-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EGiUteVnpiNHdTTOfArtgFpz8ImhurM/qceJjLiGJk+pwce9vQ6vSAtVw2ggqlz8 0eTz84U2jHKnW33sIlhltA== 0001135428-02-000368.txt : 20021122 0001135428-02-000368.hdr.sgml : 20021122 20021122150017 ACCESSION NUMBER: 0001135428-02-000368 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20021122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PBHG FUNDS CENTRAL INDEX KEY: 0000775180 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-101396 FILM NUMBER: 02837699 BUSINESS ADDRESS: STREET 1: 1400 LIBERTY RIDGE DRIVE CITY: WAYNE STATE: PA ZIP: 19087-5593 BUSINESS PHONE: 610-647-4100 MAIL ADDRESS: STREET 1: 1400 LIBERTY RIDGE DRIVE CITY: WAYNE STATE: PA ZIP: 19087-5593 FORMER COMPANY: FORMER CONFORMED NAME: PBHG FUNDS INC DATE OF NAME CHANGE: 19940728 FORMER COMPANY: FORMER CONFORMED NAME: PBHG EMERGING GROWTH FUND DATE OF NAME CHANGE: 19950418 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM BAXTER EMERGING GROWTH FIND DATE OF NAME CHANGE: 19950418 FORMER COMPANY: FORMER CONFORMED NAME: PBHG FUNDS INC / DATE OF NAME CHANGE: 19960717 N-14 1 pbhg_n14.txt As filed with the Securities and Exchange Commission on November 22, 2002. U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-effective Amendment No. ____ Post-effective Amendment No. ____ (Check appropriate box or boxes) PBHG FUNDS ----------------------------------------- (Exact Name of Registrant as Specified in Charter) 1400 Liberty Ridge Drive Wayne, Pennsylvania 19087 ------------------------------------------ (Address of Principal Executive Offices) Registrant's Telephone Number: (610) 647-4100 Name and Address of Agent for Service: HAROLD J. BAXTER Pilgrim Baxter & Associates, Ltd. 1400 Liberty Ridge Drive Wayne, Pennsylvania 19087 Copies to: THOMAS H. DUNCAN, ESQUIRE JOHN M. ZERR, ESQUIRE Ballard Spahr Andrews & Ingersoll, LLP Pilgrim Baxter & Associates, Ltd. 1225 17th Street 1400 Liberty Ridge Drive Suite 2300 Wayne, Pennsylvania 19087 Denver, Colorado 80202 It is proposed that this Registration Statement will become effective on December 23, 2002, pursuant to Rule 488. The title of the securities being registered is PBHG Class Shares of PBHG Technology & Communications Fund. No filing fee is due in reliance on Section 24(f) of the Investment Company Act of 1940. PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND a Portfolio of PBHG FUNDS P.O. Box 219534 Kansas City, Missouri 64121 December __, 2002 Dear Shareholder: Enclosed is a combined proxy statement and prospectus seeking your approval of a proposed combination of PBHG Global Technology & Communications Fund ("Global Tech Fund"), an investment portfolio of PBHG Funds ("PBHG Funds"), with PBHG Technology & Communications Fund ("PBHG Tech Fund"), which is also an investment portfolio of PBHG Funds. The investment objectives of PBHG Tech Fund and Global Tech Fund are the same. Both funds seek long-term growth of capital. PBHG Tech Fund seeks to meet its objective by investing at least 80% of its assets in common stocks of companies doing business in the technology and communications sector of the market, including computer software and hardware, network and cable broadcasting, semiconductors, defense, data storage and retrieval, and biotechnology. Global Tech Fund seeks to meet its objective by investing at least 80% of its 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 sector of the market. Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") serves as the investment adviser to both funds. PBHG Tech Fund is a larger fund than Global Tech Fund and the net assets of Global Tech Fund have decreased from approximately $117 million in August 2000 to approximately $16 million at September 30, 2002. Since its inception, Global Tech Fund has underperformed its benchmark, the PSE Technology Index(R). PBHG Tech Fund's ratio of expenses to net assets is significantly lower than that of Global Tech Fund. Pilgrim Baxter has advised the Board of Trustees that in light of Global Tech Fund's decreasing asset base, poor performance relative to its benchmark and higher expense ratio, Global Tech Fund will not be able to attract sufficient assets for continued long-term viability. After considering various alternatives, the Board of Trustees concluded that combining Global Tech Fund with PBHG Tech Fund would serve the best interests of Global Tech 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 Global Tech Fund which provides for the reclassification and change of the outstanding shares of Global Tech Fund into shares of PBHG Tech Fund based upon their respective net asset values. After careful consideration, the Board of Trustees 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. 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 [to be provided] by following the instructions that appear on the enclosed proxy insert, or by telephone by calling 1-800-______________ and following the instructions provided. Sincerely, Harold J. Baxter Chairman PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND a Portfolio of PBHG Funds P.O. Box 219534 Kansas City, Missouri 64121 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held on February 27, 2003 NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of PBHG Global Technology & Communications Fund ("Global Tech Fund"), an investment portfolio of PBHG Funds ("PBHG Funds"), will be held at the offices of Pilgrim Baxter & Associates, Ltd., 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087-5593, on February 27, 2003, at 10:00 a.m., local time, for the following purposes: 1. To approve a Plan of Reorganization (the "Plan of Reorganization") for Global Tech Fund and the consummation of the transactions contemplated therein. The Plan of Reorganization provides for the reclassification and change of the issued and outstanding Global Tech Fund shares into shares of PBHG Technology & Communications Fund ("PBHG Tech Fund") of the same class (the "Reorganization"). The value of each Global Tech Fund shareholder's account with PBHG Tech Fund immediately after the Reorganization will be the same as the value of such shareholder's account with Global Tech Fund immediately prior to the Reorganization. The Reorganization has been structured as a tax-free transaction. An amendment to the Declaration of Trust of PBHG Funds will be approved by PBHG Funds' Board of Trustees in connection with the Reorganization to effect the reclassification of the Global Tech 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 December 16, 2002, 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 TELEPHONE BY CALLING 1-800-_______, OR ON THE WEB AT ______________________. 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. John M. Zerr Secretary December ___, 2002 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBHG TECHNOLOGY & COMMUNICATIONS FUND EACH A PORTFOLIO OF PBHG FUNDS P.O. Box 219534 KANSAS CITY, MISSOURI 64121 TOLL FREE: (800) 433-0051 COMBINED PROXY STATEMENT AND PROSPECTUS Dated: December ___, 2002 This document is being furnished to you in connection with the Special Meeting of Shareholders of PBHG Global Technology & Communications Fund ("Global Tech Fund"), an investment portfolio of PBHG Funds, a Delaware statutory trust ("PBHG Funds"), to be held on February 27, 2003 (the "Special Meeting"). At the Special Meeting you will be asked to consider and approve a Plan of Reorganization (the "Plan of Reorganization") for Global Tech Fund and the consummation of the transactions described therein, as further described in this Combined Proxy Statement and Prospectus (the "Reorganization"). THE BOARD OF TRUSTEES OF PBHG FUNDS HAS UNANIMOUSLY APPROVED THE PLAN OF REORGANIZATION AS BEING IN THE BEST INTEREST OF GLOBAL TECH FUND SHAREHOLDERS. The Plan of Reorganization provides for the reclassification of the shares of Global Tech Fund and the change of the outstanding shares of Global Tech Fund into shares of PBHG Technology & Communications Fund ("PBHG Tech Fund") based upon the net asset values of the two funds. All of the assets and liabilities of Global Tech Fund will become assets and liabilities of PBHG Tech Fund. The value of your account with PBHG Tech Fund immediately after the Reorganization will be the same as the value of your account with Global Tech Fund immediately before the Reorganization. PBHG Tech Fund is an investment portfolio of PBHG Funds, an open-end, series management investment company. The investment objectives of PBHG Tech Fund and Global Tech Fund are the same. Both funds seek long-term growth of capital. PBHG Tech Fund seeks to meet its objective by investing at least 80% of its assets in common stocks of companies doing business in the technology and communications sector of the market, including computer software and hardware, network and cable broadcasting, semiconductors, defense, data storage and retrieval, and biotechnology. Global Tech Fund seeks to meet its objective by investing at least 80% of its 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 sector of the market. Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter") serves as the investment adviser to both funds. See "Comparison of Investment Objectives, Policies and Restrictions." This Combined Proxy Statement and Prospectus ("Proxy Statement/Prospectus") sets forth 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 Global Tech Fund and PBHG Tech Fund, dated July 29, 2002, as supplemented on August 19, 2002, and the supplement to the prospectus of Global Tech Fund, dated October 22, 2002, together with the related Statement of Additional Information also dated July 29, 2002, 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 are also available without charge by writing to PBHG Funds, 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 Global Tech Fund and PBHG Tech Fund on the Web at http://www.pbhgfunds.com. AS WITH ALL OTHER MUTUAL FUND SECURITIES, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS ADEQUATE OR ACCURATE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME. PBHG FUNDS TABLE OF CONTENTS Page INTRODUCTION...................................................................1 SUMMARY........................................................................2 Reorganization........................................................2 Background and Reasons for the Reorganization.........................2 Comparison of PBHG Tech Fund and Global Tech Fund.....................3 ANNUAL FUND OPERATING EXPENSES.................................................6 RISK FACTORS...................................................................7 Comparative Risks.....................................................7 Risks Associated with PBHG Tech Fund..................................7 COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS.................8 Investment Objectives.................................................8 Investment Policies...................................................8 Investment Restrictions..............................................10 Financial Highlights..........................................................10 ADDITIONAL INFORMATION ABOUT THE PLAN OF REORGANIZATION.......................11 The Reorganization...................................................11 Board Considerations.................................................11 Other Terms..........................................................13 Federal Income Tax Consequences......................................14 Capital Loss Carryforward............................................17 CAPITALIZATION................................................................18 ADDITIONAL INFORMATION ABOUT THE FUNDS........................................18 Investment Management................................................18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF PERFORMANCE...........................18 RIGHTS OF SHAREHOLDERS........................................................21 OWNERSHIP OF GLOBAL TECH FUND AND PBHG TECH FUND SHARES.......................21 Significant Holders..................................................21 Ownership of Trustees and Officers...................................22 LEGAL MATTERS.................................................................22 INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.................22 ADDITIONAL INFORMATION ABOUT PBHG TECH FUND...................................23 APPENDIX I - Plan of Reorganization APPENDIX II - Prospectus of PBHG Funds INTRODUCTION This Proxy Statement/Prospectus is furnished to you in connection with the solicitation of proxies by PBHG Funds' Board of Trustees for use at the Special Meeting of Shareholders of Global Tech Fund to be held at the offices of Pilgrim Baxter & Associates, Ltd., 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087-5593, on February 27, 2003, at 10:00 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 Georgeson Shareholder Communications, Inc. to assist in the solicitation of proxies. Pilgrim Baxter & Associates, Ltd. ("Pilgrim Baxter"), the investment adviser for each fund, will reimburse Global Tech Fund and PBHG Tech Fund for the costs and expenses they incur in connection with the Reorganization. For Global Tech Fund, this will include expenses incurred in preparing, printing and mailing proxy materials for the Special Meeting of Shareholders and proxy solicitation costs. The cost of the solicitation of proxies is anticipated to be approximately $20,000. 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 Global Tech Fund entitled to vote at the Special Meeting will constitute a quorum. At the Special Meeting, a quorum being present, approval of the Reorganization requires the affirmative vote of a majority of the votes cast at the Special Meeting. Abstentions and broker non-votes will be counted as shares present at the Special Meeting for quorum purposes but will not be considered votes cast for or 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 withdraw your proxy and vote 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 December 16, 2002 (the "Record Date"), are entitled to vote at the Special Meeting. On the Record Date, there were outstanding __________ shares of Global Tech Fund. Each share held entitles a shareholder to one vote for each dollar of net asset value of shares held by the shareholder. We intend to mail this Proxy Statement/Prospectus and the accompanying proxy on or about January 2, 2003. 1 SUMMARY REORGANIZATION The Plan of Reorganization provides for the reclassification and change of the issued and outstanding Global Tech Fund shares into PBHG Tech Fund shares (the "Reorganization"). If shareholders of Global Tech Fund approve the Plan of Reorganization and other closing conditions are satisfied, all of the assets and liabilities of Global Tech Fund will become the assets and liabilities of PBHG Tech Fund, and the issued and outstanding PBHG Class shares of Global Tech Fund will be changed into PBHG Class shares of PBHG Tech Fund that have a net asset value equal to the value of the Global Tech Fund net assets immediately prior to the Reorganization. The value of each Global Tech Fund shareholder's account with PBHG Tech Fund immediately after the Reorganization will be the same as the value of such shareholder's account with Global Tech 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. PBHG Tech 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 Trustees of PBHG Funds, including each of the independent trustees, has determined that the reorganization of Global Tech Fund into PBHG Tech 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 evaluating the proposed Reorganization, the Board of Trustees 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 Federal income tax purposes. 2 o The undertaking by Pilgrim Baxter to reimburse each fund for the expenses of the Reorganization. o The comparative expenses of the two funds. The Board of Trustees considered the fact that PBHG Tech Fund is a larger fund than Global Tech Fund and the total net assets of Global Tech Fund have decreased from approximately $117 million in August 2000 to approximately $16 million, as of September 30, 2002. As of September 30, 2002, PBHG Tech Fund had net assets of approximately $243 million. Global Tech Fund has consistently underperformed its benchmark index. In addition, Pilgrim Baxter advised the Board that PBHG Tech Fund's ratio of expenses to net assets is lower than that of Global Tech Fund. For the period April 1, 2002 to October 31, 2002, PBHG Tech Fund's ratio of expenses to net assets was approximately 0.51% lower than the expenses of Global Tech Fund. Moreover, Pilgrim Baxter has contractually agreed to waive that portion, if any, of Global Tech Fund's management fee and to pay certain expenses of the fund to the extent necessary to ensure that the fund's total annual operating expenses do not exceed 2.15%. This expense waiver expires on March 31, 2003. Pilgrim Baxter advised the Board that it does not necessarily intend to continue such fee waiver. Absent such fee waiver, Global Tech Fund's annual total operating expenses, expressed as a percentage of net assets, are expected to exceed those of PBHG Tech Fund by approximately 1.19%. Accordingly, Pilgrim Baxter advised the Board of Trustees that in light of its decreasing asset base, poor performance relative to its benchmark and higher expense ratio, it did not believe that Global Tech 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 Global Tech Fund, the Board of Trustees concluded that Global Tech Fund should be combined with PBHG Tech Fund. For additional information concerning the deliberations of the Board of Trustees on the Plan of Reorganization, see "Additional Information About the Plan of Reorganization." COMPARISON OF PBHG TECH FUND AND GLOBAL TECH FUND INVESTMENT OBJECTIVE AND POLICIES The investment objectives of Global Tech Fund and PBHG Tech Fund are the same. Each fund seeks to provide investors with long term growth of capital. Current income is incidental to PBHG Tech Fund's goal. In addition, the funds follow similar investment strategies to achieve their investment objectives. PBHG Tech Fund normally invests at least 80% of its assets in common stocks of companies doing business in the technology and communications sector of the market. The fund is concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. These industries may include computer software and hardware, network and cable broadcasting, semiconductors, defense, data storage and retrieval, and biotechnology. 3 Global Tech Fund normally will invest at least 80% of its 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 sector of the market. The fund is also concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. INVESTMENT ADVISORY SERVICES Pilgrim Baxter serves as investment adviser to both funds. Pilgrim Baxter is an indirect, wholly owned subsidiary of Old Mutual plc ("Old Mutual"). Old Mutual is an international financial services group based in London, with operations in life assurance, asset management, banking and general insurance. Old Mutual's principal offices are located at 3rd Floor, Landsdowne House, 57 Berkely Square, London, WIX 50H, United Kingdom. SALES CHARGES No sales charges are applicable to the Reorganization. Shares of PBHG Tech Fund and Global Tech Fund are sold without an initial sales charge. PERFORMANCE Average total returns for the periods indicated for PBHG Class shares of PBHG Tech Fund are shown below. The tables also compare the average annual returns of PBHG Tech Fund to those of a broad based securities market index. PBHG Tech Fund is authorized to issue Advisor Class shares which bear different expenses than PBHG Class shares. Past performance cannot guarantee comparable future results. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] CALENDAR YEAR TOTAL RETURNS PBHG Tech Fund 1996 54.42% 1997 3.32% 1998 26.00% 1999 243.89% 2000 -43.69% 2001 -52.38% The year-to-date return of PBHG Tech Fund as of September 30, 2002 was -59.06%. BEST QUARTER: Q4 1999 111.54% WORST QUARTER: Q4 2000 -50.95% 4 AVERAGE ANNUAL TOTAL RETURNS PBHG Tech Fund (For the periods ended December 31, 2001)
Since Inception PBHG Class Shares 1 Year 5 Years (9/29/95) - ----------------- ------ ------- --------- Return Before-Taxes -52.38% 3.72% 13.03% Return After-Taxes on Distributions -52.38% 1.85% 11.26% Return After-Taxes on Distributions -31.90%(2) 3.06%(2) 10.95% and Sale of Fund Shares PSE Technology Index(R)(1) (reflects no -15.42% 23.49% 21.82% deductions for fees, expenses or taxes)
(1) The since inception return for the PSE Technology Index(R) was calculated as of September 30, 1995. (2) When the return after taxes on distributions and sale of shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of PBHG Tech Fund shares, the capital loss is recorded as a tax benefit, which increases the return. Prior to November 2, 1999, PBHG Tech Fund was diversified and did not concentrate its investments. Therefore, the fund's performance prior to November 5, 1999, may not be indicative of how it will perform in the future. After-tax returns are calculated using the historical highest individual Federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or certain individual retirement accounts. PBHG Tech Fund's year-to-date return as of November 30, 2002 was ___%, as compared to ____% for Global Tech Fund. OPERATING EXPENSES The shares of PBHG Tech Fund are a no-load investment, which means there are no fees or charges to buy or sell shares, to reinvest dividends or to exchange into other funds. A mutual fund's annual operating expenses are deducted from fund assets. Therefore, shareholders indirectly pay the fund's annual operating expenses. Information on the annual operating expenses of PBHG Class shares of PBHG Tech Fund and Global Tech Fund is shown below. Pro forma estimated expenses of PBHG Tech Fund, giving effect to the Reorganization, are also provided. 5 ANNUAL FUND OPERATING EXPENSES
PBHG Tech Fund PBHG Tech Fund Global Tech Fund Pro Forma Management Fees 0.85% 1.50% 0.85% 12b-1 Fees None None None Other Expenses 0.74(1) 1.28(1) 0.93(3) Total Fund Operating Expenses 1.59% 2.78% 1.78% ----- ----- ----- Fee Waiver 0.00 0.63 0.00 Net Expenses 1.59% 2.15%(2) 1.78% ===== ===== ===== - --------------
(1) Other Expenses have been restated to reflect expense arrangements in effect as of September 30, 2002. (2) For the fiscal year ending March 31, 2003, Pilgrim Baxter has contractually agreed to waive that portion, if any, of the annual management fees payable by Global Tech Fund and to pay certain expenses of the fund to the extent necessary to ensure that the total annual fund operating expenses (exclusive of certain expenses such as brokerage commissions and extraordinary expenses) do not exceed 2.15%. In any fiscal year in which the fund's assets are greater than $75 million and its total annual fund operating expenses (excluding certain expenses such as brokerage commissions and extraordinary expenses) are less than 2.15%, the fund's Board of Trustees 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, 2002. At March 31, 2002, the amount of advisory fee waiver and reimbursement of third party expenses by the adviser subject to possible reimbursement for the fund was $124,745. This amount is not subject to reimbursement from PBHG Tech Fund. (3) Other Expenses have increased due to the decline in net assets of PBHG Tech Fund. Other Expenses are projected based on net assets of the combined funds on September 30, 2002. Approximately 0.03% of the increase in Other Expenses is expected to result from the combination of the two funds. HYPOTHETICAL EXAMPLE OF EFFECT OF EXPENSES This example can help you to compare the cost of investing in the funds to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the funds for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the net expenses stated above for the one year period and the total expenses (which do not reflect any expense limitations) for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ONE THREE FIVE TEN YEAR YEARS YEARS YEARS ---- ----- ----- ----- Global Tech Fund PBHG Class $218 $803 $1,414 $3,063 PBHG Tech Fund PBHG Class $162 $502 $866 $1,889 PBHG Tech Fund PBHG Class Pro Forma $181 $560 $964 $2,095
6 DISTRIBUTION; PURCHASE, EXCHANGE AND REDEMPTION Shares of PBHG Tech Fund and Global Tech Fund are both distributed by PBHG Fund Distributors. Purchase and redemption procedures are the same for PBHG Tech Fund and Global Tech Fund. Shares of PBHG Tech Fund and Global Tech Fund may be exchanged for shares of other funds of PBHG Funds. FURTHER INFORMATION Additional information concerning PBHG Tech 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 Global Tech Fund can also be found in the PBHG Funds prospectus. The cover page describes how you may obtain further information. RISK FACTORS COMPARATIVE RISKS Both PBHG Tech Fund and Global Tech Fund seek to provide investors with long-term growth of capital. Both funds seek to achieve their investment objectives by, under normal market conditions, investing at least 80% of their assets in companies doing business in the technology and communications sector of the market, including computer software and hardware, network and cable broadcasting, semiconductors, defense, data storage and retrieval, and biotechnology. As a result, the risks of investing in the funds are similar. Global Tech Fund will invest in companies in the technology and communications sector of the market in at least three different countries, one of which may include the U.S. Some of these countries may be construed as emerging or developing by the international finance community. Global Tech Fund's potentially greater exposure to foreign markets may provide greater geographical diversification that could provide some protection against risk of loss in times of declining domestic markets. However, investments in emerging or developing countries may be subject to extreme volatility because, in general, these countries' economies are less developed, their political structures are less stable and their financial markets are less liquid than more developed nations. RISKS ASSOCIATED WITH PBHG TECH FUND PBHG Tech 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 PBHG Tech Fund's net asset value and will cause its shares to fluctuate in value more than it would in a diversified fund. PBHG Tech 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 PBHG Tech Fund's net asset value and will cause its shares to fluctuate more than if the fund did not concentrate its investments. 7 The value of an investment in PBHG Tech Fund will go up and down, which means you could lose money. The prices of the securities in PBHG Tech 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 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 PBHG Tech Fund strives to achieve its goal, it cannot guarantee that the goal will be achieved. An investment in PBHG Tech Fund is not a bank deposit. It is not insured or guaranteed by the FDIC or any other government agency. COMPARISON OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS INVESTMENT OBJECTIVES The investment objective of PBHG Tech Fund and Global Tech Fund is the same. Both funds seek to provide investors long-term growth of capital. Current income is incidental to PBHG Tech Fund's goal. INVESTMENT POLICIES A description of the investment policies of each of PBHG Tech Fund and Global Tech Fund is provided below. PBHG TECH FUND Under normal market conditions, the fund, a non-diversified fund, will invest at least 80% of its assets in common stocks of companies doing business in the technology and communications sector of the market. In addition, the fund is concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. These industries may include computer software and hardware, network and cable broadcasting, semiconductors, defense, 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. 8 Pilgrim Baxter uses its 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. The annual turnover rate of the investments of PBHG Tech Fund was 185% for the year ended March 31, 2002. That rate of portfolio turnover will result in higher transaction costs, and may result in additional taxes, for shareholders of PBHG Tech Fund. GLOBAL TECH FUND Under normal market conditions, the fund, a non-diversified fund, will invest at least 80% of its 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 sector of the market. In addition, the fund is concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. These industries may include computer software and hardware, network and cable broadcasting, semiconductors, defense, 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. PBHG TECH FUND MANAGEMENT Pilgrim Baxter's technology team is primarily responsible for the day-to-day management of PBHG Tech Fund. Pilgrim Baxter's team is led by the following individuals: o Gary L. Pilgrim, CFA. Mr. Pilgrim is president of Pilgrim Baxter and has been a growth stock manager for over 31 years. o Michael S. Sutton, CFA. Mr. Sutton is Chief Investment Officer of Pilgrim Baxter. 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. 9 o Jerome J. Heppelman, CFA. Mr. Heppelman joined Pilgrim Baxter in 1994 as a Vice President of Marketing/Client Service. Prior to joining Pilgrim Baxter, Mr. Heppelman worked in the Investment Advisory Group for SEI Investments. o Raymond J. McCaffrey, CFA. Mr. McCaffrey joined Pilgrim Baxter as a portfolio manager and analyst in 1997. Prior to joining Pilgrim Baxter, Mr. McCaffrey worked for 2 years as a portfolio manager and analyst at Pitcairn Trust Company. His 12 years of investment experience also include positions at Cypress Capital Management, Independence Capital Management and Fidelity Bank. INVESTMENT RESTRICTIONS Since Global Tech Fund and PBHG Tech Fund are each a separate series of PBHG Funds, each fund is currently subject to the same investment restrictions. FINANCIAL HIGHLIGHTS Shown below are the financial highlights for PBHG Class shares of PBHG Tech Fund for the fiscal years ended March 31, 1998-2002 audited by PricewaterhouseCoopers LLP and for the unaudited six-month period ended September 30, 2002. The "Report of Independent Accountants" and financial statements included in PBHG Tech Fund's annual report to shareholders for the fiscal year ended March 31, 2002, are hereby incorporated by reference into this Proxy Statement/Prospectus. PBHG Tech Fund's semi-annual report to shareholders, which contains additional unaudited performance information, is available without charge upon request made to PBHG Funds at the address or telephone number appearing on the cover page of this Proxy Statement/Prospectus. PBHG TECH FUND PBHG CLASS SHARES
Six Months Ended September 30, 2002 (unaudited) Year Ended March 31, ------------- --------------------------------------------------------------------- 2002** 2001** 2000** 1999** 1998 ---- ---- ---- ---- ---- Net asset value, beginning of period........................ $14.79 $19.70 $85.02 $27.59 $19.27 $14.63 ------ ------ ------ ------ ------ ------ Income from investment operations: Net investment income......... (0.07) (0.21) (0.46) (0.54) (0.19) (0.23) Net gains (losses) on securities (both realized and unrealized) (8.01) (4.70) (59.61) 62.84 8.80 5.72 Total from investment ------ ------ ------- ----- ---- ---- operations........... 8.08) (4.91) (60.07) 62.30 8.61 5.49 ------ ------ ------- ----- ---- ---- Less distributions: Dividends from net investment income...................... 0.00 0.00 0.00 0.00 0.00 0.00 ---- ---- ---- ---- ---- ---- Distributions from net realized gains....................... 0.00 0.00 (5.25) (4.87) (0.29) (0.85) ---- ---- ------ ------ ------ Total distributions.... 0.00 0.00 (5.25) (4.87) (0.29) (0.85) ---- ---- ------ ------ ------ Net asset value, end of $6.71 $14.79 $19.70 $85.02 $27.59 $19.27 ----- ------ ------ ------ ------ ------ period.......................... Total return(c)................. (54.63)%+ (24.92)% (74.20)% 233.99% 45.33% 38.29% -------- -------- -------- ------- ------ ------ Ratios/supplemental data: Net assets, end of period (000s omitted)..................... $237,306 $581,091 $920,965 $3,843,946 $536,405 $495,697 -------- -------- -------- --------- -------- -------- Ratio of expenses to average net assets....................... 1.59%* 1.39% 1.25% 1.19% 1.34% 1.30% ----- ----- ----- ----- ----- ----- Ratio of Expense to average net assets (including expense reduction)................... 1.56%* 1.38% 1.25% 1.19% 1.34% 1.30% Ratio of net investment income (loss) to average net assets. (1.43)%* (1.17)% (0.81)% (0.96)% (0.96)% (0.91)% Ratio of expenses to average net assets (excluding waivers and expense reduction)........... 1.59%* 1.39% 1.25% 1.19% 1.34% 1.30% Ratio of net investment income (loss) to average net assets (excluding waivers and expense reduction)................... (1.46)%* (1.19)% (0.81)% (0.96)% (0.96)% (0.91)% ------- ------- ------- ------- ------- ------- Portfolio turnover rate......... 126.08%+ 185.33% 291.41% 362.38% 276.07% 259.89% 10 * Annualized ** Per share calculations performed using average shares for the period. + Total return and portfolio turnover have not been annualized.
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 Trustees 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 Global Tech Fund will be changed into PBHG Class shares of PBHG Tech Fund having an aggregate net asset value equal to the asset value of the net assets of Global Tech Fund immediately prior to the Reorganization. The value of each Global Tech Fund shareholder's account with PBHG Tech Fund immediately after the Reorganization will be the same as the value of such shareholder's account with Global Tech Fund immediately prior to the Reorganization. Shareholders will not pay any sales charge in connection with the Reorganization. The Reorganization will be consummated through an amendment to PBHG Funds' Declaration of Trust in the form attached to the Plan of Reorganization. All of the assets and liabilities of Global Tech Fund will become assets and liabilities of PBHG Tech Fund. Each share of PBHG Tech Fund entitles a shareholder to one vote for each dollar of net asset value of shares held by the shareholder, to participate equally in dividends and distributions declared by the Board of Trustees with respect to a class of shares of PBHG Tech Fund and, upon liquidation of PBHG Tech 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 PBHG Tech Fund have proportionately the same rights, including voting rights as are provided for full shares. Consummation of the Reorganization is expected to occur on February 28, 2003, at 4:30 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 Trustees of PBHG Funds determined that the proposed Reorganization of Global Tech Fund is in the best interests of the shareholders of Global Tech Fund and PBHG Tech Fund, and recommended approval of the Plan of Reorganization by Global Tech Fund shareholders at the Special Meeting. A summary of the information that was presented to, and considered by, the Board of Trustees in making their determination is provided below. At a meeting of the Board of Trustees held on October 21, 2002, Pilgrim Baxter proposed that the Board of Trustees approve the proposed Reorganization of Global Tech Fund. The Trustees received from Pilgrim Baxter written materials that described the structure and tax consequences of the proposed Reorganization and contained information concerning Global Tech Fund and PBHG Tech Fund, including comparative historical total return, fee and expense information and a comparison of the investment policies of the two funds. 11 In considering the proposed Reorganization, the Board of Trustees noted that Global Tech Fund and PBHG Tech Fund have the same investment objective. Pilgrim Baxter proposed the Reorganization because investors have not viewed Global Tech Fund as an attractive investment alternative. The net assets of Global Tech Fund have decreased significantly from approximately $117 million in August 2000 to approximately $16 million as of September 30, 2002. PBHG Tech Fund's total assets at September 30, 2002 were approximately $243 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 information presented to the Board of Trustees by Pilgrim Baxter demonstrated that since inception Global Tech Fund has underperformed its benchmark index, the PSE Technology Index. Average Annual Total Returns as of September 30, 2002 Since Inception Past 1 Year (5/31/2000) Global Tech Fund -38.82% -51.37% PSE Technology -25.22% -33.22% Index(R) As of September 30, 2002, PBHG Tech Fund's average annual total return since inception (September 25, 1995) is -1.80%. The Board of Trustees noted that the ratio of expenses to net assets of PBHG Tech Fund is lower than that of Global Tech Fund. For the period April 1, 2002, to October 31, 2002, PBHG Tech Fund's ratio of expenses to net assets was approximately 0.51% lower than that of Global Tech Fund. The contractual expense waiver currently applicable to Global Tech Fund, under which Pilgrim Baxter has agreed to waive management fees or reimburse expenses such that Global Tech Fund's expense ratio does not exceed 2.15%, expires March 31, 2003. Pilgrim Baxter has advised the Board of Trustees that it does not necessarily intend to continue such fee waiver and expense reimbursement. Absent such fee waiver, Global Tech Fund's annual total operating expenses are expected to exceed those of PBHG Tech Fund by approximately 1.19%. Pilgrim Baxter advised the Board that the Reorganization would likely result in a slight increase in the expenses of PBHG Tech Fund. The expenses of PBHG Tech Fund have recently increased as a result of a decline in PBHG Tech Fund's net assets. An increase of approximately 0.03% is expected to result from the combination of Global Tech Fund with PBHG Tech Fund. This increase is primarily the result of the additional transfer agent expenses incurred by the combined funds due to the smaller average shareholder account size of Global Tech Fund. However, Pilgrim Baxter also advised the Board that it expects PBHG Tech Fund will be able to gather assets more quickly after the Reorganization as the domestic technology market rebounds more quickly than the global technology market. Such additional assets are expected to result in economies of scale that may lead to a reduction of PBHG Tech Fund's expenses below current levels. In addition, although Global Tech Fund's performance has been better than PBHG Tech Fund's in recent periods, the Board noted that, absent the existing fee waiver and expense reimbursement arrangement with Pilgrim Baxter, Global Tech Fund's decreasing asset base will result in its expenses, expressed as a percentage of net assets, continuing to rise, thereby reducing its returns to its shareholders. 12 The Board of Trustees further noted that the value of each shareholder's account with PBHG Tech Fund immediately after the Reorganization will be the same as the value of that shareholder's account with Global Tech 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 PBHG Tech Fund acquired by the shareholders of Global Tech Fund in connection with the Reorganization. The Board also noted that Pilgrim Baxter has agreed to reimburse Global Tech Fund and PBHG Tech Fund for costs and expenses they incur in connection with the Reorganization. Finally, the Board of Trustees reviewed the principal terms of the Plan of Reorganization. The Board of Trustees noted that Global Tech Fund would be provided with an opinion of counsel that the Reorganization would be tax-free as to Global Tech Fund and its shareholders. At the meeting of the Board of Trustees, based upon their evaluation of the information presented to them, the Board of Trustees determined that the proposed Reorganization will not dilute the interests of Global Tech Fund or PBHG Tech Fund shareholders and is in the best interest of shareholders of Global Tech Fund and PBHG Tech Fund in light of the above-mentioned factors. Therefore, the Board of Trustees recommended the approval of the Plan of Reorganization by the shareholders at the Special Meeting. OTHER TERMS Completion of the Reorganization is subject to various conditions, including the following: 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; o The Plan of Reorganization, the amendment to the Declaration of Trust and related trust matters shall have been approved by the affirmative vote of a majority of the votes cast by Global Tech Fund shareholders present at the Special Meeting; o The net assets of Global Tech Fund to be acquired by PBHG Tech 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 Global Tech Fund immediately prior to the Reorganization; o The dividend or dividends as described in the Plan of Reorganization shall have been declared; 13 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 Global Tech Fund will recognize no gain or loss to the extent that they receive shares of PBHG Tech Fund in exchange for their shares of Global Tech Fund in accordance with the Plan of Reorganization; and 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 Global Tech Fund. FEDERAL INCOME 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 Global Tech Fund upon the reclassification of its assets to PBHG Tech Fund; o No gain or loss will be recognized by any shareholder of Global Tech Fund upon the exchange of shares of Global Tech Fund solely for shares of PBHG Tech Fund; o The tax basis of the shares of PBHG Tech Fund to be received by a shareholder of Global Tech Fund will be the same as the tax basis of the shares of Global Tech Fund surrendered in exchange therefor; o The holding period of the shares of PBHG Tech Fund to be received by a shareholder of Global Tech Fund will include the holding period for which such shareholder held the shares of Global Tech Fund exchanged therefor, provided that such shares of Global Tech Fund are capital assets in the hands of such shareholder as of the date the Reorganization is consummated; 14 o No gain or loss will be recognized by PBHG Tech Fund upon the issuance of its shares as consideration for the reclassification of the assets of Global Tech Fund as part of the assets of PBHG Tech Fund; o The tax basis of the assets of Global Tech Fund in the hands of PBHG Tech Fund will be the same as the tax basis of such assets in the hands of Global Tech Fund immediately prior to the Reorganization; o The holding period of the assets of Global Tech Fund to be received by PBHG Tech Fund will include the holding period of such assets in the hands of Global Tech Fund immediately prior to the Reorganization and; o Pursuant to sections 381(a) and (b) of the Code and sections 1.381(a)-1 and 1.381(b)-1 of the Income Tax Regulations, the tax year of Global Tech Fund will end on the date the Reorganization is consummated and PBHG Tech Fund will succeed to and take into account the items of Global Tech Fund described in section 381(c) of the Code, subject to the provisions and limitations specified in sections 381, 382, 383 and 384 of the Code, and the regulations thereunder. As a condition to closing, BSA&I will render a favorable opinion to PBHG Funds as to the foregoing 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 Global Tech Fund to redeem a number of shares of PBHG Tech Fund received in the Reorganization that would reduce the Global Tech Fund shareholders' ownership of PBHG Tech 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 Global Tech Fund as of the date the Reorganization is consummated; o During the five-year period ending on the date of consummation of the Reorganization: (i) neither PBHG Tech Fund, nor any person related to PBHG Tech Fund, will have acquired Global Tech Fund shares with consideration other than PBHG Tech Fund shares; (ii) neither Global Tech Fund, nor any person related to Global Tech Fund, will have acquired such Global Tech Fund shares with consideration other than PBHG Tech Fund shares or Global Tech Fund shares, except for shares redeemed in the ordinary course of Global Tech Fund's business as an open-end investment company under the 1940 Act; and (iii) no distributions will have been made with respect to Global Tech Fund's shares (other than ordinary, normal, regular, dividend distributions made pursuant to Global Tech Fund's historic dividend paying practice), either directly or through any transaction, agreement, or arrangement with any other person, except for distributions required to maintain Global Tech Fund's status as a "regulated investment company" under the Code or made to avoid incurring liability for federal excise tax; 15 o There is no plan or intention for PBHG Tech Fund or any person related to PBHG Tech Fund, to acquire, during the five-year period beginning on the date of consummation of the Reorganization, with consideration other than PBHG Tech Fund shares, PBHG Tech Fund shares issued in the Reorganization, either directly or through any transaction, agreement, or arrangement with any other person, except that PBHG Tech Fund may acquire such shares in the ordinary course of its business as a series of an open-end diversified management investment company operating under the 1940 Act; o The aggregate value of all acquisitions of shares of Global Tech Fund (for consideration other than shares of PBHG Tech Fund), redemptions and distributions made or contemplated by either Global Tech Fund or PBHG Tech Fund in connection with the Reorganization will not exceed 50% of the value (without giving effect to such acquisitions, redemptions and distributions) of Global Tech Fund on the date of consummation of the Reorganization; o Following the Reorganization, PBHG Tech Fund will continue the historic business of Global Tech Fund (for this purpose "historic business" shall mean the business most recently conducted by Global Tech Fund which was not entered into in connection with the Reorganization) or use a significant portion of Global Tech Fund's historic business assets in its business; o At the direction of Global Tech Fund, PBHG Tech Fund will issue directly to each Global Tech Fund shareholder in the Reorganization shares of PBHG Tech Fund having a net asset value equal to the net asset value of the Global Tech Fund shares exchanged therefor; Global Tech Fund will transfer all of its assets and liabilities to PBHG Tech Fund in the Reorganization; and Global Tech 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 PBHG Tech Fund does not plan or intend to sell or therwise dispose of any of the assets of Global Tech Fund acquired in the Reorganization, except that PBHG Tech 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; 16 o PBHG Tech Fund, Global Tech Fund and the shareholders of Global Tech Fund will pay their respective expenses, if any, incurred in connection with the Reorganization in accordance with current IRS guidelines, except that Pilgrim Baxter may reimburse Global Tech Fund for certain such expenses pursuant to its investment advisory agreement with PBHG Funds; o PBHG Tech Fund will acquire 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 Global Tech Fund immediately before the Reorganization, including for this purpose any amounts used by Global Tech Fund to pay its reorganization expenses and all redemptions and distributions made by Global Tech Fund after the commencement of negotiations regarding the Reorganization (other than redemptions pursuant to a demand of a shareholder in the ordinary course of Global Tech 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 PBHG Tech Fund and Global Tech 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 Global Tech Fund ending on the date the Reorganization is consummated and the taxable year of PBHG Tech Fund that includes the date the Reorganization is consummated). CAPITAL LOSS CARRYFORWARD Global Tech Fund had capital loss carryforwards available to offset future capital gains of approximately $154 million as of September 30, 2002. Absent realized capital gain net income, approximately $70 million of these capital loss carryforwards would expire in the fiscal year ending March 30, 2010, and approximately $84 million would expire in the fiscal year ending March 31, 2011. Under Section 381 of the Code, PBHG Tech Fund will succeed to the capital loss carryforwards of Global Tech Fund if, as described above, the transfer of the assets of Global Tech Fund to PBHG Tech Fund qualifies as a "reorganization" under Section 368(a) of the Code. However, because of limitations imposed under Section 382 of the Code, PBHG Tech Fund will not be able to utilize approximately $148 million of such capital loss carryforwards prior to their expiration if the Reorganization is consummated. PBHG Tech Fund had capital loss carryforwards available to offset future capital gains of approximately $2 billion as of March 31, 2002. Absent realized capital gain net income, approximately $117 million of these capital loss carryforwards would expire in the fiscal year ending March 30, 2009, and approximately $1.9 billion would expire in the fiscal year ending March 31, 2010. No additional limitation will be imposed on the utilization of these capital loss carryforwards by PBHG Tech Fund if 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 GLOBAL TECH FUND. GLOBAL TECH 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. 17 CAPITALIZATION The following tables set forth as of November 29, 2002, (i) the capitalization of PBHG Tech Fund PBHG Class shares, (ii) the capitalization of Global Tech Fund PBHG Class shares and (iii) the pro forma capitalization of PBHG Tech Fund PBHG Class shares as adjusted to give effect to the transactions contemplated by the Plan of Reorganization.
Global Tech Fund PBHG Tech Fund PBHG Tech Fund Shares Shares Pro Forma Net Assets $ $ $ Shares Outstanding Net Asset Value Per Shares
ADDITIONAL INFORMATION ABOUT THE FUNDS INVESTMENT MANAGEMENT Pilgrim Baxter will continue to serve as investment adviser to PBHG Tech Fund pursuant to an investment advisory agreement. Pursuant to the investment advisory agreement, Pilgrim Baxter will provide a program of continuous investment management for PBHG Tech Fund, and make investment decisions and place orders to purchase and sell securities for PBHG Tech Fund in accordance with its investment objective, policies and limitations. For its services, Pilgrim Baxter is entitled to an annual management fee in the amount of 0.85% of the fund's average daily net assets. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PERFORMANCE A discussion of the performance of PBHG Tech Fund taken from its annual report to shareholders for the fiscal year ended March 31, 2002, is set forth below. PERFORMANCE PBHG Technology and Communications Fund's PBHG Class shares declined 24.92% and the Advisor Class declined 25.13% versus the 9.71% decline of the Wit Soundview 100 Index and the positive 3.68% return of its benchmark, the PSE Technology Index(R) for the year ended March 31, 2002. PORTFOLIO DISCUSSION The past twelve months have seemed like a rollercoaster for technology investors. Stocks sporadically rose on faint signs of a potential recovery in the broad economy, only to resume their downward slide in response to weak fundamental results, inconclusive macro-economic data and horrible and unpredictable geopolitical events. Throughout most of 2001, the stock market was constantly searching for the proverbial "bottom", nowhere more so than in the technology sector. 18 The "bottom" for technology investors has become defined by an end to the staggering drop-off in information technology spending by enterprises and a resumption of capital expenditures by telecommunications service providers. The year began with cautious optimism, driven primarily by expectations that the Federal Reserve would aggressively employ monetary easing in an attempt to breathe life into an economy hard hit by the excesses of 1999 and 2000. As 2001 gradually progressed, the Federal Reserve attempted to revive the weakening economy with the record 11 rate cuts. Exacerbated by the events of September 11, however, the economy failed to respond quickly to the Fed's aggressive actions. The rash of excessive investments that characterized 1999 and 2000 ended up punishing the technology sector hardest. Entering 2001 the technology sector was still suffering from the bursting of the "Internet bubble", which had temporarily crippled those companies manufacturing infrastructure hardware and software. At the same time, the recession in the telecommunications industry was just beginning and would come to deepen over the ensuing twelve months. We did not make radical changes to the Fund's positioning entering the period. Our largest weightings continued to be in the telecommunications equipment and data-networking sectors. In hindsight, this proved problematic, as this sector would exit the year as one of the worst performers in the technology arena. A steady stream of dramatic reductions in global capital expenditures by telecommunications services providers resulted in dismal performance in 2001. One bright spot was our investment in Cisco Systems. Although one of our largest positions in the industry, its positive return during the year did not offset the losses sustained by some of our other holdings in next generation equipment vendors such as Ciena, Juniper Networks, ONI Systems and Redback Networks. While we had reduced our positions in these names throughout the year, we underestimated the magnitude and the pace of the spending cuts plaguing the telecommunications industry. In retrospect, the shortfalls in our investment strategies are now apparent. While data traffic continued its rapid rate of growth in 2001, several opposing forces caused the aggregate flood of capital expenditure to cease abruptly. The implosion and resulting financial failure of the hundreds of emerging competitive local exchange carriers (CLECs) not only eradicated a key customer of the next generation equipment suppliers, it also greatly reduced the pressure on incumbent carriers to continue spending at accelerated levels to upgrade the quality and capacity of their networks. Concurrently, the slowing economic environment reduced the global demand for voice and data services, further decreasing the need for telecommunications carriers to proceed with large capital expenditure programs. The result was one of the largest reductions in capital spending in the history of the telecommunications industry, a toxic environment for the vendors of next generation telecommunications equipment. 19 During the course of the year, we increased our exposure to the semiconductor and semiconductor capital equipment areas the greatest. Business fundamentals improved modestly, yet steadily, as inventory levels were reduced to unsustainably low levels. Excess capacity among semiconductor manufacturers gradually diminished over the course of 2001 and semiconductor order rates continued to exhibit signs of improvement as the fiscal year came to a close. The greatest positive contributor to Fund performance during the year was derived from RF Micro Devices, a leading provider of power amplifiers used in wireless handsets. Additionally, analog semiconductor companies such as Maxim Integrated Products, Linear Technology, and Texas Instruments positively impacted the Fund. On the semiconductor capital equipment front, quarterly sequential improvement in orders late in the fiscal year pointed to cyclical recovery and helped propel stock prices higher in this sector. Applied Materials, Novellus Systems, Teradyne, and KLA Tencor also fared well during the period. The hardware sector yielded mixed results for the Fund. While many vendors continued to be negatively impacted by the reduction in corporate IT spending, a select few benefited from new technology implementations, new product cycles and limited replacement of obsolete equipment. This was true of Storage Area Networking (SAN), for example. The SAN space received heightened attention from IT managers due to significant cost and performance advantages over existing solutions, such as tape back-up and network attached storage (NAS) . Companies such as Brocade Communications Systems and Emulex benefited from the urgency placed on enhancing corporate storage capabilities. While near term visibility remains somewhat cloudy for the technology sector, we believe that we may have reached a "bottom" in many areas of technology, particularly those dependent on corporate IT spending. It appears, however, that the slide in service provider capital expenditures continues, although at a somewhat reduced rate. The macro environment continues to exhibit signs of improvement: excessive inventory levels have been reduced across the technology food-chain; capacity utilization appears to be moving higher; and early cycle areas within technology are beginning to benefit from improving, and in some cases expedited, order rates. We remain steadfast in our belief that as U.S. corporate profitability continues to improve, corporate IT spending will soon follow. Our long-term conviction in the power of technology and the ensuing opportunities afforded to patient investors remains unchanged. We want to thank our investors for their continued support in a very difficult technology environment. We believe the recent periods of near-term uncertainty create attractive entry points for long-term investors. Therefore, we continue with the consistent execution of our aggressive growth investment philosophy to ensure that shareholders capitalize fully on what we believe to be a steadily improving technology landscape. 20 AVERAGE ANNUAL TOTAL RETURN AS OF MARCH 31, 2002
One Annualized Annualized Annualized Year 3-Year 5-Year Inception Return Return Return to Date - ------------------------- --------------------- ---------------------- ------------------------ -------------------- PBHG Technology & (24.92)% (13.51)% 5.39% 10.74% Communications Fund - PBHG Class
Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. [Insert Line Graph] RIGHTS OF SHAREHOLDERS Global Tech Fund and PBHG Tech Fund are each separate series of shares of beneficial interest of PBHG Funds, a Delaware statutory trust. Since both funds are part of the same entity, there are no differences in shareholder's rights. OWNERSHIP OF GLOBAL TECH FUND AND PBHG TECH FUND SHARES SIGNIFICANT HOLDERS Listed below is the name, address and percent ownership of each person who as of December 16, 2002, to the knowledge of PBHG Funds, owned beneficially 5% or more of the outstanding shares of Global Tech Fund: 21 GLOBAL TECH FUND PERCENT NUMBER OF SHARES BENEFICIAL NAME AND ADDRESS OWNED OWNERSHIP Listed below is the name, address and percent ownership of each person who as of December 16, 2002 to the knowledge of PBHG Funds, owned beneficially 5% or more of the outstanding shares of PBHG Tech Fund: PBHG TECH FUND PERCENT NUMBER OF SHARES BENEFICIAL NAME AND ADDRESS OWNED OWNERSHIP OWNERSHIP OF TRUSTEES AND OFFICERS [To the best of the knowledge of PBHG Funds, the beneficial ownership of shares of Global Tech Fund or of PBHG Tech Fund by trustees 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.] LEGAL MATTERS Certain legal matters concerning PBHG Funds and its participation in the Reorganization, the issuance of shares of PBHG Tech 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 Global Tech Fund and PBHG Tech Fund is Registration No. 2-99810. 22 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 PBHG Tech 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 office of the SEC: 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 PBHG TECH FUND For more information with respect to PBHG Funds and PBHG Tech Fund concerning the following topics, please refer to the current prospectus of PBHG Tech Fund attached as Appendix II as indicated: (i) see the discussion "Performance Information" and "Fees and Expenses" and "Example" for further information regarding PBHG Tech Fund performance and expenses; (ii) see the discussion "The Investment Adviser" for further information regarding management of PBHG Tech 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. PLAN OF REORGANIZATION for PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND an Investment Portfolio of PBHG Funds This Plan of Reorganization provides for the reorganization of PBHG Global Technology & Communications Fund ("Global Technology Fund"), an investment portfolio of PBHG Funds (the "Trust"), into PBHG Technology & Communications Fund (the "Technology Fund"), also an investment portfolio of the Trust. The Technology Fund is sometimes referred to herein as the "Surviving Fund," and the Global Technology Fund is sometimes referred to herein as the "Reclassified Fund." The Surviving Fund and the Reclassified Fund are sometimes collectively referred to herein as the "Funds." WHEREAS, the Trust is a Delaware statutory trust and a registered investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Funds are each investment portfolios of the Trust representing separate series of shares of beneficial interest of the Trust; WHEREAS, the Funds are authorized to issue an unlimited number of PBHG Class shares and Advisor Class shares; WHEREAS, the Technology Fund has outstanding PBHG Class and Advisor Class shares and the Global Technology Fund has outstanding PBHG Class shares; and WHEREAS, the Board of Trustees of the Trust has determined that it would be in the best interests of the Funds' beneficial owners to reorganize the Reclassified Fund by reclassifying the shares of the Global Technology Fund as shares of the Technology Fund, pursuant to an amendment to the Trust's Agreement and Declaration of Trust (the "Declaration"), all in the manner described below. NOW, THEREFORE, the Global Technology Fund shall be reorganized into the Technology 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 Global Technology Fund shall be reclassified and changed into and become PBHG Class shares of the Technology Fund based upon their respective net asset values, and thereafter shall have the attributes of PBHG Class shares of the Technology Fund. The stock transfer books of the Global Technology Fund will be permanently closed at the Effective Time and only requests for the redemption of shares of the Global Technology 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 Global Technology Fund shall be deemed to be redemption requests for the Technology Fund shares into which such Global Technology 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 Global Technology Fund attributable to its PBHG Class shares shall become a part of the proportionate undivided interest in the net assets of the Technology Fund attributable to its PBHG Class shares and the expenses, costs, charges and reserves allocated to the PBHG Class shares of the Global Technology Fund immediately prior to the Effective Time shall become expenses, costs, charges and reserves of PBHG Class shares of the Technology Fund. The Trust shall instruct its custodian to reflect in the custodian's records for the Technology Fund the attribution of the assets of the Global Technology Fund in the manner described above. (c) Beneficial Owner Accounts. At the Effective Time described in Section 3 below, each beneficial owner of record of PBHG Class shares of the Global Technology Fund will receive that number of PBHG Class shares of the Technology Fund having an aggregate net asset value equal to the aggregate net value of the assets of the PBHG Class shares of the Global Technology Fund held by such beneficial owner immediately prior to the Effective Time. The Trust will establish an open account on the records of the Technology Fund in the name of each beneficial owner of the Global Technology Fund to which will be credited the respective number of shares of the Technology Fund due such beneficial owner. Fractional shares of the Technology Fund will be carried to the third decimal place. Certificates representing shares of the Technology Fund will not be issued. The net asset value of the shares of the Global Technology Fund and the net value of the assets of the Technology Fund will be determined at the Effective Time in accordance with the policies and procedures of the Trust. (d) Termination of Reclassified Fund. Immediately after the Effective Time described in Section 3 below, the Reclassified Fund shall cease to be an investment portfolio of the Trust and the Trust's Board of Trustees shall take all necessary action to terminate the Reclassified Fund as a separate investment portfolio of the Trust. 2. AMENDMENT TO DECLARATION. The Trust shall effect the reorganization of the Global Technology Fund by amending its Declaration to provide for the reclassification of issued and outstanding PBHG Class shares of the Global Technology Fund as PBHG Class shares of the Technology Fund, based upon their respective net asset values, to provide for transfer of assets and liabilities from the Global Technology Fund to the Technology Fund, to provide for the crediting of shares of the Technology Fund to the account of beneficial owners of the Global Technology Fund, all in the manner provided in paragraph 1, and to effect the termination of the Global Technology Fund as a portfolio of the Trust. 3. EFFECTIVE TIME OF THE REORGANIZATION. The reorganization of the Reclassified Fund contemplated by this Plan of Reorganization shall occur on February 28, 2003, at 4:30 p.m. Eastern Time, or such other date and time as the officers of the Trust shall determine (the "Effective Time"). 4. APPROVAL OF BENEFICIAL OWNERS. A meeting of the holders of the Global Technology 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 amendments to the Declaration described above. Approval by such beneficial owners of this Plan of Reorganization shall authorize the Trust to take the actions required to effect the Plan of Reorganization for the Reclassified Fund. 5. CONDITIONS PRECEDENT. The Trust will consummate the Plan of Reorganization only after satisfaction of each of the following conditions: (a) 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. (b) This Plan of Reorganization, the amendments to the Declaration and related trust matters shall have been approved by the beneficial owners of shares of the Reclassified Fund at a special meeting by the affirmative vote of a majority of the total number of shares cast. (c) The net assets of the Global Technology Fund to be acquired by the Technology 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 Global Technology Fund immediately prior to the reclassification. For purposes of this paragraph 5(c), any assets used by the Reclassified Fund to pay the expenses it incurs in connection with this Plan of Reorganization and to effect all beneficial owner 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 Reclassified Fund's business as a portfolio of an open-end management investment company) after the commencement of negotiations regarding the Reorganization shall be included as assets of the Reclassified Fund held immediately prior to the reclassification. (d) The dividend described in the last sentence of paragraph 6(a)(i) shall have been declared. (e) The Trust shall have received an opinion of Ballard Spahr Andrews & Ingersoll, LLP ("BSA&I") to the effect that consummation of the transaction contemplated by this Plan of Reorganization will constitute a "reorganization" within the meaning of Section 368(a) of the Internal Revenue Code (the "Code"), and that the beneficial owners of the Reclassified Fund will recognize no gain or loss to the extent that they receive shares of the Surviving Fund in exchange for their shares of the Reclassified 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 Trust and others, and the officers of the Trust shall use their best efforts to make available such truthful certificates. (f) The Trust shall have received an opinion of BSA&I, dated as of the Effective Time, addressed to and in form and substance satisfactory to the Trust, to the effect that this Plan of Reorganization has been duly authorized and approved by all requisite action of the Trust and the beneficial owners of the shares of the Reclassified Fund. At any time prior to the Effective Time, any of the foregoing conditions may be waived by the Trust if, in the judgment of its Board of Trustees, such waiver will not have a material adverse effect on the benefits intended under this Plan of Reorganization for the Reclassified Fund's beneficial owners. 6. GLOBAL TECHNOLOGY FUND AND TECHNOLOGY FUND TAX MATTERS. (a) Global Technology Fund. (i) The Global Technology Fund has elected to be a regulated investment company under Subchapter M of the Code. The Global Technology 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 Global Technology 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 Global Technology Fund as a "regulated investment company" for tax purposes and (ii) eliminate any tax liability of the Global Technology Fund arising by reason of undistributed investment company taxable income or net capital gain, the Global Technology Fund will declare on or prior to the Effective Time to the beneficial owners of the Global Technology Fund a dividend or dividends that, together with all previous such dividends, shall have the effect of distributing (A) all of the Global Technology Fund's investment company taxable income (determined without regard to any deductions for dividends paid) for the taxable year ended March 31, 2002 and for the short taxable year beginning on April 1, 2002 and ending at the Effective Time and (B) all of the Global Technology Fund's net capital gain recognized in its taxable year ended March 31, 2002 and in such short taxable year (after reduction for any capital loss carryover). (ii) The Global Technology 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 Global Technology 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 Global Technology Fund. (iii) The fiscal year of the Global Technology Fund has not been changed for tax purposes since the date on which it commenced operations. (b) Technology Fund. (i) The Technology Fund has elected to be treated as a regulated investment company under Subchapter M of the Code. The Technology 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 Technology 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. (ii) The Technology 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 Technology 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 Technology Fund. (iii) The fiscal year of the Technology Fund has not been changed for tax purposes since the date on which it commenced operations. 7. TERMINATION. The Trust may terminate this Plan of Reorganization with the approval of its Board of Trustees at any time prior to the Effective Time, notwithstanding approval thereof by the Reclassified Fund's respective beneficial owners if, in the judgment of the Board of Trustees, proceeding with the Plan of Reorganization would be inadvisable. 8. FURTHER ASSURANCES. The Trust shall take such further action as may be necessary or desirable and proper to consummate the transactions contemplated hereby. 9. EXPENSES. Each of the Funds shall bear any expenses each 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 Trustees of the Trust on the 21st day of October, 2002. PBHG FUNDS SUPPLEMENT DATED JULY 29, 2002 To the Prospectuses for the PBHG Class and Advisor Class Shares of the PBHG Special Equity Fund In a previous supplement dated June 3, 2002, we notified you that The John Nuveen Company has agreed to acquire PBHG Special Equity Fund's sub-adviser, NWQ Investment Management Company, Inc. ("NWQ"). In connection with this proposed acquisition and related events, the Board of Trustees of PBHG Funds has called a special meeting of shareholders of PBHG Special Equity Fund. Shareholders will be receiving in October proxy materials that will ask for your vote on two matters. The purpose of the meeting is generally to enable PBHG Special Equity Fund to become part of the Nuveen family of mutual funds, with the same investment objective any many of the same shareholder privileges you currently enjoy, and to permit NWQ to continue to serve as the Fund's sub-adviser. The Board of Trustees of PBHG Funds has called a special meeting of PBHG Special Equity Fund shareholders to be held on December 5, 2002 to approve two items. First, shareholders of the PBHG Special Equity Fund will be asked to approve a new investment sub-advisory agreement with NWQ Investment Management Company, LLC, successor to NWQ ("NWQ LLC"). As you were previously advised in a supplement dated June 3, 2002, the U.S. asset management group of Old Mutual plc, the indirect parent company of NWQ, has agreed to sell NWQ to The John Nuveen Company. Upon the closing of this transaction, the current sub-advisory agreement with NWQ will automatically terminate and a new interim sub-advisory agreement with NWQ LLC will become effective. This interim sub-advisory agreement will remain in effect pending shareholder approval of a new investment sub-advisory agreement with NWQ LLC. In addition, the Board of Trustees of PBHG Funds has approved a proposal to merge the PBHG Special Equity Fund into the Nuveen NWQ Multi-Cap Value Fund of Nuveen Investment Trust. Only shareholders who own shares of the PBHG Special Equity Fund at the close of business on September 12, 2002, the record date, will be entitled to notice of and to vote at the December 5, 2002 special meeting of the PBHG Special Equity Fund shareholders. More detailed information will be contained in the forthcoming proxy statement. This Supplement updates certain information contained in the Prospectus for the PBHG Class shares dated July 29, 2002 and in the Prospectus for the Advisor Class shares July 29, 2002 for the PBHG Special Equity Fund. You should retain the Prospectus for future reference. You may obtain an additional copy of the PBHG Class Prospectus or the Advisor Class Prospectus free of charge by calling 1-800-433-0051 or via the Internet at www.pbhgfunds.com. PBHG FUNDS SUPPLEMENT DATED AUGUST 19, 2002 To the Prospectuses for the PBHG Class and Advisor Class Shares of the PBHG Technology & Communications Fund and PBHG Global Technology & Communications Fund This Supplement updates certain information contained in the Prospectuses for the PBHG Class and Advisor Class shares for the PBHG Technology & Communications Fund and PBHG Global Technology & Communications Fund dated July 29, 2002 (as supplemented July 29, 2002). You should retain the Prospectus and all Supplements for future reference. You may obtain an additional copies of the Prospectuses and Supplements free of charge by calling 1-800-433-0051 or via the internet at www.pbhgfunds.com. The PBHG Technology & Communications Fund and the PBHG Global Technology & Communications Fund are managed by Pilgrim Baxter's technology team, lead by Gary L. Pilgrim, Michael S. Sutton, Jerome J. Heppelman and Raymond J. McCaffrey. The work experience of these investment professionals is discussed in the "Portfolio Managers" section of the Prospectus. PBHG FUNDS SUPPLEMENT DATED OCTOBER 22, 2002 To the Prospectuses for PBHG Global Technology & Communications Fund and PBHG Cash Reserves Fund This Supplement updates certain information contained in the Prospectus for the PBHG Class shares dated July 29, 2002 and in the Prospectus for the Advisor Class shares dated July 29, 2002 (as supplemented September 24, 2002). You should retain the Prospectus for future reference. You may obtain additional copies of these Prospectuses and all current Supplements free of charge by calling 1-800-433-0051 or via the Internet at www.pbhgfunds.com. PBHG GLOBAL TECHNOLOGY & Communications Fund The Board of Trustees of PBHG Funds has called a special meeting of PBHG Global Technology & Communications Fund shareholders to be held on Thursday, February 27, 2003 to approve a proposal to merge the PBHG Global Technology & Communications Fund into the PBHG Technology & Communications Fund. Only shareholders who own shares of the PBHG Global Technology & Communications Fund at the close of business on Monday, December 16, 2002, the record date, will be entitled to notice of and to vote at the February 27, 2003 special meeting of the PBHG Global Technology & Communications Fund shareholders. More detailed information will be contained in the forthcoming proxy statement. PBHG CASH RESERVES FUND The PBHG Cash Reserves Fund is managed by Timothy Smith. Mr. Smith has worked closely with Mr. Keogh, the Fund's previous portfolio manager, since the Fund's inception in 1995. Mr. Smith is a Vice President and Associate of Wellington Management. Mr. Smith also is the Chairman of Wellington Management's Money Market Strategy Group. Prior to joining Wellington Management in 1992, Mr. Smith spent seven years with Fidelity Investments. [LOGO] PBHG FUNDS PROSPECTUS July 29, 2002 GROWTH FUNDS PBHG Core Growth Fund PBHG Emerging Growth Fund PBHG Growth Fund PBHG Large Cap 20 Fund PBHG Large Cap Growth Fund PBHG Limited Fund PBHG New Opportunities Fund PBHG Select Equity Fund VALUE FUNDS PBHG Clipper Focus Fund PBHG Focused Value Fund PBHG Large Cap Value Fund PBHG Mid-Cap Value Fund PBHG Small Cap Value Fund PBHG Special Equity Fund SPECIALTY FUNDS PBHG Disciplined Equity Fund PBHG Global Technology & Communications Fund PBHG REIT Fund PBHG Strategic Small Company Fund PBHG Technology & Communications Fund FIXED-INCOME FUNDS PBHG IRA Capital Preservation Fund MONEY MARKET FUNDS PBHG Cash Reserves Fund 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. PBHG Prospectus -- 7/02 AN INTRODUCTION TO THE PBHG FUNDS(R) AND THIS PROSPECTUS PBHG Funds 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. 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. 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 are pursuing a short-term investment goal, such as investing emergency reserves. Except for the IRA Capital Preservation Fund, these other Funds also may not be suitable for investors who require regular income or stability of principal. 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 106 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. CONTENTS FUND SUMMARIES - -------------------------------------------------------------------------------- PBHG Core Growth Fund............................. 3 PBHG Emerging Growth Fund......................... 7 PBHG Growth Fund.................................. 11 PBHG Large Cap 20 Fund............................ 15 PBHG Large Cap Growth Fund........................ 19 PBHG Limited Fund................................. 23 PBHG New Opportunities Fund....................... 27 PBHG Select Equity Fund........................... 31 PBHG Clipper Focus Fund........................... 35 PBHG Focused Value Fund........................... 39 PBHG Large Cap Value Fund......................... 43 PBHG Mid-Cap Value Fund........................... 47 PBHG Small Cap Value Fund......................... 51 PBHG Special Equity Fund.......................... 55 PBHG Disciplined Equity Fund...................... 59 PBHG Global Technology & Communications Fund............................ 63 PBHG REIT Fund.................................... 68 PBHG Strategic Small Company Fund................................... 73 PBHG Technology & Communications Fund............................ 77 PBHG IRA Capital Preservation Fund.............................. 82 PBHG Cash Reserves Fund........................... 89 MORE ABOUT THE FUNDS - -------------------------------------------------------------------------------- Our Investment Strategies......................... 93 Risks & Returns................................... 96 1 CONTENTS (CONTINUED) THE INVESTMENT ADVISER & SUB-ADVISERS - -------------------------------------------------------------------------------- The Investment Adviser.......................... 106 Pilgrim Baxter & Associates, Ltd. The Sub-Advisers................................ 106 Pacific Financial Research, Inc. ("PFR") NWQ Investment Management Company, Inc. ("NWQ") Analytic Investors, Inc. ("Analytic") Heitman Real Estate Securities LLC ("Heitman") Dwight Asset Management Company ("Dwight") Wellington Management Company, Ltd. ("Wellington Management") YOUR INVESTMENT - -------------------------------------------------------------------------------- Pricing Fund Shares............................. 112 Buying Shares................................... 113 Selling Shares.................................. 115 General Policies................................ 116 Distribution & Taxes............................ 120 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Financial Highlights............................ 122 2 PBHG CORE GROWTH FUND [GRAPHIC] GOAL The Fund seeks to provide investors with capital appreciation. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 65% of its total assets in growth securities, such as common stocks, of small, 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 sell 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 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] 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 93. PBHG CORE GROWTH FUND 3 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Growth Index. The Russell Midcap(R) Growth Index is a widely recognized, unmanaged index that measures the performance of the smaller issuers in the Russell 1000(R) Index with greater-than-average growth characteristics. The Russell 1000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1996 2.80% 1997 -9.71% 1998 7.42% 1999 97.59% 2000 -21.07% 2001 -38.76% The Fund's year-to-date return as of 6/30/02 was -17.62%. BEST QUARTER: Q4 1999 54.71% WORST QUARTER: Q1 2001 -39.55% 4 PBHG CORE GROWTH FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (12/29/95) - -------------------------------------------------------------------------------- Core Growth Fund -- PBHG Class Before Taxes -38.76% -1.52% 3.51% Core Growth Fund -- PBHG Class After Taxes on Distributions -38.76% -2.29% 2.83% Core Growth Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -23.60%** -1.22%** 2.84%** Russell Midcap(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -20.15% 9.02% 10.38% * The since inception return for the Russell Midcap(R) Growth Index was calculated from December 31, 1995. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG CORE GROWTH FUND 5 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.64% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.49%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.47%. [GRAPHIC] 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 $152 $471 $813 $1,779 6 PBHG CORE GROWTH FUND PBHG EMERGING GROWTH FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in growth securities, such as common stocks, of small sized companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the Russell 2000(R) Growth Index had market capitalizations between $26 million and $1.8 billion. 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 Index. Pilgrim Baxter expects to focus primarily on those growth securities whose market capitalizations or annual revenues are $500 million or less at the time of purchase. The size of the companies in the Russell 2000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 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] 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 93. PBHG EMERGING GROWTH FUND 7 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Growth Index, a widely recognized, unmanaged index that tracks the performance of those securities in the Russell 2000(R) Index with greater-than-average growth characteristics. The Russell 2000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1994 23.78% 1995 48.45% 1996 17.08% 1997 -3.67% 1998 .00% 1999 48.34% 2000 -25.22% 2001 -32.56% The Fund's year-to-date return as of 6/30/02 was -35.98%. BEST QUARTER: Q4 1999 45.85% WORST QUARTER: Q3 2001 -34.44% 8 PBHG EMERGING GROWTH FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ============================================================================== Since Past Past Inception 1 Year 5 Years (6/14/93) - -------------------------------------------------------------------------------- Emerging Growth Fund -- PBHG Class Before Taxes -32.56% -5.79% 9.18% Emerging Growth Fund -- PBHG Class After Taxes on Distributions -32.56% -6.36% 8.04% Emerging Growth Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -19.83%** -4.45%** 7.42% Russell 2000(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -9.23% 2.87% 7.38% * The since inception return for the Russell 2000(R) Growth Index was calculated from May 31, 1993. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG EMERGING GROWTH FUND 9 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.54% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.39%* ================================================================================ * IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.38%. [GRAPHIC] 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 $142 $440 $761 $1,669 10 PBHG EMERGING GROWTH FUND PBHG GROWTH FUND [GRAPHIC] GOAL The Fund seeks to provide investors with capital appreciation. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 65% of its total assets in growth securities, such as common stocks, of small and medium sized companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the companies in the Russell 2000(R) Growth Index had market capitalizations between $26 million and $1.8 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 expects to focus primarily on those growth securities whose market capitalizations or annual revenues are $2 billion or less at the time of purchase. The size of companies in the Russell 2000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of that index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 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] 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 93. PBHG GROWTH FUND 11 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Growth Index, a widely recognized, unmanaged index that tracks the performance of those securities in the Russell 2000(R) Index with greater-than-average growth characteristics. The Russell 2000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1992 28.39% 1993 46.71% 1994 4.75% 1995 50.35% 1996 9.82% 1997 -3.35% 1998 0.59% 1999 92.45% 2000 -22.99% 2001 -34.53% The Fund's year-to-date return as of 6/30/02 was -18.03%. BEST QUARTER: Q4 1999 64.55% WORST QUARTER: Q4 2000 -32.58% 12 PBHG GROWTH FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Past Past Past 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- Growth Fund -- PBHG Class Before Taxes -34.53% -1.16% 11.88% Growth Fund -- PBHG Class After Taxes on Distributions -34.53% -1.97% 10.66% Growth Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -21.03%* -0.56%* 9.96% Russell 2000(R) Growth Index (Reflects No Deduction for Fees, Expenses or Taxes) -9.23% 2.87% 7.19% Note: The inception date of the Growth Fund was December 19, 1985. * When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG GROWTH FUND 13 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.48% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.33%* ================================================================================ * IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.32%. [GRAPHIC] 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 $135 $421 $729 $1,601 14 PBHG GROWTH FUND PBHG LARGE CAP 20 FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund, a non-diversified fund, will invest at least 80% of its assets in growth securities, such as common stocks, of no more than 20 large capitalization companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 1000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the Russell 1000(R) Growth Index had market capitalizations between $303 million and $296.2 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 expects to focus on those growth securities whose market capitalizations are over $5 billion at the time of purchase. The size of the companies in the Russell 1000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The Fund is non-diversified, which means it invests a higher percentage of its assets in a more limited number of stocks than a diversified fund. As a result, the price change of a single security 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 may go 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 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. PBHG LARGE CAP 20 FUND 15 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] 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 93. [GRAPHIC] Performance Information The bar chart below and the performance table on the next page 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 its benchmark, the S&P 500 Index, a widely recognized, unmanaged index that measures the performance of large cap stocks across all major industries, and the Russell 1000(R) Growth Index, a widely recognized, unmanaged index that measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1997 32.96% 1998 67.83% 1999 102.94% 2000 -22.08% 2001 -35.36% The Fund's year-to-date return as of 6/30/02 was -18.17%. BEST QUARTER: Q4 1999 75.65% WORST QUARTER: Q4 2000 -33.11% 16 PBHG LARGE CAP 20 FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (11/29/96) - -------------------------------------------------------------------------------- Large Cap 20 Fund -- PBHG Class Before Taxes -35.36% 17.93% 17.23% Large Cap 20 Fund -- PBHG Class After Taxes on Distributions -35.36% 16.02% 15.35% Large Cap 20 Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -21.53%** 15.40% 14.78% S&P 500 Index* (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 10.08% Russell 1000(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -20.42% 8.27% 7.71% * The since inception returns for the S&P 500 Index and the Russell 1000(R) Growth Index were calculated as of November 30, 1996. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG LARGE CAP 20 FUND 17 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.51% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.36%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.35%. [GRAPHIC] 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 $138 $431 $745 $1,635 18 PBHG LARGE CAP 20 FUND PBHG LARGE CAP GROWTH FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in growth securities, such as common stocks, of large capitalization companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 1000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the Russell 1000(R) Growth Index had market capitalizations between $303 million and $296.2 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 expects to focus on those growth securities whose market capitalizations are over $5 billion at the time of purchase. The size of the companies in the Russell 1000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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] 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 93. PBHG LARGE CAP GROWTH FUND 19 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 its benchmark, the S&P 500 Index, a widely recognized, unmanaged index that measures the performance of large cap stocks across all major industries, and the Russell 1000(R) Growth Index, a widely recognized, unmanaged index that measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1996 3.40% 1997 22.36% 1998 30.42% 1999 67.06% 2000 -0.18% 2001 -28.52% The Fund's year-to-date return as of 6/30/02 was -16.49%. BEST QUARTER: Q4 1999 59.55% WORST QUARTER: Q4 2000 -22.74% 20 PBHG LARGE CAP GROWTH FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (4/5/95) - -------------------------------------------------------------------------------- Large Cap Growth Fund -- PBHG Class Before Taxes -28.52% 13.72% 18.52% Large Cap Growth Fund -- PBHG Class After Taxes on Distributions -28.52% 11.85% 16.85% Large Cap Growth Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -17.37%** 11.38% 15.72% S&P 500 Index* (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 14.96% Russell 1000(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -20.42% 8.27% 13.09% * The since inception returns for the S&P 500 Index and the Russell 1000(R) Growth Index were calculated from March 31, 1995. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG LARGE CAP GROWTH FUND 21 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.75% Distribution and/or Service (12b-1) Fees None Other Expenses 0.51% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.26%* ================================================================================ * IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.25%. [GRAPHIC] 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 $128 $400 $692 $1,523 22 PBHG LARGE CAP GROWTH FUND PBHG LIMITED FUND THIS FUND IS CURRENTLY OFFERED ONLY TO EXISTING SHAREHOLDERS. EXISTING SHAREHOLDERS MAY OPEN NEW ACCOUNTS, PROVIDED THAT ANY NEW ACCOUNT IS REGISTERED IN THE SAME NAME OR HAS THE SAME SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER AS THE EXISTING SHAREHOLDER'S ACCOUNT. [GRAPHIC] GOAL The Fund seeks to provide investors with long-term capital appreciation. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 65% of its total assets in growth securities, such as common stocks, of small sized companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the Russell 2000(R) Growth Index had market capitalizations between $26 million and $1.8 billion. 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 Index. Pilgrim Baxter expects to focus on those growth securities whose market capitalizations or annual revenues are $250 million or less at the time of purchase. The size of the companies in the Russell 2000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 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. PBHG LIMITED FUND 23 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Growth Index, a widely recognized, unmanaged index that tracks the performance of those securities in the Russell 2000(R) Index with greater-than-average growth characteristics. The Russell 2000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1997 16.07% 1998 13.05% 1999 71.70% 2000 -6.86% 2001 -18.14% The Fund's year-to-date return as of 6/30/02 was -30.72%. BEST QUARTER: Q4 1999 49.84% WORST QUARTER: Q3 2001 -29.64% 24 PBHG LIMITED FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (6/28/96) - -------------------------------------------------------------------------------- Limited Fund -- PBHG Class Before Taxes -18.14% 11.43% 12.40% Limited Fund -- PBHG Class After Taxes on Distributions -18.37% 7.92% 9.16% Limited Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -10.83%** 8.87%** 9.78%** Russell 2000(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -9.23% 2.87% 2.50% * The since inception return for the Russell 2000(R) Growth Index was calculated as of June 30, 1996. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG LIMITED FUND 25 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.41% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.41%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.40%. [GRAPHIC] 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 $144 $446 $771 $1,691 26 PBHG LIMITED FUND PBHG NEW OPPORTUNITIES FUND THIS FUND IS CURRENTLY OFFERED ONLY TO THE FOLLOWING INVESTORS: (A) 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] GOAL The Fund seeks to provide investors with capital appreciation. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 65% of its total assets in growth securities, such as common stocks, of companies in economic sectors which Pilgrim Baxter believes have above-average long-term growth potential. The Fund will generally hold stocks of less than 50 small growth companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index at the time of the Fund's investment. As of June 30, 2002, the Russell 2000(R) Growth Index had market capitalizations between $26 million and $1.8 billion. The growth securities in the Fund are primarily common stocks. The sectors that Pilgrim Baxter 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 expects to focus primarily on those growth securities whose market capitalizations or annual revenues are under $1 billion at the time of purchase. The size of the companies in the Russell 2000(R) Growth Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth in determining which securities to buy and sell 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] MAIN INVESTMENT RISKS The Fund invests in a limited number of stocks. As a result, the price change of a single security 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 fund that does not invest in a limited number of stocks. The value of your investment in the Fund may go 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 PBHG NEW OPPORTUNITIES FUND 27 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 emphasizes small growth companies so it may be more volatile than the stock market in general, as measured by the S&P 500 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. [GRAPHIC] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page illustrate the risks and volatility of an investment in the Fund. The bar chart shows you how the Fund performance has varied from year to year. The performance table compares the Fund's performance over time to that of the Russell 2000(R) Growth Index, a widely recognized, unmanaged index that tracks the performance of those securities in the Russell 2000(R) Index with greater-than-average growth characteristics. The Russell 2000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 000 -4.68% 001 -30.70% The Fund's year-to-date return as of 6/30/02 was -19.44%. BEST QUARTER: Q1 2000 42.37% WORST QUARTER: Q3 2001 -33.12% 28 PBHG NEW OPPORTUNITIES FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (2/12/99) - -------------------------------------------------------------------------------- New Opportunities Fund -- PBHG Class Before Taxes -30.70% 55.39% New Opportunities Fund -- PBHG Class After Taxes on Distributions -30.70% 45.75% New Opportunities Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -18.70%** 43.64% Russell 2000(R) Growth Index* (Reflects No Deduction for Fees, Expenses or Taxes) -9.23% -1.24% * The since inception return for the Russell 2000(R) Growth Index was calculated as of January 31, 1999. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG NEW OPPORTUNITIES FUND 29 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.44% - -------------------------------------------------------------------------------- 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, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.43%. [GRAPHIC] 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 $147 $456 $787 $1,724 30 PBHG NEW OPPORTUNITIES FUND PBHG SELECT EQUITY FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its 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 sell 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] MAIN INVESTMENT RISKS The Fund invests in a limited number of stocks. As a result, the price change of a single security 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 fund that does not invest in a limited number of stocks. The value of your investment in the Fund may go 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 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 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] 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 93. PBHG SELECT EQUITY FUND 31 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1996 27.99% 1997 6.84% 1998 19.02% 1999 160.89% 2000 -24.55% 2001 -40.84% The Fund's year-to-date return as of 6/30/02 was -22.55%. BEST QUARTER: Q4 1999 130.62% WORST QUARTER: Q4 2000 -43.15% 32 PBHG SELECT EQUITY FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (4/5/95) - -------------------------------------------------------------------------------- Select Equity Fund -- PBHG Class Before Taxes -40.84% 8.17% 17.72% Select Equity Fund -- PBHG Class After Taxes on Distributions -40.84% 7.17% 16.68% Select Equity Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -24.87%** 6.94% 15.26% S&P 500 Index* (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 14.96% * The since inception return for the S&P 500 Index was calculated from March 31, 1995. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG SELECT EQUITY FUND 33 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.53% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.38%* ================================================================================ * THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.37%. [GRAPHIC] 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 $140 $437 $755 $1,657 34 PBHG SELECT EQUITY FUND PBHG CLIPPER FOCUS FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term capital growth. [GRAPHIC] MAIN INVESTMENT STRATEGIES The Fund, a non-diversified fund, invests for the long-term in equity securities of companies whose share price trades below PFR's estimate of their intrinsic value. Based upon extensive fundamental research, PFR, the Fund's sub-adviser, prepares valuation models for each company being analyzed to identify companies that it believes the market has undervalued. The valuation models attempt to calculate each company's intrinsic value based on private market transactions and discounted cash flow. PFR adds companies to the Fund when their share price trades below PFR's estimate of intrinsic value and sells companies when their share prices reach PFR's estimate of intrinsic value. The Fund generally holds between 15 to 35 stocks. The Fund will generally hold its investment in a particular company for an extended period. PFR expects to invest fully the assets of the Fund. Consequently, PFR generally expects cash reserves to be less than 5% of the total assets of the Fund. The Clipper Focus Fund may also, on occasion, invest in special situations. A special situation arises when PFR believes the securities of a particular company will appreciate in value within a reasonable period because of unique circumstances applicable to that company, such as events that could change or temporarily hamper the ongoing operations of a company. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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. The Fund is non-diversified, which means, it invests a higher percentage of its assets in a more limited number of stocks than a diversified fund. As a result, the price change of a single security 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. Special situations often involve much greater risk than is inherent in ordinary investment securities. In addition, the market price of companies subject to special situations may never reflect any perceived intrinsic values. Although the Fund strives to achieve its goal, it cannot guarantee that the goal will be achieved. PBHG CLIPPER FOCUS FUND 35 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION Prior to December 14, 2001, the PBHG Class Shares of the Fund were known as the Institutional Class shares of the Clipper Focus Portfolio, a series of UAM Funds Trust. On December 14, 2001, the Fund acquired the assets of the Clipper Focus Portfolio. The Clipper Focus Portfolio was managed by PFR, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Clipper Focus Portfolio. The bar chart below and the performance table on the next page 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 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS* 1999 -1.88% 2000 44.29% 2001 11.93% The Fund's year-to-date return as of 6/30/02 was -2.17%. BEST QUARTER: Q3 2000 20.56% WORST QUARTER: Q1 2000 -6.25% 36 PBHG CLIPPER FOCUS FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (9/10/98) - -------------------------------------------------------------------------------- Clipper Focus Fund* -- PBHG Class Before Taxes 11.93% 20.82% Clipper Focus Fund* -- PBHG Class After Taxes on Distributions 7.05% 18.28% Clipper Focus Fund* -- PBHG Class After Taxes on Distributions and Sale of Fund Shares 7.80%*** 16.02% S&P 500 Index** (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 6.96% * Data includes performance of the Fund's predecessor, whose inception date was September 10, 1998. ** The since inception return for the S&P 500 Index was calculated as of August 31, 1998. *** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG CLIPPER FOCUS FUND 37 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.44% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.44%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND UNTIL MARCH 31, 2003. YOU SHOULD KNOW THAT 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 OPERATING EXPENSES (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.40% UNTIL SEPTEMBER 25, 2002 AND NOT MORE THAN 1.50% UNTIL MARCH 31, 2003. YOU SHOULD ALSO KNOW THAT IN ANY YEAR AFTER SEPTEMBER 25, 2002 IN WHICH THE FUND'S ASSETS ARE GREATER THAN $75 MILLION AND ITS TOTAL ANNUAL OPERATING EXPENSES (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LOWER THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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 AFTER SEPTEMBER 25, 2002. [GRAPHIC] 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 reflect net operating expenses for the one-year period and total operating expenses without expense waivers for years two through ten. 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 $147 $456 $787 $1,724 38 PBHG CLIPPER FOCUS FUND PBHG FOCUSED VALUE FUND [GRAPHIC] GOAL The Fund seeks to provide investors with above-average total returns over a 3 to 5 year market cycle. [GRAPHIC] 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 believes are currently underpriced using certain financial measurements, such as their price-to-earnings ratios, dividend income potential and earnings power. Pilgrim Baxter uses its 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] MAIN INVESTMENT RISKS The Fund is non-diversified, which means it invests a higher percentage of its assets in a limited number of stocks than a diversified fund. As a result, the price change of a single security 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 may go 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 believes 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 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. PBHG FOCUSED VALUE FUND 39 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 2000 24.81% 2000 3.44% The Fund's year-to-date return as of 6/30/02 was -18.38%. BEST QUARTER: Q1 2000 29.53% WORST QUARTER: Q3 2001 -14.97% 40 PBHG FOCUSED VALUE FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (2/12/99) - -------------------------------------------------------------------------------- Focused Value Fund -- PBHG Class Before Taxes 3.44% 25.21% Focused Value Fund -- PBHG Class After Taxes on Distributions 3.11% 23.53% Focused Value Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares 2.09% 19.92% S&P 500 Index* (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% -2.44% * The since inception return for the S&P 500 Index was calculated as of January 31, 1999. PBHG FOCUSED VALUE FUND 41 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.52% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.37%* ================================================================================ * THIS IS THE ACTUAL TOTAL FUND OPERATING EXPENSE YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.36%. [GRAPHIC] 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 $139 $434 $750 $1,646 42 PBHG FOCUSED VALUE FUND PBHG LARGE CAP VALUE FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital and income. Current income is a secondary objective. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in value securities, such as common stocks, issued by companies with large market capitalizations. These companies generally have market capitalizations similar to the market capitalizations of the companies in the S&P 500 Index at the time of the Fund's investment. As of June 30, 2002, the S&P 500 Index had market capitalizations between $492 million and $296.2 billion. The value securities in the Fund are primarily common stocks that Pilgrim Baxter believes are currently underpriced using certain financial measurements, such as their price-to-earnings ratios, dividend income potential and earnings power. Pilgrim Baxter expects to focus primarily on those value securities whose market capitalizations are over $10 billion at the time of purchase. The size of the companies in the S&P 500 Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its 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] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 believes 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] 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 93. PBHG LARGE CAP VALUE FUND 43 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1997 25.62% 1998 34.74% 1999 11.06% 2000 23.97% 2000 -1.41% The Fund's year-to-date return as of 6/30/02 was -12.23%. BEST QUARTER: Q4 1998 28.21% WORST QUARTER: Q3 2001 -14.02% 44 PBHG LARGE CAP VALUE FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (12/31/96) - -------------------------------------------------------------------------------- Large Cap Value Fund -- PBHG Class Before Taxes -1.41% 18.10% 18.10% Large Cap Value Fund -- PBHG Class After Taxes on Distributions -1.48% 13.75% 13.75% Large Cap Value Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares -0.86%* 12.71% 12.71% S&P 500 Index (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 10.70% * When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG LARGE CAP VALUE FUND 45 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.65% Distribution and/or Service (12b-1) Fees None Other Expenses 0.49% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.14%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.13%. [GRAPHIC] 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 $116 $362 $628 $1,386 46 PBHG LARGE CAP VALUE FUND PBHG MID-CAP VALUE FUND [GRAPHIC] GOAL The Fund seeks to provide investors with above-average total return over a 3 to 5 year market cycle, consistent with reasonable risk. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in value securities, such as common stocks, issued by companies with market capitalizations similar to the market capitalizations of companies in the S&P MidCap 400 Index at the time of the Fund's investment. As of June 30, 2002, the S&P MidCap 400 Index had market capitalizations between $140 million and $9.2 billion. The size of the companies in the S&P MidCap 400 Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. The value securities in the Fund are primarily common stocks that Pilgrim Baxter believes are currently underpriced using certain financial measurements, such as their price-to-earnings ratios, dividend income potential and earnings power. Pilgrim Baxter uses its 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 average company in the S&P MidCap 400 Index. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 Index. In addition, the value securities in the Fund may never reach what Pilgrim Baxter believes 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. PBHG MID-CAP VALUE FUND 47 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1998 27.84% 1999 21.72% 2000 26.17% 2001 7.79% The Fund's year-to-date return as of 6/30/02 was -9.86%. BEST QUARTER : Q4 1998 30.07% WORST QUARTER: Q3 2001 -18.53% 48 PBHG MID-CAP VALUE FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (4/30/97) - -------------------------------------------------------------------------------- Mid-Cap Value Fund -- PBHG Class Before Taxes 7.79% 26.49% Mid-Cap Value Fund -- PBHG Class After Taxes on Distributions 7.79% 20.52% Mid-Cap Value Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares 4.74% 18.74% S&P MidCap 400 Index (Reflects No Deduction for Fees, Expenses or Taxes) -0.61% 17.09% S&P BARRA MidCap Value Index (Reflects No Deduction for Fees, Expenses or Taxes) 7.14% 15.11% PBHG MID-CAP VALUE FUND 49 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.47% - -------------------------------------------------------------------------------- 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, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.31%. [GRAPHIC] 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 $134 $418 $723 $1,590 50 PBHG MID-CAP VALUE FUND PBHG SMALL CAP VALUE FUND [GRAPHIC] GOAL The Fund seeks to provide investors with above-average total return over a 3 to 5 year market cycle, consistent with reasonable risk. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in value securities, such as common stocks, issued by companies with market capitalizations similar to the market capitalizations of companies in the Russell 2000(R) Index at the time of the Fund's investment. As of June 30, 2002, the Russell 2000(R) Index had market capitalizations between $16 million and $1.8 billion. The size of the companies in the Russell 2000(R) Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market capitalizations and the composition of the index. The value securities in the Fund are primarily common stocks that Pilgrim Baxter believes are currently underpriced using certain financial measurements, such as their price-to-earnings ratios, dividend income potential and earnings power. Pilgrim Baxter uses its 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 a lower price-to-earnings ratio than the average company in the Russell 2000(R) Index. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 Index. In addition, the value securities in the Fund may never reach what Pilgrim Baxter believes 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. PBHG SMALL CAP VALUE FUND 51 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Index, a widely recognized, unmanaged index that tracks the performance of 2,000 small cap stocks, and the Russell 2000(R) 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1998 1.13% 1999 18.63% 2000 32.87% 2001 4.93% The Fund's year-to-date return as of 6/30/02 was -14.05%. BEST QUARTER: Q4 2001 25.70% WORST QUARTER: Q3 1998 -21.59% 52 PBHG SMALL CAP VALUE FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (4/30/97) - -------------------------------------------------------------------------------- Small Cap Value Fund -- PBHG Class Before Taxes 4.93% 20.98% Small Cap Value Fund -- PBHG Class After Taxes on Distributions 4.93% 19.34% Small Cap Value Fund -- PBHG Class After Taxes on Distributions and Sale of Fund Shares 3.00% 16.70% Russell 2000(R) Index (Reflects No Deduction for Fees, Expenses or Taxes) 2.49% 9.25% Russell 2000(R) Value Index (Reflects No Deduction for Fees, Expenses or Taxes) 14.02% 11.76% PBHG SMALL CAP VALUE FUND 53 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.48% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.48%* ================================================================================ * THIS IS THE ACTUAL TOTAL FUND OPERATING EXPENSE YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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, 2002. [GRAPHIC] 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 $151 $468 $808 $1,768 54 PBHG SMALL CAP VALUE FUND PBHG SPECIAL EQUITY FUND (FORMERLY PBHG NEW PERSPECTIVE FUND) THE PBHG SPECIAL EQUITY FUND CURRENTLY INTENDS TO CLOSE TO NEW INVESTORS WHEN ITS ASSETS REACH $500 MILLION. AFTERWARDS, ADDITIONAL INVESTMENTS AND/OR EXCHANGES INTO THE FUND MAY ONLY BE MADE BY PERSONS WHO ALREADY OWNED SHARES OF THE FUND AS OF THE CLOSING DATE, AND SUCH PURCHASES OR EXCHANGES MAY BE SUBJECT TO MINIMUM AND MAXIMUM AMOUNTS. [GRAPHIC] GOAL The Fund seeks to provide investors with long-term capital appreciation. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in equity securities of companies with large, medium and small capitalizations that it selects on an opportunistic basis. The Fund's sub-adviser, NWQ, seeks to identify statistically undervalued companies where a catalyst exists to recognize value or improve a company's profitability. These catalysts can be new management, industry consolidation or company restructuring or a turn in the company's fundamentals. Strong bottom up fundamental research, which focuses on both quantitative and qualitative valuation measures, drives NWQ's stock selection process. As a result of its broader definition of value, NWQ's valuation framework will include companies valued by traditional statistical measures as well as relative value, discount to asset break up value and special situations. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 medium and 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. Undervalued companies may have experienced adverse business developments or other events that have caused their stocks to be out of favor. If NWQ's assessment of the company is wrong, or if the market does not recognize the value of the company, the price of its stock may fail to meet expectations and the Fund's share price may suffer. Value oriented mutual funds may not perform as well as certain other types of mutual funds using different approaches during periods when value investing is out of favor. Although the Fund strives to achieve its goal, it cannot guarantee that the goal will be achieved. PBHG SPECIAL EQUITY FUND 55 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION Prior to December 14, 2001, the PBHG Class Shares of the Fund were known as the Institutional Service Class shares and the Institutional Class shares of the NWQ Special Equity Portfolio, a series of UAM Funds, Inc. On December 14, 2001, the Fund acquired the assets of the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was managed by NWQ, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the NWQ Special Equity Portfolio. The bar chart below and the performance table on the next page 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 its benchmark, the S&P 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS* 1998 7.41% 1999 20.86% 2000 11.61% 2001 6.09% The Fund's year-to-date return as of 6/30/02 was 1.00%. BEST QUARTER: Q2 1999 16.05% WORST QUARTER: Q3 1998 -17.83% 56 PBHG SPECIAL EQUITY FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (11/4/97) - -------------------------------------------------------------------------------- Special Equity Fund* -- PBHG Class Before Taxes 6.09% 10.66% Special Equity Fund* -- PBHG Class After Taxes on Distributions 4.16% 9.62% Special Equity Fund* -- PBHG Class After Taxes on Distributions and Sale of Fund Shares 4.52%*** 8.49% S&P 500 Index** (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 7.02% * Data includes performance of the Fund's predecessor, whose inception date was November 4, 1997. ** The since inception return for the S&P 500 Index was calculated as of October 31, 1997. *** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG SPECIAL EQUITY FUND 57 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES None (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00%* Distribution and/or Service (12b-1) Fees None Other Expenses 1.21% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 2.21% Fee Waiver and/or Expense Reimbursement 0.71% Net Expenses 1.50%** ================================================================================ * PILGRIM BAXTER IS ENTITLED TO RECEIVE A MANAGEMENT FEE OF 1.00% UNDER ITS INVESTMENT ADVISORY AGREEMENT WITH THE FUND, HOWEVER, PILGRIM BAXTER HAS CONTRACTUALLY AGREED TO WAIVE A PORTION OF ITS FEE AND RECEIVE A MANAGEMENT FEE OF 0.85% FROM THE FUND UNTIL SEPTEMBER 25, 2002. ** THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND UNTIL MARCH 31, 2003. YOU SHOULD KNOW THAT 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 OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.25% UNTIL SEPTEMBER 25, 2002 AND NOT MORE THAN 1.50% UNTIL MARCH 31, 2003. YOU SHOULD ALSO KNOW THAT IN ANY YEAR AFTER SEPTEMBER 25, 2002 IN WHICH THE FUND'S ASSETS ARE GREATER THAN $75 MILLION AND ITS TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LOWER THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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 AFTER SEPTEMBER 25, 2002. [GRAPHIC] 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 reflect net operating expenses for the one-year period and the total operating expenses without expense waivers for years two through ten. 