
and accounting standards.
These risks tend to be greater in emerging markets. As a result, the
International Fund's investments in emerging markets may be considered
speculative.
The adoption of the euro as the common currency of the European Economic an
Monetary Union (the "EMU") presents some uncertainties and possible risks, such
as changes in relative strength and value of major world currencies, adverse tax
consequences, and increased price competition among and between EMU and non-EMU
countries. These uncertainties and possible risks could adversely affect the
Funds.
56
<PAGE>
FOREIGN EQUITY SECURITIES CONTINUED.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Favorable exchange rate movements could generate gains or reduce losses. Foreign
investments, which represent a major portion of the world's securities, offer
attractive potential performance and opportunities for diversification.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
Murray Johnstone, in managing the International Fund, and Pilgrim Baxter, in
managing the Global Technology &Communications Fund, each seek to invest in
companies with strong growth potential in those countries with the best
investment opportunities.
Every other Fund does not invest in emerging markets and limits the amount of
total assets it invests in securities of foreign issuers not traded in the U.S.
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.
--------------------------------------------------------------------------------
MONEY MARKET INSTRUMENTS
High quality, short-term U.S. and foreign debt instruments denominated in U.S.
dollars, including bank obligations (such as CDs, time deposits, bankers'
acceptances, and banknotes) commercial paper, corporate obligations (including
asset backed securities) government obligations (such as U.S. Treasury, agency
or foreign government securities) short-term obligations issued by state and
local governments and repurchase agreements.
POTENTIAL RISKS
--------------------------------------------------------------------------------
Money market instrument prices fluctuate over time.
Money market instrument prices may fall as a result of factors that relate to
the issuer, such as a rating downgrade.
Money market instrument prices may fall because of changes in the financial
markets, such as interest rate changes.
The money market instruments in the Cash Reserve Fund may never reach what
Pilgrim Baxter and Wellington Management believe are their full income
potential.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
The Cash Reserves Fund follows strict SEC rules about credit risk, maturity and
diversification of its investments.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Money market instruments have greater short-term liquidity, capital preservation
and income potential than longer-term investments such as stocks.
57
<PAGE>
--------------------------------------------------------------------------------
SMALL AND MEDIUM SIZED COMPANY SECURITIES
POTENTIAL RISKS
--------------------------------------------------------------------------------
Small and medium sized company securities involve greater risk and price
volatility than larger, more established companies because they tend to have
more limited product lines, markets and financial resources and may be dependent
on a smaller management group.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
See Securities/Growth Securities/Value Securities.
Pilgrim Baxter and Value Investors focus on small and medium sized companies
with strong balance sheets that they expect to exceed consensus earnings
expectations.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Small and medium sized company securities may appreciate faster than those of
larger, more established companies for many reasons. For example, small and
medium sized companies tend to have younger product lines whose distribution and
revenues are still maturing.
--------------------------------------------------------------------------------
TECHNOLOGY ORCOMMUNICATIONS COMPANY SECURITIES
Securities of companies that rely extensively on technology or communications in
their product development or operations or are expected to benefit from
technological advances and improvements.
POTENTIAL RISKS
--------------------------------------------------------------------------------
Technology or communications company securities are strongly affected by
worldwide scientific and technological developments and governmental laws,
regulations and policies, and, therefore, are generally more volatile than
companies not dependent upon or associated with technology or communications
issues.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
Except for the Technology & Communications Fund and Global Technology
&Communications Fund, each Fund seeks to strike a balance among the industries
in which it invests so that no one industry dominates the Fund's investments.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Technology or communications company securities offer investors significant
growth potential because they may be responsible for breakthrough products or
technologies or may be positioned to take advantage of cutting-edge,
technology-related developments.
58
<PAGE>
--------------------------------------------------------------------------------
OTC SECURITIES
Securities not listed and traded on an organized exchange, but bought and sold
through a computer network.
POTENTIAL RISKS
--------------------------------------------------------------------------------
OTC securities are not traded as often as securities listed on an exchange. So,
if the Fund were to sell an OTC security, it might have to offer the security at
a discount or sell it in smaller share lots over an extended period of time.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
Pilgrim Baxter, Value Investors and Murray Johnstone use a highly disciplined
investment process that seeks to, among other things, identify quality
investments that will enhance a Fund's performance.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Increases the number of potential investments for a Fund.
OTC securities may appreciate faster than exchange-traded securities because
they are typically securities of younger, growing companies.
--------------------------------------------------------------------------------
ILLIQUID SECURITIES
Securities that do not have a ready market and cannot be easily sold, if at all,
at approximately the price that the Fund has valued them.
POTENTIAL RISKS
--------------------------------------------------------------------------------
A Fund may have difficulty valuing these securities precisely.
A Fund may be unable to sell these securities at the time or price it desires.
POLICIES TO BALANCE RISK AND RETURN
--------------------------------------------------------------------------------
The Cash Reserves Fund may not invest more than 10% of its net assets in
illiquid securities.
Every other Fund may not invest more than 15% of its net assets in illiquid
securities.
POTENTIAL RETURNS
--------------------------------------------------------------------------------
Illiquid securities may offer more attractive yields or potential growth than
comparable widely traded securities.
59
<PAGE>
THE INVESTMENT ADVISER & SUBADVISERS
[LOGO OMITTED] 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 $23 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 business momentum, as demonstrated by such things
as earnings or revenue and sales growth.
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, the risk of a decline in its market price
is too great or a deterioration in business fundamentals occurs or is expected
to occur.
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, Technology & Communications and Global 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.
--------------------------------------------------------------------------------
INVESTMENT PROCESS
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 proprietary 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 business momentum, 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.
60
<PAGE>
[LOGO OMITTED]
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 $680 million 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 Strategic 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 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 more than $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.
61
<PAGE>
Wellington Management Company, LLP, 75 State Street, Boston, MA is the
sub-adviser for the PBHG 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 June 30, 2000, Wellington Management held discretionary management
authority with respect to more than $253 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 Pilgrim Baxter or
Wellington Management is subject to the approval or ratification by the Fund's
Board of Directors.
For the fiscal year ended March 31, 2000, Pilgrim Baxter waived a portion of its
fee for the Small Cap Value, Focused Value and Strategic Small Company Funds, so
that the effective management fee paid by each Fund was as follows:
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 0.92%
Select Equity Fund 0.85% Focused Value Fund 0.80%
Core Growth Fund 0.85% International Fund 1.00%
Limited Fund 1.00% Cash Reserves Fund 0.30%
Large Cap 20 Fund 0.85% Technology &
New Opportunities Fund 1.00% Communications Fund 0.85%
Strategic Small Company Fund 0.95%
The Global Technology & Communications Fund did not begin investment operations
until June 1, 2000. As investment adviser to this Fund, Pilgrim Baxter is
entitled to receive a fee, calculated daily and payable monthly, at the annual
rate of 1.5% of the 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 sub-advised Fund.