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 $153 $623 $1,120 $2,489 58 PBHG SPECIAL EQUITY FUND PBHG Disciplined Equity Fund [GRAPHIC] GOAL The Fund seeks to provide investors with above-average total returns. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in equity securities of corporations whose securities are traded in the U.S. While the Fund may invest in companies of any size, it usually invests in medium to large capitalization companies of over $2 billion at the time of purchase. Through superior stock selection, the Fund seeks to exceed the return of its benchmark, the S&P 500 Index, over full market cycles with no greater volatility than the S&P 500 Index. Analytic, the Fund's sub-adviser, selects equity securities for this Fund using a proprietary system that ranks stocks according to a mathematical model. Analytic's system seeks to determine a security's intrinsic (true) value by evaluating variables, such as relative valuation, price momentum, company fundamentals, liquidity and risk. Using its system, Analytic believes it can assemble a portfolio of securities that is style and sector neutral to achieve a level of diversification and risk similar to that of the S&P 500 Index. "Style neutral" means a fund is similar to its investment universe in terms of exposure to quantifiable characteristics such as average market capitalization. A fund is "sector neutral" when its exposure to specified economic sectors (such as technology or utilities) is similar to that of its investment universe. Analytic also believes that by using its system, the Fund can consistently outperform traditional strategies that focus on a single style, such as value or growth. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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. The Fund may buy and sell investments relatively often. Such a strategy often involves higher expenses, including brokerage commissions, and may increase the amount of capital gains (in particular, short-term gains) realized by the Fund. Shareholders must pay tax on such capital gains. 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] 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 93. PBHG DISCIPLINED EQUITY FUND 59 [GRAPHIC] PERFORMANCE INFORMATION Prior to January 11, 2002, the PBHG Class Shares of the Fund were known as the Institutional Class shares of the Analytic Enhanced Equity Fund, a series of UAM Funds, Inc. II. On January 11, 2002, the Fund acquired the assets of the Analytic Enhanced Equity Fund. The Analytic Enhanced Equity Fund was managed by Analytic, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Analytic Enhanced Equity Fund. The bar chart below and the performance table on the next page 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, 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS* 1994 -0.25% 1995 35.34% 1996 22.95% 1997 29.86% 1998 37.82% 1999 20.06% 2000 -9.33% 2001 -6.22% The Fund's year-to-date return as of 6/30/02 was -14.12%. BEST QUARTER: Q4 1998 20.50% WORST QUARTER: Q3 2001 -11.70% 60 PBHG DISCIPLINED EQUITY FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (7/1/93) - -------------------------------------------------------------------------------- Disciplined Equity Fund*-- PBHG Class Before Taxes -6.22% 12.81% 14.48% Disciplined Equity Fund*-- PBHG Class After Taxes on Distributions -6.47% 10.50% 11.43% Disciplined Equity Fund*-- PBHG Class After Taxes on Distributions and Sale of Fund Shares -3.79%** 9.40% 10.59% S&P 500 Index*** (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 13.75% * Data includes performance of the Fund's predecessor, whose inception date was July 1, 1993. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. *** The since inception return for the S&P 500 Index was calculated as of June 30, 1993. PBHG DISCIPLINED EQUITY FUND 61 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES None (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.70%* Distribution and/or Service (12b-1) Fees None Other Expenses 0.63% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.33%** ================================================================================ * PILGRIM BAXTER IS ENTITLED TO RECEIVE A MANAGEMENT FEE OF 0.70% UNDER ITS INVESTMENT ADVISORY AGREEMENT WITH THE FUND; HOWEVER, PILGRIM BAXTER HAS CONTRACTUALLY AGREED TO WAIVE A PORTION OF ITS FEE AND RECEIVE A MANAGEMENT FEE OF 0.60% FROM THE FUND UNTIL SEPTEMBER 25, 2002. ** THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND UNTIL MARCH 31, 2003. YOU SHOULD KNOW THAT 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 OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 0.99% UNTIL SEPTEMBER 25, 2002 AND NOT MORE THAN 1.50% UNTIL MARCH 31, 2003. YOU SHOULD ALSO KNOW THAT IN ANY YEAR AFTER SEPTEMBER 25, 2002 IN WHICH THE FUND'S ASSETS ARE GREATER THAN $75 MILLION AND ITS TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LOWER THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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 AFTER SEPTEMBER 25, 2002. [GRAPHIC] 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 $135 $421 $729 $1,601 62 PBHG DISCIPLINED EQUITY FUND PBHG Global Technology & Communications Fund [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund, a non-diversified fund, will invest at least 80% of its 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 sector of the market. In addition, the Fund is concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. These industries may include computer software and hardware, network and cable broadcasting, semiconductors, defense, 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] MAIN INVESTMENT RISKS The Fund is non-diversified, which means it invests a higher percentage of its assets in a more limited number of stocks than a diversified fund. As a result, the price change of a single security 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 the group of industries within the technology and communications sector of the market. As a result, the economic, political and regulatory developments in a particular industry 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 may go down, which means you could lose money. PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 63 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 underdeveloped, 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] 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 93. 64 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page illustrate the risks and volatility of an investment in the Fund. The bar chart shows you the Fund's performance for the last calendar year. The performance table compares the Fund's performance over time to that of its benchmarks, the MSCI World Free Index and the Pacific Stock Exchange Technology Index. The MSCI World Free Index is a widely recognized, unmanaged index that measures the performance of both the developed and the emerging equity markets of the world. The Index excludes the performance impact of companies that are restricted with respect to foreign investors. The Pacific Stock Exchange Technology Index is a price-weighted index of the top 100 U.S. technology stocks. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURN 2001 -44.52% The Fund's year-to-date return as of 6/30/02 was -37.80%. BEST QUARTER: Q4 2001 34.87% WORST QUARTER: Q3 2001 -37.45% PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 65 AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Inception 1 Year (5/31/2000) - -------------------------------------------------------------------------------- Global Technology & Communications Fund-- PBHG Class Before Taxes -44.52% -43.06% Global Technology & Communications Fund-- PBHG Class After Taxes on Distributions -44.52% -43.06% Global Technology & Communications Fund-- PBHG Class After Taxes on Distributions and Sale of Fund Shares -27.11%* -33.19%* MSCI World Free Index (Reflects No Deduction for Fees, Expenses or Taxes) -16.82% -15.50% PSE Technology Index(R) (Reflects No Deduction for Fees, Expenses or Taxes) -15.42% -20.67% * When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. 66 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES None (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.50% Distribution and/or Service (12b-1) Fees None Other Expenses 1.10% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 2.60% Fee Waiver, Expense Reduction and/or Expense Reimbursement 0.45% Net Expenses 2.15%* ================================================================================ * THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 2.15%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 2.15%, THE FUND'S BOARD OF TRUSTEES 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, 2002. AT MARCH 31, 2002, THE AMOUNT OF ADVISORY FEE WAIVER AND REIMBURSEMENT OF THIRD PARTY EXPENSES BY THE ADVISER SUBJECT TO POSSIBLE REIMBURSEMENT FOR THE FUND WAS $124,745. [GRAPHIC] 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 reflect net operating expenses for the one-year period and the total operating expenses without expense waivers for years two through ten. 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 $218 $766 $1,340 $2,901 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 67 PBHG REIT Fund [GRAPHIC] GOAL The Fund seeks to provide investors with a high total return consistent with reasonable risk. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its total assets in equity securities of companies principally engaged in the real estate industry such as "real estate investment trusts" ("REITs"). The Fund's sub-adviser, Heitman, considers a company "principally engaged" in the real estate industry if it derives at least 50% of its revenues from the ownership, construction, management, financing or sale of commercial, industrial or residential real estate or has at least 50% of its assets in such real estate. A REIT is a separately managed trust that makes investments in various real estate businesses. A REIT is not taxed on income distributed to its shareholders if, among other things, it distributes to its shareholders substantially all of its taxable income for each taxable year. In addition, the Fund is concentrated, which means it will invest 25% or more of its total assets in the securities of companies principally engaged in the real estate industry. The Fund seeks to invest in equity securities of companies whose share price trades below Heitman's estimate of their intrinsic value. Based upon extensive fundamental research, Heitman prepares valuation models for each company in its universe in order to identify companies that it believes it is undervalued. The valuation model calculates each company's intrinsic value based on private market transactions, traditional statistical measures like multiple to cash flow as well as relative value. The Fund generally contains between 30-40 securities. Heitman expects to invest fully the assets of the Fund, consequently, Heitman generally expects cash reserves to be less than 5% of the total assets of the Fund. 68 PBHG REIT FUND [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 small or medium 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 is concentrated, which means compared to a non-concentrated fund it invests a higher percentage of its assets in the securities that comprise the real estate industry. As a result, the economic, political and regulatory developments in that industry 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. REITs may expose the Fund to similar risks associated with direct investment in real estate. REITs are more dependent upon specialized management skills, have limited diversification and are, therefore, generally dependent on their ability to generate cash flow to make distributions to shareholders. 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] 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 93. PBHG REIT FUND 69 [GRAPHIC] PERFORMANCE INFORMATION Prior to December 14, 2001, the PBHG Class Shares of the Fund were known as the Institutional Class shares of the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. On December 14, 2001, the Fund acquired the assets of the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was managed by Heitman, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Heitman Real Estate Portfolio. The bar chart below and the performance table on the next page 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 Index, a widely recognized, unmanaged index that measures the performance of large cap stocks across all major industries, and the Wilshire Real Estate Securities Index, a market capitalization weighted index of publicly traded real estate securities, including REITs, real estate operating companies and partnerships. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS* 1992 17.87% 1993 20.10% 1994 3.00% 1995 10.87% 1996 38.06% 1997 21.12% 1998 -15.12% 1999 -1.16% 2000 24.90% 2001 10.41% The Fund's year-to-date return as of 6/30/02 was 12.70%. BEST QUARTER: Q1 1993 22.96% WORST QUARTER: Q3 1998 -8.99% 70 PBHG REIT FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Past Past Past 1 Year 5 Years 10 Years - -------------------------------------------------------------------------------- REIT Fund*-- PBHG Class Before Taxes 10.41% 6.98% 12.08% REIT Fund*-- PBHG Class After Taxes on Distributions 4.81% 3.70% 8.70% REIT Fund*-- PBHG Class After Taxes on Distributions and Sale of Fund Shares 7.83%** 4.43%** 8.57% S&P 500 Index (Reflects No Deduction for Fees, Expenses or Taxes) -11.88% 10.70% 12.93% Wilshire Real Estate Securities Index (Reflects No Deduction for Fees, Expenses or Taxes) 10.33% 6.67% 10.45% * Data includes performance of the Fund's predecessor, whose inception date was March 13, 1989. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG REIT FUND 71 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85%* Distribution and/or Service (12b-1) Fees None Other Expenses 0.62% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.47%** ================================================================================ * PILGRIM BAXTER IS ENTITLED TO RECEIVE A MANAGEMENT FEE OF 0.85% UNDER ITS INVESTMENT ADVISORY AGREEMENT WITH THE FUND; HOWEVER, PILGRIM BAXTER HAS CONTRACTUALLY AGREED TO WAIVE A PORTION OF ITS FEE AND RECEIVE A MANAGEMENT FEE OF 0.75% OF THE FIRST $100 MILLION OF THE AVERAGE DAILY NET ASSETS OF THE FUND AND 0.65% OF THE AVERAGE DAILY NET ASSETS IN EXCESS OF $100 MILLION UNTIL SEPTEMBER 25, 2002. ** THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. THAT'S BECAUSE PILGRIM BAXTER HAS CONTRACTUALLY AGREED TO WAIVE THAT PORTION, IF ANY, OF THE ANNUAL MANAGEMENT FEES PAYABLE BY THE FUND AND TO PAY CERTAIN EXPENSES OF THE FUND TO THE EXTENT NECESSARY TO ENSURE THAT THE TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.36% UNTIL SEPTEMBER 25, 2002 AND NOT MORE THAN 1.50% UNTIL MARCH 31, 2003. YOU SHOULD ALSO KNOW THAT IN ANY YEAR AFTER SEPTEMBER 25, 2002 IN WHICH THE FUND'S ASSETS ARE GREATER THAN $75 MILLION AND ITS TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LOWER THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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 AFTER SEPTEMBER 25, 2002. [GRAPHIC] 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 $150 $465 $803 $1,757 72 PBHG REIT FUND PBHG Strategic Small Company Fund [GRAPHIC] GOAL The Fund seeks to provide investors with growth of capital. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at least 80% of its assets in growth and value securities, such as common stocks, of small sized companies. These companies generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Index at the time of the Fund's investment. As of June 30, 2002, the Russell 2000(R) Index had market capitalizations between $16 million and $1.8 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. The value securities in the Fund are primarily common stocks that Pilgrim Baxter believes are currently underpriced using certain financial measurements, such as their price-to-earnings ratios. Pilgrim Baxter strategically adjusts 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 expects to focus primarily on those securities whose market capitalizations or annual revenues are $750 million or less at the time of purchase. The size of companies in the Russell 2000(R) Index and those which Pilgrim Baxter intends to focus the Fund's investments will change with market conditions and the composition of the index. Pilgrim Baxter uses its own fundamental research, computer models and proprietary measures of growth and value in managing this Fund. [GRAPHIC] MAIN INVESTMENT RISKS The value of your investment in the Fund may go 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 Index. In addition, the growth and value securities in the Fund may never reach what Pilgrim Baxter believes are their full potential worth and may go down in price. PBHG STRATEGIC SMALL COMPANY FUND 73 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] 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 93. [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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(R) Index, a widely recognized, unmanaged index that tracks the performance of 2000 small cap stocks. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1997 25.67% 1998 2.13% 1999 51.79% 2000 11.89% 2001 -9.97% The Fund's year-to-date return as of 6/30/02 was -17.57%. BEST QUARTER: Q4 1999 36.16% WORST QUARTER: Q3 1998 -23.48% 74 PBHG STRATEGIC SMALL COMPANY FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (12/31/96) - -------------------------------------------------------------------------------- Strategic Small Company Fund-- PBHG Class Before Taxes -9.97% 14.44% 14.44% Strategic Small Company Fund-- PBHG Class After Taxes on Distributions -9.97% 11.91% 11.91% Strategic Small Company Fund-- PBHG Class After Taxes on Distributions and Sale of Fund Shares -6.07%* 10.96% 10.96% Russell 2000(R) Index (Reflects No Deduction for Fees, Expenses or Taxes) 2.49% 7.52% 7.52% * When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. PBHG STRATEGIC SMALL COMPANY FUND 75 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES None (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 1.00% Distribution and/or Service (12b-1) Fees None Other Expenses 0.50% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.50%* ================================================================================ * THIS IS THE ACTUAL TOTAL FUND OPERATING EXPENSE YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND FOR THE FISCAL YEAR ENDING MARCH 31, 2003. HOWEVER, YOU SHOULD KNOW THAT FOR THE FISCAL YEAR ENDING MARCH 31, 2003, 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 (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.50%. IN ADDITION, IN CONNECTION WITH OLD MUTUAL PLC'S ACQUISITION OF PILGRIM BAXTER'S PARENT COMPANY, OLD MUTUAL AND PILGRIM BAXTER HAVE AGREED TO MAINTAIN THIS EXPENSE LIMITATION AGREEMENT UNTIL MARCH 31, 2003. 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 (EXCLUDING CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LESS THAN 1.50%, THE FUND'S BOARD OF TRUSTEES 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. IN THE FISCAL YEAR ENDED MARCH 31, 2002, THE BOARD ELECTED TO REIMBURSE $20,944 IN WAIVED FEES, WHICH ARE INCLUDED IN THE CALCULATION OF "OTHER EXPENSES" ABOVE. AT THE TIME OF THE ELECTION, THE FUND HAD TOTAL ASSETS IN EXCESS OF $94 MILLION. IN ADDITION, THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.49%. [GRAPHIC] 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 $153 $474 $818 $1,791 76 PBHG STRATEGIC SMALL COMPANY FUND PBHG TECHNOLOGY & COMMUNICATIONS FUND [GRAPHIC] GOAL The Fund seeks to provide investors with long-term growth of capital. Current income is incidental to the Fund's goal. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund, a non-diversified fund, will invest at least 80% of its assets in common stocks of companies doing business in the technology and communications sector of the market. In addition, the Fund is concentrated, which means it will invest 25% or more of its total assets in the group of industries within that sector. These industries may include computer software and hardware, network and cable broadcasting, semiconductors, defense, 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. 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] MAIN INVESTMENT RISKS The Fund is non-diversified, which means it invests a higher percentage of its assets in a more limited number of stocks than a diversified fund. As a result, the price change of a single security 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 the group of industries within the technology and communications sector of the market. As a result, the economic, political and regulatory developments in a particular industry 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 may go down, which means you could lose money. PBHG TECHNOLOGY & COMMUNICATIONS FUND 77 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] 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 93. 78 PBHG TECHNOLOGY & COMMUNICATIONS FUND [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 Pacific Stock Exchange Technology Index(R). The Pacific Stock Exchange Technology Index(R), the Fund's current benchmark index, is a price-weighted index of the top 100 U.S. technology stocks. Both the chart and the table assume reinvestment of dividends and distributions. Of course, the Fund's past performance (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1996 54.42% 1997 3.32% 1998 26.00% 1999 243.89% 2000 -43.69% 2001 -52.38% The Fund's year-to-date return as of 6/30/02 was -43.01%. BEST QUARTER: Q4 1999 111.54% WORST QUARTER: Q4 2000 -50.95% PBHG TECHNOLOGY & COMMUNICATIONS FUND 79 AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 The table below provides average annual total return information for the Fund's PBHG Class shares, and includes both before- and after-tax returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. ================================================================================ Since Past Past Inception 1 Year 5 Years (9/29/95) - -------------------------------------------------------------------------------- Technology & Communications Fund-- PBHG Class Before Taxes -52.38% 3.72% 13.03% Technology & Communications Fund-- PBHG Class After Taxes on Distributions -52.38% 1.85% 11.26% Technology & Communications Fund-- PBHG Class After Taxes on Distributions and Sale of Fund Shares -31.90%** 3.06%** 10.95% PSE Technology Index(R)* (Reflects No Deduction for Fees, Expenses or Taxes) -15.42% 23.49% 21.82% * The since inception returns for the PSE Technology Index(R) was calculated as of September 30, 1995. ** When the return after taxes on distributions and sale of Fund shares is higher than the return after taxes on distributions, it is because of realized losses. If realized losses occur upon the sale of Fund shares, the capital loss is recorded as a tax benefit, which increases the return. 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. 80 PBHG TECHNOLOGY & COMMUNICATIONS FUND [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in this Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.85% Distribution and/or Service (12b-1) Fees None Other Expenses 0.54% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.39%* ================================================================================ * THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 1.38%. [GRAPHIC] 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 $142 $440 $761 $1,669 PBHG TECHNOLOGY & COMMUNICATIONS FUND 81 PBHG IRA Capital Preservation Fund [GRAPHIC] GOAL The Fund seeks to provide investors with a level of current income higher than that of money market funds, while attempting to preserve principal and maintain a stable net asset value per share (NAV). [GRAPHIC] MAIN INVESTMENT STRATEGIES The Fund is designed to produce current income, while seeking to maintain an NAV that is considerably more stable than a typical high-quality fixed-income fund. Like other high-quality fixed-income funds, the Fund invests primarily in debt securities that a nationally recognized statistical rating agency (rating agency), such as Moody's Investors Service or Standard & Poor's Rating Group, has rated in its top rating category at the time of purchase. The Fund may also invest in: o Liquid short-term investments, such as money market instruments, that a rating agency has rated in one of its top two short-term rating categories at the time of purchase; and o Commingled pools of debt securities having similar characteristics to the Fund, or other debt securities. Unlike other funds, the Fund seeks to stabilize its NAV by purchasing wrapper agreements from financial institutions, such as insurance companies and banks (wrap providers) that a rating agency has rated in one of its top two rating categories at the time of purchase. The Fund expects to purchase enough wrapper agreements to cover all of its debt securities, but not its cash, cash equivalents or other liquid short-term investments. A wrapper agreement is a mechanism offered by banks and insurance companies that assists the Fund in seeking to protect principal. Wrapper agreements obligate wrap providers or the Fund to make payments to each other to offset changes in the market value of certain of the Fund's assets. These payments are designed to enable the Fund to pay redeeming shareholders an amount equal to the purchase price of the Fund's assets plus accrued income. For example, if a shareholder redemption requires the Fund to sell a security for less than its purchase price plus accrued income, the wrapper agreement would cause the wrap provider to pay the Fund the difference, and vice versa. 82 PBHG IRA CAPITAL PRESERVATION FUND [GRAPHIC] MAIN INVESTMENT RISKS While the Fund attempts to provide a stable NAV through the use of wrapper agreements, the value of your investment in the Fund may go down, which means you could lose money. The Fund cannot guarantee that the combination of securities and wrapper agreements will provide a constant NAV or current income. By purchasing wrapper agreements, the Fund also trades some of the potential for capital appreciation and the ability to maximize its yield for protection from a decline in the value of its holdings caused by changes in interest rates. The Fund may have to maintain a specified percentage of its total assets in short-term investments to cover redemptions and Fund expenses. This may result in a lower return for the Fund than if it had invested in longer-term debt securities. The Fund is not a money market fund and it presents risks not present in money market funds. The net asset value of the Fund is not fixed at $1.00 per share like a money market fund, although the wrapper agreements that the Fund purchases are likely to cause the net asset value of the Fund to be considerably more stable than a typical high-quality fixed-income fund. A money market fund will generally have a shorter average maturity than the Fund and its yield will tend to more closely track the direction of current market rates than the yield of the Fund. If the Fund's attempts to stabilize its NAV through the use of wrapper agreements fail, the value of its investments could fall because of changes in interest rates. Rising interest rates tend to cause the prices of debt securities (especially those with longer maturities), and the Fund's share price, to fall. Rising interest rates may also cause investors to pay off mortgage-backed and asset-backed securities later than anticipated, forcing the Fund to keep its money invested at lower rates. Falling interest rates, however, generally cause investors to pay off mortgage-backed and asset-backed securities earlier than expected, forcing the Fund to reinvest the money at a lower interest rate. Because there is no active trading market for wrapper agreements, the Fund's investments in wrapper agreements are considered illiquid. In an effort to minimize this risk, the Fund limits its investments in illiquid securities, including wrapper agreements, to 15% of net assets. PBHG IRA CAPITAL PRESERVATION FUND 83 Wrap providers do not typically assume the credit risk associated with the issuer of any covered assets. Therefore, if an issuer of a security defaults on payments of principal or interest or has its credit rating downgraded, the Fund may have to sell covered assets quickly and at prices that may not fully reflect their current carrying value. Downgrades below investment grade and defaults by the issuer of covered assets usually will cause the wrap provider to remove such assets from the coverage of a wrapper agreement. As a result, NAV could decline. Similarly, a downgrade in the credit rating of a wrapper provider may require the Fund to replace the wrapper provider, although there is no guarantee that a replacement will be available. Such a downgrade may cause a decline in NAV, including a decline resulting from the application of the Fund's fair value procedures. The Fund may buy and sell investments relatively often. Such a strategy often involves higher expenses, including brokerage commissions. The sale of Fund securities may generate capital gains which, when distributed, may be taxable to you. 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] 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 93. 84 PBHG IRA CAPITAL PRESERVATION FUND [GRAPHIC] PERFORMANCE INFORMATION Prior to January 11, 2002, the PBHG Class Shares of the Fund were known as the Institutional Class shares of the IRA Capital Preservation Portfolio, a series of UAM Funds Trust. On January 11, 2002, the Fund acquired the assets of the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was managed by Dwight Asset Management Company, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the IRA Capital Preservation Portfolio. The bar chart below and the performance table on the next page 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 Ryan 5-Year GIC Master Index, an unmanaged index of GIC contracts held for five years with an arithmetic mean of market rates of $1 million. The Ryan Index is representative of the returns' stability provided by the Fund's wrapper agreements. Performance is also shown for the Lipper Money Market Funds Average which represents the average performance of all mutual funds classified by Lipper, Inc. in the money market category. 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. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS* 2000 6.78% 2001 6.05% The Fund's year-to-date return as of 6/30/02 was 2.30%. BEST QUARTER: Q3 2000 1.74% WORST QUARTER: Q4 2001 1.29% PBHG IRA CAPITAL PRESERVATION FUND 85 AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 ================================================================================ Since Past 1 Inception Year (8/31/99) - -------------------------------------------------------------------------------- IRA Capital Preservation Fund*-- PBHG Class 6.05% 6.48% Ryan 5-Year GIC Master Index (Reflects No Deduction for Fees, Expenses or Taxes) 6.61% 6.58% Lipper Money Market Funds Average (Reflects No Deduction for Fees, Expenses or Taxes) 3.44% 4.62% * Data includes performance of the Fund's predecessor, whose inception date was August 31, 1999. 86 PBHG IRA CAPITAL PRESERVATION FUND [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. The Fund may charge a redemption/exchange fee that would be paid directly from your investment. Shareholders pay this redemption/exchange fee when they redeem or exchange shares held for less than twelve months. For more information, see "Redemption/Exchange Fee for IRA Capital Preservation Fund" in the section on "Selling Shares." ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- REDEMPTION/EXCHANGE FEE (AS A PERCENTAGE OF AMOUNT REDEEMED OR EXCHANGED) 2.00% - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.60%* Distribution and/or Service (12b-1) Fees None Other Expenses 0.72% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 1.32% Fee Waiver and/or Expense Reimbursement 0.07% Net Expenses 1.25%** ================================================================================ * PILGRIM BAXTER IS ENTITLED TO RECEIVE A MANAGEMENT FEE OF 0.60% UNDER ITS INVESTMENT ADVISORY AGREEMENT WITH THE FUND, HOWEVER, PILGRIM BAXTER HAS CONTRACTUALLY AGREED TO WAIVE A PORTION OF ITS FEE AND RECEIVE A MANAGEMENT FEE OF 0.50% FROM THE FUND UNTIL SEPTEMBER 25, 2002. ** THESE ARE THE EXPENSES YOU SHOULD EXPECT TO PAY AS AN INVESTOR IN THIS FUND UNTIL SEPTEMBER 25, 2002. YOU SHOULD KNOW THAT 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 OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) DO NOT EXCEED 1.00% UNTIL SEPTEMBER 25, 2002 AND NOT MORE THAN 1.25% UNTIL MARCH 31, 2003. YOU SHOULD ALSO KNOW THAT IN ANY YEAR AFTER SEPTEMBER 25, 2002 IN WHICH THE FUND'S ASSETS ARE GREATER THAN $75 MILLION AND ITS TOTAL ANNUAL OPERATING EXPENSES (EXCLUSIVE OF CERTAIN EXPENSES SUCH AS BROKERAGE COMMISSIONS AND EXTRAORDINARY EXPENSES) ARE LOWER THAN 1.25%, THE FUND'S BOARD OF TRUSTEES 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 AFTER SEPTEMBER 25, 2002. PBHG IRA CAPITAL PRESERVATION FUND 87 [GRAPHIC] 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 reflect net operating expenses for the one-year period and total operating expenses without expense waivers for years two through ten. 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 $127 $411 $717 $1,584 88 PBHG IRA CAPITAL PRESERVATION FUND PBHG Cash Reserves Fund [GRAPHIC] GOAL The Fund seeks to provide investors with current income while preserving principal and maintaining liquidity. [GRAPHIC] MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests exclusively in short-term U.S. dollar-denominated debt obligations of 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, the Fund's sub-adviser, 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] 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] 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 93. PBHG CASH RESERVES FUND 89 [GRAPHIC] PERFORMANCE INFORMATION The bar chart below and the performance table on the next page 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 (before and after taxes) does not indicate how it will perform in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] CALENDAR YEAR TOTAL RETURNS 1996 4.91% 1997 5.08% 1998 5.00% 1999 4.60% 2000 5.96% 2001 3.58% The Fund's year-to-date return as of 6/30/02 was 0.59%. BEST QUARTER: Q3 2000 1.55% WORST QUARTER: Q4 2001 0.44% 90 PBHG CASH RESERVES FUND AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/01 ================================================================================ Since Past Past Inception 1 Year 5 Years (4/4/95) - -------------------------------------------------------------------------------- Cash Reserves Fund-- PBHG Class Before Taxes 3.58% 4.84% 4.91% Lipper Money Market Funds Average* (Reflects No Deduction for Fees, Expenses or Taxes) 3.44% 4.71% 4.83% * The since inception return for the Lipper Money Market Funds Average was calculated from March 31, 1995. TO OBTAIN INFORMATION ABOUT THE FUND'S CURRENT YIELD, CALL 1-800-433-0051. PBHG CASH RESERVES FUND 91 [GRAPHIC] FEES AND EXPENSES This table summarizes the shareholder fees and annual operating expenses you would pay as an investor in the Fund. ================================================================================ FEES AND EXPENSES TABLE PBHG CLASS - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.30% Distribution and/or Service (12b-1) Fees None Other Expenses 0.29% - -------------------------------------------------------------------------------- Total Annual Operating Expenses 0.59%* ================================================================================ * THROUGH AN ARRANGEMENT WITH THE FUND'S TRANSFER AGENT, CREDITS REALIZED AS A RESULT OF UNINVESTED CASH BALANCES ARE USED TO REDUCE TRANSFER AGENT EXPENSES. INCLUDING THESE REDUCTIONS, THE TOTAL FUND ANNUAL OPERATING EXPENSES WOULD HAVE BEEN 0.58%. [GRAPHIC] 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 $60 $189 $329 $738 92 PBHG CASH RESERVES FUND MORE ABOUT THE FUNDS The following discussion and table describes the main investment strategies discussed in the Fund Summaries section of this Prospectus in greater detail. From time to time, the Funds employ other investment practices, which are also described in the table and 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. OUR INVESTMENT STRATEGIES Core Growth, Emerging Growth, Growth, Large Cap 20, Large Cap Growth, Limited, New Opportunities, Select Equity, Global Technology & Communications, Strategic Small Company and Technology & Communications Funds - -------------------------------------------------------------------------------- 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 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'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. Focused Value, Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company Funds - -------------------------------------------------------------------------------- Pilgrim Baxter's value investment process is both quantitative and fundamental. In seeking to identify attractive investment opportunities for the Focused Value, Large Cap Value, Mid-Cap Value and Small Cap Value Funds and the value portion of the Strategic Small Company Fund, Pilgrim Baxter first creates a universe of more than 8,000 companies whose current share price seems lower than their current or future worth. Then, using its own computer models and measures of value, Pilgrim Baxter creates a sub-universe of statistically attractive value companies. Pilgrim Baxter 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 93 to investing, Pilgrim Baxter 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. Pilgrim Baxter's decision to sell a security depends on many factors. Generally speaking, however, Pilgrim Baxter considers selling a security when it becomes overvalued relative to the market, shows deteriorating fundamentals or falls short of Pilgrim Baxter's expectations. Cash Reserves Fund - -------------------------------------------------------------------------------- In managing the PBHG Cash Reserves Fund, Wellington Management uses macro-economic and fundamental company analysis 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 Wellington Management is subject to the approval or ratification by the Fund's Board of Trustees. Clipper Focus Fund - -------------------------------------------------------------------------------- PFR invests like a long-term business partner would invest -- it values a company's assets, projects long-term free cash flows and seeks shareholder-oriented management. PFR's investment process is very research intensive and includes meeting with company management, competitors and customers. Some of the major factors that PFR considers when appraising an investment include balance sheet strength and the ability to generate earnings and free cash flow. PFR's analysis gives little weight to current dividend income. Disciplined Equity Fund - -------------------------------------------------------------------------------- Analytic begins the stock selection process by ranking stocks according to their one-month expected return. Analytic then uses a process called "portfolio optimization" to select securities that it believes will: o Maximize expected returns for the Fund; o Minimize expected volatility relative to its benchmark; and o Diversify the assets of the Fund among industries, sectors, and individual securities. Analytic monitors the stocks held by the Fund on a real-time basis for developments in terms of news events (such as lawsuits or takeover bids) and significant changes in fundamental factors. Analytic sells a security when it believes the incremental return from the sale exceeds the associated transaction costs. 94 IRA Capital Preservation Fund - -------------------------------------------------------------------------------- While not fixed at a $1.00 per share like a money market fund, the wrapper agreements are likely to cause the net asset value of the Fund to be considerably more stable than a typical high-quality fixed-income fund. A money market fund will generally have a shorter average maturity than the Fund and its yield will tend to more closely track the direction of current market rates than the yield of the Fund. Over the long-term, however, Dwight believes the Fund's mix of investments and longer average duration will offset those differences by producing higher returns than a money-market fund. REIT Fund - -------------------------------------------------------------------------------- Heitman analyzes and selects investments that it believes will provide a relatively high and stable yield and are good prospects for future growth in dividends. Most of these companies specialize in a particular geographic region or specialize in one or two product types, such as office buildings, shopping centers, industrial complexes, and hotels. Special Equity Fund - -------------------------------------------------------------------------------- NWQ's research team applies a broad range of quantitative screens such as price to cash flow, low price to sales, low price to earnings, low price to book value and quality of earnings. On a qualitative basis, NWQ focuses on management strength, competitive position, industry fundamentals and corporate strategy. All Funds - -------------------------------------------------------------------------------- Each Fund may invest 100% of its total assets in cash or U.S. dollar-denominated high quality short-term debt instruments, such as U.S. Government securities, for temporary defensive purposes to maintain liquidity 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 securities, like common 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 the 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. 95 RISKS AND RETURNS ================================================================================ EQUITY 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 - -------------------------------------------------------------------------------- Equity 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. Equity security prices may fall because of factors affecting companies in a number of industries, such as increased production costs. Equity security prices may fall because of changes in the financial markets, such as interest rates or currency exchange rate changes. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Equity securities have generally outperformed more stable investments (such as bonds and cash equivalents) over the long term. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- Pilgrim Baxter, PFR, NWQ, Analytic and Heitman focus their active management on securities selection, the area they believe their respective investment methodologies can most enhance a Fund's performance. Pilgrim Baxter, PFR, NWQ and Heitman maintain a long-term investment approach and focus on securities they believe can appreciate over an extended time frame, regardless of interim fluctuations. Analytic continuously monitors equity securities held by the Fund for developments that effect fundamental factors and sells an equity security when it believes the incremental return from the sale exceeds the associated transaction costs. Under normal circumstances, each Fund (except the Cash Reserves Fund and the IRA Capital Preservation Fund) intends to remain fully invested, with at least 65% (or in some cases, 80%) of its assets in securities. ================================================================================ GROWTH SECURITIES Equity 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 Equity 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 a Fund may never reach what Pilgrim Baxter believes are their full value and may even go down in price. POTENTIAL RETURNS - -------------------------------------------------------------------------------- See Equity Securities. Growth securities may appreciate faster than non-growth securities. 96 GROWTH SECURITIES CONTINUED. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- See Equity 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. ================================================================================ VALUE SECURITIES Equity securities that Pilgrim Baxter, PFR and NWQ believe are currently underpriced using certain financial measurements, such as their price-to-earnings ratio and earnings power. POTENTIAL RISKS - -------------------------------------------------------------------------------- See Equity 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 a Fund may never reach what Pilgrim Baxter, PFR or NWQ believes are their full value and may even go down in price. POTENTIAL RETURNS - -------------------------------------------------------------------------------- See Equity Securities. Value securities may produce significant capital appreciation as the market recognizes their full value. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- See Equity Securities. In managing the Clipper Focus, Focused Value, Large Cap Value, Mid-Cap Value, Small Cap Value and Strategic Small Company Funds, Pilgrim Baxter and PFR each uses its own research, computer models and measures of value. In managing the Special Equity Fund, NWQ uses strong bottom-up fundamental research focusing on both quantitative and qualitative valuation measures. PFR considers selling a security when its share price reaches PFR's estimate of its intrinsic value. Pilgrim Baxter and NWQ consider selling a security when it becomes overvalued relative to the market, shows deteriorating fundamentals or falls short of their respective expectations. The other Funds do not focus specifically on Value Securities. 97 ================================================================================ FOREIGN EQUITY SECURITIES Securities of foreign issuers, including ADRs, European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs"). ADRs are certificates issued by a U.S. bank that represent a bank's holdings of a stated number of shares of a foreign corporation. 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 also receipts that represent a stated number of shares of a foreign corporation, only they are issued by a non-U.S. bank or a foreign branch a of U.S. bank. 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. Although ADRs, EDRs and GDRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they are also subject to many of the risks associated with investing directly in foreign securities. Foreign investments, especially investments in emerging or developing markets, can be riskier and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it harder for a Fund to sell its securities and could reduce the value of your shares. Differences in tax and accounting standards and difficulties in obtaining information about foreign companies can negatively affect investment decisions. Unlike more established markets, emerging markets may have governments that are less stable, markets that are less liquid and economies that are less developed. The adoption of the euro as the common currency of the European Economic and 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. 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. 98 FOREIGN EQUITY SECURITIES CONTINUED. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- In managing the Global Technology & Communications Fund, Pilgrim Baxter seeks to invest in companies with strong growth potential in those countries with the best investment opportunities. In managing the Special Equity and Disciplined Equity Funds, NWQ and Analytic, respectively, will select foreign securities according to the same standards they apply to domestic securities. Disciplined Equity Fund may invest up to 20% of its total assets in foreign securities, and Special Equity Fund may invest up to 35% of its total assets in foreign securities. Every other Fund, except Clipper Focus, REIT and IRA Capital Preservation Funds, limits the amount of total assets it invests in securities of foreign issuers not traded in the U.S. to 15% (ADRs are not included in this limit). The Clipper Focus, REIT and IRA Capital Preservation Funds do not invest a significant portion of their assets in foreign securities. ================================================================================ 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 credit rating downgrade. Money market instrument prices may fall because of changes in the financial markets, such as interest rate changes. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Money market instruments have greater short-term liquidity, capital preservation and income potential than longer-term investments such as stocks. This will help contribute to the stability of the Fund's NAV. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- The Cash Reserves Fund follows strict SEC rules about credit risk, maturity and diversification of its investments. The money market instruments and other liquid short-term investments in which the IRA Capital Preservation Fund invests will be rated in one of the top two short-term ratings categories of a rating agency at the time of purchase. The other Funds only invest in money market instruments for temporary defensive or cash management purposes. 99 ================================================================================ 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. 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. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- See Equity Securities/Growth Securities/ Value Securities. Pilgrim Baxter focuses on small and medium sized companies with strong balance sheets that it expects will exceed consensus earnings expectations. In analyzing medium sized companies for Disciplined Equity Fund, Analytic screens for such factors as company fundamentals, liquidity and risk. In analyzing small and medium company stocks for Special Equity Fund, NWQ uses strong bottom-up fundamental research focusing on both quantitative and qualitative valuation measures. ================================================================================ TECHNOLOGY OR COMMUNICATIONS 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. 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. 100 TECHNOLOGY OR COMMUNICATIONS COMPANY SECURITIES CONTINUED. POLICIES TO BALANCE RISK AND RETURN Although the Technology & Communications Fund and Global Technology & Communications Fund will each invest 25% or more of their total assets in one or more of the industries within the technology and communications sector, the Funds each seek to strike a balance among the industries in which they invest in an effort to lessen the impact of negative developments in the technology and communications sector. None of the other Funds concentrate their investments in the groups of industries within the technology and communications sector of the market. ================================================================================ OVER-THE COUNTER ("OTC") SECURITIES Securities that are not listed and traded on an organized exchange, but are bought and sold through a computer network. POTENTIAL RISKS - -------------------------------------------------------------------------------- OTC securities are not traded as often as securities listed on an exchange. So, if a 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. 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. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- Pilgrim Baxter, PFR, Analytic and NWQ use a highly disciplined investment process that seeks to, among other things, identify quality investments that will enhance a Fund's performance. ================================================================================ ILLIQUID SECURITIES Securities that do not have a ready market and cannot be easily sold within seven days 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. 101 ================================================================================ DERIVATIVES Investments such as forward foreign currency contracts, futures, over-the-counter options, options on futures, options and swaps, whose value is based on an underlying asset or economic factor. POTENTIAL RISKS - -------------------------------------------------------------------------------- The value of derivatives are volatile. Because of the low margin deposits required, derivatives often involve an extremely high degree of leverage. As a result, a relatively small price movement in a derivative may result in immediate and substantial loss, as well as gain, to the investor. Successful use of a derivative depends on the degree to which prices of the underlying assets correlate with price movements in the derivatives a Fund buys or sells. A Fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold. Thus, a use of derivatives may result in losses in excess of the amount invested. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Derivatives may be used for a variety of purposes, including: o To reduce transaction costs; o To manage cash flows; o To maintain full market exposure, which means to adjust the characteristics of its investments to more closely approximate those of its benchmark; o To enhance returns; and o To protect a Fund's investments against changes resulting from market conditions (a practice called "hedging"). POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- Each Fund may use derivatives selectively for hedging, to reduce transaction costs or to manage cash flows. To the extent a Fund enters into derivatives, it will, when necessary, segregate cash or other liquid assets equal to the settlement amount with its custodian to cover the contract. When a Fund sells certain derivative contracts, it will hold at all times the instruments underlying the contracts. 102 ================================================================================ WRAPPERS A wrapper agreement obligates the wrap provider and IRA Capital Preservation Fund to make certain payments to each other in exchange for an annual premium paid by the IRA Capital Preservation Fund. Payments made under the wrapper agreement are designed so that when the Fund liquidates assets covered by the wrapper agreement ("covered assets") in order to pay for shareholder redemptions, the Fund receives the purchase price plus the accrued income of the liquidated covered assets, rather than the market value of the covered assets. The terms of the wrapper agreements vary concerning when payments must actually be made between the Fund and the wrap provider. In some cases, payments may be due upon disposition of the covered assets. Other wrapper agreements only provide for settlement when the wrapper agreement terminates or the Fund sells all of the covered assets. POTENTIAL RISKS - -------------------------------------------------------------------------------- Under a typical wrapper agreement, if a shareholder redemption requires the Fund to sell a security for more than its purchase price plus accrued income, the Fund will pay the wrap provider the difference. The costs the Fund incurs when buying wrapper agreements will reduce its return and as a result it may not perform as well as other high-quality fixed-income funds of comparable duration. The Fund might not be able to replace existing wrapper agreements with other suitable wrapper agreements if (1) they mature or terminate or (2) the wrap provider defaults or has its credit rating lowered. The Fund may be unable to obtain suitable wrapper agreements or may elect not to cover some or all of its assets with wrapper agreements. This could occur if wrapper agreements are not available or if the adviser believes that the terms of available wrapper agreements are unfavorable. Under these circumstances, the Fund may not be able to maintain a stable NAV. The wrappers employed by the IRA Capital Preservation Fund will not cover the Fund's money market instruments, and therefore will not protect the stability of the Fund's NAV from price fluctuations in money market instruments. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Under a typical wrapper agreement, if a shareholder redemption requires the Fund to sell a covered asset for less than its purchase price plus accrued income, the wrap provider will pay the Fund the difference. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- Normally, the Fund expects the sum of the total value of its wrapper agreements plus the total market value of all of its covered assets to equal the purchase price plus accrued income of its covered assets, resulting in a stable NAV. 103 ================================================================================ REIT SECURITIES A separately managed trust that makes investments in various real estate businesses. An equity REIT may own real estate and pass the income it receives from rents from the properties, or the capital gain it receives from selling a building, to its shareholders. A mortgage REIT specializes in lending money to building developers and passes the interest income it receives from the mortgages to shareholders. A hybrid REIT combines the characteristics of equity and mortgage REITs. POTENTIAL RISKS - -------------------------------------------------------------------------------- The real estate industry is particularly sensitive to: o Economic factors, such as interest rate changes or market recessions; o Over-building in one particular area, changes in zoning laws, or changes in neighborhood values; o Increases in property taxes; o Casualty and condemnation losses; and o Regulatory limitations on rents. REITs may expose a Fund to similar risks associated with direct investment in real estate. REITs are more dependent upon specialized management skills, have limited diversification and are, therefore, generally dependent on their ability to generate cash flow to make distributions to shareholders. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Investments in REITs permit a Fund to participate in potential capital appreciation and income opportunities in various segments of the real estate sector. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- Pilgrim Baxter and each Sub-Adviser consider companies that they expect will generate good cash flow from the underlying properties, have proven management track records, and histories of increasing dividends. 104 ================================================================================ SPECIAL SITUATIONS The Clipper Focus Fund may invest in special situations. A special situation arises when PFR believes the securities of a particular company will appreciate in value within a reasonable period because of unique circumstances applicable to that company. Special situations are events that could change or temporarily hamper the ongoing operations of a company, including, but not limited to: o Liquidations, reorganizations, recapitalizations, mergers or temporary financial liquidity restraints; o Material litigation, technological breakthroughs or temporary production or product introduction problems; or o Natural disaster, sabotage or employee error and new management or management policies. Special situations affect companies of all sizes and generally occur regardless of general business conditions or movements of the market as a whole. POTENTIAL RISKS - -------------------------------------------------------------------------------- Special situations often involve much greater risk than is inherent in ordinary investment securities. In addition, the market price of companies subject to special situations may never reflect any perceived intrinsic values. POTENTIAL RETURNS - -------------------------------------------------------------------------------- Securities of companies in special situations may experience significant capital appreciation as the market recognizes their full value. POLICIES TO BALANCE RISK AND RETURN - -------------------------------------------------------------------------------- PFR's investment process is very research intensive, including meetings with company management, competitors and customers. PFR prepares valuation models for each company being researched and sells securities when share prices reach PFR's estimate of intrinsic value. 105 THE INVESTMENT ADVISER & SUB-ADVISERS [GRAPHIC] THE INVESTMENT ADVISER Pilgrim Baxter & Associates, Ltd., 1400 Liberty Ridge Drive, Wayne, PA 19087, is the investment adviser for each Fund. Founded in 1982, Pilgrim Baxter managed over $10.7 billion in assets as of June 30, 2002 for pension and profit-sharing plans, charitable institutions, corporations, trusts, estates and other investment companies. 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, Global Technology & Communications, Strategic Small Company, Large Cap Value, Mid-Cap Value, Small Cap Value and Focused Value Funds. Pilgrim Baxter also oversees the investment decisions made by PFR as sub-adviser for Clipper Focus Fund, by NWQ as sub-adviser for Special Equity Fund, by Analytic as sub-adviser for Disciplined Equity Fund, by Heitman as sub-adviser for REIT Fund, by Dwight as sub-adviser for IRA Capital Preservation Fund, and by Wellington Management as sub-adviser for the Cash Reserves Fund. The Trust's Board of Trustees 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. Prior to May 1, 2002, Pilgrim Baxter Value Investors, Inc. ("Value Investors"), a wholly owned subsidiary of Pilgrim Baxter, served as sub-adviser for Large Cap Value, Mid-Cap Value, Small Cap Value and Focused Value Funds and the value portion of the Strategic Small Company Fund. On May 1, 2002, Value Investors was merged into Pilgrim Baxter. As a result of the merger, Value Investors no longer serves as sub-adviser to these Portfolios, although the same portfolio managers continue to be responsible for the day-to-day management of these Funds. [GRAPHIC] THE SUB-ADVISERS Pacific Financial Research, Inc., ("PFR") a Massachusetts corporation located at 9601 Wilshire Boulevard, Suite 800, Beverly Hills, California 90210, is sub-adviser to the Clipper Focus Fund. PFR manages and supervises the investment of Clipper Focus Fund's assets on a discretionary basis, subject to the supervision of Pilgrim Baxter. PFR, an affiliate of Pilgrim Baxter and Old Mutual (US) Holdings Inc., has provided investment management services to corporations, foundations, endowments, pension funds and other institutions as well as individuals since 1981. PFR managed approximately $11.8 billion in assets as of June 30, 2002. 106 NWQ Investment Management Company, Inc., a Massachusetts corporation located at 2049 Century Park East, 4th Floor, Los Angeles, California 90067, is the sub-adviser to the Special Equity Fund. NWQ manages and supervises the investment of the Fund's assets on a discretionary basis, subject to the supervision of Pilgrim Baxter. NWQ is an affiliate of Pilgrim Baxter and Old Mutual (US) Holdings Inc.. It has provided investment management services to institutions and high net worth individuals since 1982. NWQ managed approximately $7.4 billion in assets as of June 30, 2002. Analytic Investors, Inc., a California corporation located at 700 South Flower St., Suite 2400, Los Angeles, CA 90017, is the sub-adviser for the Disciplined Equity Fund. Analytic manages and supervises the investment of the Fund's assets on a discretionary basis, subject to the supervision of Pilgrim Baxter. Analytic is an affiliate of Pilgrim Baxter and Old Mutual (US) Holdings Inc., and was founded in 1970 as one of the first independent investment counsel firms specializing in the creation and continuous management of optioned equity and optioned debt portfolios for fiduciaries and other long-term investors. Analytic serves pensions and profit-sharing plans, endowments, foundations, corporate investment portfolios, mutual savings banks and insurance companies. Analytic managed approximately $2.1 billion in assets as of June 30, 2002. Heitman Real Estate Securities LLC (formerly named Heitman/PRA Securities Advisors LLC), a Delaware limited liability company located at 180 North LaSalle Street, Suite 3600, Chicago, Illinois, 60601, is the sub-adviser to the REIT Fund. Heitman manages and supervises the investment of the Fund's assets on a discretionary basis, subject to the supervision of Pilgrim Baxter. Heitman is wholly owned by Heitman Financial LLC, an affiliate of Pilgrim Baxter and Old Mutual (US) Holdings Inc.. Heitman has provided investment management services to corporations, foundations, endowments, pension and profit sharing plans, trusts, estates and other institutions as well as individuals since 1987. Heitman managed approximately $1.1 billion in assets as of June 30, 2002. Dwight Asset Management Company, a Delaware corporation located 100 Bank Street, Burlington, Vermont 05401, is the sub-adviser to the IRA Capital Preservation Fund. Dwight manages and supervises the investment of the Fund's assets on a discretionary basis, subject to the supervision of Pilgrim Baxter. Dwight is an affiliate of Pilgrim Baxter and Old Mutual (US) Holdings Inc.. It has provided investment management services to corporations, pension and profit sharing plans, 401(k) and thrift plans since 1983. Dwight managed approximately $25.0 billion in assets as of June 30, 2002. 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, 2002, Wellington Management held discretionary management authority with respect to more than $311.7 billion in assets. 107 The Funds paid the following management fees (as a percentage of average daily net assets) during the last fiscal year. Core Growth Fund 0.85% Emerging Growth Fund 0.85% Growth Fund 0.85% Large Cap 20 Fund 0.85% Large Cap Growth Fund 0.75% Limited Fund 1.00% New Opportunities Fund 1.00% Select Equity Fund 0.85% Clipper Focus Fund 0.96%*/** Focused Value Fund 0.85% Large Cap Value Fund 0.65% Mid-Cap Value Fund 0.85% Small Cap Value Fund 1.00% Special Equity Fund 0.00%*/** Disciplined Equity Fund 0.26%*/** Global Technology & Communications Fund 1.20%* REIT Fund 0.64%*/** Strategic Small Company Fund 1.00% Technology & Communications Fund 0.85% IRA Capital Preservation Fund 0.18%*/** Cash Reserves Fund 0.30% * REFLECTS A WAIVER OF FEES. ** THE MANAGEMENT FEE FOR CLIPPER FOCUS FUND, SPECIAL EQUITY FUND AND REIT FUND WAS PAID TO THE FUND'S PREDECESSOR INVESTMENT ADVISER (NOW SUB-ADVISER) PRIOR TO DECEMBER 14, 2001. AFTER DECEMBER 14, 2001, THIS FEE WAS PAID TO PILGRIM BAXTER. THE MANAGEMENT FEE FOR DISCIPLINED EQUITY FUND AND IRA CAPITAL PRESERVATION FUND WAS PAID TO THE FUND'S PREDECESSOR INVESTMENT ADVISER (NOW SUB-ADVISER) PRIOR TO JANUARY 11, 2002. AFTER JANUARY 11, 2002, THIS FEE WAS PAID TO PILGRIM BAXTER. Each sub-adviser is entitled to receive a fee from Pilgrim Baxter equal to a percentage of the daily net assets of each Fund it sub-advises. 108 THE PORTFOLIO MANAGERS CORE GROWTH FUND Since March, 2001, the Core Growth Fund has been managed by a team of investment professionals led by Gary L. Pilgrim, CFA. Mr. Pilgrim is President of Pilgrim Baxter and has been a growth stock manager for over 31 years. LIMITED FUND/ Erin A. Piner has managed the Limited Fund since EMERGING GROWTH FUND 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. GROWTH FUND/NEW Gary L. Pilgrim, CFA, has managed the Growth Fund OPPORTUNITIES FUND since its inception in 1985. He has managed the New Opportunities Fund since April, 2000. A discussion of Mr. Pilgrim's work experience is noted above. LARGE CAP GROWTH Michael S. Sutton, CFA, has managed the Large Cap FUND/LARGE CAP Growth and Large Cap 20 Funds since November, 20 FUND/SELECT EQUITY FUND 1999. He has managed the Select Equity Fund since April, 2000. Effective as of October, 2001, Gregory P. Chodaczek joined Mr. Sutton as Co-Manager of Select Equity Fund. Mr. Sutton is Chief Investment Officer of Pilgrim Baxter. 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. Mr. Chodaczek joined Pilgrim Baxter in 1998 as a research analyst for Pilgrim Baxter's growth equity investment team, focusing on the research of large cap growth equities. Prior to joining Pilgrim Baxter, Mr. Chodaczek was a Senior Financial Analyst for Scientific Atlanta, Inc. in Atlanta, Georgia. CLIPPER FOCUS FUND A team of PFR's investment professionals has primary responsibility for the day-to-day management of the Fund. For more information on the composition of the team managing the Fund, please see the SAI. 109 SMALL CAP VALUE FUND/ Jerome J. Heppelmann, CFA, has managed the Small MID-CAP VALUE FUND/ Cap Value, Mid-Cap Value, and Focused Value Funds FOCUSED VALUE FUND 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 Pilgrim Baxter's 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 Pilgrim Baxter as a portfolio manager and analyst in 1997. Prior to joining Pilgrim Baxter, Mr. McCaffrey worked for 2 years as a portfolio manager and analyst at Pitcairn Trust Company. His 12 years of investment experience also include positions at Cypress Capital Management, Independence Capital Management and Fidelity Bank. SPECIAL EQUITY FUND Jon D. Bosse, CFA, is the Portfolio Manager of the Special Equity Fund. Mr. Bosse is Director of Equity Research of NWQ and has been a Managing Director of NWQ since 1996. From 1986 to 1996, Mr. Bosse was a Portfolio Manager and Director of Equity Research at ARCO Investment Management Company. DISCIPLINED EQUITY FUND A team of Analytic's investment professionals has primary responsibility for the day-to-day management of the Fund. For more information on the composition of the team managing the Fund, please see the SAI. GLOBAL TECHNOLOGY & The Adviser's technology team, led by Michael K. COMMUNICATIONS FUND Ma, has managed this Fund since the date of this Prospectus. Mr. Ma joined the Adviser in October, 1999 as a senior technology analyst. Prior to joining the Adviser, Mr. Ma worked for two and one-half years as an equity research analyst in the Telecommunications Services Group of Duetsche Bank Securities, Inc. Prior to that, Mr. Ma worked for four years at United States Trust Company of New york, initially as a research assistant concentrating on the technology sector and subsequently as a portfolio manager. REIT FUND A team of Heitman's investment professionals has primary responsibility for the day-to-day management of the Fund. For more information on the composition of the team managing the Fund, please see the SAI. 110 STRATEGIC SMALL James M. Smith, CFA, has co-managed the Fund since COMPANY FUND its inception in 1996. He manages the growth portion of the Fund. Mr. Smith joined Pilgrim Baxter in 1993 as a portfolio manager and has over 21 years of equity portfolio management experience. Mr. Heppelmann manages the value portion of the Fund. His experience is discussed under the Small Cap Value, Mid-Cap Value and Focused Value Funds. Mr. Heppelmann has co-managed the fund since June, 1999. TECHNOLOGY & The Adviser's technology team, led by Mr. Ma has COMMUNICATIONS FUND has managed this Fund since March 21, 2001. A discussion of Mr. Ma's work experience is noted above. IRA CAPITAL A team of Dwight's investment professionals has PRESERVATION FUND primary responsibility for the day-to-day management of the Fund. For more information on the composition of the team managing the Fund, please see the SAI. CASH RESERVES FUND John C. Keogh has managed the 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. 111 YOUR INVESTMENT [GRAPHIC] 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 (including wrapper agreements) are priced at fair value as determined in good faith by PBHG Funds' Board of Trustees. If a Fund holds securities quoted in foreign currencies, it translates that price into U.S. dollars at current exchange rates. The IRA Capital Preservation Fund may use a pricing service to value some of its assets, such as debt securities or foreign securities. 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. Except for the Cash Reserves Fund, Fund shares are priced every day at the close of trading on the New York Stock Exchange (normally 4 p.m. Eastern Time). Fund shares are not priced on days that the New York Stock Exchange is closed. 112 [GRAPHIC] BUYING SHARES You may purchase shares of each Fund directly through the Fund's transfer agent. Except for the Cash Reserves Fund, the price per share you will pay to invest in a Fund is its NAV next calculated after the transfer agent or other authorized representative accepts your order. If you purchase shares of the Cash Reserves Fund by wire transfer in the form of Federal Funds, the price per share you will pay is that Fund's next calculated NAV. If you purchase shares of the Cash Reserves Fund by check or other negotiable bank draft, the price per share you will pay is that Fund's NAV 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 Trustees may use another method that it believes reflects fair value. By fair valuing a security whose price may have been affected by events occurring after the close of trading in its respective market, a Fund attempts to establish a price that it might reasonably expect to receive upon its current sale of that security. These methods are designed to help ensure that the prices at which Fund shares are purchased and redeemed are fair, and do not result in dilution of shareholder interest or other harm to shareholders. 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. ================================================================================ 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. Coverdell Education Savings Accounts: a savings account with non-deductible 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 ADVISER. 113 ================================================================================ MINIMUM INVESTMENTS Initial Additional - -------------------------------------------------------------------------------- REGULAR ACCOUNTS New Opportunities Fund(1) $10,000 no minimum Limited Fund(1) $ 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 COVERDELL EDUCATION SAVINGS ACCOUNTS $ 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. The Special Equity Fund currently intends to close to new investors when its assets reach $500 million. Afterwards, additional investments and/or exchanges into the Fund may only be made by persons who already owned shares of the Fund as of the closing date, and such purchases or exchanges may be subject to minimum and maximum amounts. BUYING SHARES OF IRA CAPITAL PRESERVATION FUND The IRA Capital Preservation Fund offers its shares to investors who wish to invest in the Fund through one of the following types of individual retirement accounts: o Plans described in Section 408 of the Internal Revenue Code (includes traditional IRAs, SEP-IRAs and SIMPLE IRAs); o Plans described in Section 408A of the Internal Revenue Code (ROTH-IRAs); o Plans described in Section 530 of the Internal Revenue Code (Education IRAs); and o Plans maintained by sole proprietorships (KEOGH Plans). 114 [GRAPHIC] 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. 115 REDEMPTION/EXCHANGE FEE FOR IRA CAPITAL PRESERVATION FUND The IRA Capital Preservation Fund will deduct a 2.00% redemption/exchange fee from the redemption or exchange proceeds of any shareholder redeeming or exchanging shares of the Fund held for less than twelve months. In determining how long shares of the Fund have been held, PBHG Funds assumes that shares held by the investor the longest period of time will be sold first. The Fund will retain the fee for the benefit of the remaining shareholders. The Fund charges the redemption/exchange fee to help minimize the impact the redemption or exchange may have on the performance of the Fund, to facilitate Fund management and to offset certain transaction costs and other expenses the Fund incurs because of the redemption or exchange. The Fund also charges the redemption/exchange fee to discourage market timing by those shareholders initiating redemptions or exchanges to take advantage of short-term market movements. [GRAPHIC] 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 aggregate NAV of the Fund in any 90-day period. 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 Coverdell Education Savings accounts, currently charges a $10 annual custodial fee to Traditional and Roth IRA accounts and a $7 annual custodial fee to Coverdell Education Savings Accounts. This fee will be automatically deducted from 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 114. 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 your redeeming or exchanging out of the Fund. 116 o 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 Funds 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 house hold, contact PBHG Funds 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 Funds' website (www.pbhgfunds.com). EXCHANGES BETWEEN FUNDS You may exchange some or all PBHG Class Shares of a Fund for PBHG Class Shares of any other PBHG Fund that has PBHG Class Shares. PBHG Class Shares of a Fund may not be exchanged for Advisor Class Shares. Please note, how ever, that 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. The Special Equity Fund currently intends to close to new investors when its assets reach $500 million. Afterwards, additional investments and/or exchanges into the Fund may only be made by persons who already owned shares of the Fund as of the closing date, and such purchases or exchanges may be subject to minimum and maximum amounts. Simply mail, telephone, or use the Fund's internet website to provide your exchange instructions to the transfer agent. Except for the 2% redemption/exchange fee discussed above for the IRA Capital Preservation Fund, there is currently no fee for exchanges; however, a 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. 117 TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT - -----IN WRITING---------------------- ------------------------------------- Complete the application. Fill out an investment slip: Mail your completed application Mail the slip and the check to: and a check to: PBHG Funds PBHG Funds P.O. Box 219534 P.O. Box 219534 Kansas City, Missouri 64121-9534 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 WIRE Have your bank send your investment to: investment to: o United Missouri Bank of Kansas o United Missouri Bank of Kansas City, N.A. City, N.A. o ABA # 10-10-00695 o ABA # 10-10-00695 o Account # 98705-23469 o Account # 98705-23469 o Fund name o Fund name o Your name o Your name o Your Social Security or tax ID o Your Social Security or tax ID number number o Your account number o Your account number Return the account application. - -----BY AUTOMATED CLEARING----------- ------------------------------------- HOUSE (ACH) Currently you may not open an account o Complete the bank information through ACH 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. - -----VIA THE INTERNET---------------- ------------------------------------- o Visit the PBHG Funds website at o Complete the bank information http://www.pbhgfunds.com. section on the account application. o Enter the "Open An Account" screen and follow the o Enter the "My Account" section instructions. of the website and follow the instructions for purchasing shares. 118 TO SELL SHARES - -----BY MAIL------------------------- -----BY TELEPHONE-------------------- Write a letter of instruction that Sales orders may be placed by includes: telephone provided this option was selected on your account o your name(s) and signature(s) application. Please call 1-800-433-0051. o your account number Sales from IRA accounts may not be o the Fund name made by telephone and must be made in writing. o the dollar amount your wish to sell o how and where to send the proceeds If required, obtain a signature -----ACH----------------------------- guarantee (see "Selling Shares") o Complete the bank information section on the account Mail your request to: application. PBHG Funds P.O. Box 219534 o Attach a voided check or deposit Kansas City, Missouri 64121-9534 slip to the account application. - -----SYSTEMATIC WITHDRAW PLAN-------- Note: sale proceeds sent via ACH will not be posted to your bank Permits you to have payments of $50 account until the second business or more mailed or automatically day following the transaction. transferred from your Fund accounts to your designated checking or savings account -----WIRE---------------------------- o Complete the applicable section Sale proceeds may be wired at your on the account application request. Be sure PBHG Funds has your wire instructions on file. Note: must maintain a minimum account balance of $5,000 or more. There is a $10 charge for each wire sent by the Fund. - -----CHECK WRITING------------------- -----VIA THE INTERNET---------------- Check Writing is offered to shareholders of the Cash Reserves o Enter the "My Account" section Fund. If you have an account balance of the website and follow the of $5,000 or more, you may instructions for redeeming establish this option on your shares. 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. 119 [GRAPHIC] DISTRIBUTION AND TAXES Except for REIT Fund and Cash Reserves Fund, 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. REIT Fund pays shareholders dividends from its net investment income quarterly and distributions from its net realized capital gains once a year, if available. Cash Reserves Fund pays shareholders dividends from its net investment income monthly. Dividends and distributions will be reinvested in your Fund account 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. To maintain a stable NAV, the IRA Capital Preservation Fund may have to declare and pay dividends in amounts that are not equal to the amount of net investment income it actually earns. This may cause the Fund to take some or all of the following actions: o If the Fund distributes more money than it actually earned through its investments, it may have to make a distribution that may be considered a return of capital; o If the income the Fund receives exceeds the amount of dividends distributed, the Fund may have to distribute that excess income to shareholders and declare a reverse split of its shares. o The Fund may split its shares when it distributes its net capital gains. Share splits or reverse share splits will cause the number of shares owned by shareholders to increase or decrease while allowing the NAV of the Fund to remain stable. 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. 120 ================================================================================ TAXABILITY OF DISTRIBUTIONS Type of Tax rate for Tax rate for brackets Distribution 15% bracket and lower higher than 15% - -------------------------------------------------------------------------------- Dividends Ordinary income rate Ordinary income rate Short-term Capital Gains Ordinary income rate Ordinary income rate Long-term Capital Gains 10% 20% DISTRIBUTION ARRANGEMENTS PBHG Funds(R) has PBHG Class Shares and Advisor Class Shares. PBHG Funds(R) does not currently offer any other classes of shares. The exchange privilege for PBHG Class and Advisor Class Shares is discussed in the section, Exchanges Between Funds. Aside from the differences attributable to their exchange privileges, both Classes have the same rights and privileges. In addition, both Classes bear the same fees and expenses except that Advisor Class Shares bear a service fee. 121 [GRAPHIC] 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. The Clipper Focus, Special Equity, Disciplined Equity, REIT and IRA Capital Preservation Funds acquired the assets of its predecessor Fund, as noted under FOR A SHARE OUTSTANDING THROUGHOUT EACH FISCAL YEAR OR PERIOD ENDED MARCH 31:
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 PBHG CLASS 2002 (1) $10.70 $(0.13) $ (0.42) -- -- $10.15 2001 (1) 30.25 (0.17) (16.62) -- $(2.76) 10.70 2000 (1) 14.06 (0.20) 16.39 -- -- 30.25 1999 (1) 13.53 (0.14) 0.67 -- -- 14.06 1998 10.34 (0.33) 3.52 -- -- 13.53 PBHG EMERGING GROWTH FUND PBHG CLASS 2002 (1) $15.96 $(0.17) $ (1.56) -- -- $14.23 2001 (1) 40.00 (0.10) (21.81) -- $(2.13) 15.96 2000 (1) 20.61 (0.21) 20.76 -- (1.16) 40.00 1999 (1) 25.83 (0.18) (4.96) -- (0.08) 20.61 1998 19.26 (0.24) 6.81 -- -- 25.83 PBHG GROWTH FUND PBHG CLASS 2002 (1) $21.74 $(0.20) $ (2.60) -- -- $18.94 2001 (1) 58.73 (0.20) (30.53) -- $(6.26) 21.74 2000 (1) 24.51 (0.33) 36.14 -- (1.59) 58.73 1999 (1) 28.23 (0.24) (3.48) -- -- 24.51 1998 21.06 (0.26) 7.43 -- -- 28.23
122 Fund Summaries, in a tax-free exchange by issuing new shares. This transaction was effective as of the close of business on December 14, 2001 for the Clipper Focus, Special Equity and REIT Funds and effective as of the close of business on January 11, 2002 for the Disciplined Equity and IRA Capital Preservation Funds. None of the Funds had any assets prior to the acquisition. Consequently, the information presented for each Fund prior to the acquisition date represents the financial history of its corresponding predecessor fund.
Ratio of Net Ratio Investment Ratio Ratio of Expenses Income (Loss) of Expenses of Net to Average to Average Net to Average Investment Net Assets Net Assets Assets Ratio Net Assets Income (Excluding (Excluding End of Expenses (Including (Loss) Waivers Waivers) Portfolio Total of Period to Average Expense to Average and Expense and Expense Turnover Return (000) Net Assets Reduction) Net Assets Reduction) Reduction) Rate - --------------------------------------------------------------------------------------------------------------------------------- PBHG CORE GROWTH FUND PBHG CLASS 2002 (1) (5.14)% $ 53,514 1.49% 1.47% (1.17)% 1.49% (1.19)% 226.55% 2001 (1) (59.85)% 63,359 1.31% 1.31% (0.73)% 1.31% (0.73)% 133.31% 2000 (1) 115.15% 166,099 1.33% 1.33% (1.02)% 1.33% (1.02)% 312.32% 1999 (1) 3.92% 86,485 1.45% 1.45% (1.16)% 1.45% (1.16)% 120.93% 1998 30.85% 165,510 1.35% 1.35% (1.07)% 1.35% (1.07)% 72.78% PBHG EMERGING GROWTH FUND PBHG CLASS 2002 (1) (10.84)% $ 408,161 1.39% 1.38% (1.06)% 1.39% (1.07)% 150.95% 2001 (1) (56.95)% 538,294 1.26% 1.26% (0.33)% 1.26% (0.33)% 89.91% 2000 (1) 101.33% 1,336,938 1.24% 1.24% (0.76)% 1.24% (0.76)% 141.81% 1999 (1) (19.91)% 736,008 1.34% 1.34% (0.80)% 1.34% (0.80)% 101.53% 1998 34.11% 1,404,157 1.27% 1.27% (0.80)% 1.27% (0.80)% 95.21% PBHG GROWTH FUND PBHG CLASS 2002 (1) (12.88)% $1,925,422 1.33% 1.32% (0.95)% 1.33% (0.96)% 170.67% 2001 (1) (56.57)% 2,883,036 1.25% 1.25% (0.46)% 1.25% (0.46)% 104.48% 2000 (1) 148.57% 6,465,234 1.23% 1.23% (0.90)% 1.23% (0.90)% 107.73% 1999 (1) (13.18)% 3,228,740 1.32% 1.32% (0.99)% 1.32% (0.99)% 80.51% 1998 34.05% 5,338,380 1.26% 1.26% (0.74)% 1.26% (0.74)% 94.21%
123 [GRAPHIC] FINANCIAL HIGHLIGHTS (CONTINUED)
Net Realized and Net Asset Net Unrealized Distributions Distributions Asset Value Investment Gains or from Net from Value Beginning Income (Losses) Investment Capital End Total of Period (Loss) on Securities Income Gains of Period Return - -------------------------------------------------------------------------------------------------------------------------- PBHG LARGE CAP 20 FUND PBHG CLASS 2002 (1) $17.81 $(0.11) $ (2.55) -- -- $ 15.15 (14.94)% 2001 (1) 44.34 (0.12) (22.04) -- $ (4.37) 17.81 (53.84)% 2000 (1) 24.10 (0.25) 26.26 -- (5.77) 44.34 117.88% 1999 (1) 15.98 (0.12) 8.46 -- (0.22) 24.10 52.52% 1998 9.25 (0.07) 6.80 -- -- 15.98 72.76% PBHG LARGE CAP GROWTH FUND PBHG CLASS 2002 (1) $22.90 $(0.14) $ (3.09) -- -- $ 19.67 (14.10)% 2001 (1) 38.37 (0.05) (13.48) -- $ (1.94) 22.90 (36.55)% 2000 (1) 24.57 (0.23) 21.32 -- (7.29) 38.37 98.60% 1999 (1) 22.69 (0.16) 3.53 -- (1.49) 24.57 15.90% 1998 14.26 (0.19) 8.82 -- (0.20) 22.69 60.80% PBHG LIMITED FUND PBHG CLASS 2002 (1) $ 9.42 $(0.10) $ 0.22 -- $ (0.14) $ 9.40 1.17% 2001 (1) 23.11 (0.08) (8.17) -- (5.44) 9.42 (42.99)% 2000 (1) 11.95 (0.12) 15.20 -- (3.92) 23.11 137.27% 1999 (1) 14.08 (0.10) (1.45) -- (0.58) 11.95 (11.01)% 1998 9.05 (0.10) 5.53 -- (0.40) 14.08 60.78% PBHG NEW OPPORTUNITIES FUND PBHG CLASS 2002 (1) $27.77 $(0.30) $ (1.36) -- -- $ 26.11 (5.98)% 2001 (1) 98.19 (0.48) (43.78) -- $(26.16) 27.77 (54.38)% 2000 (1) 16.47 (0.71) 85.60 -- (3.17) 98.19 529.94% 1999 (2) 13.52 (0.01) 2.96 -- -- 16.47 21.82%+ PBHG SELECT EQUITY FUND PBHG CLASS 2002 (1) $26.58 $(0.25) $ (3.59) -- -- $ 22.74 (14.45)% 2001 (1) 77.81 (0.24) (48.55) -- $ (2.44) 26.58 (64.23)% 2000 (1) 25.93 (0.34) 58.71 -- (6.49) 77.81 240.82% 1999 (1) 24.15 (0.21) 1.99 -- -- 25.93 7.37% 1998 15.91 (0.44) 8.68 -- -- 24.15 51.79% PBHG CLIPPER FOCUS FUND (PREDECESSOR -- CLIPPER FOCUS PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (3) $15.92 $ 0.20 $ 2.34 $(0.14) $ (1.92) $ 16.40 17.48%+ 2001 (4) 10.87 0.21 5.49 (0.21) (0.44) 15.92 53.22% 2000 (4) 12.19 0.16 (1.18) (0.16) (0.14) 10.87 (8.39)% 1999 (4),(5) 10.00 0.05 2.18 (0.04) --** 12.19 22.33%+
124
Ratio of Net Ratio Investment Ratio Ratio of Expenses Income (Loss) of Expenses of Net to Average to Average Net to Average Investment Net Assets Net Assets Assets Ratio Net Assets Income (Excluding (Excluding End of Expenses (Including (Loss) Waivers Waivers) Portfolio of Period to Average Expense to Average and Expense and Expense Turnover (000) Net Assets Reduction) Net Assets Reduction) Reduction) Rate - -------------------------------------------------------------------------------------------------------------------- PBHG LARGE CAP 20 FUND PBHG CLASS 2002 (1) $ 333,115 1.36% 1.35% (0.66)% 1.36% (0.67)% 152.53% 2001 (1) 501,921 1.23% 1.23% (0.34)% 1.23% (0.34)% 142.46% 2000 (1) 1,083,460 1.23% 1.23% (0.82)% 1.23% (0.82)% 147.35% 1999 (1) 603,077 1.27% 1.27% (0.64)% 1.27% (0.64)% 76.41% 1998 192,631 1.41% 1.41% (0.79)% 1.41% (0.79)% 98.27% PBHG LARGE CAP GROWTH FUND PBHG CLASS 2002 (1) $ 258,297 1.26% 1.25% (0.62)% 1.26% (0.63)% 148.93% 2001 (1) 327,689 1.18% 1.18% (0.14)% 1.18% (0.14)% 146.18% 2000 (1) 256,965 1.17% 1.17% (0.79)% 1.17% (0.79)% 184.36% 1999 (1) 144,089 1.25% 1.25% (0.71)% 1.25% (0.71)% 46.16% 1998 145,662 1.22% 1.22% (0.79)% 1.22% (0.79)% 46.56% PBHG LIMITED FUND PBHG CLASS 2002 (1) $ 74,076 1.41% 1.40% (1.04)% 1.41% (1.05)% 156.08% 2001 (1) 77,505 1.33% 1.33% (0.48)% 1.33% (0.48)% 85.07% 2000 (1) 155,130 1.32% 1.32% (0.76)% 1.32% (0.76)% 107.78% 1999 (1) 108,011 1.40% 1.40% (0.81)% 1.40% (0.81)% 111.07% 1998 178,168 1.40% 1.40% (0.72)% 1.40% (0.72)% 81.36% PBHG NEW OPPORTUNITIES FUND PBHG CLASS 2002 (1) $ 47,813 1.44% 1.43% (1.13)% 1.44% (1.14)% 295.41% 2001 (1) 65,357 1.34% 1.34% (0.76)% 1.34% (0.76)% 267.34% 2000 (1) 355,600 1.34% 1.34% (1.15)% 1.34% (1.15)% 668.31% 1999 (2) 16,742 1.50%* 1.50%* (0.80)%* 1.59%* (0.89)%* 109.43%+ PBHG SELECT EQUITY FUND PBHG CLASS 2002 (1) $ 413,134 1.38% 1.37% (0.94)% 1.38% (0.95)% 301.58% 2001 (1) 662,551 1.26% 1.26% (0.43)% 1.26% (0.43)% 157.72% 2000 (1) 1,691,298 1.18% 1.18% (0.68)% 1.18% (0.68)% 200.56% 1999 (1) 235,904 1.34% 1.34% (0.90)% 1.34% (0.90)% 56.59% 1998 336,076 1.35% 1.35% (1.15)% 1.35% (1.15)% 72.16% PBHG CLIPPER FOCUS FUND (PREDECESSOR -- CLIPPER FOCUS PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (3) $ 621,735 1.40%* 1.40%* 1.26%* 1.44%* 1.23%* 39.02%+ 2001 (4) 272,069 1.40% 1.40% 1.41% 1.41% 1.40% 111.00% 2000 (4) 84,226 1.40% 1.40% 1.47% 1.47% 1.40% 54.00% 1999 (4),(5) 64,135 1.40%* 1.40%* 1.05%* 2.08%* 0.37%* 22.00%+
125 [GRAPHIC] FINANCIAL HIGHLIGHTS (CONTINUED)
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 PBHG CLASS 2002 (1) $17.41 $(0.04) $(1.03) $(0.06) $(0.08) $16.20 2001 (1) 18.51 0.07 (0.74) -- (0.43) 17.41 2000 (1) 10.46 (0.01) 8.93 -- (0.87) 18.51 1999 (2) 10.32 -- 0.14 -- -- 10.46 PBHG LARGE CAP VALUE FUND PBHG CLASS 2002 (1) $13.90 $ 0.03 $(0.57) $(0.02) -- $13.34 2001 (1) 11.97 0.21 2.21 (0.08) $(0.41) 13.90 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 PBHG MID-CAP VALUE FUND PBHG CLASS 2002 (1) $14.44 $(0.02) $ 1.32 -- -- $15.74 2001 (1) 13.82 0.09 1.20 $(0.03) $(0.64) 14.44 2000 (1) 15.09 (0.02) 5.03 -- (6.28) 13.82 1999 15.30 -- 0.92 -- (1.13) 15.09 1998 (6) 10.00 (0.01) 6.00 -- (0.69) 15.30 PBHG SMALL CAP VALUE FUND PBHG CLASS 2002 (1) $18.48 $(0.14) $ 2.31 -- -- $20.65 2001 (1) 18.75 (0.02) 0.58 -- $(0.83) 18.48 2000 (1) 11.38 (0.08) 7.45 -- -- 18.75 1999 (1) 15.38 (0.09) (3.06) -- (0.85) 11.38 1998 (6) 10.00 (0.03) 6.15 -- (0.74) 15.38 PBHG SPECIAL EQUITY FUND (PREDECESSOR -- NWQ SPECIAL EQUITY PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (8) $11.73 $ 0.05 $ 2.20 $(0.06) -- $13.92 2001 (9) 13.28 0.08 0.09 (0.06) $(1.66) 11.73 2000 (9) 11.84 0.07 1.55 (0.07) (0.11) 13.28 1999 (9) 10.01 0.03 1.88 (0.03) (0.05) 11.84 1998 (9),(10) 10.00 0.02 (0.01) -- -- 10.01 PBHG DISCIPLINED EQUITY FUND (PREDECESSOR -- ANALYTIC ENHANCED EQUITY FUND) 2002 (11) $10.33 $ 0.02 $ 0.07 --** -- $10.42 2001 (12) 11.09 0.07 (0.76) $(0.07) -- 10.33 2000 (12) 12.31 0.06 (1.20) (0.06) $(0.02) 11.09 1999 (12) 10.90 0.10 2.06 (0.10) (0.65) 12.31 1998 (12) 8.43 0.06 3.07 (0.07) (0.59) 10.90 1997 (12) 7.43 0.09 2.12 (0.10) (1.11) 8.43 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBHG CLASS 2002 (1) $ 4.95 $(0.08) $(1.07) -- -- $ 3.80 2001 (1),(13) 10.00 (0.12) (4.93) -- -- 4.95
126
Ratio of Net Ratio Investment Ratio Ratio of Expenses Income (Loss) of Expenses of Net to Average to Average Net to Average Investment Net Assets Net Assets Assets Ratio Net Assets Income (Excluding (Excluding End of Expenses (Including (Loss) Waivers Waivers) Portfolio Total of Period to Average Expense to Average and Expense and Expense Turnover Return (000) Net Assets Reduction) Net Assets Reduction) Reduction) Rate - ----------------------------------------------------------------------------------------------------------------------------------- PBHG FOCUSED VALUE FUND PBHG CLASS 2002 (1) (6.18)% $ 34,675 1.37% 1.36% (0.24)% 1.37% (0.25)% 433.98% 2001 (1) (3.59)% 58,724 1.34% 1.34% 0.37% 1.34% 0.37% 404.36% 2000 (1) 89.17% 22,556 1.50% 1.50% (0.10)% 1.55% (0.15)% 853.36% 1999 (2) 1.36%+ 3,658 1.50%* 1.50%* 0.09%* 2.67%* (1.08)%* 173.09%+ PBHG LARGE CAP VALUE FUND PBHG CLASS 2002 (1) (3.86)% $524,236 1.14% 1.13% 0.24% 1.14% 0.24% 947.66% 2001 (1) 20.42% 425,414 1.16% 1.16% 0.91% 1.16% 0.91% 1184.89% 2000 14.25% 32,922 1.11% 1.11% 0.71% 1.11% 0.71% 1018.03% 1999 20.29% 44,922 1.01% 1.01% 0.59% 1.01% 0.59% 568.20% 1998 39.47% 76,476 1.17% 1.17% 0.98% 1.17% 0.98% 403.59% PBHG MID-CAP VALUE FUND PBHG CLASS 2002 (1) 9.00% $464,987 1.32% 1.31% (0.15)% 1.32% (0.15)% 236.85% 2001 (1) 9.43% 231,117 1.35% 1.35% 0.40% 1.35% 0.40% 248.10% 2000 (1) 42.21% 60,690 1.44% 1.44% (0.15)% 1.44% (0.15)% 742.57% 1999 8.35% 56,981 1.33% 1.33% 0.01% 1.33% 0.01% 732.73% 1998 (6) 61.06%+ 54,173 1.47%* 1.47%* (0.17)%* 1.47%* (0.17)%* 399.96%+ PBHG SMALL CAP VALUE FUND PBHG CLASS 2002 (1) 11.74% $290,007 1.48% 1.48% (0.72)% 1.48% (0.72)% 144.85% 2001 (1) 2.99% 251,994 1.49% 1.49% (0.09)% 1.49% (0.09)% 177.69% 2000 (1) 64.76% 92,634 1.50% 1.50% (0.56)% 1.58% (0.64)% 352.85% 1999 (1) (20.93)% 69,787 1.48% 1.48% (0.71)% 1.48% (0.71)% 273.87% 1998 (6) 62.27%+ 125,834 1.49%* 1.49%* (0.52)%* 1.49%* (0.52)%* 263.04%+ PBHG SPECIAL EQUITY FUND (PREDECESSOR -- NWQ SPECIAL EQUITY PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (8) 19.20%+ $ 25,505 1.25%* 1.25%* 0.86%* 2.21%* (0.10)%* 13.92%+ 2001 (9) 1.23% 16,996 1.25% 1.25% 0.54% 1.54% 0.25% 66.00% 2000 (9) 13.80% 29,547 1.15% 1.15% 0.60% 1.66% 0.09% 49.00% 1999 (9) 19.33% 16,406 1.22% 1.22% 0.26% 1.70% (0.22)% 26.00% 1998 (9),(10) 0.10%+ 14,167 1.16%* 1.16%* 0.42%* 1.98%* (0.41)%* 23.00%+ PBHG DISCIPLINED EQUITY FUND (PREDECESSOR -- ANALYTIC ENHANCED EQUITY FUND) 2002 (11) 0.89%+ $101,615 0.99%* 0.99%* 0.63%* 1.33%* 0.29%* 65.99%+ 2001 (12) (6.22)% 95,031 0.99% 0.99% 0.64% 1.09% 0.54% 229.00% 2000 (12) (9.33)% 118,545 0.97% 0.97% 0.53% 0.97% 0.53% 270.00% 1999 (12) 20.06% 145,185 0.99% 0.99% 1.08% 1.11% 0.96% 261.00% 1998 (12) 37.82% 33,889 1.26% 1.26% 0.78% 2.25% (0.21)% 297.00% 1997 (12) 29.86% 7,331 1.00% 1.00% 1.17% 2.24% (0.07)% 189.00% (PREDECESSOR -- ANALYTIC ENHANCED EQUITY FUND) PBHG CLASS 2002 (1) (23.23)% $ 35,646 2.30% 2.15% (1.75)% 2.60% (2.20)% 192.61% 2001 (1),(13) (50.50)%+ 49,909 2.15%* 2.15%* (1.57)%* 2.15%* (1.57)%* 314.47%+
127 [GRAPHIC] FINANCIAL HIGHLIGHTS (CONCLUDED)
Net Realized and Asset Net Unrealized Distributions Distributions Value Investment Gains or from Net from Return Beginning Income Redemption (Losses) Investment Capital of Reverse of Period (Loss) Fees on Securities Income Gains Capital Stock Split - ------------------------------------------------------------------------------------------------------------------------- PBHG REIT FUND (PREDECESSOR -- HEITMAN REAL ESTATE PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (14) $ 8.78 $ 0.09 -- $ 0.80 $(0.09) -- -- -- 2001 (12) 9.56 0.47 -- 0.46 (0.45) $(1.21) $(0.05)(15) -- 2000 (12) 8.04 0.36 -- 1.60 (0.36) -- (0.08)(15) -- 1999 (12) 8.62 0.43 -- (0.54) (0.47) -- -- -- 1998 (12) 10.49 0.32 -- (1.88) (0.31) -- -- -- 1997 (12) 10.96 0.40 -- 1.82 (0.45) (2.24) -- -- PBHG STRATEGIC SMALL COMPANY FUND PBHG CLASS 2002 (1) $12.08 $(0.13) -- $ 1.42 -- -- -- -- 2001 (1) 19.34 (0.11) -- (4.55) -- $(2.60) -- -- 2000 (1) 10.54 (0.13) -- 10.18 -- (1.25) -- -- 1999 (1) 12.89 (0.11) -- (1.78) -- (0.46) -- -- 1998 8.86 (0.11) -- 5.01 -- (0.87) -- -- PBHG TECHNOLOGY & COMMUNICATIONS FUND PBHG CLASS 2002 (1) $19.70 $(0.21) -- $ (4.70) -- -- -- -- 2001 (1) 85.02 (0.46) -- (59.61) -- $(5.25) -- -- 2000 (1) 27.59 (0.54) -- 62.84 -- (4.87) -- -- 1999 (1) 19.27 (0.19) -- 8.80 -- (0.29) -- -- 1998 14.63 (0.23) -- 5.72 -- (0.85) -- -- PBHG IRA CAPITAL PRESERVATION FUND (PREDECESSOR -- IRA CAPITAL PRESERVATION PORTFOLIO) PBHG CLASS 2002 (16) $10.00 $ 0.20 --** -- $(0.20) $(0.04) -- $0.04(18) 2001 (9) 10.00 0.61 $0.01 -- (0.62) -- -- -- 2000 (9) 10.00 0.65 0.01 -- (0.66) -- -- -- 1999 (9),(17) 10.00 0.11 -- -- (0.11) -- -- -- PBHG CASH RESERVES FUND PBHG CLASS 2002 $ 1.00 $ 0.03 -- -- $(0.03) -- -- -- 2001 1.00 0.06 -- -- (0.06) -- -- -- 2000 1.00 0.05 -- -- (0.05) -- -- -- 1999 1.00 0.05 -- -- (0.05) -- -- -- 1998 1.00 0.05 -- -- (0.05) -- -- --
* Annualized ** Amount is less than $0.01 per share. + Total return and portfolio turnover have not been annualized. (1) Per share calculations were performed using average shares for the period. (2) The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced operations on February 12, 1999. (3) On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. (4) For the year or period ended April 30. (5) The PBHG Clipper Focus Fund commenced operations on September 10, 1998. (6) The PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund commenced operations on April 30, 1997. (7) The PBHG Mid-Cap Value Fund Advisor class commenced operations on October 31, 2001. (8) On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. (9) For the year or period ended October 31. (10) The PBHG Special Equity Fund commenced operations on November 4, 1997. (11) On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Enhanced Equity Fund. The Enhanced Equity Fund was a series of the UAM Funds, Inc. II. 128
Ratio Ratio of Ratio of Ratio of Expenses Net Investment Expenses of Net to Average Income (Loss) Net Net to Average Investment Net Assets to Average Asset Assets Ratio Net Assets Income (Excluding Net Assets Value End of Expenses (Including (Loss) Waivers (Excluding Waivers Portfolio End Total of Period to Average Expense to Average and Expense and Expense Turnover of Period Return (000) Net Assets Reduction) Net Assets Reduction) Reduction) Rate - ------------------------------------------------------------------------------------------------------------------------------------ PBHG REIT FUND (PREDECESSOR -- HEITMAN REAL ESTATE PORTFOLIO -- INSTITUTIONAL CLASS) PBHG CLASS 2002 (14) $ 9.58 10.11%+ $ 76,679 1.36%* 1.36%* 4.20%* 1.47%* 4.09%* 25.08%+ 2001 (12) 8.78 10.41% 61,378 1.14% 1.14% 4.57% 1.14% 4.57% 139.00% 2000 (12) 9.56 24.90% 75,013 1.36% 1.36% 4.14% 1.36% 4.14% 76.00% 1999 (12) 8.04 (1.16)% 65,767 1.25% 1.25% 5.12% 1.25% 5.12% 49.00% 1998 (12) 8.62 (15.12)% 79,717 1.22% 1.22% 3.14% 1.22% 3.14% 80.00% 1997 (12) 10.49 21.12% 134,746 1.09% 1.09% 3.57% 1.09% 3.57% 90.00% PBHG STRATEGIC SMALL COMPANY FUND PBHG CLASS 2002 (1) $13.37 10.68% $ 86,243 1.50% 1.49% (0.96)% 1.50% (0.97)% 118.88% 2001 (1) 12.08 (27.04)% 76,331 1.50% 1.50% (0.63)% 1.50% (0.63)% 143.04% 2000 (1) 19.34 99.74% 75,225 1.50% 1.50% (0.93)% 1.55% (0.98)% 240.55% 1999 (1) 10.54 (14.52)% 48,029 1.50% 1.50% (0.97)% 1.54% (1.01)% 140.89% 1998 12.89 56.54% 111,983 1.45% 1.45% (0.92)% 1.45% (0.92)% 215.46% PBHG TECHNOLOGY & COMMUNICATIONS FUND PBHG CLASS 2002 (1) $14.79 (24.92)% $ 581,091 1.39% 1.38% (1.17)% 1.39% (1.19)% 185.33% 2001 (1) 19.70 (74.20)% 920,965 1.25% 1.25% (0.81)% 1.25% (0.81)% 291.41% 2000 (1) 85.02 233.99% 3,843,946 1.19% 1.19% (0.96)% 1.19% (0.96)% 362.38% 1999 (1) 27.59 45.33% 536,405 1.34% 1.34% (0.96)% 1.34% (0.96)% 276.07% 1998 19.27 38.29% 495,697 1.30% 1.30% (0.91)% 1.30% (0.91)% 259.89% PBHG IRA CAPITAL PRESERVATION FUND (PREDECESSOR -- IRA CAPITAL PRESERVATION PORTFOLIO) PBHG CLASS 2002 (16) $10.00 1.98%+ $ 518,004 1.00%* 1.00%* 4.67%* 1.32%* 4.35%* 116.91%+ 2001 (9) 10.00 6.34% 71,298 1.00% 1.00% 5.97% 1.62% 5.35% 196.00% 2000 (9) 10.00 6.80% 24,065 1.03% 1.03% 6.53% 1.84% 5.69% 72.00% 1999 (9),(17) 10.00 1.12%+ 867 1.00%* 1.00%* 6.67%* 46.23%* (38.56)%* 137.00%+ PBHG CASH RESERVES FUND PBHG CLASS 2002 $ 1.00 2.55% $ 107,513 0.59% 0.58% 2.92% 0.59% 2.91% n/a 2001 1.00 5.98% 525,463 0.52% 0.52% 5.78% 0.52% 5.78% n/a 2000 1.00 4.81% 579,458 0.69% 0.69% 4.78% 0.69% 4.78% n/a 1999 1.00 4.84% 144,239 0.70% 0.70% 4.72% 0.70% 4.72% n/a 1998 1.00 5.13% 117,574 0.68% 0.68% 5.00% 0.68% 5.00% n/a
(12) For the year ended December 31. (13) The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. (14) On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. (15) Historically, the PBHG REIT Fund has distributed to its shareholders amounts approximating dividends received from the REITs. A portion of such distributions may include a return of capital. (16) On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust. (17) The PBHG IRA Capital Preservation Fund commenced operations on August 31, 1999. (18) In order to comply with requirements of the Internal Revenue Code applicable to regulated investment companies, the Fund is required to distribute accumulated net realized gains, if any, on an annual basis. When such distributions are made, the immediate impact is a corresponding reduction in net asset value per share. Given the objective of the Fund to maintain a stable net asset value of $10 per share the Fund intends to declare a reverse stock split immediately subsequent to any such distributions at a rate that will cause the total number of shares held by each shareholder including shares acquired on reinvestment of that distribution to remain the same as before the distribution was paid and in effect reinstate a net asset value of $10 per share. Amounts designated as "--" are either $0 or have been rounded to $0. 129 FOR MORE INFORMATION PBHG FUNDS 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. INVESTMENT ADVISER Pilgrim Baxter & Associates, Ltd. DISTRIBUTOR PBHG Fund Distributors SEC FILE NUMBER 811-04391 PBHG Prospectus -- 7/02 TO OBTAIN INFORMATION AND FOR SHAREHOLDER INQUIRIES ================================================================================ BY TELEPHONE Call 1-800-433-0051 BY MAIL PBHG Funds P.O. Box 219534 Kansas City, MO 64121-9534 VIA THE INTERNET www.pbhgfunds.com You can find reports and other information about PBHG Funds 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 publicinfo@sec.gov. [This page intentionally left blank] [This page intentionally left blank] [This page intentionally left blank] [GRAPHIC] PBHG FUNDS PRIVACY POLICY Protecting Your Personal Information The PBHG Funds has adopted a privacy policy to protect the nonpublic personal information that you provide to us. In order to establish and service your account, we collect personal information about you from information we receive on your application, such as your name and address. We also retain information regarding your transactions with us and our affiliates, such as account balances and exchanges. Occasionally, we may disclose this information to companies that perform services for the Funds, such as other financial institutions with whom we have joint marketing agreements, or to the Funds' proxy solicitors. These companies may only use this information in connection with the services they provide to the Fund, and not for any other purpose. We may also disclose this information to the extent permitted or required by law, such as to our service providers to process your transactions or to maintain your account, or as a result of a court order. We otherwise will not disclose any nonpublic personal information about our customers or former customers to any other party for any other purpose without first providing notification to our customers or former customers. You would then be given an opportunity to "opt out" if you did not want information to be released. We utilize a number of measures to protect your confidential information. Only our employees and those of our service providers who need nonpublic personal information in order to provide services to you have access to that data. All other persons are restricted from accessing that information. Furthermore, we maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information. We respect and value the trust you have placed in us and work diligently to preserve that relationship. THIS PAGE IS NOT PART OF THE PROSPECTUS PBHG TECHNOLOGY & COMMUNICATIONS FUND a series of shares of PBHG FUNDS P.O. Box 219534 Kansas City, Missouri 64121-9534 Toll Free: (800) 433-0051 STATEMENT OF ADDITIONAL INFORMATION Special Meeting of Shareholders of PBHG Global Technology & Communications 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 __, 2002 of PBHG Funds (the "Trust") for use in connection with the Special Meeting of Shareholders (the "Special Meeting") of PBHG Global Technology & Communications Fund, to be held on February 27, 2003. At the Special Meeting, shareholders of PBHG Global Technology & Communications Fund will be asked to approve the combination of PBHG Global Technology & Communications Fund with PBHG Technology & Communications Fund, an investment portfolio of the Trust, as described in the Combined Proxy Statement and Prospectus. Copies of the Combined Proxy Statement and Prospectus may be obtained at no charge by writing the Trust 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 Trust dated July 29, 2002 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 ___, 2002. TABLE OF CONTENTS THE TRUST......................................................................2 DESCRIPTION OF PERMITTED INVESTMENTS...........................................2 TRUSTEES AND OFFICERS OF THE TRUST.............................................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 - PBHG Funds Statement of Additional Information dated July 29, 2002 Appendix II - PBHG Funds Annual Report to Shareholders dated March 31, 2002 Appendix III - PBHG Funds Semi-Annual Report to Shareholders dated September 30, 2002 THE TRUST This Statement of Additional Information relates to PBHG Funds, a Delaware business trust (the "Trust"), and PBHG Technology & Communications Fund, an investment portfolio of the Trust (the "Fund"). The Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is a separate series of shares of beneficial interest of the Trust. For further information concerning the history of the Trust see the heading "The Trust" 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 the Fund adopted by the Trust's Board of Trustees, see heading "Description of Permitted Investments" and "Investment Limitations" in the Trust's Statement of Additional Information attached hereto as Appendix I. TRUSTEES AND OFFICERS OF THE TRUST For a disclosure of the names and a brief occupational biography of each of the Trust's trustees and officers, identifying those who are interested persons of the Trust as well as stating their aggregate renumeration, see heading "Trustees and Officers of the Trust" in the Trust'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 Trust'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 Trust's Statement of Additional Information attached hereto as Appendix I. PORTFOLIO TRANSACTIONS For a discussion of the Trust's brokerage policy, see heading "Portfolio Transactions" in the Trust's Statement of Additional Information attached hereto as Appendix I. DESCRIPTION OF SHARES For a discussion of the Trust's authorized securities and the characteristics of the Trust's shares of beneficial interest, and for a description of the purchase and redemption procedures for the Trust's shares, see headings "Description of Shares" and "Purchases and Redemptions of Shares" in the Trust's Statement of Additional Information attached hereto as Appendix I. DETERMINATION OF NET ASSET VALUE For a discussion of the Trust's valuation and pricing procedures see heading "Determination of Net Asset Value" in the Trust's Statement of Additional Information attached hereto as Appendix I. TAXES For a discussion of tax information relating to ownership of the Trust's shares, see heading "Taxes" in the Trust's Statement of Additional Information attached hereto as Appendix I. PERFORMANCE ADVERTISING For a description and quotation of certain performance data used by the Trust, see heading "Performance Advertising" in the Trust's Statement of Additional Information attached hereto as Appendix I. S-2 FINANCIAL INFORMATION Audited financial statements for the Fund and for PBHG Global Technology & Communications Fund for their most recent fiscal year, and the report thereon by PricewaterhouseCoopers LLP, independent auditors, are set forth in the Annual Report to Shareholders listed below, which is attached hereto as Appendix II and incorporated by reference herein. Unaudited financial statements for the semi-annual period indicated are set forth in the Semi-Annual Report to Shareholders listed below, which is attached hereto as Appendix III and incorporated by reference herein. Annual Report dated March 31, 2002 Semi-Annual Report dated September 30, 2002 S-3 APPENDIX I STATEMENT OF ADDITIONAL INFORMATION DATED JULY 29, 2002 TRUST: PBHG FUNDS FUNDS: PBHG GROWTH FUND PBHG FOCUSED VALUE FUND PBHG EMERGING GROWTH FUND PBHG CASH RESERVES FUND PBHG NEW OPPORTUNITIES FUND PBHG TECHNOLOGY & COMMUNICATIONS FUND PBHG LARGE CAP GROWTH FUND PBHG STRATEGIC SMALL COMPANY FUND PBHG SELECT EQUITY FUND PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBHG CORE GROWTH FUND PBHG CLIPPER FOCUS FUND PBHG LIMITED FUND PBHG IRA CAPITAL PRESERVATION FUND PBHG LARGE CAP 20 FUND PBHG SPECIAL EQUITY FUND PBHG LARGE CAP VALUE FUND (FORMERLY, PBHG NEW PERSPECTIVE FUND) PBHG MID-CAP VALUE FUND PBHG DISCIPLINED EQUITY FUND PBHG SMALL CAP VALUE FUND PBHG REIT FUND INVESTMENT ADVISER: PILGRIM BAXTER & ASSOCIATES, LTD. This Statement of Additional Information is not a prospectus. It is intended to provide additional information regarding the activities and operations of PBHG Funds (the "Trust" or "Registrant") and the Funds named above. It should be read in conjunction with the current Prospectuses for the Funds. The Prospectuses dated July 29, 2002 may be obtained without charge by calling 1-800-433-0051. The Annual Report, except for page 1, is incorporated herein by reference for each Fund. The Annual Report may be obtained without charge by calling 1-800-433-0051. -------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------- THE TRUST 2 -------------------------------------------------------------------- DESCRIPTION OF PERMITTED INVESTMENTS 4 -------------------------------------------------------------------- INVESTMENT LIMITATIONS 29 -------------------------------------------------------------------- TRUSTEES AND OFFICERS OF THE TRUST 34 -------------------------------------------------------------------- 5% AND 25% SHAREHOLDERS 39 -------------------------------------------------------------------- THE ADVISER 46 -------------------------------------------------------------------- THE SUB-ADVISERS 50 -------------------------------------------------------------------- THE DISTRIBUTOR 60 -------------------------------------------------------------------- THE ADMINISTRATOR AND SUB-ADMINISTRATOR 61 -------------------------------------------------------------------- OTHER SERVICE PROVIDERS 63 -------------------------------------------------------------------- PORTFOLIO TRANSACTIONS 63 -------------------------------------------------------------------- DESCRIPTION OF SHARES 67 -------------------------------------------------------------------- PURCHASES AND REDEMPTIONS OF SHARES 68 -------------------------------------------------------------------- DETERMINATION OF NET ASSET VALUE 76 -------------------------------------------------------------------- TAXES 77 -------------------------------------------------------------------- PERFORMANCE ADVERTISING 83 -------------------------------------------------------------------- COMPUTATION OF YIELD 83 -------------------------------------------------------------------- CALCULATION OF TOTAL RETURN 84 -------------------------------------------------------------------- FINANCIAL STATEMENTS 92 -------------------------------------------------------------------- CREDIT RATINGS 95 -------------------------------------------------------------------- 1 THE TRUST The Trust is an open-end management investment company which was originally incorporated in Delaware on August 2, 1985 under the name PBHG Growth Fund, Inc. and commenced business shortly thereafter as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). On July 21, 1992, shareholders of the Trust approved an Agreement and Articles of Merger pursuant to which the Fund was reorganized and merged into a new Maryland corporation, also named PBHG Growth Fund, Inc. On September 8, 1993, the shareholders of the Trust voted to change the name of the Trust to The Advisors' Inner Circle Fund II, Inc. On May 2, 1994, the shareholders voted to change the Trust's name to The PBHG Funds, Inc. On July 16, 2001, The PBHG Funds, Inc. was reorganized as a Delaware business trust and the Trust's name changed to PBHG Funds. Effective with the close of business on December 14, 2001, PBHG Clipper Focus Fund acquired the assets of Clipper Focus Portfolio of UAM Funds Trust, PBHG Special Equity Fund acquired the assets of NWQ Special Equity Portfolio of UAM Funds, Inc., and PBHG REIT Fund acquired the assets of Heitman Real Estate Portfolio of UAM Funds Trust. Effective with the close of business on January 11, 2002, PBHG Disciplined Equity Fund acquired the assets of Analytic Enhanced Equity Fund of UAM Funds II, Inc. and PBHG IRA Capital Preservation Fund acquired the assets of IRA Capital Preservation Portfolio of UAM Funds Trust. In addition, for the period July 27, 1998 to April 7, 1999, the Institutional Class shares of the Analytic Enhanced Equity Fund were known as the Class A Shares of the PBHG Advisor Enhanced Equity Fund, a series of the PBHG Advisor Funds, Inc. Pilgrim Baxter managed and Analytic Investors sub-advised the PBHG Advisor Enhanced Equity Fund. On April 7, 1999, the PBHG Advisor Funds, Inc. changed its name to UAM Funds, II and the Class A shares of the PBHG Advisor Enhanced Equity Fund were renamed the Institutional Class shares of the Analytic Enhanced Equity Fund. From July 1, 1993 (commencement of operations) to July 27, 1998, the Class A shares of the PBHG Advisor Enhanced Equity Fund were known as the Analytic Enhanced Equity Portfolio, a series of the Analytic Series Fund, Inc. The Analytic Enhanced Equity Portfolio was managed by Analytic Investors, the Fund's sub-adviser. On July 27, 1998, the Class A Shares of the PBHG Advisor Enhanced Equity Fund acquired the assets and assumed the liabilities of the Analytic Enhanced Equity Portfolio. This Statement of Additional Information relates to all Funds of the Trust. Shareholders may purchase shares through two separate classes, PBHG Class and Advisor Class (formerly the Trust Class) shares, which have different distribution costs, voting rights and dividends. Except for these differences, each PBHG Class share and each Advisor Class share of each Fund represents an equal proportionate interest in that Fund. See "Description of Shares." This Statement of Additional Information relates to both classes of shares of the Trust. No investment in shares of a Fund should be made without first reading the Fund's Prospectus. Capitalized terms not defined in this Statement of Additional Information are defined in each Prospectus offering shares of the Funds. 2 Pilgrim Baxter & Associates, Ltd. ("Adviser") serves as the investment adviser to each Fund. The table below sets forth the sub-advisers and the Funds that they sub-advise.