62
<PAGE>
GROWTH FUND/NEW OPPORTUNITIES FUND
Gary L. Pilgrim, CFA has managed the Growth Fund since its inception in 1985. He
has managed the New Opportunities Fund since April 21, 2000. Mr. Pilgrim is the
Chief Investment Officer and President of Pilgrim Baxter and has been a growth
stock manager for over 30 years.
LARGE CAP GROWTH FUND/LARGE CAP 20 FUND/SELECT EQUITY FUND
Michael S. Sutton, CFA, has managed the Large Cap Growth and Large Cap 20 Funds
since November, 1999. He has managed the Select Equity Fund since April 24,
2000. Mr. Sutton joined Pilgrim Baxter in October 1999 from Loomis, Sayles &
Co., where he worked for seven years as a portfolio manager of several large cap
growth portfolios. Prior to that, Mr. Sutton was a large cap growth portfolio
manager with Stein, Roe & Farnham.
LIMITED FUND/EMERGING GROWTH FUND
Erin A. Piner has managed the Limited Fund since October, 1998. She has managed
the Emerging Growth Fund since January 2000. Ms. Piner joined Pilgrim Baxter in
1995 as an equity analyst. Prior to joining Pilgrim Baxter, Ms. Piner worked for
four years in the client service group of PaineWebber, Inc.
SMALL CAP VALUE FUND/MID-CAP VALUE FUND/FOCUSED VALUE FUND
Jerome J. Heppelmann, CFA, has managed the Small Cap Value, Mid-Cap Value, and
Focused Value Funds since June, 1999. He joined Pilgrim Baxter in 1994 as a Vice
President of Marketing/ Client Service and since 1997 has been a member of Value
Investors Equity team. Prior to joining Pilgrim Baxter, Mr. Heppelmann worked in
the Investment Advisory Group for SEI Investments.
LARGE CAP VALUE FUND
Raymond J. McCaffrey, CFA, has managed the Large Cap Value Fund since June,
1999. He joined Value Investors as a portfolio manager and analyst in 1997.
Prior to joining Value Investors, Mr. McCaffrey worked for 2 years as a
portfolio manager and analyst at Pitcairn Trust Company. His 11 years of
investment experience also include positions at Cypress Capital Management,
Independence Capital Management and Fidelity Bank.
63
<PAGE>
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
since 1993.
TECHNOLOGY & COMMUNICATIONS FUND/CORE GROWTH FUND
Jeffrey A. Wrona, CFA has managed the Technology & Communications Fund since
May, 1999. He co-managed this Fund from May, 1998 through May, 1999. Mr. Wrona
has managed the Core Growth Fund since 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 has co-managed this Fund since its inception in 1996. He
manages the growth portion of this Fund. Mr. Smith joined Pilgrim Baxter in 1993
as a portfolio manager and has over 20 years of equity portfolio management
experience. Mr. Heppelmann manages the value portion of this Fund. His
experience is discussed under the Small Cap Value, Mid-Cap Value and Focused
Value Funds. Mr. Heppelmann has co-managed this fund since June, 1999.
CASH RESERVES FUND
John C. Keogh has managed this Fund since its inception in 1995. Mr. Keogh
joined Wellington Management in 1983 as an assistant portfolio manager and has
served as a portfolio manager since 1990.
GLOBAL TECHNOLOGY & COMMUNICATIONS FUND
Michael K. Ma has managed the Fund since its inception on May 31, 2000. Mr. Ma
joined Pilgrim Baxter in October 1999 as a senior technology analyst. Prior to
joining Pilgrim Baxter, Mr. Ma worked for two and one-half years as an Equity
Research Analyst in the Telecommunications Services Group of Deutsche Bank
Securities, Inc. Prior to that, he worked for four years as a Portfolio Manger
and Research Assistant with United States Trust Company of New York, first as a
research assistant and then after 1994 as a portfolio manager.
64
<PAGE>
YOUR INVESTMENT
[LOGO OMITTED]
PRICING FUND SHARES
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.
Each other Fund prices its investments for which market quotations are readily
available at market value. Short-term investments are priced at amortized cost,
which approximates market value. All other investments are priced 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.
--------------------------------------------------------------------------------
NET ASSET VALUE (NAV)
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.
65
<PAGE>
[LOGO OMITTED] BUYING SHARES
You may purchase shares of each fund directly through the Fund's transfer agent.
Except for the Cash Reserve Fund, the price per share you will pay to invest in
a Fund is its net asset value per share (NAV) next calculated after the transfer
agent or other authorized representative accepts your order. If you purchase
shares of the Cash Reserve Fund by wire transfer in the form of Federal Funds,
the price per share you will pay is that Fund's next calculated net asset value.
If you purchase shares of the Cash Reserve Fund by check or other negotiable
bank draft, the price per share you will pay is that Fund's net asset value as
calculated on the next business day after receipt of the check or bank draft.
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 New York Stock 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
New Opportunities Fund 1 $10,000 no minimum
Limited Fund1 $ 5,000 no minimum
Strategic Small
Company Fund $ 5,000 no minimum
Each Other Fund $ 2,500 no minimum
Uniform Gifts/Transfer
to Minor Accounts $ 500 no minimum
TRADITIONAL IRAS $ 2,000 no minimum
ROTH IRAS $ 2,000 no minimum
EDUCATIONAL IRAS $ 500 no minimum
SYSTEMATIC INVESTMENT $ 500 $25
PLANS 2 (SIP)
1 THE LIMITED AND NEW OPPORTUNITIES FUNDS ARE CURRENTLY CLOSED
TO NEW INVESTORS.
2 PROVIDED A SIP IS ESTABLISHED, THE MINIMUM INITIAL INVESTMENT FOR EACH FUND
IS $500 ALONG WITH A MONTHLY SYSTEMATIC INVESTMENT OF $25 OR MORE.
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;
withdrawals and distributions are taxable in the year made.
Spousal IRA: an IRA funded by a working spouse in the name of a nonworking
spouse.
Roth IRA: an IRA 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 IRA INFORMATION, CONSULT A PBHG SHAREHOLDER SERVICES
REPRESENTATIVE OR A TAX ADVISOR.
66
<PAGE>
[LOGO OMITTED] 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
representatives 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
generally sends payment for your shares the business day after your order is
accepted. 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 up to 15 days from the date of
purchase. You may also sell shares of each Fund through certain broker-dealers
or other financial institutions at which you maintain an account. Such financial
institutions may charge you a fee for this service.