- ----------------------------------------------------------------------------------- SUB-ADVISER FUNDS ----------- ----- - ----------------------------------------------------------------------------------- Wellington Management Company, LLP Cash Reserves Fund ("Wellington Management") - ----------------------------------------------------------------------------------- Pacific Financial Research, Inc. ("PFR") Clipper Focus Fund - ----------------------------------------------------------------------------------- Analytic Investors, Inc. ("Analytic") Disciplined Equity Fund - ----------------------------------------------------------------------------------- Dwight Asset Management Company ("Dwight") IRA Capital Preservation Fund - ----------------------------------------------------------------------------------- NWQ Investment Management Company ("NWQ") Special Equity Fund - ----------------------------------------------------------------------------------- Heitman Real Estate Securities LLC (formerly named REIT Fund Heitman/PRA Securities Advisors LLC) ("Heitman") - -----------------------------------------------------------------------------------
3 DESCRIPTION OF PERMITTED INVESTMENTS EQUITY SECURITIES COMMON STOCKS. Common stocks represent units of ownership in a company. Common stocks usually carry voting rights and earn dividends. Unlike preferred stocks, which are described below, dividends on common stocks are not fixed but are declared at the discretion of the Board. PREFERRED STOCKS. Preferred stocks are also units of ownership in a company. Preferred stocks normally have preference over common stock in the payment of dividends and the liquidation of the company. However, in all other respects, preferred stocks are subordinated to the liabilities of the issuer. Unlike common stocks, preferred stocks are generally not entitled to vote on corporate matters. Types of preferred stocks include adjustable-rate preferred stock, fixed dividend preferred stock, perpetual preferred stock, and sinking fund preferred stock. Generally, the market values of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk. GENERAL RISKS OF INVESTING IN STOCKS. While investing in stocks allows shareholders to participate in the benefits of owning a company, such shareholders must accept the risks of ownership. Unlike bondholders, who have preference to a company's earnings and cash flow, preferred stockholders, followed by common stockholders in order of priority, are entitled only to the residual amount after a company meets its other obligations. For this reason, the value of a company's stock will usually react more strongly to actual or perceived changes in the company's financial condition or prospects than its debt obligations. Stockholders of a company that fares poorly can lose money. Stock markets tend to move in cycles with short or extended periods of rising and falling stock prices. The value of a company's stock may fall because of: o Factors that directly relate to that company, such as decisions made by its management or lower demand for the company's products or services; o Factors affecting an entire industry, such as increases in production costs; and o Changes in financial market conditions that are relatively unrelated to the company or its industry, such as changes in interest rates, currency exchange rates or inflation rates. Because preferred stock is generally junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. DERIVATIVES Derivatives are financial instruments whose value is based on an underlying asset, such as a stock or a bond, or an underlying economic factor, such as an interest rate or a market benchmark. A Fund may use derivatives to gain exposure to various markets in a cost efficient manner, to reduce transaction costs or to remain fully invested. A Fund may also invest in derivatives to protect it from broad fluctuations in market prices, interest rates or foreign currency exchange rates (a practice known as "hedging"). When hedging is successful, a Fund will have offset any depreciation in the value of its portfolio securities by the appreciation in the value of the derivative position. Although techniques other than the sale and purchase of derivatives could be used to control the exposure of a Fund to market fluctuations, the use of derivatives may be a more effective means of hedging this exposure. To the extent that derivatives involve leveraging a Fund's assets, the Fund will segregate assets with its custodian to cover the leveraged position, 4 consistent with the rules and interpretations of the Securities and Exchange Commission ("SEC") and its staff. FUTURES CONTRACTS A futures contract is a bilateral agreement to buy or sell a security (or deliver a cash settlement price, in the case of a contract relating to an index or otherwise not calling for physical delivery at the end of trading in the contracts) for a set price in the future. Futures contracts are designated by boards of trade which have been designated "contracts markets" by the Commodities Futures Trading Commission ("CFTC"). No purchase price is paid or received when the contract is entered into. Instead, a Fund upon entering into a futures contract (and to maintain that Fund's open positions in futures contracts) would be required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash, or other assets, known as "initial margin." The margin required for a particular futures contract is set by the exchange on which the contract is traded, and may be significantly modified from time to time by the exchange during the term of the contract. Futures contracts are customarily purchased and sold on margin that may range upward from less than 5% of the value of the contract being traded. By using futures contracts as a risk management technique, given the greater liquidity in the futures market than in the cash market, it may be possible to accomplish certain results more quickly and with lower transaction costs. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reaches a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will pay the excess to the Fund. These subsequent payments called "variation margin," to and from the futures broker, are made on a daily basis as the price of the underlying assets fluctuate making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." A Fund expects to earn interest income on its initial and variation margin deposits. A Fund will incur brokerage fees when it purchases and sells futures contracts. Positions taken in the futures markets are not normally held until delivery or cash settlement is required, but are instead liquidated through offsetting transactions that may result in a gain or a loss. While futures positions taken by a Fund will usually be liquidated in this manner, a Fund may instead make or take delivery of underlying securities whenever it appears economically advantageous to that Fund to do so. A clearing organization associated with the exchange on which futures are traded assumes responsibility for closing out transactions and guarantees that as between the clearing members of an exchange, the sale and purchase obligations will be performed with regard to all positions that remain open at the termination of the contract. SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities index futures contracts may be used in an attempt to protect each of the Fund's current or intended investments from broad fluctuations in securities prices. A securities index futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective accounts of the parties to the contract. On the contract's expiration date a final cash settlement occurs and the futures positions are simply closed out. Changes in the market value of a particular index futures contract reflect changes in the specified index of securities on which the future is based. By establishing an appropriate "short" position in index futures, a Fund may also seek to protect the value of its portfolio against an overall decline in the market for such securities. Alternatively, in anticipation of a generally rising market, a Fund can seek to avoid losing the benefit of apparently low current prices by establishing a "long" position in securities index 5 futures and later liquidating that position as particular securities are in fact acquired. To the extent that these hedging strategies are successful, a Fund will be affected to a lesser degree by adverse overall market price movements than would otherwise be the case. LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS. A Fund will not purchase or sell futures contracts unless either (i) the futures contracts are purchased for "bona fide hedging" purposes (as that term is defined under the CFTC regulations) or (ii) if purchased for other than "bona fide hedging" purposes, the sum of the amounts of initial margin deposits on a Fund's existing futures contracts and premiums required to establish non-hedging positions would not exceed 5% of the liquidation value of that Fund's total assets. In instances involving the purchase of futures contracts by a Fund, an amount of cash or other liquid assets, equal to the cost of such futures contracts (less any related margin deposits), will be deposited in a segregated account with its custodian, thereby insuring that the use of such futures contracts is unleveraged. In instances involving the sale of futures contracts by a Fund, the securities underlying such futures contracts or options will at all times be maintained by that Fund or, in the case of index futures contracts, the Fund will own securities the price changes of which are, in the opinion of its Adviser or Sub-Adviser expected to replicate substantially the movement of the index upon which the futures contract is based. For information concerning the risks associated with utilizing futures contracts, please see "Risks of Transactions in Futures Contracts Options" below. OPTIONS Options are contracts that give one of the parties to the contract the right to buy or sell the security that is subject to the option at a stated price during the option period, and obligates the other party to the contract to buy or sell such security at the stated price during the option period. The types of options transactions that each Fund may utilize are discussed below. WRITING CALL OPTIONS. A call option is a contract which gives the purchaser of the option (in return for a premium paid) the right to buy, and the writer of the option (in return for a premium received) the obligation to sell, the underlying security at the exercise price at any time prior to the expiration of the option, regardless of the market price of the security during the option period. A call option on a security is covered, for example, when the writer of the call option owns the security on which the option is written (or on a security convertible into such a security without additional consideration) throughout the option period. A Fund will write covered call options both to reduce the risks associated with certain of its investments and to increase total investment return through the receipt of premiums. In return for the premium income, a Fund will give up the opportunity to profit from an increase in the market price of the underlying security above the exercise price so long as its obligations under the contract continue, except insofar as the premium represents a profit. Moreover, in writing the call option, a Fund will retain the risk of loss should the price of the security decline. The premium is intended to offset that loss in whole or in part. Unlike the situation in which a Fund owns securities not subject to a call option, a Fund, in writing call options, must assume that the call may be exercised at any time prior to the expiration of its obligation as a writer, and that in such circumstances the net proceeds realized from the sale of the underlying securities pursuant to the call may be substantially below the prevailing market price. A Fund may terminate its obligation under an option it has written by buying an identical option. Such a transaction is called a "closing purchase transaction." A Fund will realize a gain or loss from a closing purchase transaction if the amount paid to purchase a call option is less or more than the amount received from the sale of the corresponding call option. Also, because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the exercise or closing out of a call option is likely to be offset in whole or part by unrealized appreciation of the underlying security owned by the 6 Fund. When an underlying security is sold from a Fund's securities portfolio, that Fund will effect a closing purchase transaction so as to close out any existing covered call option on that underlying security. WRITING PUT OPTIONS. The writer of a put option becomes obligated to purchase the underlying security at a specified price during the option period if the buyer elects to exercise the option before its expiration date. A Fund when it writes a put option will be required to "cover" it, for example, by depositing and maintaining in a segregated account with its custodian cash, or other liquid obligations having a value equal to or greater than the exercise price of the option. A Fund may write put options either to earn additional income in the form of option premiums (anticipating that the price of the underlying security will remain stable or rise during the option period and the option will therefore not be exercised) or to acquire the underlying security at a net cost below the current value (e.g., the option is exercised because of a decline in the price of the underlying security, but the amount paid by such Fund, offset by the option premium, is less than the current price). The risk of either strategy is that the price of the underlying security may decline by an amount greater than the premium received. The premium which a Fund receives from writing a put option will reflect, among other things, the current market price of the underlying security, the relationship of the exercise price to that market price, the historical price volatility of the underlying security, the option period, supply and demand and interest rates. A Fund may effect a closing purchase transaction to realize a profit on an outstanding put option or to prevent an outstanding put option from being exercised. PURCHASING PUT AND CALL OPTIONS. A Fund may purchase put options on securities to protect its holdings against a substantial decline in market value. The purchase of put options on securities will enable a Fund to preserve, at least partially, unrealized gains in an appreciated security in its portfolio without actually selling the security. In addition, a Fund will continue to receive interest or dividend income on the security. A Fund may also purchase call options on securities to protect against substantial increases in prices of securities that the Fund intend to purchase pending its ability to invest in an orderly manner in those securities. A Fund may sell put or call options it has previously purchased, which could result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction cost paid on the put or call option which was bought. SECURITIES INDEX OPTIONS. A Fund may write covered put and call options and purchase call and put options on securities indexes for the purpose of hedging against the risk of unfavorable price movements adversely affecting the value of the Fund's securities or securities it intends to purchase. A Fund will only write "covered" options. A call option on a securities index is considered covered, for example, if, so long as the Fund is obligated as the writer of the call, it holds securities the price changes of which are, in the opinion of the Adviser or Sub-Adviser, expected to replicate substantially the movement of the index or indexes upon which the options written by the Fund are based. A put on a securities index written by a Fund will be considered covered if, so long as it is obligated as the writer of the put, the Fund segregates with its custodian cash or other liquid obligations having a value equal to or greater than the exercise price of the option. Unlike a stock option, which gives the holder the right to purchase or sell a specified stock at a specified price, an option on a securities index gives the holder the right to receive a cash "exercise settlement amount" equal to (i) the difference between the exercise price of the option and the value of the underlying stock index on the exercise date, multiplied by (ii) a fixed "index multiplier." A securities index fluctuates with changes in the market value of the securities so included. For example, some securities index options are based on a broad market index such as the S&P 500 or the NYSE Composite Index, or a narrower market index such as the S&P 100. Indexes may also be based on an industry or market segment such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. 7 OPTIONS ON FUTURES. An option on a futures contract provides the holder with the right to buy a futures contract (in the case of a call option) or sell a futures contract (in the case of a put option) at a fixed time and price. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option (in the case of a call option) or a corresponding long position (in the case of a put option). If the option is exercised, the parties will be subject to the futures contracts. In addition, the writer of an option on a futures contract is subject to initial and variation margin requirements on the option position. Options on futures contracts are traded on the same contract market as the underlying futures contract. The buyer or seller of an option on a futures contract may terminate the option early by purchasing or selling an option of the same series (i.e., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction. A Fund may purchase put and call options on futures contracts instead of selling or buying futures contracts. A Fund may buy a put option on a futures contract for the same reasons it would sell a futures contract. It also may purchase such put options in order to hedge a long position in the underlying futures contract. A Fund may buy call options on futures contracts for the same purpose as the actual purchase of the futures contracts, such as in anticipation of favorable market conditions. A Fund may write a call option on a futures contract to hedge against a decline in the prices of the instrument underlying the futures contracts. If the price of the futures contract at expiration were below the exercise price, the Fund would retain the option premium, which would offset, in part, any decline in the value of its Fund securities. The writing of a put option on a futures contract is similar to the purchase of the futures contracts, except that, if the market price declines, a Fund would pay more than the market price for the underlying instrument. The premium received on the sale of the put option, less any transaction costs, would reduce the net cost to the Funds. A Fund will "cover" any options it writes on futures contracts by, for example, segregating cash or liquid securities with the Fund's custodian and marking to market daily an amount sufficient to cover the futures contract. COMBINED POSITIONS. A Fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, a Fund could construct a combined position whose risk and return characteristics are similar to selling a futures contract by purchasing a put option and writing a call option on the same underlying instrument. Alternatively, a Fund could write a call option at one strike price and buy a call option at a lower price to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. OVER-THE-COUNTER OPTIONS. A Fund may enter into contracts to write over-the-counter options with primary dealers. The Funds have established standards of creditworthiness for these primary dealers, although the Fund may still be subject to the risk that firms participating in these transactions will fail to meet their obligations. As with written exchange-traded options, a Fund must segregate liquid assets to cover its exposure under written over-the-counter options, and the segregated assets must be marked to market daily. A Fund must treat its entire exposure under a contract as illiquid unless the contract provides that the Fund has the absolute right to repurchase the written option at any time at a repurchase price which represents the fair market value, as determined in good faith through 8 negotiation between the parties, but which in no event will exceed a price determined pursuant to a formula contained in the contract. Although the specific details of the formula may vary between contracts with different primary dealers, the formula will generally be based on a multiple of the premium received by a Fund for writing the option, plus the amount, if any, that the option is "in-the-money" (i.e., the amount by which the price of the option exceeds the exercise price). The formula will similarly take into account whether the option is "out-of-the-money." If a contract gives the Fund an absolute right to repurchase the written option at a pre-established formula price, the Fund would treat as illiquid only securities equal in amount to the formula price less the amount by which the option is "in-the-money." For information concerning the risks associated with utilizing options and futures contracts, please see "Risks of Transactions in Futures Contracts and Options" below. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS FUTURES. The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in the market and interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. Most United States futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of futures contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. Because of the low margin deposits required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, as well as gain, to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, if the futures contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. A decision of whether, when, and how to hedge involves skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior, market trends or interest rate trends. There are several risks in connection with the use by a Fund of futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of the underlying instruments that are the subject of the hedge. The Adviser or Sub-Adviser will, however, attempt to reduce this risk by entering into futures contracts whose movements, in its judgment, will have a significant correlation with movements in the prices of the Fund's underlying instruments sought to be hedged. Successful use of futures contracts by a Fund for hedging purposes is also subject to the Fund's ability to correctly predict movements in the direction of the market. It is possible that, when a Fund has sold futures to hedge its portfolio against a decline in the market, the index, indices, or instruments underlying futures might advance and the value of the underlying instruments held in 9 that Fund's portfolio might decline. If this were to occur, the Fund would lose money on the futures and also would experience a decline in value in its underlying instruments. Positions in futures contracts may be closed out only on an exchange or a board of trade, which provides the market for such futures. Although a Fund intends to purchase or sell futures only on exchanges or boards of trade where there appears to be an active market, there is no guarantee that such will exist for any particular contract or at any particular time. If there is not a liquid market at a particular time, it may not be possible to close a futures position at such time, and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. However, in the event futures positions are used to hedge portfolio securities, the securities will not be sold until the futures positions can be liquidated. In such circumstances, an increase in the price of securities, if any, may partially or completely offset losses on the futures contracts. Further, the counterparty to a futures contract could default. OPTIONS. A closing purchase transaction for exchange-traded options may be made only on a national securities exchange. There is no assurance that a liquid secondary market on an exchange will exist for any particular option, or at any particular time, and for some options, such as over-the-counter options, no secondary market on an exchange may exist. If a Fund is unable to effect a closing purchase transaction, that Fund will not sell the underlying security until the option expires or the Fund delivers the underlying security upon exercise. Options traded in the over-the-counter market may not be as actively traded as those on an exchange. Accordingly, it may be more difficult to value such options. In addition, it may be difficult to enter into closing transactions with respect to options traded over-the-counter. The Fund will engage in such transactions only with firms of sufficient credit so as to minimize these risks. Such options and the securities used as "cover" for such options may be considered illiquid securities. The effectiveness of hedging through the purchase of securities index options will depend upon the extent to which price movements in the portion of the securities portfolio being hedged correlate with price movements in the selected securities index. Perfect correlation is not possible because the securities held or to be acquired by a Fund will not exactly match the composition of the securities indexes on which options are written. In the purchase of securities index options the principal risk is that the premium and transaction costs paid by a Fund in purchasing an option will be lost if the changes (increase in the case of a call, decrease in the case of a put) in the level of the index do not exceed the cost of the option. An exchange may establish limitations governing the maximum number of calls and puts in each class (whether or not covered) which may be written by a single investor or group of investors acting in concert (regardless of whether the options are written on the same or different exchanges or are held or written in one or more accounts or through one or more brokers). It is possible that the Fund and clients advised by the Adviser or the applicable Sub-Adviser may constitute such a group. An exchange may order the liquidation of positions found to be in violation of these limits, and it may impose certain other sanctions. These position limits may limit the number of options that a Fund can write on a particular security. 10 SWAPS, CAPS, COLLARS AND FLOORS SWAP AGREEMENTS A swap is a financial instrument that typically involves the exchange of cash flows between two parties on specified dates (settlement dates), where the cash flows are based on agreed-upon prices, rates, indices, etc. The nominal amount on which the cash flows are calculated is called the notional amount. Swaps are individually negotiated and structured to include exposure to a variety of different types of investments or market factors, such as interest rates, foreign currency rates, mortgage securities, corporate borrowing rates, security prices, indexes or inflation rates. Swap agreements may increase or decrease the overall volatility of the investments of a Fund and its share price. The performance of swap agreements may be affected by a change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due. In addition, if the counter-party's creditworthiness declines, the value of a swap agreement would be likely to decline, potentially resulting in losses. Generally, swap agreements have a fixed maturity date that will be agreed upon by the parties. The agreement can be terminated before the maturity date only under limited circumstances, such as default by one of the parties or insolvency, among others, and can be transferred by a party only with the prior written consent of the other party. A Fund may be able to eliminate its exposure under a swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counter-party is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, a Fund may not be able to recover the money it expected to receive under the contract. A swap agreement can be a form of leverage, which can magnify a Fund's gains or losses. In order to reduce the risk associated with leveraging, a Fund may cover its current obligations under swap agreements according to guidelines established by the SEC. If a Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the Fund's accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If a Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the Fund's accrued obligations under the agreement. EQUITY SWAPS. In a typical equity swap, one party agrees to pay another party the return on a stock, stock index or basket of stocks in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including dividends, will not exceed the return on the interest rate that a Fund will be committed to pay. INTEREST RATE SWAPS. Interest rate swaps are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. Some of the different types of interest rate swaps are "fixed-for floating rate swaps," "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate swaps involve the exchange of fixed interest rate cash flows for floating rate cash flows. Termed basis swaps entail cash flows to both parties based on floating interest rates, where the interest rate indices are different. Index amortizing swaps are typically fixed-for floating swaps where the notional amount changes if certain conditions are met. Like a traditional investment in a debt security, a Fund could lose money by investing in an interest rate swap if interest rates change adversely. For example, if a Fund enters into a swap 11 here it agrees to exchange a floating rate of interest for a fixed rate of interest, a Fund may have to pay more money than it receives. Similarly, if s Fund enters into a swap where it agrees to exchange a fixed rate of interest for a floating rate of interest, a Fund may receive less money than it has agreed to pay. CURRENCY SWAPS. A currency swap is an agreement between two parties in which one party agrees to make interest rate payments in one currency and the other promises to make interest rate payments in another currency. A Fund may enter into a currency swap when it has one currency and desires a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. Changes in foreign exchange rates and changes in interest rates, as described above, may negatively affect currency swaps. CAPS, COLLARS AND FLOORS Caps and floors have an effect similar to buying or writing options. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level. The seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. INVESTMENT COMPANY SHARES The Funds may invest in shares of other investment companies (such as Standard & Poor's Depository Receipts - "SPDRs"). Since such mutual funds pay management fees and other expenses, shareholders of the Funds would indirectly pay both Fund expenses and the expenses of underlying funds with respect to Fund assets invested therein. Applicable regulations prohibit a Fund from acquiring the securities of other investment companies that are not "part of the same group of investment companies" if, as a result of such acquisition; (i) the Fund owns more than 3% of the total voting stock of the company; (ii) more than 5% of the Fund's total assets are invested in securities of any one investment company; or (iii) more than 10% of the total assets of the Fund are invested in securities (other than treasury stock) issued by all investment companies. ILLIQUID INVESTMENTS Illiquid investments are investments that cannot be sold or disposed of in the ordinary course of business within seven (7) days at approximately the prices at which they are valued. Under the supervision of the Board of Trustees, the Adviser or Sub-Advisers determine the liquidity of the Trust's investments and, through reports from the Adviser or Sub-Advisers, the Board monitors investments in illiquid instruments. In determining the liquidity of a Fund's investments, the Adviser or Sub-Advisers may consider various factors including: (i) the frequency of trades and quotations; (ii) the number of dealers and prospective purchasers in the marketplace; (iii) dealer undertakings to make a market; (iv) the nature of the security (including any demand or tender features); and (v) the nature of the market place for trades (including the ability to assign or offset a Fund's rights and obligations relating to the investment). Investments currently considered by a Fund to be illiquid include repurchase agreements not entitling the holder to payment of principal and interest within seven days, over-the-counter options, and non-government stripped fixed-rate mortgage backed securities. Also, the Adviser or Sub-Advisers may determine some government-stripped fixed-rate mortgage backed securities, loans and other direct debt instruments, and swap agreements to be illiquid. However, with respect to over-the-counter options a Fund writes, all or a portion of the value of the underlying instrument may be illiquid depending on the assets held to cover the option and the nature and terms of any agreement a Fund may have to close out the 12 option before expiration. In the absence of market quotations, illiquid investments are priced at fair value as determined in good faith by a committee appointed by the Board of Trustees. If, through a change in values, net assets or other circumstances, a Fund was in a position where more than 15% of its net assets were invested in illiquid securities, it would seek to take appropriate steps to protect liquidity. RESTRICTED SECURITIES Restricted securities generally can be sold in privately negotiated transactions, pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act"), or in a registered public offering. Where registration is required, a Fund may be obligated to pay all or part of the registration expense and a considerable period may elapse between the time it decides to seek registration and the time a Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than prevailed when it decided to seek registration of the security. Moreover, investing in Rule 144A securities (i.e., securities that qualify for resale under Rule 144A under the Securities Act of 1933) would have the effect of increasing the level of a Fund's illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Also, restricted securities may be difficult to value because market quotations may not be readily available. Each Fund other than Cash Reserves limits the amount of total assets it invests in restricted securities to 15%. The Cash Reserves Fund limits the amount of total assets it invests in restricted securities to 10%. FOREIGN CURRENCY TRANSACTIONS A Fund may hold foreign currency deposits from time to time, and may convert dollars and foreign currencies in the foreign exchange markets. Currency conversion involves dealer spreads and other costs, although commissions usually are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by entering into forward contracts to purchase or sell foreign currencies at a future date and price. Forward contracts generally are traded in an interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before maturity, or may hold the contract to maturity and complete the contemplated currency exchange. A Fund may use currency forward contracts to manage currency risks and to facilitate transactions in foreign securities. The following discussion summarizes the principal currency management strategies involving forward contracts that could be used by the Funds. In connection with purchases and sales of securities denominated in foreign currencies, a Fund may enter into currency forward contracts to fix a definite price for the purchase or sale in advance of the trade's settlement date. This technique is sometimes referred to as a "settlement hedge" or "transaction hedge." The Adviser or the applicable Sub-Advisers may enter into settlement hedges in the normal course of managing the Fund's foreign investments. A Fund may also enter into forward contracts to purchase or sell a foreign currency in anticipation of future purchases or sales of securities denominated in foreign currency, even if the specific investments have not yet been selected by the Adviser or the applicable Sub-Adviser. A Fund may also use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. For example, if a Fund owned securities denominated in pounds sterling, it could enter into a forward contract to sell pounds sterling in return for U.S. dollars to hedge against possible declines in the pound's value. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. A Fund could also hedge the position by selling another currency expected to perform similarly to the pound sterling - for example, by entering into a forward contract to sell Deutschemark or 13 European Currency Units in return for U.S. dollars. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated. Under certain conditions, guidelines of the SEC require mutual funds to set aside appropriate liquid assets in a segregated account to cover currency forward contracts. As required by SEC guidelines, each Fund will segregate assets to cover currency forward contracts, if any, whose purpose is essentially speculative. A Fund will not segregate assets to cover forward contracts entered into for hedging purposes, including settlement hedges, position hedges, and proxy hedges. Successful use of forward currency contracts will depend on the skill of the Adviser or the applicable Sub-Adviser in analyzing and predicting currency values. Forward contracts may substantially change a Fund's investment exposure to changes in currency exchange rates, and could result in losses to a Fund if currencies do not perform as the Adviser or the applicable Sub-Adviser anticipates. For example, if a currency's value rose at a time when the Adviser or Sub-Adviser had hedged a Fund by selling that currency in exchange for dollars, a Fund would be unable to participate in the currency's appreciation. If the Adviser or a Sub-Adviser hedges a Fund's currency exposure through proxy hedges, the Fund could realize currency losses from the hedge and the security position at the same time if the two currencies do not move in tandem. Similarly, if the Adviser or the applicable Sub-Adviser increases a Fund's exposure to a foreign currency and that currency's value declines, the Fund will realize a loss. There is no assurance that the use of forward currency contracts by the Adviser or the Sub-Advisers will be advantageous to a Fund or that it will hedge at an appropriate time. AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS") AND GLOBAL DEPOSITARY RECEIPTS ("GDRS") ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. EDRs are receipts issued by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of the underlying foreign securities. GDRs, which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are securities, typically issued by a non-U.S. financial institution, that evidence ownership interests in a security or a pool of securities issued by either a U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the receipt's underlying security. Holders of an unsponsored depositary receipt generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through to the holders of the receipts voting rights with respect to the deposited securities. SHORT-TERM INVESTMENTS To earn a return on uninvested assets, meet anticipated redemptions, or for temporary defensive purposes, a Fund may invest a portion of its assets in the short-term securities listed below, U.S. government securities and investment-grade corporate debt securities. Unless otherwise specified, a short-term debt security has a maturity of one year or less. 14 BANK OBLIGATIONS The Fund will only invest in a security issued by a commercial bank if the bank: o Has total assets of at least $1 billion, or the equivalent in other currencies; and o Is either a U.S. bank and a member of the Federal Deposit Insurance Corporation; or o Is a foreign branch of a U.S. bank and the adviser believes the security is of an investment quality comparable with other debt securities that the Fund may purchase. BANKERS' ACCEPTANCE A bill of exchange or time draft drawn on and accepted by a commercial bank. It is used by corporations to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. CERTIFICATE OF DEPOSIT A negotiable interest bearing instrument with a specific maturity. Certificates of deposit are issued by banks and savings and loan institutions in exchange for the deposit of funds and normally can be traded in the secondary market prior to maturity. Certificates of deposit generally carry penalties for early withdrawal. COMMERCIAL PAPER The term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues typically vary from a few days to nine months. DEMAND INSTRUMENTS Certain instruments may involve a conditional or unconditional demand feature which permits the holder to demand payment of the principal amount of the instrument. Demand instruments may include variable amount master demand notes. TIME DEPOSIT A non-negotiable receipt issued by a bank in exchange for the deposit of funds. Like a certificate of deposit, it earns a specified rate of interest over a definite period of time; however, it cannot be traded in the secondary market. Time deposits with a withdrawal penalty are considered to be illiquid securities. U.S. GOVERNMENT AGENCY OBLIGATIONS Certain Federal agencies such as the Government National Mortgage Association ("GNMA") have been established as instrumentalities of the United States Government to supervise and finance certain types of activities. Securities issued by these agencies, while not direct obligations of the United States Government, are either backed by the full faith and credit of the United States (e.g., GNMA securities) or supported by the issuing agencies' right to borrow from the Treasury. The securities issued by other agencies are supported only by the credit of the instrumentality (e.g., Tennessee Valley Authority securities). Federal National Mortgage Association ("FNMA") is a government-sponsored corporation owned entirely by private stockholders. FNMA is regulated by the Secretary of Housing and Urban development. FNMA purchases conventional mortgages from a list of approved sellers and service providers, including state and federally-chartered savings and loan associations, mutual 15 savings banks, commercial banks and credit unions and mortgage bankers. Securities issued by FNMA are agency securities, which means FNMA, but not the U.S. government, guarantees their timely payment of principal and interest. Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate instrumentality of the U.S. government whose stock is owned by the twelve Federal Home Loan Banks. Congress created FHLMC in 1970 to increase the availability of mortgage credit for residential housing. FHLMC issues Participation Certificates (PCs) which represent interests in conventional mortgages. Like FNMA, FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government. U.S. GOVERNMENT SECURITIES Bills, notes and bonds issued by the U.S. Government and backed by the full faith and credit of the United States. U.S. TREASURY OBLIGATIONS Bills, notes and bonds issued by the U.S. Treasury, and separately traded interest and principal component parts of such obligations that are transferable through the Federal book-entry system known as Separately Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS program, a Fund will be able to have its beneficial ownership of securities recorded directly in the book-entry record-keeping system in lieu of having to hold certificates or other evidences of ownership of the underlying U.S. Treasury securities. When U.S. Treasury obligations have been stripped of their unmatured interest coupons by the holder, the stripped coupons are sold separately or grouped with other coupons with like maturity dates and sold in such bundled form. The principal or corpus is sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest (cash) payments. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the securities that the Treasury sells itself. Other facilities are available to facilitate the transfer of ownership of non-Treasury securities by accounting separately for the beneficial ownership of particular interest coupon and corpus payments on such securities through a book-entry record-keeping system. CORPORATE BONDS Corporations issue bonds and notes to raise money for working capital or for capital expenditures such as plant construction, equipment purchases and expansion. In return for the money loaned to the corporation by shareholders, the corporation promises to pay shareholders interest, and repay the principal amount of the bond or note. CONVERTIBLE SECURITIES Securities such as rights, bonds, notes and preferred stocks which are convertible into or exchangeable for common stocks. Convertible securities have characteristics similar to both fixed income and equity securities. Because of the conversion feature, the market value of convertible securities tends to move together with the market value of the underlying common stock. As a result, a Fund's selection of convertible securities is based, to a great extent, on the potential for capital appreciation that may exist in the underlying stock. The value of convertible securities is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. A synthetic convertible security is a combination investment in which a Fund purchases both (i) high-grade cash equivalents or a high grade debt obligation of an issuer or U.S. Government securities and (ii) call options or warrants on the common stock of the same or different issuer with some or all of the anticipated interest income from the associated debt obligation that is earned over the holding period of the option or warrant. 16 While providing a fixed income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar non-convertible security), a convertible security also affords a shareholder the opportunity, through its conversion feature, to participate in the capital appreciation attendant upon a market price advance in the convertible security's underlying common stock. A synthetic convertible position has similar investment characteristics, but may differ with respect to credit quality, time to maturity, trading characteristics and other factors. Because a Fund will create synthetic convertible positions only out of high grade fixed income securities, the credit rating associated with a Fund's synthetic convertible investments is generally expected to be higher than that of the average convertible security, many of which are rated below high grade. However, because the options used to create synthetic convertible positions will generally have expirations between one month and three years of the time of purchase, the maturity of these positions will generally be shorter than average for convertible securities. Since the option component of a convertible security or synthetic convertible position is a wasting asset (in the sense of losing "time value" as maturity approaches), a synthetic convertible position may lose such value more rapidly than a convertible security of longer maturity; however, the gain in option value due to appreciation of the underlying stock may exceed such time value loss. The market price of the option component generally reflects these differences in maturities, and the Adviser and applicable sub-adviser take such differences into account when evaluating such positions. When a synthetic convertible position "matures" because of the expiration of the associated option, a Fund may extend the maturity by investing in a new option with longer maturity on the common stock of the same or different issuer. If a Fund does not so extend the maturity of a position, it may continue to hold the associated fixed income security. REPURCHASE AGREEMENTS Repurchase agreements are agreements by which a person (e.g., a Fund) obtains a security and simultaneously commits to return the security to the seller (a member bank of the Federal Reserve System or primary securities dealer as recognized by the Federal Reserve Bank of New York) at an agreed upon price (including principal and interest) on an agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price reflects the purchase price plus an agreed upon market rate of interest which is unrelated to the coupon rate or maturity of the underlying security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value of the underlying security. Repurchase agreements are considered to be loans by a Fund for purposes of its investment limitations. The repurchase agreements entered into by the Funds will provide that the underlying security at all times shall have a value at least equal to 102% of the resale price stated in the agreement. With respect to all repurchase agreements entered into by a Fund, the Fund's custodians or their agents must take possession of the underlying collateral. However, if the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale, including accrued interest, are less than the resale price provided in the agreement including interest. In addition, even though the Bankruptcy Code provides protection for most repurchase agreements, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor of the seller and is required to return the underlying security to the seller's estate. MORTGAGE-BACKED SECURITIES Securities that include interests in pools of lower-rated debt securities, or consumer loans or mortgages, or complex instruments such as collateralized mortgage obligations and stripped mortgage-backed securities. The value of these securities may be significantly affected by changes in interest rates, the market's perception of the issuers, and the creditworthiness of the 17 parties involved. Some securities may have a structure that makes their reaction to interest rates and other factors difficult to predict, making their value highly volatile. These securities may also be subject to prepayment risk. COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional mortgage loans. In addition to guaranteeing the mortgage-related security, such issuers may service and/or have originated the underlying mortgage loans. Pools created by these issuers generally offer a higher rate of interest than pools created by GNMA, FNMA & FHLMC because they are not guaranteed by a government agency. RISKS OF MORTGAGE-BACKED SECURITIES Yield characteristics of mortgage-backed securities differ from those of traditional debt securities in a variety of ways. For example, payments of interest and principal are more frequent (usually monthly) and their interest rates are sometimes adjustable. In addition, a variety of economic, geographic, social and other factors, such as the sale of the underlying property, refinancing or foreclosure, can cause shareholders to repay the loans underlying a mortgage-backed security sooner than expected. If the prepayment rates increase, a Fund may have to reinvest its principal at a rate of interest that is lower than the rate on existing mortgage-backed securities. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) CMOs are hybrids between mortgage-backed bonds and mortgage pass-through securities. Similar to a bond, CMOs usually pay interest monthly and have a more focused range of principal payment dates than pass-through securities. While CMOs may be collateralized by whole mortgage loans, CMOs are more typically collateralized by mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA and their income streams. A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code of 1986, as amended, and invests in certain mortgages primarily secured by interests in real property and other permitted investments. CMOs are structured into multiple classes, each bearing a different stated maturity. Each class of CMO or REMIC certificate, often referred to as a "tranche," is issued at a specific interest rate and must be fully retired by its final distribution date. Generally, all classes of CMOs or REMIC certificates pay or accrue interest monthly. Investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those associated with investing in equity securities. STRIPPED MORTGAGE-BACKED SECURITIES Stripped mortgage-backed securities are derivative multiple-class mortgage-backed securities. Stripped mortgage-backed securities usually have two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. Typically, one class will receive some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In extreme cases, one class will receive all of the interest ("interest only" or "IO" class) while the other class will receive the entire principal ("principal only" or PO class"). The cash flow and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. Slower than anticipated prepayments of principal may adversely affect the yield to maturity of a PO. The yields and market risk of interest only and principal only stripped mortgage-backed 18 securities, respectively, may be more volatile than those of other fixed income securities, including traditional mortgage-backed securities. OTHER ASSET-BACKED SECURITIES These securities are interests in pools of a broad range of assets other than mortgages, such as automobile loans, computer leases and credit card receivables. Like mortgage-backed securities, these securities are pass-through. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets, which raises the possibility that recoveries on repossessed collateral may not be available to support payments on these securities. For example, credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which allow debtors to reduce their balances by offsetting certain amounts owed on the credit cards. Most issuers of asset-backed securities backed by automobile receivables permit the servicers of such receivables to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related asset-backed securities. Due to the quantity of vehicles involved and requirements under state laws, asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such receivables. To lessen the effect of failures by obligors on underlying assets to make payments, the entity administering the pool of assets may agree to ensure the receipt of payments on the underlying pool occurs in a timely fashion ("liquidity protection"). In addition, asset-backed securities may obtain insurance, such as guarantees, policies or letters of credit obtained by the issuer or sponsor from third parties, for some or all of the assets in the pool ("credit support"). Delinquency or loss more than that anticipated or failure of the credit support could adversely affect the return on an investment in such a security. A Fund may also invest in residual interests in asset-backed securities, which is the excess cash flow remaining after making required payments on the securities and paying related administrative expenses. The amount of residual cash flow resulting from a particular issue of asset-backed securities depends in part on the characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of administrative expenses and the actual prepayment experience on the underlying assets. RECEIPTS Separately traded interest and principal component parts of U.S. Treasury obligations that are issued by banks or brokerage firms and are created by depositing U.S. Treasury obligations into a special account at a custodian bank. The custodian bank holds the interest and principal payments for the benefit of the registered owners of the receipts. The custodian bank arranges for the issuance of the receipts evidencing ownership and maintains the register. VARIABLE AND FLOATING RATE INSTRUMENTS Certain of the obligations purchased by a Fund may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices, such as a Federal Reserve composite index. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current 19 interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such securities. WARRANTS Instruments giving holders the right, but not the obligation, to buy shares of a company at a given price during a specified period. WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES When-issued and delayed-delivery securities are securities subject to settlement on a future date. For fixed income securities, the interest rate realized on when-issued or delayed-delivery securities is fixed as of the purchase date and no interest accrues to a Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and will have the effect of leveraging a Fund's assets. The Funds are permitted to invest in forward commitments or when-issued securities where such purchases are for investment and not for leveraging purposes. One or more segregated accounts will be established with the Custodian, and the Funds will maintain liquid assets in such accounts in an amount at least equal in value to each Fund's commitments to purchase when-issued securities. Only the Small Cap Value, Mid-Cap Value, Large Cap Value, Disciplined Equity, Special Equity, IRA Capital Preservation and REIT Funds are permitted to invest in these securities. These Funds use segregated accounts to offset leverage risk. ZERO COUPON BONDS These securities make no periodic payments of interest, but instead are sold at a discount from their face value. When held to maturity, their entire income, which consists of accretion of discount, comes from the difference between the issue price and their value at maturity. The amount of the discount rate varies depending on factors including the time remaining until maturity, prevailing interest rates, the security's liquidity and the issuer's credit quality. The market value of zero coupon securities may exhibit greater price volatility than ordinary debt securities because a stripped security will have a longer duration than an ordinary debt security with the same maturity. A Fund's investments in pay-in-kind, delayed and zero coupon bonds may require it to sell certain of its Fund securities to generate sufficient cash to satisfy certain income distribution requirements. SECURITIES LENDING A Fund may lend a portion of its total assets to broker-dealers or other financial institutions. It may then reinvest the collateral it receives in short-term securities and money market funds. If a Fund lends its securities, it will follow the following guidelines: o The borrower must provide collateral at least equal to the market value of the securities loaned; o The collateral must consist of cash, an irrevocable letter of credit issued by a domestic U.S. bank or securities issued or guaranteed by the U. S. government; o The borrower must add to the collateral whenever the price of the securities loaned rises (i.e., the borrower "marks to the market" on a daily basis); o The Fund must be able to terminate the loan at any time; 20 o The Fund must receive reasonable interest on the loan (which may include the Fund investing any cash collateral in interest bearing short-term investments); and o The Fund must determine that the borrower is an acceptable credit risk. These risks are similar to the ones involved with repurchase agreements. When a Fund lends securities, there is a risk that the borrower will become financially unable to honor its contractual obligations. If this happens, a Fund could: o Lose its rights in the collateral and not be able to retrieve the securities it lent to the borrower; and o Experience delays in recovering its securities. The Funds currently do not intend to engage in securities lending. SHORT SALES DESCRIPTION OF SHORT SALES. A security is sold short when a Fund sells a security it does not own. To sell a security short, a Fund must borrow the security from someone else to deliver it to the buyer. The Fund then replaces the borrowed security by purchasing it at the market price at or before the time of replacement. Until it replaces the security, the Fund repays the person that lent it the security for any interest or dividends that may have accrued during the period of the loan. A Fund typically sells securities short to: o Take advantage of an anticipated decline in prices. o Protect a profit in a security it already owns. A Fund can lose money if the price of the security it sold short increases between the date of the short sale and the date on which the Fund replaces the borrowed security. Likewise, a Fund can profit if the price of the security declines between those dates. To borrow the security, a Fund also may be required to pay a premium, which would increase the cost of the security sold. A Fund will incur transaction costs in effecting short sales. A Fund's gains and losses will be decreased or increased, as the case may be, by the amount of the premium, dividends, interest, or expenses the Fund may be required to pay in connection with a short sale. The broker will retain the net proceeds of the short sale to the extent necessary to meet margin requirements until the short position is closed out. SHORT SALES AGAINST THE BOX. In addition, a Fund may engage in short sales "against the box." In a short sale against the box, a Fund agrees to sell at a future date a security that it either currently owns or has the right to acquire at no extra cost. A Fund will incur transaction costs to open, maintain and close short sales against the box. RESTRICTIONS ON SHORT SALES. A Fund will not short sell a security if: o After giving effect to such short sale, the total market value of all securities sold short would exceed 25% of the value of a Fund's net assets; 21 o The market value of the securities of any single issuer that have been sold short by a Fund would exceed two percent (2%) of the value of a Fund's net assets; and o Such securities would constitute more than two percent (2%) of any class of the issuer's securities. Whenever a Fund sells a security short, its custodian segregates an amount of cash or liquid securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. Government securities the Fund is required to deposit with the broker in connection with the short sale (not including the proceeds from the short sale). The segregated assets are marked to market daily in an attempt to ensure that the amount deposited in the segregated account plus the amount deposited with the broker is at least equal to the market value of the securities at the time they were sold short. FACTORS AFFECTING THE VALUE OF DEBT SECURITIES The total return of a debt instrument is composed of two elements: the percentage change in the security's price and interest income earned. The yield to maturity of a debt security estimates its total return only if the price of the debt security remains unchanged during the holding period and coupon interest is reinvested at the same yield to maturity. The total return of a debt instrument, therefore, will be determined not only by how much interest is earned, but also by how much the price of the security and interest rates change. INTEREST RATES The price of a debt security generally moves in the opposite direction from interest rates (i.e., if interest rates go up, the value of the bond will go down, and vice versa). PREPAYMENT RISK This risk effects mainly mortgage-backed securities. Unlike other debt securities, falling interest rates can hurt mortgage-backed securities, which may cause your share price to fall. Lower rates motivate people to pay off mortgage-backed and asset-backed securities earlier than expected. A Fund may then have to reinvest the proceeds from such prepayments at lower interest rates, which can reduce its yield. The unexpected timing of mortgage and asset-backed prepayments caused by the variations in interest rates may also shorten or lengthen the average maturity of a Fund. If left unattended, drifts in the average maturity of a Fund can have the unintended effect of increasing or reducing the effective duration of the Fund, which may adversely affect the expected performance of a Fund. EXTENSION RISK The other side of prepayment risk occurs when interest rates are rising. Rising interest rates can cause a Fund's average maturity to lengthen unexpectedly due to a drop in mortgage prepayments. This would increase the sensitivity of a Fund to rising rates and its potential for price declines. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. For these reasons, mortgage-backed securities may be less effective than other types of U.S. government securities as a means of "locking in" interest rates. CREDIT RATING Coupon interest is offered to shareholders of debt securities as compensation for assuming risk, although short-term Treasury securities, such as 3-month treasury bills, are considered "risk free." Corporate securities offer higher yields than Treasury securities because their payment of interest 22 and complete repayment of principal is less certain. The credit rating or financial condition of an issuer may affect the value of a debt security. Generally, the lower the quality rating of a security, the greater the risks that the issuer will fail to pay interest and return principal. To compensate shareholders for taking on increased risk, issuers with lower credit ratings usually offer their shareholders a higher "risk premium" in the form of higher interest rates above comparable Treasury securities. Changes in shareholder confidence regarding the certainty of interest and principal payments of a corporate debt security will result in an adjustment to this "risk premium." If an issuer's outstanding debt carries a fixed coupon, adjustments to the risk premium must occur in the price, which effects the yield to maturity of the bond. If an issuer defaults or becomes unable to honor its financial obligations, the bond may lose some or all of its value. A security rated within the four highest rating categories by a rating agency is called "investment-grade" because its issuer is more likely to pay interest and repay principal than an issuer of a lower rated bond. Adverse economic conditions or changing circumstances, however, may weaken the capacity of the issuer to pay interest and repay principal. If a security is not rated or is rated under a different system, the adviser or sub-adviser may determine that it is of investment-grade. The adviser or sub-adviser may retain securities that are downgraded, if it believes that keeping those securities is warranted. Debt securities rated below investment-grade (junk bonds) are highly speculative securities that are usually issued by smaller, less credit worthy and/or highly leveraged (indebted) companies. A corporation may issue a junk bond because of a corporate restructuring or other similar event. Compared with investment-grade bonds, junk bonds carry a greater degree of risk and are less likely to make payments of interest and principal. Market developments and the financial and business condition of the corporation issuing these securities influences their price and liquidity more than changes in interest rates, when compared to investment-grade debt securities. Insufficient liquidity in the junk bond market may make it more difficult to dispose of junk bonds and may cause a Fund to experience sudden and substantial price declines. A lack of reliable, objective data or market quotations may make it more difficult to value junk bonds accurately. Rating agencies are organizations that assign ratings to securities based primarily on the rating agency's assessment of the issuer's financial strength. The Funds currently use ratings compiled by Moody's Investor Services ("Moody's"), Standard and Poor's Ratings Services ("S&P"), and Fitch. Credit ratings are only an agency's opinion, not an absolute standard of quality, and they do not reflect an evaluation of market risk. The section "Bond Ratings" contains further information concerning the ratings of certain rating agencies and their significance. The adviser or sub-adviser may use ratings produced by ratings agencies as guidelines to determine the rating of a security at the time a Fund buys it. A rating agency may change its credit ratings at any time. The adviser or sub-adviser monitors the rating of the security and will take appropriate actions if a rating agency reduces the security's rating. A Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded below the above-stated ratings. A Fund may invest in securities of any rating. SMALL AND MEDIUM CAPITALIZATION STOCKS Investments in common stocks in general are subject to market risks that may cause their prices to fluctuate over time. Therefore, an investment in each Fund (other than the Cash Reserves and IRA Capital Preservation Funds) may be more suitable for long-term investors who can bear the risk of these fluctuations. The Emerging Growth Fund, Limited Fund, New Opportunities Fund, Small Cap Value Fund and Strategic Small Company Fund invest extensively in small capitalization companies. The Mid-Cap Value Fund invests extensively in medium capitalization companies. In certain cases, the Growth Fund, Core Growth Fund, Select Equity Fund, Focused Value Fund, Technology & Communications 23 Fund, Global Technology & Communications Fund, Disciplined Equity Fund, Special Equity Fund and REIT Fund invest in securities of issuers with small or medium market capitalizations. While the Adviser and certain sub-advisers intend to invest in small and medium capitalization companies that have strong balance sheets and favorable business prospects, any investment in small and medium capitalization companies involves greater risk and price volatility than that customarily associated with investments in larger, more established companies. This increased risk may be due to the greater business risks of their small or medium size, limited markets and financial resources, narrow product lines and frequent lack of management depth. The securities of small and medium capitalization companies are often traded in the over-the-counter market, and might not be traded in volumes typical of securities traded on a national securities exchange. Thus, the securities of small and medium capitalization companies are likely to be less liquid and subject to more abrupt or erratic market movements than securities of larger, more established companies. OVER-THE-COUNTER MARKET Each Fund (except the Cash Reserves and IRA Capital Preservation Funds) may invest in over-the-counter stocks. In contrast to the securities exchanges, the over-the-counter market is not a centralized facility that limits trading activity to securities of companies which initially satisfy certain defined standards. Generally, the volume of trading in an unlisted or over-the-counter common stock is less than the volume of trading in a listed stock. This means that the depth of market liquidity of some stocks in which each Fund invests may not be as great as that of other securities and, if the Funds were to dispose of such a stock, they might have to offer the shares at a discount from recent prices, or sell the shares in small lots over an extended period of time. FOREIGN SECURITIES AND EMERGING MARKETS Each of the Funds may invest in foreign securities. Investing in the securities of foreign issuers involves special risks and considerations not typically associated with investing in U.S. companies. These risks and considerations include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investment in foreign countries and potential restrictions on the flow of international capital and currencies. Foreign issuers may also be subject to less government regulation than U.S. companies. Moreover, the dividends and interest payable on foreign securities may be subject to foreign withholding taxes, thus reducing the net amount of income available for distribution to a Fund's shareholders. Further, foreign securities often trade with less frequency and volume than domestic securities and, therefore, may exhibit greater price volatility. Changes in foreign exchange rates will affect, favorably or unfavorably, the value of those securities which are denominated or quoted in currencies other than the U.S. dollar. The Global Technology & Communications Fund's investments in emerging markets may be considered speculative, and therefore may offer higher potential for gains and losses than investments in developed markets of the world. With respect to any emerging country, there may be greater potential for nationalization, expropriation or confiscatory taxation, political changes, government regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the value of the Global Technology & Communications Fund's investments in those countries. In addition, it may be difficult to obtain and enforce a judgment in the courts of such countries. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. INVESTMENTS IN TECHNOLOGY COMPANIES 24 Each Fund (except the Cash Reserves and IRA Capital Preservation Funds) may invest in equity securities of technology companies. Such securities have tended to be subject to greater volatility than securities of companies that are not dependent upon or associated with technological issues. The Technology & Communications Fund and Global Technology & Communications Fund are non-diversified, which means they will invest a higher percentage of their assets in a limited number of technology stocks. As a result, the price change of a single security, positive or negative, will have a greater impact on each Fund's net asset value and will cause its shares to fluctuate in value more than it would in a diversified fund. In addition, the Technology & Communications Fund and Global Technology & Communications Fund are concentrated, which means they will invest 25% or more of their total assets in one or more of the industries within the technology and communications sectors. Many of these industries share common characteristics. Therefore, an event or issue affecting one such industry may have a significant impact on these other, related industries and, thus, may affect the value of the Technology & Communications Fund and Global Technology & Communications Fund's investments in technology companies. For example, the technology companies in which the Technology & Communications Fund and Global Technology & Communications Fund invest may be strongly affected by worldwide scientific or technological developments and their products and services may be subject to governmental law, regulation or adversely affected by governmental policies. INITIAL PUBLIC OFFERINGS ("IPO") A Fund may invest a portion of its assets in securities of companies offering shares in IPOs. IPOs may have a magnified performance impact on a Fund with a small asset base. The impact of IPOs on a Fund's performance likely will decrease as the Fund's asset size increases, which could reduce the Fund's total returns. IPOs may not be consistently available to a Fund for investing, particularly as the Fund's asset base grows. Because IPO shares frequently are volatile in price, the Funds may hold IPO shares for a very short period of time. This may increase the turnover of a Fund and may lead to increased expenses for a Fund, such as commissions and transaction costs. By selling shares, a Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for a Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Shareholders in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders. A Fund's investment in IPO shares may include the securities of unseasoned companies (companies with less than three years of continuous operations), which presents risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited product lines. EUROPEAN ECONOMIC AND MONETARY UNION Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain are presently members of the European Economic and Monetary Union (the "EMU"). The EMU adopted the "euro" as a common currency on January 1, 1999 and subordinated the national currencies of each country until such time as the national currencies are phased out entirely. The euro could adversely affect the value of securities held by the Fund because as the euro is implemented as the common currency, there may be changes in the relative value of the U.S. dollar and other major currencies, as well as possible adverse tax consequences. In addition, the introduction of the euro may affect the fiscal and monetary levels of participating EMU countries and may also increase price competition among business firms within EMU 25 countries and between businesses in EMU and non-EMU countries. These uncertainties raise the possibility of increased volatility in the financial markets of the affected countries. WRAPPER AGREEMENTS Wrapper Agreements are used in order to stabilize the NAV of the IRA Capital Preservation Fund. Each Wrapper Agreement obligates the Wrapper Provider to maintain the "Book Value" of a portion of the Fund's assets (Covered Assets) up to a specified maximum dollar amount, upon the occurrence of certain specified events. Generally, the Book Value of the Covered Assets is their purchase price plus interest on the Covered Assets accreted at a rate specified in the Wrapper Agreement (Crediting Rate) minus withdrawls from Covered Assets and less an adjustment to reflect any defaulted securities. The Crediting Rate used in computing Book Value is calculated by a formula specified in the Wrapper Agreement and is adjusted periodically. In the case of Wrapper Agreements purchased by the Fund, the Crediting Rate used in computing Book Value is the actual yield of the Covered Assets, or an index-based approximation thereof plus or minus the amortization of unrealized gain or loss on the Covered Assets. As a result, while the Crediting Rate will generally reflect movements in the market rates of interest, it may at any time be more or less than these rates or the actual interest income earned on the Covered Assets. The Crediting Rate may also be impacted by defaulted securities and by increases and decreases of the amount of Covered Assets as a result of contributions and withdrawals tied to the purchase and redemption of shares. In no event will the Crediting Rate fall below zero percent under the Wrapper Agreements entered into by the Fund. Wrapper providers are generally banks, insurance companies and other financial institutions. The cost of wrapper agreements is typically 0.21% to 0.26% per dollar of Covered Assets per annum. Generally, under the terms of a Wrapper Agreement, if the market value (plus accrued interest on the underlying securities) of the Covered Assets is less than their Book Value at the time the Covered Assets are liquidated in order to provide proceeds for withdrawals of Fund interests resulting from redemptions of shares by Individual Retirement Account owners, the Wrapper Provider becomes obligated to pay to the Fund the difference. Conversely, the Fund becomes obligated to make a payment to the Wrapper Provider if it is necessary for the Fund to liquidate Covered Assets at a price above their Book Value in order to make withdrawal payments. The terms of the Wrapper Agreements vary concerning when these payments must actually be made between the Fund and the Wrapper Provider. In some cases, payments may be due upon disposition of Covered Assets; other Wrapper Agreements provide for settlement of payments only upon termination of the Wrapper Agreement or total liquidation of the Covered Assets. (Withdrawals generally will arise when the Fund must pay shareholders who redeem shares.) Because it is anticipated that each Wrapper Agreement will cover all Covered Assets up to a specified dollar amount, if more than one Wrapper Provider becomes obligated to pay to the Fund the difference between Book Value and market value (plus accrued interest on the underlying securities), each Wrapper Provider will be obligated to pay an amount as designated by their contract according to the withdrawal hierarchy specified by the Adviser or sub-adviser in the Wrapper Agreement. Thus, the Fund will not have the option of choosing which Wrapper Agreement to draw upon in any such payment situation. The Fund expects that the use of Wrapper Agreements will under most circumstances permit it to maintain a constant NAV and to pay dividends that will generally reflect over time both the interest income of, and market gains and losses on, the covered assets held by the Fund less the expenses of the Fund. HOWEVER, THERE CAN BE NO GUARANTEE THAT THE FUND WILL MAINTAIN A CONSTANT NAV OR THAT ANY SHAREHOLDER WILL REALIZE THE SAME INVESTMENT RETURN AS MIGHT BE REALIZED BY INVESTING DIRECTLY IN THE FUND ASSETS OTHER THAN THE WRAPPER AGREEMENTS. For example, a default or a credit downgrade by the issuer of a portfolio security or a Wrapper Provider on its obligations might result in a decrease in the value of the Fund assets and, consequently, the shares. The Wrapper Agreements generally do not protect the Fund from loss if an issuer of portfolio securities defaults on payments of interest or principal or if the issuer's 26 securities lose value because of credit downgrades. Additionally, a Fund shareholder may realize more or less than the actual investment return on the portfolio securities. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE AT ALL TIMES TO OBTAIN WRAPPER AGREEMENTS. Although it is the current intention of the Fund to obtain such agreements covering all of its assets (with the exceptions noted), the Fund may elect not to cover some or all of its assets with Wrapper Agreements should Wrapper Agreements become unavailable or should other conditions such as cost, in the Adviser's or sub-adviser's sole discretion, render their purchase inadvisable. If, in the event of a default of a Wrapper Provider, the Fund were unable to obtain a replacement Wrapper Agreement, participants redeeming shares might experience losses if the market value of the Fund's assets no longer covered by the Wrapper Agreement was below Book Value. The combination of the default of a Wrapper Provider and an inability to obtain a replacement agreement could prevent the Fund from achieving its investment objective of maintaining a stable NAV. If the Board determines that a Wrapper Provider is unable to make payments when due or if the Wrapper Provider credit rating is downgraded, the Board may assign a fair value to the Wrapper Agreement that is less than the difference between the Book Value and the market value (plus accrued interest on the underlying securities) of the applicable Covered Assets and the Fund might be unable to maintain NAV stability. Some Wrapper Agreements require that the Fund maintain a specified percentage of its total assets in short-term investments (Liquidity Reserve). These short-term investments must be used for the payment of withdrawals from the Fund and Fund expenses. To the extent the Liquidity Reserve falls below the specified percentage of total assets, the Fund is obligated to direct all net cash flow to the replenishment of the Liquidity Reserve. The obligation to maintain a Liquidity Reserve may result in a lower return for the Fund than if these assets were invested in longer-term debt securities. Wrapper Agreements may also require that the Covered Assets have a specified duration or maturity, consist of specified types of securities or be of a specified investment quality. The Fund will purchase Wrapper Agreements whose criteria in this regard are consistent with the Fund's investment objective and policies. Wrapper Agreements may also require the disposition of securities whose ratings are downgraded below a certain level. This may limit the Fund's ability to hold such downgraded securities. Wrapper Agreements are structured with a number of different features. Wrapper Agreements purchased by the Fund are of three basic types: (1) non-participating, (2) participating and (3) "hybrid." In addition, the Wrapper Agreements will either be of fixed-maturity or open-end maturity ("evergreen"). The Fund enters into particular types of Wrapper Agreements depending upon their respective cost to the Fund and the Wrapper Provider's creditworthiness, as well as upon other factors. Under most circumstances, it is anticipated that the Fund will enter into participating Wrapper Agreements of open-end maturity. 27 TYPES OF WRAPPER AGREEMENTS Non-Participating Wrapper Agreement. Under a non-participating Wrapper Agreement, the Wrapper Provider becomes obligated to make a payment to the Fund whenever the Fund sells Covered Assets at a price below Book Value to meet withdrawals of a type covered by the Wrapper Agreement (a "Benefit Event"). Conversely, the Fund becomes obligated to make a payment to the Wrapper Provider whenever the Fund sells Covered Assets at a price above their Book Value in response to a Benefit Event. In neither case is the Crediting Rate adjusted at the time of the Benefit Event. Accordingly, under this type of Wrapper Agreement, while the Fund is protected against decreases in the market value of the Covered Assets below Book value, it does not realize increases in the market value of the Covered Assets above Book Value; those increases are realized by the Wrapper Providers. Participating Wrapper Agreement. Under a participating Wrapper Agreement, the obligation of the Wrapper Provider or the Fund to make payments to each other typically does not arise until all of the Covered Assets have been liquidated. Instead of payments being made on the occurrence of each Benefit Event, these obligations are a factor in the periodic adjustment of the Crediting Rate and the fair value of the Wrapper Agreement. Generally, all of the Fund's Wrapper Agreements are participating. Hybrid Wrapper Agreement. Under a hybrid Wrapper Agreement, the obligation of the Wrapper Provider or the Fund to make payments does not arise until withdrawals exceed a specified percentage of the Covered Assets, after which time payment covering the difference between market value and Book Value will occur. For example, a 50/50 hybrid wrap on $100 million of securities would provide for a participating wrapper be in place for the first $50 million of withdrawals which might lead to adjustments in the Crediting Rate, with a non-participating wrapper in place for the next $50 million of withdrawals, with those withdrawals not creating any adjustment to the Crediting Rate. Fixed-Maturity Wrapper Agreement. A fixed-maturity Wrapper Agreement terminates at a specified date, at which time settlement of any difference between Book Value and market value of the Covered Assets occurs. A fixed-maturity Wrapper Agreement tends to ensure that the Covered Assets provide a relatively fixed rate of return over a specified period of time through bond immunization, which targets the duration of the Covered Assets to the remaining life of the Wrapper Agreement. Evergreen Wrapper Agreement. An evergreen Wrapper Agreement has no fixed maturity date on which payment must be made, and the rate of return on the Covered Assets accordingly tends to vary. Unlike the rate of return under a fixed-maturity Wrapper Agreement, the rate of return on assets covered by an evergreen Wrapper Agreement tends to more closely track prevailing market interest rates and thus tends to rise when interest rates rise and fall when interest rates fall. Depending on the contractual provisions of the Wrapper Agreement, an Evergreen Wrapper Agreement may be converted into a fixed-maturity Wrapper Agreement that will mature in the number of years equal to the duration of the Covered Assets. Generally, all of the Fund's Wrapper Agreements will be evergreen agreements. ADDITIONAL RISKS OF WRAPPER AGREEMENTS In the event of the default of a Wrapper Provider, the Fund could potentially lose the Book Value protections provided by the Wrapper Agreements with that Wrapper Provider. However, the impact of such a default on the Fund as a whole may be minimal or non-existent if the market value of the Covered Assets thereunder is greater than their Book Value at the time of the default, because the wrapper provider would have no obligation to make payments to the Fund under those circumstances. In such event, the Fund may still have an obligation to the defaulting Wrapper Provider to make payment for the excess market value of the Covered Assets over the Book Value. In addition, the Fund may be able to obtain another Wrapper Agreement from 28 another Wrapper Provider to provide Book Value protections with respect to those Covered Assets. The cost of the replacement Wrapper Agreement might be higher than the initial Wrapper Agreement due to market conditions or if the market value (plus accrued interest on the underlying securities) of those Covered Assets is less than their Book Value at the time of entering into the replacement agreement. Such cost would also be in addition to any premiums previously paid to the defaulting Wrapper Provider. If the Fund were unable to obtain a replacement Wrapper Agreement, participants redeeming shares might experience losses if the market value of the Fund's assets no longer covered by the Wrapper Agreement is below Book Value. The combination of the default of a Wrapper Provider and an inability to obtain a replacement agreement could prevent the Fund from achieving its investment objective of seeking to maintain a stable NAV. With respect to payments made under the Wrapper Agreements between the Fund and the Wrapper Provider, Non-Participating Wrapper Agreements provide that payments may be due upon disposition of the Covered Assets, while Participating Wrapper Agreements provide for payment only upon the total liquidation of the Covered Assets or upon termination of the Wrapper Agreement. In none of these cases, however, would the terms of the Wrapper Agreements specify which Fund securities are to be disposed of or liquidated. Moreover, because it is anticipated that each Wrapper Agreement will cover all Covered Assets up to a specified dollar amount, if more than one Wrapper Provider becomes obligated to pay to the Fund the difference between Book Value and market value (plus accrued interest on the underlying securities), each Wrapper Provider will pay a pro-rata amount in proportion to the maximum dollar amount of coverage provided. Thus, the Fund will not have the option of choosing which Wrapper Agreement to draw upon in any such payment situation. Under the terms of most Wrapper Agreements, the Wrapper Provider will have the right to terminate the Wrapper Agreement in the event that material changes are made to the Fund's investment objectives or limitations or to the nature of the Fund's operations. In such event, the Fund may be obligated to pay the Wrapper Provider termination fees. The Fund will have the right to terminate a Wrapper Agreement for any reason. Such right, however, may also be subject to the payment of termination fees. In the event of termination of a Wrapper Agreement or conversion of an Evergreen Wrapper Agreement to a fixed maturity, some Wrapper Agreements may require that the duration of some portion of the Fund's securities be reduced to correspond to the fixed maturity or termination date and that such securities maintain a higher credit rating than is normally required, either of which requirements might adversely affect the return of the Fund. INVESTMENT LIMITATIONS FUNDAMENTAL RESTRICTIONS Each Fund has adopted certain investment restrictions which, in addition to those restrictions in the Prospectus, are fundamental and may not be changed without approval by a majority vote of the Fund's shareholders. Such majority is defined in the 1940 Act as the lesser of (i) 67% or more of the voting securities of the Fund present in person or by proxy at a meeting, if the holders of more than 50% of the outstanding voting securities are present or represented by proxy; or (ii) more than 50% of the outstanding voting securities of the Fund. Several of these Fundamental Investment Restrictions include the defined terms "1940 Act Laws, Interpretations and Exemptions." This term 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 SEC and any exemptive order or similar relief granted to a Fund. 1. Each Fund, other than PBHG Large Cap 20 Fund, PBHG Focused Value Fund, PBHG Cash Reserves Fund, PBHG Technology & Communications Fund, PBHG Global Technology & Communications Fund and PBHG Clipper Focus Fund, is a "diversified company" as defined in the Investment Company Act of 1940 (the "1940 Act"). This means that a Fund will not 29 purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within the meaning of the 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent a Fund from purchasing the securities of other investment companies to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions. Please refer to Non-Fundamental Investment Restriction number 2 for further information. 2. A Fund may not borrow money or issue senior securities, except as permitted by the 1940 Act Laws, Interpretations and Exemptions. Please refer to Non-Fundamental Investment Restriction number 3 for further information. 3. A Fund may not underwrite the securities of other issuers. This restriction does not prevent a Fund from engaging in transactions involving the acquisition, disposition or resale of its portfolio securities, regardless of whether the Fund may be considered to be an underwriter under the Securities Act of 1933. 4. A Fund will not make investments that will result in the concentration (as that term may be defined or interpreted by the 1940 Act, Laws, Interpretations and Exemptions) of its investments in the securities of issuers primarily engaged in the same industry. This restriction does not limit a Fund's investments in (i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, (ii) tax-exempt obligations issued by governments or political subdivisions of governments or (iii) repurchase agreements collateralized by such obligations, and does not limit PBHG Cash Reserves Fund's investment in domestic bank obligations. In complying with this restriction, a Fund will not consider a bank-issued guaranty or financial guaranty insurance as a separate security. This limitation does not apply to PBHG Technology & Communications Fund, PBHG Global Technology & Communications Fund or PBHG REIT Fund. Please refer to Non-Fundamental Investment Restriction number 4 for further information. In addition, because PBHG Technology & Communications Fund and the PBHG Global Technology & Communications Fund have an investment policy to concentrate their investments in the group of industries within the technology and communications sectors, and because PBHG REIT Fund has an investment policy to concentrate in the REIT industry, this restriction does not apply to these Funds. 5. A Fund may not purchase or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent a Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. 6. A Fund may not purchase or sell physical commodities unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent a Fund from engaging in transactions involving futures contracts and options thereon or investing in securities that are secured by physical commodities. 7. A Fund may not make personal loans or loans of its assets to persons who control or are under common control with the Fund, except to the extent permitted by the 1940 Act Laws, Interpretations and Exemptions. This restriction does not prevent a Fund from, among other things, purchasing debt obligations, entering repurchase agreements, loaning its assets to broker-dealers or institutional investors or investing in loans, including assignments and participation interests. Please refer to Non-Fundamental Investment Restriction number 5 for 30 8. A Fund may, notwithstanding any other fundamental investment policy or restriction, invest all of its assets in the securities of a single open-end management investment company with substantially the same fundamental investment objective, policies and restrictions as the Fund. Except for borrowing under Fundamental Restriction number 2, the foregoing percentages will apply at the time of the purchase of a security. NON-FUNDAMENTAL RESTRICTIONS Each Fund also has adopted certain non-fundamental investment restrictions. A non-fundamental investment restriction may be amended by the Board of Trustees without a vote of shareholders. Several of these Non-Fundamental Investment Restrictions include the defined term "Pilgrim Baxter Advised Fund." This term means other investment companies and their series portfolios that have Pilgrim Baxter or an affiliate of Pilgrim Baxter as an investment advisor. 1. A Fund may not invest more than 15% of its net assets in illiquid securities (10% for PBHG Cash Reserves Fund). This limitation does not include any Rule 144A restricted security that has been determined by, or pursuant to procedures established by, the Board of Trustees, based on trading markets for such security, to be liquid. 2. In complying with the fundamental restriction regarding issuer diversification, a Fund will not, with respect to 75% of its total assets, purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities), if, as a result, (i) more than 5% of the Fund's total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. This limitation does not apply to PBHG Large Cap 20 Fund, PBHG Focused Value Fund, PBHG Cash Reserves Fund, PBHG Technology & Communications Fund, PBHG Global Technology & Communications Fund and PBHG Clipper Focus Fund. 3. In complying with the fundamental restriction regarding borrowing money and issuing senior securities, a Fund may borrow money in an amount not exceeding 33 1/3 % of its total assets (including the amount borrowed) less liabilities (other than borrowings). A Fund may borrow from banks, broker-dealers or a Pilgrim Baxter Advised Fund on such terms and conditions as the SEC may require in an exemptive order on which the Funds may rely. A Fund may not borrow for leveraging, but may borrow for temporary or emergency purposes, in anticipation of or in response to adverse market conditions, or for cash management purposes. A portfolio may not purchase additional securities when borrowings exceed 5% of the Fund's total assets. 4. In complying with the fundamental restriction regarding industry concentration, a Fund may invest up to 25% of its total assets in the securities of issuers whose principal business activities are in the same industry. For purposes of this limitation, supranational organizations are deemed to be issuers conducting their principal business activities in the same industry; state and municipal governments and their agencies and authorities are not deemed to be industries; utility companies will be divided according to their services (e.g., gas distribution, gas transmission, electric and telephone will each be considered a separate industry); and financial service companies will be classified according to the end users of their services (e.g. automobile finance, bank finance and diversified finance). This limitation does not apply to PBHG Technology & Communications Fund, PBHG Global Technology and Communications Fund, or PBHG REIT Fund. 5. In complying with the fundamental restriction with regard to making loans, a 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 on which the Funds may rely. 31 6. A Fund may not invest more than 15% of its total assets in restricted securities. 7. Notwithstanding the fundamental restriction with regard to investing all assets in an open-end fund, a Fund may not invest all if its assets in the securities of a single open-end management investment company with the same fundamental investment objectives, policies and restrictions as the Fund. A Fund may (i) purchase securities of other investment companies as permitted by Section 12 (d)(1) of the 1940 Act and (ii) invest its assets in securities of other money market funds and lend money to other Pilgrim Baxter Advised Funds, subject to the terms and conditions of any exemptive orders issued by the SEC on which the Funds may rely. Please refer to Non-Fundamental Investment Restriction number 5 for further information regarding lending money to a Pilgrim Baxter Advised Fund. All the foregoing percentages will apply at the time of each purchase of a security (except with respect to the limitation on investments in illiquid securities and with respect to borrowing). Each of the Emerging Growth, Strategic Small Company, Small Cap Value, Mid-Cap Value, Large Cap Growth, Large Cap 20, Large Cap Value, Technology & Communications, Global Technology & Communications, Disciplined Equity and REIT Funds has a non-fundamental policy that states under normal conditions, it will invest at least 80% of net assets plus the amount of any borrowings for investment purposes in the type of investments suggested by its name. Each Fund will provide notice to its respective shareholders at least 60 days prior to any change to this investment policy. SENIOR SECURITIES The term "senior security", as defined in Section 18(g) of the Investment Company Act of 1940, means any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends; and "senior security representing indebtedness" means any senior security other than stock. The term "senior security" shall not include any promissory note or other evidence of indebtedness issued in consideration of any loan, extension, or renewal thereof, made by a bank or other person and privately arranged, and not intended to be publicly distributed; nor shall such term include any such promissory note or other evidence of indebtedness in any case where such a loan is for temporary purposes only and in an amount not exceeding 5 percent of the value of the total assets of the issuer at the time when the loan is made. A loan shall be presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed; otherwise it shall be presumed not to be for temporary purposes. Any such presumption may be rebutted by evidence. TEMPORARY DEFENSIVE POSITIONS Under normal market conditions, each Fund expects to be fully invested in its primary investments, as described above. However, for temporary defensive purposes, when the Adviser or a sub-adviser, as appropriate, determines that market conditions warrant, each Fund may invest up to 100% of its assets in cash and money market instruments (consisting of securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities; certificates of deposit, time deposits and bankers' acceptances issued by banks or savings and loan associations having net assets of at least $500 million as stated on their most recently published financial statements; commercial paper rated in one of the two highest rating categories by at least one NRSRO; 32 repurchase agreements involving such securities; and, to the extent permitted by applicable law and each Fund's investment restrictions, shares of other investment companies investing solely in money market securities). To the extent a Fund is invested in temporary defensive instruments, it will not be pursuing its investment objective. PORTFOLIO TURNOVER Fund turnover will tend to rise during periods of economic turbulence and decline during periods of stable growth. A higher turnover rate (100% or more) increases transaction costs (e.g., brokerage commissions) and increases realized gains and losses. The portfolio turnover rate for each of the Funds latest fiscal year or fiscal period is specified in the Financial Highlights table. High rates of portfolio turnover necessarily result in correspondingly greater brokerage and portfolio trading costs, which are paid by the Fund. Trading in fixed-income securities does not generally involve the payment of brokerage commissions, but does involve indirect transaction costs. In addition to portfolio trading costs, higher rates of portfolio turnover may result in the realization of capital gains. To the extent net short-term capital gains are realized, any distributions resulting from such gains are considered ordinary income for federal income tax purposes. 33 TRUSTEES AND OFFICERS OF THE TRUST The management and affairs of the Trust are supervised by the Trustees under the laws of the State of Maryland. The Trustees have approved contracts under which, as described above, certain companies provide essential management services to the Trust. The Trustees and executive officers of the Trust and the principal occupations for the last five years are set forth below. Each may have held other positions with the named companies during that period. Each Trustee serves as a Trustee and each officer serves as an officer in a similar capacity for PBHG Insurance Series Fund, a registered investment company advised by the Adviser.
- ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN PRINCIPAL THE PBHG FUND TERM OF OFFICE* OCCUPATION(S) FAMILY COMPLEX NAME, ADDRESS, POSITION HELD WITH AND LENGTH OF DURING PAST 5 OVERSEEN BY OTHER DIRECTORSHIPS AND AGE THE TRUST TIME SERVED YEARS, TRUSTEE HELD BY TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ John R. Bartholdson Trustee Trustee since 1995 Chief Financial 31 Director, The Triumph 1255 Drummers Lane, Officer, The Triumph Group, Inc. since 1992. Suite 200 Group, Inc. Wayne, PA 19087 (manufacturing) (57) since 1992. - ------------------------------------------------------------------------------------------------------------------------------------ Jettie M. Edwards Trustee Trustee since 1995 Consultant, Syrus 31 Trustee, Provident 76 Seaview Drive, Associates (business Investment Counsel Santa Barbara, and marketing Trust (investment California 93108 consulting firm) since company - 5 (55) 1986. portfolios since 1992. Trustee, EQ Advisors Trust (investment company - 39 portfolios) since 1997. - ------------------------------------------------------------------------------------------------------------------------------------ Albert A. Miller Trustee Trustee since 1995 Senior Vice President, 31 None 7 Jennifer Drive Cherry & Webb, CWT Holmdel, New Jersey 07733 Specialty Stores 1995 - (67) 2000. Advisor and Secretary, the Underwoman Shoppes Inc. (retail clothing stores) since 1980. Merchandising Group Vice President, R.H. Macy & Co. (retail department stores), 1958-1995. Retired. - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ Harold J. Baxter** Chairman of Trustee since 1995 Chairman, Chief Executive 31 None 1400 Liberty Ridge Drive the Board and Officer and Director, the Wayne, PA Trustee Adviser since 1982. 19087-5593 Trustee, the (55) Administrator since May 1996. Chairman, Chief Executive Officer and Director, Value Investors, since June 1996. Trustee, PBHG Fund Distributors since January 1998. Director, Old Mutual (US) Holdings Inc. since 1996. - ------------------------------------------------------------------------------------------------------------------------------------
* Trustee of the Trust until such time as his or her successor is duly elected and appointed. ** Mr. Baxter is a Trustee who may be deemed to be an "interested person" of the Trust, as that term is defined in the 1940 Act, because he is a Director of the Adviser. 34
- ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH TERM OF OFFICE* AND LENGTH NAME, ADDRESS, AND AGE THE FUND OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Gary L. Pilgrim President President since 1995 President and Director, Pilgrim Baxter & 1400 Liberty Ridge Drive Associates, Ltd. Since 1982. Trustee, PBHG Fund Wayne, PA 19087 Services since May 1996. President and Director, (61) Pilgrim Baxter Value Investors, Inc. since June 1996. - ------------------------------------------------------------------------------------------------------------------------------------ Lee T. Cummings Treasurer, Chief Treasurer, Chief Financial Vice President, Pilgrim Baxter & Associates, Ltd. 1400 Liberty Ridge Drive Financial Officer, Officer, Controller since since 2001 and Director of Mutual Fund Wayne, PA 19087-5593 Controller 1997 Operations, Pilgrim Baxter & Associates, Ltd., (38) 1996-2001. President, PBHG Fund Services since 1999 and Treasurer, PBHG Fund Services, May 1996-1999. President, PBHG Fund Services since December 1998. - ------------------------------------------------------------------------------------------------------------------------------------ John M. Zerr Vice President and Vice President and Senior Vice President, Pilgrim Baxter & 1400 Liberty Ridge Drive Secretary Secretary since 1996 Associates, Ltd. Since 2001 and General Counsel Wayne, PA 19087-5593 and Secretary, Pilgrim Baxter & Associates, Ltd. (40) since November 1996. General Counsel and Secretary, Pilgrim Baxter Value Investors, Inc. since November 1996. General Counsel and Secretary, PBHG Fund Services since January 1998. General Counsel and Secretary, PBHG Fund Distributors since January 1998. - ------------------------------------------------------------------------------------------------------------------------------------ Meghan M. Mahon Vice President Vice President and Vice President and Assistant Secretary, Pilgrim 1400 Liberty Ridge and Assistant Assistant Secretary Baxter & Associates, Ltd. since 2001 and Senior Drive Wayne, PA 19087 Secretary since 1998 Counsel since January 2002, Counsel, Pilgrim (34) Baxter & Associates, Ltd. April 1998 to December 2001. Assistant Secretary, Value Investors since January 2000, Senior Counsel since January 2002 and Counsel January 2000 to December 2001. Assistant Secretary, PBHG Fund Services since January 2000, Senior Counsel since January 2002, Counsel January 2000 to December 31, 2001. Assistant Vice President, Assistant Secretary and Counsel, Delaware Management Company, Inc. (investment adviser) and the Delaware Investments Funds (investment companies), 1997-1998. - ------------------------------------------------------------------------------------------------------------------------------------
35
- ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS - ------------------------------------------------------------------------------------------------------------------------------------ POSITION HELD WITH TERM OF OFFICE* AND LENGTH NAME, ADDRESS, AND AGE THE FUND OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS - ------------------------------------------------------------------------------------------------------------------------------------ Brian C. Dillon Vice President Vice President since Chief Compliance Officer, Pilgrim 1400 Liberty Ridge 2001 Baxter & Associates, Ltd. since April Drive Wayne, PA 19087 2001. Chief Compliance Officer, Pilgrim (38) Baxter Value Investors, Inc., PBHG Fund Services and PBHG Fund Distributors since April 2001. Vice President and Senior Compliance Officer, Delaware Investments, 1995-2001. - ------------------------------------------------------------------------------------------------------------------------------------ Robert E. Putney III Vice President Vice President and Vice President, Senior Legal Counsel 1400 Liberty Ridge Dr. and Assistant Assistant Secretary and Assistant Secretary, Pilgrim Baxter Wayne, PA 19087 Secretary since 2002 & Associates, LTD since December 2001; (42) Director and Senior Counsel, Merrill Lynch Investment Managers, L.P. and Princeton Administrators, L.P. until December 2001; Secretary of various Merrill Lynch and Mercury open-end funds, as well as Somerset Exchange Fund and The Europe Fund, Inc. until December 2001. - ------------------------------------------------------------------------------------------------------------------------------------ James R. Foggo Vice President Vice President and Vice President and Assistant Secretary One Freedom Valley Road and Assistant Assistant Secretary of the Sub-Administrator and SEI Oaks, PA 19456 Secretary since 1999 Investments Distribution Co. since (37) 1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate, Baker & McKenzie (law firm), 1995-1998. . - ------------------------------------------------------------------------------------------------------------------------------------ Timothy D. Barto Vice President Vice President and Vice President and Assistant Secretary One Freedom Valley Road and Assistant Assistant Secretary of SEI Investments Co. and Vice Oaks, PA 19456 Secretary since 2000 President and Assistant Secretary of (34) SEI Investments Mutual Fund Services and SEI Investments Distribution Co. since November 1999. Associate, Dechert Price & Rhoads (law firm) 1997-1999. - ------------------------------------------------------------------------------------------------------------------------------------
* Officer of the Trust until such time as his or her successor is duly elected and qualified. 36 The Trustees of PBHG Funds are responsible for major decisions relating to each Fund's investment goal, policies, strategies and techniques. The Trustees also supervise the operation of PBHG Funds by its officers and service various service providers, but they do not actively participate in the day-to-day operation of or decision making process related to PBHG Funds. The Board of Trustees has two standing committees: a Nominating and Compensation Committee and an Audit Committee. Currently, the members of each Committee are Jettie Edwards, John Bartholdson and Albert Miller, comprising all the disinterested Trustees of PBHG Funds. The Nominating and Compensation Committee selects and nominates those persons for membership on the PBHG Funds' Board of Trustees who are disinterested trustees, reviews and determines compensation for the disinterested Trustees of PBHG Funds and selects independent legal counsel, as set forth in Rule 0-1(6), to provide the disinterested Trustees of PBHG Funds with legal advice as needed. During PBHG Funds' fiscal year ended March 31, 2002, the Nominating and Compensation Committee held 1 meeting. The Nominating Committee currently does not consider nominations from shareholders. The Audit Committee oversees the financial reporting process for PBHG Funds, monitoring the PBHG Funds' audit process and results. As part of this process, the Audit Committee recommends the selection of an independent audit firm for the approval of the entire PBHG Funds Board of Trustees and evaluates the independent audit firm's performance, costs and financial stability. During PBHG Funds' fiscal year ended March 31, 2002, the Audit Committee held 2 meetings. The table below provides the dollar range of shares of the Funds and the aggregate dollar range of shares of all funds advised by Pilgrim Baxter, owned by each Trustee as of December 31, 2001.
- ----------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ----------------------------------------------------------------------------------------------------------------- AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN ALL REGISTERED INVESTMENT DOLLAR RANGE OF EQUITY COMPANIES IN THE PBHG FAMILY COMPLEX NAME OF TRUSTEE SECURITIES IN THE FUNDS OVERSEEN BY TRUSTEES - ----------------------------------------------------------------------------------------------------------------- John R. Bartholdson $10,000 - $50,000 $10,000 - $50,000 - ----------------------------------------------------------------------------------------------------------------- Jettie M. Edwards $50,000 - $100,000 $50,000 - $100,000 - ----------------------------------------------------------------------------------------------------------------- Albert A. Miller Over $100,000 Over $100,000 - ----------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE - ----------------------------------------------------------------------------------------------------------------- Harold J. Baxter Over $100,000 Over $100,000 - -----------------------------------------------------------------------------------------------------------------
37 Each current Trustee of the Trust received the following compensation during PBHG Funds' fiscal year ended March 31, 2002:
- -------------------------------------------------------------------------------------------------------------- PENSION OR RETIREMENT TOTAL AGGREGATE BENEFITS ESTIMATED COMPENSATION COMPENSATION ACCRUED AS PART ANNUAL FROM TRUST NAME OF PERSON, FROM OF TRUST BENEFITS UPON AND TRUST COMPLEX POSITION TRUST EXPENSES RETIREMENT PAID TO TRUSTEES** - -------------------------------------------------------------------------------------------------------------- John R. Bartholdson, $46,500.00 N/A N/A $75,500.00 Trustee for services on two boards - -------------------------------------------------------------------------------------------------------------- Harold J. Baxter, N/A N/A N/A N/A Trustee* - -------------------------------------------------------------------------------------------------------------- Jettie M. Edwards, $46,500.00 N/A N/A $75,500.00 Trustee for services on two boards - -------------------------------------------------------------------------------------------------------------- Albert A. Miller, $46,500.00 N/A N/A $75,500.00 Trustee for services on two boards - --------------------------------------------------------------------------------------------------------------
* Mr. Baxter is a Trustee who may be deemed to be an "interested person" of the Trust, as that term is defined in the 1940 Act, and consequently will be receiving no compensation from the Trust. ** Compensation expenses are allocated pro rata based on the relative net assets of the Funds included in the Trust Complex. 38 5% AND 25% SHAREHOLDERS As of July 12, 2002, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of the shares of each Fund of the Trust. The Trust believes that most of the shares referred to below were held by the persons indicated in accounts for their fiduciary, agency or custodial clients. Persons owning of record or beneficially 25% or more of the outstanding share class of a Fund may be deemed to be a controlling person of that Fund for purposes of the 1940 Act. - -------------------------------------------------------------------------------- PBHG EMERGING GROWTH FUND - PBHG CLASS - -------------------------------------------------------------------------------- Putnam Fiduciary Trust Company 15.43% FBO Employee stock ownership & savings plan Attn: Plan Admin Team 1 Investors Way MSC C4D Norwood, MA 02062-1599 - -------------------------------------------------------------------------------- Chase Manhattan Bank 14.19% NY State Deferred Compensation Plan Attn: Gladstone Stephenson 4 New York Plaza Fl 2 New York, NY 10004-2413 - -------------------------------------------------------------------------------- Fidelity Investments Institutional Operations Co. 11.16% Operations Co. As Agent For Certain Employee Benefit Plans 100 Magellan Way Covington, KY 41015-1999 - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 9.33% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 6.34% For the exclusive benefit of our customers 777 Central Blvd Carlstadt NJ 07072 - -------------------------------------------------------------------------------- PBHG GROWTH FUND - PBHG CLASS - -------------------------------------------------------------------------------- Fidelity Investments Institutional Operations Co 17.73% As agent for certain employer benefit plans 100 Magellan Way Covington, KY 41015-1999 - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 11.35% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- Connecticut General Life Insurance 401K Plan M-110 6.03% Attn: Hector Flores 280 Trumball St # H19B Hartford, CT 06103-3509 - -------------------------------------------------------------------------------- National Financial Services Corp 5.99% For the exclusive benefit of our customers 777 Central Blvd Carlstadt NJ 07072 - -------------------------------------------------------------------------------- 39 - -------------------------------------------------------------------------------- PBHG GROWTH FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- The Travelers Insurance Company 100.00% Attention: Roger Ferland 1 Tower Square Hartford, CT 06183-0002 - -------------------------------------------------------------------------------- PBHG LARGE CAP GROWTH FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 33.64% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 11.60% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- Salomon Smith Barney 8.49% Exclusive Benefit of our customers NAV Program 333 W 34th St New York, NY 10001-2483 - -------------------------------------------------------------------------------- PBHG LARGE CAP GROWTH FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- PFPC Brokerage Services 70.52% FBO American Skandia 211 S Gulph Rd King of Prussia, PA 19406-3101 - -------------------------------------------------------------------------------- Pilgrim Baxter & Associates Ltd. 29.48% Attn Terri Simonetti 1400 Liberty Ridge Dr Wayne, PA 19087 - -------------------------------------------------------------------------------- PBHG SELECT EQUITY FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 25.34% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 19.89% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 20.74% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 20.09% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- 40 - -------------------------------------------------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND-ADVISOR CLASS - -------------------------------------------------------------------------------- Transamerica Life Insurance & Annuity Company 98.66% P.O. Box 30368 Los Angeles, CA 90030-0368 - -------------------------------------------------------------------------------- PBHG CORE GROWTH FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 13.58% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 12.15% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG LIMITED FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 8.79% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp For the exclusive benefit of our customers 5.44% 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG LARGE CAP 20 FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 26.97% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 14.40% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG LARGE CAP 20 FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- Pilgrim Baxter & Associates Ltd. 96.72% Attn Terri Simonetti 1400 Liberty Ridge Dr Wayne, PA 19087 - -------------------------------------------------------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - PBHG FUND - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 16.37% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 11.68% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- 41 - -------------------------------------------------------------------------------- PBHG LARGE CAP VALUE FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 44.10% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 16.52% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG LARGE CAP VALUE FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- PFPC Brokerage Services 52.42% FBO American Skandia 211 S Gulph Road King of Prussia, PA 19406-3101 - -------------------------------------------------------------------------------- Pilgrim Baxter & Associates Ltd. 46.60% Attn Terri Simonetti 1400 Liberty Ridge Dr Wayne, PA 19087 - -------------------------------------------------------------------------------- PBHG MID-CAP VALUE FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 36.14% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 17.45% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- Donaldson Lufkin & Jenrette 5.27% Transfer Department 5th Floor PO Box 2052 Jersey City, NJ 07303-2052 - -------------------------------------------------------------------------------- PBHG MID-CAP VALUE FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- Investors Bank & Trust Co. 62.64% FBO various retirement plans 4 Manhattanville Road Purchase, NY 10577-2139 - -------------------------------------------------------------------------------- Pilgrim Baxter & Associates Ltd. 37.31% Attn Terri Simonetti 1400 Liberty Ridge Dr Wayne, PA 19087 - -------------------------------------------------------------------------------- PBHG SMALL CAP VALUE FUND - PBHG CLASS - -------------------------------------------------------------------------------- Northern Trust Co 29.99% FBO Arthur Anderson LLP US Profit Sharing and 401 (k) Trust PO Box 92956 Chicago, IL 60675-2956 - -------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 22.75% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 15.90% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- SMALL CAP VALUE FUND - ADVISOR CLASS - -------------------------------------------------------------------------------- Wachovia Securities Inc 68.41% FBO 317-81954-12 PO Box 1220 Charlotte, NC 28201-1220 - -------------------------------------------------------------------------------- Pilgrim Baxter & Associates Ltd. 28.80% Attn Terri Simonetti 1400 Liberty Ridge Dr Wayne, PA 19087 - -------------------------------------------------------------------------------- PBHG FOCUSED VALUE FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 34.88% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 16.48% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG NEW OPPORTUNITIES FUND - PBHG CLASS - -------------------------------------------------------------------------------- National Financial Services Corp 7.46% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - PBHG CLASS - -------------------------------------------------------------------------------- National Financial Services Corp 11.45% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 9.33% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- PBHG CLIPPER FOCUS FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 48.28% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- 43 - -------------------------------------------------------------------------------- National Financial Services Corp 20.39% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - PBHG CLASS - -------------------------------------------------------------------------------- National Financial Services Corp 93.97% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG DISCIPLINED EQUITY FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 32.36% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- UMB Bank 23.76% FBO Retirement Income Plan 928 Grand Blvd Kansas City, MO 64106-2008 - -------------------------------------------------------------------------------- National Financial Services Corp 12.27% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG REIT FUND -ADVISOR CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 42.46% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- Donald Lufkin & Jenrette 18.63% P.O. Box 2052 Jersey City, NJ 07303-2052 - -------------------------------------------------------------------------------- National Financial Services Corp 9.62% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- PBHG REIT FUND -PBHG CLASS - -------------------------------------------------------------------------------- United Nations Joint Staff 34.78% Pension Plan C/O Henry L Ouma Chief Investment Management Service United Nations Room S-0702 New York, NY 10017 - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 14.05% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- National Financial Services Corp 11.48% For the exclusive benefit of our customers 777 Central Blvd Carlstadt, NJ 07072 - -------------------------------------------------------------------------------- 44 - -------------------------------------------------------------------------------- PBHG SPECIAL EQUITY FUND - PBHG CLASS - -------------------------------------------------------------------------------- Charles Schwab & Co. Inc. 59.06% Reinvest Account Attention Mutual Fund Department 101 Montgomery Street San Francisco, CA 94104-4122 - -------------------------------------------------------------------------------- Ironworkers District Council of TN 8.58% Valley Annuity Plan 8615 Hixson Pike Hixson, TN 37343-1561 - -------------------------------------------------------------------------------- The Trustees and Officers of the Trust collectively owned less than 1% of the outstanding shares of each portfolio at July 12, 2002, except that the Trustees and Officers collectively owned 1.08% of the PBHG Disciplined Equity Fund, 2.67% of the PBHG Focused Value Fund, 3.70% of the PBHG Core Growth Fund, 4.89% of the PBHG Limited Fund, and 2.72% of the PBHG New Opportunities Fund. THE ADVISER The Trust and Pilgrim Baxter & Associates, Ltd. have entered into an advisory agreement with respect to each Fund (the "Advisory Agreement"). The Advisory Agreement provides certain limitations on the Adviser's liability, but also provides that the Adviser shall not be protected against any liability to the Trust or each of its Funds or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. Pilgrim Baxter is an indirect wholly owned subsidiary of Old Mutual plc ("Old Mutual"). Old Mutual is an international financial services group based in London, with operations in life assurance, asset management, banking and general insurance. Old Mutual's principal offices are located at 3rd Floor, Lansdowne House, 57 Berkely Square, London, WIX 50H, United Kingdom. PBHG Fund Services, the Trust's Administrator, is a wholly owned subsidiary of the Adviser (see "The Administrator" for more detail on PBHG Fund Services). PBHG Fund Services also serves as administrator to PBHG Insurance Series Fund, a management investment company also managed by the Adviser. PBHG Fund Distributors, the Trust's Distributor, is also a wholly owned subsidiary of the Adviser (see "The Distributor" for more detail on PBHG Fund Distributors). PBHG Fund Distributors also serves as distributor to PBHG Insurance Series Fund. The Adviser has discretionary management authority with respect over $10.7 billion in assets as of June 30, 2002. In addition to advising the Funds, the Adviser provides advisory services to other mutual funds and to pension and profit-sharing plans, charitable institutions, corporations, trusts and estates, and other investment companies. The principal business address of the Adviser is 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087-5593. The Advisory Agreement obligates the Adviser to: (i) provide a program of continuous investment management for the Trust in accordance with the Trust's investment objectives, policies and limitations; (ii) make investment decisions for the Trust; and (iii) place orders to purchase and sell securities for the Trust, subject to the supervision of the Board of Trustees. The Advisory Agreement also requires the Adviser to pay its overhead and employee costs and the compensation and expenses of all its partners, officers and employees who serve as officers and executive employees of the Trust. The Advisory Agreement provides that the Adviser is not responsible for other expenses of operating the Trust. From time to time, the Adviser or a company under common control with the Adviser may make payments to broker-dealers for the promotion of the sale of Trust shares or for their own company-sponsored sales programs. 45 The continuance of the Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the Trust's outstanding voting securities and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes cast in person at a meeting called for such purpose. The Advisory Agreement may be terminated (i) at any time without penalty by the Trust upon the vote of a majority of the Trustees or by vote of the majority of the Trust's outstanding voting securities upon 60 days' written notice to the Adviser or (ii) by the Adviser at any time without penalty upon 60 days' written notice to the Trust. The Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For its services, the Adviser is entitled to a fee, which is calculated daily and paid monthly, at an annual rate of each Fund's average daily net assets as set forth in the table below. In addition, in the interest of limiting the expenses of the Funds during the current fiscal year, the Adviser has signed expense limitation contracts with the Trust on behalf of certain Funds ("Expense Limitation Agreements") pursuant to which, with respect to the PBHG Class and Advisor Class shares, the Adviser has agreed to waive or limit a portion of its fee and to assume other expenses in an amount necessary to limit total annual operating expenses (but excluding fees and expenses incurred under the Trust's Service Plan, if any, interest, taxes, brokerage commissions, and any expenditures that are capitalized in accordance with generally accepted accounting principles, and any extraordinary expenses not incurred in the ordinary course of the Fund's business) as set forth in the table below. - -------------------------------------------------------------------------------- FUND MANAGEMENT FEE EXPENSE LIMITATION ---- -------------- ------------------ - -------------------------------------------------------------------------------- GROWTH FUND 0.85% N/A - -------------------------------------------------------------------------------- EMERGING GROWTH FUND 0.85% N/A - -------------------------------------------------------------------------------- NEW OPPORTUNITIES FUND 1.00% 1.50%(1) - -------------------------------------------------------------------------------- LARGE CAP GROWTH FUND 0.75% N/A - -------------------------------------------------------------------------------- SELECT EQUITY FUND 0.85% N/A - -------------------------------------------------------------------------------- CORE GROWTH FUND 0.85% 1.50%(1) - -------------------------------------------------------------------------------- LIMITED FUND 1.00% 1.50%(1) - -------------------------------------------------------------------------------- LARGE CAP 20 FUND 0.85% 1.50%(1) - -------------------------------------------------------------------------------- LARGE CAP VALUE FUND 0.65% 1.50%(1) - -------------------------------------------------------------------------------- MID-CAP VALUE FUND 0.85% 1.50%(1) - -------------------------------------------------------------------------------- SMALL CAP VALUE FUND 1.00% 1.50%(1) - -------------------------------------------------------------------------------- FOCUSED VALUE FUND 0.85% 1.50%(1) - -------------------------------------------------------------------------------- CASH RESERVES FUND 0.30% N/A - -------------------------------------------------------------------------------- TECHNOLOGY & COMMUNICATIONS FUND 0.85% N/A - -------------------------------------------------------------------------------- STRATEGIC SMALL COMPANY FUND 1.00% 1.50%(1) - -------------------------------------------------------------------------------- GLOBAL TECHNOLOGY & COMMUNICATIONS FUND 1.50% 2.15%(1) - -------------------------------------------------------------------------------- CLIPPER FOCUS FUND 1.00% 1.50%(2) - -------------------------------------------------------------------------------- DISCIPLINED EQUITY FUND 0.70%(3) 1.50%(2) - -------------------------------------------------------------------------------- IRA CAPITAL PRESERVATION FUND 0.60%(3) 1.25%(2) - -------------------------------------------------------------------------------- SPECIAL EQUITY FUND 1.00%(3) 1.50%(2) - -------------------------------------------------------------------------------- REIT FUND 0.85%(3) 1.50%(2) - -------------------------------------------------------------------------------- The investment advisory fees paid by certain of the Funds are higher than those paid by most investment companies, although the Adviser believes the fees to be comparable to those paid by investment companies with similar investment objectives and policies. 46 (1) Old Mutual and Pilgrim Baxter have agreed to maintain this expense limitation agreement for these Funds until March 31, 2003. Such waivers and assumption of expenses by the Adviser may be discontinued at any time after such date. Reimbursement by the Funds of the advisory fees waived or limited and other expenses paid by the Adviser pursuant to the Expense Limitation Agreements may be made at a later date when the Funds have reached a sufficient asset size to permit reimbursement to be made without causing the total annual expense rate of each Fund to exceed 1.50% (or 2.15% for the Global Technology & Communications Fund). Consequently, no reimbursement by a Fund will be made unless: (i) the Fund's assets exceed $75 million; (ii) the Fund's total annual expense ratio is less than 1.50% (or 2.15% for the Global Technology & Communications Fund); and (iii) the payment of such reimbursement was approved by the Board of Trustees on a quarterly basis. (2) Pilgrim Baxter has contractually agreed to waive that portion, if any, of the annual management fees payable by the Clipper Focus Fund, Disciplined Equity Fund, IRA Capital Preservation Fund, Special Equity Fund and the REIT Fund and to pay certain expenses of the Fund to the extent necessary to ensure that the total annual operating expenses (exclusive of 12b-1 fees, if any, and certain other expenses such as brokerage commissions and extraordinary expenses) do not exceed 1.40%, 0.99%, 1.00%, 1.25% and 1.36%, respectively, until September 25, 2002 and not more than 1.50% (1.25% for IRA Capital Preservation Fund) until March 31, 2003. In any year after September 25, 2002 in which a Fund's assets are greater than $75 million and its total annual operating expenses (exclusive of 12b-1 fees, if any, and certain other expenses such as brokerage commissions and extraordinary expenses) are lower than 1.50% (1.25% for IRA Capital Preservation Fund), the Funds' Board of Trustees may elect to reimburse Pilgrim Baxter for any fees it waived or expenses it reimbursed on a Fund's behalf during the previous two fiscal years after September 25, 2002. (3) Pilgrim Baxter is entitled to receive a management fee of 1.00% under its investment advisory agreement with the Special Equity Fund. Pilgrim Baxter has contractually agreed to waive a portion of its fee and receive a management fee of 0.85% from the Special Equity Fund until September 25, 2002. Pilgrim Baxter is entitled to receive a management fee of 0.70% under its investment advisory agreement with the Disciplined Equity Fund. Pilgrim Baxter has contractually agreed to waive a portion of its fee and receive a management fee of 0.60% from the Disciplined Equity Fund until September 25, 2002. Pilgrim Baxter is entitled to receive a management fee of 0.60% under its investment advisory agreement with the IRA Capital Preservation Fund. Pilgrim Baxter has contractually agreed to waive a portion of its fee and receive a management fee of 0.50% from the IRA Capital Preservation Fund until September 25, 2002. Pilgrim Baxter is entitled to receive a management fee of 0.85% under its investment advisory agreement with the REIT Fund. Pilgrim Baxter has contractually agreed to waive a portion of its fee and receive a management fee of 0.75% of the first $100 million of the average daily net assets of the REIT Fund and 0.65% of the average daily net assets in excess of $100 million until September 25, 2002. 47 For the fiscal years and periods ended March 31, 2000, 2001 and 2002, each of the Funds listed below paid or waived the following advisory fees:
- ---------------------------------------------------------------------------------------------------------------------------- FUND FEES PAID FEES WAIVED - ---------------------------------------------------------------------------------------------------------------------------- 2000 2001 2002 2000 2001 2002 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Growth $32,748,339 43,148,656 21,977,721 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth $7,263,497 8,680,397 4,416,381 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG New Opportunities $1,418,924 1,512,665 550,084 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth $1,148,240 2,726,947 2,316,306 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Select Equity $4,326,181 12,416,624 4,758,954 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Core Growth $941,429 1,202,139 540,665 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Limited $1,142,585 1,205,168 795,515 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 $5,274,451 7,817,909 3,631,375 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value $245,217 880,294 3,519,118 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value $364,163 1,021,571 3,210,006 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value $702,546 1,874,651 2,775,938 $57,833 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Focused Value $48,688 380,314 505,378 $2,849 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Cash Reserves $582,869 1,766,137 1,321,853 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications $12,141,268 22,046,737 6,635,312 $0 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Global Technology & * 1,006,5812 623,058 * $0 $124,745 Communications - ---------------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company $537,130 861,032 938,904 $24,537 $0 $0 - ---------------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus $0(6) $0(6) $2,884,503(3) $0(6) $0(6) $106,771(3) - ---------------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity $0(9) $079 $165,334(5) $0(9) $0(9) $82,395(5) - ---------------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation $0(10) $0(10) $578,408(4) $0(10) $010 $319,757(4) - ---------------------------------------------------------------------------------------------------------------------------- PBHG Special Equity $0(7) $0(7) $85,233(4) $0(7) $0(7) $85,072(4) - ---------------------------------------------------------------------------------------------------------------------------- PBHG REIT $0(8) $0(8) $179,373(5) $0(8) $0(8) $24,764(5) - ----------------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. (1) For the period February 12, 1999 (commencement of operations) through March 31, 1999. (2) For the period May 31, 2000 (commencement of operations) through March 31, 2001. (3) For the period April 30, 2001 through March 31, 2002. (4) For the period October 31, 2001 through March 31, 2002. (5) For the period December 31, 2001 through March 31, 2002. (6) For the fiscal years ended April 30, 2000 and 2001, the predecessor to PBHG Clipper Focus Fund paid $797,126 and $1,614,701, respectively, in advisory fees to its advisor (now sub-adviser) and its adviser waived $54,587 and $19,109, respectively. (7) For the fiscal years ended October 31, 2000 and 2001, the predecessor to PBHG Special Equity Fund paid $99,225 and $322,072, respectively, in advisory fees to its advisor (now sub-adviser) and its adviser waived $147,386 and $109,903, respectively. (8) For the fiscal years and periods ended December 31,2000 and 2001, the predecessor to PBHG REIT Fund paid $712,373 and $712,698, respectively, to its advisor. PBHG REIT Fund paid such fee to Pilgrim Baxter beginning after the close of business December 14, 2001. (9) For the fiscal years and periods ended December 31,2000 and 2001, the predecessor to PBHG Disciplined Equity Fund paid $863,360 and $531,547, respectively, to its advisor (now sub-adviser) in advisory fees and waived$0 and 98,847, respectively. (10) For the fiscal years and periods ended October 31,2000 and 2001, the predecessor to PBHG IRA Capital Preservation Fund did not pay any fees to its advisor (now sub-adviser) in advisory fees and waived$79,623 and $163,580, respectively. 48 THE SUB-ADVISERS WELLINGTON MANAGEMENT COMPANY, LLP The Trust, on behalf of the PBHG Cash Reserves Fund, and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with Wellington Management. The Sub-Advisory Agreement provides certain limitations on Wellington Management's liability, but also provides that Wellington Management shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from a breach of fiduciary duty with respect to the receipt of compensation for services thereunder. The Sub-Advisory Agreement obligates Wellington Management to: (i) manage the investment operations of the PBHG Cash Reserves Fund and the composition of the Fund's portfolio, including the purchase, retention and disposition thereof in accordance with the Fund's investment objectives, policies and restrictions; (ii) provide supervision of the Fund's investments and determine from time to time what investments and securities will be purchased, retained or sold by the Fund, and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Registration Statement or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The Sub-Advisory Agreement will continue in effect for a period of more than two years from the date thereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Trust (i) by the Trust at any time, without the payment of any penalty, by the vote of a majority of Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the Trust, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by Wellington Management at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement shall terminate automatically and immediately in the event of its assignment as defined in the 1940 Act. For the services provided and expenses incurred pursuant to the sub-advisory agreement, Wellington Management is entitled to receive from the Adviser a fee, computed daily and paid monthly, at the annual rate equal to 0.075% of the Fund's average daily net assets up to and including $500 million and 0.020% of the Fund's average daily net assets over $500 million, but subject to a minimum annual fee of $50,000. PACIFIC FINANCIAL RESEARCH, INC. The Trust, on behalf of the PBHG Clipper Focus Fund, and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with PFR. The Sub-Advisory Agreement provides certain limitations on PFR's liability, but also provides that PFR shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Sub-Advisory Agreement obligates PFR to: (i) manage the investment operations of the Fund and the composition of the Fund's investment portfolios, including the purchase, retention and disposition thereof in accordance with the Fund's investment objective, policies and limitations; (ii) provide supervision of the Fund's investments and to determine from time to time what 49 investment and securities will be purchased, retained or sold by the Fund and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Prospectus or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The continuance of the Sub-Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes cast in person at a meeting called for such purpose. The Sub-Advisory Agreement may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the relevant Fund, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by PFR at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For the services provided and expenses incurred pursuant to the Sub-Advisory Agreement for the Fund, PFR is entitled to receive from the Adviser a sub-advisory fee with respect to the average daily net assets of the Fund that is computed and paid monthly at an annual rate of 0.40% of the Portfolio's average net assets. A team of investment professionals is primarily responsible for the day-to-day management of the PBHG Clipper Focus Fund. Listed below are the investment professionals of the sub-adviser that comprise the team and a description of their business experience during the past five years. Name and Title Experience ================================================================================ James Gipson, President, o Founded PFR in 1980 Portfolio Manager o Previous experience as a Consultant for McKinsey & Co. o Also served as a Portfolio Manager at Source Capital and Batterymarch Financial o Author of WINNING THE INVESTMENT GAME: A GUIDE FOR ALL SEASONS o Served as an officer in the U.S. Navy o BA and MA degrees in Economics with honors from the University of California, Los Angeles o MBA degree with honors from Harvard Business School - -------------------------------------------------------------------------------- Douglas Grey, Vice o Joined PFR as an Analyst in 1986 President, Portfolio Manager o Served as a design analysis engineer for General Motors o BE, cum laude, in Mechanical/Materials Engineering and Economics from Vanderbilt University o MBA from University of Chicago - -------------------------------------------------------------------------------- Peter Quinn, Vice President, o Joined PFR in 1987 as a Research Associate Portfolio Manager o BS degree in Finance from Boston College o MBA from the Peter F. Drucker School of Management at the Claremont Graduate School 50 Name and Title Experience ================================================================================ Michael Sandler, Vice o Joined PFR as an Analyst in 1984 President, Portfolio Manager o Served with International Harvester as a Manager of Asset Redeployment o Also served with Enterprise Systems, Inc. as a Vice President of Business Development o BA with distinction, MBA and JD degrees from the University of Iowa - -------------------------------------------------------------------------------- Bruce Veaco, Vice President, o Joined PFR in 1986 as an Analyst Portfolio Manager o Served as a CPA in the Los Angeles office of Price Waterhouse where he was an Audit Manager o BA with honors in Economics from the University of California, Los Angeles o MBA degree from Harvard Business School - -------------------------------------------------------------------------------- ANALYTIC INVESTORS, INC. The Trust, on behalf of the PBHG Disciplined Equity Fund, and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with Analytic. The Sub-Advisory Agreement provides certain limitations on Analytic's liability, but also provides that Analytic shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Sub-Advisory Agreement obligates Analytic to: (i) manage the investment operations of the Fund and the composition of the Fund's investment portfolios, including the purchase, retention and disposition thereof in accordance with the Fund's investment objective, policies and limitations; (ii) provide supervision of the Fund's investments and to determine from time to time what investment and securities will be purchased, retained or sold by the Fund and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Prospectus or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The continuance of the Sub-Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes cast in person at a meeting called for such purpose. The Sub-Advisory Agreement may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the relevant Fund, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by Analytic at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For the services provided and expenses incurred pursuant to the Sub-Advisory Agreement for the Fund, Analytic is entitled to receive from the Adviser a sub-advisory fee with respect to the average daily net assets of the Fund that is computed, pursuant to section 15(f) of the 1940 Act (the "Section 15(f) Period"), and paid monthly a fee at an annual rate of 0.60% on the assets transferred over to the Portfolio as a result of the reorganization of the Analytic Enhanced Equity Portfolio into the Portfolio (so called "Legacy Assets") and a fee of 0.30% on non-Legacy Assets 51 (in each instance net of any waivers, reimbursement payments, supermarket fees and alliance fees waived, reimbursed or paid by the Adviser in respect of the Portfolio); and after the expiration of the section 15(f) Period, a fee at an annual rate of 0.35% of the Portfolio's average net assets (net of 50% of any waivers, reimbursement payments, supermarket fees and alliance fees, waived, reimbursed or paid by the Adviser in respect of the Portfolio). Analytic believes the characteristics that drive stock prices can be systematically identified and measured. There are five primary elements used to determine a stock's attractiveness: 1) relative valuation; 2) growth potential; 3) historical return momentum; 4) liquidity; and 5) risk. The valuation process examines dozens of financial measures within these five elements. Analytic accepts, however, that the predictive power of each of these financial measures has changed over time and will continue to change into the future. As a result, Analytic has developed a unique weighting process for each of these financial measures, which allows our approach to adapt to constantly changing market conditions. The adaptive approach increases the weight of those variables that have contributed most heavily to recent performance and decreases the weight to those measures that have lost their predictive capacity. The enhanced equity process commences by developing rankings for all the companies in the equity universe based on the combined attractiveness of the five elements. This requires extensive analysis and necessitates the assistance of a computer model to simultaneously evaluate all the data for each stock. Once the stocks are ranked, a highly diversified portfolio is constructed by selecting that combination of stocks which represents the best potential return while maintaining a risk profile that is similar to the equity universe. In the process, Analytic's quantitative approach greatly reduces the exposures to firm size, market style, and economic sector biases. This is referred to as being size neutral, style neutral and sector neutral. The Disciplined Equity Fund's portfolio is monitored daily, and re-balanced periodically to ensure optimum performance. Individual security positions are limited to a maximum of a 3% active position relative to their respective weights in the equity universe. The Fund seeks to be fully invested at all times. Listed below are the investment professionals of the sub-adviser that form the teams primarily responsible for the day-to-day management of the Disciplined Equity Fund and a brief biographical description of each member.