--------------------------------------------------------------------------------
LIMITATIONS ON SELLING SHARES BY PHONE
Proceeds
sent by Minimum Maximum
--------------------------------------------------------------------------------
Check no minimum $50,000
per day
Wire* no minimum no maximum
ACH no minimum no maximum
Please note that the banking instructions to be used for wire and ACH
redemptions must be established on your account in advance of placing your sell
order.
* WIRE FEE IS $10 PER FEDERAL RESERVE WIRE
WRITTEN REDEMPTION ORDERS
--------------------------------------------------------------------------------
Some circumstances require written sell orders along with signature guarantees.
These include:
o Redemptions in excess of $50,000
o Requests to send proceeds to a different address or payee
o Requests to send proceeds to an address that has been changed within the last
30 days
o Requests to wire proceeds to a different bank account
A SIGNATURE GUARANTEE
helps to protect you against fraud. You can obtain one from most banks or
securities dealers, but not from a notary public. For joint accounts, each
signature must be guaranteed. Please call us to ensure that your signature
guarantee is authentic.
67
<PAGE>
[LOGO OMITTED] GENERAL POLICIES
o Each Fund may reject or suspend acceptance of purchase orders.
o Each Fund reserves the right to make redemptions in securities rather than in
cash if the redemption amount exceeds $250,000 or 1% of the NAV of the Fund.
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 representative's responsibility to promptly transmit
your order to the Fund's transfer agent so that you may receive that same
day's NAV.
o SEI Trust Company, the custodian for PBHG Traditional, Roth and Education IRA
accounts, currently charges a $10 annual custodial fee to Traditional and Roth
IRA accounts and a $7 annual custodial fee to Educational IRA accounts. This
fee will be automatically charged to your account if not received by the
announced due date, usually in mid-August.
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 66. For non-retirement accounts, the Fund, may
upon prior notice, close your account and send you the proceeds if your
account balance remains below the minimum investment amount for over 60 days.
Due to you redeeming or exchanging out of the Fund.
Statements and Reports that PBHG sends to you include the following:
o Confirmation Statements, Quarterly Account Statements, Prospectuses and
Financial Reports.
To reduce expenses, only one copy of most financial reports and
prospectuses may be mailed to households, even if more than one person in the
household holds shares of a fund. Call PBHG at 1-800-433-0051 if you need
additional copies of financial reports or prospectuses. If you do not want the
mailing of these documents to be combined with those for other members of your
household, contact PBHG at 1-800-433-0051 or write to P.O. Box 219534, Kansas
City, MO 64121. Electronic copies of most financial reports and prospectuses are
available at PBHG's website (www.pbhgfunds.com).
EXCHANGES BETWEEN FUNDS
You may exchange some or all of your shares in a fund with any other fund
identified in this prospectus. However, exchanges into the Limited Fund may be
made only by investors who are current shareholders of that Fund, as it is
currently closed to new investors. Exchanges into the New Opportunities Fund may
be made only by persons who were shareholders on or before November 12, 1999,
the day this fund closed to new investors. 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.
68
<PAGE>
TO OPEN AN ACCOUNT
-----IN WRITING-----------------------------------------------------------------
Complete the application.
Mail your completed application and a check to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
-----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:
o United Missouri Bank of Kansas City, N.A.
o ABA# 10-10-00695
o Account # 98705-23469
o Fund Name
o Your name
o Your Social Security or tax ID number
o Your account number
Return the account application.
-----BY AUTOMATED CLEARING------------------------------------------------------
HOUSE (ACH)*
-----VIA THE INTERNET-----------------------------------------------------------
o Visit the PBHG Funds website at http://www.pbhgfunds.com.
o Enter the "open account" screen and follow the instructions for completing an
account application.
TO ADD TO AN ACCOUNT
--------------------------------------------------------------------------------
Fill out an investment slip:
Mail the slip and the check to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
WIRE Have your bank send your investment to:
o United Missouri Bank of Kansas City, N.A.
o ABA# 10-10-00695
o Account # 98705-23469
o Fund Name
o Your name
o Your Social Security or tax ID number
o Your account number
--------------------------------------------------------------------------------
o Complete the bank information section on the account application.
o Attach a voided check or deposit slip to the account application.
o The maximum purchase allowed through ACH is $100,000 and this option must be
established on your account 15 days prior to initiating a transaction.
--------------------------------------------------------------------------------
o Complete the bank information section on the account application.
o Enter the "Your Account" section of the website and follow the instructions
for purchasing shares.
69
<PAGE>
TO SELL SHARES
-----BY MAIL--------------------------------------------------------------------
Write a letter of instruction that includes:
o your name(s) and signature(s)
o your account number
o the fund name
o the dollar amount your wish to sell
o how and where to send the proceeds
If required, obtain a signature guarantee (see "Selling Shares")
Mail your request to:
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, Missouri 64121-9534
-----SYSTEMATIC WITHDRAW PLAN---------------------------------------------------
Permits you to have payments of $50 or more mailed or automatically transferred
from your Fund accounts to your designated checking or savings account
o Complete the applicable section on the account application
Note: Must maintain a minimum account balance of $5,000 or more.
-----CHECK WRITING--------------------------------------------------------------
Check Writing is offered to shareholders of the Cash Reserves Fund. If you have
an account balance of $5,000 or more, you may establish this option on your
account. You may redeem shares by writing checks on your account for $250 or
more. To establish Check Writing on your account, call 1-800-433-0051 and
request a Signature Card.
-----BY TELEPHONE---------------------------------------------------------------
Sales orders may be placed by telephone provided this option was selected on
your account application. Please call 1-800-433-0051.
Note: sales from IRA accounts may not be made by telephone and must be made
in writing.
-----ACH------------------------------------------------------------------------
o Complete the bank information section on 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.
-----WIRE-----------------------------------------------------------------------
Sale proceeds may be wired at your request. Be sure the Fund has your wire
instructions on file.
There is a $10 charge for each wire sent by the Fund.
70
<PAGE>
[LOGO OMITTED] DISTRIBUTION 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, if
available. These dividends and distributions will be reinvested in the Fund
unless you instruct the Fund otherwise. There are no fees on reinvestments.
Alternatively, you may elect to receive your dividends and distributions in cash
in the form of a check, wire or ACH.
Unless your investment is in an IRA or other tax-exempt account, your dividends
and distributions will be taxable whether you receive them in cash or reinvest
them. Dividends (including short-term capital gains distributions) are taxed at
the ordinary income rate. Distributions of long-term capital gains 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.