Manager Experience ============================================================================================================= Harindra de Silva EMPLOYMENT 4/98 to present Analytic Investors, Inc., President 4/98 to present Analytic/TSA Investors, Inc., President 10/96 to 4/98 Analytic Investors, Inc., Managing Director 5/95 to 10/96 Analytic Investors, Inc., Director of Research 10/97 to 4/98 Analytic/TSA Investors, Inc., Managing Director 1/99 to present Analytic US Market Neutral, Ltd., Director 4/97 to 4/98 Analytic Optioned Equity Fund, President 4/86 to 3/98 Analysis Group (Economic Management Consultant), Principal AG Risk Management (Investment Management Consultant), President 5/93 to 3/98 Analytic Series Fund, President EDUCATION Ph.D. in Finance from the University of California, Irvine MBA in Finance and an MS in Economic Forecasting from the University of Rochester BS in Mechanical Engineering from the University of Manchester Institute of Science and Technology OTHER Chartered Financial Analyst Member of Association for Investment Management and Research Member of the American Finance Association Member of the International Association of Financial Analysts - -------------------------------------------------------------------------------------------------------------
52
Manager Experience ============================================================================================================= Dennis M. Bein EMPLOYMENT 8/95 to present Analytic Investors, Inc., Portfolio Manager 8/95 to present Analytic/TSA Investors, Inc., Portfolio Manager 1990 to 1998 Analysis Group, Inc. (Economic Management Consultant), Senior Associate EDUCATION MBA from the Anderson Graduate School of Management at the University of California, Riverside Undergraduate studies in Business Administration from the Anderson Graduate School of Management at the University of California, Riverside OTHER Chartered Financial Analyst Member of Association for Investment Management and Research Member of the Institute of Chartered Financial Analysts Member of the Los Angeles Society of Financial Analysts - -------------------------------------------------------------------------------------------------------------- Greg McMurran EMPLOYMENT 1/98 to present Analytic Investors, Inc., Chief Investment Officer 2/96 to 1/98 Analytic Investors, Inc., Director and Portfolio Manager 10/97 to present Analytic/TSA Investors, Inc., Chief Investment Officer 10/76 to 2/96 Analytic Investment Management, Senior Vice President and Senior Portfolio Manager EDUCATION MA in Economics at California State University, Fullerton BS in Economics from the University of California, Irvine - -------------------------------------------------------------------------------------------------------------- Scott Barker EMPLOYMENT 8/95 to present Analytic Investors, Inc., Portfolio Manager 8/95 to present Analytic/TSA Investors, Inc., Portfolio Manager 1993 to 1998 Analysis Group, Inc. (Economic Management Consultant), Research Analyst EDUCATION BA in Physics from Pomona College OTHER Chartered Financial Analyst Member of Association for Investment Management and Research Member of the Los Angeles Society of Financial Analysts - -------------------------------------------------------------------------------------------------------------- Robert Murdock, EMPLOYMENT Ph.D. 11/97 to present Analytic Investors, Inc., Portfolio Manager 11/97 to present Analytic/TSA Investors, Inc., Portfolio Manager 9/91 to 7/97 Anderson Graduate School of Management at the University of California, Los Angeles, Researcher. 9/89 to 8/91 Institute for Policy Reform, Manager EDUCATION Ph.D in Management, Anderson Graduate School of Management at the University of California, Los Angeles MA in Economics from the University of Pennsylvania MBA, Amos Tuck School of Business BS in Economics and Math from University of Wyoming
53
Manager Experience ============================================================================================================= Douglas Savarese EMPLOYMENT 8/96 to present Analytic Investors, Inc., Portfolio Manager 8/96 to present Analytic/TSA Investors, Inc., Portfolio Manager 11/97 to 10/98 Analysis Group (Economic Management Consultant), Senior Associate EDUCATION BA in Mathematics and BS in Business Studies from the Richard Stockton College - -------------------------------------------------------------------------------------------------------------- Steven Sapra EMPLOYMENT 9/99 to present Analytic Investors, Inc., Portfolio Manager 9/99 to present Analytic/TSA Investors, Inc., Portfolio Manager 7/97 to 8/99 BARRA, Inc., Consultant EDUCATION MA in Economics, University of Southern California BS in Economics, California State Polytechnic University, Ponoma
DWIGHT ASSET MANAGEMENT COMPANY The Trust, on behalf of the PBHG IRA Capital Preservation Fund, and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with Dwight. The Sub-Advisory Agreement provides certain limitations on Dwight's liability, but also provides that Dwight shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Sub-Advisory Agreement obligates Dwight to: (i) manage the investment operations of the Fund and the composition of the Fund's investment portfolios, including the purchase, retention and disposition thereof in accordance with the Fund's investment objective, policies and limitations; (ii) provide supervision of the Fund's investments and to determine from time to time what investment and securities will be purchased, retained or sold by the Fund and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Prospectus or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The continuance of the Sub-Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes cast in person at a meeting called for such purpose. The Sub-Advisory Agreement may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the relevant Fund, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by Dwight at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For the services provided and expenses incurred pursuant to the Sub-Advisory Agreement for the Fund, Dwight is entitled to receive from the Adviser a sub-advisory fee with respect to the average daily net assets of the Fund that is computed, pursuant to section 15(f) of the 1940 Act (the "Section 15(f) Period"), and paid monthly a fee at an annual rate of 0.50% on the assets transferred over to the Portfolio as a result of the reorganization of the IRA Cash Preservation 54 Portfolio into the Portfolio (so called "Legacy Assets") and a fee of 0.25% on non-Legacy Assets (in each instance net of any waivers, reimbursement payments, supermarket fees and alliance fees waived, reimbursed or paid by the Adviser in respect of the Portfolio); and after the expiration of the section 15(f) Period, a fee at an annual rate of 0.30% of the Portfolio's average net assets (net of 50% of any waivers, reimbursement payments, supermarket fees and alliance fees, waived, reimbursed or paid by the Adviser in respect of the Portfolio). A team of investment professionals is primarily responsible for the day-to-day management of the PBHG IRA Capital Preservation Fund. Listed below are the investment professionals of the sub-adviser that comprise the team and a description of their business experience during the past five years. Name and Title Experience ================================================================================ John K. Dwight, Mr. Dwight has twenty-six years of stable President, Member of value investment experience and is a founding Investment Committee member of the Stable Value Investment Association. He received his B. A. from the University of North Carolina. - -------------------------------------------------------------------------------- Laura P. Dagan, Ms. Dagan has twenty-one years of fixed Managing Director, income investment experience, with fourteen Portfolio Management, years of stable value investment experience Member of Investment with the adviser. She is a Founding Director Committee and Past President of the Vermont Security Analysts Society of the Association for Investment Management and Research (AIMR). She received her B.S. from Bucknell University. Ms. Dagan is a Chartered Financial Analyst. - -------------------------------------------------------------------------------- David T. Kilborn, Mr. Kilborn has eleven years of investment Senior Vice President, experience, with six years of stable value Fixed Income, Member of investment experience since joining the Investment Committee adviser in 1995. Prior to that time, he was a Fixed Income Securities Trader at Nations Banc Capital Markets, Charlotte, North Carolina. He received his B.S. from Trinity College. Mr. Kilborn is a Chartered Financial Analyst. - -------------------------------------------------------------------------------- John M. Loud, Mr. Loud has twenty-six years of investment Vice President, banking experience and four years of stable Portfolio Management value investment experience since joining the adviser in 1997. Prior to joining Dwight, Mr. Loud was self-employed as a consultant to various business enterprises. He received his B.A. from the University of North Carolina. - -------------------------------------------------------------------------------- Andrew D. Beaumier, Mr. Beaumier has seven years of accounting Assistant Vice President, and public/private compliance experience and Portfolio Management three years stable value investment experience since joining the adviser in 1998. Prior to that time, he was employed by Howard Bank (banking) and Gallagher & Flynn (accounting) in Burlington, Vermont. He received his B.S. from Lyndon State College. - -------------------------------------------------------------------------------- NWQ INVESTMENT MANAGEMENT COMPANY, INC. The Trust, on behalf of the PBHG Special Equity Fund (formerly the PBHG New Perspective Fund), and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with NWQ. The Sub-Advisory Agreement provides certain limitations on NWQ's liability, but also provides that NWQ shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Sub-Advisory Agreement obligates NWQ to: (i) manage the investment operations of the Fund and the composition of the Fund's investment portfolios, including the purchase, retention and disposition thereof in accordance with the Fund's investment objective, policies and limitations; (ii) provide supervision of the Fund's investments and to determine from time to time 55 what investment and securities will be purchased, retained or sold by the Fund and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Prospectus or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The continuance of the Sub-Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes cast in person at a meeting called for such purpose. The Sub-Advisory Agreement may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the relevant Fund, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by NWQ at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For the services provided and expenses incurred pursuant to the Sub-Advisory Agreement for the Fund, NWQ is entitled to receive from the Adviser a sub-advisory fee with respect to the average daily net assets of the Fund that is computed, pursuant to section 15(f) of the 1940 Act (the "Section 15(f) Period"), and paid monthly a fee at an annual rate of 0.85% on the assets transferred over to the Portfolio as a result of the reorganization of the NWQ Special Equity Portfolio into the Portfolio (so called "Legacy Assets") and a fee of 0.425% on non-Legacy Assets (in each instance net of any waivers, reimbursement payments, supermarket fees and alliance fees waived, reimbursed or paid by the Adviser in respect of the Portfolio); and after the expiration of the section 15(f) Period, a fee at an annual rate of 0.50% of the Portfolio's average net assets (net of 50% of any waivers, reimbursement payments, supermarket fees and alliance fees, waived, reimbursed or paid by the Adviser in respect of the Portfolio). HEITMAN REAL ESTATE SECURITIES LLC The Trust, on behalf of the PBHG REIT Fund, and the Adviser have entered into a sub-advisory agreement (the "Sub-Advisory Agreement") with Heitman. The Sub-Advisory Agreement provides certain limitations on Heitman's liability, but also provides that Heitman shall not be protected against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Sub-Advisory Agreement obligates Heitman to: (i) manage the investment operations of the Fund and the composition of the Fund's investment portfolios, including the purchase, retention and disposition thereof in accordance with the Fund's investment objective, policies and limitations; (ii) provide supervision of the Fund's investments and to determine from time to time what investment and securities will be purchased, retained or sold by the Fund and what portion of the assets will be invested or held uninvested in cash; and (iii) determine the securities to be purchased or sold by the Fund and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Fund's Prospectus or as the Board of Trustees or the Adviser may direct from time to time, in conformity with federal securities laws. The continuance of the Sub-Advisory Agreement after the first two years must be specifically approved at least annually (i) by the Trust's Board of Trustees or by vote of a majority of the outstanding voting securities of the Fund and (ii) by the affirmative vote of a majority of the Trustees who are not parties to the agreement or interested persons of any such party by votes 56 cast in person at a meeting called for such purpose. The Sub-Advisory Agreement may be terminated (i) by the Trust, without the payment of any penalty, by the vote of a majority of the Trustees of the Trust or by the vote of a majority of the outstanding voting securities of the relevant Fund, (ii) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the other parties, or (iii) by Heitman at any time, without the payment of any penalty, on 90 days' written notice to the other parties. The Sub-Advisory Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). For the services provided and expenses incurred pursuant to the Sub-Advisory Agreement for the Fund, Heitman is entitled to receive from the Adviser a sub-advisory fee with respect to the average daily net assets of the Fund that is computed, pursuant to section 15(f) of the 1940 Act (the "Section 15(f) Period"), and paid monthly at an annual rate of 0.75% on the first $100 million and 0.65% on assets over $100 million of the assets transferred over to the Portfolio as a result of the reorganization of the Heitman Real Estate Portfolio into the Portfolio (so called "Legacy Assets") and a fee of 0.37% on non-Legacy Assets (in each instance net of any waivers, reimbursement payments, supermarket fees and alliance fees waived, reimbursed or paid by the Adviser in respect of the Portfolio); and after the expiration of the section 15(f) Period, a fee at an annual rate of 0.425% of the Portfolio's average net assets (net of 50% of any waivers, reimbursement payments, supermarket fees and alliance fees, waived, reimbursed or paid by the Adviser in respect of the Portfolio). Heitman believes that, over the long term, publicly traded real estate securities' performance is determined by the underlying real estate assets, real estate market cycles and management's ability to operate and invest in these assets during each market cycle. The sub-adviser's primary objective is to generate long-term, superior, risk-adjusted returns by identifying and investing in publicly traded real estate companies which demonstrate the highest probability of growing cash flow per share without undue risk to achieve such growth. As a value-oriented manager, the sub-adviser is committed to a strategy of investing in companies that offer growth at a reasonable price. A team of investment professionals is primarily responsible for the day-to-day management of the Fund. The investment professionals of the sub-adviser that comprise the team and a description of their business experience during the past five years are provided below. Timothy J. Pire, CFA, is president of the sub-adviser with responsibility for Fund management, research and analysis of the publicly traded real estate securities and implementation of the investment strategy through Fund management. Prior to joining the sub-adviser, Mr. Pire served as vice president and research analyst with PRA Securities Advisors, L.P. from 1992 to 1994. Reagan A. Pratt is vice president of the sub-adviser with responsibility for Fund management, research and analysis of the publicly traded real estate securities and implementation of the investment strategy through Fund management. Prior to joining the sub-adviser, Mr. Pratt served as vice president of investment research for Heitman Capital Management in Chicago from 1994 to 1997. Larry S. Antonatos is vice president of the sub-adviser with responsibility for Fund management, research and analysis of the publicly traded real estate securities and implementation of the investment strategy through Fund management. Mr. Antonatos also oversees the sub-adviser's trading positions. Prior to joining the sub-adviser, Mr. Antonatos served as associate director with Fitch Investors Service, L.P. in New York City (1997-1998) and as a Fund manager with Equitable Real Estate Investment Management, Inc. in Chicago from 1992 to 1997. Jerry Ehlinger, CFA is a Senior Vice President and Portfolio Manager of Heitman's U.S. Public Securities Group. Mr. Ehlinger brings to the investment team six years of real estate and securities experience. His principal focus is on company analysis. Prior to joining Heitman, Mr. 57 Ehlinger was employed with Morgan Stanley Dean Witter Investment Management, where he followed real estate securities for the Real Estate Equity Fund. He also worked on the sell side at Morgan Stanley Dean Witter following the real estate and specialty chemical industries. As a sell side analyst, Mr. Ehlinger gained first hand experience with the securitization of real estate, working on numerous secondary and initial public offerings along with mergers and corporate reorganizations. APPROVAL OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS In approving the investment advisory and sub-advisory agreements for Clipper Focus Fund, IRA Capital Preservation Fund, Special Equity Fund, Disciplined Equity Fund and REIT Fund, the Board of Trustees considered various matters including the proposal to merge the assets of the corresponding fund in the UAM Fund Family into its PBHG counterpart and the proposal to engage the current adviser for each these UAM funds as sub-adviser for the corresponding PBHG fund. The Trustees also considered information they regularly consider when determining whether to continue a particular fund's investment advisory and sub-advisory agreements from year to year. This information includes, among other things: the qualifications of the professional staff, resources and investment process of Pilgrim Baxter, PFR, Dwight, NWQ, Heitman and Analytic (collectively, the "Advisers"); the terms of each investment advisory and sub-advisory agreement, the scope and quality of the services that the Advisers have been providing to the Funds, the investment performance of each Fund and of comparable funds managed by other advisors over various periods, the advisory rates payable by the Funds and Pilgrim Baxter and by other funds and client accounts managed by the Advisers and payable by comparable funds managed by other advisers, including potential fall-out benefits to Pilgrim Baxter; each Fund's total expense ratio and expense limitation agreement and the total expense ratios of comparable funds managed by other advisers; and the profitability and financial condition of the Advisers. In approving the investment advisory agreement for the other Funds and the sub-advisory agreement for Cash Reserves Fund, the Board of Trustees considered various matters relating to Old Mutual plc acquiring the outstanding common stock of United Asset Management, the parent company of Pilgrim Baxter, the Funds' investment adviser, including the following: Old Mutual's financial strength and asset management experience; Old Mutual's commitment to retain Pilgrim Baxter's existing corporate structure and management team; the terms of new arrangements with Pilgrim Baxter's principals; the fact that there would be no changes to the Funds' advisory fees and no material differences in the Fund's expense limitation agreements; the fact that there would be no unfair burden , as defined in the 1940 Act, imposed on the Funds as a result of Old Mutual acquiring UAM, the qualifications of Pilgrim Baxter and the importance of maintaining continuity of Fund management. In addition, the Trustees considered information they regularly consider when determining whether to continue a particular Fund's investment advisory and, and in the case of Cash Reserve Fund, sub-advisory agreement with Wellington from year-to-year. This information included, among other things, the following: the qualifications of the professional staff, resources and investment process of Pilgrim Baxter and Wellington, in the case of Cash Reserves Fund; the terms of the investment advisory and sub-advisory agreement, the scope and quality of the services that Pilgrim Baxter and Wellington provide to the Funds, the investment performance of each Fund and of comparable funds managed by other advisers over various periods, the advisory rates payable by the Funds and Pilgrim Baxter (to Wellington for sub-advisory services) and by other funds and client accounts managed by Pilgrim Baxter and Wellington and by comparable funds managed by other advisers, including potential fall-out benefits to Pilgrim Baxter; each Fund's total expense ratio and expense limitation agreement (where applicable) and the total expense ration of comparable funds managed by other advisers; and the profitability and financial condition of Pilgrim Baxter and Wellington. THE DISTRIBUTOR PBHG Fund Distributors (the "Distributor"), a wholly owned subsidiary of the Adviser, and the Trust are parties to a distribution agreement (the "Distribution Agreement") dated January 28, 58 2001, pursuant to which the Distributor serves as principal underwriter for the Trust. The Distributor receives no compensation for serving in such capacity. The principal business address of the Distributor is 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087-5593. Prior to July 16, 2001, SEI Investment Distribution Co. served as principal underwriter for the predecessor of the Trust. SEI received no compensation for serving in such capacity. The Distributor is contractually required to continuously distribute the securities of the Trust. The Distribution Agreement is renewable annually. The Distribution Agreement may be terminated by the Distributor, by a majority vote of the Trustees who are not interested persons and have no financial interest in the Distribution Agreement or by a majority vote of the outstanding securities of the Trust upon not more than sixty (60) days' written notice by either party or upon assignment by the Distributor. The Trust has adopted a Service Plan pursuant to Rule 12b-1 under the 1940 Act to enable the Advisor Class shares of a Fund to directly and indirectly bear certain expenses relating to the distribution of such Shares. Pursuant to such Service Plan, the Trust shall pay to the Distributor a fee for providing or arranging with and paying others to provide personal service to shareholders of Advisor Class Shares and/or the maintenance of such shareholders' accounts at the aggregate annual rate of up to 0.25% of such Fund's average daily net assets attributable to Advisor Class shares. The Service Plan is a compensation plan, which means that it compensates the Distributor regardless of the expenses actually incurred by the Distributor. Arranging with and paying others to provide personal services to shareholders of the Advisor Class shares and/or the maintenance of Shareholder accounts include, but are not limited to: (i) sponsors of and/or administrators to contribution plans; and (ii) sponsors of and/or administrators to various wrap and asset allocation programs. The Distributor shall prepare and deliver written reports to the Board of Trustees of the Trust on a regular basis (at least quarterly) setting forth the payments made to Service Providers pursuant to the Service Plan, and the purposes for which such expenditures were made, as well as any supplemental reports as the Board of Trustees may from time to time reasonably request. Except to the extent that the Administrator, Sub-Administrator or Adviser may benefit through increased fees from an increase in the net assets of the Trust which may have resulted in part from the expenditures, no interested person of the Trust nor any Trustee of the Trust who is not an interested person of the Trust had a direct or indirect financial interest in the operation of the Service Plan or any related agreement. No compensation was paid to the Distributor for distribution services for the fiscal years ended March 31, 2000, 2001 and 2002. The Growth, Large Cap Growth, Large Cap 20, Large Cap Value, Small Cap Value and Technology & Communications, REIT and Mid-Cap Value Funds offer Advisor Class shares. For the fiscal year ended March 31, 2002 , the following amounts were paid to Service Providers pursuant to the Service Plan for the Advisor Class shares of each of those Funds: ---------------------------------------------------- Growth Fund $164,138 ---------------------------------------------------- Large Cap Growth Fund $240 ---------------------------------------------------- Large Cap 20 Fund $167 ---------------------------------------------------- Large Cap Value Fund $346 ---------------------------------------------------- Small Cap Value Fund $560 ---------------------------------------------------- Technology & Communications Fund $10,177 ---------------------------------------------------- REIT Fund $11,738(1) ---------------------------------------------------- Mid-Cap Value Fund $115(2) ---------------------------------------------------- 59 Of the service fees the Distributor received, it retained $186, $167, $248, $889, $406, $249, $138 from the Large Cap Growth, Large Cap 20, Large Cap Value, Small Cap Value, Technology & Communications, REIT and Mid-Cap Value Funds, respectively. (1) For the period December 31, 2001 through March 31, 2002. (2) For the period October 31, 2001 through March 31, 2002. THE ADMINISTRATOR AND SUB-ADMINISTRATOR The Trust and PBHG Fund Services (the "Administrator") entered into the Administrative Services Agreement (the "Administrative Agreement") on January 28, 2001 pursuant to which the Administrator oversees the administration of the Trust's and each Fund's business and affairs, including regulatory reporting and all necessary office space, equipment, personnel and facilities, as well as services performed by various third parties. The Administrator, a wholly owned subsidiary of the Adviser, was organized as a Pennsylvania business trust and has its principal place of business at 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087. Under the Administrative Agreement, the Administrator is entitled to a fee from the Trust, which is calculated daily and paid monthly at an annual rate of 0.15% of the average daily net assets of each Fund. The Administrative Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administrative Agreement relates, except a loss resulting from willful misfeasance, bad faith or negligence on the part of the Administrator in the performance of its duties. The Administrative Agreement shall continue in effect unless terminated by either party upon not less than ninety (90) days' prior written notice to the other party. The Administrator and SEI Investments Mutual Fund Services (the "Sub-Administrator") entered into a Sub-Administrative Services Agreement (the "Sub-Administrative Agreement") on January 28, 2001, pursuant to which the Sub-Administrator assists the Administrator in connection with the administration of the business and affairs of the Trust. SEI Investments Management Corporation ("SEI Investments"), which is a wholly owned subsidiary of SEI Investments Company, owns all beneficial interest in the Sub-Administrator. The Sub-Administrator was organized as a Delaware business trust, and has its principal business offices at One Freedom Valley Road, Oaks, Pennsylvania 19456. Under the Sub-Administrative Agreement, the Administrator pays the Sub-Administrator fees at an annual rate based on the combined average daily net assets of the Trust and PBHG Insurance Series Fund calculated as follows: (i) 0.0165% of the first $10 billion, plus (ii) 0.0125% of the next $10 billion, plus (iii) 0.010% of the excess over $20 billion. The Agreement provides that the Sub-Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Agreement relates, except a loss resulting from willful misfeasance, bad faith or negligence on the part of the Sub-Administrator in the performance of its duties. The Agreement shall continue in effect until December 31, 2004, subject to certain termination provisions. After this initial term, the Agreement will renew each year unless terminated by either party upon not less than ninety (90) days' prior written notice to the other party. Prior to July 16, 2001, the Sub-Administrator assisted the Administrator in connection with the administration of the business and affairs of the predecessor of the Trust pursuant to a Sub-Administration Services Agreement dated July 1, 1996, as amended January 1, 2001 ("Former Agreement"). The Sub-Administrator's duties under the Former Agreement were substantially similar to its duties under the current Sub-Administration Agreement. Effective January 1, 2001 the Administrator paid the Sub-Administrator fees under the Former Agreement at the annual rate noted in the previous paragraph. Prior to January 1, 2001, the Administrator paid the Sub-Administrator fees at the annual rate based on the combined average daily net assets of the Trust and PBHG Insurance Series Fund calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billion. 60 For the fiscal years and periods ended March 31,2000, 2001 and 2002 each of the Funds listed below paid the following administration fees:
- --------------------------------------------------------------------------------------------------------- FUND FEES PAID FEES WAIVED - --------------------------------------------------------------------------------------------------------- 2000 2001 2002 2000 2001 2002 - --------------------------------------------------------------------------------------------------------- PBHG Growth $5,779,119 $7,614,469 $3,878,421 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Emerging Growth $1,281,794 $1,531,835 $779,361 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG New Opportunities $212,839 $226,699 $82,513 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth $229,648 $545,389 $463,261 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Select Equity $763,444 $2,191,169 $839,815 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Core Growth $166,135 $212,142 $95,411 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Limited $171,388 $180,775 $119,327 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 $930,786 $1,379,631 $640,831 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Large Cap Value $56,588 $203,145 $812,104 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value $64,264 $180,277 $566,472 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Small Cap Value $105,382 $272,523 $416,391 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Focused Value $8,592 $67,114 $89,184 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Cash Reserves $292,681 $881,822 $660,927 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Technology & Communications $2,142,577 $3,890,601 $1,170,940 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Global Technology & * $100,6581 $62,306 * * $0 Communications - --------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company $80,569 $124,491 $137,694 $0 $0 $0 - --------------------------------------------------------------------------------------------------------- PBHG Clipper Focus $0(5) $0(5) $336,245(2) $075 $075 $0(2) - --------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity $0(5) $075 $35,462(4) $0(5) $075 $0(4) - --------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation $0(5) $075 $145,980(3) $0(5) $0(5) $073 - --------------------------------------------------------------------------------------------------------- PBHG Special Equity $075 $075 $19,422(3) $0(5) $0(5) $0(3) - --------------------------------------------------------------------------------------------------------- PBHG REIT $0(5) $0(5) $31,65474 $0(5) $0(5) $0(4) - ---------------------------------------------------------------------------------------------------------
* Not in operation during the period. (1) For the period from May 31, 2000 (commencement of operations) through March 31, 2001. (2) For the period April 30, 2001 through March 31, 2002. (3) For the period October 31, 2001 through March 31, 2002. (4) For the period December 31, 2001through March 31, 2002. (5) For the fiscal years ended April 30, 2000 and 2001, the predecessor to PBHG Clipper Focus Fund paid $168,745 and $234,295, respectively, in administration fees. For the fiscal years ended October 31,2000 and 2001, the predecessor to PBHG Special Equity Fund paid $130,854 and $90,911, respectively, in administration fees. For the fiscal years ended December 31,2000 and 2001, the predecessor to PBHG REIT Fund paid $329,374 and $151,299, respectively, in administration fees. Such fees were paid by PBHG REIT Fund to the Trust's Administrator and Sub-Administrator beginning after the close of business December 14, 2001. For the fiscal years ended December 31,2000 and 2001, the predecessor to PBHG Disciplined Equity Fund paid$159,689 and $131,199, respectively, in administration fees. For the fiscal years ended October 31,2000 and 2001, the predecessor to IRA Capital Preservation Fund paid $92,035 and $93,067, respectively, in administration fees. These fees were paid to the predecessor fund's Administrator and Sub-Administrator. Prior to April 1, 2001, UAM Fund Services served as Administrator to the Funds and SEI Investments Mutual Fund Services served as Sub-Administrator to the Funds. Beginning April 1, 2001, SEI Investments Mutual Fund Services became Administrator to the Funds. Going forward such fees will be paid to the Trust's Administrator and Sub-Administrator. 61 OTHER SERVICE PROVIDERS THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534, serves as the transfer agent and dividend disbursing agent for the Trust under a transfer agency agreement with the Trust. The Administrator serves as shareholder servicing agent for the Trust under a shareholder servicing agreement with the Trust. The Administrator also performs development and maintenance services on the web site that references the Trust and the Funds. PBHG Shareholder Services, Inc. ("PBHG SSI"), an affiliate of the Adviser, serves as sub-shareholder servicing agent for the Trust under a sub-shareholder servicing agreement between PBHG SSI and the Administrator. The principal place of business of PBHG SSI is 1400 Liberty Ridge Drive, Wayne, Pennsylvania 19087. From time to time, the Trust may pay amounts to third parties that provide sub-transfer agency and other administrative services relating to the Trust to persons who beneficially own interests in the Trust, such as participants in 401(k) plans. These services may include, among other things, sub-accounting services, answering inquiries relating to the Trust, delivering, on behalf of the Trust, proxy statements, annual reports, updated Prospectuses, other communications regarding the Trust, and related services as the Trust or the beneficial owners may reasonably request. In such cases, the Trust will not compensate such third parties at a rate that is greater than the rate the Trust is currently paying the Trust's Transfer Agent for providing these services to shareholders investing directly in the Trust. CUSTODIAN First Union National Bank (the "Custodian"), 123 S. Broad Street, Philadelphia, Pennsylvania 19109, serves as the custodian for the Trust. Prior to May 1, 2002 the Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60675 served as the custodian for the Global Technology & Communications Fund. The Custodian holds cash, securities and other assets of the Trust as required by the 1940 Act. COUNSEL AND INDEPENDENT ACCOUNTANTS Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Trust. PricewaterhouseCoopers LLP serves as the independent accountants of the Trust. PORTFOLIO TRANSACTIONS The Adviser or Sub-Advisers are authorized to select brokers and dealers to effect securities transactions for the Funds. The Adviser or Sub-Advisers will seek to obtain the most favorable net results by taking into account various factors, including price, commission (if any), size of the transactions and difficulty of executions, the firm's general execution and operational facilities and the firm's risk in positioning the securities involved. While the Adviser or Sub-Advisers generally seek reasonably competitive spreads or commissions, the Trust will not necessarily be paying the lowest spread or commission available. The Adviser or Sub-Advisers seek to select brokers or dealers that offer the Funds best price and execution. Only after a broker or dealer is deemed to be qualified and able to deliver best price and execution on a particular transaction, the Adviser or Sub-Advisers may then consider selecting a broker or dealer for one of the following reasons: (1) receipt of research or brokerage execution products and services and (2) receipt of other services which are of benefit to the Funds. In the case of securities traded in the over-the-counter market, the Adviser of the Sub-Advisers expect normally to seek to select primary market makers. The Adviser or Sub-Advisers may, consistent with the interests of the Funds, select brokers on the basis of the research services they provide to the Adviser or Sub-Advisers. These research services may include advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of 62 securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; providing information on economic factors and trends; assisting in determining portfolio strategy; providing computer software used in security analyses and providing portfolio performance evaluation and technical market analyses. Information so received by the Adviser or Sub-Advisers will be in addition to and not in lieu of the services required to be performed by the Adviser or Sub-advisers under the Advisory and Sub-Advisory Agreements. If, in the judgment of the Adviser or Sub-Adviser, a Fund or other accounts managed by the Adviser or Sub-Adviser will be benefited by supplemental research services, the Adviser or Sub-Advisers are authorized to pay brokerage commissions to a broker furnishing such services which are in excess of commissions which another broker may have charged for effecting the same transaction. The expenses of the Adviser or Sub-Advisers will not necessarily be reduced as a result of the receipt of such information, and such services may not be used exclusively, or at all, with respect to the Fund or account generating the brokerage, and there can be no guarantee that the Adviser or Sub-Advisers will find all of such services of value in advising the Funds. The Adviser or Sub-Advisers are permitted to allocate portfolio transactions, which generate commissions or commission equivalents from certain accounts to brokers or dealers who provide services directly to or for the managed account. In some instances, these services provided by the broker or dealer may help offset expenses that the account would otherwise pay directly. The Funds may request that the Adviser or Sub-Advisers direct the Funds' brokerage to offset certain expenses of the Funds. The Adviser or Sub-Advisers, attempt to fulfill directed brokerage subject to achieving best execution. Although the Adviser or Sub-Advisers attempt to satisfy the Funds' direction requests, there can be no guarantee that they will be able to do so. In certain circumstances, the directed broker may not offer the lowest commission rate. This may cause the Funds to pay a higher rate of commission than might otherwise have been available had the Adviser or Sub-Advisers been able to choose the broker or dealer to be utilized. By directing a portion of a Fund's generated brokerage commissions, the Adviser or Sub-Advisers may not be in a position to negotiate brokerage commissions on the Fund's behalf with respect to transactions effected by the directed broker or dealer, to freely negotiate commission rates or spreads on the basis of the list price and execution, or to commingle or "bunch" orders for purposes of execution with orders for the same securities for other accounts managed by the Adviser or Sub-Advisors. In cases where the Funds have instructed the Adviser or Sub-Advisers to direct brokerage to a particular broker or dealer, orders for the Funds may be placed after brokerage orders for accounts that so not impose such restrictions. The Funds may execute brokerage or other agency transactions through the Distributor, which is a registered broker-dealer, for a commission in conformity with the 1940 Act, the Securities Exchange Act of 1934, as amended, and rules promulgated by the SEC. Under these provisions, the Distributor is permitted to receive and retain compensation for effecting portfolio transactions for the Funds on an exchange if a written contract is in effect between the Distributor and the Fund expressly permitting the Distributor to receive and retain such compensation. These rules further require that commissions paid to the Distributor by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." In addition, the Adviser or Sub-Advisers may direct commission business to one or more designated broker-dealers, including the Distributor, in connection with such broker-dealer's payment of certain of the Fund's or the Trust's expenses. In addition, the Adviser or Sub-Adviser may place orders for the purchase or sale of Fund securities with qualified broker-dealers that refer prospective shareholders to the Funds. The Trustees, including those who are not "interested persons" of the Trust, have adopted procedures for evaluating the 63 reasonableness of commissions paid to the Distributor and will review these procedures periodically. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc. ("NASD") and subject to seeking best execution and such other policies as the Board of Trustees may determine, the Advisers may consider sales of the Fund's shares as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. The Trust's Board of Trustees, the Adviser, the Sub-Advisers and the Distributor have each adopted a Code of Ethics pursuant to rule 17j-1 of the 1940 Act governing personal trading by persons who manage, or who have access to, trading activity by the Funds. The Codes of Ethics allow trades to be made in securities that may be held by a Fund. However, it prohibits a person from taking advantage of Fund trades or from acting on inside information. In addition, the Trust's Board of Trustees reviews and approves the codes of ethics of the Adviser, Sub-Advisers and Distributor and any material amendments thereto. The Board also reviews annual reports on issues raised under the Adviser's, Sub-Adviser's and Distributor's codes of ethics during the previous year. 64 For the fiscal year and periods ended March 31, 2002, 2001and 2000, each of the Funds listed below paid brokerage fees noted in the table below. For certain Funds, the total amount of brokerage commissions paid during the last fiscal year differed materially from the amount paid during the preceding two fiscal years. This difference is due to increased trading resulting from unique buying and selling opportunities in extreme market volatility.
================================================================================================== TOTAL AMOUNT OF BROKERAGE FUND COMMISSIONS PAID ---------------------------------------------------- 2000 2001 2002 - ------------------------------------------------------------------------------------------------- PBHG Growth $1,637,800 $2,264,121 $ 5,546,664 - ------------------------------------------------------------------------------------------------- PBHG Emerging Growth $ 528,249 $ 331,748 $ 1,627,958 - ------------------------------------------------------------------------------------------------- PBHG New Opportunities $ 259,969 $ 84,220 $ 217,756 - ------------------------------------------------------------------------------------------------- PBHG Large Cap Growth $ 289,133 $ 842,087 $ 760,066 - ------------------------------------------------------------------------------------------------- PBHG Select Equity $ 433,169 $1,380,422 $ 2,330,482 - ------------------------------------------------------------------------------------------------- PBHG Core Growth $ 303,739 $ 173,883 $ 190,469 - ------------------------------------------------------------------------------------------------- PBHG Limited $ 34,782 $ 43,800 $ 238,826 - ------------------------------------------------------------------------------------------------- PBHG Large Cap 20 $ 777,791 $1,255,405 $ 1,170,057 - ------------------------------------------------------------------------------------------------- PBHG Large Cap Value $ 858,386 $4,277,442 $15,052,752 - ------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value $ 861,814 $ 927,327 $ 2,890,623 - ------------------------------------------------------------------------------------------------- PBHG Small Cap Value $ 730,543 $1,104,827 $ 1,396,504 - ------------------------------------------------------------------------------------------------- PBHG Focused Value $ 131,357 $ 428,627 $ 721,648 - ------------------------------------------------------------------------------------------------- PBHG Cash Reserves $ 0 $ 0 $ 0 - ------------------------------------------------------------------------------------------------- PBHG Technology & Communications $2,444,485 $4,107,148 $ 3,084,206 - ------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications * $ 183,608 $ 212,602 - ------------------------------------------------------------------------------------------------- PBHG Strategic Small Company $ 237,611 $ 274,874 $ 319,703 - ------------------------------------------------------------------------------------------------- PBHG Clipper Focus $ 0(5) $ 0(5) $ 684,235(2) - ------------------------------------------------------------------------------------------------- PBHG Disciplined Equity $ 0(5) $ 0(5) $ 134,122(4) - ------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation $ 0(5) $ 0(5) $ 0(3) - ------------------------------------------------------------------------------------------------- PBHG Special Equity $ 0(5) $ 0(5) $ 14,473(3) - ------------------------------------------------------------------------------------------------- PBHG REIT $ 0(5) $ 0(5) $ 89,467(4) - -------------------------------------------------------------------------------------------------
65
====================================================================================================================== PERCENT OF AGGREGATE AMOUNT OF TRANSACTIONS AGGREGATE DOLLAR AMOUNT AND PERCENT OF TOTAL INVOLVING PAYMENT FUND AMOUNT OF OF COMMISSIONS TO BROKERAGE COMMISSIONS PAID SEI INVESTMENT TO SEI INVESTMENT DISTRIBUTION CO. DISTRIBUTION CO. ---------------------------------------------------------------------- 2000+ 2001+ 2002+ 2002 - ---------------------------------------------------------------------------------------------------------------------- $114,646 $304,390 $51,597 PBHG Growth 7% 13% 1% 37% - ---------------------------------------------------------------------------------------------------------------------- $ 36,977 $ 57,259 $ 9,820 PBHG Emerging Growth 7% 17% 1% 46% - ---------------------------------------------------------------------------------------------------------------------- $ 2,600 $ 6,928 $ 620 PBHG New Opportunities 1% 8% 0% 16% - ---------------------------------------------------------------------------------------------------------------------- $ 2,891 $ 24,197 $ 3,656 PBHG Large Cap Growth 1% 3% 0% 15% - ---------------------------------------------------------------------------------------------------------------------- $ 21,658 $ 97,469 $ 9,420 PBHG Select Equity 5% 7% 0% 28% - ---------------------------------------------------------------------------------------------------------------------- $ 3,037 $ 6,763 $ 563 PBHG Core Growth 1% 4% 0% 27% - ---------------------------------------------------------------------------------------------------------------------- $ 5,913 $ 8,207 $ 1,323 PBHG Limited 17% 19% 1% 19% - ---------------------------------------------------------------------------------------------------------------------- $ 23,334 $ 56,160 $ 6,668 PBHG Large Cap 20 3% 4% 1% 24% - ---------------------------------------------------------------------------------------------------------------------- $ 4,292 $ 9,297 $ 5,170 PBHG Large Cap Value 0% 0% 0% 21% - ---------------------------------------------------------------------------------------------------------------------- $ 4,309 $ 6,902 $ 4,546 PBHG Mid-Cap Value 0% 1% 0% 22% - ---------------------------------------------------------------------------------------------------------------------- $ 3,653 $ 11,762 $ 3,579 PBHG Small Cap Value 0% 1% 0% 32% - ---------------------------------------------------------------------------------------------------------------------- $ 657 $ 2,127 $ 958 PBHG Focused Value 0% 0% 0% 30% - ---------------------------------------------------------------------------------------------------------------------- $ 0 $ 0 $ 0 PBHG Cash Reserves 0% 0% 0% 0% - ---------------------------------------------------------------------------------------------------------------------- $ 24,445 $ 77,242 $ 8,464 PBHG Technology & Communications 1% 2% 0% 46% - ---------------------------------------------------------------------------------------------------------------------- $ 2,175 $ 395 PBHG Global Technology & Communications * 1%(1) 0% 23% - ---------------------------------------------------------------------------------------------------------------------- $ 1,118 $ 3,194 $ 934 PBHG Strategic Small Company 0% 1% 0% 17% - ---------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus 0% 0% 0%(2) 0%(2) - ---------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity 0% 0% 0%(4) 0%(4) - ---------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation 0% 0% 0%(3) 0%(3) - ---------------------------------------------------------------------------------------------------------------------- PBHG Special Equity 0% 0% 0%(3) 0%(3) - ---------------------------------------------------------------------------------------------------------------------- PBHG REIT 0% 0% 0%(4) 0%(4) - ----------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. + These commissions were paid to SEI Investment Distribution Co. in connection with repurchase agreement transactions. SEI Investment Distribution Co. served as the Funds' distributor prior to July 16, 2001. (1) For the period from May 31, 2000(commencement of operations) through March 31, 2001. (2) For the period April 30, 2001 through March 31, 2002. (3) For the period October 31, 2001through March 31, 2002. 66 (4) For the period December 31, 2001 through March 31, 2002. (5) For the fiscal years ended April 30, 2000 and 2001, the predecessor to PBHG Clipper Focus Fund paid $153,804 and $707,390, respectively, in brokerage fees. For the fiscal years ended October 31, 2000 and 2001, the predecessor to PBHG Special Equity Fund paid $63,970 and $86,900, respectively, in brokerage fees. For the fiscal years ended October 31, 2000 and 2001, the predecessor to PBHG IRA Capital Preservation Fund did not pay brokerage fees. For the fiscal years ended December 31, 2000 and 2001, the predecessor to PBHG REIT Fund paid $316,954 and $406,572, respectively, in brokerage fees. Such fees were paid by PBHG REIT Fund beginning after the close of business December 14, 2001. For the fiscal years ended December 31, 2000 and 2001, the predecessor to PBHG Disciplined Equity Fund paid $475,502 and $481,047, respectively, in brokerage fees. DESCRIPTION OF SHARES The Trust may issue an unlimited number of shares for each Fund and may create additional portfolios of the Trust. Each share of a Fund represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the Fund available for distribution to shareholders. Shareholders have no preemptive rights. All consideration received by the Trust for shares of any Fund and all assets in which such consideration is invested would belong to that Fund and would be subject to the liabilities related thereto. VOTING RIGHTS Each share held entitles a shareholder to one vote for each dollar of net asset value of shares held by the shareholder. Shareholders of each Fund of the Trust will vote separately on matters relating solely to it, such as approval of advisory agreements and changes in fundamental policies, and matters affecting some but not all Funds will be voted on only by shareholders of the affected Funds. Shareholders of all Funds of the Trust will vote together in matters affecting the Trust generally, such as the election of Trustees or selection of accountants. Shareholders of the PBHG Class of the Trust will vote separately on matters relating solely to the PBHG Class and not on matters relating solely to the Advisor Class of the Trust and vice versa. The Trust is not required to hold annual meetings of shareholders but shareholder approval will be sought for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. The Trust Agreement provides that the Trustees of the Trust shall hold office during the existence of the Trust, except as follows: (a) any Trustee may resign or retire; (b) any Trustee may be removed by a vote of at least two-thirds of the outstanding shares of the Trust at a meeting, or at any time by written instrument signed by at least two-thirds of the Trustees and specifying when such removal becomes effective; (c) any Trustee who has become incapacitated and is unable to serve may be removed by a written instrument signed by a majority of the Trustees; or (d) any Trustee who has died shall be terminated upon the date of his death. Under Delaware law, shareholders of a Delaware business trust shall be entitled to the same limitations of liability extended to shareholders of private for-profit corporations; however, there is a remote possibility that shareholders could, under certain circumstances, be held liable for the obligations of the Trust to the extent the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. However, the Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the trustees to all parties, and each party thereto must 67 expressly waive all rights of action directly against shareholders of the Trust. The Agreement and Declaration of Trust and the By-Laws (the "Governing Instruments") provide for indemnification out of the property of a Fund for all losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations and the complaining party was held not to be bound by the liability disclaimer. The Governing Instruments provide indemnification for current and former trustees, officers, employees and agents of the Trust to the fullest extent permitted by Delaware law and other applicable law. Trustees of the Trust may be personally liable to the Trust and its shareholders by reason of willful misfeasance, bad faith, or gross negligence in the performance of their duties or by reason of reckless disregard of their duties as trustees. PURCHASES AND REDEMPTIONS OF SHARES Purchases and redemptions may be made on any day on which the New York Stock Exchange is open for business. Currently, the following holidays are observed by the Trust: New Year's Day, Presidents' Day, Martin Luther King, Jr.'s Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of the Funds are offered on a continuous basis. PURCHASES You may purchase shares of each Fund directly through DST Systems, Inc., the Trust's Transfer Agent. 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. Shares of each Fund are offered only to residents of states in which such shares are eligible for purchase. You may place orders by mail, wire or telephone. If market conditions are extraordinarily active, or if severe weather or other emergencies exist, and you experience difficulties placing orders by telephone, you may wish to consider placing your order by other means, such as mail or overnight delivery. You may also purchase shares of each 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 each Fund's public offering price. Neither the Trust nor the Transfer Agent will be responsible for any loss, liability, cost or expenses for acting upon wire instructions, or telephone instructions that it reasonably believes to be genuine. The Trust and the Transfer Agent will each employ reasonable procedures to confirm that instructions communicated by telephone are genuine including requiring a form of personal identification prior to acting upon instructions received by telephone and recording telephone instructions. Each Fund reserves the right to reject any purchase order or to suspend or modify the continuous offering of its shares. For example, the investment opportunities for small or medium capitalization companies may from time to time be more limited than those in other sectors of the stock market. Therefore, in order to retain adequate investment flexibility, the Adviser may from time to time recommend to the Board of Trustees of the Trust that a Fund which invests extensively in such companies indefinitely discontinue the sale of its shares to new investors (other than Trustees, officers and employees of the Adviser, each of the sub-advisers and their affiliated companies). In such event, the Board of Trustees would determine whether such discontinuance is in the best interests of the applicable Fund and its shareholders. Shares of the 68 PBHG Limited Fund are currently offered only to existing shareholders of the PBHG Class shares of the Fund. Shares of the PBHG New Opportunities Fund are currently offered only to the following: (a) subsequent investments by persons who were shareholders on or before November 12, 1999 (Closing Day); (b) new and subsequent investments made by discretionary advised clients of the Adviser and its affiliates and by employees of the Adviser and its affiliates; and (c) new and subsequent investments by pension, profit-sharing or other employee benefit plans created pursuant to a plan qualified under Section 401 of the Internal Revenue Code (the Code) or plans under Section 457 of the Code, or employee benefit plans created pursuant to Section 403(b) of the Code and sponsored by nonprofit organizations defined under Section 501(c)(3) of the Code. The PBHG Limited Fund and the PBHG New Opportunities Fund may recommence offering their shares to new investors in the future, provided that the Board of Trustees determines that doing so would be in the best interest of the Fund and its shareholders. PBHG IRA Capital Preservation Fund is only available to purchasers in certain retirement plans. See the Prospectus for more details. MINIMUM INVESTMENT The minimum initial investment in each Fund (other than the New Opportunities Fund, Limited Fund and Strategic Small Company Fund) is $2,500 for regular accounts and $2,000 for traditional or Roth IRAs. The minimum initial investment in the New Opportunities Fund is $10,000 and in the Limited Fund and the Strategic Small Company Fund is $5,000 for regular accounts and $2,000 for traditional or Roth IRAs. The New Opportunities and Limited Funds are currently closed to new shareholders. However, investors who establish a Systematic Investment Plan, as described below, with a minimum investment of $25 per month may at the same time open a regular account or traditional or Roth IRA with any Fund with a minimum initial investment of $500. There is no minimum for subsequent investments. The Distributor may waive the minimum initial investment amount at its discretion. No minimum applies to subsequent purchases effected by dividend reinvestment. As described below, subsequent purchases through the Trust's Systematic Investment Plan must be at least $25. INITIAL PURCHASE BY MAIL An account may be opened by mailing a check or other negotiable bank draft payable to PBHG Funds for at least the minimum initial amount specified above for regular and IRA accounts, and a completed Account Application to PBHG FUNDS, P.O. BOX 219534, KANSAS CITY, MISSOURI 64121-9534. The Trust will not accept third-party checks, i.e., a check not payable to PBHG Funds or a Fund for initial or subsequent investments. ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE) You may purchase additional shares by telephoning the Transfer Agent at 1-800-433-0051. THE MINIMUM TELEPHONE PURCHASE IS $1,000, AND THE MAXIMUM IS FIVE TIMES THE NET ASSET VALUE OF SHARES HELD BY THE SHAREHOLDER ON THE DAY PRECEDING SUCH TELEPHONE PURCHASE FOR WHICH PAYMENT HAS BEEN RECEIVED. The telephone purchase will be made at the offering price next computed after the receipt of the call by the Transfer Agent. Payment for the telephone purchase must be received by the Transfer Agent within seven days. If payment is not received within seven days, you will be liable for all losses incurred by the Trust as a result of the cancellation of such purchase. INITIAL PURCHASE BY WIRE If you have an account with a commercial bank that is a member of the Federal Reserve System, you may purchase shares of the Funds by requesting your bank to transmit funds by wire. Before making an initial investment by wire, you must first telephone 1-800-433-0051 to receive an Account Application and be assigned an account number. The Account Application must be 69 received prior to receipt of the wire. Your name, account number, taxpayer identification number or Social Security Number, and address must be specified in the wire. All wires must be received by 2:00 p.m. Eastern Time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for all other Funds to be effective on that day. In addition, an original Account Application should be promptly forwarded to: PBHG Funds, P.O. Box 219534, Kansas City, Missouri 64121-9534. All wires must be sent as follows: United Missouri Bank of Kansas City, N.A.; ABA #10-10-00695; for Account Number 98705-23469; Further Credit: [name of Fund, your name, your social security number or tax id number and your assigned account number]. 70 ADDITIONAL PURCHASES BY WIRE Additional investments may be made at any time through the wire procedures described above, which must include your name and account number. Your bank may impose a fee for investments by wire. PURCHASE BY ACH If you have made this election, shares of each Fund may be purchased via Automated Clearing House ("ACH"). Investors purchasing via ACH should complete the bank information section on the Account Application and attach a voided check or deposit slip to the Account Application. This option must be established on your account at least 15 days prior to your initiating an ACH transaction. The maximum purchase allowed through ACH is $100,000. GENERAL INFORMATION REGARDING PURCHASES A purchase order will be effective as of the day received by the Transfer Agent if the Transfer Agent receives sufficient information to execute the order and receives payment before 2:00 p.m. Eastern Time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for all other Funds. Payment may be made by check or readily available funds. You may purchase shares of each fund directly through the Trust'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. Purchases will be made in full and fractional shares of a Fund calculated to three decimal places. The Trust will not issue certificates representing shares of the Funds. In order for your purchase order to be effective on the day you place your order with your broker-dealer or other financial institution, such broker-dealer or financial institution must (i) receive your order before 2:00 p.m. Eastern Time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for all other Funds and (ii) promptly transmit the order to the Transfer Agent. See "Determination of Net Asset Value" below. The broker-dealer or financial institution is responsible for promptly transmitting purchase orders to the Transfer Agent so that you may receive the same day's net asset value. If a check received for the purchase of shares does not clear, the purchase will be canceled, and you could be liable for any losses or fees incurred by the Trust. The Trust reserves the right to reject a purchase order when the Trust determines that it is not in the best interests of the Fund or its shareholders to accept such an order. REDEMPTIONS Redemption orders received by the Transfer Agent prior to 2:00 p.m. Eastern Time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for each of the other Funds on any Business Day will be effective that day. The redemption price of shares is the net asset value per share of a Fund next determined after the redemption order is effective. Payment of redemption proceeds will be made as promptly as possible and, in any event, within seven days after the redemption order is received, provided, however, that redemption proceeds for shares purchased by check (including certified or cashier's checks) or by ACH will be forwarded only upon collection of payment for such shares; collection of payment may take up to 15 days from the date of purchase. 71 You may also redeem shares of each Fund through certain broker-dealers and other financial institutions at which you maintain an account. Such financial institutions may charge you a fee for this service. In order for your redemption order to be effective on the day you place your redemption order with your broker-dealer or other financial institution, such broker-dealer or financial institution must (i) receive your order before 2:00 p.m. Eastern Time for the Cash Reserves Fund and 4:00 p.m. Eastern Time for each other Fund and (ii) promptly transmit the order to the Transfer Agent. See "Determination of Net Asset Value" below. The financial institution is responsible for promptly transmitting redemption orders to the Transfer Agent so that your shares are redeemed at the same day's net asset value per share. It is currently the Trust's policy to pay all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of securities held by the Funds in lieu of cash. Each PBHG Fund has made an election pursuant to Rule 18f-1 under the 1940 Act by which such Fund has committed itself to pay in cash all requests for redemption by any shareholder of record, limited in amount with respect to each shareholder during any 90-day period to the lesser of (1) $250,000 or (2) one percent of the net asset value of the Fund at the beginning of such 90-day period. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions and will be exposed to market risk until the securities are converted to cash. In addition, in-kind distributions may include illiquid securities which shareholders may be unable to dispose of at the time or price desired. The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which trading on the New York Stock Exchange is restricted, or during the existence of an emergency (as determined by the SEC by rule or regulation) as a result of which disposal or valuation of a Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the New York Stock Exchange, the Adviser, the Administrator, Sub-Administrator, the Transfer Agent and/or the Custodian are not open for business. You may receive redemption payments in the form of a check or by Federal Reserve wire or ACH transfer. The PBHG IRA Capital Preservation Fund charges a 2.00 % redemption fee for redemption of shares held less than twelve months. See the Prospectus for more details. BY MAIL There is no charge for having a check for redemption proceeds mailed to you. BY TELEPHONE Redemption orders may be placed by telephone, provided that this option has been selected. Shares held in IRA accounts are not eligible for this option and must be redeemed by written request. Neither the Trust nor the Transfer Agent will be responsible for any loss, liability, cost or expense for acting upon wire instructions or upon telephone instructions that it reasonably believes to be genuine. The Trust and the Transfer Agent will each employ reasonable procedures to confirm that instructions communicated by telephone are genuine, including requiring a form of personal identification prior to acting upon instructions received by telephone and recording telephone instructions. If reasonable procedures are not employed, the Trust and the Transfer Agent may be liable for any losses due to unauthorized or fraudulent telephone transactions. 72 If market conditions are extraordinarily active, or other extraordinary circumstances exist and you experience difficulties placing redemption orders by telephone, you may wish to consider placing your order by other means, such as mail or overnight delivery. The Trust will not accept redemption requests for an amount greater than $50,000 by telephone instruction, except for cases where the proceeds of the redemption request are transmitted by Federal wire to a pre-established checking account. Such redemption requests must be received in writing and be signature guaranteed. BY WIRE The Transfer Agent will deduct a wire charge, currently $10.00, from the amount of a Federal Reserve wire redemption payment made at the request of a shareholder. Shareholders cannot receive proceeds from redemptions of shares of a Fund by Federal Reserve wire on federal holidays restricting wire transfers. BY ACH The Trust does not charge for ACH transactions; however, proceeds from such transactions will not be posted to your bank account until the second Business Day following the transaction. In order to process a redemption by ACH, banking information must be established on your account at least 15 days prior to initiating a transaction. A voided check or deposit slip must accompany requests to establish this option. CHECK WRITING (CASH RESERVES FUND ONLY) Check writing service is offered free of charge to shareholders of the Cash Reserves Fund. If you have an account balance of $5,000 or more, you may redeem shares by writing checks on your account for $250 or more. To establish this privilege, please call 1-800-433-0051 to request a signature card. Once you have signed and returned a signature card, you will receive a supply of checks. A check may be made payable to any person, and your account will continue to earn dividends until the check clears. Because of the difficulty of determining in advance the exact value of your account, you may not use a check to close your account. Your account will be charged a fee for stopping payment of a check upon your request, or if the check cannot be honored because of insufficient funds or other valid reasons. SIGNATURE GUARANTEES A signature guarantee is a widely accepted way to protect you by verifying the signature on certain redemption requests. The Fund requires signature guarantees to be provided in the following circumstances: (1) written requests for redemptions in excess of $50,000; (2) all written requests to wire redemption proceeds; (3) redemption requests that provide that the redemption proceeds should be sent to an address other than the address of record or to a person other than the registered shareholder(s) for the account; and (4) redemptions requesting proceeds to be sent to a new address or an address that has been changed within the past 30 days; (5) requests to transfer the registration of shares to another owner; (6) written requests to add telephone exchange and telephone redemption options to an account; and (7) changes in previously designated wiring instructions. These requirements may be waived or modified upon notice of shareholders. Signature guarantees can be obtained from any of the following institutions: a national or state bank, a trust company, a federal savings and loan association, or a broker-dealer that is a member of a national securities exchange. The Trust does not accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud. 73 SHAREHOLDER INQUIRIES AND SERVICES OFFERED If you have any questions about the Funds or the shareholder services described below, please call the Trust at 1-800-433-0051. Written inquiries should be sent to DST SYSTEMS, INC., P.O. BOX 219534, KANSAS CITY, MISSOURI 64121-9534. The Trust reserves the right to amend the shareholder services described below or to change the terms or conditions relating to such services upon 60 days' notice to shareholders. You may, however, discontinue any service you select, provided that with respect to the Systematic Investment and Systematic Withdrawal Plans described below, the Trust's Transfer Agent receives your notification to discontinue such service(s) at least ten (10) days before the next scheduled investment or withdrawal date. SYSTEMATIC INVESTMENT AND SYSTEMATIC WITHDRAWAL PLANS For your convenience, the Trust provides plans that enable you to add to your investment or withdraw from your account(s) with a minimum of paperwork. You can utilize these plans by simply completing the appropriate section of the Account Application. (1) SYSTEMATIC INVESTMENT PLAN. The Systematic Investment Plan is a convenient way for you to purchase shares in the Funds at regular monthly or quarterly intervals selected by you. The Systematic Investment Plan enables you to achieve dollar-cost averaging with respect to investments in the Funds despite their fluctuating net asset values through regular purchases of a fixed dollar amount of shares in the Funds. Dollar-cost averaging brings discipline to your investing. Dollar-cost averaging results in more shares being purchased when a Fund's net asset value is relatively low and fewer shares being purchased when a Fund's net asset value is relatively high, thereby helping to decrease the average price of your shares. Investors who establish a Systematic Investment Plan may open an account with a minimum balance of $500. Through the Systematic Investment Plan, shares are purchased by transferring monies (minimum of $25 per transaction per Fund) from your designated checking or savings account. Your systematic investment in the Fund(s) designated by you will be processed on a regular basis at your option beginning on or about either the first or fifteenth day of the month or quarter you select. This Systematic Investment Plan must be established on your account at least 15 days prior to the intended date of your first systematic investment. (2) SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan provides a convenient way for you to receive current income while maintaining your investments in the Fund(s). The Systematic Withdrawal Plan permits you to have payments of $50 or more automatically transferred from your account(s) in the Fund(s) to your designated checking or savings account on a monthly, quarterly, or semi-annual basis. The Systematic Withdrawal Plan also provides the option of having a check mailed to the address of record for your account. In order to start this Plan, you must have a minimum balance of $5,000 in any account using this feature. Your systematic withdrawals will be processed on a regular basis beginning on or about either the first or fifteenth day of the month, quarter or semi-annual period you select. EXCHANGE PRIVILEGES Once payment for your shares has been received (i.e., an account has been established) and your payment has been converted to Federal funds, you may exchange some or all of your shares for shares of the other Funds of the Trust currently available to the public. However, if you own shares of any Fund other than the Cash Reserves Fund, you are limited to four (4) exchanges annually from such Fund to the Cash Reserves Fund. Exchanges are made at net asset value. The Trust reserves the right to change the terms and conditions of the exchange privilege discussed herein, or to terminate the exchange privilege, upon sixty (60) days' notice. Exchanges will be made only after proper instructions in writing or by telephone are received for an established account by the Transfer Agent. 74 The exchange privilege may be exercised only in those states where the shares of the new Fund may legally be sold. TAX-SHELTERED RETIREMENT PLANS A variety of retirement plans, including IRAs, SEP-IRAs, 401(a) Keogh and corporate money purchase pension and profit sharing plans, and 401(k) and 403(b) plans are available to investors in the Fund. (1) TRADITIONAL IRAS. You may save for your retirement and shelter your investment income from current taxes by either: (a) establishing a new traditional IRA; or (b) "rolling-over" to the Trust monies from other IRAs or lump sum distributions from a qualified retirement plan. If you are between 18 and 70 1/2 years of age, you can use a traditional IRA to invest up to $2,000 per year of your earned income in any of the Funds. You may also invest up to $2,000 per year in a spousal IRA if your spouse has no earned income. There is a $10.00 annual maintenance fee charged to traditional IRA investors. If you maintain IRA accounts in more than one Fund of the Trust, you will only be charged one fee. This fee can be prepaid or will be debited from your account if not received by the announced deadline. Please see the information below for changes to the annual contribution limit. (2) ROTH IRAS. Roth IRAs are similar to traditional IRAs in many respects and provide a unique opportunity for qualifying individuals to accumulate investment earnings tax-free. Contributions to Roth IRAs are not tax-deductible (while contributions to traditional IRAs may be), however, if you meet the distribution requirements, you can withdraw your investments without paying any taxes on the earnings. In addition to establishing a new Roth IRA, you may be eligible to convert a traditional IRA into a Roth IRA. Maintenance fees charged for Roth IRAs are similar to those for traditional IRAs. On June 7, 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 was signed into law and makes significant changes to the annual contribution limits. The current $2,000 annual contribution limit that applies to Traditional and Roth IRAs will increase gradually from $3,000 in 2002 to $5,000 in 2008. After 2008, the limit will be adjusted for inflation in $500 increments. Traditional and Roth IRA Contribution Limits: Tax Years Max. Annual Contribution 2001 $2,000 2002-2004 $3,000 2005-2007 $4,000 2008 $5,000 2009-2010 Indexed to Inflation The new tax law will permit individuals age 50 and over to make catch-up contributions to IRAs as follows: Year Limit 2002-2005 $500 2006-2010 $1,000 75 The annual maximum IRA contribution must be made before annual catch-up contributions are made. (3) SEP-IRAS. If you are a self-employed person, you can establish a Simplified Employee Pension Plan ("SEP-IRA"). A SEP-IRA is designed to provide persons with self-employed income (and their eligible employees) with many of the same tax advantages as a Keogh, but with fewer administrative requirements. (4) 401(A) KEOGH AND CORPORATE RETIREMENT PLANS. Both a prototype money purchase pension plan and a profit sharing plan, which may be used alone or in combination, are available for self-employed individuals and their partners and corporations to provide tax-sheltered retirement benefits for individuals and employees. (5) 401(K) PLANS. Through the establishment of a 401(k) plan by a corporation of any size, employees can invest a portion of their wages in the Funds on a tax-deferred basis in order to help them meet their retirement needs. (6) 403(B) PLANS. Section 403(b) plans are custodial accounts which are available to employees of most non-profit organizations and public schools. OTHER SPECIAL ACCOUNTS The Trust also offers the following special accounts to meet your needs: (1) COVERDELL EDUCATION SAVINGS ACCOUNTS ("ESAS) (FORMERLY EDUCATION IRAS). For taxable years beginning after December 31, 1997, Education IRAs were created exclusively for the purpose of paying qualified higher education expenses of designated beneficiaries. The contribution limit that applies to ESAs (formerly Education IRAs) will increase to $2,000 starting in 2002, and in addition to college expenses, amounts may be used for elementary and secondary education expenses, including expenses incurred in the purchase of a computer system, educational software and Internet access for a child. The phase-out range for married couples filing a joint return for making contributions to these plans has been raised to adjusted gross income between $190,000 and $220,000. Like traditional and Roth IRAs, ESAs provide an opportunity for your investment to grow tax-free until distributed. Contributions to an ESA are not tax deductible, however, but withdrawals can be made tax-free if used to pay eligible education expenses. Contributions to an ESA can be made on behalf of a child under age 18. There is a $7.00 annual maintenance fee charged to ESAs. The fee can be prepaid or will be deducted from your account if not received by the announced deadline. (2) UNIFORM GIFT TO MINORS/UNIFORM TRANSFERS TO MINORS. By establishing a Uniform Gift to Minors Account/Uniform Transfers to Minors Account with the Trust you can build a fund for your children's education or a nest egg for their future and, at the same time, potentially reduce your own income taxes. (3) CUSTODIAL AND FIDUCIARY ACCOUNTS. The Trust provides a convenient means of establishing custodial and fiduciary accounts for investors with fiduciary responsibilities. For further information regarding any of the above retirement plans and accounts, please call toll free at 1-800-433-0051. Retirement investors may, however, wish to consult with their own tax counsel or adviser. MINIMUM ACCOUNT SIZE Due to the relatively high cost of maintaining smaller accounts, the Trust will impose an annual $12.00 minimum account charge and reserves the right to redeem shares in any non-retirement account if, as the result of redemptions, the value of any account drops below the minimum initial 76 investment amount, specified above, for each Fund. See "Minimum Investment" and "Systematic Investment and Systematic Withdrawal Plans" for minimum investments. You will be allowed at least 60 days, after notice from the Trust, to make an additional investment to bring your account value up to at least the applicable minimum account size before the annual $12.00 minimum account fee is charged and/or the redemption of a non-retirement account is processed. The applicable minimum account charge will be imposed annually on any such account until the account is brought up to the applicable minimum account size. DETERMINATION OF NET ASSET VALUE The purchase and redemption price of the shares of a class of a Fund is equal to its NAV attributable to such class. Each Fund, other than Cash Reserves Fund, calculates the NAV for each of its share classes by subtracting the liabilities from the total assets attributable to a class and dividing the result by the total number of shares outstanding of such a class. Net asset value per share is determined daily, normally as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on any Business Day. The net asset value per share of each Fund, other than the Cash Reserves Fund, is listed under PBHG in the mutual fund section of most major daily newspapers, including The Wall Street Journal. The securities of each Fund are valued by the Sub-Administrator. The Sub-Administrator will use an independent pricing service to obtain valuations of securities. The pricing service relies primarily on prices of actual market transactions as well as trade quotations. The procedures of the pricing service and its valuations are reviewed by the officers of the Trust under the general supervision of the Trustees. Fund securities listed on an exchange or quoted on a national market system are valued at the last sales price. Other securities are quoted at the last bid price. In the event a listed security is traded on more than one exchange, it is valued at the last sale price on the exchange on which it is principally traded. If there are no transactions in a security during the day, it is valued at the most recent bid price. However, debt securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities, without exclusive reliance upon exchange or over-the-counter prices. Short-term obligations are valued at amortized cost. Securities and other assets held by the Trust for which market quotations are not readily available are valued at their fair value as determined in good faith by the Board of Trustees. Foreign securities are valued on the basis of quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. In addition, if quotations are not readily available, or if the values have been materially affected by events occurring after the closing of a foreign market, assets may be valued by another method that the Board of Trustees believes accurately reflects fair value. The net asset value per share of the PBHG Cash Reserves Fund is calculated by adding the value of securities and other assets, subtracting liabilities and dividing by the number of outstanding shares. Securities will be valued by the amortized cost method which involves valuing a security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the value of the instrument. While this method provides certainty in valuation, it may result in periods during which a security's value, as determined by this method, is higher or lower than the price the Fund would receive if it sold the instrument. Net asset value per share is determined daily as of 2:00 p.m. Eastern Time on each Business Day. During periods of declining interest rates, the daily yield of the PBHG Cash Reserves Fund may tend to be higher than a like computation made by a company with identical 77 investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities. Thus, if the use of amortized cost by the PBHG Cash Reserves Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in the PBHG Cash Reserves Fund would be able to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, and existing investors in the Fund would experience a lower yield. The converse would apply in a period of rising interest rates. The use of amortized cost valuation by the PBHG Cash Reserves Fund and the maintenance of the Fund's net asset value at $1.00 are permitted by regulations set forth in Rule 2a-7 under the 1940 Act, provided that certain conditions are met. Under Rule 2a-7 as amended, a money market portfolio must maintain a dollar-weighted average maturity in the Fund of 90 days or less and not purchase any instrument having a remaining maturity of more than 397 days. In addition, money market funds may acquire only U.S. dollar denominated obligations that present minimal credit risks and that are "eligible securities" which means they are (i) rated, at the time of investment, by at least two nationally recognized security rating organizations (one if it is the only organization rating such obligation) in the highest short-term rating category or, if unrated, determined to be of comparable quality (a "first tier security"), or (ii) rated according to the foregoing criteria in the second highest short-term rating category or, if unrated, determined to be of comparable quality ("second tier security"). The Adviser will determine that an obligation presents minimal credit risks or that unrated instruments are of comparable quality in accordance with guidelines established by the Trustees. The Trustees must approve or ratify the purchase of any unrated securities or securities rated by only one rating organization. In addition, investments in second tier securities are subject to the further constraints that (i) no more than 5% of the Fund's assets may be invested in such securities in the aggregate, and (ii) any investment in such securities of one issuer is limited to the greater of 1% of the Fund's total assets or $1 million. The regulations also require the Trustees to establish procedures which are reasonably designed to stabilize the net asset value per share at $1.00 for the Fund. However, there is no assurance that the Fund will be able to meet this objective. The Fund's procedures include the determination of the extent of deviation, if any, of the Fund's current net asset value per unit calculated using available market quotations from the Fund's amortized cost price per share at such intervals as the Trustees deem appropriate and reasonable in light of market conditions and periodic reviews of the amount of the deviation and the methods used to calculate such deviation. In the event that such deviation exceeds 1/2 of 1%, the Trustees are required to consider promptly what action, if any, should be initiated. If the Trustees believe that the extent of any deviation may result in material dilution or other unfair results to shareholders, the Trustees are required to take such corrective action as they deem appropriate to eliminate or reduce such dilution or unfair results to the extent reasonably practicable. In addition, if any Fund incurs a significant loss or liability, the Trustees have the authority to reduce pro rata the number of shares of that Fund in each shareholder's account and to offset each shareholder's pro rata portion of such loss or liability from the shareholder's accrued but unpaid dividends or from future dividends. Pursuant to IRA Capital Preservation Fund's fair valuation procedures, the Wrapper Agreement's value generally will be equal to the difference between the Book Value and the Market Value (plus accrued interest on the underlying securities) of the applicable Covered Assets. If the Market Value (plus accrued interest on the underlying securities) of the Covered Assets is greater than their Book Value, the Wrapper Agreement's value will be reflected as a liability of the Fund in the amount of the difference, i.e., a negative value, reflecting the potential liability of the Fund to the Wrapper Provider. If the Market Value (plus accrued interest on the underlying securities) of the Covered Assets is less than their Book Value, the Wrapper Agreement's value will be reflected as an asset of the Fund in the amount of the difference, i.e., a positive value, reflecting potential liability of the Wrapper Provider to the Fund. In performing its fair value determination, the Fund's Board expects to consider the creditworthiness and ability of a Wrapper Provider to pay amounts due under the Wrapper Agreement. If the Fund's Board determines that a Wrapper Provider is unable to make such payments or that the Wrapper Provider's creditworthiness has declined, the Board may assign a fair value to the Wrapper Agreement that 78 is less than the difference between Book Value and the Market Value (plus accrued interest on the underlying securities) of the applicable Covered Assets and the Fund might be unable to maintain NAV stability, and the net asset value per share of the Fund may decline. TAXES The following summary of federal income tax consequences is based on current tax laws and regulations, which may be changed by legislative, judicial or administrative action. No attempt has been made to present a detailed explanation of the federal, state or local income tax treatment of the Funds or their shareholders. Accordingly, you are urged to consult your tax advisors regarding specific questions as to federal, state and local income taxes. FEDERAL INCOME TAX The following discussion of federal income tax consequences is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. New legislation, as well as administrative changes or court decisions, may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. QUALIFICATION AS A REGULATED INVESTMENT COMPANY Each Fund is treated as a separate entity for federal income tax purposes and is not combined with the Trust's other Funds. Each Fund intends to continue to qualify as a "regulated investment company" ("RIC") as defined under Subchapter M of the Code. In order to qualify for treatment as a RIC under the Code, each Fund must distribute annually to its shareholders at least the sum of 90% of its net interest income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) ("Distribution Requirement"). In addition to the Distribution Requirement, each Fund must meet several other requirements. Among these requirements are the following: (i) each Fund must derive at least 90% of its gross income in each taxable year from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies and other income (including but not limited to gains from options, futures or forward contracts derived with respect to the Fund's business of investing in such stock, securities or currencies) (the "Income Requirement"); (ii) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. Government securities, securities of other RICs and securities of other issuers, with such securities of other issuers limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of the Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) no more than 25% of the value of a Fund's total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses ((ii) and (iii) collectively, the "Asset Diversification Test"). For purposes of the Asset Diversification Test, it is unclear under present law who should be treated as the issuer of forward foreign currency exchange contracts, of options on foreign currencies, or of foreign currency futures and related options. It has been suggested that the issuer in each case may be the foreign central bank or foreign government backing the particular currency. Consequently, a Fund may find it necessary to seek a ruling from the Internal Revenue Service on this issue or to curtail its trading in forward foreign currency exchange contracts in order to stay within the limits of the Asset Diversification Test. For purposes of the Income Requirement, foreign currency gains (including gains from options, futures or forward contracts on foreign currencies) that are not "directly related" to a Fund's principal business may, under regulations not yet issued, be excluded from qualifying income. 79 If a Fund fails to qualify as a RIC for any taxable year, it will be taxable at regular corporate rates on its net investment income and net capital gain without any deductions for amounts distributed to shareholders. In such an event, all distributions (including capital gains distributions) will be taxable as ordinary dividends to the extent of that Fund's current and accumulated earnings and profits and such distributions will generally be eligible for the corporate dividends-received deduction. PORTFOLIO DISTRIBUTIONS Notwithstanding the Distribution Requirement described above, which requires only that a Fund distribute at least 90% of its annual investment company taxable income and does not require any minimum distribution of net capital gain (the excess of net long-term capital gain over net short-term capital loss), the Fund will be subject to a nondeductible 4% federal excise tax to the extent it fails to distribute by the end of any calendar year 98% of its ordinary income for that year and 98% of its capital gain net income (the excess of short- and long-term capital gains over short- and long-term capital losses) for the one-year period ending on October 31 of that calendar year, plus certain other amounts. Each Fund intends to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax. Treasury regulations permit a RIC in determining its investment company taxable income and undistributed net capital gain for any taxable year to elect to treat all or part of any net capital loss, any net long-term capital loss, or any net foreign currency loss incurred after October 31 as if it had been incurred in the succeeding year. Each Fund will distribute all of its net investment income (including, for this purpose, net short-term capital gain) to shareholders. Dividends from net investment income will be taxable to shareholders as ordinary income whether received in cash or in additional shares. Dividends from net investment income will qualify for the dividends-received deduction for corporate shareholders only to the extent such distributions are derived from dividends paid by domestic corporations. It can be expected that only certain dividends of a Fund will qualify for that deduction. Any net capital gains will be distributed annually and will be taxed to shareholders as long-term capital gains, regardless of how long the shareholder has held shares and regardless of whether the distributions are received in cash or in additional shares. The Funds will make annual reports to shareholders of the federal income tax status of all distributions, including the amount of dividends eligible for the dividends-received deduction. Certain debt securities purchased by the Funds (such as U.S. Treasury STRIPS, defined in "Glossary of Permitted Investments" below) are sold with original issue discount and thus do not make periodic cash interest payments. Each Fund will be required to include as part of its current net investment income the accrued discount on such obligations for purposes of the distribution requirement even though the Fund has not received any interest payments on such obligations during that period. Because a Fund distributes all of its net investment income to its shareholders, the Fund may have to sell portfolio securities to distribute such accrued income, which may occur at a time when the Adviser or sub-adviser would not have chosen to sell such securities and which may result in a taxable gain or loss. Income received on direct U.S. obligations is exempt from income tax at the state level when received directly by a Fund and may be exempt, depending on the state, when received by a shareholder as income dividends from a Fund provided certain state-specific conditions are satisfied. Not all states permit such income dividends to be tax exempt and some require that a certain minimum percentage of an investment company's income be derived from state tax-exempt interest. Each Fund will inform shareholders annually of the percentage of income and distributions derived from direct U.S. obligations. You should consult your tax advisor to determine whether any portion of the income dividends received from a Fund is considered tax exempt in your particular state. 80 Dividends declared by a Fund in October, November or December of any year and payable to shareholders of record on a date in one of those months will be deemed to have been paid by the Fund and received by the shareholders on December 31 of that year, if paid by the Fund at any time during the following January. WITHHOLDING In certain cases, a Fund will be required to withhold, and remit to the U.S. Treasury, 31% of any distributions paid to a shareholder who (i) has failed to provide a correct taxpayer identification number, (ii) is subject to backup withholding by the Internal Revenue Service, or (iii) has not certified to the Fund that such shareholder is not subject to backup withholding; however, The Economic Growth and Tax Relief Reconciliation Act of 2001 reduces the backup withholding rate to 30.5% for distributions made after August 6, 2001 and further provides for a phased reduction to 28% for years 2006 and thereafter. REDEMPTION OR EXCHANGE OF SHARES Upon a redemption or exchange of shares, a shareholder will recognize a taxable gain or loss depending upon his or her basis in the shares. Unless the shares are disposed of as part of a conversion transaction, such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands and will be long-term or short-term, depending upon the shareholder's holding period for the shares. Any loss recognized by a shareholder on the sale of Fund shares held six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares. Any loss recognized on a sale or exchange will be disallowed to the extent that Fund shares are sold and replaced within the 61-day period beginning 30 days before and ending 30 days after the disposition of such shares. In such a case, the basis of the shares acquired will be increased to reflect the disallowed loss. Shareholders should particularly note that this loss disallowance rule applies even where shares are automatically replaced under the dividend reinvestment plan. INVESTMENT IN FOREIGN FINANCIAL INSTRUMENTS Under Code Section 988, gains or losses from certain foreign currency forward contracts or fluctuations in currency exchange rates will generally be treated as ordinary income or loss. Such Code Section 988 gains or losses will increase or decrease the amount of a Fund's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gains. Additionally, if Code Section 988 losses exceed other investment company taxable income during a taxable year, the Fund would not be able to pay any ordinary income dividends, and any such dividends paid before the losses were realized, but in the same taxable year, would be recharacterized as a return of capital to shareholders, thereby reducing the tax basis of Fund shares. HEDGING TRANSACTIONS Some of the forward foreign currency exchange contracts, options and futures contracts that the Funds may enter into will be subject to special tax treatment as "Section 1256 contracts." Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, regardless of whether a taxpayer's obligations (or rights) under such contracts have terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is combined with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. The net amount of such gain or loss for the entire taxable year (including gain or loss arising as a consequence of the year-end deemed sale of such contracts) is deemed to be 60% long-term and 40% short-term gain or loss. 81 However, in the case of Section 1256 contracts that are forward foreign currency exchange contracts, the net gain or loss is separately determined and (as discussed above) generally treated as ordinary income or loss. Generally, the hedging transactions in which the Funds may engage may result in "straddles" or "conversion transactions" for U.S. federal income tax purposes. The straddle and conversion transaction rules may affect the character of gains (or in the case of the straddle rules, losses) realized by the Funds. In addition, losses realized by the Funds on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules and the conversion transaction rules have been promulgated, the tax consequences to the Funds of hedging transactions are not entirely clear. The hedging transactions may increase the amount of short-term capital gain realized by the Funds (and, if they are conversion transactions, the amount of ordinary income) which is taxed as ordinary income when distributed to shareholders. Each Fund may make one or more of the elections available under the Code which are applicable to straddles. If a Fund makes any of the elections, the amount, character, and timing of the recognition of gains or losses from the affected straddle positions will be determined under rules that vary according to the election(s) made. The rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions. Transactions that may be engaged in by certain of the Funds (such as short sales "against the box") may be subject to special tax treatment as "constructive sales" under section 1259 of the Code if a Fund holds certain "appreciated financial positions" (defined generally as any interest (including a futures or forward contract, short sale or option) with respect to stock, certain debt instruments, or partnership interests if there would be a gain were such interest sold, assigned, or otherwise terminated at its fair market value). Upon entering into a constructive sales transaction with respect to an appreciated financial position, a Fund will be deemed to have constructively sold such appreciated financial position and will recognize gain as if such position were sold, assigned, or otherwise terminated at its fair market value on the date of such constructive sale (and will take into account any gain for the taxable year which includes such date). Because application of the straddle, conversion transaction and constructive sale rules may affect the character of gains or losses, defer losses and/or accelerate the recognition of gains or losses from the affected straddle or investment positions, the amount which must be distributed to shareholders and which will be taxed to shareholders as ordinary income or long-term capital gain may be increased or decreased as compared to a fund that did not engage in such transactions. Requirements relating to each Fund's tax status as a RIC may limit the extent to which a Fund will be able to engage in transactions in options and futures contracts. STATE TAXES Distributions by a Fund to shareholders and the ownership of shares may be subject to state and local taxes. 82 FOREIGN SHAREHOLDERS Dividends from a Fund's investment company taxable income and distributions constituting returns of capital paid to a nonresident alien individual, a foreign trust or estate, foreign corporation, or foreign partnership (a "foreign shareholder") generally will be subject to U.S. withholding tax at a rate of 30% (or lower treaty rate) upon the gross amount of the dividend. Foreign shareholders may be subject to U.S. withholding tax at a rate of 30% on the income resulting from a Fund's Foreign Tax Credit Election, but may not be able to claim a credit or deduction with respect to the withholding tax for the foreign taxes treated as having been paid by them. A foreign shareholder generally will not be subject to U.S. taxation on gain realized upon the redemption or exchange of shares of a Fund or on capital gain dividends. In the case of a foreign shareholder who is a nonresident alien individual, however, gain realized upon the sale or redemption of shares of a Fund and capital gain dividends ordinarily will be subject to U.S. income tax at a rate of 30% (or lower applicable treaty rate) if such individual is physically present in the U.S. for 183 days or more during the taxable year and certain other conditions are met. In the case of a foreign shareholder who is a nonresident alien individual, the Funds may be required to withhold U.S. federal income tax at a rate of 31% unless proper notification of such shareholder's foreign status is provided (however, this rate is reduced to 30.5% after August 6, 2001 and further reduced in phases to 28% for years 2006 and thereafter under The Economic Growth and Tax Relief Reconciliation Act of 2001). Notwithstanding the foregoing, if distributions by the Funds are effectively connected with a U.S. trade or business of a foreign shareholder, then dividends from such Fund's investment company taxable income, capital gains, and any gains realized upon the sale of shares of the Fund will be subject to U.S. income tax at the graduated rates applicable to U.S. citizens or domestic corporations. Transfers by gift of shares of a Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax. An individual who, at the time of death, is a foreign shareholder will nevertheless be subject to U.S. federal estate tax with respect to shares at the graduated rates applicable to U.S. citizens and residents, unless a treaty exception applies. In the absence of a treaty, there is a $13,000 statutory estate tax credit. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisors with respect to the particular tax consequences to them of an investment in any of the Funds. MISCELLANEOUS CONSIDERATIONS The foregoing general discussion of federal income tax consequences is based on the Code and the regulations issued thereunder as in effect on July 1, 2002. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect with respect to the transactions contemplated herein. Prospective shareholders are encouraged to consult their tax advisors as to the consequences of these and other U.S., state, local, and foreign tax rules affecting investments in the Fund. 83 PERFORMANCE ADVERTISING From time to time, each Fund may advertise its yield and total return. These figures will be based on historical earnings and are not intended to indicate future performance. No representation can be made regarding actual future yields or returns. For Funds other than the Cash Reserves Fund, yield refers to the annualized income generated by an investment in the Fund over a specified 30-day period. The yield is calculated by assuming that the same amount of income generated by the investment during that period is generated in each 30-day period over one year and is shown as a percentage of the investment. Each Fund may periodically compare its performance to that of other mutual funds tracked by mutual fund rating services (such as Lipper Analytical Services, Inc.) or by financial and business publications and periodicals, broad groups of comparable mutual funds, unmanaged indices which may assume investment of dividends but generally do not reflect deductions for administrative and management costs and other investment alternatives. Each Fund may quote services such as Morningstar, Inc., a service that ranks mutual funds on the basis of risk-adjusted performance, and Ibbotson Associates of Chicago, Illinois, which provides historical returns of the capital markets in the U.S. Each Fund may use long-term performance of these capital markets to demonstrate general long-term risk versus reward scenarios and could include the value of a hypothetical investment in any of the capital markets. Each Fund may also quote financial and business publications and periodicals as they relate to fund management, investment philosophy, and investment techniques. Each Fund may quote various measures of volatility and benchmark correlation in advertising and may compare these measures to those of other funds. Measures of volatility attempt to compare historical share price fluctuations or total returns to a benchmark while measures of benchmark correlation indicate how valid a comparative benchmark might be. Measures of volatility and correlation are calculated using averages of historical data and cannot be calculated precisely. The performance of each Fund's Advisor Class shares will be lower than that of the Fund's PBHG Class shares because of the additional Rule 12b-1 shareholder servicing expenses charged to Advisor Class shares. COMPUTATION OF YIELD From time to time the PBHG Cash Reserves Fund may advertise their "current yield" and "effective compound yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the PBHG Cash Reserves Fund refer to the income generated by an investment in the PBHG Cash Reserves Fund over a seven-day period (which period will be stated in the advertisement). This income is then "annualized." That is, the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by an investment in the PBHG Cash Reserves Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. The current yield of the PBHG Cash Reserves Fund will be calculated daily based upon the seven days ending on the date of calculation ("base period"). The yield is computed by determining the net change (exclusive of capital changes and income other than investment income) in the value of a hypothetical pre-existing shareholder account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing such net change by the value of the account at the beginning of the same period to obtain the base period return and multiplying the result by (365/7). Realized and unrealized gains and losses are not included in the calculation of the yield. The effective compound yield of the PBHG Cash Reserves Fund are determined by computing the net change, exclusive of capital 84 changes and income other than investment income, in the value of a hypothetical pre-existing account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing the difference by the value of the account at the beginning of the base period to obtain the base period return, and then compounding the base period return by adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: Effective Yield = ((Base Period Return + 1) 365/7) - 1. The current and the effective yields reflect the reinvestment of net income earned daily on portfolio assets. The yield of the PBHG Cash Reserves Fund fluctuate, and the annualization of a week's dividend is not a representation by the Fund as to what an investment in the PBHG Cash Reserves Fund will actually yield in the future. Actual yields will depend on such variables as asset quality, average asset maturity, the type of instruments the PBHG Cash Reserves Fund invest in, changes in interest rates on money market instruments, changes in the expenses of the PBHG Cash Reserves Fund and other factors. Yields are one basis upon which investors may compare the PBHG Cash Reserves Fund with other money market and stable asset value funds; however, yields of other money market and stable asset value funds and other investment vehicles may not be comparable because of the factors set forth above and differences in the methods used in valuing portfolio instruments. For the 7-day period ended March 31, 2002, the yield for the PBHG Cash Reserves Fund was 1.15% and the 7-day effective yield was 1.16%. CALCULATION OF TOTAL RETURN From time to time, each of the Funds may advertise its total returns. The total return refers to the average compounded rate of return to a hypothetical investment for designated time periods (including, but not limited to, the period from which the Fund commenced operations through the specified date). In particular, average annual total return will be calculated according to the following formulas. AVERAGE ANNUAL TOTAL RETURN (BEFORE TAXES) QUOTATION A Fund's average annual total return (before taxes) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It does NOT reflect the deduction of federal income taxes on distributions or redemption proceeds. Average annual total returns (before taxes) are calculated by determining the growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (before taxes) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (before taxes) into income results and capital gains or losses. 85 The standard formula for calculating average annual total return (before taxes) is: P(1+T)(n) = ERV, where P = a hypothetical initial payment of $1,000; T = average annual total return (before taxes); n = number of years; and ERV = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5- or 10- year periods, (or since inception, if applicable) at the end of the 1-, 5-, or 10-year periods (or since inception, if applicable), before taxes. Standardized average annual total return (before taxes) for PBHG and Advisor Class shares do not reflect a deduction of any sales charge, since these classes are sold and redeemed at net asset value. As of the date of this Statement of Additional Information, the Advisor Class of Emerging Growth, Select Equity, Core Growth, Limited, Strategic Small Company, New Opportunities, Focused Value, Global Technology & Communications, Clipper Focus, Special Equity, IRA Capital Preservation and Disciplined Equity Funds is not currently offered. AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS) QUOTATION A Fund's average annual total return (after taxes on distributions) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on distributions, but not on redemption proceeds. Average annual total returns (after taxes on distributions) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (after taxes on distributions) into income results and capital gains or losses. The standard formula for calculating average annual total return (after taxes on distributions) is: P(1+T)(n) = ATV(D), where P = a hypothetical initial payment of $1,000; T = average annual total return (after taxes on distributions); n = number of years; and ATV(D) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5- or 10-year periods (or since inception, if applicable) at the end of the 1-, 5- or 10 year periods (or since inception, if applicable), after taxes on fund distributions but not after taxes on redemption. Standardized average annual total return (after taxes on distributions) for PBHG and Advisor Class shares do not reflect a deduction of any sales charge, since these classes are sold and redeemed at net asset value. As of the date of this Statement of Additional Information, the Advisor Class of Emerging Growth, Select Equity, Core Growth, Limited, Strategic Small Company, New Opportunities, Focused Value, Global Technology & Communications, Clipper Focus, Special Equity, IRA Capital Preservation and Disciplined Equity Funds is not currently offered. 86 The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period. Taxes due on a Fund's distributions are calculated by applying to each component of the distribution (E.G., ordinary income, short-term capital gain, long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax. AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION) QUOTATION A Fund's average annual total return (after taxes on distributions and redemption) shows its overall change in value, including changes in share price and assuming all the Fund's dividends and capital gain distributions are reinvested. It reflects the deduction of federal income taxes on both distributions and redemption proceeds. Average annual total returns (after taxes on distributions and redemption) are calculated by determining the after-tax growth or decline in value of a hypothetical investment in a Fund over a stated period of time, and then calculating the annually compounded percentage rate that would have produced the same result if the rate of growth or decline in value had been constant over the period. Because average annual total returns (after taxes on distributions and redemption) tend to even out variations in the Fund's return, investors should recognize that such returns are not the same as actual year-by-year results. To illustrate the components of overall performance, a Fund may separate its average annual total returns (after taxes on distributions and redemption) into income results and capital gains or losses. The standard formula for calculating average annual total return (after taxes on distributions and redemption) is: P(1+T)(n) = ATV(DR) P = a hypothetical initial payment of $1,000; T = average annual total return (after taxes on distributions and redemption); n = number of years; and ATV(DR) = ending value of a hypothetical $1,000 payment made at the beginning of the 1-, 5- or 10-year period (or since inception, if applicable) at the end of the 1-, 5-, or 10-year periods (or since inception, if applicable), after taxes on fund distributions and redemption. Standardized average annual total return (after taxes on distributions and redemption) for PBHG and Advisor Class shares do not reflect a deduction of any sales charge, since these classes are sold and redeemed at net asset value. As of the date of this Statement of Additional Information, the Advisor Class of Emerging Growth, Select Equity, Core Growth, Limited, Strategic Small Company, New Opportunities, Focused Value, Global Technology & Communications, Clipper Focus, Special Equity, IRA Capital Preservation and Disciplined Equity Funds is not currently offered. The after-tax returns assume all distributions by a Fund, less the taxes due on such distributions, are reinvested at the price stated in the prospectus on the reinvestment dates during the period. Taxes due on a Fund's distributions are calculated by applying to each component of the 87 distribution (E.G., ordinary income, short-term capital gain, long-term capital gain) the highest corresponding individual marginal federal income tax rates in effect on the reinvestment date. The taxable amount and tax character of each distribution is as specified by the Fund on the dividend declaration date, but reflects any subsequent recharacterizations of distributions. The effect of applicable tax credits, such as the foreign tax credit, are also taken into account. The calculations only reflect federal taxes, and thus do not reflect state and local taxes or the impact of the federal alternative minimum tax. The ending values for each period are determined by subtracting capital gains taxes resulting from the redemption and adding the tax benefit from capital losses resulting from the redemption. The capital gain or loss upon redemption is calculated by subtracting the tax basis from the redemption proceeds. Capital gains taxes (or the benefit resulting from tax losses) are calculated using the highest federal individual capital gains tax rate for gains of the appropriate character (E.G., short-term or long-term) in effect on the redemption date and in accordance with federal tax law applicable on the redemption date. The calculations assume that a shareholder may deduct all capital losses in full. The basis of shares acquired through the $1,000 initial investment are tracked separately from subsequent purchases through reinvested distributions. The basis for a reinvested distribution is the distribution net of taxes paid from the distribution. Tax basis is adjusted for any distributions representing returns of capital and for any other tax basis adjustments that would apply to an individual taxpayer. The amount and character of capital gain or loss upon redemption is determined separately for shares acquired through the $1,000 initial investment and each subsequent purchase through reinvested distributions. The tax character is determined by the length of the measurement period in the case of the initial $1,000 investment and the length of the period between reinvestment and the end of the measurement period in the case of reinvested distributions. 88 Average annual total returns for each of the Funds are shown below. Aggregate total returns for the Funds since inception are also shown below. TOTAL RETURN AS OF MARCH 31, 2002 BEFORE TAXES