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 describes
the tax rates for each.
TAXES ON TRANSACTIONS
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
TAXABILITY OF DISTRIBUTIONS
Type of Tax rate for Tax rate for
Distribution 15% bracket 28% bracket
--------------------------------------------------------------------------------
Dividends Ordinary income rate Ordinary income rate
Short-term
Capital Gains Ordinary income rate Ordinary income rate
Long-term
Capital Gains 10% 20%
71
<PAGE>
[LOGO OMITTED] 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.
FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR OR PERIOD ENDED MARCH 31:
<TABLE>
<CAPTION>
Net Realized and Net
Asset Net Unrealized Distributions Distributions Asset
Value Investment Gains or from Net from Value
Beginning Income (Losses) Investment Capital End
of Period (Loss) on Securities Income Gains of Period
-----------------------------------------------------------------------------------------
----------------
PBHG GROWTH FUND
----------------
<S> <C> <C> <C> <C> <C> <C>
PBHG CLASS
2000 2 $24.51 $(0.33) $36.14 -- $(1.59) $58.73
1999 2 28.23 (0.24) (3.48) -- -- 24.51
1998 21.06 (0.26) 7.43 -- -- 28.23
1997 25.30 (0.10) (4.14) -- -- 21.06
1996 16.70 (0.06) 8.66 -- -- 25.30
PBHG ADVISOR CLASS
2000 2 $24.35 $(0.42) $35.85 -- $(1.59) $58.19
1999 2 28.12 (0.30) (3.47) -- -- 24.35
1998 21.03 (0.15) 7.24 -- -- 28.12
1997 1 25.42 (0.06) (4.33) -- -- 21.03
-------------------------
PBHG EMERGING GROWTH FUND
-------------------------
PBHG CLASS
2000 2 $20.61 $(0.21) $20.76 -- $(1.16) $40.00
1999 2 25.83 (0.18) (4.96) -- (0.08) 20.61
1998 19.26 (0.24) 6.81 -- -- 25.83
1997 23.07 (0.11) (2.87) -- (0.83) 19.26
1996 16.10 (0.07) 8.03 -- (0.99) 23.07
--------------------------
PBHG LARGE CAP GROWTH FUND
--------------------------
PBHG CLASS
2000 2 $24.57 $(0.23) $21.32 -- $(7.29) $38.37
1999 2 22.69 (0.16) 3.53 -- (1.49) 24.57
1998 14.26 (0.19) 8.82 -- (0.20) 22.69
1997 14.53 (0.05) (0.21) -- (0.01) 14.26
1996 4 10.00 (0.03) 4.97 -- (0.41) 14.53
-----------------------
PBHG SELECT EQUITY FUND
-----------------------
PBHG CLASS
2000 2 $25.93 $(0.34) $58.71 -- $(6.49) $77.81
1999 2 24.15 (0.21) 1.99 -- -- 25.93
1998 15.91 (0.44) 8.68 -- -- 24.15
1997 17.27 (0.13) (1.03) -- (0.20) 15.91
1996 4 10.00 (0.05) 7.68 -- (0.36) 17.27
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Ratio
Ratio of Net
of Net Ratio Investment
Net Investment of Expenses Income (Loss)
Assets Ratio Income to Average to Average
End of Expenses (Loss) Net Assets Net Assets Portfolio
Total of Period to Average to Average (Excluding (Excluding Turnover
Return (000) Net Assets Net Assets Waivers) Waivers) Rate
---------------------------------------------------------------------------------------------
----------------
PBHG GROWTH FUND
----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
2000 2 148.57% $6,465,234 1.23% (0.90)% 1.23% (0.90)% 107.73%
1999 2 (13.18)% 3,228,740 1.32% (0.99)% 1.32% (0.99)% 80.51%
1998 34.05 % 5,338,380 1.26% (0.74)% 1.26% (0.74)% 94.21%
1997 (16.76)% 4,634,138 1.25% (0.69)% 1.25% (0.69)% 64.89%
1996 51.50 % 3,298,666 1.48% (0.79)% 1.48% (0.79)% 44.64%
PBHG ADVISOR CLASS
2000 2 147.98% $143,937 1.48% (1.15)% 1.48% (1.15)% 107.73%
1999 2 (13.41)% 66,235 1.57% (1.24)% 1.57% (1.24)% 80.51%
1998 33.71 % 89,227 1.51% (1.02)% 1.51% (1.02)% 94.21%
1997 1 (17.27)%+ 12,991 1.53%* (1.11)%* 1.53%* (1.11)%* 64.89%
-------------------------
PBHG EMERGING GROWTH FUND
-------------------------
PBHG CLASS
2000 2 101.33% $1,336,938 1.24% (0.76)% 1.24% (0.76)% 141.81%
1999 2 (19.91)% 736,008 1.34% (0.80)% 1.34% (0.80)% 101.53%
1998 34.11 % 1,404,157 1.27% (0.80)% 1.27% (0.80)% 95.21%
1997 (13.71)% 1,195,620 1.28% (0.36)% 1.28% (0.36)% 47.75%
1996 50.16 % 689,705 1.47% (0.42)% 1.47% (0.42)% 97.05%
--------------------------
PBHG LARGE CAP GROWTH FUND
--------------------------
PBHG CLASS
2000 2 98.60% $256,965 1.17% (0.79)% 1.17% (0.79)% 184.36%
1999 2 15.90% 144,089 1.25% (0.71)% 1.25% (0.71)% 46.16%
1998 60.80 % 145,662 1.22% (0.79)% 1.22% (0.79)% 46.56%
1997 (1.77)% 119,971 1.23% (0.47)% 1.23% (0.47)% 51.70%
1996 4 50.47 %* 53,759 1.50%* (0.66)%* 2.07%* (1.23)%* 116.75%
-----------------------
PBHG SELECT EQUITY FUND
-----------------------
PBHG CLASS
2000 2 240.82% $1,691,298 1.18% (0.68)% 1.18% (0.68)% 200.56%
1999 2 7.37% 235,904 1.34% (0.90)% 1.34% (0.90)% 56.59%
1998 51.79 % 336,076 1.35% (1.15)% 1.35% (1.15)% 72.16%
1997 (6.94)% 372,486 1.26% (0.76)% 1.26% (0.76)% 71.70%
1996 4 77.75 %* 202,796 1.50%* (0.74)%* 1.73%* (0.97)%* 206.22%
</TABLE>
--------------------------------------------------------------------------------
73
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net
Asset Net Unrealized Distributions Distributions Asset
Value Investment Gains or from Net from Value
Beginning Income (Losses) Investment Capital End
of Period (Loss) on Securities Income Gains of Period
------------------------------------------------------------------------------------------
---------------------
PBHG CORE GROWTH FUND
---------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG Class
2000 2 $14.06 $(0.20) $16.39 -- -- $30.25
1999 2 13.53 (0.14) 0.67 -- -- 14.06
1998 10.34 (0.33) 3.52 -- -- 13.53
1997 11.82 (0.09) (1.39) -- -- 10.34
1996 3 10.00 -- 1.82 -- -- 11.82
-----------------
PBHG LIMITED FUND
-----------------
PBHG CLASS
2000 2 $11.95 $(0.12) $15.20 -- $(3.92) $23.11
1999 2 14.08 (0.10) (1.45) -- (0.58) 11.95
1998 9.05 (0.10) 5.53 -- (0.40) 14.08
1997 6 10.00 0.02 (0.93) $(0.03) (0.01) 9.05
----------------------
PBHG LARGE CAP 20 FUND
----------------------
PBHG CLASS
2000 2 $24.10 $(0.25) $26.26 -- $(5.77) $44.34
1999 2 15.98 (0.12) 8.46 -- (0.22) 24.10
1998 9.25 (0.07) 6.80 -- -- 15.98
1997 7 10.00 (0.01) (0.73) $(0.01) -- 9.25
---------------------------
PBHG NEW OPPORTUNITIES FUND
---------------------------
PBHG CLASS
2000 2 $16.47 $(0.71) $85.60 -- $(3.17) $98.19
1999 10 13.52 (0.01) 2.96 -- -- 16.47
-------------------------
PBHG LARGE CAP VALUE FUND
-------------------------
PBHG CLASS
2000 $13.85 $0.12 $1.78 $(0.08) $(3.70) $11.97
1999 13.01 0.08 2.45 (0.10) (1.59) 13.85
1998 10.11 0.02 3.84 (0.06) (0.90) 13.01
1997 8 10.00 0.02 0.09 -- -- 10.11
-----------------------
PBHG MID-CAP VALUE FUND
-----------------------
PBHG CLASS
2000 2 $15.09 $(0.02) $5.03 -- $(6.28) $13.82
1999 15.30 -- 0.92 -- (1.13) 15.09
1998 9 10.00 (0.01) 6.00 -- (0.69) 15.30
-------------------------
PBHG SMALL CAP VALUE FUND
-------------------------
PBHG CLASS
2000 2 $11.38 $(0.08) $7.45 -- -- $18.75
1999 2 15.38 (0.09) (3.06) -- $(0.85) 11.38
1998 9 10.00 (0.03) 6.15 -- (0.74) 15.38
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
Ratio
Ratio of Net
of Net Ratio Investment
Net Investment of Expenses Income (Loss)
Assets Ratio Income to Average to Average
End of Expenses (Loss) Net Assets Net Assets Portfolio
Total of Period to Average to Average (Excluding (Excluding Turnover
Return (000) Net Assets Net Assets Waivers) Waivers) Rate
--------------------------------------------------------------------------------------------
---------------------
PBHG CORE GROWTH FUND
---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PBHG Class
2000 2 115.15% $166,099 1.33% (1.02)% 1.33% (1.02)% 312.32%
1999 2 3.92% 86,485 1.45% (1.16)% 1.45% (1.16)% 120.93%
1998 30.85 % 165,510 1.35% (1.07)% 1.35% (1.07)% 72.78%
1997 (12.52)% 283,995 1.36% (0.77)% 1.36% (0.77)% 46.75%
1996 3 18.20 %+ 31,092 1.50%* (0.18)%* 2.92%* (1.60)%* 17.00%
-----------------
PBHG LIMITED FUND
-----------------
PBHG CLASS
2000 2 137.27% $155,130 1.32% (0.76)% 1.32% (0.76)% 107.78%
1999 2 (11.01)% 108,011 1.40% (0.81)% 1.40% (0.81)% 111.07%
1998 60.78 % 178,168 1.40% (0.72)% 1.40% (0.72)% 81.36%
1997 6 (9.15)%+ 137,520 1.42%* 0.33%* 1.42%* 0.33%* 75.46%
----------------------
PBHG LARGE CAP 20 FUND
----------------------
PBHG CLASS
2000 2 117.88% $1,083,460 1.23% (0.82)% 1.23% (0.82)% 147.35%
1999 2 52.52% 603,077 1.27% (0.64)% 1.27% (0.64)% 76.41%
1998 72.76% 192,631 1.41% (0.79)% 1.41% (0.79)% 98.27%
1997 7 (7.40)%+ 69,819 1.50%* 0.17 %* 1.50%* 0.17 %* 43.98%
---------------------------
PBHG NEW OPPORTUNITIES FUND
---------------------------
PBHG CLASS
2000 2 529.94% $355,600 1.34% (1.15)% 1.34% (1.15)% 668.31%
1999 10 21.82%+ 16,742 1.50%* (0.80)%* 1.59%* (0.89)%* 109.43%
-------------------------
PBHG LARGE CAP VALUE FUND
-------------------------
PBHG CLASS
2000 14.25% $32,922 1.11% 0.71% 1.11% 0.71% 1018.03%
1999 20.29% 44,922 1.01% 0.59% 1.01% 0.59% 568.20%
1998 39.47% 76,476 1.17% 0.98% 1.17% 0.98% 403.59%
1997 8 1.10%+ 26,262 1.50%* 1.61%* 1.74%* 1.37%* 0.00%
-----------------------
PBHG MID-CAP VALUE FUND
-----------------------
PBHG CLASS
2000 2 42.21% $60,690 1.44% (0.15)% 1.44% (0.15)% 742.57%
1999 8.35% 56,981 1.33% 0.01% 1.33% 0.01% 732.73%
1998 9 61.06%+ 54,173 1.47%* (0.17)%* 1.47%* (0.17)%* 399.96%
-------------------------
PBHG SMALL CAP VALUE FUND
-------------------------
PBHG CLASS
2000 2 64.76% $92,634 1.50% (0.56)% 1.58% (0.64)% 352.85%
1999 2 (20.93)% 69,787 1.48% (0.71)% 1.48% (0.71)% 273.87%
1998 9 62.27%+ 125,834 1.49%* (0.52)%* 1.49%* (0.52)%* 263.04%
</TABLE>
75
<PAGE>
FINANCIAL HIGHLIGHTS (CONCLUDED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Realized and Net
Asset Net Unrealized Distributions Distributions Asset
Value Investment Gains or from Net from Value
Beginning Income (Losses) Investment Capital End
of Period (Loss) on Securities Income Gains of Period
------------------------------------------------------------------------------------------
-----------------------
PBHG FOCUSED VALUE FUND
-----------------------
<S> <C> <C> <C> <C> <C> <C>
PBHG CLASS
2000 2 $10.46 $(0.01) $8.93 -- $(0.87) $18.51
1999 10 10.32 -- 0.14 -- -- 10.46
-----------------------
PBHG INTERNATIONAL FUND
-----------------------
2000 2 $11.60 $(0.08) $2.30 -- $(0.88) $12.94
1999 11 12.04 (0.14) 0.29 $(0.17) (0.42) 11.60