================================================================================================================ Aggregate Total Return as of Average Annual Total Return as of March 31, 2002 March 31, 2002 FUND ------------------------------------------------------------------------- One Year Five Year Ten Year Since Inception Since Inception - ---------------------------------------------------------------------------------------------------------------- PBHG Growth (Advisor)(1) -13.05% 1.59% 11.10% 13.07% 638.94% - ---------------------------------------------------------------------------------------------------------------- PBHG Growth (PBHG)(1) -12.88% 1.82% 11.25% 13.16% 648.43% - ---------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth(2) -10.84% -3.66% * 7.45% 88.18% - ---------------------------------------------------------------------------------------------------------------- PBHG New Opportunities(13) -5.98% * * 46.31% 229.19% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (Advisor)(3) -14.29% 15.01% * 16.82% 196.31% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (PBHG)(3) -14.10% 15.07% * 16.86% 197.06% - ---------------------------------------------------------------------------------------------------------------- PBHG Select Equity(4) -14.45% 11.19% * 15.87% 179.81% - ---------------------------------------------------------------------------------------------------------------- PBHG Core Crowth(5) -5.14% 2.18% * 2.29% 15.20% - ---------------------------------------------------------------------------------------------------------------- PBHG Limited(6) 1.17% 14.38% * 10.52% 77.86% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (Advisor)(7) -15.17% 17.58% * 14.72% 108.07% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (PBHG)(7) -14.94% 17.65% * 14.79% 108.76% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value (Advisor)(8) -4.15% 17.18% * 16.54% 123.35% - ---------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value(PBHG)(8) -3.86% 17.28% * 16.64% 124.36% - ---------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (Advisor)(11) 8.86% * * 24.67% 195.66% - ---------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (PBHG)(11) 9.00% * * 24.70% 196.04% - ---------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (Advisor)(12) 11.53% * * 19.76% 142.71% - ---------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (PBHG)(12) 11.74% * * 19.82% 143.30% - ---------------------------------------------------------------------------------------------------------------- PBHG Focused Value(13) -6.18% * * 19.23% 73.44% - ---------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (Advisor)(9) -25.13% 5.34% * 10.69% 93.57% - ---------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (PBHG)(9) -24.92% 5.39% * 10.74% 94.09% - ---------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company(10) 10.68% 16.63% * 13.14% 91.24% - ---------------------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications(14) -23.23% * * -41.01% -62.00% - ---------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus(15) 20.82% * * 21.82% 101.72% - ---------------------------------------------------------------------------------------------------------------- PBHG Special Equity(16) 14.33% * * 11.86% 63.85% - ---------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation(17) 5.53% * * 6.31% 17.11% - ---------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity(18) 2.52% 12.70% * 14.15% 218.25% - ---------------------------------------------------------------------------------------------------------------- PBHG REIT (Advisor)(19) 24.69% 8.01% 12.43% 9.32% 219.82% - ---------------------------------------------------------------------------------------------------------------- PBHG REIT (PBHG)(19) 25.25% 8.53% 12.76% 9.57% 229.39% ================================================================================================================
89 TOTAL RETURN AS OF MARCH 31, 2002 AFTER TAXES ON DISTRIBUTIONS
===================================================================================================================== Aggregate Total Return as of Average Annual Total Return as of March 31, 2002 March 31, 2002 - --------------------------------------------------------------------------------------------------------------------- One Year Five Year Ten Year Since Inception Since Inception - --------------------------------------------------------------------------------------------------------------------- PBHG Growth (Advisor)(1) -13.05% 0.76% 9.88% 6.20% 166.29% - --------------------------------------------------------------------------------------------------------------------- PBHG Growth (PBHG)(1) -12.88% 0.99% 10.03% 6.28% 169.82% - --------------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth(2) -10.84% -4.25% * 6.37% 72.19% - --------------------------------------------------------------------------------------------------------------------- PBHG New Opportunities(13) -5.98% * * 37.93% 173.77% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (Advisor)(3) -14.29% 13.11% * 15.23% 169.43% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (PBHG)(3) -14.10% 13.17% * 15.27% 170.11% - --------------------------------------------------------------------------------------------------------------------- PBHG Select Equity(4) -14.45% 10.17% * 14.88% 163.79% - --------------------------------------------------------------------------------------------------------------------- PBHG Core Crowth(5) -5.14% 1.38% * 1.64% 10.74% - --------------------------------------------------------------------------------------------------------------------- PBHG Limited(6) 0.89% 10.78% * 7.47% 51.40% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (Advisor)(7) -15.17% 15.67% * 12.97% 91.69% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (PBHG)(7) -14.94% 15.75% * 13.04% 92.32% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value (Advisor)(8) -4.16% 12.88% * 12.46% 85.25% - --------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value(PBHG)(8) -3.92% 12.97% * 12.55% 85.97% - --------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (Advisor)(11) 8.86% * * 19.07% 136.09% - --------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (PBHG)(11) 9.00% * * 19.11% 136.39% - --------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (Advisor)(12) 11.53% * * 18.23% 127.94% - --------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (PBHG)(12) 11.74% * * 18.29% 128.49% - --------------------------------------------------------------------------------------------------------------------- PBHG Focused Value(13) -6.48% * * 17.76% 66.85% - --------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (Advisor)(9) -25.13% 3.44% * 9.02% 75.41% - --------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (PBHG)(9) -24.92% 3.49% * 9.07% 75.89% - --------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company(10) 10.68% 14.06% * 10.76% 71.03% - --------------------------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications(14) -23.23% * * -41.01% -61.99% - --------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus(15) 15.70% * * 19.44% 88.08% - --------------------------------------------------------------------------------------------------------------------- PBHG Special Equity(16) 12.27% * * 10.87% 57.56% - --------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation(17) 3.20% * * 3.73% 9.92% - --------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity(18) 2.30% 10.41% * 11.20% 153.17% - --------------------------------------------------------------------------------------------------------------------- PBHG REIT (Advisor)(19) 18.57% 4.09% 8.71% 4.78% 84.09% - --------------------------------------------------------------------------------------------------------------------- PBHG REIT (PBHG)(19) 18.99% 5.20% 9.37% 5.27% 95.54% =====================================================================================================================
90 TOTAL RETURN AS OF MARCH 31, 2002 AFTER TAXES ON DISTRIBUTIONS AND SALE OF FUND SHARES
==================================================================================================================== Aggregate Total Return as of Average Annual Total Return as of March 31, 2002 March 31, 2002 - -------------------------------------------------------------------------------------------------------------------- One Year Five Year Ten Year Since Inception Since Inception - -------------------------------------------------------------------------------------------------------------------- PBHG Growth (Advisor)(1) -8.01% 1.75% 9.32% 5.84% 152.22% PBHG Growth (PBHG)(1) -7.91% 1.93% 9.44% 5.92% 155.05% - -------------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth(2) -6.66% -2.75% * 6.01% 67.17% - -------------------------------------------------------------------------------------------------------------------- PBHG New Opportunities(13) -3.67% * * 36.68% 166.04% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (Advisor)(3) -8.77% 12.58% * 14.30% 154.62% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth (PBHG)(3) -8.66% 12.63% * 14.34% 155.17% - -------------------------------------------------------------------------------------------------------------------- PBHG Select Equity(4) -8.87% 9.60% * 13.69% 145.22% - -------------------------------------------------------------------------------------------------------------------- PBHG Core Crowth(5) -3.16% 1.79% * 1.87% 12.31% - -------------------------------------------------------------------------------------------------------------------- PBHG Limited(6) 1.01% 11.57% * 8.36% 58.74% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (Advisor)(7) -9.31% 15.23% * 12.73% 89.56% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 (PBHG)(7) -9.17% 15.29% * 12.79% 90.07% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value (Advisor)(8) -2.53% 11.97% * 11.58% 77.70% - -------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value(PBHG)(8) -2.37% 12.05% * 11.65% 78.32% - -------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (Advisor)(11) 5.44% * * 17.45% 120.63% - -------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value (PBHG)(11) 5.53% * * 17.47% 120.88% - -------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (Advisor)(12) 7.08% * * 15.75% 105.39% - -------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value (PBHG)(12) 7.21% * * 15.80% 105.83% - -------------------------------------------------------------------------------------------------------------------- PBHG Focused Value(13) -3.78% * * 15.07% 55.20% - -------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (Advisor)(9) -15.43% 4.56% * 9.07% 75.97% - -------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications (PBHG)(9) -15.30% 4.61% * 9.11% 76.35% - -------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company(10) 6.56% 12.87% * 9.96% 64.59% - -------------------------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications(14) -14.26% * * -31.18% -49.59% - -------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus(15) 13.03% * * 16.92% 74.33% - -------------------------------------------------------------------------------------------------------------------- PBHG Special Equity(16) 9.48% * * 9.48% 49.05% - -------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation(17) 3.35% * * 3.76% 10.00% - -------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity(18) 1.54% 9.31% * 10.37% 137.22% - -------------------------------------------------------------------------------------------------------------------- PBHG REIT (Advisor)(19) 16.34% 4.49% 8.40% 4.68% 81.63% - -------------------------------------------------------------------------------------------------------------------- PBHG REIT (PBHG)(19) 16.67% 5.58% 9.06% 5.15% 92.75% ====================================================================================================================
91 * The Fund was not in operation for the full period. (1) The PBHG Growth Fund commenced operations on December 19, 1985. The Advisor Class shares of this Fund commenced operations on August 19, 1996. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was -1.95% and the aggregate return was -10.46%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were -2.66% and -1.16%, respectively. (2) The PBHG Emerging Growth Fund commenced operations with its predecessor on June 14, 1993. (3) The PBHG Large Cap Growth Fund commenced operations on April 5, 1995. The Advisor Class shares of this Fund commenced operations on December 29, 2000. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was -26.94% and the aggregate return was -32.57%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on 92 distributions and sale of Fund shares from its inception date to March 31, 2002 were -26.95% and -21.38%, respectively. (4) The PBHG Select Equity Fund commenced operations on April 5, 1995. (5) The PBHG Core Growth Fund commenced operations on December 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. The Advisor Class shares of this Fund commenced operations on December 29, 2000. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was -33.50% and the aggregate return was -40.08%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were -33.50% and -26.50%, respectively. (8) The PBHG Large Cap Value Fund commenced operations on December 31, 1996. The Advisor Class shares of this Fund commenced operations on December 29, 2000. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was -3.32% and the aggregate return was -4.15%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were -3.33% and -2.66%, respectively. (9) The PBHG Technology & Communications Fund commenced operations on September 29, 1995. The Advisor Class shares of this Fund commenced operations on December 29, 2000. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was -49.08% and the aggregate return was -57.14%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were - 49.09% and -38.53%, respectively. (10) The PBHG Strategic Small Company Fund commenced operations on December 31, 1996. (11) The PBHG Mid-Cap Value Fund commenced operations on May 1, 1997. The Advisor Class shares of this Fund commenced operations on October 31, 2001. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The aggregate total return of the Advisor Class before taxes from its inception date to March 31, 2002 was 13.09%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were 13.09% and 8.04%, respectively. (12) The PBHG Small Cap Value Fund commenced operations on May 1, 1997. The Advisor Class shares of this Fund commenced operations on December 29, 2000. The performance shown for the Advisor Class prior to its inception is based on the performance and expenses of the PBHG Class Shares. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was 3.75% and the aggregate return was 4.73%. The average annual 93 returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were 3.75% and 3.00%, respectively. (13) The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced operations on February 12, 1999. (14) The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. (15) Data includes performance of the PBHG Clipper Focus Fund's predecessor, which commenced operations on September 10, 1998. (16) Data includes performance of the PBHG Special Equity Fund's predecessor, the NWQ Special Equity Portfolio Institutional Class, which commenced operations on November 4, 1997. (17) Data includes performance of the PBHG IRA Capital Preservation Fund's predecessor, the IRA Capital Preservation Portfolio, which commenced operations on August 31, 1999. (18) Data includes performance of the PBHG Disciplined Equity Fund's predecessor, the Analytic Enhanced Equity Fund, which commenced operations on July 1, 1993. (19) Prior to December 17, 2001, data includes performance of the Fund's predecessor classes, whose inception date was March 13, 1989 for the PBHG Class and May 15, 1995 for the Advisor Class. The Advisor Class of the Fund's predecessor carried a maximum front-end sales charge of 4.75% and a 12b-1 fee of 0.50% of average daily net assets. The PBHG REIT Fund Advisor Class does not carry a sales charge and carries a 12b-1 fee of 0.25% of average daily net assets. Returns shown in the table have been adjusted it to reflect the elimination of the front-end sales charge. No adjustment has been made to reflect the lower 12b-1 fee. The Class' returns beginning December 17, 2001 reflect the 0.25% 12b-1 fee. The average annual total return of the Advisor Class before taxes from its inception date to March 31, 2002 was 13.16% and the aggregate return was 133.93%. The average annual returns of the Advisor Class after taxes on distributions and after taxes on distributions and sale of Fund shares from its inception date to March 31, 2002 were 9.42% and 8.90%, respectively. Quotations of total return, which are not annualized, represent historical earnings and asset value fluctuations. Total return is based on past performance and is not a guarantee of future results. 93 FINANCIAL STATEMENTS PricewaterhouseCoopers LLP ("PwC") located at Two Commerce Square 2001 Market Street Philadelphia, Pennsylvania, serves as the independent accountants for the Trust. PwC provides audit services, tax return review and assistance and consultation in connection with review of SEC filings. The audited financial statements for each Fund for the fiscal year ended March 31, 2002 and the report of the independent accountants for that year are included in the Trust's Annual Report to Shareholders dated March 31, 2002. The Annual Report, except for page 1 thereof, is incorporated herein by reference and made part of this Statement of Additional Information. The financial statements noted above for each Fund have been audited by PwC and have been incorporated by reference into the Statement of Additional Information in reliance on the report of PwC, independent accountants, given on the authority of that firm as experts in auditing and accounting. 94 CREDIT RATINGS MOODY'S INVESTORS SERVICE, INC. PREFERRED STOCK RATINGS aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future. a An issue which is rated "a" is considered to be an upper-medium-grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. baa An issue that which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments. c This is the lowest-rated class of preferred or preference stock. Issues so rated can thus be regarded as having extremely poor prospects of ever attaining any real investment standing. plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in each rating minus (-) classifications "aa" through "bb" The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. 95 Aa Bonds which are rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. A Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment some time in the future. Baa Bonds which are rated "Baa" are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba Bonds which are rated "Ba" are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B Bonds which are rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa Bonds which are rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca Bonds which are rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C Bonds which are rated "C" are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Con. (...) (This rating applies only to U.S. Tax-Exempt Municipals) Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of the condition. Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS GLOBALLY Moody's short-term issue ratings are opinions of the ability of issuers to honor senior financial obligations and contracts. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: 96 Prime-1 Issuers rated Prime-1 (or supporting institution) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: o Leading market positions in well-established industries. o High rates of return on funds employed. o Conservative capitalization structure with moderate reliance on debt and ample asset protection. o Broad margins in earnings coverage of fixed financial charges and high internal cash generation. o Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime 3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligation. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Not Prime Issuers rated Not Prime do not fall within any of the Prime rating categories. STANDARD & POOR'S RATINGS SERVICES LONG-TERM ISSUE CREDIT RATINGS Issue credit ratings are based, in varying degrees, on the following considerations: 1. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; 2. Nature of and provisions of the obligation; 3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights. The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. Accordingly, in the case of junior debt, the rating may not conform exactly with the category definition. AAA An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA An obligation rated 'AA' differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. 97 BBB An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated 'BB', 'B', 'CCC' , 'CC' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major risk exposures to adverse conditions. BB An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. B An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC An obligation rated 'CCC' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligations. CC An obligation rated 'CC' is currently highly vulnerable to nonpayment. C A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A 'C' will also be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. D An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. SHORT-TERM ISSUE CREDIT RATINGS A-1 A short-term obligation rated 'A-1' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3 A short-term obligation rated 'A-3' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. 98 B A short-term obligation rated 'B' is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C A short-term obligation rated 'C' is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D A short-term obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized. FITCH RATINGS INTERNATIONAL LONG-TERM CREDIT RATINGS INVESTMENT GRADE AAA Highest credit quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA Very high credit quality. "AA" ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A High credit quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. BBB Good credit quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category. SPECULATIVE GRADE BB Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B Highly speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC,CC,C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A "CC" rating indicates that default of some kind appears probable. "C" ratings signal imminent default. 99 DDD,DD,D Default. The ratings of obligations in this category are based on their prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines. "DDD" obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest. "D" indicates potential recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process. Entities rated "DD" and "D" are generally undergoing a formal reorganization or liquidation process; those rated "DD" are likely to satisfy a higher portion of their outstanding obligations, while entities rated "D" have a poor prospect for repaying all obligations. INTERNATIONAL SHORT-TERM CREDIT RATINGS F1 Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature. F2 Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. F3 Fair credit quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade. B Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and economic conditions. C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. D Default. Denotes actual or imminent payment default. NOTES "+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the `AAA' long-term rating category, to categories below `CCC', or to short-term ratings other than `F1'. Fitch uses the same ratings for municipal securities as described above for Institutional short-Term Credit Ratings. 100 APPENDIX II ANNUAL REPORT MARCH 31, 2002 [GRAPHIC ART OMITTED] THE POWER OF DISCIPLINE. THE REWARDS OF TIME.SM [PBHG LOGO OMITTED] PBHG FUNDS
TABLE OF CONTENTS - ----------------- Message to Shareholders .................................................................................................. 1 PBHG GROWTH FUNDS PBHG Core Growth Fund (PBCRX) ...................................................................................... 2 PBHG Emerging Growth Fund (PBEGX) .................................................................................. 4 PBHG Growth Fund - PBHG Class (PBHGX), Advisor Class (PBGWX) ....................................................... 6 PBHG Large Cap 20 Fund - PBHG Class (PLCPX), Advisor Class (PLTAX) ................................................. 8 PBHG Large Cap Growth Fund - PBHG Class (PBHLX), Advisor Class (PBLAX) ............................................. 10 PBHG Limited Fund (PBLDX) .......................................................................................... 12 PBHG New Opportunities Fund (PBNOX) ................................................................................ 14 PBHG Select Equity Fund (PBHEX) .................................................................................... 16 PBHG VALUE FUNDS PBHG Clipper Focus Fund (PBFOX) .................................................................................... 18 PBHG Focused Value Fund (PBFVX) .................................................................................... 20 PBHG Large Cap Value Fund - PBHG Class (PLCVX), Advisor Class (PBLVX) .............................................. 22 PBHG Mid-Cap Value Fund - PBHG Class (PBMCX), Advisor Class (PMCAX) ................................................ 24 PBHG Small Cap Value Fund - PBHG Class (PBSVX), Advisor Class (PVAAX) .............................................. 26 PBHG Special Equity Fund (PBNPX) ................................................................................... 28 PBHG SPECIALTY FUNDS PBHG Disciplined Equity Fund (PBDEX) ............................................................................... 30 PBHG Global Technology & Communications Fund (PBGTX) ............................................................... 32 PBHG REIT Fund - PBHG Class (PBRTX), Advisor Class (PBRAX) ......................................................... 34 PBHG Strategic Small Company Fund (PSSCX) .......................................................................... 36 PBHG Technology & Communications Fund - PBHG Class (PBTCX), Advisor Class (PTNAX) ......................................................................................... 38 PBHG FIXED INCOME FUNDS PBHG IRA Capital Preservation Fund (PBCPX) ......................................................................... 40 PBHG MONEY MARKET FUNDS PBHG Cash Reserves Fund (PBCXX) .................................................................................... 42 Report of Independent Accountants ........................................................................................ 44 Statements of Net Assets/Schedules of Investments ........................................................................ 45 Statements of Assets and Liabilities ..................................................................................... 102 Statements of Operations ................................................................................................. 104 Statements of Changes in Net Assets ...................................................................................... 108 Financial Highlights ..................................................................................................... 115 Notes to Financial Statements ............................................................................................ 119 Notice to Shareholders ................................................................................................... 128 Shareholder Meetings ..................................................................................................... 129 Trustees and Officers of the Trust ....................................................................................... 130
PBHG FUNDS MESSAGE TO SHAREHOLDERS DEAR FELLOW SHAREHOLDERS: We are pleased to provide you with the PBHG Funds Annual Report for the fiscal year ended March 31, 2002. The period's mixed performance, which vacillated between hopeful expectations for economic recovery and waning confidence, presented unique challenges to investors and our portfolios. PERFORMANCE RESULTS The past year included a series of pivotal events that alternately tested or encouraged investor sentiment. The events that undoubtedly had the most profound impact on the economy and the financial markets were those that unfolded on September 11. In addition to their emotional toll, these horrific attacks amplified the recessionary pressures on the economy. Working to counter deteriorating economic conditions and flagging consumer confidence was record monetary easing on the part of the Federal Reserve. Yet, just as it began to show signs of renewed vigor, the market witnessed the largest bankruptcy in U.S. history and subsequent scrutinizing of corporate accounting practices. You will see these common themes addressed throughout each specific Fund performance discussion. As investors once again sought to escape excessive market volatility in favor of investments perceived as safer or more stable, it is understandable that our more conservative funds outperformed their benchmarks while other offerings, particularly our growth and technology funds, struggled during the period. However, as you read through the discussions and gain a better understanding of the complex factors affecting performance, you will also note signs of optimism for economic recovery in the year ahead. ENHANCED SHAREHOLDER SERVICES Our shareholder services center introduced several programs during the year designed to provide top quality service and expanded access to fund information. You may have noticed the dramatic improvement in the delivery time of quarterly account statements or our new comprehensive transfer tracking service that expedites and proactively troubleshoots the often lengthy IRA transfer process, making it easier for our investors to combine their retirement assets with PBHG. Our website followed suit, offering many new enhancements, such as portfolio manager webcasts, the availability of expanded online account transactions, the ability to create a customized home page with PBHG Watchlist and consolidated fund information pages. The site's new fund comparison tool helps investors construct a portfolio that is best suited to their long-term investment needs. NEW INVESTMENT OPTIONS Our most exciting news during the fiscal year was the introduction of five new additions to our family of funds. These funds, which include PBHG Clipper Focus, PBHG Disciplined Equity, PBHG IRA Capital Preservation, PBHG REIT and PBHG Special Equity Funds, further expand the tools available to our shareholders as they build diversified portfolios tailored to meet their specific investment goals and tolerance for risk. The funds offer established track records and access to highly sophisticated, disciplined investment strategies. Thank you for your continued confidence in PBHG Funds throughout what has been another trying year. While it has been difficult to move past the events of September 11, we remain awed by the strength and determination of the American spirit. The consumer has stayed strong and the markets have shown tremendous resilience over the past several months. We believe the economy is beginning to show signs of renewed growth. We look forward to more optimistic times ahead, where we expect that the efforts of our consistent investment approach will be rewarded. Sincerely, /S/ HAROLD J. BAXTER /S/ GARY L. PILGRIM Harold J. Baxter [PHOTO OMITTED] Gary L. Pilgrim, CFA [PHOTO OMITTED] CHAIRMAN PRESIDENT PBHG FUNDS PBHG FUNDS [LOGO OMITTED] 1 PBHG FUNDS PBHG CORE GROWTH FUND PORTFOLIO MANAGER: Gary L. Pilgrim, CFA PBHG CORE GROWTH FUND PBCRX Portfolio Profile OBJECTIVE: Capital appreciation. INVESTS IN: Fund invests at least 65% of its total assets in growth securities, such as common stocks, of small, medium or large capitalization companies. STRATEGY: The Fund's strategy is to invest in companies that Pilgrim Baxter believes have strong business momentum, earnings growth and capital appreciation potential. As of March 31, 2002, the Fund's 65 holdings ranged from $400 million to $266 billion in market capitalization. The Fund had an average market capitalization of $32 billion, whereas the average market capitalization from the previous year was $3 billion. Performance For the year ended March 31, 2002, the Fund's total return was - -5.14% versus a return of 4.70% for the Russell Midcap(R) Growth Index and a return of -7.27% for all funds classified as multi-cap growth funds by Lipper, Inc. It would be an understatement to say that the past year has been a difficult environment for growth investing in the aftermath of the high-flying, technology-driven returns produced from 1998 to early 2000. Investment strategies that emphasize companies with high price-to-earnings ratios and high growth rates were at a distinct disadvantage this past year. As the technology boom faded and the economy slid into a recession led by cutbacks in information technology capital spending, we underestimated the tremendous impact these issues would have on the companies in our portfolio. Additionally, investors were attracted to lower risk, lower P/E type investments, which put valuation pressure on the higher P/E companies found in our portfolio. While we made adjustments to respond to an environment of declining expectations and lowered risk tolerance, our delayed reaction to the reduced earnings outlook for most technology companies was detrimental to our performance. Most of our underperformance can be attributed to some poor selections combined with our major weighting in the technology sector, 10% higher relative to the Russell Midcap(R) Growth Index. Within the Index, the only meaningful sector of note that had a negative return was technology. Again, this underlines the burden of being wrong with an overweight position in technology. Furthermore, eliminating companies with weakened earnings outlooks backfired in the fourth quarter, as downtrodden, low-priced technology stocks staged a sharp recovery. On a positive note, our overweight positions in the health care sector, which was approximately 32% greater than the Index and in the services sector provided a partial offset. As disappointing as these two back-to-back years of weak performance are, the basic cause is the same -- a recessionary economic environment combined with the shift of investor sentiment to more conservative investments. As our fiscal year drew to a close and first quarter earnings reports began to come in, we found the preannouncement period to be fairly benign. It appears that the risk of negative earnings surprises has diminished and that corporate managements have set earnings guidance at achievable levels. We are hopeful that our efforts to identify sustainable growth companies will produce better results going forward. Portfolio Discussion As the environment for technology deteriorated during the year, the portfolio evolved to become more balanced relative to the benchmark. Holdings in the financial, consumer and services sectors showed the largest increases, while our selections in technology and health care declined. We continued to have essentially no exposure to energy, transportation and utilities. Reviewing our winners and losers from the last year reveals that once again it is the pattern of earnings outcomes that best explain a holding's performance. In health care, three of our top stocks, Accredo Health, Cytyc and Laboratory Corporation of America all beat analyst estimates while a fourth success, Minimed, was acquired by Medtronic at a price premium. Apollo Group, Concord EFS and BISYS were standouts in the services sector while defense electronics holdings L-3 Communications and Flextronics (outsourced manufacturing) led the industrial sector. Polycom, from the consumer cyclical area, was one of the best performing stocks in the entire portfolio. Our large position in long-time holding Bed Bath & Beyond also proved to be a winner for the year. There were a few bright lights from the technology sector. Only about 30% of the stocks owned in the technology sector during the period produced positive returns. Among those, RF Micro Devices, NVIDIA, and QLogic had the greatest positive impact on performance. Hopefully our semiconductor-related holdings, often an early leader in technology, will help point the way to better times ahead. Among the losers and largest contributors to the poor performance of our technology holdings were Sonus Networks, ONI Systems, Peregrine Systems, SmartForce PLC and CIENA. These stocks, all software or telecommunication equipment vendors, suffered an average decline of 55% during the holding period. As we saw little or no evidence of improvement in business trends, all of these companies were sold. Away from technology, other disappointing holdings included Triton PCS (wireless services), Gemstar-TV Guide International and AOL Time Warner (consumer), in the energy area, Hanover Compressor, our only energy holding, got caught up in a minor version of Enron-type accounting issues and declined over 60% before the company was able to make some changes and reassure investors. Admittedly, this was a year with which we were less than pleased. Our focus on bottom-up stock selection suffered as declines in stock prices preceded the actual appearance of weak earnings. We were not well prepared for events such as earlier technology overspending and its effect on subsequent demand and a Fed policy determined to slow economic activity. However it appears the worst may be behind us, as the economy appears to be improving steadily and earnings outlooks are taking on a more realistic tone, particularly in select areas of the technology sector. Experience convinces us that our disciplines will ultimately prove productive again and we remain optimistic. While the past year has been difficult on our shareholders, we promise you our continued best efforts in the future as we work diligently to justify your confidence in our efforts and the Fund. [LOGO OMITTED] 2 PBHG FUNDS PBHG CORE GROWTH FUND PBHG CORE GROWTH FUND PBCRX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Core Growth Fund (5.14)% (6.43)% 2.18% 2.29% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CORE GROWTH FUND, VERSUS THE RUSSELL MIDCAP(R)GROWTH INDEX AND THE LIPPER MULTI-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG CORE RUSSELL MID-CAP(R) LIPPER MULTI-CAP GROWTH FUND GROWTH INDEX3 GROWTH FUNDS AVERAGE4 12/31/95 $10,000 $10,000 $10,000 1/31/96 10,590 10,177 10,084 2/29/96 11,450 10,562 10,459 3/31/96 11,820 10,645 10,598 4/30/96 13,310 11,159 11,220 5/31/96 14,230 11,387 11,610 6/30/96 13,800 11,043 11,253 7/31/96 12,040 10,185 10,257 8/31/96 13,000 10,736 10,795 9/30/96 14,200 11,418 11,571 10/31/96 13,410 11,284 11,448 11/30/96 13,740 11,949 11,992 12/31/96 13,280 11,748 11,806 1/31/97 13,300 12,267 12,394 2/28/97 11,690 11,997 11,839 3/31/97 10,340 11,319 11,130 4/30/97 10,200 11,596 11,340 5/31/97 11,680 12,636 12,461 6/30/97 12,230 12,985 12,909 7/31/97 12,990 14,228 14,081 8/31/97 12,480 14,089 13,866 9/30/97 12,890 14,802 14,803 10/31/97 12,280 14,061 14,127 11/30/97 11,910 14,209 14,096 12/31/97 11,990 14,396 14,163 1/31/98 11,470 14,136 14,139 2/28/98 12,830 15,466 15,351 3/31/98 13,530 16,114 16,160 4/30/98 13,620 16,333 16,368 5/31/98 12,540 15,661 15,611 6/30/98 13,560 16,104 16,474 7/31/98 12,540 15,414 15,912 8/31/98 9,680 12,472 13,081 9/30/98 10,790 13,416 14,185 10/31/98 10,520 14,403 14,879 11/30/98 11,260 15,375 16,072 12/31/98 12,880 16,967 18,099 1/31/99 13,420 17,476 19,228 2/28/99 12,670 16,621 18,113 3/31/99 14,060 17,547 19,359 4/30/99 14,160 18,347 19,865 5/31/99 13,890 18,110 19,523 6/30/99 15,530 19,375 20,975 7/31/99 15,560 18,758 20,642 8/31/99 16,300 18,563 20,788 9/30/99 16,450 18,405 20,915 10/31/99 17,990 19,828 22,542 11/30/99 20,130 21,881 24,808 12/31/99 25,450 25,670 29,397 1/31/2000 25,140 25,665 28,757 2/29/2000 34,490 31,061 34,275 3/31/2000 30,250 31,093 33,703 4/30/2000 25,710 28,074 30,565 5/31/2000 23,230 26,028 28,398 6/30/2000 29,900 28,790 31,877 7/31/2000 27,850 26,967 30,946 8/31/2000 33,470 31,034 34,641 9/30/2000 31,710 29,516 33,110 10/31/2000 26,200 27,496 30,633 11/30/2000 18,810 21,521 25,232 12/31/2000 20,089 22,654 25,921 1/31/2001 20,588 23,948 26,720 2/28/2001 15,015 19,806 22,343 3/31/2001 12,144 16,971 19,715 4/30/2001 14,720 19,800 22,182 5/31/2001 14,482 19,707 21,956 6/30/2001 14,584 19,718 21,617 7/31/2001 13,585 18,388 20,385 8/31/2001 12,189 17,055 18,646 9/30/2001 10,589 14,236 16,073 10/31/2001 11,202 15,733 17,089 11/30/2001 12,076 17,427 18,764 12/31/2001 12,303 18,089 19,092 1/31/2002 11,849 17,502 18,523 2/28/2002 10,941 16,510 17,406 3/31/2002 $11,520 $17,770 $18,365
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Core Growth Fund commenced operations on December 29, 1995. 3 The Russell Midcap(R) Growth Index is an unmanaged index comprised of those securities in the Russell 1000(R) Index with a higher price to book ratio and higher forecasted growth values. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Multi-Cap Growth Funds Average represents the average performance of 491 mutual funds classified by Lipper, Inc. in the Multi-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Growth Funds Average at that month's end, December 31, 1995. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 1% Consumer Cyclical 20% Consumer Non-Cyclical 4% Financial 2% Health Care 26% Industrial 4% Services 17% Technology 26% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Applied Materials 3.3% Home Depot 3.2% Omnicom Group 3.1% Pfizer 3.0% Anheuser-Busch 3.0% Apollo Group, Cl A 2.9% Harley-Davidson 2.6% Johnson & Johnson 2.6% Concord EFS 2.4% Varian Medical Systems 2.4% - ---------------------------------- % of Total Portfolio Investments in Common Stock 28.5% [LOGO OMITTED] 3 PBHG FUNDS PBHG EMERGING GROWTH FUND PORTFOLIO MANAGER: Erin A. Piner PBHG EMERGING GROWTH FUND PBEGX Portfolio Profile OBJECTIVE: Long-term growth of capital. INVESTS IN: Common stocks of small sized companies. STRATEGY: The Fund seeks to invest in small companies that generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index. These are companies 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 Index. Performance For the twelve months ending March 31, 2002, PBHG Emerging Growth Fund posted a 10.84% loss against the 4.95% return by the Russell 2000(R) Growth Index. Evidence of a contracting economic climate clearly presented itself and drove the fundamental underperformance of most growth companies - particularly information technology companies - throughout the year. Characterized by a confluence of events that previously seemed unimaginable, performance over this period was marked by fits and starts along the road to an economic recovery with equal measures of hopefulness and uncertainty. As time continues to heal the wounds left by September 11 and the economy regains lost momentum, we remain resolute in our belief that the market will reward our portfolio of small rapidly growing companies over the year ahead. The Fund significantly under-performed the Russell 2000(R) Growth Index during both the second and fourth quarters of fiscal year 2002, but posted healthy returns in the first and third quarters. After exiting the June quarter ahead of our benchmark and cautiously optimistic about the convalescence of the economy, the Fund's returns careened downward throughout the second quarter, culminating in a September month that was the worst in memory. With a gradual return toward stability and the Federal Reserve's continued infusion of liquidity into the economy, the quarter ending December 31, 2001 brought a healthy reversal of fortune to the Fund, which posted a strong return relative to the Index. Finally, finishing another tumultuous year, the Fund posted a quarterly loss for the period ending March 31, 2002, underperforming the Russell 2000(R) Growth Index. Unfortunately, strong March returns were not enough to compensate for the devastation wrought on small growth stocks during February. In addition to profit concerns, the quarter also grappled with an altogether new fear - distrust over corporate accounting practices brought on by the highly publicized Enron scandal. Such uncertainty tends to drive the underperformance of the less liquid, higher growth, higher P/E stocks that comprise our small growth company portfolio. Yet, through our disciplined process we were able to identify numerous companies showing positive business trends, whose share prices had been unjustly punished. Throughout February, we concentrated the Fund's holdings in the strongest of these opportunities, a process that led to the Fund's notable outperformance in March. Portfolio Discussion At the start of the fiscal year, it appeared to us that the coming investment climate would be more egalitarian with leadership spread broadly among the non-technology sectors. Not only did this prove to be the case across the market indexes, but also within the Fund. While we continued to follow a rigorous bottom-up stock selection process, our sector allocations generally reflected the fact that it was easier to find fast growing companies outside the technology sector than within it. Among those stocks that made positive contributions to performance this past year were consumer, health care, services and even a few technology issues. A core Fund holding, Polycom, which provides traditional audio and video conferencing solutions to enterprise customers, saw a counter-cyclical surge in demand for its cost-saving solutions throughout the year and in the wake of September's tragic events. Whole Foods Markets, Ninety-Nine Cents Only, and Krispy Kreme Doughnuts provided evidence of the resiliency of the consumer throughout this recession. Health care distribution company Accredo Health continued to post strong revenue and earnings growth throughout the year. Several other long-term Fund holdings, including Medicis Pharmaceutical, FactSet Research and Cytec again made healthy contributions to Fund performance for the period. Despite a difficult year for technology, several technology companies were among the strongest contributors to the Fund for the year. Driven by continued management execution and the successful introduction of Microsoft's well received X-Box, our long-time holding Nvidia, a high end graphics chip company, once again posted stellar results. Although Nvidia's market cap outgrew the Fund and was ultimately sold, it remained among our top contributors for the period. Marvell Technology Group was another top contributor to performance, proving once again that small companies can succeed despite the instability of general end-market demand. Outside of our longer-term core holdings, several newer additions to the portfolio made notable contributions to performance. Among them were some of our top performers, including flat-panel display chip company Genesis Microchip, storage networking technology company Emulex and video game software company, Activision. Each posted strong fundamental business dynamics and rapid growth within their insulated end markets despite the slowing economy. In examining holdings that detracted most from performance, last year's assertion that we were seeing companies with solid fundamentals needlessly punished by the market led us to have more patience with some of our larger technology positions than we should have. Despite the fact that holdings Informatica and Micromuse continued to post strong earnings growth as far out as June 2001, the deterioration in corporate profits and the subsequent freeze in spending ultimately caught up with these companies and estimates had to be ratcheted down. Clearly, we failed to recognize the fact that the market had already been discounting this inevitable outcome. Other notable missteps were McDATA and Cima Labs. Despite its exposure to storage, an area of technology that actually saw improving fundamentals and robust spending growth, McDATA suffered from several internal difficulties that led the company to negatively preannounce its March 2001 quarter earnings. Cima Labs, a specialty pharmaceutical company surprised investors by announcing that sales would likely fall below expectations for the fourth quarter resulting from a decision to work down inventories that would lower manufacturing sales. These unexpected "hiccups" in business fundamentals are a common risk in any portfolio of rapidly-growing small companies. Outside of earnings disappointments, the largest detraction to performance for the period can be explained by our commitment to style purity. In a year where companies with high betas, high P/Es and high growth rates dramatically underperformed, our portfolio of rapidly growing small companies suffered in kind. We look forward to a new year that has already seen the valuation playing field even out and the forecast for the economy improve. As always, we have positioned our portfolio from the bottom up with fundamentally robust small growth companies that we believe stand to benefit from renewed corporate profit growth and a return to healthy economic demand. We sincerely appreciate your continued support and confidence in our ability to provide you with a high-quality portfolio of small aggressive growth companies throughout these trying times. [LOGO OMITTED] 4 PBHG FUNDS PBHG EMERGING GROWTH FUND PBHG EMERGING GROWTH FUND PBEGX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- x Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth Fund (10.84)% (8.24)% (3.66)% 7.45% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG EMERGING GROWTH FUND, VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG EMERGING RUSSELL 2000(R) LIPPER SMALL-CAP GROWTH GROWTH FUND GROWTH INDEX3 FUNDS AVERAGE4 6/14/93 $10,000 $10,000 $10,000 6/30/93 10,120 11,413 10,000 7/31/93 10,320 11,527 10,054 8/31/93 11,440 12,079 10,601 9/30/93 12,650 12,478 11,051 10/31/93 13,220 12,839 11,201 11/30/93 12,480 12,319 10,768 12/31/93 13,258 12,806 11,304 1/31/94 13,800 13,146 11,595 2/28/94 14,244 13,089 11,578 3/31/94 13,258 12,285 10,884 4/30/94 13,420 12,303 10,861 5/31/94 13,008 12,028 10,617 6/30/94 12,152 11,514 10,078 7/31/94 12,520 11,678 10,250 8/31/94 13,854 12,535 10,978 9/30/94 14,797 12,587 11,102 10/31/94 15,816 12,721 11,349 11/30/94 15,621 12,207 10,961 12/31/94 16,411 12,494 11,220 1/31/95 15,704 12,240 11,040 2/28/95 16,324 12,805 11,513 3/31/95 17,497 13,179 11,904 4/30/95 17,878 13,377 12,019 5/31/95 17,976 13,553 12,192 6/30/95 19,617 14,487 13,109 7/31/95 21,584 15,616 14,246 8/31/95 21,834 15,808 14,427 9/30/95 22,627 16,134 14,843 10/31/95 21,942 15,340 14,420 11/30/95 23,257 16,018 14,984 12/31/95 24,361 16,372 15,271 1/31/96 23,780 16,237 15,164 2/29/96 25,136 16,977 15,936 3/31/96 26,275 17,313 16,464 4/30/96 30,079 18,642 18,047 5/31/96 31,457 19,598 18,990 6/30/96 29,509 18,325 18,114 7/31/96 25,443 16,088 16,277 8/31/96 27,448 17,279 17,376 9/30/96 29,999 18,168 18,478 10/31/96 28,404 17,385 17,866 11/30/96 28,347 17,868 18,231 12/31/96 28,522 18,216 18,468 1/31/97 28,817 18,671 18,933 2/28/97 24,603 17,544 17,748 3/31/97 22,672 16,306 16,566 4/30/97 21,601 16,117 16,344 5/31/97 25,874 18,540 18,617 6/30/97 27,357 19,168 19,703 7/31/97 28,216 20,150 21,042 8/31/97 28,522 20,755 21,430 9/30/97 31,289 22,411 23,187 10/31/97 28,687 21,065 22,016 11/30/97 27,616 20,563 21,595 12/31/97 27,475 20,575 21,705 1/31/98 27,145 20,300 21,406 2/28/98 29,111 22,092 23,189 3/31/98 30,406 23,019 24,376 4/30/98 30,618 23,160 24,610 5/31/98 27,899 21,478 22,976 6/30/98 28,758 21,697 23,514 7/31/98 26,321 19,885 21,870 8/31/98 21,401 15,295 17,133 9/30/98 23,296 16,846 18,449 10/31/98 23,013 17,724 19,220 11/30/98 24,826 19,099 20,862 12/31/98 28,300 20,828 23,121 1/31/99 28,394 21,764 23,692 2/28/99 25,098 19,773 21,593 3/31/99 24,353 20,478 22,623 4/30/99 23,762 22,286 23,630 5/31/99 24,790 22,321 23,868 6/30/99 27,579 23,497 26,055 7/31/99 26,929 22,771 26,036 8/31/99 26,669 21,919 25,713 9/30/99 28,784 22,342 26,372 10/31/99 30,699 22,914 27,849 11/30/99 34,007 25,337 31,307 12/31/99 41,981 29,803 36,943 1/31/2000 40,339 29,525 36,558 2/29/2000 53,650 36,395 45,566 3/31/2000 49,029 32,569 43,151 4/30/2000 42,901 29,281 38,387 5/31/2000 37,691 26,717 35,251 6/30/2000 47,522 30,168 41,117 7/31/2000 43,244 27,583 38,453 8/31/2000 50,353 30,484 42,902 9/30/2000 47,595 28,970 41,288 10/31/2000 40,425 26,618 38,551 11/30/2000 29,859 21,785 32,001 12/31/2000 31,394 23,118 34,753 1/31/2001 31,182 24,989 35,685 2/28/2001 24,729 21,564 31,017 3/31/2001 21,105 19,603 28,105 4/30/2001 25,707 22,003 31,483 5/31/2001 24,914 22,513 32,201 6/30/2001 25,152 23,127 33,105 7/31/2001 22,758 21,154 31,212 8/31/2001 20,537 19,833 29,370 9/30/2001 16,490 16,633 24,827 10/31/2001 18,381 18,233 26,858 11/30/2001 20,497 19,755 28,896 12/31/2001 21,172 20,985 30,676 1/31/2002 20,114 20,238 29,679 2/28/2002 16,980 18,928 27,741 3/31/2002 $18,818 $20,574 $29,883
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Emerging Growth Fund commenced operations on June 14, 1993. 3 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Small-Cap Growth Funds Average represents the average performance of 442 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, June 30, 1993. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 12% Consumer Non-Cyclical 2% Health Care 13% Industrial 5% Services 17% Technology 51% TOP TEN HOLDINGS - MARCH 31, 2002 Marvell Technology Group 3.6% Precise Software Solutions 3.2% Corporate Executive Board 2.9% Factset Research Systems 2.7% Photon Dynamics 2.7% Cymer 2.7% Pharmaceutical Product Development 2.5% RF Micro Devices 2.4% Business Objects ADR 2.4% Medicis Pharmaceutical, Cl A 2.3% - ------------------------------------------------------ % of Portfolio Investments in Common Stock 27.4% [LOGO OMITTED] 5 PBHG FUNDS PBHG GROWTH FUND PORTFOLIO MANAGER: Gary L. Pilgrim, CFA PBHG GROWTH FUND PBHGX Portfolio Profile OBJECTIVE: Capital appreciation. INVESTS IN: Small to medium-sized growth companies. STRATEGY: The PBHG Growth Fund seeks capital appreciation by investing primarily in common stocks of small- and medium-sized U.S. growth companies. These companies, in the opinion of Pilgrim Baxter, have strong business momentum, earnings growth and capital appreciaton. The Fund is aggressive and should be considered a long-term investment. The Fund is currently focusing primarily on those growth securities whose market capitalizations or annual revenues are $2 billion or less at the time of purchase. Performance For the year ended March 31, 2002, the Fund's PBHG Class total return was - -12.88% and the Advisor Class return was -13.05% versus returns of 4.95% for the Russell 2000(R) Growth Index, 4.71% for the Russell Midcap(R) Growth Index and - -0.93% for all funds classified as mid-cap growth funds by Lipper, Inc. It would be an understatement to say that the past year has been a difficult environment for growth investors in the aftermath of the high-flying technology-driven returns produced from 1998 to early 2000. Investment strategies that emphasize companies with high price-to-earnings ratios and high growth rates were at a distinct disadvantage this past year. As the technology boom faded and the economy slid into a recession led by cutbacks in information technology capital spending, we underestimated the tremendous impact these issues would have on the companies in our portfolio. Additionally, investors were attracted to lower risk, lower P/E type investments, which put valuation pressure on the higher P/E companies found in our portfolio. While we made adjustments to respond to an environment of declining expectations and lowered risk tolerance, our delayed reaction to the reduced earnings outlook for most technology companies was detrimental to our performance. Most of our underperformance can be attributed to our major weighting in the technology sector, approximately 40% higher relative to the Russell 2000(R) Growth Index. Within the Index, technology and energy were the only two sectors of note to post negative returns for the year. Again, this underlines the burden of being wrong with an overweight position in technology. Furthermore, eliminating companies with weakened earnings outlooks backfired in the fourth quarter, as downtrodden, low-priced technology stocks staged a sharp recovery. On a positive note, our overweight position in the health care sector provided a partial offset. Lastly, our holdings in consumer cyclicals underperformed while our typically underweight position in the financial sector also proved to be a disadvantage. As disappointing as these two back-to-back years of weak performance are, the basic cause is the same -- a recessionary economic environment combined with the outperformance of other investment disciplines over aggressive growth strategies such as ours. As our fiscal year drew to a close and first quarter earnings reports began to come in, we found the preannouncement period to be fairly benign. It appears that the risk of negative earnings surprises has diminished and that corporate managements have set earnings guidance at achievable levels. We are hopeful that our efforts to identify sustainable growth companies will produce better results going forward. Portfolio Discussion As the environment for technology deteriorated during the year, the portfolio evolved to become more balanced relative to the benchmark. This resulted in a similar exposure, relative to the benchmark in the consumer, energy, health care and technology sectors. Our lack of exposure to the basic materials, transportation and utilities sectors continued, while our interest in education stocks led us to an overweight position in the services area. Reviewing our winners and losers from the last year reveals that once again it is the pattern of earnings outcomes that best explain a holding's performance. In health care, three of our top stocks Accredo Health, Cytyc and Laboratory Corporation of America, all beat analyst's estimates while a fourth success, Minimed, was acquired by Medtronic at a price premium. Apollo Group and Career Education were standouts in the services sector while defense electronics holdings L-3 Communications and Alliant Techsystems led the industrial sector. Polycom, from the consumer cyclical area, was the best performing stock in the entire portfolio. Our large position in long-time holding Bed Bath & Beyond also proved to be a winner for the year. There were a few bright lights from the technology sector. Approximately 40% of the stocks owned in the technology sector produced positive returns. Among those, NVIDIA, Microchip, QLogic, Novellus, Teradyne, UTStarcom and Lam Research had the greatest positive impact on performance. Again, good earnings and rising expectations explain our successes across sectors. Hopefully, our semiconductor-related holdings, often an early leader in technology, will help point the way to better times ahead. Holdings from the technology area that negatively contributed to performance were NetIQ, Mercury Interactive, SmartForce, Micromuse, Citrix Systems and Peregrine Systems. These stocks, all software companies, suffered an average decline of over 40% during the holding period. As we saw little or no evidence of improvement in business trends, all of these holdings, with the exception of Mercury Interactive, were sold. We believe Mercury appears on track to post better results, having just reported a much better than expected March quarter. Away from technology, other disappointing holdings included Invitrogen and Noven Pharmaceuticals (health care), Lamar Advertising (services), PerkinElmer (industrial) and Macrovision and Gemstar-TV Guide International (consumer cyclical). In the energy area, Hanover Compressor (our only energy holding for most of the year), got caught up in a minor version of Enron-type accounting issues and declined over 60% before the company was able to make some changes and reassure investors. Admittedly, this was a year with which we were less than pleased. Our focus on bottom-up stock selection suffered as declines in stock prices preceded the actual appearance of weak earnings. We were not well prepared for events such as earlier technology overspending and its effect on subsequent demand and a Fed policy determined to slow economic activity. However, it appears the worst may be behind us, as the economy appears to be improving steadily and earnings outlooks are taking on a more realistic tone, particularly in select areas of the technology sector. Experience convinces us that our disciplines will ultimately prove productive again and we remain optimistic. While the past year has been difficult on our shareholders, we promise you our continued best efforts in the future as we work diligently to justify your confidence in our efforts and the Fund. [LOGO OMITTED] 6 PBHG FUNDS PBHG GROWTH FUND PBHG GROWTH FUND PBHGX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ------------------X--- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Annualized Year 3 Year 5 Year 10 Year Inception Return Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Growth Fund - PBHG Class2 (12.88)% (2.02)% 1.82% 11.25% 13.16% - --------------------------------------------------------------------------------------------------------------------------- PBHG Growth Fund - Advisor Class3 (13.05)% (2.23)% 1.59% 11.10% 13.07% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GROWTH FUND - PBHG CLASS, VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER MID-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG LIPPER GROWTH FUND- RUSSELL 2000(R) MID-CAP GROWTH PBHG CLASS GROWTH INDEX4 FUNDS AVERAGE5 12/31/85 $10,000 $10,000 $10,000 1/31/86 10,250 10,228 10,234 2/28/86 11,080 10,983 10,964 3/31/86 11,510 11,482 11,535 4/30/86 11,640 11,763 11,687 5/31/86 12,580 12,194 12,305 6/30/86 12,680 12,233 12,438 7/31/86 11,700 10,918 11,370 8/31/86 12,380 11,153 11,844 9/30/86 11,240 10,245 10,913 10/31/86 12,193 10,766 11,489 11/30/86 12,676 10,718 11,582 12/31/86 12,394 10,358 11,322 1/31/87 14,728 11,691 12,813 2/28/87 16,509 12,823 13,951 3/31/87 16,871 13,175 14,107 4/30/87 16,911 12,767 13,904 5/31/87 17,046 12,677 14,019 6/30/87 16,508 12,991 14,176 7/31/87 16,604 13,302 14,659 8/31/87 17,548 13,687 15,268 9/30/87 17,524 13,413 14,998 10/31/87 12,898 8,994 11,082 11/30/87 11,840 8,399 10,339 12/31/87 13,832 9,273 11,660 1/31/88 13,566 9,454 11,716 2/29/88 14,814 10,334 12,554 3/31/88 14,660 10,888 12,736 4/30/88 15,011 11,151 12,968 5/31/88 14,576 10,783 12,746 6/30/88 15,684 11,579 13,655 7/31/88 14,969 11,363 13,251 8/31/88 14,099 10,950 12,741 9/30/88 14,744 11,260 13,242 10/31/88 14,449 11,073 13,089 11/30/88 14,119 10,642 12,771 12/31/88 14,780 11,162 13,335 1/31/89 15,792 11,638 14,120 2/28/89 15,553 11,667 14,046 3/31/89 15,244 11,991 14,354 4/30/89 16,467 12,588 15,273 5/31/89 18,020 13,191 16,093 6/30/89 17,004 12,767 15,626 7/31/89 18,401 13,365 16,678 8/31/89 19,177 13,749 17,205 9/30/89 19,896 13,907 17,368 10/31/89 18,852 13,146 16,700 11/30/89 18,698 13,263 16,893 12/31/89 19,109 13,413 17,116 1/31/90 17,501 12,029 15,658 2/28/90 18,537 12,485 16,114 3/31/90 19,377 13,057 16,834 4/30/90 18,948 12,669 16,425 5/31/90 21,627 13,799 18,184 6/30/90 21,823 13,881 18,311 7/31/90 20,716 13,250 17,720 8/31/90 17,984 11,332 15,583 9/30/90 15,483 10,259 14,353 10/31/90 14,787 9,683 13,903 11/30/90 16,614 10,574 15,130 12/31/90 17,266 11,078 15,923 1/31/91 19,518 12,118 17,332 2/28/91 20,782 13,510 18,759 3/31/91 22,659 14,462 19,849 4/30/91 22,284 14,290 19,656 5/31/91 23,271 14,980 20,717 6/30/91 20,664 13,961 19,481 7/31/91 22,323 14,593 20,776 8/31/91 23,449 15,238 21,684 9/30/91 23,074 15,467 21,675 10/31/91 23,745 16,126 22,449 11/30/91 22,724 15,285 21,632 12/31/91 26,179 16,748 24,477 1/31/92 27,174 18,064 25,079 2/29/92 27,447 18,257 25,460 3/31/92 25,782 17,207 24,271 4/30/92 24,862 16,208 23,312 5/31/92 24,688 16,171 23,417 6/30/92 23,544 15,140 22,445 7/31/92 23,420 15,615 23,278 8/31/92 22,649 15,014 22,715 9/30/92 23,644 15,433 23,196 10/31/92 25,061 16,068 24,122 11/30/92 28,298 17,568 25,876 12/31/92 33,612 18,050 26,660 1/31/93 33,003 18,274 27,118 2/28/93 30,891 17,281 26,044 3/31/93 34,668 17,726 26,995 4/30/93 33,868 17,164 26,117 5/31/93 37,613 18,193 27,732 6/30/93 39,822 18,236 28,023 7/31/93 40,302 18,418 28,188 8/31/93 43,375 19,300 29,741 9/30/93 47,344 19,938 30,776 10/31/93 48,145 20,514 31,102 11/30/93 46,320 19,684 30,070 12/31/93 49,312 20,461 31,351 1/31/94 51,258 21,006 32,247 2/28/94 51,777 20,913 32,031 3/31/94 47,592 19,629 30,199 4/30/94 47,884 19,659 30,184 5/31/94 45,192 19,218 29,668 6/30/94 41,591 18,397 28,303 7/31/94 42,888 18,659 28,994 8/31/94 47,657 20,028 30,936 9/30/94 49,052 20,112 30,936 10/31/94 50,577 20,326 31,620 11/30/94 49,571 19,504 30,371 12/31/94 51,654 19,964 30,957 1/31/95 49,122 19,557 30,682 2/28/95 51,849 20,461 32,047 3/31/95 54,219 21,058 33,178 4/30/95 53,667 21,375 33,434 5/31/95 54,089 21,655 34,026 6/30/95 59,998 23,147 36,438 7/31/95 67,238 24,951 39,357 8/31/95 67,141 25,259 39,916 9/30/95 70,712 25,779 41,157 10/31/95 72,660 24,511 40,297 11/30/95 75,550 25,593 41,715 12/31/95 77,660 26,160 41,920 1/31/96 74,186 25,944 41,974 2/29/96 79,673 27,127 43,729 3/31/96 82,140 27,663 44,446 4/30/96 89,056 29,787 47,659 5/31/96 93,114 31,314 49,494 6/30/96 89,348 29,280 47,529 7/31/96 80,128 25,705 42,957 8/31/96 84,218 27,608 45,624 9/30/96 91,621 29,030 48,722 10/31/96 85,192 27,778 47,270 11/30/96 87,465 28,550 48,750 12/31/96 85,290 29,107 48,399 1/31/97 85,225 29,834 50,151 2/28/97 76,102 28,032 47,343 3/31/97 68,375 26,054 44,209 4/30/97 68,667 25,753 44,452 5/31/97 77,141 29,623 49,488 6/30/97 80,420 30,628 51,591 7/31/97 85,972 32,197 55,713 8/31/97 84,153 33,163 55,513 9/30/97 90,192 35,810 59,560 10/31/97 85,160 33,659 56,498 11/30/97 82,465 32,856 55,792 12/31/97 82,433 32,875 56,278 1/31/98 80,290 32,436 55,462 2/28/98 87,757 35,300 60,448 3/31/98 91,653 36,781 63,313 4/30/98 92,010 37,006 63,876 5/31/98 83,569 34,318 60,248 6/30/98 88,212 34,668 62,724 7/31/98 80,095 31,773 59,293 8/31/98 60,388 24,439 46,996 9/30/98 65,063 26,916 50,342 10/31/98 66,524 28,320 52,849 11/30/98 72,530 30,517 57,013 12/31/98 82,920 33,279 63,958 1/31/99 84,705 34,776 66,503 2/28/99 76,167 31,595 61,675 3/31/99 79,576 32,720 65,881 4/30/99 76,102 35,609 68,925 5/31/99 78,764 35,666 68,842 6/30/99 88,764 37,545 74,412 7/31/99 87,530 36,384 73,422 8/31/99 89,803 35,023 73,231 9/30/99 96,978 35,698 74,359 10/31/99 105,776 36,613 80,776 11/30/99 122,561 40,484 90,308 12/31/99 159,576 47,620 106,933 1/31/2000 159,543 47,176 105,147 2/29/2000 216,428 58,153 129,815 3/31/2000 197,803 52,040 124,765 4/30/2000 166,851 46,786 112,713 5/31/2000 151,392 42,689 103,820 6/30/2000 180,997 48,203 117,856 7/31/2000 168,367 44,072 113,814 8/31/2000 198,511 48,708 128,655 9/30/2000 182,277 46,288 123,972 10/31/2000 166,582 42,531 115,108 11/30/2000 120,137 34,809 94,055 12/31/2000 122,895 36,939 100,639 1/31/2001 129,968 39,929 102,963 2/28/2001 101,003 34,455 88,178 3/31/2001 85,908 31,323 78,046 4/30/2001 101,833 35,157 88,660 5/31/2001 100,212 35,972 88,864 6/30/2001 101,319 36,953 88,624 7/31/2001 92,033 33,800 83,413 8/31/2001 81,600 31,689 77,349 9/30/2001 69,588 26,576 65,793 10/31/2001 73,342 29,133 70,234 11/30/2001 78,479 31,565 76,296 12/31/2001 80,454 33,530 79,431 1/31/2002 76,266 32,337 76,874 2/28/2002 70,101 30,244 72,676 3/31/2002 $74,843 $32,873 $77,466 1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Growth Fund-PBHG Class commenced operations on December 19, 1985. 3 The performance shown for the Advisor Class (formerly known as the Trust Class) prior to its inception on August 16, 1996, is based on the performance and expenses of the PBHG Class. Subsequent to August 16, 1996, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception date to March 31, 2002 was (1.95)%. 4 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. The chart assumes $10,000 invested in the Russell 2000(R) Growth Index at that month's end, December 31, 1985. 5 The Lipper Mid-Cap Growth Funds Average represents the average performance of 495 mutual funds classified by Lipper, Inc. in the Mid-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Mid-Cap Growth Funds Average at that month's end, December 31, 1985. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 1% Consumer Cyclical 16% Consumer Non-Cyclical 1% Energy 7% Financial 4% Health Care 22% Industrial 5% Services 15% Technology 29% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Microchip Technology 3.1% Apollo Group, Cl A 2.9% Varian Medical Systems 2.7% BISYS Group 2.6% Laboratory Corporation of America 2.5% Alliant Techsystems 2.2% Electronic Arts 2.2% Pharmaceutical Product Development 2.2% Express Scripts, Cl A 2.1% Semtech 2.1% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 24.6% [LOGO OMITTED] 7 PBHG FUNDS PBHG LARGE CAP 20 FUND PORTFOLIO MANAGER: Michael S. Sutton, CFA PBHG LARGE CAP 20 FUND PLCPX Portfolio Profile OBJECTIVE: Long-term growth of capital. INVESTS IN: Growth securities, such as common stocks, of generally no more than 20 large capitalization companies. STRATEGY: These stocks are primarily those 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 sell 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. Performance Growth stocks continued to bear the brunt of exceptionally difficult market conditions during our fiscal year ending March 31, 2002. Consequently, PBHG Large Cap 20 Fund's PBHG Class declined 14.94% and the Advisor Class declined 14.27% for this period. The Fund trailed the benchmark S&P 500 Index, which was flat at 0.24%, and lagged the more style similar Russell 1000(R) Growth Index, which fell 2.00% for the same period. Clearly we are disappointed with our performance and are working diligently to improve upon these results. The recurring theme throughout most of the year was the continuing rotation out of previously favored growth-oriented investments into perceived safer investments, such as deep value stocks. As investors grappled with bad news during the year, including the tragic events of September 11, slumping economic conditions and questionable accounting practices, stocks were unable to regain their footing for any sustainable length of time. Investor sentiment was further dampened due to increasing layoffs, persistent profit warnings and disappointing corporate earnings. Although the Federal Reserve cut rates aggressively throughout the calendar year 2001 in a committed effort to stimulate the ailing economy, it generally remained unresponsive. More recently these efforts have started to revive growth, as we are seeing some signs of strength starting to stir in the economic environment. All was not lost over the past year, however, especially in the second and fourth quarters of 2001. Sectors that performed poorly in the third quarter, such as technology and consumer cyclical, lifted returns during the second and fourth quarters. The fourth quarter was especially strong. Stocks benefited from an increase in consumer confidence resulting from both the Feds aggressive monetary easing and the public's positive view on the progress in the war against terrorism. It appeared that those stocks that had valuations fall the most in previous quarters bounced the highest during the final quarter of 2001. While our positions in the consumer cyclical, industrial and services sectors illustrated this theme and contributed positively to performance, our underweight position in technology compared to the benchmark dragged on returns. However, amid dwindling hopes in the first quarter of this year, the improving fundamentals for technology stocks failed to materialize and these stocks began to fall. Corporate accounting also became a major issue during the first quarter of 2002, as the Enron situation spread panic and worry. Our belief is that, unfortunately, this is just the tip of the iceberg and we will continue to see the market focus on accounting issues until the excesses are washed out. For non-diversified portfolios, this risk is exacerbated because position sizes are larger and the shock absorption benefits of diversification are not available. Portfolio Discussion The underperformance of the Fund can be attributed to the dismal returns of three sectors, technology, utilities and industrials with the technology sector providing the biggest drag on results. The technology sector suffered primarily from the continued slowdown in capital equipment purchases by the telecommunications services sector, which started late in fiscal year 2001 and continued throughout the past fiscal year. While most telecommunication equipment suppliers were hurt by these conditions, the faster growing smaller companies suffered more due to their higher expected growth rates. Two portfolio holdings that were hit the hardest were ONI Systems and Sonus Networks. The slashing of the capital expenditure budgets by major telecommunication carriers reduced by half the expected revenues and earnings for both companies. Additionally, independent power producer Calpine, in which we had a significant exposure, lost its business momentum as the energy crunch abated due to decreased demand in a slow economy, lower oil and natural gas prices and milder weather conditions. Another sector that weighed on Fund performance was the industrial sector. The slowdown in order patterns to the electronic manufacturing services companies and Tyco International's bad case of "Enronitis" caused this sector to stumble. With regard to the former, our holding of Flextronics International was negatively impacted by the drop in order patterns from the large original equipment manufacturers. This slowdown came on much faster than most analysts had predicted, including us. Tyco International was battered due to their complex accounting practices for merger and acquisition activities. Two bright spots this past fiscal year were the Fund's holdings in the health care and services sectors. The largest contributor in the healthcare sector this past fiscal year was Quest Diagnostics, the clinical laboratory testing company. Quest Diagnostics has benefited from the ongoing move by hospitals and physicians to outsource their clinical testing services. This outsourcing of tests frees up time and expenses for these already cost conscious institutions. In the services sector, Concord EFS, the electronic transaction processing and fund transfer services company, was the Fund's best performing stock. Concord EFS' business model continues to grow revenues and improve operating margins due to the steady growth in purchases made using personal debit cards. The elements for renewed economic growth appear to be in place, as many stocks that were trapped in depressed territory have started to experience some positive returns over the past few months. We believe that the current low interest rate environment will continue, inflation will likely remain in check and earnings have probably bottomed. As these conditions are generally favorable for financial assets, we expect to see growth stocks begin to perform more in line with historical averages. While the tensions in the Middle East and lingering job market softness may continue to impact the market, we will be watching for more signs of renewed economic growth and the attractive investment opportunities we believe accompany these conditions. In seeking the fastest growing quality companies, we look for those businesses that are in good situations that we believe are getting better. The past year was very difficult for our discipline given the economic climate and the market's heightened sensitivity to valuation. As history would indicate, we expect that economic recovery should again favor our investment discipline, which seeks fast growing companies. Regardless of near-term market volatility, we will remain committed to our disciplined investment strategy, keeping the portfolio invested to capture the benefits of economic growth as it unfolds. Thank you for your continued confidence. [LOGO OMITTED] 8 PBHG FUNDS PBHG LARGE CAP 20 FUND PBHG LARGE CAP 20 FUND PLCPX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- x Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 Fund - PBHG Class2 (14.94)% (5.07)% 17.65% 14.79% - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 Fund - Advisor Class3 (15.17)% (5.17)% 17.58% 14.72% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP 20 FUND - PBHG CLASS, VERSUS THE S&P 500 INDEX, RUSSELL 1000(R) GROWTH INDEX AND THE LIPPER LARGE-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG LARGE LIPPER LARGE - CAP 20 FUND - S&P CAP GROWTH RUSSELL 1000(R) PBHG CLASS 500 INDEX4 FUNDS AVERAGE6 GROWTH INDEX5 11/29/96 $10,000 $10,000 $10,000 $10,000 11/30/96 10,000 10,000 10,000 10,000 12/31/96 9,841 9,802 9,762 9,804 1/31/97 10,462 10,414 10,357 10,492 2/28/97 10,001 10,496 10,196 10,421 3/31/97 9,260 10,065 9,667 9,857 4/30/97 9,881 10,666 10,178 10,512 5/31/97 10,912 11,315 10,883 11,270 6/30/97 11,523 11,821 11,335 11,721 7/31/97 12,854 12,761 12,382 12,758 8/31/97 12,234 12,047 11,813 12,011 9/30/97 12,914 12,706 12,439 12,602 10/31/97 12,424 12,283 11,994 12,137 11/30/97 12,494 12,851 12,267 12,652 12/31/97 13,084 13,071 12,431 12,794 1/31/98 13,355 13,216 12,615 13,176 2/28/98 15,097 14,168 13,606 14,168 3/31/98 15,998 14,893 14,219 14,732 4/30/98 16,278 15,043 14,431 14,936 5/31/98 15,848 14,785 14,065 14,512 6/30/98 17,589 15,385 14,878 15,401 7/31/98 17,609 15,221 14,741 15,299 8/31/98 14,516 13,023 12,338 13,003 9/30/98 16,708 13,858 13,181 14,002 10/31/98 17,069 14,985 14,076 15,127 11/30/98 18,320 15,893 15,053 16,278 12/31/98 21,960 16,809 16,570 17,746 1/31/99 23,995 17,512 17,587 18,788 2/28/99 22,294 16,968 16,880 17,929 3/31/99 24,400 17,647 17,839 18,874 4/30/99 23,337 18,330 17,948 18,898 5/31/99 22,527 17,897 17,400 18,317 6/30/99 24,178 18,891 18,627 19,600 7/31/99 23,540 18,301 18,074 18,977 8/31/99 24,512 18,210 18,079 19,287 9/30/99 25,372 17,711 17,911 18,882 10/31/99 28,136 18,831 19,161 20,308 11/30/99 33,614 19,214 20,187 21,404 12/31/99 44,567 20,346 22,558 23,630 1/31/2000 43,320 19,324 21,695 22,522 2/29/2000 51,964 18,958 23,113 23,623 3/31/2000 53,163 20,813 24,433 25,313 4/30/2000 47,264 20,186 23,094 24,109 5/31/2000 41,293 19,772 21,815 22,895 6/30/2000 49,926 20,259 23,342 24,630 7/31/2000 49,542 19,943 22,889 23,603 8/31/2000 56,665 21,181 24,830 25,741 9/30/2000 51,916 20,063 23,141 23,306 10/31/2000 46,677 19,978 22,082 22,203 11/30/2000 35,502 18,403 19,260 18,930 12/31/2000 34,725 18,493 19,258 18,331 1/31/2001 35,483 19,149 19,826 19,597 2/28/2001 29,172 17,403 16,973 16,270 3/31/2001 24,542 16,301 15,313 14,500 4/30/2001 27,008 17,568 16,882 16,334 5/31/2001 26,719 17,685 16,742 16,093 6/30/2001 25,741 17,255 16,242 15,721 7/31/2001 24,652 17,085 15,712 15,328 8/31/2001 22,089 16,016 14,446 14,074 9/30/2001 20,008 14,722 12,998 12,669 10/31/2001 21,111 15,003 13,520 13,334 11/30/2001 22,819 16,154 14,777 14,615 12/31/2001 22,447 16,295 14,821 14,587 1/31/2002 20,918 16,058 14,476 14,330 2/28/2002 20,325 15,748 13,820 13,735 3/31/2002 $20,876 $16,340 $14,395 $14,210
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Funds that invest in a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Large Cap 20 Fund - PBHG Class commenced operations on November 29, 1996. 3 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to March 31, 2002 was (33.50)%. 4 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Russell 1000(R) Growth Index is an unmanaged index that measures the performance of those securities in the Russell 1000(R) Index with higher price-to-book ratios and higher forecasted growth values. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Large-Cap Growth Funds Average represents the average performance of 851 mutual funds classified by Lipper, Inc. in the Large-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Large Cap Growth Funds Average at that month's end, November 30, 1996. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 12% Financial 8% Health Care 48% Industrial 1% Services 13% Technology 18% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Concord EFS 8.2% Pfizer 7.6% UnitedHealth Group 7.2% Home Depot 7.1% Laboratory Corporation of America 7.1% Freddie Mac 6.6% Johnson & Johnson 6.6% Applied Materials 5.9% Microsoft 5.6% Amgen 5.3% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 67.2% [LOGO OMITTED] 9 PBHG FUNDS PBHG LARGE CAP GROWTH FUND PORTFOLIO MANAGER: Michael S. Sutton, CFA PBHG LARGE CAP GROWTH FUND PBHLX Portfolio Profile OBJECTIVE: Long-term growth of capital. INVESTS IN: Companies that have market capitalizations above $10 billion at the time of purchase. STRATEGY: These stocks are primarily those 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 sell 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. Performance Growth stocks continued to bear the brunt of exceptionally difficult market conditions during our fiscal year ending March 31, 2002. Consequently, PBHG Large Cap Growth Fund's PBHG Class declined 14.10% and the Advisor Class declined 14.29% for this period. The Fund trailed the benchmark S&P 500 Index, which was flat at 0.24%, and lagged the more style similar Russell 1000(R) Growth Index, which fell 2.00% for the same period. Clearly we are disappointed with our performance and are working diligently to improve upon these results. The recurring theme throughout most of the year was the continuing rotation out of previously favored growth-oriented investments into perceived safer investments, such as deep value stocks. As investors grappled with bad news during the year, including the tragic events of September 11, slumping economic conditions and questionable accounting practices, stocks were unable to regain their footing for any sustainable length of time. Investor sentiment was further dampened due to increasing layoffs, persistent profit warnings and disappointing corporate earnings. Although the Federal Reserve cut rates aggressively throughout the calendar year 2001 in a committed effort to stimulate the ailing economy, it generally remained unresponsive. More recently these efforts have started to revive growth, as we are seeing some signs of strength starting to stir in the economic environment. All was not lost over the past year, however, especially in the second and fourth quarters of 2001. Sectors that performed poorly in the third quarter, such as technology and consumer cyclical, lifted returns during the second and fourth quarters. The fourth quarter was especially strong. Stocks benefited from an increase in consumer confidence resulting from both the Fed's aggressive monetary easing and the public's positive view on the progression in the war against terrorism. It appeared that those stocks that had valuations fall the most in previous quarters bounced the highest during the final quarter of 2001. While our positions in the consumer cyclical, industrial and services sectors illustrated this theme and contributed positively to performance, our underweight position in technology compared to the benchmark dragged on returns. However, amid dwindling hopes in the first quarter of this year, the improving fundamentals for technology stocks failed to materialize and these stocks began to fall once again. Corporate accounting also became a major issue during the first quarter of 2002, as the Enron situation spread panic and worry. Our belief is that, unfortunately, this is just the tip of the iceberg and we will continue to see the market focus on accounting issues until the excesses are washed out. Portfolio Discussion During a fiscal year when the S&P 500 Index rose just 0.24% and the Nasdaq Composite Index gained a modest 0.35%, the definition of a successful investment for aggressive growth investors was a stock that didn't decline much. Fund holdings Calpine, AES and Mirant, all independent power producers (IPPs), lost their business momentum, as the energy crunch abated due to decreased demand in a slow economy, lower oil and natural gas prices and milder weather conditions. Additionally, stock selection in the consumer cyclical sector detracted from results. For example, AOL Time Warner (AOL) and Gemstar-TV Guide International suffered from the negative impact soft economic data had on companies with ties to the advertising market. Another industry that proved disappointing was pharmaceuticals. During economic slowdowns, these stocks have historically been very rewarding. This was not the case over the previous 12 months, as pharmaceutical stocks demonstrated lackluster performance. Technology stock performance also remained problematic. Fortunately, our weighting in this sector was in line with that of the S&P 500 Index this fiscal year. On the positive side, Concord EFS continued to possess superior fundamentals. We were therefore rewarded by an appreciating stock price. United Health Group, which we purchased during the fiscal year, also showed accelerating business fundamentals and strong investment performance. Omnicom Group, a world leader in advertising, also did well over the last year, as the prospects for an economic rebound and an appreciation for their dominant global footprint attracted investors. The elements for renewed economic growth appear to be in place, as many stocks that were trapped in depressed territory have started to experience some positive returns over the past few months. We believe that the current low interest rate environment will continue, inflation will likely remain in check and earnings have probably bottomed. As these conditions are generally favorable for financial assets, we expect to see growth stocks begin to perform more in line with historical averages. While the tensions in the Middle East and lingering job market softness may continue to impact the market, we will be watching for more signs of renewed economic growth and the attractive investment opportunities we believe accompany these conditions. In seeking the fastest growing quality companies, we look for those businesses that are in good situations that we believe are getting better. The past year was very difficult for our discipline given the economic climate and the market's heightened sensitivity to valuation. As history would indicate, we expect that economic recovery should again favor our investment discipline, which seeks fast growing companies. Regardless of near-term market volatility, we will remain committed to our disciplined investment strategy, keeping the portfolio invested to capture the benefits of economic growth as it unfolds. Thank you for your continued confidence. [LOGO OMITTED] 10 PBHG FUNDS PBHG LARGE CAP GROWTH FUND PBHG LARGE CAP GROWTH FUND PBHLX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- x Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth Fund - PBHG Class2 (14.10)% 2.67% 15.07% 16.86% - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Growth Fund - Advisor Class3 (14.29)% 2.58% 15.01% 16.82% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP GROWTH FUND - PBHG CLASS, VERSUS THE S&P 500 INDEX, RUSSELL 1000(R) GROWTH INDEX AND THE LIPPER LARGE-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG LARGE CAP GROWTH FUND - S&P 500 LIPPER MULTI-CAP GROWTH RUSSELL 1000(R) PBHG CLASS INDEX4 FUNDS AVERAGE6 GROWTH INDEX5 4/5/95 $10,000 $10,000 $10,000 $10,000 4/30/95 10,000 10,189 10,000 10,000 5/31/95 10,070 10,595 10,314 10,349 6/30/95 10,920 10,841 10,819 10,748 7/31/95 11,740 11,200 11,369 11,195 8/31/95 12,310 11,229 11,424 11,207 9/30/95 13,160 11,702 11,799 11,724 10/31/95 13,510 11,660 11,710 11,732 11/30/95 13,720 12,172 12,096 12,188 12/31/95 13,383 12,406 12,053 12,258 1/31/96 14,146 12,828 12,378 12,668 2/29/96 14,827 12,947 12,689 12,899 3/31/96 14,992 13,072 12,727 12,916 4/30/96 15,880 13,264 13,083 13,256 5/31/96 16,509 13,606 13,455 13,719 6/30/96 16,158 13,658 13,336 13,738 7/31/96 15,023 13,055 12,556 12,933 8/31/96 15,601 13,330 12,963 13,267 9/30/96 16,870 14,080 13,830 14,232 10/31/96 16,365 14,468 13,937 14,319 11/30/96 16,994 15,561 14,809 15,393 12/31/96 16,514 15,253 14,457 15,092 1/31/97 17,247 16,205 15,338 16,151 2/28/97 16,504 16,332 15,099 16,042 3/31/97 14,727 15,662 14,316 15,173 4/30/97 15,626 16,597 15,073 16,181 5/31/97 17,330 17,606 16,117 17,348 6/30/97 18,197 18,395 16,786 18,043 7/31/97 19,860 19,858 18,337 19,639 8/31/97 18,941 18,746 17,494 18,489 9/30/97 20,139 19,772 18,421 19,399 10/31/97 19,282 19,113 17,762 18,682 11/30/97 19,365 19,997 18,166 19,475 12/31/97 20,206 20,340 18,410 19,693 1/31/98 19,893 20,565 18,682 20,282 2/28/98 22,450 22,047 20,149 21,808 3/31/98 23,681 23,175 21,058 22,677 4/30/98 23,817 23,408 21,371 22,991 5/31/98 23,160 23,006 20,829 22,339 6/30/98 24,861 23,940 22,032 23,707 7/31/98 24,621 23,686 21,830 23,550 8/31/98 19,945 20,266 18,272 20,016 9/30/98 21,458 21,564 19,519 21,553 10/31/98 21,573 23,318 20,845 23,286 11/30/98 22,993 24,731 22,291 25,057 12/31/98 26,353 26,156 24,538 27,316 1/31/99 27,213 27,250 26,045 28,920 2/28/99 25,671 26,403 24,998 27,599 3/31/99 27,447 27,460 26,418 29,053 4/30/99 27,157 28,523 26,579 29,090 5/31/99 26,029 27,850 25,768 28,195 6/30/99 27,950 29,395 27,585 30,171 7/31/99 26,933 28,478 26,766 29,212 8/31/99 27,135 28,336 26,774 29,689 9/30/99 27,593 27,559 26,525 29,065 10/31/99 30,363 29,303 28,376 31,261 11/30/99 34,284 29,899 29,894 32,947 12/31/99 44,025 31,660 33,407 36,374 1/31/2000 44,792 30,069 32,128 34,668 2/29/2000 56,129 29,500 34,229 36,363 3/31/2000 54,509 32,386 36,183 38,966 4/30/2000 48,628 31,412 34,200 37,111 5/31/2000 44,409 30,767 32,306 35,243 6/30/2000 52,833 31,525 34,567 37,914 7/31/2000 52,876 31,033 33,896 36,333 8/31/2000 59,709 32,960 36,771 39,623 9/30/2000 56,882 31,220 34,270 35,875 10/31/2000 51,355 31,088 32,701 34,177 11/30/2000 42,661 28,637 28,522 29,139 12/31/2000 43,945 28,777 28,519 28,217 1/31/2001 44,051 29,798 29,360 30,167 2/28/2001 39,143 27,081 25,135 25,045 3/31/2001 34,584 25,366 22,677 22,320 4/30/2001 37,499 27,337 25,001 25,143 5/31/2001 37,438 27,520 24,794 24,772 6/30/2001 36,638 26,850 24,053 24,199 7/31/2001 35,264 26,586 23,268 23,594 8/31/2001 32,364 24,922 21,393 21,665 9/30/2001 28,664 22,909 19,249 19,502 10/31/2001 29,872 23,346 20,021 20,525 11/30/2001 31,835 25,137 21,883 22,497 12/31/2001 31,413 25,357 21,949 22,454 1/31/2002 30,129 24,987 21,438 22,058 2/28/2002 28,589 24,505 20,466 21,142 3/31/2002 $29,706 $25,427 $21,318 $21,874
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Large Cap Growth Fund - PBHG Class commenced operations on April 5, 1995. 3 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to March 31, 2002 was (26.94)%. 4 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Russell 1000(R) Growth Index is an unmanaged index that measures the performance of those securities in the Russell 1000(R) Index with higher price-to-book ratios and higher forecasted growth values. The Index reflects the reinvestment oF income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Large-Cap Growth Funds Average represents the average performance of 851 mutual funds classified by Lipper, Inc. in the Large-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Large-Cap Growth Funds Average at that month's end, April 30, 1995. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 20% Consumer Non-Cyclical 6% Financial 8% Health Care 35% Industrial 3% Services 9% Technology 19% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Home Depot 4.7% Forest Laboratories 4.0% Laboratory Corporation of America 3.7% Microsoft 3.3% Concord EFS 3.2% Johnson & Johnson 3.2% Quest Diagnostics 3.2% Pfizer 3.1% Abbott Laboratories 3.0% Wal-Mart Stores 3.0% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 34.4% [LOGO OMITTED] 11 PBHG FUNDS PBHG LIMITED FUND PORTFOLIO MANAGER: Erin A. Piner PBHG LIMITED FUND PBLDX Portfolio Profile OBJECTIVE: Long-term capital appreciation. INVESTS IN: Common stocks of small sized companies. STRATEGY: The Fund seeks to invest in small companies that generally have market capitalizations similar to the market capitalizations of the companies in the Russell 2000(R) Growth Index. These are companies 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 Index. Performance For the twelve months ending March 31, 2002, PBHG Limited Fund posted a return of 1.17% against the 4.95% return of the Russell 2000(R) Growth Index. Evidence of a contracting economic climate clearly presented itself and drove the fundamental underperformance of most growth companies--particularly information technology companies--throughout the year. Characterized by a confluence of events that previously seemed unimaginable, performance over this period was marked by fits and starts with equal measures of hopefulness and uncertainty as the economy moved toward recovery. As time continues to heal the wounds left by September 11 and the economy regains lost momentum, we remain resolute in our belief that the market will reward our portfolio of small rapidly-growing companies over the year ahead. The Fund underperformed the Russell 2000(R) Growth Index in both the second and fourth quarters of fiscal year 2002, but posted healthy returns in the first and third quarters. After exiting the June quarter ahead of our benchmark and cautiously optimistic about the convalescence of the economy, the Fund's returns careened downward throughout the fiscal year's second quarter, culminating in a September month that was the worst in memory. With a gradual return toward stability and the Federal Reserve's continued infusion of liquidity into the economy, the quarter ending December 31, 2001 brought a healthy reversal of fortune to the Fund, which posted a strong return relative to the Index. Finally, finishing another tumultuous year, the Fund posted a loss for the quarter ending March 31, 2002, underperforming the Russell 2000(R) Growth. Unfortunately, strong March returns were not enough to compensate for the devastation wrought on small growth stocks during February. In addition to profit concerns, the quarter also grappled with an altogether new fear - distrust over corporate accounting practices brought on by the highly publicized Enron scandal. Such uncertainty tends to drive the underperformance of the less liquid, higher growth, higher P/E stocks that comprise our small growth company portfolio. Yet, through our disciplined process we were able to identify numerous companies showing positive business trends, whose share prices had been unjustly punished. Throughout February, we concentrated the Fund's holdings in the strongest of these opportunities, a process that led to the Fund's notable outperformance in March. Portfolio Discussion At the start of the fiscal year, it appeared to us that the coming investment climate would be more egalitarian with leadership spread broadly among the non-technology sectors. Not only did this prove to be the case across the market indexes, but also within the Fund. While we continued to follow a rigorous bottom-up stock selection process, our sector allocations generally reflected the fact that it was easier to find fast growing companies outside the technology sector than within it. Among those stocks that made positive contributions to performance this past year were consumer, health care, services and even a few technology issues. A core Fund holding, Polycom, which provides traditional audio and video conferencing solutions to enterprise customers, saw a counter-cyclical surge in demand for its cost-saving solutions throughout the year and in the wake of the terrorist attacks. Panera Bread, Whole Foods Markets, and Krispy Kreme Doughnuts provided evidence of the resiliency of the consumer throughout this recession. Health care distribution company Accredo Health continued to post strong revenue and earnings growth throughout the year. New additions in the post-secondary education services sector such as Career Education and Corinthian Colleges also added to Fund performance. Several long-term Fund holdings, including Medicis Pharmaceutical, FactSet Research and SurModics, made healthy contributions to Fund performance for the period. Despite a difficult year for the technology sector, several technology companies were among the strongest contributors to the Fund for the year. As corporations continued to spend on information technology necessities with high ROI and relatively small ticket prices, performance monitoring solutions company Precise Software Solutions posted healthy revenue and earnings growth that led to strong performance throughout the year. Simple Technology and ChipPAC, technology companies whose fortunes are tied to a cyclical recovery in the semiconductor market, were added toward the end of the year and still placed among the Funds strongest contributors. Several other new additions to the portfolio made notable contributions to performance. Among them were some of our top performers, including flat-panel display chip companies Genesis Microchip and Sage, DVD chip company Zoran, and video game software company Activision. Each posted strong fundamental business dynamics and rapid growth within their insulated end markets despite the slowing economy. In examining holdings that detracted most from performance, last year's assertion that we were seeing companies with solid fundamentals needlessly punished by the market led us to have more patience with some of our larger technology positions than we should have. Despite the fact that holdings Informatica and Micromuse continued to post strong earnings growth as far out as June 2001, the deterioration in corporate profits and the subsequent freeze in spending ultimately caught up with these companies and estimates had to be ratcheted down. Clearly, we failed to recognize the fact that the market had already been discounting this inevitable outcome. Other notable missteps were Natus Medical, Charlotte Russe and Cima Labs. Natus Medical disappointed investors with an unexpected earnings miss in its first quarter as a public company. Specialty retail apparel chain operator Charlotte Russe suffered poor results early the fiscal year due to a fashion miscue and decline in mall traffic as the economy cooled. Cima Labs, a specialty pharmaceutical company surprised investors by announcing that sales would likely fall below expectations for the fourth quarter resulting from a decision to work down inventories that would lower manufacturing sales. These unexpected "hiccups" in business fundamentals are a common risk in any portfolio of rapidly-growing small companies. Outside of earnings disappointments, the largest detraction to performance for the period can be explained by our commitment to style purity. In a year where companies with high betas, high P/Es and high growth rates dramatically underperformed, our portfolio of rapidly growing small companies suffered in kind. We look forward to a new year that has already seen the valuation playing field even out and the forecast for the economy improve. As always, we have positioned our portfolio from the bottom up with fundamentally robust small growth companies that we believe stand to benefit from renewed corporate profit growth and a return to healthy economic demand. We sincerely appreciate your continued support and confidence in our ability to provide you with a high-quality portfolio of small aggressive growth companies throughout these trying times. [LOGO OMITTED] 12 PBHG FUNDS PBHG LIMITED FUND PBHG LIMITED FUND PBLDX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- x Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Limited Fund 1.17% 11.02% 14.38% 10.52% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LIMITED FUND, VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE GRAPH OMITTED] PLOT POINTS FOLLOWS:
PBHG LIMITED RUSSELL 2000(R) LIPPER SMALL CAP-GROWTH FUND GROWTH INDEX3 FUNDS AVERAGE4 6/28/96 $10,000 $10,000 $10,000 6/30/96 10,000 10,000 10,000 7/31/96 9,950 8,779 8,986 8/31/96 10,320 9,429 9,593 9/30/96 11,010 9,915 10,201 10/31/96 10,570 9,487 9,863 11/30/96 10,560 9,751 10,064 12/31/96 11,082 9,941 10,195 1/31/97 11,273 10,189 10,452 2/28/97 10,048 9,574 9,798 3/31/97 9,085 8,898 9,145 4/30/97 8,984 8,795 9,023 5/31/97 10,741 10,117 10,278 6/30/97 11,454 10,460 10,877 7/31/97 12,016 10,996 11,617 8/31/97 12,257 11,326 11,830 9/30/97 13,622 12,230 12,800 10/31/97 13,070 11,496 12,154 11/30/97 12,809 11,221 11,922 12/31/97 12,864 11,228 11,983 1/31/98 12,708 11,078 11,817 2/28/98 13,756 12,056 12,802 3/31/98 14,606 12,562 13,457 4/30/98 14,720 12,639 13,586 5/31/98 13,621 11,721 12,684 6/30/98 14,057 11,840 12,981 7/31/98 13,154 10,852 12,074 8/31/98 10,509 8,347 9,458 9/30/98 11,691 9,193 10,185 10/31/98 11,681 9,672 10,611 11/30/98 12,770 10,423 11,517 12/31/98 14,542 11,366 12,764 1/31/99 15,053 11,877 13,079 2/28/99 13,422 10,791 11,920 3/31/99 12,998 11,175 12,489 4/30/99 12,965 12,162 13,045 5/31/99 13,966 12,181 13,177 6/30/99 15,989 12,823 14,384 7/31/99 15,380 12,426 14,373 8/31/99 15,358 11,961 14,195 9/30/99 16,663 12,192 14,559 10/31/99 18,077 12,504 15,374 11/30/99 20,524 13,827 17,283 12/31/99 24,968 16,264 20,394 1/31/2000 24,821 16,112 20,182 2/29/2000 32,988 19,861 25,155 3/31/2000 30,840 17,773 23,822 4/30/2000 26,583 15,979 21,192 5/31/2000 23,407 14,580 19,461 6/30/2000 29,946 16,463 22,699 7/31/2000 27,677 15,052 21,228 8/31/2000 30,787 16,635 23,684 9/30/2000 31,093 15,809 22,793 10/31/2000 27,704 14,526 21,282 11/30/2000 21,645 11,888 17,666 12/31/2000 23,255 12,616 19,186 1/31/2001 23,758 13,637 19,700 2/28/2001 19,914 11,768 17,123 3/31/2001 17,581 10,698 15,515 4/30/2001 20,474 12,007 17,380 5/31/2001 21,015 12,286 17,777 6/30/2001 21,537 12,621 18,276 7/31/2001 19,932 11,544 17,231 8/31/2001 18,383 10,823 16,214 9/30/2001 15,155 9,077 13,706 10/31/2001 16,666 9,950 14,827 11/30/2001 18,141 10,780 15,952 12/31/2001 19,035 11,452 16,935 1/31/2002 18,108 11,044 16,384 2/28/2002 15,667 10,329 15,315 3/31/2002 $17,786 $11,227 $16,497
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance wouldl have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Limited Fund commenced operations on June 28, 1996. 3 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Small-Cap Growth Funds Average represents the average performance of 442 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, June 30, 1996. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 13% Consumer Non-Cyclical 2% Health Care 15% Industrial 6% Services 17% Technology 47% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Precise Software Solutions 2.9% Corporate Executive Board 2.8% Photon Dynamics 2.7% ChipPAC 2.6% Cymer 2.6% Surmodics 2.5% Panera Bread, Cl A 2.5% Factset Research Systems 2.4% Pharmaceutical Product Development 2.3% Zoran 2.3% - ------------------------------------------------ % of Total Portfolio Investments in Common Stock 25.6% [LOGO OMITTED] 13 PBHG FUNDS PBHG NEW OPPORTUNITIES FUND PORTFOLIO MANAGER: Gary L. Pilgrim, CFA PBHG NEW OPPORTUNITIES FUND PBNOX Portfolio Profile OBJECTIVE: Capital appreciation. INVESTS IN: The Fund invests at least 65% of its total assets in growth securities, such as common stocks, of companies in economic sectors which we believe have above average growth potential. STRATEGY: PBHG New Opportunities Fund is a diversified portfolio intended to deliver capital appreciation by investing in small growth companies. The Fund will generally hold stocks of less than 50 small growth companies. It is expected that the Fund will have above average volatility due to the less liquid nature of small growth companies and a strategy of owning a relatively small number of equity securities. The Fund focuses primarily on those growth securities whose market capitalizations or annual revenues are under $1 billion at the time of purchase. Performance For the year ended March 31, 2002, the Fund's total return was - -5.98% versus returns of 4.95% for the Russell 2000(R) Growth Index and 6.54% for all funds classified as small-cap growth funds by Lipper, Inc. It would be an understatement to say that the past year was a difficult environment for growth investing in the aftermath of the high-flying technology-driven returns produced from 1998 to early 2000. Investment strategies that emphasize companies with high price-to-earnings ratios and high growth rates were at a distinct disadvantage this past year. As the technology boom faded and the economy slid into a recession led by cutbacks in information technology spending, we underestimated the tremendous impact these issues would have on the companies in our portfolio. Additionally, investors were attracted to lower risk, lower P/E type investments, which put valuation pressure on the higher P/E companies found in our portfolio. We did make adjustments to our technology holdings during the year. As a result our overweight position relative to the benchmark, 42% versus 25% for the benchmark, helped add a small incremental return to the portfolio. Selections in the health care and industrial sectors accounted for most of our performance shortfall. In health care, for example, only a third of our holdings contributed positively to performance. Product delays caused by disappointing drug trials, collaborations with large drug companies that did not achieve expected results and lower than expected earnings accounted for some of the difficulties encountered by our holdings. Noven Pharmaceuticals and Cima Labs were also among the underperforming stocks. Disappointing returns from the industrial sector were primarily a result of our holdings in Analogic, Molecular Devices, and Zygo. As disappointing as the year's outcome is to us, we believe the basic cause is the same -- a recessionary economic environment combined with the outperformance of other investment disciplines over aggressive growth strategies such as ours. As our fiscal year drew to a close and first quarter earnings began to come in, we found the preannouncement period to be fairly benign. It appears that the risk of negative earnings surprises has diminished and that corporate managements have set earnings guidance at achievable levels. We are hopeful that our efforts to identify sustainable growth companies will produce better results going forward. Portfolio Discussion During the year, we increased our weighting in the consumer cyclicals sector from 8% to 13% with the addition of two restaurant stocks, Panera Bread and Rare Hospitality. Making up the balance of our increase in this sector was Chico's FAS, a women's apparel retailer. While the number of holdings from the health care sector remained about the same, the overall sector exposure declined by about 10 percentage points as a result of eliminating large holdings such as ArQule, Impath, Noven and Cima Labs. New holdings added during the year included Integra LifeSciences, Province Healthcare, DIANON Systems and Possis Medical. In an effort to achieve some exposure to the improving semiconductor equipment area, we added Photon Dynamics and Cymer from the industrial sector to the portfolio. Giving the Fund exposure to defense electronics was accomplished by our selection of Integrated Defense Technologies. Our weighting in the technology sector increased from 21% to 30% with the addition of Verisity, ATMI, Photronics and Newport, and provided much needed exposure to semiconductor- related activity. Over the course of the year, the number of our holdings increased from 28 to 37 and our weighted average market capitalization rose slightly from about $600 million to almost $800 million. The percentage of holdings under $1 billion declined from 95% to 79%. It remains an objective of our strategy that potential new holdings be under one billion in market cap at the time of purchase. Best performing stocks for the year included Numerical Technologies, Verisity, Career Education, Symyx Technologies, Integra LifeSciences Holdings, P.F. Chang's, Panera Bread, Chico's FAS, Websense and ATMI. With the exception of Numerical and Symyx, all still remain in the Fund and are doing well fundamentally. Among the year's losers, the common theme seemed to be disappointing earnings. Our ten worst issues were Skillsoft, Embarcadero Technologies, Noven, OPNET, Cognizant Technology, Centillium, Cima Labs, Simplex Solutions, Molecular Devices and Multilink Technology. Admittedly, this was a year with which we were less than pleased. Our focus on bottom-up stock selection suffered as declines in stock prices preceded the actual appearance of weak earnings. We were not well prepared for events such as earlier technology overspending and its effect on subsequent demand and a Fed policy determined to slow economic activity. However it appears the worst may be behind us, as the economy appears to be improving steadily and earnings outlooks are taking on a more realistic tone, particularly in select areas of the technology sector. Experience convinces us that our disciplines will ultimately prove productive again and we remain optimistic. While the past year has been difficult on our shareholders, we promise you our continued best efforts in the future. [LOGO OMITTED] 14 PBHG FUNDS PBHG NEW OPPORTUNITIES FUND PBHG NEW OPPORTUNITIES FUND PBNOX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- x Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date2 - -------------------------------------------------------------------------------- PBHG New Opportunities Fund (5.98)% 39.29% 46.31% - --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG NEW OPPORTUNITIES FUND, VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG RUSSELL 2000(R) LIPPER SMALL-CAP GROWTH NEW OPPORTUNITIES FUND GROWTH INDEX3 FUNDS AVERAGE4 2/12/99 $10,000 $10,000 $10,000 2/28/99 10,399 14,461 10,000 3/31/99 12,182 14,976 10,477 4/30/99 12,618 16,299 10,943 5/31/99 13,306 16,324 11,054 6/30/99 17,944 17,184 12,066 7/31/99 19,519 16,653 12,058 8/31/99 19,808 16,030 11,908 9/30/99 20,355 16,339 12,213 10/31/99 25,769 16,758 12,897 11/30/99 34,645 18,530 14,499 12/31/99 53,900 21,796 17,109 1/31/2000 56,972 21,593 16,931 2/29/2000 85,782 26,617 21,103 3/31/2000 76,739 23,819 19,984 4/30/2000 55,596 21,414 17,778 5/31/2000 52,462 19,539 16,325 6/30/2000 69,860 22,063 19,042 7/31/2000 55,838 20,172 17,808 8/31/2000 62,904 22,294 19,868 9/30/2000 61,935 21,186 19,121 10/31/2000 59,668 19,467 17,854 11/30/2000 44,575 15,932 14,820 12/31/2000 51,376 16,907 16,095 1/31/2001 50,406 18,276 16,526 2/28/2001 41,341 15,770 14,365 3/31/2001 35,012 14,337 13,016 4/30/2001 37,281 16,092 14,580 5/31/2001 38,101 16,464 14,913 6/30/2001 39,929 16,913 15,332 7/31/2001 35,251 15,471 14,455 8/31/2001 32,667 14,504 13,602 9/30/2001 26,703 12,164 11,498 10/31/2001 30,107 13,334 12,438 11/30/2001 31,570 14,447 13,382 12/31/2001 35,604 15,347 14,207 1/31/2002 34,230 14,801 13,745 2/28/2002 30,170 13,843 12,847 3/31/2002 $32,919 $15,046 $13,839
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG New Opportunities Fund commenced operations on February 12, 1999. 3 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with A greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Small-Cap Growth Funds Average represents the average performance of 442 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, February 28, 1999. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 14% Health Care 17% Industrial 17% Services 20% Technology 32% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Integrated Defense Technologies 3.5% Manhattan Associates 3.4% Aspen Technology 3.3% Verisity 3.3% FTI Consulting 3.3% Corinthian Colleges 3.2% Photon Dynamics 3.2% Documentum 3.2% Panera Bread, Cl A 3.2% Career Education 3.1% - --------------------------------------------- % of Total Portfolio Investments in Common Stock 32.7% [LOGO OMITTED] 15 PBHG FUNDS PBHG SELECT EQUITY FUND PORTFOLIO MANAGERS: Michael S. Sutton, CFA, Greg Chodaczek PBHG SELECT EQUITY FUND PBHEX Portfolio Profile OBJECTIVE: Long-term growth of capital. INVESTS IN: Growth securities, such as common stocks, of generally no more than 30 small, medium or large capitalization companies. STRATEGY: These stocks are primarily those 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 sell 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. Performance Growth stocks continued to bear the brunt of exceptionally difficult market conditions during our fiscal year ending March 31, 2002. Consequently, PBHG Select Equity Fund declined 14.45% during the period. The Fund trailed the benchmark S&P 500 Index, which was flat at 0.24%, and lagged the more style similar Russell 1000(R) Growth Index, which fell 2.00% for the same period. Clearly we are disappointed with our performance and are working diligently to improve upon these results. The recurring theme throughout most of the year was the continuing rotation out of previously favored growth-oriented investments into perceived safer investments, such as deep value stocks. As investors grappled with bad news during the year, including the tragic events of September 11, slumping economic conditions and questionable accounting practices, stocks were unable to regain their footing for any sustainable length of time. Investor sentiment was further dampened due to increasing layoffs, persistent profit warnings and disappointing corporate earnings. Although the Federal Reserve cut rates aggressively throughout the calendar year 2001 in a committed effort to stimulate the ailing economy, it generally remained unresponsive. More recently these efforts have started to revive growth, as we are seeing some signs of strength starting to stir in the economic environment. All was not lost over the past year, however, especially in the second and fourth quarters of 2001. Sectors that performed poorly in the third quarter, such as technology and consumer cyclical, lifted returns during the second and fourth quarters. The fourth quarter was especially strong. Stocks benefited from an increase in consumer confidence resulting from both the Fed's aggressive monetary easing and the public's positive view on the progression in the war against terrorism. It appeared that those stocks that had valuations fall the most in previous quarters bounced the highest during the final quarter of 2001. While our positions in the consumer cyclical, industrial and services sectors illustrated this theme and contributed positively to performance, our underweight position in technology compared to the benchmark dragged on returns. However, amid dwindling hopes in the first quarter of this year, the improving fundamentals for technology stocks failed to materialize and these stocks began to fall. Corporate accounting also became a major issue during the first quarter of 2002, as the Enron situation spread panic and worry. Our belief is that, unfortunately, this is just the tip of the iceberg and we will continue to see the market focus on accounting issues until the excesses are washed out. For portfolios that invest in a limited number of stocks, this risk is exacerbated because position sizes are larger and the shock absorption benefits of investing in a large number of stocks are not available. Portfolio Discussion The underperformance of the Fund can be attributed to the dismal returns of three sectors; technology; utilities and industrials, with the technology sector providing the biggest drag on results. The technology sector suffered primarily from the continued slowdown in capital equipment purchases by the telecommunications services sector, which started late in fiscal year 2001 and continued throughout the past fiscal year. While most telecommunication equipment suppliers were hurt by these conditions, the faster growing smaller companies suffered more due to their higher expected growth rates. Two portfolio holdings that were hit the hardest were ONI Systems and Sonus Networks. The slashing of the capital expenditure budgets by major telecommunication carriers reduced by half the expected revenues and earnings for both companies. Additionally, Independent Power Producer (IPP's) Calpine, in which we had a significant exposure, Calpine lost its business momentum as the energy crunch abated due to decreased demand in a slow economy, lower oil and natural gas prices and milder weather conditions. Another sector that weighed on Fund performance was the industrial sector. The slowdown in order patterns to the electronic manufacturing services companies and Tyco International's bad case of "Enronitis" caused this sector to stumble. With regard to the former, our holding of Flextronics International was negatively impacted by the drop in order patterns from the large original equipment manufacturers. This slowdown came on much faster than most analysts had predicted, including us. Tyco International was battered due to their complex accounting practices for merger and acquisition activities. Two bright spots this past fiscal year were the Fund's holdings in the health care and services sectors. The largest contributor in the healthcare sector this past fiscal year was Quest Diagnostics, the clinical laboratory testing company. Quest Diagnostics has benefited from the ongoing move by hospitals and physicians to outsource their clinical testing services. This outsourcing of tests frees up time and expenses for these already cost conscious institutions. In the services sector, Concord EFS, the electronic transaction processing and fund transfer services company, was the Fund's best performing stock. Concord EFS' business model continues to grow revenues and improve operating margins due to the steady growth in purchases made using personal debit cards. The elements for renewed economic growth appear to be in place, as many stocks that were trapped in depressed territory have started to experience some positive returns over the past few months. We believe that the current low interest rate environment will continue, inflation will likely remain in check and earnings have probably bottomed. As these conditions are generally favorable for financial assets, we expect to see growth stocks begin to perform more in line with historical averages. While the tensions in the Middle East and lingering job market softness may continue to impact the market, we will be watching for more signs of renewed economic growth and the attractive investment opportunities we believe accompany these conditions. In seeking the fastest growing quality companies, we look for those businesses that are in good situations that we believe are getting better. The past year was very difficult for our discipline given the economic climate and the market's heightened sensitivity to valuation. As history would indicate, we expect that economic recovery should again favor our investment discipline, which seeks fast growing companies. Regardless of near-term market volatility, we will remain committed to our disciplined investment strategy, keeping the portfolio invested to capture the benefits of economic growth as it unfolds. Thank you for your continued confidence. [LOGO OMITTED] 16 PBHG FUNDS PBHG SELECT EQUITY FUND PBHG SELECT EQUITY FUND PBHEX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ------------------x--- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd. AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002
One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Select Equity Fund (14.45)% 1.41% 11.19% 15.87% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SELECT EQUITY FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG SELECT EQUITY S&P 500 LIPPER MULTI-CAP GROWTH FUND INDEX3 FUNDS AVERAGE4 4/5/95 $10,000 $10,000 $10,000 4/30/95 10,210 10,189 10,000 5/31/95 10,620 10,595 10,224 6/30/95 11,930 10,841 10,881 7/31/95 13,680 11,201 11,621 8/31/95 14,240 11,229 11,747 9/30/95 14,850 11,702 12,088 10/31/95 15,300 11,661 11,877 11/30/95 15,690 12,172 12,307 12/31/95 15,836 12,406 12,358 1/31/96 16,184 12,828 12,461 2/29/96 17,382 12,947 12,925 3/31/96 17,690 13,072 13,097 4/30/96 19,206 13,265 13,866 5/31/96 20,804 13,606 14,347 6/30/96 20,015 13,658 13,906 7/31/96 18,059 13,055 12,676 8/31/96 19,257 13,331 13,340 9/30/96 21,562 14,080 14,299 10/31/96 20,322 14,468 14,147 11/30/96 20,793 15,561 14,819 12/31/96 20,269 15,253 14,590 1/31/97 20,765 16,205 15,316 2/28/97 18,324 16,332 14,630 3/31/97 16,461 15,663 13,754 4/30/97 16,927 16,597 14,014 5/31/97 19,203 17,607 15,398 6/30/97 19,979 18,395 15,953 7/31/97 21,852 19,858 17,401 8/31/97 20,765 18,747 17,135 9/30/97 22,804 19,773 18,293 10/31/97 21,231 19,113 17,457 11/30/97 20,600 19,997 17,419 12/31/97 21,655 20,340 17,502 1/31/98 21,221 20,565 17,473 2/28/98 23,383 22,047 18,970 3/31/98 24,987 23,176 19,970 4/30/98 24,935 23,409 20,227 5/31/98 23,476 23,007 19,291 6/30/98 26,466 23,941 20,358 7/31/98 24,325 23,686 19,663 8/31/98 19,596 20,266 16,165 9/30/98 21,490 21,564 17,530 10/31/98 20,196 23,318 18,387 11/30/98 21,707 24,732 19,861 12/31/98 25,773 26,157 22,366 1/31/99 26,115 27,251 23,762 2/28/99 23,745 26,404 22,383 3/31/99 26,829 27,460 23,923 4/30/99 25,897 28,524 24,548 5/31/99 24,790 27,850 24,126 6/30/99 26,942 29,396 25,921 7/31/99 26,363 28,479 25,508 8/31/99 28,318 28,336 25,690 9/30/99 29,157 27,560 25,846 10/31/99 35,023 29,304 27,857 11/30/99 44,490 29,899 30,657 12/31/99 67,241 31,660 36,328 1/31/2000 70,543 30,070 35,536 2/29/2000 101,120 29,501 42,356 3/31/2000 91,437 32,387 41,648 4/30/2000 71,213 31,412 37,771 5/31/2000 63,034 30,768 35,093 6/30/2000 86,290 31,526 39,392 7/31/2000 83,575 31,033 38,242 8/31/2000 97,524 32,961 42,808 9/30/2000 89,239 31,221 40,916 10/31/2000 77,124 31,089 37,855 11/30/2000 51,729 28,638 31,181 12/31/2000 50,732 28,778 32,032 1/31/2001 52,922 29,799 33,019 2/28/2001 40,987 27,082 27,611 3/31/2001 32,706 25,366 24,364 4/30/2001 37,677 27,337 27,411 5/31/2001 37,369 27,520 27,132 6/30/2001 37,246 26,851 26,714 7/31/2001 33,887 26,586 25,191 8/31/2001 30,072 24,922 23,042 9/30/2001 25,815 22,910 19,863 10/31/2001 27,341 23,346 21,118 11/30/2001 30,220 25,137 23,187 12/31/2001 30,011 25,358 23,593 1/31/2002 28,510 24,988 22,890 2/28/2002 26,639 24,506 21,510 3/31/2002 $27,981 $25,428 $22,695
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Select Equity Fund commenced operations on April 5, 1995. 3 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Multi-Cap Growth Funds Average represents the average performance of 491 mutual funds classified by Lipper, Inc. in the Multi-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Growth Funds Average at that month's end, April 30, 1995. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 18% Financial 2% Health Care 34% Industrial 4% Services 13% Technology 29% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Concord EFS 5.7% Quest Diagnostics 5.6% Forest Laboratories 5.3% Apollo Group, Cl A 5.1% Wal-Mart Stores 5.1% Microsoft 4.7% Home Depot 4.7% Idec Pharmaceuticals 4.7% Applied Materials 4.6% First Data 4.4% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 49.9% [LOGO OMITTED] 17 PBHG FUNDS PBHG CLIPPER FOCUS FUND PORTFOLIO MANAGERS: James Gipson, Douglas Grey, Peter Quinn, Michael Sandler, Bruce Veaco PBHG CLIPPER FOCUS FUND PBFOX Portfolio Profile OBJECTIVE: Long-term capital growth. INVESTS IN: Normally no more than 30 common stocks of companies that, in Pilgrim Baxter's opinion, have a strong earnings growth outlook and potential for capital appreciation. STRATEGY: This portfolio is designed to concentrate our investments in approximately 30 companies that we believe represent the best growth companies in the market at a given time, regardless of company size. We purchase only those high growth, high quality companies where we have the greatest confidence in the company's specific fundamental business characteristics. Performance Amid corporate accounting improprieties, earnings troubles, the tragic events of September 11 and what now appears to be a mild recession, stocks of all kinds generally struggled for most of the fiscal year ending March 31, 2002. Although economic data released throughout the period became increasingly positive as the recessionary conditions eased, stocks were unable to launch a sustained rally. In addition, stocks remained generally unresponsive to the tremendous amount of fiscal and monetary stimulus injected into the economy with the exception of a period of strong performance in the fourth quarter of 2001. We are very pleased to report, however, that despite the challenging market conditions endured throughout the fiscal year, PBHG Clipper Focus Fund outpaced the benchmark S&P 500 Index by a significant margin. The Fund returned 20.82% for the one-year period ending March 31, 2002, compared to a slight increase of 0.24% for the Index. In addition, between April 30, 2001, the fiscal year end of the Fund's predecessor, UAM Clipper Focus Portfolio, and March 31, 2002, the Fund's fiscal year end, the Fund rose 17.48% compared to a decline of 6.99% for the benchmark during the same period. The change in fiscal year is a result of the Fund's acquiring all the assets of its predecessor in a reorganization. Portfolio Discussion During the year ending March 31, 2002, performance benefited from our strict investment focus in which we buy stock in companies we consider to be undervalued by the market and sell them when their share prices reach our estimate of intrinsic value. For most of the period, our holdings in the consumer discretionary area worked to lift returns. Positive results were derived from Office Depot, Staples and United Technologies, among others. Holdings in the financial sector turned in mixed results, as did our selections and weighting in the energy sector. For example, while our avoidance of energy stocks proved beneficial at times in the fourth quarter of 2001, our lack of exposure to the sector prevented us from partaking in the gains these stocks experienced in the final months of 2001 and the first quarter of 2002. In addition, our lack of exposure to the health care sector generally helped performance, as this sector turned in disappointing results for much of the period, an unusual occurrence in recessionary conditions. Historically, health care stocks are considered defensive and generally perform favorably under difficult economic conditions. We have reduced our exposure to several names, including United Technologies, Office Depot, and Newell Rubbermaid. Although Office Depot and Newell performed favorably and made positive contributions to portfolio returns, our stringent buy/sell guidelines dictated that we sell these positions since they had reached their intrinsic value. Looking ahead, we plan to continue to update our company specific valuations regularly, mindful that many companies still appear fully or overvalued at their current prices. Additionally, we believe a great deal of uncertainty remains regarding the pace of the impending economic recovery. As always, we will be paying close attention to the latest information regarding corporate earnings, as well as to any economic ramifications of the crisis in the Middle East. Although positive economic data continues to emerge and the Federal Reserve has recently shifted its stance to a neutral bias, equity markets have been mired with fear of more corporate accounting problems, thus preventing stocks from making any significant forward progress. Despite near-term uncertainty, we urge you to stay focused, as we are, on long-term investment results. Thank you for your confidence in PBHG Clipper Focus Fund. [LOGO OMITTED] 18 PBHG FUNDS PBHG CLIPPER FOCUS FUND PBHG CLIPPER FOCUS FUND PBFOX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- x Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus Fund 20.82% 21.56% 21.82% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CLIPPER FOCUS FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG CLIPPER S&P 500 LIPPER MULTI-CAP FOCUS FUND INDEX3 VALUE FUNDS AVERAGE4 9/10/98 $10,000 $10,000 $10,000 9/30/98 10,260 10,387 10,000 10/31/98 11,700 11,232 10,802 11/30/98 12,040 11,913 11,289 12/31/98 11,791 12,599 11,650 1/31/99 11,501 13,126 11,730 2/28/99 11,290 12,718 11,399 3/31/99 11,230 13,227 11,728 4/30/99 12,233 13,739 12,645 5/31/99 12,203 13,415 12,589 6/30/99 12,354 14,159 13,037 7/31/99 12,122 13,718 12,664 8/31/99 11,971 13,649 12,283 9/30/99 11,649 13,275 11,791 10/31/99 11,528 14,115 12,182 11/30/99 11,447 14,402 12,277 12/31/99 11,569 15,250 12,688 1/31/2000 11,046 14,484 12,146 2/29/2000 9,856 14,210 11,710 3/31/2000 10,846 15,600 12,939 4/30/2000 11,207 15,130 12,911 5/31/2000 11,805 14,820 13,021 6/30/2000 11,542 15,185 12,742 7/31/2000 12,039 14,948 12,813 8/31/2000 12,920 15,876 13,643 9/30/2000 13,915 15,038 13,515 10/31/2000 14,758 14,975 13,838 11/30/2000 15,195 13,794 13,327 12/31/2000 16,692 13,862 14,112 1/31/2001 16,445 14,353 14,530 2/28/2001 16,972 13,045 14,086 3/31/2001 16,697 12,218 13,579 4/30/2001 17,171 13,168 14,363 5/31/2001 17,527 13,256 14,657 6/30/2001 17,492 12,933 14,398 7/31/2001 17,341 12,806 14,340 8/31/2001 17,438 12,004 13,823 9/30/2001 16,603 11,035 12,603 10/31/2001 16,776 11,245 12,791 11/30/2001 18,209 12,108 13,625 12/31/2001 18,684 12,214 13,986 1/31/2002 18,955 12,036 13,827 2/28/2002 19,238 11,804 13,712 3/31/2002 $20,172 $12,248 $14,355
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments to a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. Prior to the acquisition, the PBHG class shares of the fund were known as the Institutional Class shares of the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. The Clipper Focus Portfolio was managed by Pacific Financial Research, Inc., the PBHG Clipper Focus Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Clipper Focus Portfolio. Data includes performance of the Fund's predecessor, whose inception date was September 10, 1998. 3 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Multi-Cap Value Funds Average represents the average performance of 561 mutual funds classified by Lipper, Inc. in the Multi-Cap Value Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Value Funds Average at that month's end, September 30, 1998. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 10% Consumer Non-Cyclical 29% Financial 41% Industrial 5% Services 11% Technology 4% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Philip Morris 8.9% Freddie Mac 8.5% Fannie Mae 6.5% McDonald's 5.4% Interpublic Group 5.2% Tyco International 4.9% American Express 4.9% Equity Residential Properties Trust 4.8% Kroger 4.0% Safeway 4.0% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 57.1% [LOGO OMITTED] 19 PBHG FUNDS PBHG FOCUSED VALUE FUND PORTFOLIO MANAGER: Jerome J. Heppelmann, CFA PBHG FOCUSED VALUE FUND PBFVX Portfolio Profile OBJECTIVE: Above-average total return over a market cycle of three to five years, consistent with reasonable risk. INVESTS IN: The Fund, a non-diversified portfolio, invests at least 65% of its total assets in value securities, such as common stocks of small, medium or large capitalization companies. STRATEGY: 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. We use our own fundamental research, computer models and proprietary measures of value in managing this Fund. Performance For the fiscal year ended March 31, 2002 PBHG Focused Value Fund declined 6.18% trailing the return of 0.24% for the S&P 500 Index. The past 12 months were unique in many ways. The financial markets and the overall economy suffered through the worst terrorist attacks to ever occur on U.S. soil. Additionally, during the year we faced the largest corporate bankruptcy in U.S history along with growing uncertainties surrounding corporate accounting practices. The market reacted to these events by rewarding "safe" companies. Falling into this category were companies considered to be inexpensive, with easy to understand business models and very little financial leverage. Due to the concentrated nature of the Fund, a few individual stocks can have a large impact on overall performance. Three of the portfolio's holdings accounted for a major portion of the Fund's underperformance versus the benchmark S&P 500 Index. Hanover Compressor, an oilfield services company, suffered from concerns over off-balance sheet debt and the sustainability of its growth rate. Adelphia Cable was also negatively impacted by its acknowledgement of off-balance sheet debt and renewed concerns regarding the sustainability of growth rates in the cable industry. The third holding, Bristol-Myers Squibb, suffered from disappointing trial results from a potential block-buster cardio-vascular drug, in addition to some inventory issues within their distribution channels. Portfolio Discussion The Fund's performance was negatively impacted by the market's "flight to safety." Consumer staple companies demonstrating slow, but steady predictable growth outperformed in the past year. Our underweighted position in these companies during the year hurt performance. However, valuations in this group remain high and we feel earnings growth will be difficult going forward. We believe there are better opportunities in companies that will benefit from an improving economy. Regional banks performed well, particularly during the latter part of the year, due to the aggressive decrease in interest rates and the subsequent resulting increase in lending margins. Our underweight position in this sector negatively impacted performance. However, we are not optimistic about the long-term growth potential of the regional bank group, primarily because we believe the benefits they enjoyed during the period of declining interest rates are not to be found going forward. As a result, we remain comfortable with our current underweight position in this sector. Aiding the Fund's performance during the fiscal year were positions in Intuit, a provider of tax preparation software, and Aetna, a large HMO, which is benefiting from increased premiums and a more profitable mix of businesses. We continue to see opportunities in certain segments of the technology sector and remain committed to investing in companies with experienced management teams and market leading products. With the exception of the telecommunications industry, we believe that corporate information technology budgets will improve and drive demand going forward. As we did in the past year, we anticipate adding technology companies that meet our stringent selection criteria over the next twelve months. Looking ahead, we expect to see signs of a continuing economic recovery. The effects of the unprecedented decline in interest rates in 2001, combined with a stimulative tax policy and corporate "belt-tightening", will continue to produce an improvement in corporate profits going forward. Regardless of future market action, we believe that over the long-term our investment process will deliver incremental returns and risk diversification for our investors. We will continue to seek to invest in high quality companies that we expect to benefit the most from economic growth as it unfolds. [LOGO OMITTED] 20 PBHG FUNDS PBHG FOCUSED VALUE FUND PBHG FOCUSED VALUE FUND PBFVX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Focused Value Fund (6.18)% 19.61% 19.23% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG FOCUSED VALUE FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: S&P 500 LIPPER MULTI-CAP PBHG FOCUSED VALUE FUND INDEX3 CORE FUNDS AVERAGE4 2/12/99 $10,000 $10,000 $10,000 2/28/99 9,932 10,072 10,000 3/31/99 10,136 10,475 10,358 4/30/99 10,058 10,881 10,764 5/31/99 10,446 10,624 10,631 6/30/99 11,318 11,213 11,193 7/31/99 11,541 10,864 10,967 8/31/99 11,560 10,809 10,797 9/30/99 11,638 10,513 10,595 10/31/99 11,986 11,178 11,114 11/30/99 12,888 11,405 11,581 12/31/99 14,802 12,077 12,564 1/31/2000 16,066 11,470 12,138 2/29/2000 16,739 11,253 12,754 3/31/2000 19,173 12,354 13,505 4/30/2000 17,381 11,983 13,006 5/31/2000 17,516 11,737 12,598 6/30/2000 17,827 12,026 13,078 7/31/2000 17,464 11,838 12,858 8/31/2000 18,656 12,573 13,828 9/30/2000 18,676 11,909 13,284 10/31/2000 18,780 11,859 13,069 11/30/2000 17,029 10,924 11,916 12/31/2000 18,475 10,978 12,323 1/31/2001 19,558 11,367 12,695 2/28/2001 19,314 10,331 11,687 3/31/2001 18,486 9,676 10,937 4/30/2001 19,834 10,428 11,804 5/31/2001 20,248 10,498 11,880 6/30/2001 19,930 10,242 11,689 7/31/2001 19,696 10,142 11,453 8/31/2001 19,027 9,507 10,850 9/30/2001 16,946 8,739 9,769 10/31/2001 17,392 8,906 10,056 11/30/2001 18,645 9,589 10,781 12/31/2001 19,111 9,673 11,005 1/31/2002 17,676 9,532 10,819 2/28/2002 17,237 9,348 10,565 3/31/2002 $17,344 $ 9,700 $11,036
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments to a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Focused Value Fund commenced operations on February 12, 1999. 3 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Multi-Cap Core Funds Average represents the average performance of 392 mutual funds classified by Lipper, Inc. in the Multi-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Core Funds Average at that month's end, February 28, 1999. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 13% Consumer Non-Cyclical 11% Energy 4% Financial 22% Health Care 25% Industrial 5% Services 9% Technology 8% Utilities 3% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Aetna 7.3% DST Systems 6.1% Safeway 5.8% Titan 5.1% Haemonetics 4.8% Bristol-Myers Squibb 4.8% Intuit 4.1% Merck 4.0% Adelphia Communications, Cl A 3.6% Halliburton 3.6% - ------------------------------------------------------ % of Portfolio Investments in Common Stock 49.2% [LOGO OMITTED] 21 PBHG FUNDS PBHG LARGE CAP VALUE FUND PORTFOLIO MANAGER: Raymond J. McCaffrey, CFA PBHG LARGE CAP VALUE FUND PLCVX Portfolio Profile OBJECTIVE: Long-term growth of capital; current income is a secondary objective. INVESTS IN: A diversified portfolio of equity securities of large capitalization companies. STRATEGY: The Fund invests in companies with market capitalizations in excess of $10 billion which in our opinion, are undervalued or overlooked by the market. In selecting investments for the Fund, we emphasize fundamental investment value and consider factors such as: the relationship of a company's potential earning power to the current market price of its stock; continuing dividend income and the potential for increased dividend growth; low price/earnings ratio relative to either that company's historical results or the current ratios for other similar companies; and potential for favorable business developments. Performance For the fiscal year ended March 31, 2002, PBHG Large Cap Value Fund's PBHG Class had a -3.86% total return and the Advisor Class had a -4.15% total return versus the 0.24% return of the S&P 500 Index. We are disappointed by this performance and are taking steps to improve upon the mixed results of fiscal year 2002. Unfortunately, many of the Fund's holdings languished over the past year. For example, large positions in two pharmaceutical companies, Merck and Bristol-Myers Squibb, had meaningful negative impacts on returns. Although we clearly underestimated how poor the fundamental outlook was for these two companies in the short run, we believe at current prices, both stocks are attractively valued. Historically, the pharmaceutical industry has outperformed most other industries over the long term. As such, we continue to hold on to our positions in these two names, confident that they will provide solid growth over time. Likewise, our choices in the telecommunications services area detracted substantially from results. Sizeable positions in both AT&T and Sprint dragged on performance. Again, we misjudged the extent of the severe pricing pressure that is occurring in the long-distance area, which is a result of the increasingly competitive nature of that industry. Since we see no signs of these conditions abating, we have sold our positions in both stocks. We still, however maintain some exposure to the telecommunications services sector. We are concentrating on the Regional Bell Companies such as SBC Communications. In our opinion, the Regional Bells offer low P/E's, stable balance sheets and attractive dividend yields. Finally, investors now seem to prefer small and mid-cap issues. In the late 1990s, large cap stocks led the market. However, the last two years have seen a resurgence in the performance of small and mid-cap stocks. We are hopeful that results across companies of various market capitalizations will even out and that large cap stock performance will be on par with their small and mid-cap counterparts in the coming year. There were some bright spots during the period. For example, HMO holdings, such as Aetna, performed favorably due to attractive valuations and successful restructuring actions. Portfolio Discussion Following a record 11 rate cuts in 2001, the Federal Open Market Committee has recently shifted its outlook on the U.S economy to a neutral bias, meaning the risks to the economy are now more balanced between strength and weakness. Based on the increase in news of improving conditions and the decline in reports citing economic deterioration, the economy appears to be on the upswing. We believe interest rates should hover near current levels and expect consumer spending to remain steady. We are mindful, however, that the tensions in the Middle East and concerns over the strength of the economic recovery will probably keep the market volatile in the months ahead. Despite these uncertainties, we continue to find stocks that meet our investment criteria of reasonable valuations and improving earnings outlooks. Looking ahead, we believe health care and utilities are the most attractive areas. Specifically, we think the pharmaceutical industry has good long-term potential with compelling valuations and reasonable dividend yields. Similarly, we believe utilities sector are also selling at favorable valuations while providing attractive dividend yields. Conversely, we believe most of the consumer cyclicals area looks extended, trading at valuations that are near all-time highs. While consumer demand may stay strong, we think it is already reflected in the sector's current valuations. In surveying the investment landscape, it appears that valuations for "defensive" companies and for those that benefit from improving economic conditions are about equal based on historical trends. Accordingly, we have portfolio exposure balanced by sector and industry. [LOGO OMITTED] 22 PBHG FUNDS PBHG LARGE CAP VALUE FUND PBHG LARGE CAP VALUE FUND PLCVX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- x Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value Fund - PBHG Class2 (3.86)% 9.77% 17.28% 16.64% - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value Fund - Advisor Class3 (4.15)% 9.61% 17.18% 16.54% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP VALUE FUND - PBHG CLASS, VERSUS THE S&P 500 INDEX AND THE LIPPER LARGE-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG LARGE CAP S&P 500 LIPPER LARGE-CAP VALUE VALUE FUND - PBHG CLASS INDEX4 FUNDS AVERAGE5 12/31/96 $10,000 $10,000 $10,000 1/31/97 10,240 10,624 10,406 2/28/97 10,430 10,708 10,488 3/31/97 10,110 10,269 10,135 4/30/97 10,380 10,881 10,429 5/31/97 11,080 11,543 11,123 6/30/97 11,560 12,060 11,530 7/31/97 12,400 13,019 12,389 8/31/97 12,000 12,291 12,102 9/30/97 12,450 12,963 12,752 10/31/97 12,110 12,531 12,260 11/30/97 12,390 13,110 12,492 12/31/97 12,562 13,335 12,681 1/31/98 12,540 13,483 12,637 2/28/98 13,407 14,455 13,521 3/31/98 14,101 15,194 14,126 4/30/98 14,198 15,347 14,219 5/31/98 14,101 15,084 13,869 6/30/98 14,339 15,696 13,934 7/31/98 14,318 15,529 13,475 8/31/98 12,312 13,287 11,414 9/30/98 13,201 14,138 11,960 10/31/98 14,578 15,288 12,919 11/30/98 15,553 16,214 13,502 12/31/98 16,925 17,149 13,934 1/31/99 17,244 17,866 14,028 2/28/99 16,509 17,311 13,633 3/31/99 16,962 18,003 14,027 4/30/99 17,415 18,701 15,124 5/31/99 17,550 18,259 15,056 6/30/99 18,701 19,272 15,592 7/31/99 18,297 18,671 15,146 8/31/99 17,991 18,578 14,690 9/30/99 17,844 18,069 14,102 10/31/99 18,787 19,212 14,569 11/30/99 19,142 19,602 14,683 12/31/99 18,796 20,757 15,175 1/31/2000 18,634 19,714 14,527 2/29/2000 17,372 19,341 14,005 3/31/2000 19,379 21,233 15,474 4/30/2000 19,962 20,594 15,442 5/31/2000 20,723 20,172 15,573 6/30/2000 20,270 20,669 15,240 7/31/2000 19,460 20,346 15,324 8/31/2000 20,771 21,610 16,317 9/30/2000 21,516 20,469 16,163 10/31/2000 21,743 20,382 16,549 11/30/2000 22,034 18,775 15,939 12/31/2000 23,303 18,867 16,878 1/31/2001 24,881 19,536 17,377 2/28/2001 24,679 17,755 16,847 3/31/2001 23,336 16,630 16,241 4/30/2001 24,528 17,923 17,178 5/31/2001 24,780 18,043 17,530 6/30/2001 24,310 17,604 17,220 7/31/2001 24,427 17,430 17,151 8/31/2001 23,403 16,339 16,532 9/30/2001 20,902 15,020 15,074 10/31/2001 21,103 15,306 15,298 11/30/2001 22,849 16,480 16,296 12/31/2001 22,974 16,625 16,727 1/31/2002 22,116 16,382 16,537 2/28/2002 22,099 16,066 16,399 3/31/2002 $22,436 $16,671 $17,169
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Large Cap Value Fund - PBHG Class commenced operations on December 31, 1996. 3 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to March 31, 2002 was (3.32)%. 4 The S&P 500 Index is a capitalization weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Large-Cap Value Funds Average represents the average performance of 365 mutual funds classified by Lipper, Inc. in the Large-Cap Value category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 2% Consumer Cyclical 8% Consumer Non-Cyclical 12% Energy 9% Financial 18% Health Care 20% Industrial 4% Services 2% Technology 16% Transportation 1% Utilities 8% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Merck 5.1% Aetna 4.7% Bristol-Myers Squibb 4.5% Kroger 3.2% PNC Financial Services Group 3.2% Pharmacia 2.8% Lexmark International 2.8% Safeway 2.7% First Data 2.3% AON 2.3% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 33.6% [LOGO OMITTED] 23 PBHG FUNDS PBHG MID-CAP VALUE FUND PORTFOLIO MANAGER: Jerome J. Heppelmann, CFA PBHG MID-CAP VALUE FUND PBMCX Portfolio Profile OBJECTIVE: Above-average total return over a market cycle of three to five years, consistent with reasonable risk. INVESTS IN: Common stocks and other equity securities of companies with market capitalizations in the range of companies represented by the Standard & Poor's MidCap 400 Index ("S&P MidCap 400 Index"), which are considered to be undervalued based on certain proprietary measures of value. STRATEGY: 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. We use our own fundamental research, computer models and proprietary measures of value in managing this Fund. The Fund's sector weightings are generally within 10% of the S&P MidCap 400 Index's sector weightings. Additionally, the Fund generally has a lower price-to-earnings ratio than the S&P MidCap 400 Index. Performance For the fiscal year ended March 31, 2002, PBHG Mid-Cap Value Fund's PBHG Class increased 9.00% and the Advisor Class increased 8.86% versus a return of 18.89% for the S&P MidCap 400 Index and 21.98% for the S&P MidCap 400/Barra Value Index. The past 12 months were unique in many ways. The financial markets and the overall economy suffered through the worst terrorist attacks to ever occur on U.S. soil. Additionally, during the year we faced the largest corporate bankruptcy in U.S history along with growing uncertainties surrounding corporate accounting practices. The market reacted to these events by rewarding "safe" companies. Falling into this category were companies considered to be inexpensive, with easy to understand business models and very little financial leverage. As discussed below, the Fund's lack of exposure to certain industry groups hurt performance and ultimately contributed to the Fund's underperformance relative to the benchmark, the S&P MidCap 400 Index. Portfolio Discussion The Fund's performance was clearly negatively impacted by the market's "flight to safety." Consumer staple companies, with slow but steady, predictable growth, outperformed in the past year. Our underweighted position in these companies hurt performance during the year. However, valuations in this group are high and earnings growth will be difficult going forward. In our opinion, we believe there are better opportunities in companies that will benefit from an improving economy. The Fund's performance was also hurt by our cable company holdings. Increasing concerns over the industry's debt load, sustainability of cash flow growth and competition from satellite operators negatively impacted share prices. Regional banks performed well, particularly during the latter part of the year, due to the aggressive decrease in interest rates and the resulting increase in lending margins. Our underweight position in this sector hurt performance. However, we are not optimistic about the long-term growth potential of the regional bank group, primarily because we believe the benefits they enjoyed during the period of declining interest rates are not to be found going forward. As a result, we remain comfortable with our current underweight position in this sector. Health care was the best performing sector relative to the benchmark over the past year. This sector benefited from continued, predictable earnings growth. Our holdings in health care services outperformed the more expensive and volatile medical technology companies that were found in the benchmark over the past year. We like the long-term outlook for the health care sector and believe demographic changes will remain the drivers of demand in the future. We continue to see opportunities in certain segments of the technology sector and remain committed to investing in companies with experienced management teams and market leading products. With the exception of the telecommunications industry, we believe that corporate information technology budgets will improve and drive demand going forward. As we did in the past year, we anticipate adding technology companies that meet our selection criteria over the next twelve months. Looking ahead, we expect to see signs of a continuing economic recovery. The effects of the unprecedented decline in interest rates in 2001, combined with a stimulative tax policy and corporate "belt-tightening", will continue to produce an improvement in corporate profits going forward. Regardless of future market action, we believe that over the long-term our investment process will deliver incremental returns and risk diversification for our investors. We will continue to invest in high quality companies that we believe will benefit the most from economic growth as it unfolds. [LOGO OMITTED] 24 PBHG FUNDS PBHG MID-CAP VALUE FUND PBHG MID-CAP VALUE FUND PBMCX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value Fund - PBHG Class2 9.00% 19.26% 24.70% - --------------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value Fund - Advisor Class3 8.86% 19.21% 24.67% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG MID-CAP VALUE FUND-PBHG CLASS, VERSUS THE S&P MIDCAP 400 INDEX, S&P MIDCAP 400/BARRA VALUE INDEX AND THE LIPPER MID-CAP CORE FUNDS AVERAGE [LINE GRAPH OMITTED] PLOT POINTS FOLLOWS:
PBHG MID-CAP LIPPER MID-CAP S&P MIDCAP VALUE FUND - S&P MIDCAP CORE FUNDS 400/BARRA PBHG CLASS 400 INDEX4 AVERAGE6 VALUE INDEX6 4/30/97 $10,000 $10,000 $10,000 $10,000 5/31/97 10,740 10,874 10,638 10,906 6/30/97 11,410 11,180 10,926 11,368 7/31/97 12,890 12,285 11,733 12,299 8/31/97 13,240 12,271 11,811 12,359 9/30/97 14,300 12,976 12,472 13,226 10/31/97 13,760 12,411 12,100 12,726 11/30/97 13,870 12,595 12,402 12,772 12/31/97 14,148 13,083 13,147 12,987 1/31/98 14,138 12,834 12,845 12,807 2/28/98 15,443 13,896 13,795 13,863 3/31/98 16,106 14,523 14,440 14,502 4/30/98 16,422 14,787 14,533 14,657 5/31/98 15,717 14,123 13,946 13,980 6/30/98 15,896 14,211 13,842 14,132 7/31/98 15,580 13,660 13,240 13,411 8/31/98 12,769 11,119 11,072 10,913 9/30/98 13,906 12,157 11,933 11,643 10/31/98 15,358 13,243 12,874 12,357 11/30/98 16,538 13,904 13,174 13,063 12/31/98 18,087 15,584 13,761 14,209 1/31/99 18,122 14,977 13,042 14,050 2/28/99 17,023 14,193 12,419 13,241 3/31/99 17,451 14,589 12,653 13,641 4/30/99 17,764 15,740 13,878 14,478 5/31/99 18,666 15,808 14,104 14,610 6/30/99 20,042 16,656 14,542 15,412 7/31/99 20,215 16,301 14,349 15,147 8/31/99 19,487 15,742 13,805 14,667 9/30/99 19,174 15,256 13,125 14,460 10/31/99 19,313 16,033 13,388 15,014 11/30/99 20,007 16,875 13,658 15,875 12/31/99 22,017 17,878 14,080 17,414 1/31/2000 20,903 17,374 13,472 16,926 2/29/2000 21,622 18,590 12,978 18,847 3/31/2000 24,818 20,146 14,964 19,712 4/30/2000 24,639 19,443 14,827 18,713 5/31/2000 25,788 19,200 15,255 18,131 6/30/2000 25,698 19,482 14,566 19,077 7/31/2000 25,321 19,790 15,143 18,847 8/31/2000 27,943 21,999 16,226 20,803 9/30/2000 27,153 21,849 16,466 20,447 10/31/2000 26,883 21,108 16,309 19,754 11/30/2000 25,321 19,515 16,331 17,862 12/31/2000 27,779 21,007 18,001 19,328 1/31/2001 28,494 21,475 18,803 19,655 2/28/2001 27,911 20,250 18,181 18,403 3/31/2001 27,159 18,744 17,380 17,194 4/30/2001 29,510 20,812 18,953 18,825 5/31/2001 30,525 21,297 19,328 19,224 6/30/2001 30,657 21,211 19,358 19,188 7/31/2001 30,130 20,895 19,360 18,737 8/31/2001 29,058 20,211 18,968 17,980 9/30/2001 24,977 17,697 16,839 15,774 10/31/2001 26,143 18,480 17,104 16,430 11/30/2001 28,607 19,855 18,143 17,621 12/31/2001 29,942 20,880 19,286 18,485 1/31/2002 28,851 20,772 19,282 18,222 2/28/2002 28,212 20,797 19,739 17,980 3/31/2002 $29,604 $22,284 $21,200 $19,089
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. Products of technology companies may be subject to severe competition and rapid obsolescence. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Mid-Cap Value Fund-PBHG Class commenced operations on April 30, 1997. 3 The performance shown for the Advisor Class prior to its inception on October 31, 2001 is based on the performance and expenses of the PBHG Class. Subsequent to October 31, 2001, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The cumulative total return of the Advisor Class from its inception to March 31, 2002 was 13.09%. 4 The S&P MidCap 400 Index is an unmanaged capitalization-weighted index that measures the performance of the mid-range sector of the U.S. stock market. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The S&P MidCap 400/Barra Value Index is an unmanaged capitalization weighted index that consists of those securities in the S&P MidCap 400 Index with lower price to book ratios. The index reflects the reinvestments of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Mid-Cap Core Funds Average represents the average performance of 221 mutual funds classified by Lipper, Inc. in the Mid-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 2% Consumer Cyclical 16% Consumer Non-Cyclical 6% Energy 5% Financial 21% Health Care 15% Industrial 8% Services 9% Technology 12% Utilities 6% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 DST Systems 3.1% Lincare Holdings 2.2% BJ's Wholesale Club 1.8% Intuit 1.8% Allmerica Financial 1.7% Bard (C.R.) 1.7% Brinker International 1.7% Toys 'R' Us 1.7% Avocent 1.6% Readers Digest Association 1.6% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 18.9% [LOGO OMITTED] 25 PBHG FUNDS PBHG SMALL CAP VALUE FUND PORTFOLIO MANAGER: Jerome J. Heppelmann, CFA PBHG SMALL CAP VALUE FUND PBSVX Portfolio Profile OBJECTIVE: Above-average total return over a market cycle of three to five years, consistent with reasonable risk. INVESTS IN: A diversified portfolio of common stocks of small companies with market capitalizations similar to companies represented by the Russell 2000(R) Index, that are considered to be relatively undervalued based on certain proprietary measures of value. STRATEGY: 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. We use our own fundamental research, computer models and proprietary measures of value in managing this Fund. The Fund's sector weightings are generally within 10% of the Russell 2000's sector weightings. Additionally, the Fund generally has a lower price-to-earnings and price-to-book value ratio than the Russell 2000(R) Index. Performance For the fiscal year ended March 31, 2002 PBHG Small Cap Value Fund's PBHG Class posted a return of 11.74% and the Advisor Class increased 11.53%, trailing the 13.98% return for the Russell 2000(R) Index and 23.74% return for the Russell 2000(R) Value Index. The past 12 months were unique in many ways. The financial markets and the overall economy suffered through the worst terrorist attacks to ever occur on U.S. soil. Additionally, during the year we faced the largest corporate bankruptcy in U.S history along with growing uncertainties surrounding corporate accounting practices. The market reacted to these events by rewarding "safe" companies. Falling into this category are companies that are considered inexpensive, with easy to understand business models and very little financial leverage. As discussed below, the Fund's lack of exposure to certain industry groups hurt performance and ultimately contributed to the Fund's underperformance relative to the benchmark Russell 2000(R) Index. Portfolio Discussion The Fund's performance was negatively impacted by the market's "flight to safety." Consumer staple companies demonstrating slow, but steady predictable growth outperformed in the past year. Our underweighted position in these companies during the year hurt performance. However, valuations in this group remain high and we feel earnings growth will be difficult going forward. We believe there are better opportunities in companies that will benefit from an improving economy. Regional banks performed well, particularly during the latter part of the year, due to the aggressive decrease in interest rates and the subsequent resulting increase in lending margins. Our underweight position in this sector negatively impacted performance. However, we are not optimistic about the long-term growth potential of the regional bank group, primarily because the benefits they enjoyed during the period of declining interest rates are not to be found going forward. As a result, we remain comfortable with our current underweight position in this sector. Health care was the best performing sector relative to the benchmark over the past year. This sector benefited from continued, predictable earnings growth. Our holdings in health care services outperformed the more expensive and volatile medical technology companies that were found in the benchmark Russell 2000(R) Index. We like the long-term outlook for the health care sector and believe demographic changes will remain the driver of demand in the future. We continue to see opportunities in certain segments of the technology sector and remain committed to investing in companies with experienced management teams and market leading products. With the exception of the telecommunications sub-sector, we believe that corporate information technology budgets will improve and drive demand going forward. As we did in the past year, we anticipate adding technology companies that meet our selection criteria over the next twelve months. Looking ahead, we expect to see signs of a continuing economic recovery. The effects of the unprecedented decline in interest rates in 2001, combined with a stimulative tax policy and corporate "belt-tightening", will continue to produce an improvement in corporate profits going forward. Regardless of future market action, we believe that over the long-term our investment process will deliver incremental returns and risk diversification for our investors. We will continue to invest in high quality small companies that we believe will benefit the most from economic growth as it unfolds. [LOGO OMITTED] 26 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBHG SMALL CAP VALUE FUND PBSVX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- x Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value Fund - PBHG Class2 11.74% 23.77% 19.82% - --------------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value Fund - Advisor Class3 11.53% 23.67% 19.76% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SMALL CAP VALUE FUND - PBHG CLASS, VERSUS THE RUSSELL 2000(R) INDEX, RUSSELL 2000(R) VALUE INDEX AND THE LIPPER SMALL-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG SMALL CAP RUSSELL 2000(R) RUSSELL 2000(R) LIPPER SMALL-CAP VALUE FUND - PBHG CLASS INDEX4 VALUE INDEX5 CORE FUNDS AVERAGE6 4/30/97 $10,000 $10,000 $10,000 $10,000 5/31/97 10,880 11,112 10,796 11,051 6/30/97 11,800 11,589 11,342 11,668 7/31/97 13,070 12,128 11,819 12,376 8/31/97 13,370 12,406 12,006 12,687 9/30/97 14,550 13,314 12,805 13,604 10/31/97 14,210 12,729 12,456 13,140 11/30/97 14,200 12,646 12,593 13,047 12/31/97 14,539 12,868 13,020 13,202 1/31/98 14,518 12,665 12,784 12,997 2/28/98 15,615 13,601 13,557 13,964 3/31/98 16,227 14,162 14,107 14,625 4/30/98 16,438 14,240 14,177 14,717 5/31/98 15,520 13,473 13,675 13,999 6/30/98 15,098 13,502 13,598 13,896 7/31/98 14,402 12,409 12,533 12,947 8/31/98 11,490 9,999 10,570 10,438 9/30/98 11,838 10,782 11,167 10,893 10/31/98 12,872 11,221 11,498 11,355 11/30/98 13,811 11,809 11,810 11,978 12/31/98 14,703 12,540 12,180 12,612 1/31/99 14,410 12,707 11,903 12,490 2/28/99 13,237 11,678 11,091 11,538 3/31/99 12,831 11,860 10,999 11,515 4/30/99 13,429 12,923 12,003 12,466 5/31/99 14,004 13,111 12,372 12,850 6/30/99 14,962 13,704 12,820 13,505 7/31/99 15,255 13,328 12,516 13,439 8/31/99 15,131 12,835 12,058 12,965 9/30/99 15,131 12,838 11,817 12,901 10/31/99 14,771 12,890 11,581 12,904 11/30/99 15,605 13,659 11,641 13,658 12/31/99 17,443 15,206 11,999 14,861 1/31/2000 17,217 14,962 11,685 14,537 2/29/2000 19,845 17,432 12,399 16,318 3/31/2000 21,141 16,283 12,457 16,342 4/30/2000 20,149 15,303 12,531 15,765 5/31/2000 20,431 14,411 12,340 15,135 6/30/2000 22,348 15,667 12,700 16,283 7/31/2000 21,649 15,163 13,123 15,886 8/31/2000 23,734 16,320 13,710 17,268 9/30/2000 23,362 15,841 13,632 16,845 10/31/2000 22,325 15,134 13,584 16,412 11/30/2000 20,532 13,580 13,307 14,907 12/31/2000 23,176 14,746 14,737 16,337 1/31/2001 24,165 15,514 15,144 17,171 2/28/2001 22,916 14,496 15,123 16,148 3/31/2001 21,774 13,787 14,881 15,379 4/30/2001 23,317 14,866 15,569 16,648 5/31/2001 24,024 15,231 15,970 17,239 6/30/2001 24,071 15,757 16,612 17,718 7/31/2001 23,729 14,904 16,240 17,261 8/31/2001 23,140 14,423 16,184 16,759 9/30/2001 19,346 12,481 14,397 14,642 10/31/2001 20,831 13,212 14,773 15,470 11/30/2001 22,834 14,234 15,835 16,559 12/31/2001 24,319 15,113 16,804 17,642 1/31/2002 23,364 14,956 17,027 17,520 2/28/2002 22,575 14,546 17,131 17,120 3/31/2002 $24,330 $15,715 $18,414 $18,458
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Small Cap Value Fund - PBHG Class commenced operations on April 30, 1997. 3 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to March 31, 2002 was 3.75%. 4 The Russell 2000(R) Index is an unmanaged index comprised of the 2,000 smallest securities in the Russell 3000(R) Index. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Russell 2000(R) Value Index is an unmanaged index that measures the performance of those securities in the Russell 2000(R) Index with lower price to book ratios and lower fore- casted growth values. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Small-Cap Core Funds Average represents the average performance of 297 mutual funds classified by Lipper, Inc. in the Small-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 7% Consumer Cyclical 21% Consumer Non-Cyclical 3% Energy 5% Financial 11% Health Care 15% Industrial 10% Services 11% Technology 15% Utilities 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Haemonetics 2.6% IMC Global 1.9% Universal Compresssion 1.9% Advo 1.9% Cima Labs 1.8% Hooper Holmes 1.7% Peregrine Systems 1.7% Stillwater Mining 1.6% Station Casinos 1.6% Avocent 1.5% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 18.2% [LOGO OMITTED] 27 PBHG FUNDS PBHG SPECIAL EQUITY FUND (FORMERLY PBHG NEW PERSPECTIVE FUND) PORTFOLIO MANAGER: John D. Bosse, CFA PBHG SPECIAL EQUITY PBNFX Portfolio Profile OBJECTIVE: Long-term capital appreciation. INVESTS IN: Common stocks and other equity securities of undervalued companies with large, medium, and small capitalizations. STRATEGY: PBHG Special Equity Fund seeks to provide investors with long-term capital appreciation by investing in undervalued companies of all market capitalizations that possess attractive risk/reward characteristics and have catalysts in place to improve profitability or unlock value. Catalysts may include new management, industry consolidation, restructuring opportunities, or a positive turn in fundamentals. Our investment process is driven by bottom-up research conducted by a seasoned team of research analysts, many of whom have extensive professional experience from within the industry they follow. Our process is highly focused on taking advantage of market opportunities generated by basic investor behaviors such as fear, greed, and panic. Performance For the fiscal year ended March 31, 2002, PBHG Special Equity Fund gained 14.33%, exceeding the 0.24% gain in the benchmark S&P 500 Index. Since its inception in November 1997, through March 2002, the Fund's annualized return is 11.86%, versus 6.0% for the S&P 500 Index. Between the fiscal year end of the Fund's predecessor, UAM NWQ Special Equity Portfolio, October 31, 2001 and March 31, 2002, the Fund's fiscal year end, the Fund returned 19.20% outpacing its benchmark, which returned 8.91% for the same period. This change in fiscal year is a result of the Fund's acquiring all the assets of its predecessor in a reorganization. Notwithstanding a turbulent stock market fueled by war, corporate earnings manipulation and fraud, and until recently, a global recession, we generated meaningfully positive returns for our shareholders. Results reflect our value discipline, opportunistic philosophy, and extensive focus on downside protection. Portfolio Discussion As we close out the 2002 fiscal year, the outlook for economic growth and corporate profitability has improved significantly from the recessionary levels of the past 12 months. A strong housing market, low interest rates, and resilient consumer spending have moderated the economic downturn. Falling commodity prices and an exceptionally mild winter also contributed measurably. Economically sensitive stocks have rebounded sharply on account of their compelling valuations and leverage to an expanding economy. Machinery and basic material stocks were exceptionally strong due to expectations of a recovery in industrial production and improved outlook for industrial capital spending. The Fund's machinery holdings consist of Ingersoll-Rand, Parker Hannifin, Snap-On Tools, and York International. Fund holding Delphi, a parts supplier to the automotive industry, was another beneficiary of the improving economy as rising consumer confidence, manufacturer incentives, and relatively low interest rates sustained strong vehicle sales. A testament to this, North American auto production was up 7 percent this year. Energy stocks were under pressure for most of the year due to weak oil demand caused by the global recession, abnormally warm weather, and resulting excess capacity. More recently, however, these stocks have strengthened along with oil prices due to OPEC production cuts and rising tensions in the Middle East. In the health sector, a favorable legislative outlook, strong fundamentals, and solid earnings growth benefited hospital stocks. During the year, we eliminated the Fund's position in Tenet Healthcare based on valuation, and increased our stake in HCA where we believe the risk/reward trade-off is more attractive. Finally, three Fund holdings were acquired during the period, including American General, Heller Financial, and meat processor, IBP. Our opportunistic investment strategy contributed to portfolio results as we took advantage of price declines to add to positions where our investment rationale for owning a stock was unchanged despite weakness in the share price. This allowed us to establish larger positions at more compelling valuations in companies were we had strong convictions. Opportunities were also available following the events of September 11 when investors indiscriminately liquidated positions without regard to valuations. During this time, we established new positions in FelCor Lodging Trust, Radian Group, Station Casinos, and Walt Disney, and added to our positions in Loews, Raytheon, and several mortgage-related stocks. All of these investments made significant contributions to performance for the year. Unfortunately, the year was not without its obstacles, especially in the telecommunications sector. Telecommunication stocks suffered from increased competition, valuation concerns, earnings deterioration, and capital constraints. The performance of our telecommunication stocks reflects this weakness, with the exception of our investment in Alltel, which gained 6% for the period. The Fund also suffered losses in the travel and tourism sectors as a consequence of the September 11 terrorist attacks. The Fund's exposure in these sectors included Delta Airlines, Royal Caribbean Cruises and Alstom S.A. - a manufacturer of cruise ships. These positions were subsequently eliminated after rebounding sharply from their lows. In closing, the investment approach of PBHG Special Equity Fund will continue to focus on uncovering hidden value or opportunities in the market, with attention given to downside risk. While the rebound in the stock market in March 2002 and fourth quarter 2001, has eliminated the extreme undervaluation of most stocks, we believe our investment approach and extensive research will allow the Fund to uncover compelling investment opportunities and generate attractive returns. [LOGO OMITTED] 28 PBHG FUNDS PBHG SPECIAL EQUITY FUND PBHG SPECIAL EQUITY PBNPX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Year 3 Year Inception Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Special Equity Fund 14.33% 13.63% 11.86% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SPECIAL EQUITY FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG SPECIAL EQUITY FUND S&P 500 INDEX3 LIPPER MULTI-CAP VALUE FUNDS AVERAGE4 11/4/97 $10,000 $10,000 $10,000 11/30/97 9,630 10,172 10,000 12/31/97 9,910 10,347 10,151 1/31/98 9,820 10,461 10,115 2/28/98 10,540 11,215 10,824 3/31/98 11,330 11,789 11,307 4/30/98 11,530 11,907 11,382 5/31/98 10,970 11,703 11,102 6/30/98 11,220 12,178 11,154 7/31/98 10,710 12,049 10,786 8/31/98 8,780 10,309 9,137 9/30/98 9,220 10,969 9,574 10/31/98 10,000 11,861 10,341 11/30/98 10,300 12,580 10,808 12/31/98 10,645 13,305 11,154 1/31/99 11,108 13,862 11,230 2/28/99 10,614 13,431 10,913 3/31/99 11,168 13,968 11,228 4/30/99 12,397 14,509 12,106 5/31/99 12,578 14,167 12,052 6/30/99 12,961 14,953 12,481 7/31/99 12,437 14,486 12,124 8/31/99 11,842 14,414 11,759 9/30/99 11,388 14,019 11,289 10/31/99 11,933 14,906 11,662 11/30/99 12,134 15,209 11,753 12/31/99 12,865 16,105 12,147 1/31/2000 11,969 15,296 11,628 2/29/2000 11,094 15,006 11,211 3/31/2000 12,887 16,474 12,387 4/30/2000 12,551 15,979 12,361 5/31/2000 12,815 15,651 12,466 6/30/2000 12,353 16,036 12,199 7/31/2000 12,486 15,786 12,266 8/31/2000 13,374 16,766 13,061 9/30/2000 13,252 15,881 12,938 10/31/2000 13,580 15,814 13,248 11/30/2000 13,038 14,567 12,759 12/31/2000 14,358 14,638 13,510 1/31/2001 14,719 15,158 13,910 2/28/2001 14,423 13,776 13,486 3/31/2001 14,332 12,903 13,000 4/30/2001 14,825 13,906 13,750 5/31/2001 15,164 13,999 14,032 6/30/2001 15,184 13,658 13,784 7/31/2001 15,458 13,524 13,729 8/31/2001 15,041 12,677 13,233 9/30/2001 13,765 11,653 12,066 10/31/2001 13,746 11,876 12,246 11/30/2001 14,754 12,787 13,044 12/31/2001 15,232 12,899 13,390 1/31/2002 15,444 12,711 13,237 2/28/2002 15,550 12,465 13,127 3/31/2002 $16,385 $12,934 $13,743
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 On December 14, 2001, the PBHG Special Equity Fund (formerly the PBHG New Perspective Fund) acquired the assets of the NWQ Special Equity Portfolio. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the NWQ Special Equity Portfolio. The Institutional Service Class shares of the NWQ Special Equity Portfolio were exchanged for PBHG Class shares of the PBHG Special Equity Fund upon the business combination on December 14, 2001. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. The NWQ Special Equity Portfolio was managed by NWQ Investment Management Company, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the NWQ Special Equity Portfolio. Data includes performance of the Fund's predecessor, whose inception date was November 4, 1997. 3 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Multi-Cap Value Funds Average represents the average performance of 561 mutual funds classified by Lipper, Inc. in the Multi-Cap Value Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Value Funds Average at that month's end, November 30, 1997. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 7% Consumer Cyclical 6% Consumer Non-Cyclical 9% Energy 11% Financial 36% Health Care 4% Industrial 12% Services 7% Technology 6% Utilities 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Philip Morris 3.5% Countrywide Credit 3.2% Indymac Bancorp 3.1% Computer Associates International 3.1% Liberty Media, Cl A 3.0% Raytheon 2.8% Fidelity National Financial 2.8% Telephone & Data Systems 2.8% Noble Affiliates 2.8% Sprint (FON Group) 2.6% - -------------------------------------------------------------------------------- % of Total Portfolio Investments in Common Stock 29.7% [LOGO OMITTED] 29 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PORTFOLIO MANAGERS: Harindra de Silva, CFA, Gregory McMurran, Dennis Bein, CFA, Steven Sapra, CFA PBHG DISCIPLINED EQUITY FUND PBDEX Portfolio Profile OBJECTIVE: Above-average total returns INVESTS IN: Medium to large capitalization companies from within the universe of the S&P 500 Index. STRATEGY: Through superior stock selection, the Fund seeks to exceed the returns of its benchmark, the S&P 500 Index, over full market cycles with no greater volatility than that of the Index. The Fund selects holdings using a proprietary quantitative system that ranks stocks according to a mathematical model. While the Fund may invest in companies of any size, it usually invests in medium to large capitalization companies valued at more than $2 billion at the time of purchase. Performance For the year ended March 31, 2002, the Fund's total return was 2.52% versus the 0.24% return of the S&P 500 Index. The Fund outperformed its benchmark in three of the four quarters, only lagging the Index in the fourth quarter of 2001 when the S&P 500 staged a sharp reversal and was up 10.69%. Between December 31, 2001, the fiscal year end of the Fund's predecessor, Analytic Enhanced Equity Fund and March 31, 2002, the Fund's fiscal year end, the Fund returned 0.89%. The Fund outpaced its benchmark, which returned 0.28% for the same period. This change in fiscal year is a result of the Fund's acquiring all the assets of its predecessor in a reorganization. The period will be remembered for the horrific terrorist attacks of September 11 and the ensuing war on terrorism. Prior to September 11, the U.S. and many global economies were experiencing slower growth. Additionally, earnings warnings and disappointments proved the rule rather than the exception. The catastrophe of September 11 exacerbated concern regarding the strength of the U.S. economy and caused a severe decline in consumer confidence in the fourth quarter. To jump-start the economy, the Federal Reserve lowered short-term interest rates to 1.75% from 5.00% at the beginning of April, the lowest levels in 40 years. Economic news started to improve in early 2002. Following a difficult year for the U.S. economy, one which saw Gross Domestic Product (GDP) rise only 1.1%, it appeared the rate cuts of 2001 finally began to take effect. Employment reports showed declines in initial unemployment claims, business inventories fell to the lowest level since December 1999, and inflation data was tame as measured by both the Consumer Price Index (CPI) and Producer Price Index (PPI). In fact, the CPI rose a mere 0.2% in both January and February. Despite this positive news in the first quarter of 2002, investors paid more attention to corporate accounting practices and lackluster business forecasts from some technology giants such as Intel. The Enron scandal put the quality of corporate earnings under the microscope. Investors punished companies with any hint of accounting problems, significant or not, hurting the performance of U.S. equity indexes. Portfolio Discussion Our quantitative investment process analyzes over 70 characteristics, such as price-to-earnings and price momentum, to determine current investor preferences. We do not evaluate stocks the same way a fundamental portfolio manager will by meeting with management and analyzing financial statements to forecast the future success of a company. Our investment process does use fundamental data, however, such as balance sheet and income statement information, to analyze what is impacting stock prices. The economic conditions of the past 12 months were in great contrast to the New Economy period of the late 1990's when investors placed a premium on risk and price momentum rather than strong underlying company fundamentals. Throughout the most recent fiscal year, investors displayed a consistent preference for quality and relative value, favoring characteristics such as cash flow to price, earnings yield and return-on-equity (ROE). The one exception was the fourth quarter of 2001, when investors returned to favor price momentum. Quick changes such as these in investor preferences are not ideal for our process and consequently we underperformed during this short-lived period. However, in the first quarter of 2002, investors once again favored quality and value characteristics and the Fund outperformed the Index. Since our process addresses what has impacted stock prices over the prior three years and not just the recent few months, we were properly positioned and not swayed by investors' short-term return to momentum stocks. Throughout the fiscal year, our positions in the technology and financial services sectors were successful in adding value to Fund results. Despite the technology sector's negative return for the trailing 12 months, we were able to deliver positive results in this area. In fact, five of our top ten performers for the year were technology holdings. We were overweight in General Dynamics, Oracle, and Autodesk, which all performed well for the period. Conversely, we were underweight in EMC and Nortel, which underperformed the S&P 500. Since we measure our success versus the S&P 500 Index, we also gauge stock selection success on a relative basis. Therefore, we consider underweighting a stock that underperforms the benchmark a success. We also had positive results in the financial services sector. Specifically, we were overweight both in Bank of America and Citigroup, which performed well. Our holdings in the health care and capitals goods sectors, such as Merck, IMH Health, and Tyco, negatively impacted performance. We appreciate your loyalty and continuing support. [LOGO OMITTED] 30 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PBHG DISCIPLINED EQUITY FUND PBDEX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- x Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity Fund 2.52% (0.13)% 12.70% 14.15% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN PBHG DISCIPLINED EQUITY FUND, VERSUS THE S&P 500 INDEX AND THE LIPPER LARGE-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG DISCIPLINED LIPPER LARGE- EQUITY FUND S&P 500 INDEX3 CAP CORE FUNDS AVERAGE4 7/1/93 $10,000 $10,000 $10,000 7/31/93 9,845 10,189 10,000 8/31/93 10,217 10,575 10,380 9/30/93 10,109 10,491 10,403 10/31/93 10,343 10,708 10,563 11/30/93 10,156 10,606 10,405 12/31/93 10,401 10,735 10,666 1/31/94 10,734 11,099 11,008 2/28/94 10,501 10,798 10,802 3/31/94 10,078 10,328 10,332 4/30/94 10,196 10,461 10,432 5/31/94 10,397 10,632 10,515 6/30/94 10,167 10,372 10,228 7/31/94 10,438 10,712 10,521 8/31/94 10,810 11,150 10,938 9/30/94 10,500 10,878 10,694 10/31/94 10,704 11,122 10,858 11/30/94 10,262 10,717 10,460 12/31/94 10,375 10,876 10,587 1/31/95 10,632 11,158 10,742 2/28/95 11,010 11,592 11,154 3/31/95 11,303 11,934 11,462 4/30/95 11,666 12,285 11,729 5/31/95 12,132 12,775 12,100 6/30/95 12,437 13,071 12,444 7/31/95 12,888 13,504 12,902 8/31/95 12,888 13,538 12,949 9/30/95 13,448 14,109 13,401 10/31/95 13,378 14,059 13,296 11/30/95 13,849 14,675 13,829 12/31/95 14,041 14,958 14,012 1/31/96 14,483 15,467 14,423 2/29/96 14,748 15,610 14,668 3/31/96 14,802 15,761 14,813 4/30/96 14,908 15,993 15,091 5/31/96 15,334 16,405 15,448 6/30/96 15,367 16,467 15,415 7/31/96 14,638 15,740 14,718 8/31/96 14,922 16,073 15,111 9/30/96 15,499 16,976 15,909 10/31/96 15,927 17,444 16,204 11/30/96 17,120 18,762 17,275 12/31/96 17,268 18,390 16,990 1/31/97 18,081 19,538 17,853 2/28/97 17,965 19,692 17,862 3/31/97 17,505 18,884 17,133 4/30/97 18,273 20,011 17,940 5/31/97 19,111 21,228 19,045 6/30/97 20,123 22,179 19,807 7/31/97 21,897 23,943 21,356 8/31/97 21,127 22,603 20,433 9/30/97 22,553 23,840 21,467 10/31/97 21,171 23,044 20,724 11/30/97 22,178 24,110 21,385 12/31/97 22,418 24,524 21,749 1/31/98 22,684 24,795 21,886 2/28/98 24,625 26,582 23,481 3/31/98 26,147 27,942 24,540 4/30/98 26,786 28,223 24,786 5/31/98 26,786 27,739 24,255 6/30/98 27,873 28,865 25,075 7/31/98 27,761 28,558 24,674 8/31/98 23,549 24,434 20,956 9/30/98 25,641 26,000 22,184 10/31/98 27,846 28,115 23,852 11/30/98 29,203 29,819 25,249 12/31/98 30,897 31,537 26,876 1/31/99 31,832 32,856 27,773 2/28/99 30,925 31,835 26,862 3/31/99 31,946 33,108 27,907 4/30/99 34,043 34,391 28,920 5/31/99 33,561 33,579 28,275 6/30/99 35,801 35,442 29,825 7/31/99 34,793 34,336 28,978 8/31/99 34,850 34,165 28,642 9/30/99 33,752 33,228 27,923 10/31/99 35,177 35,331 29,548 11/30/99 35,519 36,049 30,272 12/31/99 37,096 38,172 32,230 1/31/2000 34,926 36,255 30,806 2/29/2000 34,233 35,568 30,803 3/31/2000 37,429 39,048 33,359 4/30/2000 36,071 37,873 32,288 5/31/2000 35,528 37,096 31,488 6/30/2000 36,328 38,010 32,394 7/31/2000 35,663 37,416 31,928 8/31/2000 38,022 39,740 34,086 9/30/2000 36,396 37,642 32,362 10/31/2000 36,063 37,483 32,070 11/30/2000 33,575 34,528 29,511 12/31/2000 33,636 34,697 29,921 1/31/2001 34,819 35,928 30,571 2/28/2001 32,726 32,652 27,908 3/31/2001 31,043 30,583 26,083 4/30/2001 33,230 32,960 28,055 5/31/2001 33,503 33,181 28,178 6/30/2001 32,971 32,373 27,369 7/31/2001 32,910 32,055 26,942 8/31/2001 31,481 30,048 25,275 9/30/2001 29,113 27,622 23,205 10/31/2001 29,235 28,148 23,717 11/30/2001 31,460 30,308 25,454 12/31/2001 31,545 30,573 25,685 1/31/2002 31,000 30,127 25,213 2/28/2002 30,603 29,546 24,681 3/31/2002 $31,825 $30,658 $25,599
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the Analytic Enhanced Equity Fund. The Analytic Enhanced Equity Fund was a series of the UAM Funds, Inc II. The Analytic Enhanced Equity Fund was managed by Analytic Investors, Inc., the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Analytic Enhanced Equity Fund. Data includes performance of the Fund's predecessor, whose inception date was July 1, 1993. 3 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Large-Cap Core Funds Average represents the average performance of 859 mutual funds classified by Lipper, Inc. in the Large-Cap Core Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. The chart assumes $10,000 invested in the Lipper Large-Cap Core Funds Average at that month's end, July 31, 1993. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 1% Consumer Cyclical 12% Consumer Non-Cyclical 9% Energy 8% Financial 20% Health Care 15% Industrial 6% Services 6% Technology 19% Utilities 4% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Exxon Mobil 5.2% Pfizer 5.1% Citigroup 4.5% Microsoft 4.1% Intel 3.5% Bank of America 3.4% Automatic Data Processing 2.8% Medtronic 2.6% General Electric 2.6% Campbell Soup 2.5% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 36.3% [LOGO OMITTED] 31 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PORTFOLIO MANAGER: Michael K. Ma PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX Portfolio Profile OBJECTIVE: Long-term growth of capital. 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. STRATEGY: The fund's strategy is to invest in technology and related companies that are exhibiting business momentum. As of the year ending March 31, 2002, the Fund's 86 holdings ranged from $419 million to $321 billion in market capitalization. At year-end, the Fund had a median market capitalization of $5.9 billion. In addition to the bottoms-up approach to selecting individual companies, the Fund also focuses on specific sub-sector weightings within the technology and telecommunications industries. Performance PBHG Global Technology & Communications Fund declined 23.23% versus the 9.71% loss sustained by the Wit Soundview 100 Index, the positive 3.68% return of the PSE Technology Index(R) and the 4.24% drop in the MSCI World Free Index during the 12 months ended March 31, 2002. Portfolio Discussion The past twelve months have seemed like a continuing question for technology investors. Are business conditions in technology improving? Have we hit the bottom yet? As sporadic signs of a recovery buoyed investor sentiment throughout the year, negative fundamental results, macro-economic data and geo-political events dampened their enthusiasm. It has been a constant and endless search for the so-called "bottom", particularly for the technology sector. The "bottom" represents an end to the dramatic drop-off in information technology and service provider spending, as well as for technology stock prices in general. The fiscal year started with some optimism regarding the economic outlook, a result of aggressive monetary easing. Unfortunately, this action was taken in response to an already deteriorating macro-economic environment that was gripping the U.S. and threatening the rest of the world. Deterioration of technology companies continued unabated despite the bursting of the dot.com bubble in 2000, the rationalization of the Internet sub-sector and the hundreds of companies that came public over the prior half decade. Looking back, the dramatic decline in telecommunications spending had just begun in 2001 and would hinder the recovery of the technology sector throughout the year. We began the fiscal year similar to the way we ended the prior year, with our largest weighting in the telecommunications equipment and data networking industries. Unfortunately, this large position proved problematic, as the telecommunications equipment area was one of the main areas of underperformance in the technology sector. This was a result of the dramatic reduction in global capital investments by the telecommunications services providers throughout the industry. The Fund was also negatively impacted by investments in next generation equipment vendors such as Ciena and Sonus Networks, as well as by our investments in established equipment vendors like Fujitsu and Alcatel. While we had reduced our positions in these names throughout the year, we underestimated the magnitude and pace of the spending cuts by the telecommunications carriers and held on to those positions too long. While our original investment thesis in the industry held true, namely that data traffic continued its rapid rate of growth and that next generation equipment vendors provided high return on investment for carriers, there were a number of factors that lead to the massive capital spending reduction. The slowing macro- environment clearly had an impact. However, rising interest rates resulted in higher borrowing costs for many of the emerging telecommunications companies, including the competitive local exchange carriers (CLECs). The fierce pricing environment that resulted exposed many flawed business models and ultimately lead to the bankruptcies of Global Crossing, Excite@Home, 360 Networks and many others. Additionally, with less competition from emerging telcommunications providers, the incumbent carriers re-evaluated their spending plans and reduced capital expenditure by the largest margin in the history of the telecommunications industry. During the course of the year, we increased our exposure to the semiconductor and semiconductor capital equipment subsectors. Although fundamentals did not particularly improve markedly, business conditions got better as inventory levels were reduced to unsustainable levels, excess capacity was gradually being removed and order rates began to improve toward the end of the fiscal year. The best performing area in the Fund during the year was Asian foundry companies, namely Taiwan Semiconductor Manufacturing ("TSM") and United Microelectronics ("UMC"). These companies benefited from outsourcing the manufacturing of its devices. In addition, both TSM and UMC experienced dramatic rebounds in utilization rates from the lows achieved late last calendar year, which were driven by increases in customer orders. On the semiconductor capital equipment front, quarterly sequential improvement in orders late in the fiscal year pointed to cyclical recovery and helped propel stock prices higher in this industry. As a result, our holdings in ASML Holdings and Novellus made favorable contributions to performance. With respect to geographic regions, the Fund's investments in Chinese telecommunications services companies, such as China Unicom and China Telecom, underperformed during the fiscal year. We attribute this to the moderation of new subscribers and the restructuring of the largest incumbent carrier in the region, China Telecom, prior to its planned public offering. The Fund's Japanese technology positions also had a negative effect on returns, as many Japanese companies, such as Furukawa Electric, were affected by the drop off in U.S. technology spending and the poor macro-environment in their own region. Europe had significant positive contributors to performance from the semiconductor capital equipment space but was also negatively impacted by Infineon, a leading European DRAM manufacturer, when DRAM prices fell throughout the year. Looking ahead, we believe the near term continues to remain somewhat cloudy for the technology sector and that we may have reached a "bottom" in many areas of technology, particularly those dependent on corporate IT spending. However, it appears the slide in telecommunications capital expenditures continues, although at a somewhat reduced rate. While our current near-term outlook for technology remains cautious, particularly with respect to fundamentals, our long-term optimism remains unchanged. The macro-environment appears to be improving. For example, inventory levels have been reduced across the broad technology sector; capacity utilization appears to be moving higher; and early cyclical areas of technology are beginning to see improving order rates. Finally, as corporate profitability improves, we believe that corporate IT spending will soon follow. Although we cannot predict what impact geo-political events will have on investor psychology, we maintain our belief that the technology sector continues to offer compelling long-term growth opportunities to investors. We want to thank our investors for their continued support amid a very difficult technology environment. We believe the recent periods of near-term uncertainty create attractive entry points for long-term investors. Therefore, we continue with the consistent execution of our aggressive growth investment philosophy and persist with investing in those companies that we believe demonstrate positive business momentum. [LOGO OMITTED] 32 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Year Annualized Return Inception to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications Fund (23.23)% (41.01)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND, VERSUS THE MSCI WORLD FREE INDEX, THE WIT SOUNDVIEW 100 INDEX, THE PSE TECHNOLOGY INDEX(R) AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBGHG Global Technology MSCI World PSE Technology Wit Soundview Lipper Science & & Communications Fund Free Index3 Index(R)4,7 100 Index5,7 Technology Funds Average6 5/31/00 10000 10000 10000 10000 10000 6/30/00 11820 10335 11075 11232 11702 7/31/00 11570 10043 10331 10427 11132 8/31/00 12750 10369 11770 12216 12863 9/30/00 11310 9816 10447 10761 11568 10/31/00 10100 9651 9772 9694 10244 11/30/00 7180 9063 8169 7167 7562 12/31/00 7390 9209 8194 6951 7404 1/31/01 7860 9386 9235 8116 8132 2/28/01 6180 8592 7551 5830 5869 3/31/01 4950 8026 6666 6010 4881 4/30/01 5940 8618 7751 7451 5846 5/31/01 5410 8505 7472 7025 5604 6/30/01 4860 8238 7310 6837 5527 7/31/01 4600 8128 6929 6182 5011 8/31/01 3860 7736 6372 5380 4348 9/30/01 3040 7054 5212 4188 3396 10/31/01 3490 7188 6035 4888 3938 11/30/01 4120 7612 6851 5811 4557 12/31/01 4100 7660 6931 5800 4603 1/31/02 3970 7427 6896 5765 4521 2/28/02 3420 7361 6333 4952 3890 3/31/02 $3800 $7686 $6911 $5426 $4256
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. International investing involves special risks including currency exchange fluctuation, government regulation and the potential for economic and political instability. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. 3 The MSCI World Free Index is the Morgan Stanley Capital International Index that reflects the performance of both the developed and the emerging equity markets of the world. The Index excludes the performance impact of companies that are restricted with respect to foreign investors. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. 4 The PSE Technology Index(R) is a price-weighted index of the top 100 U.S. technology stocks. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Wit Soundview 100 Index is an equal dollar weighted index designed to measure the performance of the technology industry. It is comprised of 100 major technology companies chosen by Soundview Financial Group. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Science & Technology Funds Average represents the average performance of 424 mutual funds classified by Lipper, Inc. in the Science & Technology category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. 7 Effective in June 2001, the Fund changed its benchmark from the Wit Soundview 100 Index to the PSE Technology Index(R). This change was primarily made due to the removal of the Wit Soundview 100 Index from Bloomberg, one of the most comprehensive providers of statistical information regarding the financial industry in the U.S. With this removal, the only source is Soundview Financial Group which we believe seriously diminishes the value of the benchmark as a widely recognized measure of technology stock performance. COUNTRY WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Bermuda 3% Finland 2% France 1% Germany 5% Hong Kong 2% India 2% Israel 3% Japan 4% Netherlands 5% Singapore 1% South Korea 1% Taiwan 13% United Kingdom 3% United States 55% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Taiwan Semiconductor Manufacturing ADR 6.6% United Microelectronics ADR 5.9% Cisco Systems 5.1% ASML 4.7% Broadcom 4.3% SAP ADR 3.6% Marvell Technology Group 2.9% Brocade Communications Systems 2.8% Precise Software Solutions 2.7% PMC - Sierra 2.3% - --------------------------------------------------------- % of Total Portfolio Investments in Common Stock 40.9% [LOGO OMITTED] 33 PBHG FUNDS PBHG REIT FUND PORTFOLIO MANAGERS: Timothy Pire, CFA, Reagan A. Pratt, Lawrence Antonatos, Jerry Ehlinger, CFA PBHG REIT FUND PBRTX Portfolio Profile OBJECTIVE: High total return consistent with reasonable risk. INVESTS IN: Under normal conditions, common stocks of public companies primarily engaged in the real estate industry. The Fund may invest a significant portion of its assets in real estate investment trusts ("REITs"). STRATEGY: The Fund concentrates its investments in securities that comprise the REIT industry. When selecting holdings for the Fund, we look for stocks that are selling at a discount to our estimate of the market value of the underlying real estate. Performance The REIT sector turned in a second straight year of strong performance despite challenging economic conditions. Attractive yields and moderate, predictable growth helped the REIT group outperform the broader equity market. As a result, PBHG REIT Fund's PBHG Class gained 25.25% and the Advisor Class gained 24.69% for the year ended March 31, 2002. The Fund outpaced both benchmarks, the S&P 500 Index and the Wilshire Real Estate Securities Index ("WRESI"), which returned 0.24% and 21.55% for the same period, respectively. Between December 31, 2001, the fiscal year end of the Fund's predecessor UAM Heitman Real Estate Portfolio and March 31, 2002, the Fund's fiscal year end, the Fund gained 10.11%. By comparison, the S&P 500 Index was up 0.28% and the WRESI posted a 9.05% increase for the same period. This change in fiscal year is a result of the Fund's acquiring all the assets of its predecessor in a reorganization. Like stocks in general, real estate stocks have also been affected by the slowdown in the broad economy. This has been due largely to waning demand rather than excess supply. Slowing demand across most property types has resulted in sluggish leasing activity, higher vacancy rates and downward pressure on rental rates. Those property types with the shortest lease duration have experienced the greatest negative impact. The events of September 11 exacerbated the recessionary conditions and had an immediate impact on all property types in terms of company fundamentals and stock price performance. New construction starts also slowed dramatically. However, the terrorist attacks had a direct and significant economic impact on the hotel sector in particular, as demand for hotel rooms dropped off immediately and was followed quickly by a steep decline in stock prices. Real estate sectors with longer lease durations also did not escape the economic downturn. The office and industrial real estate sectors saw increased vacancy rates and lower rental rates across the country. The retail sector has been one of the few property types that has held up relatively well during the year due to resilient consumers who have maintained spending levels despite the recession. Even with a slowdown in demand and weakening fundamentals, the real estate industry was still able to produce positive cash flow growth during the year. This is much different than past recessions. We believe one of the main reasons behind the real estate industry's relative stability through the current economic cycle is that the supply of real estate remained mostly in check. Portfolio Discussion Strong stock selection accounted for much of the Fund's outperformance relative to both benchmarks during the period. Compared to the Wilshire Real Estate benchmark, favorable stock picks in the apartment, hotel and local retail sectors contributed significant gains to returns, particularly later in the period. The hotel sector saw exceptionally strong performance in the latter half of the period and our holdings in this area posted significant positive results. Since stock prices dipped following September's tragic events, we increased our exposure to this sector, taking advantage of the opportunity to buy shares of hotel companies that were trading at substantial discounts to the underlying value of the real estate and adding selectively to the Fund's holdings. In addition, we maintained exposure to those sectors perceived as defensive, including neighborhood retail, self-storage and manufactured housing for much of the period. One of the greatest challenges of the period related to trying to predict the impact of the events of September 11 on real estate demand and the resulting impact on the cash flow of the companies in the real estate securities group. We also remained slightly underweight in the hotel group, as we struggled to maintain exposure to this top-performing sector amid tremendous price movement during the fourth quarter of 2001 and the first quarter of 2002. We believe the fundamentals for the hotel sector will continue to improve over the next few years. The slowdown in the economy is still playing out within the real estate industry. Historically, real estate fundamentals lag the economy by at least six months. Although economic recovery appears to be underway, real estate fundamentals remain weak and we believe will not likely improve until later in 2002. Job growth, in our opinion, will be the driving factor behind the recovery in real estate. It is very early to predict how recent encouraging employment data will translate into growth within the real estate industry and how strong that growth will be. Accordingly, earnings for real estate companies have been adjusted down in 2002. We believe earnings should hit their lowest levels early in 2002 and begin to turn upward later in the year providing the broad economic turnaround stays on track. Presuming the economic recovery builds throughout 2002, we expect to see a resulting increase in demand in all property types. We believe the greatest opportunities for the Fund will be found in those companies and sectors that are poised to benefit the most from improving economic conditions. Sectors we expect to be the early benefactors of renewed growth are those with the shortest lease terms, namely hotels and multi-family units. However, stock selection also remains driven by our "growth at a reasonable price" investment philosophy. Accordingly, we will also look at those industries and sectors that we anticipate will benefit later in the cycle, such as office space, but where valuations are currently very attractive. Investing in defensive sectors will not likely provide the same opportunities as in 2001. Defensive real estate sectors, such as strip retail, self-storage and manufactured housing, did very well from both an operational and performance perspective during the economic slowdown. As the economy picks up, we believe defensive sectors will see their operational performance improve, but less so than some of the more cyclical real estate sectors. As the new fiscal year progresses, we will keep a watchful eye on the economy, looking for signs of stabilization or recovery and an increase in real estate demand. Thank you for your support over the past year. [LOGO OMITTED] 34 PBHG FUNDS PBHG REIT FUND PBHG REIT FUND PBRTX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Annualized Year 3 Year 5 Year 10 Year Inception Return Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG REIT Fund - PBHG Class2 25.25% 16.65% 8.53% 12.76% 9.57% - --------------------------------------------------------------------------------------------------------------------------- PBHG REIT Fund - Advisor Class3 24.69% 16.11% 8.01% 12.43% 9.32% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG REIT FUND - PBHG CLASS, VERSUS THE S&P 500 INDEX, WILSHIRE REAL ESTATE SECURITIES INDEX AND THE LIPPER REAL ESTATE FUNDS AVERAGE. [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG REIT FUND - S&P 500 WILSHIRE REAL ESTATE LIPPER REAL ESTATE PBHG CLASS INDEX4 SECURITIES INDEX5 FUNDS AVERAGE6 3/13/2089 $10,000 $10,000 $10,000 $10,000 3/31/2089 9,960 10,000 10,000 10,000 4/30/2089 10,140 10,519 10,182 10,218 5/31/2089 10,170 10,893 10,357 10,293 6/30/2089 10,281 10,881 10,473 10,419 7/31/2089 10,747 11,863 10,804 10,908 8/31/2089 10,706 12,094 10,690 10,943 9/30/2089 10,481 12,045 10,666 10,957 10/31/2089 10,308 11,765 10,133 10,657 11/30/2089 10,121 12,004 9,982 10,658 12/31/2089 9,944 12,292 9,978 10,744 1/31/2090 9,833 11,467 9,508 10,415 2/28/2090 9,769 11,616 9,504 10,385 3/31/2090 9,598 11,924 9,482 10,423 4/30/2090 9,718 11,627 9,298 10,234 5/31/2090 9,392 12,758 9,257 10,305 6/30/2090 9,413 12,672 9,275 10,467 7/31/2090 9,489 12,632 8,920 10,551 8/31/2090 8,714 11,491 7,878 9,688 9/30/2090 7,740 10,933 6,965 8,962 10/31/2090 7,313 10,886 6,463 8,845 11/30/2090 7,789 11,589 6,726 9,177 12/31/2090 7,741 11,911 6,640 9,222 1/31/91 8,715 12,429 7,286 9,962 2/28/91 8,968 13,317 7,714 10,498 3/31/91 9,523 13,639 8,401 11,063 4/30/91 9,534 13,671 8,333 11,208 5/31/91 9,698 14,259 8,462 11,338 6/30/91 9,534 13,606 8,045 10,995 7/31/91 9,499 14,240 8,011 11,159 8/31/91 9,226 14,576 7,915 11,108 9/30/91 9,253 14,332 7,824 11,342 10/31/91 9,012 14,531 7,648 11,205 11/30/91 8,879 13,948 7,394 11,064 12/31/91 9,564 15,540 7,970 12,001 1/31/92 10,116 15,250 8,345 12,444 2/29/92 9,920 15,448 8,324 12,250 3/31/92 9,910 15,148 8,144 12,088 4/30/92 9,749 15,592 8,009 12,001 5/31/92 10,097 15,668 8,041 12,449 6/30/92 9,924 15,435 7,799 12,237 7/31/92 10,314 16,066 7,828 12,583 8/31/92 10,365 15,737 7,710 12,722 9/30/92 10,594 15,922 8,003 12,968 10/31/92 10,799 15,977 8,088 13,147 11/30/92 10,722 16,519 8,158 13,291 12/31/92 11,273 16,722 8,559 13,923 1/31/93 11,959 16,862 9,154 14,561 2/28/93 12,658 17,092 9,597 15,114 3/31/93 13,861 17,452 10,241 16,104 4/30/93 12,986 17,030 9,661 15,615 5/31/93 12,751 17,485 9,509 15,541 6/30/93 13,104 17,536 9,758 15,837 7/31/93 13,460 17,465 9,956 16,187 8/31/93 13,724 18,126 10,163 16,646 9/30/93 14,594 17,983 10,624 17,369 10/31/93 14,274 18,355 10,325 17,270 11/30/93 13,101 18,181 9,875 16,374 12/31/93 13,538 18,401 9,863 16,878 1/31/94 13,697 19,026 10,159 17,070 2/28/94 14,536 18,510 10,574 17,668 3/31/94 14,031 17,704 10,085 17,083 4/30/94 14,192 17,931 10,198 17,218 5/31/94 14,529 18,225 10,410 17,282 6/30/94 13,983 17,778 10,205 16,881 7/31/94 13,820 18,362 10,228 16,817 8/31/94 13,894 19,113 10,221 16,976 9/30/94 13,855 18,647 10,050 16,684 10/31/94 13,164 19,064 9,683 16,102 11/30/94 12,624 18,371 9,304 15,511 12/31/94 13,945 18,643 10,025 16,806 1/31/95 13,189 19,126 9,701 16,257 2/28/95 13,256 19,870 10,005 16,444 3/31/95 13,312 20,456 10,063 16,472 4/30/95 13,107 21,058 9,990 16,328 5/31/95 13,654 21,898 10,321 17,068 6/30/95 13,830 22,406 10,501 17,406 7/31/95 14,143 23,149 10,670 17,787 8/31/95 14,317 23,206 10,800 18,009 9/30/95 14,759 24,185 10,999 18,407 10/31/95 14,266 24,099 10,658 17,892 11/30/95 14,459 25,156 10,769 18,010 12/31/95 15,461 25,640 11,393 19,269 1/31/96 15,479 26,512 11,550 19,523 2/29/96 15,747 26,758 11,779 19,721 3/31/96 15,933 27,016 11,875 19,748 4/30/96 15,951 27,414 11,928 19,738 5/31/96 16,350 28,120 12,194 20,251 6/30/96 16,707 28,227 12,438 20,569 7/31/96 16,634 26,981 12,327 20,458 8/31/96 17,405 27,551 12,851 21,332 9/30/96 17,878 29,100 13,172 21,865 10/31/96 18,324 29,902 13,529 22,324 11/30/96 19,272 32,160 14,091 23,322 12/31/96 21,345 31,523 15,594 25,601 1/31/97 21,540 33,492 15,817 25,964 2/28/97 21,638 33,754 15,827 26,006 3/31/97 21,879 32,370 15,881 26,068 4/30/97 20,975 34,301 15,368 25,130 5/31/97 21,564 36,388 15,826 25,924 6/30/97 22,716 38,017 16,610 27,358 7/31/97 23,570 41,041 17,157 28,515 8/31/97 23,471 38,744 17,030 28,361 9/30/97 25,309 40,865 18,709 31,069 10/31/97 24,788 39,501 17,914 30,125 11/30/97 25,008 41,328 18,274 30,498 12/31/97 25,854 42,038 18,682 31,252 1/31/98 25,534 42,502 18,418 30,789 2/28/98 25,361 45,566 18,182 30,724 3/31/98 26,131 47,897 18,541 31,437 4/30/98 25,236 48,379 17,957 30,466 5/31/98 24,589 47,548 17,784 30,012 6/30/98 24,291 49,478 17,690 29,670 7/31/98 23,162 48,953 16,459 27,801 8/31/98 21,079 41,884 14,749 24,895 9/30/98 22,108 44,567 15,575 26,128 10/31/98 21,259 48,192 15,361 25,914 11/30/98 21,794 51,113 15,650 26,465 12/31/98 21,946 54,058 15,426 26,304 1/31/99 21,361 56,319 15,091 25,733 2/28/99 20,826 54,569 14,972 25,386 3/31/99 20,750 56,752 14,891 25,173 4/30/99 22,647 58,950 16,479 27,838 5/31/99 23,577 57,558 16,757 28,426 6/30/99 23,293 60,753 16,472 28,139 7/31/99 22,392 58,857 15,842 27,100 8/31/99 22,313 58,563 15,604 26,640 9/30/99 21,978 56,958 14,900 25,579 10/31/99 21,287 60,562 14,623 25,006 11/30/99 20,729 61,793 14,393 24,749 12/31/99 21,692 65,433 14,935 25,746 1/31/2000 21,530 62,146 14,996 25,566 2/29/2000 21,018 60,969 14,709 25,103 3/31/2000 21,910 66,934 15,354 26,245 4/30/2000 23,221 64,920 16,448 27,629 5/31/2000 23,331 63,588 16,646 27,919 6/30/2000 24,254 65,155 17,207 29,063 7/31/2000 25,888 64,137 18,752 31,258 8/31/2000 25,085 68,120 18,077 30,461 9/30/2000 26,005 64,524 18,664 31,496 10/31/2000 24,800 64,251 17,854 30,085 11/30/2000 25,444 59,186 18,256 30,521 12/31/2000 27,094 59,475 19,525 32,527 1/31/2001 26,980 61,585 19,720 32,702 2/28/2001 26,414 55,970 19,310 32,218 3/31/2001 26,299 52,424 19,325 31,986 4/30/2001 26,701 56,498 19,785 32,741 5/31/2001 27,303 56,877 20,339 33,367 6/30/2001 28,907 55,492 21,439 35,065 7/31/2001 28,502 54,946 21,011 34,521 8/31/2001 29,545 51,507 21,744 35,529 9/30/2001 27,933 47,347 20,424 33,899 10/31/2001 27,198 48,250 19,660 32,916 11/30/2001 28,933 51,952 20,934 34,591 12/31/2001 29,913 52,407 21,541 35,532 1/31/2002 30,118 51,642 21,634 35,596 2/28/2002 30,936 50,646 22,129 36,301 3/31/2002 $32,939 $52,551 $23,490 $38,359