1998 11.26 (0.03) 1.83 -- (1.02) 12.04
1997 10.55 -- 0.71 -- -- 11.26
1996 9.13 (0.04) 1.46 -- -- 10.55
-----------------------
PBHG CASH RESERVES FUND
-----------------------
PBHG CLASS
2000 $1.00 $0.05 -- $(0.05) -- $1.00
1999 1.00 0.05 -- (0.05) -- 1.00
1998 1.00 0.05 -- (0.05) -- 1.00
1997 1.00 0.05 -- (0.05) -- 1.00
1996 4 1.00 0.05 -- (0.05) -- 1.00
-------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
-------------------------------------
PBHG CLASS
2000 2 $27.59 $(0.54) $62.84 -- $(4.87) $85.02
1999 2 19.27 (0.19) 8.80 -- (0.29) 27.59
1998 14.63 (0.23) 5.72 -- (0.85) 19.27
1997 12.48 (0.05) 2.55 -- (0.35) 14.63
1996 5 10.00 (0.02) 2.50 -- -- 12.48
---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
---------------------------------
PBHG CLASS
2000 2 $10.54 $(0.13) $10.18 -- $(1.25) $19.34
1999 2 12.89 (0.11) (1.78) -- $(0.46) 10.54
1998 8.86 (0.11) 5.01 -- (0.87) 12.89
1997 8 10.00 -- (1.14) -- -- 8.86
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Ratio
Ratio of Net
of Net Ratio Investment
Net Investment of Expenses Income (Loss)
Assets Ratio Income to Average to Average
End of Expenses (Loss) Net Assets Net Assets Portfolio
Total of Period to Average to Average (Excluding (Excluding Turnover
Return (000) Net Assets Net Assets Waivers) Waivers) Rate
--------------------------------------------------------------------------------------------
-----------------------
PBHG FOCUSED VALUE FUND
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PBHG CLASS
2000 2 89.17% $22,556 1.50% (0.10)% 1.55% (0.15)% 853.36%
1999 10 1.36%+ 3,658 1.50%* 0.09%* 2.67%* (1.08)%* 173.09%
-----------------------
PBHG INTERNATIONAL FUND
-----------------------
2000 2 19.29% $11,382 2.00% (0.62)% 2.00% (0.62)% 90.17%
1999 11 1.42% 12,220 1.97% (0.35)% 1.97% (0.35)% 59.74%
1998 17.46% 20,905 2.00% (0.13)% 2.00% (0.13)% 85.94%
1997 6.73% 21,265 2.22% (0.32)% 2.22% (0.32)% 74.82%
1996 15.55% 11,243 2.25% (0.22)% 3.03% (1.00)% 140.26%
-----------------------
PBHG CASH RESERVES FUND
-----------------------
PBHG CLASS
2000 4.81% $579,458 0.69% 4.78% 0.69% 4.78% n/a
1999 4.84% 144,239 0.70% 4.72% 0.70% 4.72% n/a
1998 5.13% 117,574 0.68% 5.00% 0.68% 5.00% n/a
1997 4.89% 341,576 0.68% 4.79% 0.68% 4.79% n/a
1996 4 5.24%* 99,001 0.70%* 5.05%* 0.88%* 4.87%* n/a
-------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS FUND
-------------------------------------
PBHG CLASS
2000 2 233.99% $3,843,946 1.19% (0.96)% 1.19% (0.96)% 362.38%
1999 2 45.33% 536,405 1.34% (0.96)% 1.34% (0.96)% 276.07%
1998 38.29% 495,697 1.30% (0.91)% 1.30% (0.91)% 259.89%
1997 19.59% 493,156 1.33% (0.59)% 1.33% (0.59)% 289.91%
1996 5 24.82%+ 61,772 1.50%* (0.50)%* 2.00%* (1.00)%* 125.99%
---------------------------------
PBHG STRATEGIC SMALL COMPANY FUND
---------------------------------
PBHG CLASS
2000 2 99.74% $75,225 1.50% (0.93)% 1.55% (0.98)% 240.55%
1999 2 (14.52)% 48,029 1.50% (0.97)% 1.54% (1.01)% 140.89%
1998 56.54 % 111,983 1.45% (0.92)% 1.45% (0.92)% 215.46%
1997 8 (11.40)%+ 61,382 1.50%* 0.18%* 1.50%* 0.18%* 88.88%
<FN>
* Annualized
+ Total returns and portfolio turnover have not been annualized.
1 The PBHG Growth Fund Advisor Class commenced operations on August 16, 1996.
2 Per share calculations were performed using average shares for the period.
3 The PBHG Core Growth Fund commenced operations on December 29, 1995.
4 The PBHG Large Cap Growth Fund, the PBHG Select Equity Fund, and the PBHG
Cash Reserves Fund commenced operations on April 5, 1995.
5 The PBHG Technology & Communications Fund commenced operations on September
29, 1995.
6 The PBHG Limited Fund commenced operations on June 28, 1996.
7 The PBHG Large Cap 20 Fund commenced operations on November 29, 1996.
8 The PBHG Large Cap Value Fund and the PBHG Strategic Small Company Fund
commenced operations on December 31, 1996.
9 The PBHG Mid-Cap Value and the PBHG Small Cap Value Funds commenced
operations April 30, 1997.
10 The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced
operations on February 12, 1999.
11 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.
77
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
[LOGO OMITTED]
THE PBHG FUNDS, INC.
--------------------------------------------------------------------------------
SEC FILE NUMBER 811-04391
For investors who want more information about the funds, the following documents
are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more information about the funds and is incorporated into this
Prospectus by reference.
ANNUAL/SEMI-ANNUAL REPORTS
Provides financial and performance information about the Funds and their
investments and a discussion of the market conditions and investment strategies
that significantly affected each Fund's performance during the last fiscal year
or half-year.
TO OBTAIN INFORMATION
--------------------------------------------------------------------------------
BY TELEPHONE
Call 1-800-433-0051
BY MAIL
The PBHG Funds, Inc.
P.O. Box 219534
Kansas City, MO 64121-9534
VIA THE INTERNET
www.pbhgfunds.com
Text-only versions and other information about The PBHG Funds, Inc. are
available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov, or by visiting the SEC's Public Reference Room in
Washington, D.C. (1-202-942-8090). Copies of this information may be obtained,
for a duplicating fee, by sending your written request to the SEC's Public
Reference Section, Washington, D.C. 20549-0102, or by electronic request at
[email protected].
INVESTMENT ADVISER
Pilgrim Baxter & Associates, Ltd.
DISTRIBUTOR
SEI Investments Distribution Co.
PBHG Prospectus -- 7/00
<TABLE>
<CAPTION>
APPENDIX III
THE PBHG FUNDS, INC.
FUNDAMENTAL INVESTMENT LIMITATION CHART
PBHG Global Technology & Communications Fund
--------------------------------------------
THE FOREGOING FUND MAY NOT:
------------------------------------------------------------------------------------------------------------------------------------
CURRENT PROPOSED RATIONALE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Make loans, except that the Fund, in accordance with its The Fund may not make personal loans
investment objectives and policies, may (i) purchase or or loans of its assets to persons who
hold debt instruments, and (ii) enter into repurchase control or are under common control
agreements. In addition, the Fund may lend its portfolio with the Fund, except to the extent
securities in an amount not exceeding one-third the value permitted by the 1940 Act,
of its total assets. Laws. Interpretations and Exemptions
(as defined below). This restriction
does not prevent the Fund from, among
other things, purchasing debt * Standardize PBHG Funds
obligations, entering into repurchase policy
agreements, loaning its assets to * Broaden circumstances under
broker-dealers or institutional which Fund could make loans
investors or investing in loans, * Clarify debt instruments not
including assignments and participation considered loans
interests.
------------------------------------------------------------------------------------------------------------------------------------
2 Act as an underwriter of securities of other issuers The Fund may not underwrite the
except as it may be deemed an underwriter under the 1933 securities of other issuers. This
Act in connection with the purchase and sale of portfolio restriction does not prevent the Fund
securities. from engaging in transactions
involving the acquisition, disposition
or resale of its portfolio securities,
regardless of whether the Fund may be * Clarify types of permissable
considered to be an underwriter under transactions
the Securities Act of 1933. * Standaradize PBHG Funds
policy
------------------------------------------------------------------------------------------------------------------------------------
3 Purchase or sell commodities or commodity contracts, The Fund may not purchase or sell
except that the Fund, in accordance with its objectives physical commodities unless acquired as * Standardize PBHG Funds
and policies, may: (i) invest in readily marketable a result of ownership of securities or policy
securities of issuers which invest or engage in such other instruments. This restriction * Maximum investment
activities; and (ii) enter into futures contracts and does not prevent the Fund from engaging flexibility
options thereon. in transactions involving futures * Allow Fund to respond to
contracts and options thereon or rapid and continuing
investing in securities that are development of
secured by physical commodities. derivative products
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
CURRENT PROPOSED RATIONALE
------------------------------------------------------------------------------------------------------------------------------------
4 Purchase or sell real estate or real estate partnership The Fund may not purchase or sell
interests, except that this limitation shall not prevent real estate unless acquired as a result
the Fund from investing directly or indirectly in readily of ownership of securities or other
marketable securities of issuers which can invest in real instruments. This restriction does not * Standardize PBHG Funds
real estate, institutions that issue mortgages, or real prevent the Fund from investing in policy
estate investment trusts that deal with real estate or issuers that invest, deal or otherwise * Ability to hold real estate
interests therein. engage in transactions in real estate acquired as a result of
or investing in securities that are other ownership
secured by real estate or interest
therein.
------------------------------------------------------------------------------------------------------------------------------------
5 Issue senior securities (as defined in the 1940 Act), The Fund may not borrow money or issue
except as permitted in connection with the Fund's senior securities, except as permitted
policies on borrowing and pledging, or as permitted by, by the 1940 Act Laws, Interpretations
rule, regulation or order of the SEC. and Exemptions. * Standardize PBHG Funds
policy
* Maximum flexibility under
current and future law
------------------------------------------------------------------------------------------------------------------------------------
6 Borrow money except for temporary or emergency purposes The Fund may not borrow money or issue
and then only in an amount not exceeding 10% of the value senior securities, except as permitted
of total assets. This borrowing provision is included by the 1940 Act Laws, Interpretations
solely to facilitate the orderly sale of portfolio and Exemptions.
securities to accommodate substantial redemption requests
if they should occur and is not for investment purposes. * Standardize PBHG Funds
All borrowings in excess of 5% of the Fund's total policy
assets will be repaid before making additional * Maximum flexibility under
investments. current and future law
------------------------------------------------------------------------------------------------------------------------------------
7 Invest in companies for the purpose of exercising
control. None * Fund not required to have a
fundemantal policy on
investing in companies for
the purpose of exercising
control
------------------------------------------------------------------------------------------------------------------------------------
8 Pledge, mortgage or hypothecate assets, except: (i) to
secure temporary borrowings permitted by the Fund's
limitation on permitted borrowings; or (ii) in connection
with permitted transactions regarding options and futures
contracts and in aggregate amounts not to exceed 10% None * Fund not required to have a
of total assets taken at current value at the time of the fundemantal policy on
occurrence of such pledge, mortgage or hypothecation. pledging, mortgaging or
hypothecating assets
------------------------------------------------------------------------------------------------------------------------------------
9 Make short sales of securities, maintain a short
position or purchase securities on margin, except that
the Fund may: (i) obtain short-term credits as necessary
for the clearance of security transactions; and (ii)
establish margin accounts as short sales of securities None * Fund not required to have a
may be necessary in connection with the Fund's use of fundemantal policy on making
options and futures contracts. short sales of securities
------------------------------------------------------------------------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
CURRENT PROPOSED RATIONALE
------------------------------------------------------------------------------------------------------------------------------------
10 Purchase securities of other investment companies except The Fund may, notwithstanding any other
as permitted by the 1940 Act and the rules and fundamental investment policy or
regulations thereunder. restriction, invest all of its assets
in the securities of a single open-end
management investment company with * Maximim investment
substantially the same fundamental flexibility
objective, policies and restrictions
as the Fund.
------------------------------------------------------------------------------------------------------------------------------------
11 Invest in interests in oil, gas or other mineral
exploration or development programs and invest in oil, * As a result of the National
gas or mineral leases. None Securities Market Improvement
Act, the Fund is no longer
required to have a
fundamental policy on
investing in oil, gas or
other mineral exploration
<FN>
* The defined term "1940 Act Laws, Interpretations and Exemptions" as used in this table means: the Investment Company Act of
1940, as amended, and the rules and * regulations promulgated thereunder, as such statute, rule and regulations are amended
from time to time or are interpreted from time to time by the staff of the Securities and Exchange Commission and any
exemptive order or similar relief granted to a Fund.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE PBHG FUNDS, INC.