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments in one or more groups or industries may involve greater risks than more diversified funds, including greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. Prior to the acquisition, the PBHG Class shares of the Fund were known as the Institutional Class shares of the Heitman Real Estate Portfolio and Advisor Class shares were known as Advisor Class shares of the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. The Heitman Real Estate Portfolio was managed by Heitman Real Estate Securities LLC, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Heitman Real Estate Portfolio. Data includes performance of the Fund's predecessor class, whose inception date was March 13, 1989. 3 The performance shown for the Advisor Class prior to its inception date of May 15, 1995 is based on the performance and expenses of the PBHG Class. Subsequent to May 15, 1995, the performance is that of the Advisor Class, which will cause returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception date to March 31, 2002 was 13.16%. The Advisor Class of the Fund's predecessor carried a maximum front-end sales charge of 4.75% and a 12b-1 fee of 0.50% of average daily net assets. The PBHG REIT Fund Advisor Class does not carry a sales charge and carries a 12b-1 fee of 0.25% of average daily net assets. Returns shown in the chart have been adjusted to reflect the elimination of the front-end sales charge. No adjustment has been made to reflect the lower 12b-1 fee. The Advisor Class shares returns going forward will reflect the 0.25% 12b-1 fee. 4 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Wilshire Real Estate Securities Index is a market capitalization weighted index of publicly traded real estate securities, including real estate investment trusts, real estate operating companies and partnerships. The Index is used by the institutional investment community as a broad measure of the performance of public real estate equity for asset allocation and performance comparison. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Real Estate Funds Average represents the average performance of 159 mutual funds classified by Lipper, Inc. in the Real Estate category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Real Estate Funds Average at that month's end March 31, 1989. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 7% Financial (REITS) 93% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Equity Office Properties Trust 10.5% Apartment Investment & Management, Cl A 7.0% Prologis Trust 5.4% Rouse 4.8% Vornado Realty Trust 4.6% CarrAmerica Realty 4.6% Avalonbay Communities 4.4% Simon Property Group 4.3% Meristar Hospitality 4.2% Boston Properties 3.8% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 53.6% [LOGO OMITTED] 35 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PORTFOLIO MANAGERS: James M. Smith, CFA and Jerome J. Heppelmann, CFA PBHG STRATEGIC SMALL COMPANY FUND PSSCX Portfolio Profile OBJECTIVE: Growth of capital. INVESTS IN: The Fund invests at least 80% of its assets in growth and value securities, such as common stocks of small sized companies. These companies generally have market capitalizations similar to that of the companies in the Russell 2000(R) Index. STRATEGY: 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 price-to-earnings ratios. We strategically adjust the mix of growth and value securities in the Fund, depending upon economic and market conditions. We focus primarily on those securities whose market capitalizations or annual revenues are $750 million or less at the time of purchase. Performance PBHG Strategic Small Company Fund posted a return of 10.68%, trailing the 13.98% gain of the Russell 2000(R) Index while outperforming the 6.54% gain of the Lipper Small-Cap Growth Funds Average for the fiscal year ended March 31, 2002. During the year, the value portion of the Fund contributing 15.70% to the overall returns, outperforming the growth segment's 7.49% gain. Similarly, the Russell 2000(R) Value Index outperformed the Russell 2000(R) Growth Index, 23.74% versuS 4.95%. The Fund is structured to combine the strong growth potential during favorable market environments offered by the growth style employed by Pilgrim Baxter & Associates, with the downside protection contributed by the value style utilized by Pilgrim Baxter Value Investors, Inc. Typically, the Fund has maintained a neutral allocation (approximately 50/50) between the two investment styles, with adjustments for changing market dynamics and the flow of assets into and out of the Fund. As of March 31, 2002, the Fund had 35% of its assets invested in growth and 65% in value. Portfolio Discussion -- Value The past 12 months were unique in many ways. The financial markets and the overall economy suffered through the worst terrorist attacks to ever occur on U.S. soil. Additionally, during the year we faced the largest corporate bankruptcy in U.S history along with growing uncertainties surrounding corporate accounting practices. The market reacted to these events by rewarding "safe" companies. Falling into this category were companies considered to be inexpensive, with easy to understand business models and very little financial leverage. Performance for the value segment of the Fund was negatively impacted by the market's "flight to safety." Consumer staple companies demonstrating slow, but steady predictable growth outperformed during the year. Our underweighted position in these companies dragged on performance. However, valuations in this group remain high and we feel earnings growth will be difficult going forward. We believe there to be better opportunities in companies that will benefit most from an improving economy. Regional banks performed well, particularly during the latter part of the year due to the aggressive decrease in interest rates and the resulting increase in lending margins. Our underweight position in this sector negatively impacted performance. However, we are not optimistic about the long-term growth potential of the regional bank group, primarily because the benefits they enjoyed during the period of declining interest rates are not to be found going forward. As a result, we remain comfortable with our current underweight position in this sector. Health care was the best performing sector relative to the benchmark over the past year. This sector benefited from continued, predictable earnings growth. Our holdings in health care services outperformed the more expensive and volatile medical technology companies that were found in the benchmark Russell 2000(R) Index. We like the long-term outlook for the health care sector and believe demographic changes will remain the driver of demand in the future. We continue to see opportunities in certain segments of the technology sector. With the exception of the telecommunications sub-industry, we believe that corporate information technology budgets will improve and drive demand going forward. As we did in the past year, we anticipate adding technology companies that meet our selection criteria over the next twelve months. Looking ahead, we expect to see signs of a continuing economic recovery. The effects of the unprecedented decline in interest rates in 2001, combined with a stimulative tax policy and corporate "belt-tightening", will continue to produce an improvement in corporate profits going forward. Therefore, we will continue to invest in high quality small companies with attractive valuations that we believe will benefit the most from economic growth as it unfolds. Portfolio Discussion -- Growth The reality of the positive return from the growth segment of the Fund over the past fiscal year should not obscure the challenges imposed on growth investors by recessionary economic conditions, terrorist attacks, and aftershocks from the deflation of the Internet mania. During the year, the equity markets struggled with competing views of business conditions, discouraged by negative sentiment surrounding current conditions, but alternately encouraged by the prospect of an imminent economic upturn resulting from a very stimulative monetary policy. For small capitalization growth equities, this seesaw pattern of confidence, while not unexpected, created historically high volatility in share prices. It also created a flight to value, as evidenced by the significantly stronger results from the value portion of the portfolio. The surprising strength and durability of the consumer throughout the year was amplified by the investment performance of the retail and restaurant names held in the portfolio. Consumer stocks, in fact, represented four of the top five individual contributors to performance for the growth segment of the portfolio during the year. While our technology exposure was overweight relative to the benchmark, we still maintained a low level of exposure in comparison to some of the Fund's previous time periods. Many of the strongest performing holdings were investments that the Fund has maintained for more than one year. We believe this confirms our bottom-up stock selection process, which identifies not only companies with strong growth prospects, but also those with sustainable and predictable earnings. Examples of long-term holdings that positively contributed to performance during the year include Krispy Kreme Doughnuts and Direct Focus in the consumer area, Dianon and First Horizon Pharma in the health care area, MKS Instruments and Elantec Semiconductor in the technology area, and Career Education in the services area. Overall, the Fund generally prefers to quickly weed out companies with deteriorating business fundamentals and to redeploy this cash on some new selections. Examples of names eliminated during the year because of impaired growth prospects include technology selections Ulticom, Stellent, and Riverstone Networks, as well as Professional Detailing from the health care sector. Two years ago in our Annual Report letter, we expressed some caution about inflated investor expectations drawn from the excitement of the "New Economy." The caution was justified as the markets have since returned to a state of normalcy, prizing earnings over concept. In last year's Annual Report, we observed the recalibration of values in the marketplace, with returns from value investing greatly surpassing those of growth investing. Today, we think the prospects for a disciplined small company growth investment strategy are truly outstanding. First, the recession is largely behind us, with the inventory and balance sheet excesses of the last boom under control. Second, companies are describing stabilization of results and better visibility. Third, the incidence of missed targets, albeit from lowered guidance, has subsided, and future earnings forecasts are more constructive and realistic. Finally, the accumulated history of many prior business cycles suggests that we are now entering the phase when small growth companies offer the best relative performance versus the rest of the equity markets, based on improving fundamentals combined with more favorable risk premiums. Therefore, we remain believers that the innovative young companies sought by the Fund offer exciting investment potential. [LOGO OMITTED] 36 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PBHG STRATEGIC SMALL COMPANY FUND PSSCX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- Medium MARKET CAPITALIZATION - ---------------------- x Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date2 - --------------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company Fund 10.68% 17.28% 16.63% 13.14% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG STRATEGIC SMALL COMPANY FUND, VERSUS THE RUSSELL 2000(R) INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG STRATEGIC SMALL RUSSELL 2000(R) LIPPER SMALL-CAP GROWTH COMPANY FUND INDEX3 FUNDS AVERAGE4 12/31/96 $10,000 $10,000 $10,000 1/31/97 10,120 10,200 10,252 2/28/97 9,350 9,953 9,610 3/31/97 8,860 9,483 8,970 4/30/97 8,750 9,509 8,850 5/31/97 10,270 10,567 10,081 6/30/97 11,130 11,020 10,669 7/31/97 12,170 11,533 11,394 8/31/97 12,410 11,797 11,604 9/30/97 13,440 12,660 12,555 10/31/97 12,820 12,104 11,921 11/30/97 12,520 12,026 11,694 12/31/97 12,567 12,236 11,753 1/31/98 12,502 12,043 11,591 2/28/98 13,439 12,934 12,557 3/31/98 13,870 13,467 13,200 4/30/98 13,999 13,542 13,326 5/31/98 12,922 12,812 12,441 6/30/98 13,073 12,839 12,732 7/31/98 12,244 11,800 11,842 8/31/98 9,466 9,509 9,277 9/30/98 10,004 10,253 9,990 10/31/98 10,381 10,671 10,407 11/30/98 11,501 11,230 11,296 12/31/98 12,835 11,925 12,520 1/31/99 13,105 12,083 12,829 2/28/99 11,957 11,105 11,692 3/31/99 11,856 11,278 12,250 4/30/99 12,092 12,289 12,795 5/31/99 12,576 12,468 12,924 6/30/99 13,937 13,032 14,108 7/31/99 13,960 12,674 14,098 8/31/99 14,083 12,205 13,924 9/30/99 14,308 12,208 14,280 10/31/99 14,815 12,257 15,080 11/30/99 16,209 12,989 16,953 12/31/99 19,482 14,460 20,004 1/31/2000 19,188 14,227 19,796 2/29/2000 24,796 16,577 24,674 3/31/2000 23,682 15,484 23,366 4/30/2000 21,514 14,552 20,786 5/31/2000 20,559 13,704 19,088 6/30/2000 24,625 14,899 22,264 7/31/2000 22,898 14,419 20,822 8/31/2000 26,265 15,520 23,231 9/30/2000 26,008 15,063 22,357 10/31/2000 24,331 14,391 20,875 11/30/2000 19,727 12,914 17,328 12/31/2000 21,799 14,023 18,819 1/31/2001 22,342 14,753 19,323 2/28/2001 19,024 13,785 16,795 3/31/2001 17,279 13,111 15,218 4/30/2001 19,353 14,136 17,048 5/31/2001 20,039 14,484 17,436 6/30/2001 20,425 14,984 17,926 7/31/2001 19,496 14,173 16,901 8/31/2001 18,509 13,715 15,904 9/30/2001 15,691 11,869 13,443 10/31/2001 17,093 12,563 14,543 11/30/2001 18,466 13,536 15,647 12/31/2001 19,624 14,371 16,611 1/31/2002 18,938 14,222 16,071 2/28/2002 17,579 13,832 15,021 3/31/2002 $19,124 $14,944 $16,181
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Strategic Small Company Fund commenced operations on December 31, 1996. 3 The Russell 2000(R) Index is an unmanaged index comprised of the 2,000 smallest securities in the Russell 3000(R) Index. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Small-Cap Growth Funds Average represents the average performance of 442 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Basic Materials 5% Consumer Cyclical 21% Consumer Non-Cyclical 3% Energy 3% Financial 7% Health Care 18% Industrial 9% Services 12% Technology 21% Utilities 1% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Haemonetics 1.8% Avocent 1.3% Universal Compression 1.3% Advo 1.3% Direct Focus 1.2% IMC Global 1.2% Krispy Kreme Doughnuts 1.1% Stillwater Mining 1.1% Hooper Holmes 1.1% Polycom 1.0% - ------------------------------------------ % of Total Portfolio Investments in Common Stock 12.4% [LOGO OMITTED] 37 PBHG FUNDS PBHG TECHNOLOGY & COMMUNICATIONS FUND PORTFOLIO MANAGER: Michael K. Ma PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX Portfolio Profile OBJECTIVE: Long-term capital appreciation. Current income is incidental. INVESTS IN: Companies whose products or services are based on or delivered with technology. Also invests in companies that link businesses, consumers and other entities through communications technology. STRATEGY: The Fund's strategy is to invest in those technology and telecommunications companies exhibiting the strongest fundamental business momentum. As of March 31, 2002, the Fund's 73 holdings range from $284 million to $368 billion in market capitalization, with an average capitalization of $26 billion. The Fund employs PBHG's disciplined style of company specific stock selection. Additionally, the Fund is managed with an acute focus on sub-sector weightings within the broader fields technology and telecommunications. Performance PBHG Technology and Communications Fund's PBHG Class declined 24.92% and the Advisor Class declined 25.13% versus the 9.71% decline of the Wit Soundview 100 Index and the positive 3.68% return of its benchmark, the PSE Technology Index(R) for the year ending March 31, 2002. Portfolio Discussion The past twelve months have seemed like a rollercoaster for technology investors. Stocks sporadically rose on faint signs of a potential recovery in the broad economy, only to resume their downward slide in response to weak fundamental results, inconclusive macro-economic data and horrible and unpredictable geopolitical events. Throughout most of 2001, the stock market was constantly searching for the proverbial "bottom", nowhere more so than in the technology sector. The "bottom" for technology investors has become defined by an end to the staggering drop-off in information technology spending by enterprises and a resumption of capital expenditures by telecommunications service providers. The year began with cautious optimism, driven primarily by expectations that the Federal Reserve would aggressively employ monetary easing in an attempt to breathe life into an economy hard hit by the excesses of 1999 and 2000. As 2001 gradually progressed, the Federal Reserve attempted to revive the weakening economy with the record 11 rate cuts. Exacerbated by the events of September 11, however, the economy failed to respond quickly to the Fed's aggressive actions. The rash of excessive investments that characterized 1999 and 2000 ended up punishing the technology sector hardest. Entering 2001 the technology sector was still suffering from the bursting of the "Internet bubble", which had temporarily crippled those companies manufacturing infrastructure hardware and software. At the same time, the recession in the telecommunications industry was just beginning and would come to deepen over the ensuing twelve months. We did not make radical changes to the Fund's positioning entering the period. Our largest weightings continued to be in the telecommunications equipment and data-networking sectors. In hindsight, this proved problematic, as this sector would exit the year as one of the worst performers in the technology arena. A steady stream of dramatic reductions in global capital expenditures by telecommunications services providers resulted in dismal performance in 2001. One bright spot was our investment in Cisco Systems. Although one of our largest positions in the industry, its positive return during the year did not offset the losses sustained by some of our other holdings in next generation equipment vendors such as Ciena, Juniper Networks, ONI Systems and Redback Networks. While we had reduced our positions in these names throughout the year, we underestimated the magnitude and the pace of the spending cuts plaguing the telecommunications industry. In retrospect, the shortfalls in our investment strategies are now apparent. While data traffic continued its rapid rate of growth in 2001, several opposing forces caused the aggregate flood of capital expenditure to cease abruptly. The implosion and resulting financial failure of the hundreds of emerging competitive local exchange carriers (CLECs) not only eradicated a key customer of the next generation equipment suppliers, it also greatly reduced the pressure on incumbent carriers to continue spending at accelerated levels to upgrade the quality and capacity of their networks. Concurrently, the slowing economic environment reduced the global demand for voice and data services, further decreasing the need for telecommunications carriers to proceed with large capital expenditure programs. The result was one of the largest reductions in capital spending in the history of the telecommunications industry, a toxic environment for the vendors of next generation telecommunications equipment. During the course of the year, we increased our exposure to the semiconductor and semiconductor capital equipment areas the greatest. Business fundamentals improved modestly, yet steadily, as inventory levels were reduced to unsustainably low levels. Excess capacity among semiconductor manufacturers gradually diminished over the course of 2001 and semiconductor order rates continued to exhibit signs of improvement as the fiscal year came to a close. The greatest positive contributor to Fund performance during the year was derived from RF Micro Devices, a leading provider of power amplifiers used in wireless handsets. Additionally, analog semiconductor companies such as Maxim Integrated Products, Linear Technology, and Texas Instruments positively impacted the Fund. On the semiconductor capital equipment front, quarterly sequential improvement in orders late in the fiscal year pointed to cyclical recovery and helped propel stock prices higher in this sector. Applied Materials, Novellus Systems, Teradyne, and KLA Tencor also fared well during the period. The hardware sector yielded mixed results for the Fund. While many vendors continued to be negatively impacted by the reduction in corporate IT spending, a select few benefited from new technology implementations, new product cycles and limited replacement of obsolete equipment. This was true of Storage Area Networking (SAN), for example. The SAN space received heightened attention from IT managers due to significant cost and performance advantages over existing solutions, such as tape back-up and network attached storage (NAS). Companies such as Brocade Communications Systems and Emulex benefited from the urgency placed on enhancing corporate storage capabilities. While near term visibility remains somewhat cloudy for the technology sector, we believe that we may have reached a "bottom" in many areas of technology, particularly those dependent on corporate IT spending. It appears, however, that the slide in service provider capital expenditures continues, although at a somewhat reduced rate. The macro environment continues to exhibit signs of improvement: excessive inventory levels have been reduced across the technology food-chain; capacity utilization appears to be moving higher; and early cycle areas within technology are beginning to benefit from improving, and in some cases expedited, order rates. We remain steadfast in our belief that as U.S, corporate profitability continues to improve, corporate IT spending will soon follow. Our long-term conviction in the power of technology and the ensuing opportunities afforded to patient investors remains unchanged. We want to thank our investors for their continued support in a very difficult technology environment. We believe the recent periods of near-term uncertainty create attractive entry points for long-term investors. Therefore, we continue with the consistent execution of our aggressive growth investment philosophy to ensure that shareholders capitalize fully on what we believe to be a steadily improving technology landscape. [LOGO OMITTED] 38 PBHG FUNDS PBHG TECHNOLOGY & COMMUNICATIONS FUND PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX INVESTMENT FOCUS STYLE Value Blend Growth - ---------------------- Large - ---------------------- x Medium MARKET CAPITALIZATION - ---------------------- Small - ---------------------- Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications Fund - PBHG Class2 (24.92)% (13.51)% 5.39% 10.74% - --------------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications Fund - Advisor Class3 (25.13)% (13.59)% 5.34% 10.69% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG TECHNOLOGY & COMMUNICATIONS FUND - PBHG CLASS, VERSUS THE WIT SOUNDVIEW 100 INDEX, THE PSE TECHNOLOGY INDEX(R) AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE [LINE CHART OMITTED] PLOT POINTS FOLLOWS:
PBHG TECHNOLOGY & COMMUNICATIONS FUND - PSE TECHNOLOGY WIT SOUNDVIEW LIPPER SCIENCE & TECHNOLOGY PBHG CLASS INDEX(R)5,7 100 INDEX4,7 FUNDS AVERAGE6 9/29/95 $10,000 $10,000 $10,000 $10,000 9/30/95 10,000 10,000 10,000 10,000 10/31/95 10,800 10,057 10,368 9,834 11/30/95 11,720 10,210 11,079 9,955 12/31/95 11,602 9,919 10,533 9,583 1/31/96 11,462 10,154 10,446 9,564 2/29/96 12,562 10,451 11,128 10,036 3/31/96 12,482 9,899 10,831 9,757 4/30/96 14,132 10,901 12,557 10,833 5/31/96 15,303 11,005 13,442 11,253 6/30/96 14,973 10,244 12,235 10,511 7/31/96 13,712 9,456 11,006 9,508 8/31/96 14,963 10,038 12,002 10,133 9/30/96 16,643 10,945 13,468 11,284 10/31/96 16,793 10,780 13,286 11,138 11/30/96 17,663 12,243 14,813 12,079 12/31/96 17,916 11,954 13,842 11,814 1/31/97 18,539 13,217 15,118 12,546 2/28/97 16,580 12,659 13,942 11,482 3/31/97 14,927 11,955 12,988 10,647 4/30/97 15,437 12,365 13,353 10,951 5/31/97 18,100 13,861 15,145 12,448 6/30/97 18,641 13,958 15,181 12,626 7/31/97 20,865 16,113 17,578 14,238 8/31/97 20,773 16,092 18,116 14,241 9/30/97 22,416 16,638 18,555 14,970 10/31/97 19,732 14,929 16,406 13,713 11/30/97 19,151 14,971 16,227 13,585 12/31/97 18,511 14,392 15,133 13,266 1/31/98 17,697 14,981 15,504 13,586 2/28/98 19,850 16,819 17,507 15,144 3/31/98 20,643 17,151 17,427 15,616 4/30/98 21,061 17,820 18,623 16,218 5/31/98 19,047 16,410 16,872 15,065 6/30/98 20,332 17,164 17,789 16,208 7/31/98 19,186 17,121 17,415 15,926 8/31/98 16,004 13,912 13,427 12,714 9/30/98 17,997 15,881 15,450 14,411 10/31/98 18,072 17,683 16,976 15,444 11/30/98 20,322 19,647 18,826 17,501 12/31/98 23,324 22,319 21,537 20,366 1/31/99 28,435 25,591 24,899 23,566 2/28/99 25,325 22,967 21,781 21,518 3/31/99 30,000 24,724 23,314 23,984 4/30/99 31,653 25,599 23,997 24,732 5/31/99 30,120 26,347 24,762 24,408 6/30/99 34,622 29,839 27,911 27,318 7/31/99 34,067 29,662 27,977 27,031 8/31/99 36,916 31,189 29,675 28,447 9/30/99 37,916 31,233 30,310 29,412 10/31/99 45,517 33,074 33,603 32,676 11/30/99 54,107 37,846 39,615 38,346 12/31/99 80,210 48,396 49,489 48,109 1/31/2000 82,496 47,350 48,149 47,175 2/29/2000 117,027 58,153 62,909 60,276 3/31/2000 100,197 57,869 63,040 57,515 4/30/2000 81,848 54,187 58,385 50,395 5/31/2000 68,637 49,542 51,722 44,272 6/30/2000 93,468 54,868 58,092 51,807 7/31/2000 85,195 51,182 53,928 49,284 8/31/2000 99,596 58,310 63,182 56,948 9/30/2000 92,089 51,759 55,657 51,213 10/31/2000 74,246 48,413 50,140 45,354 11/30/2000 45,137 40,471 37,067 33,480 12/31/2000 45,165 40,596 35,953 32,781 1/31/2001 48,379 45,754 41,977 36,003 2/28/2001 34,067 37,410 30,152 25,983 3/31/2001 25,853 33,024 31,084 21,610 4/30/2001 31,719 38,400 38,538 25,883 5/31/2001 30,000 37,019 36,334 24,811 6/30/2001 28,399 36,213 35,360 24,469 7/31/2001 26,102 34,328 31,976 22,186 8/31/2001 21,509 31,568 27,829 19,251 9/30/2001 15,787 25,819 21,659 15,035 10/31/2001 18,517 29,899 25,281 17,436 11/30/2001 21,942 33,944 30,053 20,175 12/31/2001 21,509 34,336 29,996 20,379 1/31/2002 21,378 34,165 29,819 20,016 2/28/2002 17,664 31,375 25,615 17,224 3/31/2002 $19,409 $34,237 $28,066 $18,843
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. Products of technology companies may be subject to severe competition and rapid obsolescence. Funds that concentrate investments in one or a group of industries may involve greater risks than more diversified funds, including greater potential for volatility. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The PBHG Technology & Communications Fund - PBHG Class commenced operations on September 29, 1995. 3 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to March 31, 2002 was (49.08)%. 4 The Wit Soundview 100 Index is an equal dollar weighted index designed to measure the performance of the technology industry. It is comprised of 100 major technology companies chosen by Soundview financial Group. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or performance. A direct investment in the Index is not possible. 5 The PSE Technology Index(R) is a price-weighted index of the top 100 U.S. technology stocks. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Science & Technology Funds Average represents the average performance of 424 mutual funds classified by Lipper, Inc. in the Science & Technology category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Science & Technology Funds Average at that month's end, September 30, 1995. 7 Effective in June 2001, the Fund changed its benchmark from the Wit Soundview 100 Index to the PSE Technology Index(R). This change was primarily made due to the removal of the Wit Soundview 100 Index from Bloomberg, one of the most comprehensive providers of statistical information regarding the financial industry in the U.S. With this removal, the only source is Soundview Financial Group which we believe seriously diminishes the value of the benchmark as a widely recognized measure of technology stock performance. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Consumer Cyclical 6% Industrial 2% Services 5% Technology 87% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS - MARCH 31, 2002 Cisco Systems 5.2% Broadcom, Cl A 4.7% Applied Materials 4.0% Qualcomm 3.6% Siebel Systems 3.5% eBay 3.5% Xilinx 3.4% Texas Instruments 3.3% Brocade Communications Systems 3.1% Marvell Technology Group 2.9% - ------------------------------------------------------ % of Total Portfolio Investments in Common Stock 37.2% [LOGO OMITTED] 39 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PORTFOLIO MANAGERS: John K. Dwight, Laura P. Dagan, CFA, David J. Kilborn, CFA PBHG IRA CAPITAL PRESERVATION FUND PBCPX Portfolio Profile OBJECTIVE: Seeks to provide investors with a level of current income higher than that of money market funds, while attempting to preserve principal and maintain a stable net asset value per share (NAV). INVESTS IN: Fixed-income securities that a nationally recognized statistical rating agency, such as Moody's Investors Service or Standard & Poor's Rating Group, has rated in its top category at the time of purchase. The Fund may also invest in liquid short-term investments and commingled pools of debt. STRATEGY: The Fund seeks to stabilize its NAV by purchasing wrapper agreements from financial institutions, such as insurance companies and banks, that a rating agency has rated in one of its top two categories at the time of purchase. The Fund's goal is to purchase enough wrappers to cover all of its debt securities. While not fixed at $1.00 per share like a money market fund, the wrapper agreements are likely to cause the net asset value of the Fund to be considerably more stable than a typical high-quality fixed income fund. The portfolio is offered exclusively to IRA and Keogh Plan investors. Performance For the year ended March 31, 2002, PBHG IRA Capital Preservation Fund gained 5.53% relative to the 6.56% return of the benchmark Ryan 5-Year GIC Master Index and the 2.82% increase of the Lipper Money Market Funds Index. On January 14, 2002, the Fund reorganized from the UAM IRA Capital Preservation Portfolio of UAM Funds Trust, the predecessor fund. Between the predecessor's previous fiscal year end of October 31, and the Fund's year end, the Fund gained 1.98%. By comparison, the Ryan 5-Year GIC Master Index was up 2.65% and the Lipper Money Market Funds Index added 0.69% for the same period. Greater awareness of the Fund accelerated the growth of new cash flow in the fourth quarter of 2001 and first quarter of 2002, increasing assets to $518 million at the end of the period. We are pleased that the Fund has gained the attention of so many new shareholders. During the period, the Fund accomplished its objective of providing shareholders with stable positive returns despite outsized market volatility and a steeper yield curve. The portfolio is positioned to benefit from the impact of rising interest rates, assuming continued Fund growth. While the Fund underperformed its primary benchmark for the fiscal year, it substantially outperformed the Lipper Money Market Funds Index. As interest rates at the immediate front end of the yield curve have decreased, rates in the two to five-year area have increased, and market volatility has persisted, we believe that the Fund's investment strategy presents an attractive alternative to money market investments. Following an erratic fourth quarter of 2001 that saw rising rates, the first quarter started off rather subdued. U.S. Treasury securities were stuck in a narrow trading range throughout January and February, which was mainly a reflection of the high level of uncertainty regarding monetary policy and the strength of the economic recovery. These market conditions allowed for moderate gains in most bond sectors and strong gains in securitized bonds, which represent a substantial portion of Fund assets. For example, the drop in refinancing by homeowners provided a strong lift for mortgages, which gained almost 1% during the first quarter. While recent economic data consistently reflected a strengthening economy, the Federal Reserve's position on the sustainability of the recovery was unclear. U.S. Treasuries' narrow trading range was eventually broken when Fed Chairman Greenspan shifted his economic view in early March to a more optimistic outlook. This gave the markets a clear signal to sell, which investors did. By the end of the month, yields on two-year Treasury notes were up 0.50%, 10-year notes were up 0.35% and 30-year bonds were up 0.25%. We believe this correction in the Treasury market was overdue, as economic fundamentals had steadily improved in the first quarter. Portfolio Discussion We believe the portfolio is well diversified across the major sectors of the AAA-rated fixed-income market, with the objective of preserving principal and maintaining a stable $10 net asset value per share. Our investment process focuses primarily on yield enhancement through sector weightings and security selection. Throughout the past year, the average credit quality of the total portfolio remained at AAA/Aaa, as measured by Standard & Poor's Rating Group and Moody's Investors Service, respectively. To take advantage of the steeper yield curve, we have maintained the portfolio duration close to three years, slightly longer than the benchmark target to help sustain the Fund's return as it continues to follow market interest rates. All sectors outperformed U.S. Treasuries during the first quarter of 2002, as investors looked for higher yielding assets and sold Treasuries. Areas of note were the AAA-rated airline equipment sector and residential mortgage and asset-backed (home equity loan) sectors. Airline equipment securities benefited from increasing passenger volume since September 11, lower fuel costs and renewed interest by management and labor to end the volatile cycle of the airline industry and keep carriers afloat. The Fund's only change in sector allocation during the first quarter of 2002 was to overweight home equity loan securities relative to the prior quarter at the expense of residential mortgage holdings. This strategy sought to take advantage of new issuance activity in March, 2002, which we believe should reverse in the near term as the level of new issuance subsides. Looking ahead, we expect the economy to slow in the second quarter from its strong first quarter pace, as some of the factors that lifted growth through March are no longer present. In particular, the mildest winter in over a decade distorted the seasonal factors, which we believe will probably bias second quarter economic statistics to the downside. We are also concerned about the recent rise in jobless claims, which may portend an up-tick in unemployment. For political reasons, the Fed is unlikely to lift the federal funds rate while unemployment is increasing, which should allay bond market fears. As the year continues to unfold, our objectives remain the same - to preserve shareholder principal while providing a stable net asset value and competitive returns. We thank you for your confidence in PBHG IRA Capital Preservation Fund and look forward to continuing to serve your retirement investment needs. [LOGO OMITTED] 40 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBHG IRA CAPITAL PRESERVATION FUND PBCPX
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Year Inception Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation Fund 5.53% 6.31% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG IRA CAPITAL PRESERVATION FUND, VERSUS THE RYAN 5-YEAR GIC MASTER INDEX AND LIPPER MONEY MARKET FUNDS INDEX [LINE CHART OMITTED] PLOT POINTS FOLLOWS: PBHG IRA CAPITAL RYAN 5-YEAR LIPPER MONEY PRESERVATION FUND GIC MASTER INDEX3 MARKET FUNDS INDEX4 8/31/99 $10,000 $10,000 $10,000 9/30/99 10,055 10,053 10,039 10/31/99 10,112 10,106 10,080 11/30/99 10,166 10,160 10,122 12/31/99 10,224 10,213 10,167 1/31/2000 10,279 10,267 10,213 2/29/2000 10,331 10,321 10,257 3/31/2000 10,386 10,375 10,304 4/30/2000 10,441 10,430 10,350 5/31/2000 10,499 10,485 10,401 6/30/2000 10,555 10,541 10,452 7/31/2000 10,613 10,597 10,505 8/31/2000 10,674 10,653 10,559 9/30/2000 10,738 10,710 10,612 10/31/2000 10,799 10,767 10,667 11/30/2000 10,857 10,825 10,718 12/31/2000 10,917 10,883 10,772 1/31/2001 10,978 10,942 10,824 2/28/2001 11,032 11,001 10,869 3/31/2001 11,098 11,060 10,914 4/30/2001 11,154 11,120 10,956 5/31/2001 11,209 11,179 10,994 6/30/2001 11,263 11,239 11,028 7/31/2001 11,319 11,300 11,061 8/31/2001 11,377 11,360 11,092 9/30/2001 11,430 11,421 11,120 10/31/2001 11,484 11,481 11,145 11/30/2001 11,532 11,542 11,163 12/31/2001 11,577 11,602 11,180 1/31/2002 11,621 11,663 11,196 2/28/2002 11,665 11,724 11,208 3/31/2002 $11,711 $11,785 $11,222
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. While not fixed at $1.00 per share like a money market fund, the wrapper agreements are likely to cause the net asset value of the Fund to be considerably more stable than a typical high-quality fixed-income fund. A money market fund will generally have a shorter average maturity than the Fund and its yield will tend to more closely track the direction of current market rates than the yield of the Fund. Over the long-term, however, the Sub-Adviser believes the Fund's mix of investments and longer average duration will offset those differences by producing higher returns than a money market fund. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust. The IRA Capital Preservation Portfolio was managed by Dwight Asset Management Company, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the IRA Capital Preservation Portfolio. Data includes performance of the Fund's predecessor, whose inception date was August 31, 1999. 3 The Ryan 5-Year GIC Master Index is an unmanaged index with an arithmetic mean or market rates of $1 million GIC contracts held for five years. The market rates are representative of a diversified, investment grade portfolio of contracts issued by credit worthy insurance companies. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 4 The Lipper Money Market Funds Index represents the average performance of 30 mutual funds classified by Lipper, Inc. in the Money Market Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: Residential Mortgages-Agency (13)% Commercial Mortgages (18)% Residential Mortgages (1)% Asset-Backed Securities (61)% Corporate Bonds (7)% % of Total Portfolio Investments in Long-Term Obligations TOP TEN HOLDINGS - MARCH 31, 2002 Providian Master Trust, Ser 2000-1, Cl A 4.7% Federal National Mortgage Association 30 year Fixed TBA, 7.50% 3.6% Northwest Airlines, Ser 2000-1, Cl G 3.6% Federal National Mortgage Association 30 year Fixed TBA, 7.00% 3.6% Continental Airlines, Ser 2002-1, Cl G2 3.3% Southern Pacific Secured Asset, Ser 1997-3, Cl A5 2.6% Provident Auto Lease ABS Trust, Ser 1999-1, Cl A3 2.5% The Money Store Home Equity Trust, Ser 1998-A, Cl AF9 2.4% Chase Funding Loan Acquisition Trust, Ser 2002-C1, Cl IA3 2.4% Long Beach Mortgage Loan Trust, Ser 2002-1, Cl 2A4 2.4% - ------------------------------------------------------ % of Total Portfolio Investments in Long-Term Obligations 31.1% [LOGO OMITTED] 41 PBHG FUNDS PBHG CASH RESERVES FUND PORTFOLIO MANAGER: John C. Keogh PBHG CASH RESERVES FUND PBCXX Portfolio Profile OBJECTIVE: Preserve principal value and maintain a high degree of liquidity while providing current income. INVESTS IN: Money market securities. STRATEGY: The Fund's strategy is to be fully invested in a diversified portfolio of short-term, high-quality money market securities. Performance For the fiscal year ended March 31, 2002, PBHG Cash Reserves Fund returned 2.55% compared to the 2.46% return for the Lipper Money Market Funds Average. Market Discussion In recent years, the money markets have been impacted by at least one major economic crisis or concern annually. There was Korea in 1997, Long Term Capital and Russia in 1998, in 1999 it was Y2K and in 2000, it was the bursting of the market bubble. Of course in the most recent year, there was the tragedy of September 11 and a recession, which prompted the Fed act aggressively in cutting interest rates. The U.S. ended 2001 officially in recession as fundamentals continued to deteriorate in the wake of the tragic events of September 11. Layoffs accelerated during the fourth quarter of 2001 when, during the period from August to December, job losses exceeded one million workers, nearly 1% of total employment. Companies cut production in response to weakening demand, reigning in excess inventories. Double-digit declines in corporate profits have spelled additional cutbacks in capital spending. In response to this economic weakness, the Federal Reserve aggressively cut interest rates throughout 2001. The Fed's rate reductions, which began on the second business day of 2001, totaled 475 basis points, dropping the target rate from 6.50% to 1.75%. As a percentage, this drop represents a 73% decline in short-term rates. The last time we saw a decline of this magnitude was 1958. Two themes dominated the fixed-income markets in the first quarter of 2002. First, economic growth continued to surprise with its strength, indicating to most investors and borrowers that short-term interest rates would not go lower in this interest rate cycle. Most likely, the Fed's next move will be toward higher short-term rates as 2002 passes. Second, the issues of off-balance sheet financing, corporate governance, and impartiality by auditors, rating agencies, and outside directors pressured corporate borrowers to provide greater financial clarity at the risk of seeing their cost of capital rise sharply or, in some cases, losing access to the capital markets. The Federal Open Market Committee (FOMC) moved to a "neutral bias" during the first quarter after maintaining a yearlong easing campaign, which included 11 short-term interest rate cuts. At the March 19 meeting, the FOMC left short-term interest rates unchanged at 1.75% and signaled the end to their prolonged easing cycle. Evidence of economic recovery continued to mount throughout the latter part of the period. The most convincing signs of a reviving economy included resilience in consumer spending, improving unemployment data and an increasingly favorable inventory cycle. Portfolio Discussion Our outlook is for short-term interest rates to rise over the course of 2002. The timing of the Fed's first move is difficult to predict. In the meantime, the markets will not wait for the Fed and yields on term money market instruments will continue to rise. The shift to deficit spending by the Federal government and the simultaneous move to borrowing with short-term maturities rather than long-term maturities will play a significant role in pressuring market yields higher, particularly for Treasuries. We do not expect commercial paper issuance to rise in a meaningful way, as many companies have extended their debt maturities in the recent low yield environment. These two factors will probably result in reduced yield spreads between Treasuries and other money market sectors in the next twelve months. Along with the economy, credit trends are likely to improve in coming months as corporations experience the economic rebound that the consumer has already enjoyed. This environment is usually a difficult one for fixed-income investors, as a short maturity/duration bias should pay high relative long-term returns. We agree in principal but recognize that the markets are likely to overreact, providing opportunities to buy longer maturity instruments at yields that reflect an overly aggressive view of future Fed rate increases. As always, we will seek to purchase investments that offer maximum credit safety while maintaining shareholder liquidity. We look forward to the new fiscal period and to serving the PBHG Cash Reserves Fund's shareholders for another year. [LOGO OMITTED] 42 PBHG FUNDS PBHG CASH RESERVES FUND PBHG CASH RESERVES FUND PBCXX
AVERAGE ANNUAL TOTAL RETURN1 AS OF MARCH 31, 2002 One Annualized Annualized Annualized Year 3 Year 5 Year Inception Return Return Return to Date3 - ------------------------------------------------------------------------------------------------ PBHG Cash Reserves Fund 2.55% 4.44% 4.66% 4.77% - ------------------------------------------------------------------------------------------------
COMPARISON OF TOTAL RETURN, AS OF MARCH 31, 2002 FOR THE PBHG CASH RESERVES FUND, VERSUS THE LIPPER MONEY MARKET FUNDS AVERAGE1 [BAR CHART OMITTED] PLOT POINTS FOLLOWS: LIPPER MONEY MARKET FUNDS AVERAGE(2) PBHG CASH RESERVES FUND 1 YEAR 2.55% 2.46% 1 Performance is historical, reflects the reinvestment of all distributions and not indicative of future results. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An investment in the PBHG Cash Reserves Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The Lipper Money Market Funds Average represents the average performance of 390 mutual funds classified by Lipper, Inc. in the Money Market category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Funds past or future performance. 3 The PBHG Cash Reserves Fund commenced operations on April 5, 1995. SECTOR WEIGHTINGS - AT MARCH 31, 2002 [PIE CHART OMITTED] PLOT POINTS FOLLOWS: CERTIFICATES OF DEPOSIT 6% COMMERCIAL PAPER 51% GOVERNMENT BOND 25% CASH 18% % of Total Portfolio Investments [LOGO OMITTED] 43 PBHG FUNDS REPORT OF INDEPENDENT ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF PBHG FUNDS: In our opinion, the accompanying statements of net assets for the PBHG Core Growth Fund, PBHG Growth Fund, PBHG Large Cap 20 Fund, PBHG Large Cap Growth Fund, PBHG Limited Fund, PBHG New Opportunities Fund, PBHG Clipper Focus Fund (formerly UAM Clipper Focus Portfolio), PBHG Mid-Cap Value Fund, PBHG Small Cap Value Fund, PBHG Special Equity Fund (formerly UAM NWQ Special Equity Portfolio), PBHG Disciplined Equity Fund (formerly UAM Analytic Enhanced Equity Fund), PBHG Global Technology & Communications Fund, PBHG REIT Fund, PBHG Strategic Small Company Fund, PBHG Technology & Communications Fund, PBHG Cash Reserves Fund and the statements of assets and liabilities, including the schedules of investments of the PBHG Emerging Growth Fund, PBHG Select Equity Fund, PBHG Focused Value Fund, PBHG Large Cap Value Fund and PBHG IRA Capital Preservation Fund (formerly UAM IRA Capital Preservation Portfolio) (constituting PBHG Funds hereafter referred to as the "Fund"), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects the financial position of each of the funds at March 31, 2002, and the results of each of their operations, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2002 by correspondence with the custodians and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Philadelphia, Pennsylvania May 13, 2002 [LOGO OMITTED] 44 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of March 31, 2002 PBHG CORE GROWTH FUND PBCRX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 95.0% BASIC MATERIALS -- 1.0% CHEMICALS-SPECIALTY -- 1.0% OM Group 7,600 $ 550 -------- 550 -------- TOTAL BASIC MATERIALS (COST $487) 550 -------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 19.0% ENTERTAINMENT SOFTWARE -- 1.1% Electronic Arts* 9,900 602 -------- 602 - -------------------------------------------------------------------------------- MOTORCYCLE/MOTOR SCOOTER -- 2.5% Harley-Davidson 24,400 1,345 -------- 1,345 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 0.7% Ross Stores 10,100 382 -------- 382 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 0.7% Michaels Stores* 9,200 348 - -------------------------------------------------------------------------------- 348 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 0.7% O'Reilly Automotive* 12,100 382 -------- 382 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 1.7% Bed Bath & Beyond* 26,600 898 -------- 898 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 3.0% Home Depot 33,400 1,623 -------- 1,623 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.1% CDW Computer Centers* 11,100 559 -------- 559 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 3.5% Dollar Tree Stores* 10,600 348 Family Dollar Stores 11,300 379 Wal-Mart Stores 18,900 1,158 -------- 1,885 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 0.3% Williams-Sonoma* 3,300 152 -------- 152 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.7% California Pizza Kitchen* 12,000 $ 300 Cheesecake Factory* 13,700 505 Darden Restaurants 8,300 337 Sonic* 10,800 278 Starbucks* 24,700 571 -------- 1,991 -------- TOTAL CONSUMER CYCLICAL (COST $9,697) 10,167 -------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 3.8% BREWERY -- 2.8% Anheuser-Busch 29,100 1,519 -------- 1,519 -------- - -------------------------------------------------------------------------------- FOOD-RETAIL -- 1.0% Whole Foods Market* 11,500 525 -------- 525 -------- TOTAL CONSUMER NON-CYCLICAL (COST $1,948) 2,044 -------- - -------------------------------------------------------------------------------- FINANCIAL -- 2.2% COMMERCIAL BANKS-WESTERN US -- 0.7% Greater Bay Bancorp 11,500 392 -------- 392 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 1.5% Independence Community Bank 14,200 400 New York Community Bancorp 14,300 395 -------- 795 -------- TOTAL FINANCIAL (COST $1,174) 1,187 -------- - -------------------------------------------------------------------------------- HEALTH CARE -- 24.9% DIAGNOSTIC EQUIPMENT -- 1.2% Cytyc* 24,100 649 -------- 649 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 2.0% Laboratory Corporation of America* 11,400 1,093 -------- 1,093 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 4.8% Johnson & Johnson 20,600 1,338 Varian Medical Systems* 29,400 1,202 -------- 2,540 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 4.2% Amgen* 15,300 913 Idec Pharmaceuticals* 15,300 984 Integra LifeSciences* 12,300 346 -------- 2,243 - -------------------------------------------------------------------------------- [LOGO OMITTED] 45 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG CORE GROWTH FUND PBCRX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 5.1% Forest Laboratories* 14,400 $ 1,176 Pfizer 38,300 1,522 -------- 2,698 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 3.4% UnitedHealth Group 14,200 1,085 Wellpoint Health Networks* 11,400 726 -------- 1,811 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 4.2% Accredo Health* 10,800 619 AdvancePCS* 25,400 764 Express Scripts, Cl A* 15,300 881 -------- 2,264 -------- TOTAL HEALTH CARE (COST $11,526) 13,298 -------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 3.3% AEROSPACE/DEFENSE-EQUIPMENT -- 1.2% Alliant Techsystems* 6,300 642 -------- 642 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 1.7% L-3 Communications* 8,300 930 -------- 930 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.4% Varian* 5,400 205 -------- 205 -------- TOTAL INDUSTRIAL (COST $1,355) 1,777 -------- - -------------------------------------------------------------------------------- SERVICES -- 15.8% ADVERTISING AGENCIES -- 3.0% Omnicom Group 16,800 1,586 -------- 1,586 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 2.3% Concord EFS* 37,200 1,237 -------- 1,237 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 2.2% BISYS Group* 33,400 1,177 -------- 1,177 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 1.3% Corporate Executive Board* 19,000 713 -------- 713 - ------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 1.4% Pharmaceutical Product Development* 21,100 $ 735 -------- 735 - -------------------------------------------------------------------------------- SCHOOLS -- 5.6% Apollo Group, Cl A* 27,600 1,478 Career Education* 17,400 689 Corinthian Colleges* 16,000 809 -------- 2,976 -------- TOTAL SERVICES (COST $6,832) 8,424 -------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 25.0% APPLICATIONS SOFTWARE -- 2.6% Mercury Interactive* 6,300 237 Siebel Systems* 35,200 1,148 -------- 1,385 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.3% Choicepoint* 12,400 714 Documentum* 20,100 512 -------- 1,226 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 10.1% Broadcom, Cl A* 20,600 739 Intersil* 28,700 814 Microchip Technology* 23,400 979 QLogic* 14,700 728 Semtech* 26,400 964 Texas Instruments 35,500 1,175 -------- 5,399 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.0% JDA Software Group* 17,500 558 -------- 558 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 7.7% Applied Materials* 30,800 1,671 KLA-Tencor* 8,100 539 Kulicke & Soffa Industries* 25,600 533 Lam Research* 20,200 592 Novellus Systems* 14,700 796 -------- 4,131 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.3% Utstarcom* 26,500 695 -------- 695 -------- TOTAL TECHNOLOGY (COST $11,592) 13,394 -------- TOTAL COMMON STOCK (COST $44,611) 50,841 -------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 46 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG CORE GROWTH FUND PBCRX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.6% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $1,906,319 (collateralized by U.S. Government Obligations: total market value $1,944,088)(A) $1,906 $ 1,906 -------- TOTAL REPURCHASE AGREEMENT (COST $1,906) 1,906 -------- TOTAL INVESTMENTS-- 98.6% (COST $46,517) 52,747 -------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.4% Receivable for Investment Securities Sold 2,283 Payable for Investment Securities Purchased (1,407) Other Assets and Liabilities, Net (109) -------- TOTAL OTHER ASSETS AND LIABILITIES, NET 767 -------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 5,272,012 outstanding shares of common stock 117,843 Accumulated net realized loss on investments (70,559) Unrealized appreciation on investments 6,230 -------- TOTAL NET ASSETS-- 100.0% $ 53,514 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $10.15 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement Cl-- Class The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 47 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG EMERGING GROWTH FUND PBEGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.3% CONSUMER CYCLICAL -- 11.0% APPAREL MANUFACTURERS -- 1.3% Coach* 100,700 $ 5,107 -------- 5,107 - -------------------------------------------------------------------------------- AUDIO/VIDEO PRODUCTS -- 1.3% Polycom* 211,500 5,203 -------- 5,203 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 1.8% Activision* 245,700 7,329 -------- 7,329 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 1.5% AnnTaylor Stores* 143,400 6,198 -------- 6,198 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.6% Electronics Boutique* 184,700 6,378 -------- 6,378 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.8% Tweeter Home Entertainment Group* 174,500 3,411 -------- 3,411 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 1.3% Krispy Kreme Doughnuts* 130,800 5,343 -------- 5,343 - -------------------------------------------------------------------------------- RETAIL-VARIETY STORE -- 1.4% 99 Cents Only Stores* 151,550 5,810 - -------------------------------------------------------------------------------- 5,810 -------- TOTAL CONSUMER CYCLICAL (COST $33,068) 44,779 -------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 1.5% FOOD-RETAIL -- 1.5% Whole Foods Market* 138,600 6,333 -------- 6,333 -------- TOTAL CONSUMER NON-CYCLICAL (COST $3,322) 6,333 -------- - -------------------------------------------------------------------------------- HEALTH CARE -- 12.6% DIAGNOSTIC EQUIPMENT -- 1.9% Cytyc* 290,300 7,815 -------- 7,815 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 1.3% Impath* 126,500 5,192 -------- 5,192 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.4% Charles River Laboratories International*105,300 3,264 Martek Biosciences* 189,200 5,956 Myriad Genetics* 144,200 4,832 -------- 14,052 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.2% Medicis Pharmaceutical, Cl A* 162,350 $ 9,010 -------- 9,010 - -------------------------------------------------------------------------------- OPTICAL SUPPLIES -- 1.0% Oakley* 231,800 4,149 -------- 4,149 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 1.6% Accredo Health* 115,100 6,592 -------- 6,592 - -------------------------------------------------------------------------------- RESPIRATORY PRODUCTS -- 1.2% Resmed* 117,200 4,703 -------- 4,703 -------- TOTAL HEALTH CARE (COST $42,378) 51,513 -------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 5.1% INSTRUMENTS-CONTROLS -- 2.6% Photon Dynamics* 205,700 10,468 -------- 10,468 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 2.5% Cymer* 206,300 10,245 -------- 10,245 -------- TOTAL INDUSTRIAL (COST $16,578) 20,713 -------- - -------------------------------------------------------------------------------- SERVICES -- 15.8% ADVERTISING SERVICES -- 2.0% Getty Images* 269,200 8,065 -------- 8,065 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 4.4% Factset Research Systems 262,300 10,584 Manhattan Associates* 190,000 7,239 -------- 17,823 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 2.7% Corporate Executive Board* 296,600 11,126 -------- 11,126 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 1.0% Exult* 377,400 4,117 -------- 4,117 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 2.3% Pharmaceutical Product Development* 273,900 9,545 -------- 9,545 - -------------------------------------------------------------------------------- SCHOOLS -- 3.4% Career Education* 171,200 6,780 Corinthian Colleges* 143,500 7,254 -------- 14,034 -------- TOTAL SERVICES (COST $47,852) 64,710 -------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 48 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG EMERGING GROWTH FUND PBEGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 48.3% APPLICATIONS SOFTWARE -- 1.5% Quest Software* 409,700 $ 6,191 -------- 6,191 - -------------------------------------------------------------------------------- B2B/E-COMMERCE -- 3.2% Agile Software* 516,000 6,243 webMethods* 394,700 6,801 -------- 13,044 - -------------------------------------------------------------------------------- COMPUTER DATA SECURITY -- 1.5% Netscreen Technologies* 370,500 6,169 -------- 6,169 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 1.4% Documentum* 228,700 5,820 -------- 5,820 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 3.0% Precise Software Solutions* 525,300 12,234 -------- 12,234 - -------------------------------------------------------------------------------- E-MARKETING/INFORMATION -- 0.7% E.piphany* 394,800 2,985 -------- 2,985 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 4.7% ChipPAC* 840,500 8,254 Semtech* 157,700 5,756 Silicon Laboratories* 147,300 5,204 -------- 19,214 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 0.9% Nassda* 249,400 3,791 -------- 3,791 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 3.3% Business Objects ADR* 207,600 9,126 Retek* 159,400 4,184 -------- 13,310 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 0.8% Centillium Communications* 262,900 3,181 -------- 3,181 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 3.2% Emulex* 272,300 8,967 Extreme Networks* 390,700 4,063 -------- 13,030 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 7.0% Elantec Semiconductor* 119,500 5,111 GlobespanVirata* 438,000 6,535 Integrated Circuit Systems* 153,600 3,133 Marvell Technology Group* 315,500 13,819 -------- 28,598 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 8.9% ATMI* 134,200 $ 4,221 Entegris* 252,300 4,075 Kulicke & Soffa Industries* 280,200 5,831 LTX* 290,400 7,896 Photronics* 186,700 6,297 Varian Semiconductor Equipment Associates* 179,800 8,091 -------- 36,411 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.2% Anaren Microwave* 338,400 4,917 -------- 4,917 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT-FIBER OPTICS-- 3.1% Finisar* 1,033,100 7,955 Harmonic* 396,700 4,602 -------- 12,557 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 3.9% Powerwave Technologies* 488,400 6,285 RF Micro Devices* 525,800 9,412 -------- 15,697 --------- TOTAL TECHNOLOGY (COST $183,633) 197,149 -------- TOTAL COMMON STOCK (COST $326,831) 385,197 -------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 3.5% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $2,354,534 (collateralized by U.S. Government Obligations: total market value $2,401,633)(A) $ 2,354 2,354 UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $11,730,078 (collateralized by U.S. Government Agency Obligations: total market value $11,963,962)(A) 11,728 11,728 -------- TOTAL REPURCHASE AGREEMENTS (COST $14,082) 14,082 -------- TOTAL INVESTMENTS-- 97.8% (COST $340,913) $399,279 ======== Percentages are based on Net Assets of $408,160,626 * Non-income producing security. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 49 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG GROWTH FUND PBHGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 93.1% BASIC MATERIALS -- 0.9% CHEMICALS-SPECIALTY -- 0.9% OM Group 237,500 $ 17,171 -------- 17,171 -------- TOTAL BASIC MATERIALS (COST $14,900) 17,171 -------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 14.9% ENTERTAINMENT SOFTWARE -- 3.0% Activision* 413,900 12,347 Electronic Arts* 666,500 40,523 THQ* 118,900 5,838 -------- 58,708 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 0.8% Ross Stores 426,600 16,138 -------- 16,138 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 0.8% Michaels Stores* 396,700 14,995 -------- 14,995 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 0.8% O'Reilly Automotive* 528,800 16,694 -------- 16,694 - -------------------------------------------------------------------------------- RETAIL-AUTOMOBILE -- 0.7% Copart* 820,000 14,711 -------- 14,711 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 1.7% Bed Bath & Beyond* 977,600 32,994 -------- 32,994 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.1% CDW Computer Centers* 430,000 21,646 -------- 21,646 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 1.8% Dollar Tree Stores* 537,000 17,619 Family Dollar Stores 546,900 18,327 -------- 35,946 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 0.6% Williams-Sonoma* 257,400 11,838 -------- 11,838 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.6% Cheesecake Factory* 783,100 28,896 Darden Restaurants 405,400 16,455 Starbucks* 1,067,600 24,694 -------- 70,045 -------- TOTAL CONSUMER CYCLICAL (COST $274,912) 293,715 -------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 1.0% FOOD-RETAIL -- 1.0% Whole Foods Market* 449,900 $ 20,556 -------- 20,556 -------- TOTAL CONSUMER NON-CYCLICAL (COST $19,464) 20,556 -------- - -------------------------------------------------------------------------------- ENERGY -- 6.4% OIL & GAS DRILLING -- 3.1% Ensco International 554,000 16,698 GlobalSantaFe 372,000 12,164 Nabors Industries* 403,600 17,052 Noble Drilling* 353,500 14,631 -------- 60,545 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 0.5% Noble Affiliates 257,000 10,038 -------- 10,038 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.3% National-Oilwell* 467,700 11,847 Smith International* 205,900 13,950 -------- 25,797 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 1.5% BJ Services* 396,000 13,650 Weatherford International* 328,800 15,661 - -------------------------------------------------------------------------------- 29,311 -------- TOTAL ENERGY (COST $104,529) 125,691 -------- - -------------------------------------------------------------------------------- FINANCIAL -- 3.6% COMMERCIAL BANKS-EASTERN US -- 0.6% Commerce Bancorp 255,700 11,481 -------- 11,481 - -------------------------------------------------------------------------------- COMMERCIAL BANKS-WESTERN US -- 0.6% Greater Bay Bancorp 376,200 12,836 -------- 12,836 - -------------------------------------------------------------------------------- FIDUCIARY BANKS -- 1.2% Investors Financial Services 313,400 23,834 -------- 23,834 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 1.2% Independence Community Bank 387,200 10,892 New York Community Bancorp 439,700 12,158 -------- 23,050 -------- TOTAL FINANCIAL (COST $69,250) 71,201 -------- - -------------------------------------------------------------------------------- HEALTH CARE -- 20.4% DIAGNOSTIC EQUIPMENT -- 1.9% Cytyc* 1,368,300 36,835 -------- 36,835 - -------------------------------------------------------------------------------- [LOGO OMITTED] 50 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG GROWTH FUND PBHGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 1.0% Biomet 413,600 $ 11,192 Techne* 282,400 7,786 -------- 18,978 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 2.3% Laboratory Corporation of America* 483,400 46,339 -------- 46,339 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.6% Varian Medical Systems* 1,232,900 50,425 -------- 50,425 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 1.6% King Pharmaceuticals* 576,490 20,183 Medicis Pharmaceutical, Cl A* 213,500 11,849 -------- 32,032 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 2.9% Trigon Healthcare* 336,700 24,855 Wellpoint Health Networks* 519,800 33,096 -------- 57,951 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 2.1% Community Health Systems* 747,400 16,525 LifePoint Hospitals* 685,000 25,318 -------- 41,843 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 4.9% Accredo Health* 399,000 22,851 AdvancePCS* 1,155,500 34,769 Express Scripts, Cl A* 670,700 38,625 -------- 96,245 - -------------------------------------------------------------------------------- PHYSICAL PRACTICE MANAGEMENT -- 1.1% Pediatrix Medical Group* 546,500 22,275 -------- 22,275 -------- TOTAL HEALTH CARE (COST $304,486) 402,923 -------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 5.1% AEROSPACE/DEFENSE-EQUIPMENT -- 2.1% Alliant Techsystems* 398,000 40,592 -------- 40,592 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 1.7% L-3 Communications* 302,300 33,858 -------- 33,858 - -------------------------------------------------------------------------------- INSTRUMENTS-CONTROLS -- 0.8% Mettler Toledo International* 350,000 15,841 -------- 15,841 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.5% Varian* 272,800 10,350 -------- 10,350 -------- TOTAL INDUSTRIAL (COST $79,372) 100,641 -------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- SERVICES -- 13.9% COMPUTER SERVICES -- 3.8% Affiliated Computer Services* 185,000 $ 10,384 BISYS Group* 1,370,400 48,306 CACI International* 489,000 17,169 -------- 75,859 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 1.5% Corporate Executive Board* 803,900 30,155 -------- 30,155 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 2.1% Pharmaceutical Product Development* 1,156,500 40,304 -------- 40,304 - -------------------------------------------------------------------------------- SCHOOLS -- 6.5% Apollo Group, Cl A* 1,006,000 53,871 Career Education* 933,100 36,951 Corinthian Colleges* 750,500 37,938 -------- 128,760 -------- TOTAL SERVICES (COST $217,758) 275,078 -------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 26.9% APPLICATIONS SOFTWARE -- 1.5% JD Edwards* 368,900 6,655 Mercury Interactive* 359,600 13,539 Quest Software* 583,200 8,812 -------- 29,006 - -------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS -- 0.4% Triton PCS Holdings, Cl A* 810,000 8,254 -------- 8,254 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.5% Brocade Communications Systems* 350,000 9,450 -------- 9,450 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 0.2% Network Appliance* 206,300 4,204 -------- 4,204 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.4% Choicepoint* 456,600 26,300 Documentum* 858,600 21,852 -------- 48,152 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 9.6% ATI Technologies* 866,000 11,604 Broadcom, Cl A* 659,400 23,672 Intersil* 1,169,500 33,155 Microchip Technology* 1,342,667 56,164 QLogic* 542,700 26,875 Semtech* 1,048,600 38,274 -------- 189,744 - -------------------------------------------------------------------------------- [LOGO OMITTED] 51 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG GROWTH FUND PBHGX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.9% Advent Software* 235,000 $ 13,903 Retek* 897,000 23,546 ---------- 37,449 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.3% Emulex* 200,000 6,586 ---------- 6,586 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 2.1% GlobespanVirata* 325,000 4,849 Marvell Technology Group* 857,500 37,559 ---------- 42,408 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 5.0% Kulicke & Soffa Industries* 963,200 20,044 Lam Research* 800,000 23,456 Novellus Systems* 582,200 31,520 Teradyne* 593,300 23,394 ---------- 98,414 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 2.3% Advanced Fibre Communication* 993,700 19,069 UTStarcom* 1,027,300 26,946 ---------- 46,015 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 0.7% Powerwave Technologies* 139,000 1,789 RF Micro Devices* 625,000 11,187 ---------- 12,976 ---------- TOTAL TECHNOLOGY (COST $476,068) 532,658 ---------- TOTAL COMMON STOCK (COST $1,560,739) 1,839,634 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 10.0% Barclays 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $34,212,270 (collateralized by U.S. Government Obligations: total market value $34,889,378)(A) $34,205 34,205 Greenwich Capital 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $39,005,047 (collteralized by U.S. Government Obligations: total market value $39,780,031)(A) 38,997 38,997 JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $77,379,212 (collteralized by U.S. Government Obligations: total market value $78,917,417)(A) 77,364 77,364 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- CONTINUED UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $46,599,575 (collateralized by U.S. Government Obligations: total market value $47,524,247)(A) $46,590 $ 46,590 ---------- TOTAL REPURCHASE AGREEMENTS (COST $197,156) 197,156 ---------- TOTAL INVESTMENTS-- 103.1% (COST $1,757,895) 2,036,790 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (3.1)% Receivable for Investment Securities Sold 44,062 Payable for Investment Securities Purchased (103,361) Other Assets and Liabilities, Net (1,810) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET (61,109) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 101,664,633 outstanding shares of common stock 3,071,578 Fund Shares of Advisor Class ($0.001 par value) based on 2,693,291 outstanding shares of common stock 88,799 Accumulated net realized loss on investments (1,463,591) Unrealized appreciation on investments 278,895 ---------- TOTAL NET ASSETS-- 100.0% $1,975,681 ---------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $18.94 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $18.66 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 52 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG LARGE CAP 20 FUND PLCPX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 90.8% CONSUMER CYCLICAL -- 10.7% RETAIL-BUILDING PRODUCTS -- 6.5% Home Depot 443,300 $ 21,549 ---------- 21,549 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 4.2% Wal-Mart Stores 227,800 13,962 ---------- 13,962 ---------- TOTAL CONSUMER CYCLICAL (COST $33,445) 35,511 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 7.8% FINANCE-MORTGAGE LOAN/BANKER -- 6.0% Freddie Mac 315,500 19,993 ---------- 19,993 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 1.8% American International Group 84,400 6,089 ---------- 6,089 ---------- TOTAL FINANCIAL (COST $26,591) 26,082 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 43.5% MEDICAL LABS & TESTING SERVICES -- 7.3% Laboratory Corporation of America* 224,200 21,492 Quest Diagnostics* 33,900 2,809 ---------- 24,301 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 6.0% Johnson & Johnson 307,100 19,946 ---------- 19,946 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 8.1% Amgen* 268,020 15,995 Idec Pharmaceuticals* 170,400 10,957 ---------- 26,952 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 15.6% Abbott Laboratories 269,600 14,181 Forest Laboratories* 182,300 14,894 Pfizer 576,000 22,890 ---------- 51,965 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 6.5% UnitedHealth Group 284,300 21,726 ---------- 21,726 ---------- TOTAL HEALTH CARE (COST $140,454) 144,890 ---------- - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- INDUSTRIAL -- 0.9% AEROSPACE/DEFENSE -- 0.9% Lockheed Martin 50,800 $ 2,925 ---------- 2,925 - -------------------------------------------------------------------------------- TOTAL INDUSTRIAL (COST $3,032) 2,925 ---------- - -------------------------------------------------------------------------------- SERVICES -- 11.6% ADVERTISING AGENCIES -- 4.2% Omnicom Group 147,800 13,952 ---------- 13,952 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 7.4% Concord EFS* 746,400 24,818 ---------- 24,818 ---------- TOTAL SERVICES (COST $29,719) 38,770 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 16.3% APPLICATIONS SOFTWARE -- 5.1% Microsoft* 282,700 17,049 ---------- 17,049 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 5.8% Nvidia* 158,406 7,027 Texas Instruments 373,900 12,376 ---------- 19,403 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 5.4% Applied Materials* 329,900 17,904 ---------- 17,904 ---------- TOTAL TECHNOLOGY (COST $55,881) 54,356 ---------- TOTAL COMMON STOCK (COST $289,122) 302,534 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 11.4% Deutsche Bank 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $2,636,268 (collateralized by U.S. Government Obligations: total market value $2,688,608)(A) $ 2,636 2,636 Greenwich Capital 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $15,166,454 (collateralized by U.S. Government Obligations: total market value $15,470,639)(A) 15,163 15,163 - -------------------------------------------------------------------------------- [LOGO OMITTED] 53 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG LARGE CAP 20 FUND PLCPX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $17,474,282 (collateralized by U.S. Government Obligations: total market value $17,823,618)(A) $17,471 $ 17,471 UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $2,680,987 (collateralized by U.S. Government Obligations: total market value $2,737,026)(A) 2,680 2,680 ---------- TOTAL REPURCHASE AGREEMENTS (COST $37,950) 37,950 ---------- TOTAL INVESTMENTS-- 102.2% (COST $327,072) 340,484 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (2.2)% Receivable for Investment Securities Sold 7,926 Payable for Investment Securities Purchased (14,459) Other Assets and Liabilities, Net (776) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET (7,309) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 21,989,839 outstanding shares of common stock 637,277 Fund Shares of Advisor Class ($0.001 par value) based on 3,968 outstanding shares of common stock 100 Accumulated net realized loss on investments (317,614) Unrealized appreciation on investments 13,412 ---------- TOTAL NET ASSETS-- 100.0% $ 333,175 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $15.15 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $15.10 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement LLC-- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMIITED] 54 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG LARGE CAP GROWTH FUND PBHLX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 91.4% CONSUMER CYCLICAL -- 18.0% CASINO SERVICES -- 1.5% International Game Technology* 59,800 $ 3,727 ---------- 3,727 - -------------------------------------------------------------------------------- CRUISE LINES -- 0.9% Carnival 74,200 2,423 ---------- 2,423 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 0.6% Electronic Arts* 26,469 1,609 ---------- 1,609 - -------------------------------------------------------------------------------- MULTIMEDIA -- 0.5% Gemstar-TV Guide International* 80,900 1,196 ---------- 1,196 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 2.1% Bed Bath & Beyond* 156,900 5,295 ---------- 5,295 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 5.6% Home Depot 227,000 11,035 Lowe's 81,400 3,540 ---------- 14,575 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 3.7% Costco Wholesale* 61,800 2,461 Wal-Mart Stores 115,400 7,073 ---------- 9,534 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 1.6% Walgreen 105,300 4,127 ---------- 4,127 - -------------------------------------------------------------------------------- RETAIL-REGIONAL DEPT STORE -- 0.8% Kohl's* 30,400 2,163 ---------- 2,163 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 0.7% Starbucks* 81,500 1,885 ---------- 1,885 ---------- TOTAL CONSUMER CYCLICAL (COST $43,504) 46,534 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 5.9% BREWERY -- 1.3% Anheuser-Busch 65,600 3,424 ---------- 3,424 - -------------------------------------------------------------------------------- COSMETICS & TOILETRIES -- 2.1% Procter & Gamble 59,100 5,324 ---------- 5,324 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FOOD-RETAIL -- 2.0% Kroger* 231,700 $ 5,135 ---------- 5,135 - -------------------------------------------------------------------------------- TOBACCO -- 0.5% Loews (Carolina Group)* 42,400 1,272 ---------- 1,272 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $14,884) 15,155 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 7.2% FINANCE-MORTGAGE LOAN/BANKER -- 3.9% Fannie Mae 48,200 3,850 Freddie Mac 99,300 6,293 ---------- 10,143 ---------- - -------------------------------------------------------------------------------- FINANCIAL GUARANTEE INSURANCE -- 0.7% MGIC Investment 25,600 1,752 ---------- 1,752 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 1.2% American International Group 42,307 3,052 ---------- 3,052 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 1.4% Fifth Third Bancorp 52,900 3,569 ---------- 3,569 ---------- TOTAL FINANCIAL (COST $17,608) 18,516 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 31.7% MEDICAL INSTRUMENTS -- 1.0% St Jude Medical* 33,600 2,592 ---------- 2,592 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 6.2% Laboratory Corporation of America* 90,000 8,627 Quest Diagnostics* 90,000 7,457 ---------- 16,084 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.9% Johnson & Johnson 115,600 7,508 ---------- 7,508 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.3% Amgen* 43,000 2,566 Genentech* 30,500 1,539 Idec Pharmaceuticals* 68,000 4,373 ----------- 8,478 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 10.4% Abbott Laboratories 134,500 7,075 Forest Laboratories* 117,000 9,559 King Pharmaceuticals* 83,166 2,912 Pfizer 186,300 7,403 ---------- 26,949 - -------------------------------------------------------------------------------- [LOGO OMITTED] 55 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG LARGE CAP GROWTH FUND PBHLX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-HMO -- 4.8% UnitedHealth Group 87,300 $ 6,671 Wellpoint Health Networks* 87,400 5,565 ---------- 12,236 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 1.1% HCA 63,200 2,786 ---------- 2,786 - -------------------------------------------------------------------------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS-- 0.5% Cardinal Health 19,200 1,361 ---------- 1,361 - -------------------------------------------------------------------------------- THERAPEUTICS -- 1.5% Gilead Sciences* 106,400 3,829 ---------- 3,829 ---------- TOTAL HEALTH CARE (COST $71,752) 81,823 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 2.6% AEROSPACE/DEFENSE-EQUIPMENT -- 1.6% General Dynamics 44,600 4,190 ---------- 4,190 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 0.8% Tyco International 66,700 2,156 ---------- 2,156 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 0.2% L-3 Communications* 4,400 493 ---------- 493 ---------- TOTAL INDUSTRIAL (COST $7,049) 6,839 ---------- - -------------------------------------------------------------------------------- SERVICES -- 8.7% ADVERTISING AGENCIES -- 2.5% Omnicom Group 67,300 6,353 ---------- 6,353 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 2.9% Concord EFS* 229,000 7,614 ---------- 7,614 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 3.3% Affiliated Computer Services* 60,000 3,368 DST Systems* 66,200 3,297 Electronic Data Systems 33,000 1,913 ---------- 8,578 ---------- TOTAL SERVICES (COST $17,704) 22,545 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 17.3% APPLICATIONS SOFTWARE -- 3.3% Microsoft* 127,700 $ 7,702 Siebel Systems* 25,200 822 ---------- 8,524 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.1% Brocade Communications Systems* 103,300 2,789 ---------- 2,789 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 0.9% Veritas Software* 53,200 2,332 ---------- 2,332 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.8% First Data 23,300 2,033 ---------- 2,033 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 6.5% Intel 117,500 3,573 Micron Technology* 80,300 2,642 Nvidia* 80,800 3,584 QLogic* 37,900 1,877 Texas Instruments 153,600 5,084 ---------- 16,760 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 3.3% Applied Materials* 120,700 6,550 KLA-Tencor* 32,300 2,148 ---------- 8,698 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.4% Nokia Oyj ADR 110,600 2,294 Qualcomm* 36,800 1,385 ---------- 3,679 ---------- TOTAL TECHNOLOGY (COST $48,631) 44,815 ---------- TOTAL COMMON STOCK (COST $221,132) 236,227 ---------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 3.3% INDEX FUND-LARGE CAP -- 3.3% S&P 500 Depositary Receipts 35,800 4,100 Technology Select Sector S&P Depositary Receipts* 195,000 4,225 ---------- 8,325 ----------- TOTAL INVESTMENT COMPANIES (COST $8,653) 8,325 ---------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 56 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG LARGE CAP GROWTH FUND PBHLX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 3.6% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $2,901,601 (collateralized by U.S. Government Obligations: total market value $2,959,555)(A) $2,901 $ 2,901 UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $6,515,901 (collateralized by U.S. Government Obligations: total market value $6,647,815)(A) 6,515 6,515 ---------- TOTAL REPURCHASE AGREEMENTS (COST $9,416) 9,416 ---------- TOTAL INVESTMENTS-- 98.3% (COST $239,201) 253,968 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.7% Receivable for Investment Securities Sold 7,385 Payable for Investment Securities Purchased (2,753) Other Assets and Liabilities, Net (147) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET 4,485 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 13,129,999 outstanding shares of common stock 401,301 Fund Shares of Advisor Class ($0.001 par value) based on 7,928 outstanding shares of common stock 191 Accumulated net realized loss on investments (157,806) Unrealized appreciation on investments 14,767 ---------- TOTAL NET ASSETS-- 100.0% $ 258,453 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $19.67 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $19.62 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 57 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG LIMITED FUND PBLDX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 93.9% CONSUMER CYCLICAL -- 12.3% AUDIO/VIDEO PRODUCTS -- 1.2% Polycom* 36,500 $ 898 ---------- 898 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 1.7% Activision* 43,250 1,290 ---------- 1,290 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 1.5% AnnTaylor Stores* 25,900 1,120 ---------- 1,120 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.6% Electronics Boutique* 33,500 1,157 ---------- 1,157 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 1.8% Tweeter Home Entertainment Group* 30,000 587 Ultimate Electronics* 25,900 726 ---------- 1,313 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 0.9% J. Jill Group* 24,500 697 ---------- 697 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.6% Krispy Kreme Doughnuts* 21,500 878 Panera Bread, Cl A* 27,500 1,752 ---------- 2,630 - -------------------------------------------------------------------------------- TOTAL CONSUMER CYCLICAL (COST $6,445) 9,105 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 1.5% FOOD-RETAIL -- 1.5% Whole Foods Market* 23,300 1,065 ---------- 1,065 - -------------------------------------------------------------------------------- TOTAL CONSUMER NON-CYCLICAL (COST $584) 1,065 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 14.2% MEDICAL INSTRUMENTS -- 2.4% Surmodics* 40,500 1,766 ---------- 1,766 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 1.1% Impath* 19,400 796 ---------- 796 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 4.5% Digene* 26,600 951 Harvard Bioscience* 72,900 641 Integra LifeSciences* 25,000 703 Martek Biosciences* 34,400 1,083 ---------- 3,378 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 3.9% Array Biopharma* 102,200 1,323 Medicis Pharmaceutical, Cl A* 27,725 1,539 ---------- 2,862 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 1.5% Accredo Health* 20,175 $ 1,155 ---------- 1,155 - -------------------------------------------------------------------------------- RESPIRATORY PRODUCTS -- 0.8% Resmed* 14,300 574 ---------- 574 - -------------------------------------------------------------------------------- TOTAL HEALTH CARE (COST $6,117) 10,531 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 5.6% CIRCUIT BOARDS -- 0.7% Merix* 26,400 493 ---------- 493 - -------------------------------------------------------------------------------- INSTRUMENTS-CONTROLS -- 2.5% Photon Dynamics* 37,200 1,893 ---------- 1,893 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 2.4% Cymer* 35,900 1,783 ---------- 1,783 ---------- TOTAL INDUSTRIAL (COST $3,424) 4,169 ---------- - -------------------------------------------------------------------------------- SERVICES -- 16.1% ADVERTISING SERVICES -- 2.0% Getty Images* 48,900 1,465 ---------- 1,465 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 4.1% Factset Research Systems 41,600 1,679 Manhattan Associates* 34,500 1,314 ---------- 2,993 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 3.3% Advisory Board* 15,800 514 Corporate Executive Board* 52,200 1,958 ---------- 2,472 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 1.0% Exult* 64,100 699 ---------- 699 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 2.6% Kendle International* 17,900 333 Pharmaceutical Product Development* 46,400 1,617 ---------- 1,950 - -------------------------------------------------------------------------------- SCHOOLS -- 3.1% Career Education* 27,700 1,097 Corinthian Colleges* 24,200 1,223 ---------- 2,320 ---------- TOTAL SERVICES (COST $8,740) 11,899 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 44.2% APPLICATIONS SOFTWARE -- 1.2% Actuate* 125,900 909 ---------- 909 - -------------------------------------------------------------------------------- [LOGO OMITTED] 58 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG LIMITED FUND PBLDX Market Description Shares Value (000) - -------------------------------------------------------------------------------- B2B/E-COMMERCE -- 1.5% Agile Software* 90,600 $ 1,096 ---------- 1,096 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 2.4% M-Systems Flash Disk Pioneers* 35,400 330 SimpleTech* 172,600 1,465 ---------- 1,795 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 1.4% Documentum* 40,300 1,026 ---------- 1,026 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 2.7% Precise Software Solutions* 85,100 1,982 ---------- 1,982 - -------------------------------------------------------------------------------- E-MARKETING/INFORMATION -- 0.7% E.piphany* 71,400 540 ---------- 540 - -------------------------------------------------------------------------------- E-SERVICES/CONSULTING -- 0.5% I-many* 70,300 349 ---------- 349 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 6.5% ChipPAC* 184,500 1,812 Oak Technology* 92,000 1,369 Zoran* 36,900 1,612 ---------- 4,793 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 0.9% Nassda* 43,800 666 ---------- 666 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.7% Informatica* 78,300 567 Retek* 25,300 664 ---------- 1,231 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 0.8% Centillium Communications* 47,800 578 ---------- 578 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE SOFTWARE -- 1.6% Chordiant Software* 165,400 1,203 ---------- 1,203 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 2.0% Emulex* 22,500 741 Extreme Networks* 71,200 740 ---------- 1,481 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 3.6% Elantec Semiconductor* 21,800 932 GlobespanVirata* 79,000 1,179 Integrated Circuit Systems* 27,900 569 ---------- 2,680 Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 10.2% ATMI* 23,700 $ 745 Entegris* 62,700 1,012 Kulicke & Soffa Industries* 48,900 1,018 Logicvision* 69,000 738 LTX* 52,800 1,436 Photronics* 34,000 1,147 Varian Semiconductor Equipment Associates* 31,800 1,431 ---------- 7,527 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 2.0% Anaren Microwave* 61,700 897 Sirenza Microdevices* 108,900 590 ---------- 1,487 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT-FIBER OPTICS-- 3.0% Finisar* 188,400 1,451 Harmonic* 69,600 807 ---------- 2,258 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 1.5% Powerwave Technologies* 88,600 1,140 ---------- 1,140 ---------- TOTAL TECHNOLOGY (COST $29,307) 32,741 ---------- TOTAL COMMON STOCK (COST $54,617) 69,510 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.4% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $3,290,325 (collateralized by U.S. Government Obligations: total market value $3,358,942)(A) $3,290 3,290 ---------- TOTAL REPURCHASE AGREEMENT (COST $3,290) 3,290 ---------- TOTAL INVESTMENTS-- 98.3% (COST $57,907) 72,800 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.7% Receivable for Investment Securities Sold 3,635 Payable for Investment Securities Purchased (2,274) Other Assets and Liabilities, Net (85) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET 1,276 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 7,883,421 outstanding shares of common stock 66,796 Accumulated net realized loss on investments (7,613) Unrealized appreciation on investments 14,893 ---------- TOTAL NET ASSETS-- 100.0% $ 74,076 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $9.40 ===== * Non-income producing security. (A)-- Tri-party repurchase agreement Cl-- Class The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 59 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG NEW OPPORTUNITIES FUND PBNOX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.3% CONSUMER CYCLICAL -- 13.3% RETAIL-APPAREL/SHOE -- 2.9% Chico's FAS* 40,750 $ 1,373 ---------- 1,373 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 10.4% California Pizza Kitchen* 40,600 1,015 Panera Bread, Cl A* 22,300 1,421 PF Chang's China Bistro* 20,900 1,393 Rare Hospitality International* 44,500 1,131 ---------- 4,960 ---------- TOTAL CONSUMER CYCLICAL (COST $4,652) 6,333 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 15.6% DISPOSABLE MEDICAL PRODUCTS -- 1.5% ICU Medical* 19,900 724 ---------- 724 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 2.6% Dianon Systems* 19,100 1,239 ---------- 1,239 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 4.5% American Medical Systems Holdings* 47,400 1,067 Possis Medical* 55,100 1,085 ---------- 2,152 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 2.9% Integra LifeSciences* 48,900 1,376 ---------- 1,376 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 4.1% Province Healthcare* 36,600 1,163 United Surgical Partners International* 35,000 812 ---------- 1,975 ---------- TOTAL HEALTH CARE (COST $6,806) 7,466 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 15.8% ELECTRONIC COMPONENTS-MISCELLANEOUS-- 2.1% OSI Systems* 39,800 1,003 ---------- 1,003 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 2.3% Itron* 36,600 1,089 ---------- 1,089 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 3.3% Integrated Defense Technologies* 57,500 1,596 ---------- 1,596 - -------------------------------------------------------------------------------- INDUSTRIAL AUTOMATION/ROBOT -- 2.3% Brooks Automation* 23,800 1,081 ---------- 1,081 Market Description Shares Value (000) - -------------------------------------------------------------------------------- INSTRUMENTS-CONTROLS -- 3.0% Photon Dynamics* 28,200 $ 1,435 ---------- 1,435 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 2.8% Cymer* 26,800 1,331 ---------- 1,331 ---------- TOTAL INDUSTRIAL (COST $6,764) 7,535 ---------- - -------------------------------------------------------------------------------- SERVICES -- 19.3% COMPUTER SERVICES -- 5.9% CACI International* 36,900 1,295 Manhattan Associates* 40,100 1,528 ---------- 2,823 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 5.5% Corporate Executive Board* 31,000 1,163 FTI Consulting* 47,350 1,467 ---------- 2,630 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 2.0% Cross Country* 34,700 937 ---------- 937 - -------------------------------------------------------------------------------- SCHOOLS -- 5.9% Career Education* 35,400 1,402 Corinthian Colleges* 28,500 1,441 ---------- 2,843 ---------- TOTAL SERVICES (COST $7,504) 9,233 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 30.3% APPLICATIONS SOFTWARE -- 2.4% PDF Solutions* 65,900 1,130 ---------- 1,130 - -------------------------------------------------------------------------------- COMPUTER AIDED DESIGN -- 3.1% Aspen Technology* 64,500 1,477 ---------- 1,477 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 3.0% Documentum* 56,200 1,430 ---------- 1,430 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 2.9% Precise Software Solutions* 59,900 1,395 ---------- 1,395 - -------------------------------------------------------------------------------- E-SERVICES/CONSULTING -- 2.6% Websense* 48,900 1,230 ---------- 1,230 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 3.1% Verisity* 65,700 1,474 ---------- 1,474 - -------------------------------------------------------------------------------- [LOGO OMITTED] 60 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG NEW OPPORTUNITIES FUND PBNOX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE SOFTWARE -- 2.0% F5 Networks* 41,900 $ 974 ---------- 974 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 6.4% ATMI* 36,800 1,157 Dupont Photomasks* 10,400 541 Photronics* 41,000 1,383 ---------- 3,081 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT-FIBER OPTICS-- 2.6% Newport 52,300 1,250 ---------- 1,250 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 2.2% TTI Team Telecom International* 37,100 1,065 ---------- 1,065 ---------- TOTAL TECHNOLOGY (COST $12,642) 14,506 ---------- TOTAL COMMON STOCK (COST $38,368) 45,073 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 10.7% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $5,139,518 (collateralized by U.S. Government Obligations: total market value $5,244,452)(A) $5,138 5,138 ---------- TOTAL REPURCHASE AGREEMENT (COST $5,138) 5,138 ---------- TOTAL INVESTMENTS-- 105.0% (COST $43,506) 50,211 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (5.0)% Receivable for Investment Securities Sold 1,785 Payable for Investment Securities Purchased (4,125) Other Assets and Liabilities, Net (58) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET (2,398) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 1,830,924 outstanding shares of common stock 64,624 Accumulated net realized loss on investments (23,516) Unrealized appreciation on investments 6,705 ---------- TOTAL NET ASSETS-- 100.0% $ 47,813 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $26.11 ====== * Non-income producing security (A) -- Tri-party repurchase agreement Cl -- Class The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 61 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG SELECT EQUITY FUND PBHEX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 84.5% CONSUMER CYCLICAL -- 15.0% CASINO SERVICES -- 3.0% International Game Technology* 198,800 $ 12,389 ---------- 12,389 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 1.7% Electronic Arts* 116,000 7,053 ---------- 7,053 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 4.0% Home Depot 339,200 16,488 ---------- 16,488 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 4.3% Wal-Mart Stores 290,500 17,805 ---------- 17,805 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 2.0% Brinker International* 260,500 8,443 ---------- 8,443 ---------- TOTAL CONSUMER CYCLICAL (COST $59,876) 62,178 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 1.9% REINSURANCE -- 1.9% Everest Re Group 115,000 7,974 ---------- 7,974 - -------------------------------------------------------------------------------- TOTAL FINANCIAL (COST $7,948) 7,974 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 28.7% MEDICAL INSTRUMENTS -- 2.6% St Jude Medical* 141,700 10,932 ---------- 10,932 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 4.8% Quest Diagnostics* 237,500 19,677 ---------- 19,677 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 5.1% Baxter International 200,000 11,904 Johnson & Johnson 140,000 9,093 ---------- 20,997 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 6.7% Genentech* 223,900 11,296 Idec Pharmaceuticals* 253,800 16,319 ---------- 27,615 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 9.5% Abbott Laboratories 188,600 9,921 Forest Laboratories* 227,700 18,603 King Pharmaceuticals* 309,166 10,824 ---------- 39,348 ---------- TOTAL HEALTH CARE (COST $104,671) 118,569 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- INDUSTRIAL -- 3.0% ELECTRONICS-MILITARY -- 3.0% L-3 Communications* 112,000 $ 12,544 ---------- 12,544 ---------- TOTAL INDUSTRIAL (COST $12,624) 12,544 ---------- - -------------------------------------------------------------------------------- SERVICES -- 11.2% COMMERCIAL SERVICES-FINANCE -- 4.9% Concord EFS* 603,900 20,080 ---------- 20,080 - -------------------------------------------------------------------------------- E-COMMERCE/SERVICES -- 2.0% eBay* 146,000 8,269 ---------- 8,269 - -------------------------------------------------------------------------------- SCHOOLS -- 4.3% Apollo Group, Cl A* 333,500 17,859 ---------- 17,859 ---------- TOTAL SERVICES (COST $34,877) 46,208 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 24.7% APPLICATIONS SOFTWARE -- 4.0% Microsoft* 274,600 16,561 ---------- 16,561 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.0% Brocade Communications Systems* 155,600 4,201 ---------- 4,201 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 1.5% Veritas Software* 145,000 6,355 ---------- 6,355 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 3.7% First Data 175,000 15,269 ---------- 15,269 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 4.9% Intersil* 406,800 11,533 Nvidia* 195,000 8,650 ---------- 20,183 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 2.1% Emulex* 264,100 8,697 ---------- 8,697 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 2.3% Marvell Technology Group* 211,400 9,259 ---------- 9,259 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 5.2% Applied Materials* 295,000 16,010 KLA-Tencor* 80,000 5,320 ---------- 21,330 ---------- TOTAL TECHNOLOGY (COST $98,312) 101,855 ---------- TOTAL COMMON STOCK (COST $318,308) 349,328 ---------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 62 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG SELECT EQUITY FUND PBHEX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 4.0% INDEX FUND-LARGE CAP -- 4.0% Technology Select Sector S&P Depositary Receipts* 755,000 $ 16,360 ---------- 16,360 ---------- TOTAL INVESTMENT COMPANIES (COST $16,949) 16,360 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 11.0% Greenwich Capital 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $21,178,484 (collateralized by U.S. Government Obligations: total market value $21,602,432)(A) $21,174 21,174 JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $9,990,986 (collateralized by U.S. Government Obligations: total market value $10,195,414)(A) 9,989 9,989 UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $14,372,571 (collateralized by U.S. Government Obligations: total market value $14,658,880)(A) 14,370 14,370 ---------- TOTAL REPURCHASE AGREEMENTS (COST $45,533) 45,533 ---------- TOTAL INVESTMENTS-- 99.5% (COST $380,790) $ 411,221 ========== Percentages are based on Net Assets of $413,134,424 * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 63 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG CLIPPER FOCUS FUND PBFOX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.6% BASIC MATERIALS -- 0.2% CHEMICALS-SPECIALTY -- 0.2% Great Lakes Chemical* 43,000 $ 1,211 ---------- 1,211 ---------- TOTAL BASIC MATERIALS (COST $1,440) 1,211 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 9.3% RETAIL-DISCOUNT -- 1.6% Target 226,200 9,754 ---------- 9,754 - -------------------------------------------------------------------------------- RETAIL-OFFICE SUPPLIES -- 2.6% Office Depot* 322,600 6,403 Staples* 502,300 10,031 ---------- 16,434 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 5.1% McDonald's 1,137,200 31,557 ---------- 31,557 ---------- TOTAL CONSUMER CYCLICAL (COST $50,359) 57,745 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 27.2% FOOD-MEAT PRODUCTS -- 2.8% Tyson Foods, Cl A 1,402,500 17,503 ---------- 17,503 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 6.6% Kraft Foods, Cl A 572,100 22,112 Sara Lee 917,900 19,055 ---------- 41,167 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 7.7% Kroger* 1,074,200 23,804 Safeway* 527,600 23,753 ---------- 47,557 - -------------------------------------------------------------------------------- TOBACCO -- 10.1% Philip Morris 990,600 52,175 UST 279,900 10,897 ---------- 63,072 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $155,670) 169,299 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 39.1% FINANCE-CREDIT CARD -- 4.7% American Express 708,000 29,000 ---------- 29,000 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 14.2% Fannie Mae 480,600 38,390 Freddie Mac 791,200 50,139 ---------- 88,529 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 2.5% Old Republic International 478,000 $ 15,281 ---------- 15,281 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT/SERVICES -- 1.2% Security Capital Group, Cl B* 303,500 7,730 ---------- 7,730 - -------------------------------------------------------------------------------- REITS-APARTMENTS-- 9.3% Apartment Investment & Management, Cl A 323,800 15,662 Archstone-Smith Trust 520,400 13,942 Equity Residential Properties Trust 987,100 28,369 ---------- 57,973 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 4.7% Equity Office Properties Trust 677,800 20,327 Mack-Cali Realty 251,400 8,719 ---------- 29,046 - -------------------------------------------------------------------------------- S&L/THRIFTS-WESTERN US -- 2.5% Golden West Financial 241,400 15,329 ---------- 15,329 ---------- TOTAL FINANCIAL (COST $230,218) 242,888 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 4.7% DIVERSIFIED MANUFACTURING OPERATIONS-- 4.7% Tyco International 897,800 29,017 ---------- 29,017 ---------- TOTAL INDUSTRIAL (COST $25,473) 29,017 ---------- - -------------------------------------------------------------------------------- SERVICES -- 10.8% ADVERTISING AGENCIES -- 4.9% Interpublic Group 889,900 30,506 ---------- 30,506 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 1.8% Computer Sciences* 214,400 10,881 ---------- 10,881 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 2.9% Manpower 471,700 18,340 ---------- 18,340 - -------------------------------------------------------------------------------- PRINTING-COMMERCIAL -- 1.2% RR Donnelley & Sons 247,800 7,706 ---------- 7,706 ---------- TOTAL SERVICES (COST $56,676) 67,433 ---------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 64 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG CLIPPER FOCUS FUND PBFOX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 3.3% OFFICE AUTOMATION & EQUIPMENT -- 3.3% Pitney Bowes 485,000 $ 20,758 ---------- 20,758 ---------- TOTAL TECHNOLOGY (COST $17,912) 20,758 ---------- TOTAL COMMON STOCK (COST $537,748) 588,351 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.5% Barclays 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $27,857,651 (collateralized by U.S. Government Obligations: total market value $28,409,268)(A) $27,852 27,852 ---------- TOTAL REPURCHASE AGREEMENT (COST $27,852) 27,852 ---------- TOTAL INVESTMENTS-- 99.1% (COST $565,600) 616,203 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.9% TOTAL OTHER ASSETS AND LIABILITIES, NET 5,532 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 37,901,122 outstanding shares of common stock 563,232 Undistributed net investment income 1,189 Accumulated net realized gain on investments 6,711 Unrealized appreciation on investments 50,603 ---------- TOTAL NET ASSETS-- 100.0% $ 621,735 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $16.40 ========== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 65 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG FOCUSED VALUE FUND PBFVX Market Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 95.3% CONSUMER CYCLICAL -- 12.3% CABLE TV -- 3.4% Adelphia Communications, Cl A* 80,500 $ 1,200 ---------- 1,200 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 1.9% Metro-Goldwyn-Mayer* 40,000 665 ---------- 665 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 1.1% New York Times 7,800 373 ---------- 373 - -------------------------------------------------------------------------------- PUBLISHING-PERIODICALS -- 0.8% Readers Digest Association 11,800 264 ---------- 264 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 3.0% CDW Computer Centers* 21,000 1,057 ---------- 1,057 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 2.1% BJ's Wholesale Club* 16,100 720 ---------- 720 ---------- TOTAL CONSUMER CYCLICAL (COST $5,152) 4,279 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 10.6% FOOD-RETAIL -- 8.6% Kroger* 47,100 1,044 Safeway* 42,700 1,922 ---------- 2,966 - -------------------------------------------------------------------------------- TOBACCO -- 2.0% Loews (Carolina Group)* 23,200 696 ---------- 696 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $3,423) 3,662 ---------- - -------------------------------------------------------------------------------- ENERGY -- 3.5% OIL-FIELD SERVICES -- 3.5% Halliburton 70,000 1,195 ---------- 1,195 ---------- TOTAL ENERGY (COST $1,176) 1,195 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 20.5% FINANCE-CREDIT CARD -- 2.3% American Express 18,900 774 ---------- 774 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 3.4% Freddie Mac 18,500 $ 1,172 ---------- 1,172 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 6.5% American International Group 16,000 1,154 Prudential Financial* 35,700 1,109 ---------- 2,263 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 5.7% ACE 28,300 1,180 Travelers Property Casualty* 40,000 800 ---------- 1,980 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 2.6% US Bancorp 40,000 903 ---------- 903 ---------- TOTAL FINANCIAL (COST $6,379) 7,092 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 23.7% MEDICAL PRODUCTS -- 4.6% Haemonetics* 50,000 1,587 ---------- 1,587 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 12.2% Bristol-Myers Squibb 39,000 1,579 Cima Labs* 23,200 618 Merck 23,000 1,324 Schering-Plough 22,600 708 ---------- 4,229 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 6.9% Aetna 62,000 2,407 ---------- 2,407 ---------- TOTAL HEALTH CARE (COST $8,338) 8,223 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 4.8% AEROSPACE/DEFENSE -- 4.8% Titan* 80,800 1,668 ---------- 1,668 ---------- TOTAL INDUSTRIAL (COST $1,600) 1,668 ---------- - -------------------------------------------------------------------------------- SERVICES -- 8.9% COMPUTER SERVICES -- 5.8% DST Systems* 40,700 2,027 ---------- 2,027 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 3.1% SBC Communications 28,700 1,074 ---------- 1,074 ---------- TOTAL SERVICES (COST $2,962) 3,101 ---------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 66 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG FOCUSED VALUE FUND PBFVX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 7.9% APPLICATIONS SOFTWARE -- 6.4% Intuit* 35,000 $ 1,343 Microsoft* 14,300 862 ---------- 2,205 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.5% Micromuse* 60,000 526 ---------- 526 ---------- TOTAL TECHNOLOGY (COST $2,459) 2,731 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 3.1% ELECTRIC-INTEGRATED -- 3.1% Dominion Resources 16,600 1,082 ---------- 1,082 ---------- TOTAL UTILITIES (COST $993) 1,082 ---------- TOTAL COMMON STOCK (COST $32,482) 33,033 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 5.3% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $1,841,429 (collateralized by U.S. Government Obligations: market value $1,879,976)(A) $1,841 1,841 ---------- TOTAL REPURCHASE AGREEMENT (COST $1,841) 1,841 ---------- TOTAL INVESTMENTS-- 100.6% (COST $34,323) $ 34,874 ========== Percentages are based on Net Assets of $34,675,465 * Non-income producing security. (A)-- Tri-party repurchase agreement. Cl-- Class The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 67 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG LARGE CAP VALUE FUND PLCVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.4% BASIC MATERIALS -- 1.6% CHEMICALS-DIVERSIFIED -- 1.6% Dow Chemical 253,400 $ 8,291 ---------- 8,291 ---------- TOTAL BASIC MATERIALS (COST $7,941) 8,291 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 7.3% BROADCAST SERVICES/PROGRAMMING -- 1.8% Liberty Media, Cl A* 747,700 9,451 ---------- 9,451 - -------------------------------------------------------------------------------- MULTIMEDIA -- 1.0% McGraw-Hill 78,100 5,330 ---------- 5,330 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 1.0% Gap 348,900 5,248 ---------- 5,248 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 1.8% JC Penney 455,000 9,423 ---------- 9,423 - -------------------------------------------------------------------------------- TOYS -- 1.7% Mattel 435,000 9,065 ---------- 9,065 ---------- TOTAL CONSUMER CYCLICAL (COST $37,811) 38,517 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 11.5% AGRICULTURAL OPERATIONS -- 0.7% Monsanto 112,000 3,538 ---------- 3,538 - -------------------------------------------------------------------------------- COSMETICS & TOILETRIES -- 1.0% Kimberly-Clark 84,000 5,431 ---------- 5,431 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 4.2% Conagra Foods 227,000 5,505 General Mills 125,000 6,106 Heinz (H.J.) 125,000 5,187 Sara Lee 250,000 5,190 ---------- 21,988 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 5.6% Kroger* 724,600 16,057 Safeway* 299,000 13,461 ---------- 29,518 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $58,121) 60,475 ---------- - -------------------------------------------------------------------------------- ENERGY -- 8.1% OIL COMPANIES-INTEGRATED -- 3.3% ChevronTexaco 92,300 8,332 Royal Dutch Petroleum 162,700 8,838 ---------- 17,170 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 1.8% Valero Energy 189,000 $ 9,359 ---------- 9,359 - -------------------------------------------------------------------------------- PIPELINES -- 3.0% Dynegy 180,300 5,229 Williams 451,800 10,644 ---------- 15,873 ---------- TOTAL ENERGY (COST $40,162) 42,402 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 17.4% FINANCE-CONSUMER LOANS -- 1.4% USA Education 75,000 7,335 ---------- 7,335 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 1.1% Freddie Mac 93,000 5,893 ---------- 5,893 - -------------------------------------------------------------------------------- FINANCIAL GUARANTEE INSURANCE -- 1.1% AMBAC Financial Group 100,000 5,907 ---------- 5,907 - -------------------------------------------------------------------------------- INSURANCE