NON-FUNDAMENTAL INVESTMENT LIMITATION CHART
PBHG Global Technology & Communications Fund
--------------------------------------------
THE FOREGOING FUND MAY NOT:
------------------------------------------------------------------------------------------------------------------------------------
CURRENT PROPOSED RATIONALE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 In complying with the fundamental
restriction with regarding borrowing
money and issuing senior securites,
the Fund may not borrow money
in an amount not exceeding 33 1/3% of
its total assets (including the
amount borrowed) less liabilities
(other than borrowings). the Fund
may borrow from banks, broker-dealers
or other investment companies and their
series portfolios that have Pilgrim
Baxter or an affiliate of Pilgrim Baxter
as an investment advisor (a "Pilgrim
Baxter Advised Fund"). The Fund may not
borrow for leveraging, but may * Create internal operating
guidelines for corresponding fundamental investment
None borrow for temporary or emergency limitation
purposes, in anticipation of or in
response to adverse market conditions,
or for cash management purposes. The
Fund may not purchase additional
securities when any borrowings from
banks exceed 5% of the Fund's total
assets.
------------------------------------------------------------------------------------------------------------------------------------
2 None In complying with the fundamental
restriction with regard to making
loans, the Fund may lend up to 33
1/3% of its total assets and may
lend money to another Pilgrim Baxter
Advised Fund, on such terms
and conditions as the SEC may require
in an exemptive order. * Create internal operating
guidelines for corresponding
fundamental investment
limitation
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PBHG INTERNATIONAL FUND
PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND
EACH A SERIES OF SHARES OF
THE PBHG FUNDS, INC.
P.O. BOX 219534
KANSAS CITY, MISSOURI 64121-9534
TOLL FREE: (800) 433-0051
STATEMENT OF ADDITIONAL INFORMATION
Special Meeting of Shareholders of PBHG International Fund
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
December 20, 2000 of The PBHG Funds, Inc. (the "Fund") for use in connection
with the Special Meeting of Shareholders of PBHG International Fund
("International Fund") to be held on January 25, 2001. Copies of the Combined
Proxy Statement and Prospectus may be obtained at no charge by writing The Fund
at the address shown above or by calling 1-800-433-0051.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
A Statement of Additional Information for the Fund dated July 31, 2000
has been filed with the Securities and Exchange Commission and is attached
hereto as Appendix I which is incorporated herein by this reference.
The date of this Statement of Additional Information is December 20,
2000.
TABLE OF CONTENTS
THE FUND ..................................................................... 2
DESCRIPTION OF PERMITTED INVESTMENTS ......................................... 2
DIRECTORS AND OFFICERS OF THE FUND ........................................... 2
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF
DISTRIBUTION .......................................................... 2
PORTFOLIO TRANSACTIONS ....................................................... 2
DESCRIPTION OF SHARES ........................................................ 2
DETERMINATION OF NET ASSET VALUE ............................................. 2
TAXES ........................................................................ 2
PERFORMANCE ADVERTISING ...................................................... 2
FINANCIAL INFORMATION ........................................................ 3
Appendix I - The PBHG Funds, Inc. Statement of Additional Information dated
July 31, 2000
Appendix II - Annual Report of the PBHG Funds, Inc., dated March 31, 2000
Appendix III - Semi-Annual Report of The PBHG Funds, Inc., dated
September 30, 2000
<PAGE>
THE FUND
This Statement of Additional Information relates to The PBHG Funds, Inc. (the
"Fund"), PBHG International Fund ("International Fund") and PBHG Global
Technology & Communication Fund ("GTC Fund"). The Fund is registered as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "1940 Act"). International Fund and GTC Fund are each separate
series of shares of capital stock of the Fund. For further information
concerning the history of the Fund see the heading "The Fund" in the Statement
of Additional Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
GTC Fund and International Fund adopted by the Fund's Board of Directors, see
heading "Description of Permitted Investments" and "Investment Limitations" in
the Fund's Statement of Additional Information attached hereto as Appendix I.
DIRECTORS AND OFFICERS OF THE FUND
For a disclosure of the names and a brief occupational biography of each of the
Fund's officers and directors, identifying those who are interested persons of
the Fund as well as stating their aggregate renumeration, see heading "Directors
and Officers of the Fund" in the Fund's Statement of Additional Information
attached hereto as Appendix I.
ADVISORY AND MANAGEMENT - RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Fund's advisory and management-related services
agreements and plans of distribution, see headings "The Adviser," "The
Sub-Advisers," "The Distributor," "The Administrator and Sub-Administrator" and
"Other Service Providers" in the Fund's Statement of Additional Information
attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Fund's brokerage policy, see heading "Portfolio
Transactions" in the Fund's Statement of Additional Information attached hereto
as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Fund's authorized securities and the characteristics of
the Fund's shares of stock, and for a description of the purchase and redemption
procedures for the Fund's shares, see headings "Description of Shares" and
"Purchases and Redemptions of Shares" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
DETERMINATION OF NET ASSET VALUE
For a discussion of the Fund's valuation and pricing procedures see heading
"Determination of Net Asset Value" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Fund's
shares, see heading "Taxes" in the Fund's Statement of Additional Information
attached hereto as Appendix I.
PERFORMANCE ADVERTISING
For a description and quotation of certain performance data used by the Fund,
see heading "Performance Advertising" in the Fund's Statement of Additional
Information attached hereto as Appendix I.
FINANCIAL INFORMATION
S-2
<PAGE>
PricewaterhouseCoopers LLP ("PWC") located at Two Commerce Square, Suite 1700,
Philadelphia, Pennsylvania, serves as the independent accountants for the Fund.
PWC provides audit services, tax return review and assistance and consultation
in connection with review of SEC filings.
The audited financial statements for the fiscal year ended March 31, 2000 and
the report of the independent accountants for that year are included in the
Fund's Annual Report to Shareholders dated March 31, 2000, which is attached to
this Statement of Additional Information as Appendix II. The Annual Report,
except for pages one through seven thereof, is incorporated herein by reference
and made a part of this document. These financial statements have been audited
by PricewaterhouseCoopers LLP. The unaudited interim financial statements for
the six month period ended September 30, 2000, are set forth in the Fund's
Semi-Annual Report to Shareholders which is attached to this Statement of
Additional Information as Appendix III and is incorporated by reference herein.