BROKERS -- 2.2% AON 325,800 11,403 ---------- 11,403 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 1.6% Aflac 280,000 8,260 ---------- 8,260 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.0% Metlife 247,000 7,780 Prudential Financial* 256,800 7,974 ---------- 15,754 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 7.0% FleetBoston Financial 292,500 10,237 PNC Financial Services Group 260,800 16,037 US Bancorp 224,000 5,056 Wells Fargo 105,000 5,187 ---------- 36,517 ---------- TOTAL FINANCIAL (COST $87,266) 91,069 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 19.0% MEDICAL PRODUCTS -- 0.7% Becton Dickinson 100,400 3,787 ---------- 3,787 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 13.8% Bristol-Myers Squibb 544,400 22,043 Merck 439,700 25,318 Pharmacia 308,800 13,921 Schering-Plough 350,000 10,955 ---------- 72,237 - -------------------------------------------------------------------------------- [LOGO OMITTED] 68 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG LARGE CAP VALUE FUND PLCVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-HMO -- 4.5% Aetna 605,700 $ 23,513 ---------- 23,513 ---------- TOTAL HEALTH CARE (COST $97,644) 99,537 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 3.4% AEROSPACE/DEFENSE -- 1.2% Raytheon 150,000 6,157 ---------- 6,157 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 1.1% General Dynamics 65,000 6,107 ---------- 6,107 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 1.1% Honeywell International 151,700 5,806 ---------- 5,806 ---------- TOTAL INDUSTRIAL (COST $17,843) 18,070 ---------- - -------------------------------------------------------------------------------- SERVICES -- 2.1% TELEPHONE-INTEGRATED -- 2.1% SBC Communications 290,000 10,858 ---------- 10,858 ---------- TOTAL SERVICES (COST $11,049) 10,858 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 15.3% APPLICATIONS SOFTWARE -- 2.1% Microsoft* 180,200 10,868 ---------- 10,868 - -------------------------------------------------------------------------------- COMPUTERS -- 1.0% Sun Microsystems* 612,800 5,405 ---------- 5,405 - -------------------------------------------------------------------------------- COMPUTERS-PERIPHERAL EQUIPMENT -- 2.6% Lexmark International* 241,700 13,820 ---------- 13,820 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 2.2% EMC* 950,000 11,324 ---------- 11,324 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.2% First Data 131,000 11,430 ---------- 11,430 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 1.1% Cadence Design Systems* 250,000 5,652 ---------- 5,652 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.4% BMC Software* 375,000 7,294 ---------- 7,294 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.1% Scientific-Atlanta 250,000 $ 5,775 ---------- 5,775 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 1.6% Motorola 605,000 8,591 ---------- 8,591 ---------- TOTAL TECHNOLOGY (COST $79,306) 80,159 ---------- - -------------------------------------------------------------------------------- TRANSPORTATION -- 1.1% TRANSPORTATION-RAIL -- 1.1% Union Pacific 93,300 5,798 ---------- 5,798 ---------- TOTAL TRANSPORTATION (COST $5,684) 5,798 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 7.6% ELECTRIC-INTEGRATED -- 4.1% Duke Energy 154,000 5,821 FirstEnergy 275,700 9,534 FPL Group 101,200 6,026 ---------- 21,381 - -------------------------------------------------------------------------------- INDEPENDENT POWER PRODUCER -- 3.5% Calpine* 436,900 5,549 Mirant* 687,200 9,930 Reliant Resources* 185,400 3,135 ---------- 18,614 ---------- TOTAL UTILITIES (COST $36,897) 39,995 ---------- TOTAL COMMON STOCK (COST $479,724) 495,171 ---------- - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 2.2% INDEX FUND-LARGE CAP -- 2.2% S&P 500 Depositary Receipts 100,000 11,452 ---------- 11,452 ---------- TOTAL INVESTMENT COMPANIES (COST $11,438) 11,452 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 15.5% Greenwich Capital 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $40,008,222 (collateralized by U.S. Government Obligations: total market value $40,800,517)(A) $40,000 40,000 JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $41,424,101 (collateralized by U.S. Government Obligations: total market value $42,248,298)(A) 41,416 41,416 ---------- TOTAL REPURCHASE AGREEMENTS (COST $81,416) 81,416 ---------- TOTAL INVESTMENTS-- 112.1% (COST $572,578) $ 588,039 ========== Percentages are based on Net Assets of $524,431,492 * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 69 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG MID-CAP VALUE FUND PBMCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 92.0% BASIC MATERIALS -- 1.7% CHEMICALS-DIVERSIFIED -- 0.5% Lyondell Chemical 142,400 $ 2,365 ---------- 2,365 - -------------------------------------------------------------------------------- CHEMICALS-SPECIALTY -- 0.8% Eastman Chemical 55,000 2,683 Ecolab 24,800 1,134 ---------- 3,817 - -------------------------------------------------------------------------------- METAL-DIVERSIFIED -- 0.4% Inco* 89,700 1,756 ---------- 1,756 ---------- TOTAL BASIC MATERIALS (COST $6,386) 7,938 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 14.3% AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 0.4% Delphi 124,000 1,983 ---------- 1,983 - -------------------------------------------------------------------------------- CABLE TV -- 1.6% Adelphia Communications, Cl A* 254,100 3,786 USA Networks* 108,500 3,447 ---------- 7,233 - -------------------------------------------------------------------------------- CASINO HOTELS -- 1.3% Harrah's Entertainment* 30,700 1,359 Park Place Entertainment* 426,900 4,504 ---------- 5,863 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 0.9% Metro-Goldwyn-Mayer* 258,300 4,293 ---------- 4,293 - -------------------------------------------------------------------------------- MULTIMEDIA -- 0.6% Scripps (E.W.), Cl A 36,800 3,022 ---------- 3,022 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 0.6% Dow Jones 49,400 2,876 ---------- 2,876 - -------------------------------------------------------------------------------- PUBLISHING-PERIODICALS -- 1.5% Readers Digest Association 306,150 6,861 ---------- 6,861 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 1.0% Abercrombie & Fitch* 155,300 4,783 ---------- 4,783 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.3% RadioShack 46,200 1,388 ---------- 1,388 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 1.7% BJ's Wholesale Club* 176,800 $ 7,903 ---------- 7,903 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 1.6% Brinker International* 223,100 7,231 ---------- 7,231 - -------------------------------------------------------------------------------- RETAIL-TOY STORE -- 1.5% Toys R US* 393,500 7,067 ---------- 7,067 - -------------------------------------------------------------------------------- TOYS -- 1.3% Mattel 289,800 6,039 ---------- 6,039 ---------- TOTAL CONSUMER CYCLICAL (COST $63,787) 66,542 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 5.8% BEVERAGES-NON-ALCOHOLIC -- 1.4% Panamerican Beverage 202,000 3,669 PepsiAmericas 187,400 2,702 ---------- 6,371 - -------------------------------------------------------------------------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 1.7% Dial 168,300 3,033 Tupperware 210,800 4,796 ---------- 7,829 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 0.8% Kroger* 164,000 3,634 ---------- 3,634 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.8% Supervalu 156,200 4,030 ---------- 4,030 - -------------------------------------------------------------------------------- TOBACCO -- 1.1% Loews (Carolina Group)* 174,600 5,236 ---------- 5,236 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $24,433) 27,100 ---------- - -------------------------------------------------------------------------------- ENERGY -- 4.3% OIL & GAS DRILLING -- 1.5% Ensco International 110,500 3,330 Nabors Industries* 89,700 3,790 ---------- 7,120 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 1.7% Apache 41,690 2,371 Burlington Resources 74,300 2,979 Spinnaker Exploration* 61,300 2,553 ---------- 7,903 - -------------------------------------------------------------------------------- [LOGO OMITTED] 70 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG MID-CAP VALUE FUND PBMCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 0.3% FMC Technologies* 68,444 $ 1,364 ---------- 1,364 - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 0.8% Valero Energy 69,000 3,417 ---------- 3,417 ---------- TOTAL ENERGY (COST $17,147) 19,804 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 19.7% COMMERCIAL BANKS-WESTERN US -- 1.1% Zions Bancorporation 86,500 5,127 ---------- 5,127 - -------------------------------------------------------------------------------- FIDUCIARY BANKS -- 1.0% Wilmington Trust 70,000 4,712 ---------- 4,712 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 1.3% Countrywide Credit 134,700 6,028 ---------- 6,028 - -------------------------------------------------------------------------------- FINANCIAL GUARANTEE INSURANCE -- 0.4% Radian Group 42,000 2,061 ---------- 2,061 - -------------------------------------------------------------------------------- INSURANCE BROKERS -- 0.8% Willis Group* 153,600 3,794 ---------- 3,794 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 2.4% Federated Investors 70,600 2,284 Franklin Resources 123,700 5,185 Waddell & Reed Financial 119,800 3,652 ---------- 11,121 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 2.3% Principal Financial Group* 188,000 4,756 Protective Life 74,100 2,311 UnumProvident 138,100 3,857 ---------- 10,924 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.9% Allmerica Financial 164,800 7,400 Hartford Financial Services Group 70,000 4,768 HCC Insurance Holdings 47,200 1,319 Prudential Financial* 144,400 4,484 ---------- 17,971 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 2.4% ACE 113,700 4,741 Travelers Property Casualty* 310,800 6,216 ---------- 10,957 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- REINSURANCE -- 0.9% Odyssey Re Holdings 275,200 $ 4,400 ---------- 4,400 - -------------------------------------------------------------------------------- REITS-APARTMENTS -- 0.7% Archstone-Smith Trust 122,382 3,279 ---------- 3,279 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 1.1% Boston Properties 58,100 2,292 Equity Office Properties Trust 89,452 2,683 ---------- 4,975 - -------------------------------------------------------------------------------- S&L/THRIFTS-CENTRAL US -- 0.4% Charter One Financial 56,028 1,749 ---------- 1,749 - -------------------------------------------------------------------------------- S&L/THRIFTS-WESTERN US -- 0.5% Golden State Bancorp 76,900 2,283 ---------- 2,283 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 0.5% National City 74,100 2,279 ---------- 2,279 ---------- TOTAL FINANCIAL (COST $83,776) 91,660 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 13.9% DISPOSABLE MEDICAL PRODUCTS -- 1.6% Bard (C.R.) 123,700 7,304 ---------- 7,304 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 0.7% Quest Diagnostics* 38,800 3,215 ---------- 3,215 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 2.2% Enzon* 93,600 4,145 Idec Pharmaceuticals* 69,700 4,482 Immunex* 54,700 1,655 ---------- 10,282 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 1.2% Medimmune* 60,000 2,360 Teva Pharmaceutical Industries ADR 61,300 3,351 ---------- 5,711 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 0.9% Watson Pharmaceuticals* 148,800 4,031 ---------- 4,031 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 2.7% Aetna 165,000 6,405 Health Net* 124,700 3,422 Wellpoint Health Networks* 39,800 2,534 ---------- 12,361 - -------------------------------------------------------------------------------- [LOGO OMITTED] 71 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG MID-CAP VALUE FUND PBMCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 1.2% Community Health Systems* 246,000 $ 5,439 ---------- 5,439 - -------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL -- 2.0% Lincare Holdings* 345,800 9,378 ---------- 9,378 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 0.5% Omnicare 93,300 2,416 ---------- 2,416 - -------------------------------------------------------------------------------- PHYSICAL THERAPY/REHABILITATION CENTERS-- 0.9% Healthsouth* 303,600 4,357 ---------- 4,357 ---------- TOTAL HEALTH CARE (COST $59,415) 64,494 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 7.0% AEROSPACE/DEFENSE -- 2.1% Raytheon 149,100 6,121 Titan* 166,500 3,438 ---------- 9,559 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 1.4% Eaton 23,000 1,863 Textron 93,900 4,798 ---------- 6,661 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.8% Vishay Intertechnology* 179,600 3,653 ---------- 3,653 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 0.3% Tektronix* 49,600 1,174 ---------- 1,174 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 0.7% Avnet 129,176 3,495 ---------- 3,495 - -------------------------------------------------------------------------------- FILTRATION/SEPARATION PRODUCTS -- 0.4% Pall 98,500 2,018 ---------- 2,018 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.5% PerkinElmer 122,600 2,268 ---------- 2,268 - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.8% Republic Services* 197,900 3,697 ---------- 3,697 ---------- TOTAL INDUSTRIAL (COST $29,394) 32,525 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- SERVICES -- 8.2% COMMERCIAL SERVICES -- 1.5% Iron Mountain* 43,650 $ 1,384 Quintiles Transnational* 320,500 5,689 ---------- 7,073 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 4.2% Ceridian* 148,300 3,270 DST Systems* 262,400 13,067 Sungard Data Systems* 99,300 3,274 ---------- 19,611 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 0.9% Catalina Marketing* 28,600 1,044 Harte-Hanks 104,900 3,319 ---------- 4,363 - -------------------------------------------------------------------------------- RENTAL AUTO/EQUIPMENT -- 0.6% Rent-A-Center* 49,600 2,534 ---------- 2,534 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 1.0% Telephone & Data Systems 51,100 4,510 ---------- 4,510 ---------- TOTAL SERVICES (COST $33,881) 38,091 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 11.2% APPLICATIONS SOFTWARE -- 4.1% Citrix Systems* 388,600 6,715 Intuit* 200,200 7,680 Parametric Technology* 374,900 2,264 Rational Software* 157,100 2,487 ---------- 19,146 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.5% Henry (Jack) & Associates 103,800 2,302 ---------- 2,302 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 0.5% International Rectifier* 49,600 2,252 ---------- 2,252 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 0.8% BMC Software* 205,400 3,995 ---------- 3,995 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 1.5% Avocent* 257,200 6,891 ---------- 6,891 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 0.4% Network Associates* 77,600 1,878 ---------- 1,878 - -------------------------------------------------------------------------------- [LOGO OMITTED] 72 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG MID-CAP VALUE FUND PBMCX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SATELLITE TELECOMMUNICATIONS -- 0.7% Hughes Electronics* 196,800 $ 3,237 ---------- 3,237 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.7% Comverse Technology* 239,800 3,038 Scientific-Atlanta 209,300 4,835 ---------- 7,873 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 0.7% Amdocs* 131,500 3,505 ---------- 3,505 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 0.3% RF Micro Devices* 69,200 1,239 ---------- 1,239 ---------- TOTAL TECHNOLOGY (COST $48,269) 52,318 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 5.9% ELECTRIC-INTEGRATED -- 4.8% Allete 126,200 3,671 Dominion Resources 99,100 6,458 DTE Energy 51,500 2,343 Edison International* 99,300 1,663 Public Service Enterprise Group 98,900 4,530 XCEL Energy 148,100 3,754 ---------- 22,419 - -------------------------------------------------------------------------------- INDEPENDENT POWER PRODUCER -- 1.1% Calpine* 402,900 5,117 ---------- 5,117 ---------- TOTAL UTILITIES (COST $22,673) 27,536 ---------- TOTAL COMMON STOCK (COST $389,161) 428,008 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 6.4% Greenwich 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $21,587,782 (collateralized by U.S. Government Obligations: total market value $22,017,061)(A) $21,583 21,583 Morgan Stanley 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $8,001,644 (collateralized by U.S. Government Obligations: total market value $8,244,715)(A) 8,000 8,000 ---------- TOTAL REPURCHASE AGREEMENTS (COST $29,583) 29,583 ---------- TOTAL INVESTMENTS-- 98.4% (COST $418,744) 457,591 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.6% Receivable for Investment Securities Sold 16,703 Payable for Investment Securities Purchased (11,197) Other Assets and Liabilities, Net 2,017 ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET 7,523 ---------- Market Description Value (000) - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 29,543,567 outstanding shares of common stock $ 440,999 Fund Shares of Advisor Class ($0.001 par value) based on 8,053 outstanding shares of common stock 113 Accumulated net realized loss on investments (14,845) Unrealized appreciation on investments 38,847 ---------- TOTAL NET ASSETS-- 100.0% $ 465,114 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $15.74 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $15.72 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement ADR-- American Depositary Receipt Cl-- Class REIT-- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 73 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG SMALL CAP VALUE FUND PBSVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.4% BASIC MATERIALS -- 6.0% ADVANCED MATERIALS/PRODUCTS -- 1.2% Coorstek* 91,000 $ 3,496 ---------- 3,496 - -------------------------------------------------------------------------------- AGRICULTURAL CHEMICALS -- 1.8% IMC Global 362,200 5,342 ---------- 5,342 - -------------------------------------------------------------------------------- CHEMICALS-DIVERSIFIED -- 0.1% Solutia 30,700 267 ---------- 267 - -------------------------------------------------------------------------------- CHEMICALS-SPECIALTY -- 0.2% Cytec Industries* 20,900 636 ---------- 636 - -------------------------------------------------------------------------------- METAL-DIVERSIFIED -- 0.3% Freeport-McMoran Copper & Gold, Cl B* 58,400 1,029 ---------- 1,029 - -------------------------------------------------------------------------------- PAPER & RELATED PRODUCTS -- 0.7% Glatfelter 91,000 1,633 Louisiana-Pacific 30,400 326 ---------- 1,959 - -------------------------------------------------------------------------------- PRECIOUS METALS -- 1.5% Stillwater Mining* 241,200 4,547 ---------- 4,547 - -------------------------------------------------------------------------------- STEEL-PRODUCERS -- 0.2% Carpenter Technology 15,300 443 ---------- 443 ---------- TOTAL BASIC MATERIALS (COST $15,266) 17,719 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 20.0% AUDIO/VIDEO PRODUCTS -- 1.8% Harman International 65,800 3,248 Polycom* 79,600 1,958 ---------- 5,206 - -------------------------------------------------------------------------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL-- 0.9% Autoliv 69,200 1,678 Tower Automotive* 79,300 1,109 ---------- 2,787 - -------------------------------------------------------------------------------- CABLE TV -- 2.6% Insight Communications* 128,300 2,688 Lodgenet Entertainment* 90,500 1,547 Mediacom Communications* 232,900 3,263 ---------- 7,498 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- CASINO HOTELS -- 1.5% Station Casinos* 269,600 $ 4,489 ---------- 4,489 - -------------------------------------------------------------------------------- DISTRIBUTION/WHOLESALE -- 0.8% Bell Microproducts* 230,900 2,401 ---------- 2,401 - -------------------------------------------------------------------------------- LEISURE & RECREATIONAL PRODUCTS -- 0.5% WMS Industries* 82,600 1,570 ---------- 1,570 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 0.5% Zomax* 182,000 1,329 ---------- 1,329 - -------------------------------------------------------------------------------- PUBLISHING-BOOKS -- 0.4% Scholastic* 23,600 1,279 ---------- 1,279 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 0.6% Journal Register* 34,300 727 Pulitzer 21,200 1,134 ---------- 1,861 - -------------------------------------------------------------------------------- RADIO -- 0.6% Cumulus Media* 51,300 918 Spanish Broadcasting System* 54,300 736 ---------- 1,654 - -------------------------------------------------------------------------------- RECREATIONAL CENTERS -- 0.3% Bally Total Fitness* 45,800 1,005 ---------- 1,005 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 1.4% Kenneth Cole Productions, Cl A* 87,700 1,760 Men's Wearhouse* 78,700 1,838 Pacific Sunwear of California* 24,600 605 ---------- 4,203 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 0.7% Advance Auto Parts* 46,700 2,148 ---------- 2,148 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 1.2% Linens 'N Things* 114,900 3,508 ---------- 3,508 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 0.4% PC Connection* 98,300 1,038 ---------- 1,038 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.5% Tweeter Home Entertainment Group* 36,400 712 Ultimate Electronics* 25,000 701 ---------- 1,413 - -------------------------------------------------------------------------------- [LOGO OMITTED] 74 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG SMALL CAP VALUE FUND PBSVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-CONVENIENCE STORE -- 1.2% 7-Eleven* 109,700 $ 1,223 Casey's General Stores 163,700 2,210 ---------- 3,433 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 1.8% Buca* 195,000 3,543 CEC Entertainment* 27,200 1,257 Papa John's International* 13,500 376 ---------- 5,176 - -------------------------------------------------------------------------------- TELEVISION -- 1.5% Paxson Communications* 77,100 845 Young Broadcasting, Cl A* 143,900 3,596 ---------- 4,441 - -------------------------------------------------------------------------------- THEATERS -- 0.8% AMC Entertainment* 168,200 2,294 ---------- 2,294 ---------- TOTAL CONSUMER CYCLICAL (COST $50,242) 58,733 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 3.2% CONSUMER PRODUCTS-MISCELLANEOUS -- 0.5% Playtex Products* 137,400 1,492 ---------- 1,492 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.2% Dole Food 40,200 1,246 Hain Celestial Group* 101,800 2,265 ---------- 3,511 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 0.6% Winn-Dixie Stores 117,800 1,890 ---------- 1,890 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.9% Fleming 111,400 2,495 ---------- 2,495 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $8,368) 9,388 ---------- - -------------------------------------------------------------------------------- ENERGY -- 4.7% OIL & GAS DRILLING -- 0.6% Atwood Oceanic* 39,600 1,818 ---------- 1,818 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 0.5% Spinnaker Exploration* 38,800 1,616 ---------- 1,616 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 2.0% Hydril* 25,800 629 Universal Compression* 197,800 5,222 ---------- 5,851 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 0.4% Tesoro Petroleum* 78,800 $ 1,107 ---------- 1,107 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 1.2% CAL Dive International* 68,900 1,716 Global Industries* 90,400 843 Newpark Resources* 121,700 943 ---------- 3,502 ---------- TOTAL ENERGY (COST $12,536) 13,894 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 10.4% COMMERCIAL BANKS-WESTERN US -- 1.0% City National 56,700 2,983 ---------- 2,983 - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 0.5% Medallion Financial 176,800 1,374 ---------- 1,374 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 1.9% Affiliated Managers Group* 57,100 4,101 Federated Investors 44,600 1,443 ---------- 5,544 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 1.3% Scottish Annuity & Life Holdings 108,100 2,054 Stancorp Financial Group 31,200 1,716 ---------- 3,770 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 0.9% HCC Insurance Holdings 91,700 2,563 ---------- 2,563 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 0.5% First American 69,800 1,485 ---------- 1,485 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.5% Trammell Crow* 102,800 1,491 ---------- 1,491 - -------------------------------------------------------------------------------- REINSURANCE -- 1.0% Odyssey Re Holdings 179,000 2,862 ---------- 2,862 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 0.7% Mack-Cali Realty 60,300 2,091 ---------- 2,091 - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.5% Rouse 46,100 1,428 ---------- 1,428 - -------------------------------------------------------------------------------- [LOGO OMITTED] 75 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG SMALL CAP VALUE FUND PBSVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 0.4% Berkshire Hills Bancorp 51,400 $ 1,139 ---------- 1,139 - -------------------------------------------------------------------------------- S&L/THRIFTS-SOUTHERN US -- 1.2% Ocwen Financial* 554,400 3,653 ---------- 3,653 ---------- TOTAL FINANCIAL (COST $26,469) 30,383 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 14.1% DIALYSIS CENTERS -- 0.4% Renal Care Group* 35,400 1,161 ---------- 1,161 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 1.6% Hooper Holmes 457,500 4,799 ---------- 4,799 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 0.5% Edwards Lifesciences* 48,200 1,347 ---------- 1,347 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 0.7% Covance* 103,900 2,107 ---------- 2,107 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.6% Haemonetics* 225,200 7,148 Zoll Medical* 15,400 591 ---------- 7,739 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 0.8% Digene* 70,000 2,503 ---------- 2,503 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.1% Adolor* 109,700 1,223 Cima Labs* 183,100 4,880 ---------- 6,103 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 0.2% Alpharma, Cl A 36,500 522 ---------- 522 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 2.1% Coventry Health Care* 72,300 1,880 Health Net* 57,800 1,586 Humana* 196,400 2,657 ---------- 6,123 - -------------------------------------------------------------------------------- MEDICAL-NURSING HOMES -- 1.0% Beverly Enterprises* 398,400 2,869 ---------- 2,869 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 1.4% Omnicare 90,800 $ 2,351 Syncor International* 59,600 1,624 ---------- 3,975 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.7% NPS Pharmaceuticals* 52,500 1,713 Titan Pharmaceuticals* 45,400 318 ---------- 2,031 ---------- TOTAL HEALTH CARE (COST $34,875) 41,279 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 9.4% AEROSPACE/DEFENSE -- 0.5% Teledyne Technologies* 93,900 1,557 ---------- 1,557 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-CEMENT/AGGREGATE-- 0.0% Texas Industries 300 12 ---------- 12 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-LIGHT FIXTURES -- 0.3% Genlyte Group* 24,900 935 ---------- 935 - -------------------------------------------------------------------------------- CIRCUIT BOARDS -- 0.7% DDI* 237,100 2,023 ---------- 2,023 - -------------------------------------------------------------------------------- CONTAINERS-METAL/GLASS -- 0.4% Crown Cork & Seal* 140,100 1,254 ---------- 1,254 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 1.0% DSP Group* 144,300 2,954 ---------- 2,954 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 0.7% Molecular Devices* 108,600 1,973 ---------- 1,973 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 0.8% Avnet 82,839 2,242 ---------- 2,242 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 0.7% Stericycle* 33,200 2,077 ---------- 2,077 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 1.0% Fisher Scientific International* 101,000 2,838 ---------- 2,838 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 0.4% Coherent* 37,500 1,271 ---------- 1,271 - -------------------------------------------------------------------------------- [LOGO OMITTED] 76 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG SMALL CAP VALUE FUND PBSVX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MACHINERY-PUMPS -- 1.1% Flowserve* 97,000 $ 3,105 ---------- 3,105 - -------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURING -- 0.4% Aptargroup 35,600 1,248 ---------- 1,248 - -------------------------------------------------------------------------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 0.7% Artesyn Technologies* 94,100 876 Power-One* 127,900 1,046 ---------- 1,922 - -------------------------------------------------------------------------------- STEEL PIPE & TUBE -- 0.7% Shaw Group* 74,100 2,038 ---------- 2,038 ---------- TOTAL INDUSTRIAL (COST $25,739) 27,449 ---------- - -------------------------------------------------------------------------------- SERVICES -- 10.6% ADVERTISING SERVICES -- 0.6% Getty Images* 35,100 1,052 R.H. Donnelley* 23,200 706 ---------- 1,758 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 0.6% Alliance Data Systems* 70,700 1,777 ---------- 1,777 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 1.3% PRG-Schultz International* 264,800 3,720 ---------- 3,720 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 3.2% DiamondCluster International* 110,900 1,433 Forrester Research* 97,200 1,857 PDI* 146,300 2,481 Watson Wyatt* 129,400 3,539 ---------- 9,310 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 2.7% Advo* 122,000 5,153 Catalina Marketing* 17,700 646 Valuevision International, Cl A* 108,000 2,241 ---------- 8,040 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 1.3% Parexel International* 105,000 1,684 Pharmaceutical Product Development* 60,300 2,102 ---------- 3,786 - -------------------------------------------------------------------------------- SCHOOLS -- 0.9% Edison Schools* 145,700 2,025 Learning Tree International* 25,200 610 ---------- 2,635 ---------- TOTAL SERVICES (COST $28,103) 31,026 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 14.1% APPLICATIONS SOFTWARE -- 1.6% Peregrine Systems* 486,740 $ 4,634 ---------- 4,634 - -------------------------------------------------------------------------------- COMPUTER GRAPHICS -- 1.1% Pixar* 87,100 3,205 ---------- 3,205 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.3% Radiant Systems* 100,400 909 ---------- 909 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 1.8% Maxtor* 129,900 903 Silicon Storage Technology* 334,000 3,524 Western Digital* 144,300 899 ---------- 5,326 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 1.5% Choicepoint* 50,900 2,932 Fair Isaac 22,950 1,455 ---------- 4,387 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 0.3% Wind River Systems* 60,800 826 ---------- 826 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 0.4% MIPS Technologies, Cl A* 158,700 1,168 ---------- 1,168 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.0% JDA Software Group* 56,800 1,811 Micromuse* 115,800 1,014 ---------- 2,825 - -------------------------------------------------------------------------------- INTERNET APPLICATION SOFTWARE -- 0.5% Vignette* 453,500 1,560 ---------- 1,560 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 1.4% Avocent* 157,800 4,227 ---------- 4,227 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 1.5% Adaptec* 225,400 3,013 Computer Network Technology* 69,500 919 Crossroads Systems* 118,600 421 ---------- 4,353 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 1.2% GlobespanVirata* 239,500 3,573 ---------- 3,573 - -------------------------------------------------------------------------------- [LOGO OMITTED] 77 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG SMALL CAP VALUE FUND PBSVX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.5% Lam Research* 48,500 $ 1,422 ---------- 1,422 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.0% Advanced Fibre Communication* 110,700 2,125 Sunrise Telecom* 223,000 691 ---------- 2,816 ---------- TOTAL TECHNOLOGY (COST $36,570) 41,231 ---------- - -------------------------------------------------------------------------------- TRANSPORTATION -- 0.2% TRANSPORTATION-AIR FREIGHT -- 0.2% Atlas Air Worldwide* 54,500 718 ---------- 718 ---------- TOTAL TRANSPORTATION (COST $682) 718 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 1.7% ELECTRIC-INTEGRATED -- 1.0% Idacorp 21,800 883 Madison Gas & Electric 32,200 915 Sierra Pacific Resources 70,800 1,068 ---------- 2,866 - -------------------------------------------------------------------------------- GAS-DISTRIBUTION -- 0.7% UGI 66,100 2,072 ---------- 2,072 ---------- TOTAL UTILITIES (COST $4,299) 4,938 ---------- TOTAL COMMON STOCK (COST $243,149) 276,758 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 7.2% Morgan Stanley 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $21,259,264 (collateralized by U.S. Government Obligations: total market value $21,788,690)(A) $21,255 21,255 ---------- TOTAL REPURCHASE AGREEMENT (COST $21,255) 21,255 ---------- TOTAL INVESTMENTS-- 101.6% (COST $264,404) 298,013 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (1.6)% Payable for Investment Securities Purchased (6,249) Other Assets and Liabilities, Net 1,607 ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET (4,642) ---------- - -------------------------------------------------------------------------------- Market Description Value (000) - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 14,186,792 outstanding shares of common stock $ 271,138 Fund Shares of Advisor Class ($0.001 par value) based on 17,664 outstanding shares of common stock 308 Accumulated net realized loss on investments (11,684) Unrealized appreciation on investments 33,609 ---------- TOTAL NET ASSETS-- 100.0% $ 293,371 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $20.65 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $20.60 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 78 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG SPECIAL EQUITY FUND PBNPX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 92.3% BASIC MATERIALS -- 6.8% DIVERSIFIED MINERALS -- 1.0% Cia Vale do Rio Doce ADR* 9,700 $ 266 ---------- 266 - -------------------------------------------------------------------------------- GOLD MINING -- 2.0% Barrick Gold 28,000 519 ---------- 519 - -------------------------------------------------------------------------------- INDUSTRIAL GASES -- 2.3% Praxair 9,700 580 ---------- 580 - -------------------------------------------------------------------------------- STEEL-PRODUCERS -- 1.5% United States Steel 20,400 370 ---------- 370 ---------- TOTAL BASIC MATERIALS (COST $1,472) 1,735 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 5.6% AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 1.8% Delphi 28,700 459 ---------- 459 - -------------------------------------------------------------------------------- BROADCAST SERVICES/PROGRAMMING -- 2.8% Liberty Media, Cl A* 55,876 706 ---------- 706 - -------------------------------------------------------------------------------- MULTIMEDIA -- 1.0% Scripps (E.W.), Cl A 3,100 255 ---------- 255 ---------- TOTAL CONSUMER CYCLICAL (COST $1,369) 1,420 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 8.5% AGRICULTURAL OPERATIONS -- 1.1% Bunge Limited 13,000 281 ---------- 281 - -------------------------------------------------------------------------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 1.4% Fortune Brands 7,400 365 ---------- 365 - -------------------------------------------------------------------------------- FOOD-MISC/DIVERSIFIED -- 1.2% Sara Lee 14,500 301 ---------- 301 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 1.6% Albertson's 12,000 398 ---------- 398 - -------------------------------------------------------------------------------- TOBACCO -- 3.2% Philip Morris 15,600 822 ---------- 822 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $1,668) 2,167 ---------- - -------------------------------------------------------------------------------- ENERGY -- 10.6% OIL & GAS DRILLING -- 1.7% Transocean Sedco Forex 12,900 429 ---------- 429 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 4.7% Kerr-McGee 3,900 $ 245 Noble Affiliates 16,900 660 Ocean Energy 15,019 297 ---------- 1,202 - -------------------------------------------------------------------------------- OIL COMPANIES-INTEGRATED -- 4.2% Conoco 21,000 613 Phillips Petroleum 7,180 451 ---------- 1,064 ---------- TOTAL ENERGY (COST $2,359) 2,695 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 32.8% FINANCE-INVESTMENT BANKER/BROKER -- 1.2% JP Morgan Chase 8,850 315 ---------- 315 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 4.7% Countrywide Credit 16,800 752 Fannie Mae 5,600 447 ---------- 1,199 - -------------------------------------------------------------------------------- FINANCIAL GUARANTEE INSURANCE -- 4.6% MGIC Investment 8,500 582 Radian Group 12,000 589 ---------- 1,171 - -------------------------------------------------------------------------------- INTERNET FINANCIAL SERVICES -- 2.9% Indymac Bancorp 30,000 741 ---------- 741 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 1.4% Torchmark 8,700 350 ---------- 350 - -------------------------------------------------------------------------------- MONEY CENTER BANKS -- 2.0% Bank of America 7,267 494 ---------- 494 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.8% Hartford Financial Services Group 7,800 532 Loews 7,600 445 ---------- 977 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 4.1% Fidelity National Financial 25,300 667 PMA Capital 16,800 386 ---------- 1,053 - -------------------------------------------------------------------------------- REITS-HOTELS -- 1.6% Felcor Lodging Trust 19,700 419 ---------- 419 - -------------------------------------------------------------------------------- REITS-MORTGAGE -- 3.5% America First Mortgage Investments 36,500 327 FBR Asset Investment 21,000 571 ---------- 898 - -------------------------------------------------------------------------------- [LOGO OMITTED] 79 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG SPECIAL EQUITY FUND PBNPX Market Description Shares Value (000) - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 3.0% FleetBoston Financial 9,600 $ 336 Wachovia 11,200 415 ---------- 751 ---------- TOTAL FINANCIAL (COST $7,610) 8,368 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 3.3% MEDICAL-HMO -- 1.8% Aetna 12,000 466 ---------- 466 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 1.5% HCA 8,600 379 ---------- 379 ---------- TOTAL HEALTH CARE (COST $673) 845 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 11.2% AEROSPACE/DEFENSE -- 2.6% Raytheon 16,300 669 ---------- 669 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-AIR & HEATING -- 0.9% York International 6,400 230 ---------- 230 - -------------------------------------------------------------------------------- CONTAINERS-PAPER/PLASTIC -- 1.5% Packaging Corporation of America* 19,400 384 ---------- 384 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 2.3% Agilent Technologies* 16,600 581 ---------- 581 - -------------------------------------------------------------------------------- INSTRUMENTS-CONTROLS -- 1.3% Parker-Hannifin 6,700 334 ---------- 334 - -------------------------------------------------------------------------------- MACHINERY-GENERAL INDUSTRY -- 1.0% Ingersoll-Rand, Cl A 5,100 255 ---------- 255 - -------------------------------------------------------------------------------- TOOLS-HAND HELD -- 1.6% Snap-On Tools 11,900 405 ---------- 405 ---------- TOTAL INDUSTRIAL (COST $2,298) 2,858 ---------- - -------------------------------------------------------------------------------- SERVICES -- 6.1% TELEPHONE-INTEGRATED -- 6.1% Alltel 5,100 283 Sprint (FON Group) 40,200 615 Telephone & Data Systems 7,500 662 ---------- 1,560 ---------- TOTAL SERVICES (COST $1,668) 1,560 ---------- - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 5.8% COMPUTERS-MEMORY DEVICES -- 1.7% Maxtor* 62,600 $ 435 ---------- 435 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 1.3% Agere Systems* 85,200 331 ---------- 331 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 2.8% Computer Associates International 32,800 718 ---------- 718 ---------- TOTAL TECHNOLOGY (COST $1,497) 1,484 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 1.6% ELECTRIC-INTEGRATED -- 1.6% DTE Energy 8,900 405 ---------- 405 ---------- TOTAL UTILITIES (COST $332) 405 ---------- TOTAL COMMON STOCK (COST $20,946) 23,537 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 6.9% Barclays 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $1,763,240 (collateralized by U.S. Government Obligations: total market value $1,798,716)(A) $1,763 1,763 ---------- TOTAL REPURCHASE AGREEMENT (COST $1,763) 1,763 ---------- TOTAL INVESTMENTS-- 99.2% (COST $22,709) 25,300 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.8% TOTAL OTHER ASSETS AND LIABILITIES, NET 205 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 1,832,126 outstanding shares of common stock 22,988 Undistributed net investment income 93 Accumulated net realized loss on investments (167) Unrealized appreciation on investments 2,591 ---------- TOTAL NET ASSETS-- 100.0% $ 25,505 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $13.92 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement ADR-- American Depositary Receipt Cl-- Class REIT-- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 80 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG DISCIPLINED EQUITY FUND PBDEX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 97.0% BASIC MATERIALS -- 0.5% CHEMICALS-SPECIALTY -- 0.5% Engelhard 17,220 $ 534 ---------- 534 ---------- TOTAL BASIC MATERIALS (COST $472) 534 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 11.5% APPAREL MANUFACTURERS -- 0.8% Liz Claiborne 29,223 829 ---------- 829 - -------------------------------------------------------------------------------- AUTO-CARS/LIGHT TRUCKS -- 0.4% General Motors 6,752 408 ---------- 408 - -------------------------------------------------------------------------------- CABLE TV -- 0.3% Comcast* 10,598 337 ---------- 337 - -------------------------------------------------------------------------------- COATINGS/PAINT -- 1.2% Sherwin-Williams 43,175 1,230 ---------- 1,230 - -------------------------------------------------------------------------------- CRUISE LINES -- 0.2% Carnival 4,727 154 ---------- 154 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 1.2% Knight Ridder 14,114 969 New York Times 4,547 218 ---------- 1,187 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 1.3% Autozone* 19,811 1,364 ---------- 1,364 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 2.8% Home Depot 39,605 1,925 Lowe's 21,066 916 ---------- 2,841 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 2.1% TJX 52,755 2,111 ---------- 2,111 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 1.2% May Department Stores 34,373 1,198 ---------- 1,198 ---------- TOTAL CONSUMER CYCLICAL (COST $11,119) 11,659 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 8.3% FOOD-MISCELLANEOUS/DIVERSIFIED -- 4.9% Campbell Soup 93,741 $ 2,512 Conagra Foods 6,225 151 Sara Lee 111,541 2,316 ---------- 4,979 - -------------------------------------------------------------------------------- TOBACCO -- 3.4% Philip Morris 42,735 2,251 UST 30,319 1,180 ---------- 3,431 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $7,498) 8,410 ---------- - -------------------------------------------------------------------------------- ENERGY -- 7.7% OIL COMPANIES-INTEGRATED -- 5.2% Exxon Mobil 116,610 5,111 Phillips Petroleum 3,466 218 ---------- 5,329 - -------------------------------------------------------------------------------- PIPELINES -- 2.5% EL Paso 40,822 1,797 Kinder Morgan 13,272 643 Williams 3,024 71 ---------- 2,511 ---------- TOTAL ENERGY (COST $6,920) 7,840 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 19.6% COMMERCIAL BANKS-SOUTHERN US -- 1.9% BB&T 51,609 1,967 ---------- 1,967 - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES -- 4.4% Citigroup 89,351 4,425 ---------- 4,425 - -------------------------------------------------------------------------------- FINANCE-CONSUMER LOANS -- 1.1% Household International 18,807 1,068 ---------- 1,068 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 3.6% Fannie Mae 25,789 2,060 Freddie Mac 24,966 1,582 ---------- 3,642 - -------------------------------------------------------------------------------- MONEY CENTER BANKS -- 3.3% Bank of America 48,796 3,319 ---------- 3,319 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 0.6% Metlife 20,825 656 ---------- 656 - -------------------------------------------------------------------------------- [LOGO OMITTED] 81 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG DISCIPLINED EQUITY FUND PBDEX Market Description Shares Value (000) - -------------------------------------------------------------------------------- S&L/THRIFTS-WESTERN US -- 2.3% Washington Mutual 70,724 $ 2,343 ---------- 2,343 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 2.4% FleetBoston Financial 69,869 2,445 ---------- 2,445 ---------- TOTAL FINANCIAL (COST $18,729) 19,865 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 14.9% DISPOSABLE MEDICAL PRODUCTS -- 0.1% Bard (C.R.) 1,901 112 ---------- 112 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 1.0% McKesson 27,450 1,028 ---------- 1,028 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 2.6% Medtronic 57,511 2,600 ---------- 2,600 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 0.6% Johnson & Johnson 9,838 639 ---------- 639 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 10.6% Bristol-Myers Squibb 4,769 193 Merck 15,397 886 Pfizer 126,119 5,012 Pharmacia 52,943 2,387 Schering-Plough 72,847 2,280 ---------- 10,758 ---------- TOTAL HEALTH CARE (COST $14,526) 15,137 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 5.9% AEROSPACE/DEFENSE-EQUIPMENT -- 2.3% United Technologies 31,302 2,323 ---------- 2,323 - -------------------------------------------------------------------------------- CONTAINERS-PAPER/PLASTIC -- 0.1% Sealed Air* 2,016 95 ---------- 95 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 3.4% General Electric 68,273 2,557 Tyco International 28,180 910 ---------- 3,467 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.1% PerkinElmer 7,774 144 ---------- 144 ---------- TOTAL INDUSTRIAL (COST $6,272) 6,029 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- SERVICES -- 5.8% COMMERCIAL SERVICES-FINANCE -- 2.1% Deluxe 46,796 $ 2,165 ---------- 2,165 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 0.9% Electronic Data Systems 14,940 866 ---------- 866 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 2.8% SBC Communications 40,366 1,511 Sprint (FON Group) 88,522 1,354 ---------- 2,865 ---------- TOTAL SERVICES (COST $5,746) 5,896 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 18.9% APPLICATIONS SOFTWARE -- 4.0% Microsoft* 67,026 4,042 ---------- 4,042 - -------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS -- 1.1% AT&T Wireless Services* 121,339 1,086 ---------- 1,086 - -------------------------------------------------------------------------------- COMPUTER AIDED DESIGN -- 1.3% Autodesk 27,848 1,300 ---------- 1,300 - -------------------------------------------------------------------------------- COMPUTERS -- 0.9% Compaq Computer 15,623 163 Sun Microsystems* 92,443 816 ---------- 979 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.7% Automatic Data Processing 47,932 2,793 ---------- 2,793 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 3.3% Intel 112,224 3,413 ---------- 3,413 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 2.7% Computer Associates International 46,988 1,029 Oracle* 131,872 1,688 ---------- 2,717 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 1.2% Cisco Systems* 61,981 1,049 Lucent Technologies* 30,027 142 ---------- 1,191 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 1.7% Motorola 119,872 1,702 ---------- 1,702 ---------- TOTAL TECHNOLOGY (COST $20,345) 19,223 ---------- - -------------------------------------------------------------------------------- [LOGO OMITTED] 82 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG DISCIPLINED EQUITY FUND PBDEX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- UTILITIES -- 3.9% ELECTRIC-INTEGRATED -- 3.4% Ameren 1,598 $ 68 TECO Energy 46,163 1,322 XCEL Energy 79,913 2,026 ---------- 3,416 - -------------------------------------------------------------------------------- GAS-DISTRIBUTION -- 0.5% Sempra Energy 22,145 557 ---------- 557 ---------- TOTAL UTILITIES (COST $3,749) 3,973 ---------- TOTAL COMMON STOCK (COST $95,376) 98,566 ---------- - -------------------------------------------------------------------------------- RIGHTS -- 0.0% Seagate Escrow Security+ 6,002 -- ---------- TOTAL RIGHTS (COST $0) -- ---------- - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS-- 0.4% US Treasury Bill(B)(C) 2.100%, 04/11/02 465 465 ---------- 465 ---------- TOTAL U.S. TREASURY OBLIGATIONS (COST $464) 465 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 2.6% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $2,593,243 (collateralized by U.S. Government Obligations: total market value $2,644,839)(A) $2,593 2,593 ---------- TOTAL REPURCHASE AGREEMENT (COST $2,593) 2,593 ---------- TOTAL INVESTMENTS-- 100.0% (COST $98,433) 101,624 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (0.0)% TOTAL OTHER ASSETS AND LIABILITIES, NET (9) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 9,749,476 outstanding shares of common stock 114,661 Undistributed net investment income 177 Accumulated net realized loss on investments (16,366) Unrealized appreciation on investments and futures contracts 3,143 ---------- TOTAL NET ASSETS-- 100.0% $ 101,615 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $10.42 ====== * Non-income producing security. + These rights represent a potential distribution settlement in a legal claim and do not have a strike price or expiration date. (A) -- Tri-party repurchase agreement (B) -- Security has been pledged as collateral for open futures contracts. (C) -- The rate reflected on the Statement of Net Assets represents the security's effective yield at time of purchase. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 83 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.3% BERMUDA -- 2.8% Marvell Technology Group 22,500 $ 986 ---------- 986 - -------------------------------------------------------------------------------- DENMARK -- 0.2% Carlsberg A/S, Cl B 754 29 TDC A/S 1,128 36 ---------- 65 - -------------------------------------------------------------------------------- FINLAND -- 2.0% Nokia Oyj ADR 33,800 701 Sonera Oyj 3,447 17 ---------- 718 - -------------------------------------------------------------------------------- FRANCE -- 1.3% Alcatel 1,157 16 STMicroelectronics 13,200 448 ---------- 464 - -------------------------------------------------------------------------------- GERMANY -- 5.1% Epcos 1,224 56 Infineon Technologies ADR 14,700 332 Marschollek Lautenschlaeger und Partner 1,092 75 SAP ADR 32,700 1,217 Siemens 2,068 135 ---------- 1,815 - -------------------------------------------------------------------------------- HONG KONG -- 1.5% China Mobile ADR* 22,700 351 China Unicom ADR* 18,000 173 ---------- 524 - -------------------------------------------------------------------------------- INDIA -- 1.5% Infosys Technologies ADR 8,100 531 ---------- 531 - -------------------------------------------------------------------------------- ISRAEL -- 2.5% Precise Software Solutions* 39,000 908 ---------- 908 - -------------------------------------------------------------------------------- ITALY -- 0.4% Telecom Italia* 17,303 143 ---------- 143 - -------------------------------------------------------------------------------- JAPAN -- 4.0% Fanuc 1,000 55 Fuji Machine 3,000 47 Fujitsu 47,000 360 Furukawa Electric 30,000 146 Matsushita Communication 1,000 34 Mitsui 27,000 165 Murata Manufacturing 1,000 64 Nippon Telegraph & Telephone 16 61 NTT DoCoMo 5 14 NTT DoCoMo (when issued)* 20 54 Omron 5,000 72 Rohm 400 60 Sony 6,000 312 ---------- 1,444 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- NETHERLANDS -- 4.6% ASML* 61,700 $ 1,565 Koninklijke Philips Electronics 2,689 82 ---------- 1,647 - -------------------------------------------------------------------------------- NEW ZEALAND -- 0.2% Telecom Corporation of New Zealand 25,364 54 ---------- 54 - -------------------------------------------------------------------------------- SINGAPORE -- 1.1% Flextronics International* 14,700 268 Overseas Chinese Banking 7,000 53 Singapore Press 4,900 65 ---------- 386 - -------------------------------------------------------------------------------- SOUTH KOREA -- 1.0% KT ADR 15,200 364 ---------- 364 - -------------------------------------------------------------------------------- SWEDEN -- 0.1% Telefonaktiebolaget LM Ericsson* 10,267 43 ---------- 43 - -------------------------------------------------------------------------------- TAIWAN -- 11.8% Taiwan Semiconductor Manufacturing ADR*106,440 2,208 United Microelectronics ADR* 186,640 1,988 ---------- 4,196 - -------------------------------------------------------------------------------- UNITED KINGDOM -- 2.5% Man Group Plc 10,000 170 Sainsbury (J) Plc 13,000 74 Vodafone Group Plc 32,600 60 Vodafone Group Plc ADR 32,100 592 ---------- 896 - -------------------------------------------------------------------------------- UNITED STATES -- 51.7% Adelphia Communications* 27,100 404 Advanced Fibre Communication* 19,900 382 ATMI* 11,800 371 Broadcom* 40,400 1,450 Brocade Communications Systems* 34,500 932 Centillium Communications* 31,400 380 Cisco Systems* 101,300 1,715 Conexant Systems* 41,000 494 Cymer* 7,400 368 Documentum* 3,400 87 eBay* 5,900 334 EMC* 15,300 182 Emulex* 21,600 711 FEI* 3,000 107 Finisar* 28,500 220 Gemstar-TV Guide International* 21,600 320 Genesis Microchip* 5,100 133 i2 Technologies* 58,500 296 Integrated Circuit Systems* 17,300 353 Intersil* 23,100 655 Juniper Networks* 22,300 281 Kulicke & Soffa Industries* 21,200 441 Lam Research* 10,000 293 - -------------------------------------------------------------------------------- [LOGO OMITTED] 84 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- UNITED STATES -- CONTINUED Linear Technology 9,000 $ 398 Maxim Integrated Products* 8,600 479 Mercury Interactive* 12,100 456 Microsoft* 10,600 639 Microtune* 12,000 172 Mykrolis* 28,600 437 Network Associates* 6,600 160 Novellus Systems* 6,600 357 Overture Services* 12,500 349 PMC-Sierra* 48,300 786 Qualcomm* 19,800 745 Retek* 3,300 87 RF Micro Devices* 32,500 582 SmartForce* 16,900 177 Sun Microsystems* 12,500 110 VeriSign* 5,300 143 Veritas Software* 9,700 425 Vitesse Semiconductor* 25,300 248 Xilinx* 19,500 777 ---------- 18,436 ---------- TOTAL COMMON STOCK (COST $35,317) 33,620 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.1% JPMorgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $1,112,956 (collateralized by U.S. Government Obligations: Total Market Value $1,138,404) (A) $1,113 1,113 ---------- TOTAL REPURCHASE AGREEMENT (COST $1,113) 1,113 ---------- TOTAL INVESTMENTS-- 97.4% (COST $36,430) 34,733 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 2.6% TOTAL OTHER ASSETS AND LIABILITIES, NET 913 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 9,371,991 outstanding shares of common stock 109,304 Accumulated net investment loss (16) Accumulated net realized loss on investments (71,945) Unrealized depreciation on investments (1,697) ---------- TOTAL NET ASSETS-- 100.0% $ 35,646 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $3.80 ===== * Non-income producing security. (A)-- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class Plc -- Public Limited Company [LOGO OMITTED] 85 PBHG FUNDS SECTOR/INDUSTRY DIVERSIFICATION - ------------------------------- As of March 31, 2002 (Unaudited) PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX Market % of Value (000) Net Assets - -------------------------------------------------------------------------------- COMMON STOCK CONSUMER CYCLICAL Audio/Video Products $ 312 0.9% Cable TV 404 1.1 Multimedia 319 0.9 Publishing-Newspapers 65 0.2 ------ ------ TOTAL CONSUMER CYCLICAL 1,100 3.1 ------ ------ CONSUMER NON-CYCLICAL Brewery 29 0.1 Food-Retail 74 0.2 Import/Export 165 0.5 ------ ------ TOTAL CONSUMER NON-CYCLICAL 268 0.8 ------ ------ FINANCIAL Finance-Other Services 170 0.5 Investment Management/Advisory Services 75 0.2 Money Center-Banks 52 0.1 ------ ------ TOTAL FINANCIAL 297 0.8 ------ ------ INDUSTRIAL Diversified Manufacturing Operations 135 0.4 Electronic Components-Miscellaneous 597 1.7 Instruments-Scientific 107 0.3 Lasers-Systems/Components 368 1.0 Machinery-Material Handling 48 0.1 Wire & Cable Products 146 0.4 ------ ------ TOTAL INDUSTRIAL 1,401 3.9 ------ ------ Market % of Value (000) Net Assets - -------------------------------------------------------------------------------- SERVICES E-Commerce/Services $ 334 0.9% Telephone-Integrated 605 1.7 ------- ------ TOTAL SERVICES 939 2.6 ------- ------ TECHNOLOGY Applications Software 1,625 4.6 B2B/E-Commerce 296 0.8 Cellular Telecommunications 1,243 3.5 Computers 110 0.3 Computers-Integrated Systems 1,291 3.6 Computers-Memory Devices 608 1.7 Data Processing/Management 87 0.2 Decision Support Software 908 2.5 Educational Software 177 0.5 Electronic Components-Semiconductors 5,175 14.5 Enterprise Software/Services 1,303 3.7 Internet Infrastructure Equipment 380 1.1 Internet Security 303 0.9 Networking Products 2,708 7.6 Semiconductor Components-Integrated Circuits 6,792 19.1 Semiconductor Equipment 3,465 9.7 Telecommunication Equipment-Fiber Optics 220 0.6 Telecommunication Services 71 0.2 Telecommunication Equipment 1,922 5.4 Web Portals/ISP 349 1.0 Wireless Equipment 582 1.6 ------- ------ TOTAL TECHNOLOGY 29,615 83.1 ------- ------ TOTAL COMMON STOCK 33,620 94.3 TOTAL REPURCHASE AGREEMENT 1,113 3.1 TOTAL OTHER ASSETS & LIABILITIES, NET 913 2.6 ------- ------ TOTAL NET ASSETS $35,646 100.0% ======= ====== The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 86 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG REIT FUND PBRTX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 95.8% CONSUMER CYCLICAL -- 6.5% HOTELS & MOTELS -- 3.2% Starwood Hotels & Resorts Worldwide 81,700 $ 3,073 ---------- 3,073 - -------------------------------------------------------------------------------- REAL ESTATE OPERATION/DEVELOPMENT -- 3.3% Catellus Development* 136,800 2,691 TrizecHahn 35,000 554 ---------- 3,245 ---------- TOTAL CONSUMER CYCLICAL ($5,328) 6,318 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 89.3% REITS -- 89.3% APARTMENTS -- 16.8% Apartment Investment & Management, Cl A 133,000 6,433 Avalonbay Communities 82,400 4,104 Equity Residential Properties Trust 25,000 718 Summit Properties 102,000 2,499 United Dominion Realty Trust 155,500 2,463 ---------- 16,217 - -------------------------------------------------------------------------------- DIVERSIFIED -- 6.1% Bedford Property Investors 47,800 1,224 Keystone Property Trust 26,200 369 Vornado Realty Trust 97,000 4,284 ---------- 5,877 - -------------------------------------------------------------------------------- HOTELS -- 8.1% Host Marriott 172,000 2,055 LaSalle Hotel Properties 117,200 1,899 Meristar Hospitality 210,500 3,842 ---------- 7,796 - -------------------------------------------------------------------------------- MANUFACTURED HOMES -- 2.4% Sun Communities 57,400 2,256 ---------- 2,256 - -------------------------------------------------------------------------------- OFFICE PROPERTY -- 26.1% Boston Properties 87,900 3,468 Brandywine Realty Trust 125,900 3,009 CarrAmerica Realty 134,500 4,225 Equity Office Properties Trust 322,910 9,684 Kilroy Realty 70,100 1,977 Koger Equity 62,800 1,122 Mack-Cali Realty 32,200 1,117 SL Green Realty 17,600 591 ---------- 25,193 - -------------------------------------------------------------------------------- OUTLET CENTERS -- 1.4% Chelsea Property Group 24,393 1,318 ---------- 1,318 - -------------------------------------------------------------------------------- REGIONAL MALLS -- 10.1% CBL & Associates Properties 34,900 1,234 Rouse 142,400 4,412 Simon Property Group 122,400 3,994 Taubman Centers 9,000 135 ---------- 9,775 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SHOPPING CENTERS -- 8.1% Center Trust 30,900 $ 163 Developers Diversified Realty 128,900 2,707 Pan Pacific Retail Properties 113,000 3,454 Philips International Realty 80,600 198 Weingarten Realty Investors 24,800 1,275 ---------- 7,797 - -------------------------------------------------------------------------------- STORAGE -- 2.3% Shurgard Storage Centers, Cl A 66,300 2,247 ---------- 2,247 - -------------------------------------------------------------------------------- WAREHOUSE/INDUSTRIAL -- 7.9% First Industrial Realty Trust 33,300 1,141 Prologis Trust 213,370 4,982 PS Business Parks 43,116 1,498 ---------- 7,621 ---------- TOTAL FINANCIAL (COST $76,899) 86,097 ---------- TOTAL COMMON STOCK (COST $82,227) 92,415 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.5% Barclays 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $3,356,681 (collateralized by U.S. Government Obligations: total market value $3,423,847)(A) $3,356 3,356 ---------- TOTAL REPURCHASE AGREEMENT (COST $3,356) 3,356 ---------- TOTAL INVESTMENTS-- 99.3% (COST $85,583) 95,771 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 0.7% Receivable for Investment Securities Sold 2,582 Payable for Investment Securities Purchased (2,972) Other Assets and Liabilities, Net 1,036 ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET 646 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 8,005,399 outstanding shares of common stock 68,476 Fund Shares of Advisor Class ($0.001 par value) based on 2,067,882 outstanding shares of common stock 15,536 Undistributed net investment income 204 Accumulated net realized gain on investments 2,013 Unrealized appreciation on investments 10,188 ---------- TOTAL NET ASSETS-- 100.0% $ 96,417 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $9.58 ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $9.55 ===== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 87 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.8% BASIC MATERIALS -- 4.3% ADVANCED MATERIALS/PRODUCTS -- 0.4% Coorstek* 9,600 $ 369 ---------- 369 - -------------------------------------------------------------------------------- AGRICULTURAL CHEMICALS -- 1.1% IMC Global 64,900 957 ---------- 957 - -------------------------------------------------------------------------------- CHEMICALS-DIVERSIFIED -- 0.1% Solutia 6,700 58 ---------- 58 - -------------------------------------------------------------------------------- CHEMICALS-SPECIALTY -- 0.1% Cytec Industries* 4,400 134 ---------- 134 - -------------------------------------------------------------------------------- METAL-ALUMINUM -- 0.1% Commonwealth Industries 9,800 72 ---------- 72 - -------------------------------------------------------------------------------- METAL-DIVERSIFIED -- 0.3% Freeport-McMoran Copper & Gold, Cl B* 16,000 282 ---------- 282 - -------------------------------------------------------------------------------- PAPER & RELATED PRODUCTS -- 1.0% Glatfelter 15,900 285 Louisiana-Pacific 50,800 546 ---------- 831 - -------------------------------------------------------------------------------- PRECIOUS METALS -- 1.1% Stillwater Mining* 48,700 918 ---------- 918 - -------------------------------------------------------------------------------- STEEL-PRODUCERS -- 0.1% Carpenter Technology 2,900 84 ---------- 84 ---------- TOTAL BASIC MATERIALS (COST $3,269) 3,705 ---------- - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 20.2% ATHLETIC EQUIPMENT -- 1.2% Direct Focus* 26,625 1,013 ---------- 1,013 - -------------------------------------------------------------------------------- AUDIO/VIDEO PRODUCTS -- 1.8% Harman International 14,000 691 Polycom* 34,800 856 ---------- 1,547 - -------------------------------------------------------------------------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL-- 0.6% Autoliv 13,500 327 Tower Automotive* 15,600 218 ---------- 545 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING-- 0.2% Coachmen Industries 11,400 $ 186 ---------- 186 - -------------------------------------------------------------------------------- CABLE TV -- 1.7% Insight Communications* 19,500 409 Lodgenet Entertainment* 18,600 318 Mediacom Communications* 48,700 682 ---------- 1,409 - -------------------------------------------------------------------------------- CASINO HOTELS -- 0.9% Station Casinos* 47,900 797 ---------- 797 - -------------------------------------------------------------------------------- DISTRIBUTION/WHOLESALE -- 0.5% Bell Microproducts* 43,300 450 ---------- 450 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 0.3% Zomax* 37,500 274 ---------- 274 - -------------------------------------------------------------------------------- PUBLISHING-BOOKS -- 0.3% Scholastic* 4,500 244 ---------- 244 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 0.5% Journal Register* 6,500 138 Pulitzer 4,600 246 ---------- 384 - -------------------------------------------------------------------------------- RACETRACKS -- 0.1% Dover Motorsports* 6,600 107 ---------- 107 - -------------------------------------------------------------------------------- RADIO -- 0.4% Cumulus Media* 11,200 200 Spanish Broadcasting System* 10,300 140 ---------- 340 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 2.3% Christopher & Banks* 21,413 703 Kenneth Cole Productions, Cl A* 20,000 401 Men's Wearhouse* 15,800 369 Stage Stores* 6,600 176 Urban Outfitters* 12,400 290 ---------- 1,939 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 0.8% Linens 'N Things* 23,200 708 ---------- 708 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.0% Electronics Boutique* 8,300 287 Insight Enterprises* 15,900 360 PC Connection* 20,300 214 ---------- 861 - -------------------------------------------------------------------------------- [LOGO OMITTED] 88 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.3% Tweeter Home Entertainment Group* 7,400 $ 145 Ultimate Electronics* 5,000 140 ---------- 285 - -------------------------------------------------------------------------------- RETAIL-CONVENIENCE STORE -- 0.7% 7-Eleven* 15,300 171 Casey's General Stores 32,700 441 ---------- 612 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 4.6% Buca* 29,400 534 CEC Entertainment* 11,500 531 Krispy Kreme Doughnuts* 22,500 919 Landry's Restaurants 12,400 285 Panera Bread, Cl A* 11,500 733 Papa John's International* 7,500 209 PF Chang's China Bistro* 11,600 773 ---------- 3,984 - -------------------------------------------------------------------------------- TELEVISION -- 1.0% Paxson Communications* 27,200 298 Young Broadcasting, Cl A* 20,800 520 ---------- 818 - -------------------------------------------------------------------------------- THEATERS -- 0.5% AMC Entertainment* 31,800 434 ---------- 434 - -------------------------------------------------------------------------------- TRAVEL SERVICES -- 0.5% Hotel Reservations Network* 7,500 442 ---------- 442 ---------- TOTAL CONSUMER CYCLICAL (COST $11,745) 17,379 ---------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 2.4% CONSUMER PRODUCTS-MISCELLANEOUS -- 0.3% Playtex Products* 27,600 300 ---------- 300 - -------------------------------------------------------------------------------- FOOD-DAIRY PRODUCTS -- 0.3% Horizon Organic Holding* 13,200 217 ---------- 217 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 0.8% Dole Food 7,600 235 Hain Celestial Group* 21,300 474 ---------- 709 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 0.4% Winn-Dixie Stores 23,800 382 ---------- 382 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.6% Fleming 21,100 473 ---------- 473 ---------- TOTAL CONSUMER NON-CYCLICAL (COST $1,864) 2,081 ---------- - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- ENERGY -- 3.2% OIL & GAS DRILLING -- 0.4% Atwood Oceanic* 7,700 $ 354 ---------- 354 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 0.4% Spinnaker Exploration* 7,300 304 ---------- 304 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.4% Hydril* 4,900 119 Universal Compression* 40,000 1,056 ---------- 1,175 - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 0.2% Tesoro Petroleum* 14,900 209 ---------- 209 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 0.8% CAL Dive International* 13,900 346 Global Industries* 16,900 158 Newpark Resources* 25,900 201 ---------- 705 ---------- TOTAL ENERGY (COST $2,447) 2,747 ---------- - -------------------------------------------------------------------------------- FINANCIAL -- 6.8% COMMERCIAL BANKS-WESTERN US -- 0.7% City National 11,474 604 ---------- 604 - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 0.3% Medallion Financial 35,500 276 ---------- 276 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 1.0% Affiliated Managers Group* 8,500 610 Federated Investors 6,700 217 ---------- 827 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 0.6% Scottish Annuity & Life Holdings 8,000 152 Stancorp Financial Group 6,300 347 ---------- 499 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 0.6% HCC Insurance Holdings 18,500 517 ---------- 517 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 0.7% First American 29,800 634 ---------- 634 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.4% Trammell Crow* 20,900 303 ---------- 303 - -------------------------------------------------------------------------------- [LOGO OMITTED] 89 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- REINSURANCE -- 0.6% Odyssey Re Holdings 34,600 $ 553 ---------- 553 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 0.4% Mack-Cali Realty 11,100 385 ---------- 385 - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.2% CBL & Associates Properties 5,100 180 ---------- 180 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 0.5% Berkshire Hills Bancorp 10,300 228 Woronoco Bancorp 9,500 178 ---------- 406 - -------------------------------------------------------------------------------- S&L/THRIFTS-SOUTHERN US -- 0.8% Ocwen Financial* 104,600 690 ---------- 690 ---------- TOTAL FINANCIAL (COST $4,947) 5,874 ---------- - -------------------------------------------------------------------------------- HEALTH CARE -- 17.0% DIAGNOSTIC EQUIPMENT -- 0.4% Cholestech* 17,400 311 ---------- 311 - -------------------------------------------------------------------------------- DIALYSIS CENTERS -- 1.0% DaVita* 24,400 617 Renal Care Group* 7,100 233 ---------- 850 - -------------------------------------------------------------------------------- DISPOSABLE MEDICAL PRODUCTS -- 0.3% ICU Medical* 8,100 295 ---------- 295 - -------------------------------------------------------------------------------- DRUG DELIVERY SYSTEMS -- 0.2% Amarin ADR* 12,400 176 ---------- 176 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 1.0% Hooper Holmes 85,400 896 ---------- 896 - -------------------------------------------------------------------------------- MEDICAL INFORMATION SYSTEMS -- 0.1% Quadramed* 13,900 124 ---------- 124 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 0.9% Edwards Lifesciences* 9,400 263 Kensey Nash* 10,300 170 Surmodics* 7,000 305 ---------- 738 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 1.6% Covance* 20,500 $ 416 Dianon Systems* 8,000 519 Impath* 10,300 422 ---------- 1,357 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.8% American Medical Systems Holdings* 7,500 169 Haemonetics* 45,600 1,447 Possis Medical* 17,600 347 Zoll Medical* 12,700 488 ---------- 2,451 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 1.4% Digene* 12,900 461 Integra LifeSciences* 13,900 391 Myriad Genetics* 10,200 342 ---------- 1,194 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.0% Adolor* 35,400 395 Cima Labs* 29,100 775 Dr Reddy's Laboratories ADR 10,300 228 First Horizon Pharmaceutical* 15,400 344 ---------- 1,742 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 0.3% Alpharma, Cl A 6,800 97 Taro Pharmaceuticals Industries* 6,500 184 ---------- 281 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 1.4% Coventry Health Care* 13,600 354 Health Net* 10,900 299 Humana* 40,500 548 ---------- 1,201 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 0.1% Curative Health Services* 7,800 83 ---------- 83 - -------------------------------------------------------------------------------- MEDICAL-NURSING HOMES -- 0.4% Beverly Enterprises* 48,200 347 ---------- 347 - -------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL -- 0.3% Odyssey HealthCare* 10,700 286 ---------- 286 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 1.0% MIM* 13,800 228 Omnicare 11,200 290 Syncor International* 11,100 302 ---------- 820 - -------------------------------------------------------------------------------- [LOGO OMITTED] 90 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- PHYSICAL PRACTICE MANAGEMENT -- 0.5% American Healthways* 14,650 $ 398 ---------- 398 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.8% NPS Pharmaceuticals* 10,300 336 Sangstat Medical* 10,200 274 Titan Pharmaceuticals* 10,200 72 ---------- 682 - -------------------------------------------------------------------------------- VETERINARY DIAGNOSTICS -- 0.1% Neogen* 7,500 118 ---------- 118 - -------------------------------------------------------------------------------- X-RAY EQUIPMENT -- 0.4% Bruker AXS* 83,400 346 ---------- 346 ---------- TOTAL HEALTH CARE (COST $12,182) 14,696 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 8.0% AEROSPACE/DEFENSE -- 0.4% Teledyne Technologies* 20,200 335 ---------- 335 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 0.4% DRS Technologies* 8,300 344 ---------- 344 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-CEMENT/AGGREGATE-- 0.0% Texas Industries 100 4 ---------- 4 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-LIGHT FIXTURES -- 0.0% Genlyte Group* 1,100 41 ---------- 41 - -------------------------------------------------------------------------------- CIRCUIT BOARDS -- 0.5% DDI* 48,900 417 ---------- 417 - -------------------------------------------------------------------------------- CONTAINERS-METAL/GLASS -- 0.3% Crown Cork & Seal* 26,200 235 ---------- 235 - -------------------------------------------------------------------------------- ELECTRIC PRODUCTS-MISCELLANEOUS -- 0.3% Littelfuse* 12,000 297 ---------- 297 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 1.1% DSP Group* 20,100 412 OSI Systems* 9,800 247 Planar Systems* 10,300 270 ---------- 929 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 0.5% Molecular Devices* 22,800 $ 414 ---------- 414 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 0.5% Avnet 16,122 436 ---------- 436 - -------------------------------------------------------------------------------- ENVIRONMENTAL CONSULTING & ENGINEERING-- 0.3% TRC* 11,150 274 ---------- 274 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 0.5% Stericycle* 7,300 457 ---------- 457 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.7% Fisher Scientific International* 20,300 571 ---------- 571 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 0.3% Coherent* 7,800 264 ---------- 264 - -------------------------------------------------------------------------------- MACHINERY-PUMPS -- 0.4% Flowserve* 9,800 314 ---------- 314 - -------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURING -- 0.4% Aptargroup 9,700 340 ---------- 340 - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.4% Waste Connections* 10,200 342 ---------- 342 - -------------------------------------------------------------------------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 0.4% Artesyn Technologies* 19,400 181 Power-One* 23,900 195 ---------- 376 - -------------------------------------------------------------------------------- REMEDIATION SERVICES -- 0.1% Clean Harbors* 10,000 116 ---------- 116 - -------------------------------------------------------------------------------- STEEL PIPE & TUBE -- 0.5% Shaw Group* 14,900 410 ---------- 410 ---------- TOTAL INDUSTRIAL (COST $6,330) 6,916 ---------- - -------------------------------------------------------------------------------- SERVICES -- 11.7% ADVERTISING SERVICES -- 0.4% Getty Images* 7,400 221 R.H. Donnelley* 4,100 125 ---------- 346 - -------------------------------------------------------------------------------- [LOGO OMITTED] 91 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 1.3% Alliance Data Systems* 14,300 $ 359 Gaiam* 16,500 304 Icon ADR* 8,300 282 Plexus* 8,500 201 ---------- 1,146 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 1.3% Coinstar* 11,100 374 PRG-Schultz International* 49,500 695 ---------- 1,069 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 1.3% Manhattan Associates* 14,500 552 Pec Solutions* 12,600 310 Tripos* 11,100 291 ---------- 1,153 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 2.5% Advisory Board* 7,500 244 DiamondCluster International* 22,300 288 Forrester Research* 20,000 382 FTI Consulting* 9,250 287 PDI* 29,300 497 Watson Wyatt* 17,300 473 ---------- 2,171 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 1.7% Advo* 24,600 1,039 Catalina Marketing* 3,600 132 Valuevision International, Cl A* 15,000 311 ---------- 1,482 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 1.6% Albany Molecular Research* 12,400 297 Kendle International* 14,400 268 Parexel International* 20,700 332 Pharmaceutical Product Development* 12,800 446 ---------- 1,343 - -------------------------------------------------------------------------------- SCHOOLS -- 1.6% Career Education* 15,000 594 Edison Schools* 22,700 316 Learning Tree International* 5,300 128 University of Phoenix Online* 8,750 366 ---------- 1,404 ---------- TOTAL SERVICES (COST $8,705) 10,114 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 20.0% APPLICATIONS SOFTWARE -- 1.5% Caminus* 16,200 365 Peregrine Systems* 89,007 847 Roxio* 4,600 104 ---------- 1,316 - -------------------------------------------------------------------------------- B2B/E-COMMERCE -- 0.3% Freemarkets* 11,400 262 ---------- 262 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMPUTER AIDED DESIGN -- 0.4% Aspen Technology* 14,800 $ 339 ---------- 339 - -------------------------------------------------------------------------------- COMPUTER GRAPHICS -- 0.7% Pixar* 17,300 637 ---------- 637 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.5% McData* 18,100 219 Radiant Systems* 21,000 190 ---------- 409 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 1.5% Maxtor* 28,600 199 Sandisk* 7,000 152 Silicon Storage Technology* 70,600 745 Western Digital* 29,100 181 ---------- 1,277 - -------------------------------------------------------------------------------- COMPUTERS-OTHER -- 0.1% Concurrent Computer* 15,600 130 ---------- 130 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 1.4% Choicepoint* 6,100 351 eFunds* 20,900 335 Fair Isaac 4,600 292 Intercept* 6,500 236 ---------- 1,214 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 0.2% Wind River Systems* 12,700 173 ---------- 173 - -------------------------------------------------------------------------------- E-MARKETING/INFORMATION -- 0.3% Digital River* 14,900 221 ---------- 221 - -------------------------------------------------------------------------------- E-SERVICES/CONSULTING -- 0.4% Websense* 13,900 350 ---------- 350 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 1.1% Alpha Industries* 15,200 232 AXT* 12,900 138 Microsemi* 5,800 95 MIPS Technologies, Cl A* 32,300 238 Silicon Laboratories* 8,000 282 ---------- 985 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 0.2% Synplicity* 20,000 156 ---------- 156 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.6% JDA Software Group* 24,500 781 Micromuse* 21,600 189 Retek* 16,600 436 ---------- 1,406 - -------------------------------------------------------------------------------- [LOGO OMITTED] 92 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG STRATEGIC SMALL COMPANY PSSCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- INTERNET APPLICATION SOFTWARE -- 0.8% Kana Software* 9,500 $ 171 Netegrity* 13,800 204 Vignette* 93,400 321 ---------- 696 - -------------------------------------------------------------------------------- INTERNET CONTENT-ENTERTAINMENT -- 0.3% Alloy* 14,400 216 ---------- 216 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 1.3% Avocent* 41,152 1,102 ---------- 1,102 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 0.3% Internet Security Systems* 5,200 119 Mcafee.com* 8,900 146 ---------- 265 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 1.6% Adaptec* 42,600 570 Computer Network Technology* 13,000 172 Crossroads Systems* 23,600 84 Emulex* 7,600 250 Extreme Networks* 28,400 295 ---------- 1,371 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 2.3% Anadigics* 16,000 197 Elantec Semiconductor* 13,900 595 Exar* 16,200 333 GlobespanVirata* 49,200 734 Power Integrations* 8,100 154 ---------- 2,013 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.9% LTX* 15,300 416 MKS Instruments* 10,600 363 ---------- 779 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 0.9% Intrado* 10,500 229 Metro One Telecommunications* 9,250 234 TTI Team Telecom International* 10,900 313 ---------- 776 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 0.7% Advanced Fibre Communication* 12,500 240 Anaren Microwave* 13,200 192 Sunrise Telecom* 46,600 144 ---------- 576 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT-FIBER OPTICS-- 0.2% Finisar* 22,200 171 ---------- 171 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- WEB PORTALS/ISP -- 0.5% Overture Services* 15,000 $ 419 ---------- 419 ---------- TOTAL TECHNOLOGY (COST $16,696) 17,259 ---------- - -------------------------------------------------------------------------------- TRANSPORTATION -- 0.2% TRANSPORTATION-AIR FREIGHT -- 0.2% Atlas Air Worldwide* 9,300 122 ---------- 122 ---------- TOTAL TRANSPORTATION (COST $115) 122 ---------- - -------------------------------------------------------------------------------- UTILITIES -- 1.0% ELECTRIC-INTEGRATED -- 0.6% Idacorp 4,100 166 Madison Gas & Electric 3,700 105 Sierra Pacific Resources 14,300 216 ---------- 487 - -------------------------------------------------------------------------------- GAS-DISTRIBUTION -- 0.4% UGI 10,900 342 ---------- 342 ---------- TOTAL UTILITIES (COST $695) 829 ---------- TOTAL COMMON STOCK (COST $68,995) 81,722 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 6.0% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $5,217,399 (collateralized by U.S. Government Obligations: total market value $5,325,151)(A) $5,216 5,216 ---------- TOTAL REPURCHASE AGREEMENT (COST $5,216) 5,216 ---------- TOTAL INVESTMENTS-- 100.8% (COST $74,211) 86,938 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (0.8)% Payable for Investment Securities Purchased (1,515) Other Assets and Liabilities, Net 820 ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET (695) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 6,450,708 outstanding shares of common stock 86,814 Accumulated net realized loss on investments (13,298) Unrealized appreciation on investments 12,727 ---------- TOTAL NET ASSETS-- 100.0% $ 86,243 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $13.37 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement ADR-- American Depositary Receipt Cl-- Class REIT-- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 93 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 94.1% CONSUMER CYCLICAL -- 5.3% AUDIO/VIDEO PRODUCTS -- 0.2% Polycom* 61,400 $ 1,511 ---------- 1,511 - -------------------------------------------------------------------------------- CABLE TV -- 1.2% Adelphia Communications, Cl A* 461,700 6,879 ---------- 6,879 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 1.2% Activision* 109,200 3,257 THQ* 75,900 3,727 ---------- 6,984 - -------------------------------------------------------------------------------- MULTIMEDIA -- 2.7% AOL Time Warner* 369,700 8,743 Gemstar-TV Guide International* 484,100 7,160 ---------- 15,903 ---------- TOTAL CONSUMER CYCLICAL (COST $43,591) 31,277 ---------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 2.3% ELECTRONIC COMPONENTS-MISCELLANEOUS-- 1.6% Flextronics International* 259,400 4,734 Jabil Circuit* 211,500 4,977 ---------- 9,711 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.7% FEI* 108,200 3,846 ---------- 3,846 ---------- TOTAL INDUSTRIAL (COST $16,028) 13,557 ---------- - -------------------------------------------------------------------------------- SERVICES -- 4.3% COMMERCIAL SERVICES-FINANCE -- 1.0% Concord EFS* 178,200 5,925 ---------- 5,925 - -------------------------------------------------------------------------------- E-COMMERCE/SERVICES -- 3.3% eBay* 339,200 19,212 ---------- 19,212 ---------- TOTAL SERVICES (COST $20,407) 25,137 ---------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 82.2% APPLICATIONS SOFTWARE -- 7.8% Mercury Interactive* 205,600 7,741 Microsoft* 202,600 12,219 Quest Software* 202,200 3,055 Rational Software* 212,200 3,359 Siebel Systems* 604,300 19,706 ---------- 46,080 Market Description Shares Value (000) - -------------------------------------------------------------------------------- B2B/E-COMMERCE -- 1.1% Ariba* 469,000 $ 2,125 I2 Technologies* 861,320 4,358 ---------- 6,483 - -------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS -- 0.8% AT&T Wireless Services* 495,892 4,438 ---------- 4,438 - -------------------------------------------------------------------------------- COMPUTERS -- 1.0% Sun Microsystems* 662,300 5,841 ---------- 5,841 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 2.9% Brocade Communications Systems* 639,600 17,269 ---------- 17,269 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 2.6% EMC* 258,100 3,077 Veritas Software* 211,100 9,252 Western Digital* 485,800 3,027 ---------- 15,356 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.6% Automatic Data Processing 109,000 6,351 Documentum* 116,800 2,973 First Data 72,000 6,282 ---------- 15,606 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 21.9% Agere Systems* 702,600 2,733 Altera* 223,600 4,890 Applied Micro Circuits* 168,100 1,345 Broadcom, Cl A* 720,900 25,880 ChipPAC* 440,200 4,323 Conexant Systems* 787,100 9,484 Intel 189,900 5,775 Intersil* 392,800 11,136 LSI Logic* 788,600 13,406 Micron Technology* 82,000 2,698 Microtune* 160,600 2,308 National Semiconductor* 47,900 1,614 Pixelworks* 114,600 1,476 PMC-Sierra* 346,600 5,643 Texas Instruments 547,800 18,132 Xilinx* 471,000 18,774 ---------- 129,617 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 4.5% Advent Software* 28,600 1,692 BEA Systems* 215,100 2,949 Oracle* 885,700 11,337 Peoplesoft* 251,100 9,172 Retek* 55,000 1,444 ---------- 26,594 - -------------------------------------------------------------------------------- [LOGO OMITTED] 94 PBHG FUNDS STATEMENT OF NET ASSETS ----------------------- As of March 31, 2002 PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX Market Description Shares Value (000) - -------------------------------------------------------------------------------- INTERNET SECURITY -- 1.2% Internet Security Systems* 198,000 $ 4,525 VeriSign* 91,232 2,463 ---------- 6,988 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 8.4% Cisco Systems* 1,724,000 29,187 Emulex* 361,400 11,901 Extreme Networks* 231,500 2,408 Juniper Networks* 503,000 6,348 ---------- 49,844 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 9.2% Genesis Microchip* 85,000 2,210 GlobespanVirata* 559,500 8,348 Linear Technology 153,100 6,770 Marvell Technology Group* 372,600 16,320 Maxim Integrated Products* 149,500 8,329 Taiwan Semiconductor Manufacturing Limited ADR* 399,200 8,283 Vitesse Semiconductor* 439,600 4,308 ---------- 54,568 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 10.4% Applied Materials* 410,400 22,272 KLA-Tencor* 146,700 9,756 Kulicke & Soffa Industries* 288,600 6,006 Lam Research* 171,500 5,028 Novellus Systems* 110,000 5,955 Teradyne* 316,100 12,464 ---------- 61,481 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 5.7% Nokia Oyj ADR 470,100 9,750 Qualcomm* 530,700 19,975 Terayon* 489,700 4,153 ---------- 33,878 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT-FIBER OPTICS-- 1.5% Finisar* 745,200 5,738 Harmonic* 266,600 3,093 ---------- 8,831 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 0.6% RF Micro Devices* 191,100 3,421 ---------- 3,421 ---------- TOTAL TECHNOLOGY (COST $544,753) 486,295 ---------- TOTAL COMMON STOCK (COST $624,779) 556,266 ---------- - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 4.7% JP Morgan Chase 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $15,871,303 (collateralized by U.S. Government Obligations: total market value $16,193,930)(A) $ 15,868 $ 15,868 UBS Warburg LLC 1.85%, dated 03/28/02, matures 04/01/02, repurchase price $11,885,945 (collateralized by U.S. Government Obligations: total market value $12,121,867)(A) 11,884 11,884 ---------- TOTAL REPURCHASE AGREEMENTS (COST $27,752) 27,752 ---------- TOTAL INVESTMENTS-- 98.8% (COST $652,531) 584,018 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- 1.2% Receivable for Investment Securities Sold 19,357 Payable for Investment Securities Purchased (11,805) Other Assets and Liabilities, Net (191) ---------- TOTAL OTHER ASSETS AND LIABILITIES, NET 7,361 ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 39,279,165 outstanding shares of common stock 2,830,704 Fund Shares of Advisor Class ($0.001 par value) based on 697,281 outstanding shares of common stock 10,598 Accumulated net realized loss on investments (2,181,410) Unrealized depreciation on investments (68,513) ---------- TOTAL NET ASSETS-- 100.0% $ 591,379 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $14.79 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $14.75 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 95 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG IRA CAPITAL PRESERVATION FUND PBCPX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- RESIDENTIAL MORTGAGES-AGENCY -- 10.3% Federal Home Loan Mortgage Corporation 8.750%, 12/01/08 $ 30 $ 32 7.500%, 07/01/27 24 25 Federal Home Loan Mortgage Corporation 2360 IP CMO 5.750%, 07/15/26 5,000 4,562 Federal Home Loan Mortgage Association 15 year Fixed TBA 6.000%, 04/16/17 10,000 9,959 Federal National Mortgage Association Pool # 495062 7.000%, 05/01/29 131 134 Federal National Mortgage Association Pool # 524217 8.500%, 07/01/26 207 224 Federal National Mortgage Association Pool #253000 8.000%, 10/01/29 1,131 1,196 Federal National Mortgage Association Pool #253002 9.000%, 07/01/26 198 217 Federal National Mortgage Association Pool #253136 9.000%, 04/01/25 202 221 Federal National Mortgage Association Pool #253137 9.500%, 09/01/24 74 81 Federal National Mortgage Association Pool #253138 10.000%, 02/01/19 49 54 Federal National Mortgage Association Pool #372602 8.500%, 06/01/25 90 98 Federal National Mortgage Association Pool #529306 8.500%, 08/01/26 83 89 Federal National Mortgage Association Pool #539604 9.000%, 07/01/27 541 592 Federal National Mortgage Association Ser 1997-88, Cl B 9.000%, 11/18/24 260 269 Federal National Mortgage Association 15 year Fixed TBA 6.000%, 04/16/17 5,000 4,980 Federal National Mortgage Association 30 year Fixed TBA 7.500%, 05/13/32 15,000 15,478 7.000%, 05/13/32 15,000 15,211 ---------- TOTAL RESIDENTIAL MORTGAGES-AGENCY (COST $53,673) 53,422 ---------- - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGES -- 15.0% Allied Capital Commercial Mortgage Trust, Ser 1998-1, Cl A 6.310%, 09/25/03 1 2 America West Airlines, Ser 1999-1 7.930%, 01/02/19 2,611 2,648 America West Airlines, Private Placement 144a 7.100%, 04/02/21 8,730 8,711 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGES-- CONTINUED Asset Securitization Corporation, Ser 1997-D4, Cl PS1 IO 1.300%, 04/14/29 $ 55,352** $ 2,827 Banc of America Commercial Mortgage, Ser 2000-1, Cl A1A 7.109%, 11/15/31 6,128 6,424 Banc of America Commercial Mortgage, Ser 2001-1, Cl X IO 1.342%, 04/15/36 14,936** 952 Bank of America-First Union National Bank Commercial Mortgage, Ser 2001-3, Cl XC IO 1.031%, 04/11/37 13,109** 658 Citicorp Mortgage Securities, Ser 2002-1, Cl A1 6.250%, 01/25/32 4,000 3,756 Crusade Global Trust, Ser 2002-1, Cl A 2.170%, 02/20/33 5,000 5,000 Deutsche Mortgage & Asset Receiving, Ser 1998-C1 A1 6.220%, 06/15/31 8,561 8,785 DLJ Commercial Mortgage, Ser 1999-CG1, Cl A1A 6.080%, 03/10/32 4,116 4,189 Donaldson, Lufkin & Jenrette, Ser 1998-CF2, Cl A1A 5.880%, 11/12/31 2,580 2,609 First Union-Lehman Brothers- Bank of America 1998-C2 IO 0.847%, 11/18/35 78,331** 2,466 GMAC Commercial Mortgage Securities, Ser 2002-C1, Cl X1 IO 0.634%, 11/15/39 78,742** 2,661 Keycorp, Series 2000-C1, Cl A1 7.617%, 06/15/09 2,822 3,003 LB-UBS Commercial Mortgage Trust, Ser 2002-C1, Cl XCL IO 0.362%, 03/15/34 133,164** 2,973 Lehman Large Loan, Ser 1997-LL1, Cl A1 6.790%, 06/12/04 1,438 1,492 Merrill Lynch Mortgage Investors, Ser 1997-C1, Cl A3 7.120%, 06/18/29 750 785 Midland Realty Acceptance Corporate CMO, Ser 1996-C1, Cl A2 7.475%, 08/25/28 389 401 Midland Realty Acceptance Corporate CMO, Ser 1996-C2, Cl A2 7.233%, 01/25/29 1,450 1,521 Morgan Stanley Capital, Ser 1997-ALIC, Cl A1B 6.440%, 11/15/02 3,108 3,111 Morgan Stanley Capital, Ser 1999-LIFE, Cl A1 6.970%, 10/15/08 2,198 2,295 Mortgage Capital Funding, Ser 1996-MC2, Cl A2 6.909%, 02/20/06 4,000 4,149 - -------------------------------------------------------------------------------- [LOGO OMITTED] 96 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG IRA CAPITAL PRESERVATION FUND PBCPX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- Mortgage Capital Funding, Ser 1997-MC1, Cl A2 7.223%, 02/20/27 $ 6,171 $ 6,465 ---------- TOTAL COMMERCIAL MORTGAGES (COST $78,425) 77,883 ---------- - -------------------------------------------------------------------------------- RESIDENTIAL MORTGAGES-- 0.8% Bank of America 2001-8 6.500%, 07/25/31 798 808 Residential Asset Securitization Trust, Ser 1998-A12, Cl A15 6.250%, 11/25/28 1,000 983 Residential Funding Mortgage, Sec 1, Ser 1999-S25, Cl A1 6.750%, 12/25/14 1,365 1,391 Wells Fargo Mortgage- Backed Trust 6.500%, 08/25/16 718 724 ---------- TOTAL RESIDENTIAL MORTGAGES (COST $3,883) 3,906 ---------- - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 49.7% AUTO & TRANSPORTATION -- 13.9% Americredit Automobile Receivables, Ser 199-C, Cl A3 6.840%, 10/05/03 795 796 ARG Funding, Private Placement 144a Ser 1999-1A, Cl A1 2.363%, 05/20/03 67 67 BMW Vehicle Lease Trust, Ser 2000-A, Cl A2 6.650%, 02/25/03 750 753 Continental Airlines, Ser 2002-1, Cl G1 2.488%, 08/15/11 5,000 5,000 Continental Airlines, Ser 2002-1, Cl G2 6.563%, 02/15/12 14,000 14,061 FELCO Funding II LLC, Private Placement 144a Ser 2000-1, Cl A4 7.720%, 12/15/05 500 525 Northwest Airlines, Ser 2000-1, Cl G 8.072%, 04/01/21 14,743 15,458 Premier Auto Trust, Ser 1999-1, Cl A4 5.820%, 10/08/03 2,691 2,729 Provident Auto Lease ABS Trust, Private Placement 144a Ser 1999-1, Cl A3 7.260%, 01/14/12 10,000 10,399 US Airways 7.076%, 03/20/21 8,071 8,079 US Airways 2000-2G 8.020%, 02/05/19 9,410 9,656 US Airways Structured Pass Through 8.110%, 02/20/17 989 1,028 US Airways, Ser 2000-3G 7.890%, 09/01/20 3,533 3,614 ---------- 72,165 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- BOATS-- 0.2% CIT Marine Trust, Ser 1999-A, Cl A2 5.800%, 04/15/10 $ 995 $ 1,017 ---------- 1,017 - -------------------------------------------------------------------------------- CORPORATES/YANKEES-- 2.5% Brazos Student Loan Finance, Ser 1998-A, Cl A1 2.710%, 06/01/06 309 304 Chilquinta Energy Private Placement 144a 6.470%, 04/01/08 1,300 1,326 Pemex Finance, Ser 1A1, Cl A2 6.300%, 05/15/10 2,750 2,759 Pemex Finance, Ser 1A1, Cl A1 5.720%, 11/15/03 4,400 4,479 Pemex Finance, Ser 2A1, Cl A1 6.125%, 11/15/03 4,233 4,289 ---------- 13,157 - -------------------------------------------------------------------------------- CREDIT CARD-- 3.9% Providian Master Trust, Ser 2000-1, Cl A 7.490%, 08/17/09 19,000 20,039 ---------- 20,039 - -------------------------------------------------------------------------------- HOME EQUITY LOANS -- 23.9% Advanta Home Equity Loan Trust, Ser 1993-1, Cl A2 5.950%, 05/25/09 57 57 Advanta Mortgage Loan Trust, Ser 1997-4, Cl A4 6.660%, 03/25/22 12 12 Advanta Mortgage Loan Trust, Ser 1998-1, Cl A4 6.420%, 09/25/21 289 291 Advanta Mortgage Loan Trust, Ser 1999-2, Cl A6 6.820%, 05/25/29 375 389 Advanta Mortgage Loan Trust, Ser 2000-2, Cl A3 7.760%, 05/25/18 500 521 Ameriquest Mortgage Securities, Ser 2002-1, Cl AF5 6.670%, 05/25/32 10,000 9,814 Chase Funding Loan Aquisition Trust, Ser 2002-C1, Cl IA3 5.353%, 09/25/26 10,000 10,000 CIT Group Home Equity Loan Trust, Ser 2002-1, Cl AF5 6.710%, 05/25/31 6,000 5,999 Conseco Finance, Ser 1999-H, Cl AF5 7.600%, 12/15/29 320 339 - -------------------------------------------------------------------------------- [LOGO OMITTED] 97 PBHG FUNDS SCHEDULE OF INVESTMENTS - ----------------------- As of March 31, 2002 PBHG IRA CAPITAL PRESERVATION FUND PBCPX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- OME EQUITY LOANS-- CONTINUED Conseco Finance, Ser 2002-A, Cl A1B 3.340%, 10/15/18 $ 6,817 $ 6,822 Conseco Finance, Ser 2002-A, Cl A2 4.690%, 08/15/21 5,000 5,019 Contimortgage Home Equity Loan Trust, Ser 1997-5, Cl A4 6.580%, 06/15/19 591 597 Countrywide Asset Backed Certificates, Ser 1999-2, Cl AF4 6.780%, 11/25/27 415 428 Delta Funding Home Equity Loan Trust, Ser 1999-2, Cl A2F 6.500%, 03/15/23 480 481 Equicredit Funding Trust, Ser 1997-A, Cl A4 7.340%, 03/15/24 850 883 Federal National Mortgage Association, Ser 2002-W2, Cl AF5 6.000%, 06/25/32 10,000 9,657 Federal Home Loan Mortgage Corporation Structured Pass Through T-10 A2 6.350%, 09/25/13 198 200 Federal Home Loan Mortgage Corporation Structured Pass Through T-14 A3 5.900%, 03/25/24 145 146 Federal Home Loan Mortgage Corporation Structured Pass Through T-9 A3 6.660%, 07/25/15 77 78 Independent National Mortgage Home Equity, Ser 1997-A AF3 6.700%, 12/25/25 64 65 Long Beach Mortgage Loan Trust, Ser 2002-1, Cl 2A4 6.460%, 06/25/32 10,000 9,997 Mellon Residential Funding, Ser 2001-HEIL, Cl A2 5.565%, 06/25/09 5,000 5,081 Residential Asset Securities, Ser 1998-KS2, Cl A19 6.415%, 07/25/29 374 381 Residential Asset Securities, Ser 1998-KS3, Cl AI4 6.035%, 04/25/24 1,300 1,320 Residential Asset Securities, Ser 2000-KS5, Cl AI3 7.040%, 04/25/26 6,500 6,670 Residential Asset Securities, Ser 2001-KS3, Cl AI5 6.480%, 09/25/31 1,500 1,447 Residential Asset Securities, Ser 2002-KS2, Cl AI5 6.779%, 04/25/32 8,000 8,000 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- HOME EQUITY LOANS-- CONTINUED Saxon Asset Securities Trust, Ser 1999-3, Cl AF4 7.550%, 10/25/26 $ 1,290 $ 1,358 Saxon Asset Securities Trust, Ser 2000-2, Cl AF5 8.483%, 07/25/30 4,270 4,590 Southern Pacitic Secured Asset, Ser 1997-3, Cl A5 7.190%, 09/25/27 10,619 10,987 The Money Store Equity Trust, Ser 1998-B, Cl AF5 6.225%, 09/15/23 140 142 The Money Store Home Equity Trust, Ser 1996-D, Cl A9 7.000%, 04/15/28 2,798 2,890 The Money Store Home Equity Trust, Ser 1998-A, Cl AF5 6.370%, 12/15/23 270 274 The Money Store Home Equity Trust, Ser 1998-A, Cl AF9 6.400%, 04/15/39 10,000 10,208 UCFC Home Equity Loan, Ser 1996-A1, Cl A7 7.125%, 08/15/21 8,003 8,191 UCFC Home Equity Loan, Ser 1998-A, Cl A3 6.255%, 01/15/18 9 9 UCFC Home Equity Loan, Ser 1998-C, Cl A7 5.935%, 01/15/30 281 285 UCFC Home Equity Loan, Ser 1998-D, Cl AF2 5.905%, 02/15/21 279 280 ---------- 123,908 - -------------------------------------------------------------------------------- INFRASTRUCTURE-- 0.9% California Infrastructure SCE-1, Ser 1997-1, Cl A7 6.420%, 12/26/09 4,025 4,106 California Infrastructure SDG&E, Ser 1997-1, Cl A7 6.370%, 12/26/09 750 771 ---------- 4,877 - -------------------------------------------------------------------------------- MANUFACTURED HOUSING -- 0.7% Lehman ABS Manufactured Housing Contract, Ser 2001-B Cl A6 6.467%, 08/15/28 3,500 3,289 Vanderbilt Mortgage Finance, Ser 1999-C, Cl 1A2 7.090%, 11/07/13 400 414 ---------- 3,703 - -------------------------------------------------------------------------------- OTHER -- 3.6% Distribution Financial Services Trust, Ser 1999-1, Cl A6 6.020%, 11/15/16 2,500 2,444 - -------------------------------------------------------------------------------- [LOGO OMITTED] 98 PBHG FUNDS SCHEDULE OF INVESTMENTS ----------------------- As of March 31, 2002 PBHG IRA CAPITAL PRESERVATION FUND PBCPX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- OTHER -- CONTINUED Distribution Financial Services Trust, Ser 2001-1, Cl A5 6.190%, 11/15/22 $3,000 $ 2,878 New York City Tax Lien, Private Placement 144a Ser 2001-AA, Cl A 5.590%, 09/10/14 1,480 1,499 Puerto Rico Public Finance Corporation, Ser 1999-1, Cl A 6.150%, 04/15/08 7,964 8,028 Railcar Leasing, LLC, Ser 1, Cl A1 Private Placement 144a 6.750%, 07/15/06 3,379 3,498 ---------- 18,347 - -------------------------------------------------------------------------------- RECREATIONAL VEHICLES-- 0.1% BankBoston RV Trust, Ser 1997-1, Cl A7 6.480%, 07/15/08 337 340 ---------- 340 ---------- TOTAL ASSET-BACKED SECURITIES (COST $258,759) 257,553 ---------- - -------------------------------------------------------------------------------- CORPORATE BONDS -- 5.7% Credipia, Ser 2001-1A, Cl A Private Placement 144a 2.580%, 12/28/07 5,000 5,000 Mashantucket Western Pequot Tribe 6.570%, 09/01/13 8,145 8,145 PF Export Receivables Master Trust Private Placement 144a 6.600%, 12/01/11 7,000 6,935 Systems 2001 Asset Trust Private Placement 144a 6.664%, 09/15/13 9,329 9,524 ---------- TOTAL CORPORATE BONDS (COST $30,099) 29,604 ---------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 25.7% Barclays 1.72%, dated 03/28/02, matures 04/01/02, repurchase price $83,205,572 (collateralized by U.S. Government Obligations: total market value $84,853,744)(A) $ 83,190 83,190 ---------- Barclays 1.72%, dated 03/28/02, matures 04/01/02, repurchase price $50,170,811 (collateralized by U.S. Government Obligations: total market value $51,164,616)(A)(B) 50,161 50,161 ---------- TOTAL REPURCHASE AGREEMENTS (COST $133,351) 133,351 ---------- - -------------------------------------------------------------------------------- TOTAL INVESTMENTS-- 107.2% (COST $558,190) 555,719 ---------- - -------------------------------------------------------------------------------- Market Description Value (000) - -------------------------------------------------------------------------------- WRAPPER AGREEMENTS -- 0.6% Bank of America*+ $ 1,029 CDC Financial Products*+ 1,233 Monumental Life*+ 640 ---------- TOTAL WRAPPER AGREEMENTS $ 2,902 ---------- Percentages are based on Net Assets of $518,003,746 * The Wrapper Agreement obligates the Wrap provider to maintain the book value of a portion of the Fund's assets up to a specified maximum dollar amount, upon the occurrence of certain specific events. ** Notional Amount + Fair-valued security 144a -- Security exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2002, these securities amounted to a value of $47,484,000 or 9.17% of net assets Cl -- Class CMO -- Collateralized Mortgage Obligation IO -- Interest Only LLC -- Limited Liability Company Ser -- Series TBA -- Securities traded under delayed delivery commitments settling after March 31, 2002. Income on these securities will not be earned until settle date. (A)-- Tri-party repurchase agreement (B) -- Repurchase Agreement is held in a segregated account maintained for liquidity purposes pursuant to the Wrapper Agreement as disclosed in Note 2. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 99 PBHG FUNDS STATEMENT OF NET ASSETS - ----------------------- As of March 31, 2002 PBHG CASH RESERVES FUND PBCXX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- CERTIFICATES OF DEPOSIT -- 6.0% American Express 1.820%, 04/23/02 $ 3,000 $ 3,000 Westdeutsche 1.820%, 05/07/02 3,500 3,500 ---------- TOTAL CERTIFICATES OF DEPOSIT (COST $6,500) 6,500 ---------- - -------------------------------------------------------------------------------- COMMERCIAL PAPER -- 50.9% Apreco 1.840%, 04/18/02 2,000 1,998 BP Amoco Capital 1.800%, 06/07/02 4,000 3,987 Coca-Cola Enterprises 1.801%, 04/25/02 4,000 3,995 Corporate Asset Funding 1.840%, 04/24/02 2,400 2,397 Falcon Asset Securitization 1.848%, 04/12/02 3,000 2,998 FCAR Owner Trust 1.841%, 04/11/02 3,000 2,999 Fleet Funding 1.848%, 04/17/02 2,000 1,999 Hubbell 1.828%, 04/12/02 3,500 3,498 Merck 1.816%, 04/05/02 3,343 3,342 Mont Blanc Capital 1.859%, 04/16/02 2,200 2,198 Morgan Stanley Dean Witter 1.780%, 04/11/02 4,000 3,998 Procter & Gamble 1.809%, 04/24/02 3,500 3,496 Prudential Funding 2.200%, 04/23/02 7,000 6,991 Salomon Smith Barney 1.810%, 04/01/02 3,500 3,500 Societe Generale 1.828%, 04/19/02 3,000 2,997 Variable Funding Capital 1.820%, 05/02/02 2,000 1,997 Windmill Funding 1.848%, 04/09/02 2,350 2,349 ---------- TOTAL COMMERCIAL PAPER (COST $54,739) 54,739 ---------- - -------------------------------------------------------------------------------- U.S. GOVERNMENT BONDS -- 25.0% Federal Home Loan Mortgage 1.630%, 08/05/02 6,000 5,966 1.645%, 08/09/02 8,000 7,953 Federal National Mortgage Association 1.780%, 08/05/02 5,000 4,969 1.850%, 08/09/02 8,000 7,947 ---------- TOTAL U.S. GOVERNMENT BONDS (COST $26,835) 26,835 ---------- - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 18.4% UBS Warburg LLC 1.92%, dated 03/28/02, matures 04/01/02, repurchase price $19,804,224 (collateralized by U.S. Government Obligations: total market value $20,197,394)(A) $19,800 19,800 ---------- TOTAL REPURCHASE AGREEMENT (COST $19,800) 19,800 ---------- TOTAL INVESTMENTS-- 100.3% (COST $107,874) 107,874 ---------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES -- (0.3)% TOTAL OTHER ASSETS AND LIABILITIES, NET (361) ---------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 107,517,576 outstanding shares of common stock 107,520 Undistributed net investment income 2 Accumulated net realized loss on investments (9) ---------- TOTAL NET ASSETS-- 100.0% $ 107,513 ========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $1.00 ===== (A)-- Tri-party repurchase agreement LLC-- Limited Liability Company [LOGO OMITTED] 100 PBHG FUNDS [This page is intentionally left blank.] [LOGO OMITTED] 101 PBHG FUNDS STATEMENTS OF ASSETS AND LIABILITIES (000) - ------------------------------------------ March 31, 2002
---------------- ---------------- PBHG PBHG EMERGING SELECT GROWTH EQUITY FUND FUND ---------------- ---------------- ASSETS: Investment securities, at cost 1 $ 340,913 $ 380,790 ============ ============ Investment securities, at market value 1 $ 399,279 $ 411,221 Cash -- -- Dividends and interest receivable 36 122 Receivable for capital shares sold 2,284 195 Receivable for investment securities sold 20,459 24,565 Receivable from Wrap Provider -- -- ------------ ------------ Total Assets 422,058 436,103 ------------ ------------ LIABILITIES: Payable for investment securities purchased 12,872 21,802 Payable for income distributions -- -- Payable for capital shares redeemed 442 606 Bank overdraft -- -- Accrued expenses 583 561 ------------ ------------ Total Liabilities 13,897 22,969 ------------ ------------ NET ASSETS: Fund Shares of PBHG Class 644,932 1,529,693 Fund Shares of Advisor Class -- -- Undistributed net investment income -- -- Accumulated net realized loss on investments (295,137) (1,146,990) Net unrealized appreciation/(depreciation) on investments 58,366 30,431 Unrealized appreciation on wrapper agreements -- -- ------------ ------------ NET ASSETS $ 408,161 $ 413,134 ============ ============ Outstanding shares of beneficial interest-- PBHG Class 2 28,689,886 18,165,446 Outstanding shares of beneficial interest--Advisor Class 2 -- -- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $ 14.23 $ 22.74 ============ ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS -- -- ============ ============ 1. Includes repurchase agreements amounting to $14,082 for the PBHG Emerging Growth Fund, $45,533 for the PBHG Select Equity Fund, $1,841 for the PBHG Focused Value Fund, $81,416 for the PBHG Large Cap Value Fund, and $133,351 for the PBHG IRA Capital Preservation Fund. 2. Par Value of $0.001. Shares have not been rounded.
Amounts designated as "--" are either $0 or have been rounded to $0 [LOGO OMITTED] 102
PBHG FUNDS ---------------- ---------------- ---------------- PBHG PBHG PBHG FOCUSED LARGE CAP IRA CAPITAL VALUE VALUE PRESERVATION FUND FUND FUND ---------------- ---------------- ---------------- ASSETS: Investment securities, at cost 1 $ 34,323 $ 572,578 $ 558,190 ============ ============ ============ Investment securities, at market value 1 $ 34,874 $ 588,039 $ 555,719 Cash 13 23 -- Dividends and interest receivable 17 480 2,906 Receivable for capital shares sold 10 1,916 15,033 Receivable for investment securities sold 1,889 69,401 40,636 Receivable from Wrap Provider -- -- 2,735 ------------ ------------ ------------ Total Assets 36,803 659,859 617,029 ------------ ------------ ------------ LIABILITIES: Payable for investment securities purchased 1,926 133,774 98,437 Payable for income distributions -- -- 10 Payable for capital shares redeemed 164 1,143 226 Bank overdraft -- -- 94 Accrued expenses 38 511 258 ------------ ------------ ------------ Total Liabilities 2,128 135,428 99,025 ------------ ------------ ------------ NET ASSETS: Fund Shares of PBHG Class 38,114 561,728 518,513 Fund Shares of Advisor Class -- 203 -- Undistributed net investment income -- 296 205 Accumulated net realized loss on investments (3,990) (53,257) (23) Net unrealized appreciation/(depreciation) on investments 551 15,461 (2,471) Unrealized appreciation on wrapper agreements -- -- 1,780 ------------ ------------ ------------ NET ASSETS $ 34,675 $ 524,431 $ 518,004 ============ ============ ============ Outstanding shares of beneficial interest-- PBHG Class 2 2,140,255 39,309,998 51,801,423 Outstanding shares of beneficial interest--Advisor Class 2 -- 14,668 -- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $ 16.20 $ 13.34 $ 10.00 ============ ============ ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS -- $ 13.30 -- ============ ============ ============
[LOGO OMITTED] 103 PBHG FUNDS STATEMENTS OF OPERATIONS (000) - ------------------------------ For the Year Ended March 31, 2002 (unless otherwise indicated)
---------- ------------ ----------- ---------- ---------- PBHG PBHG PBHG PBHG EMERGING PBHG LARGE LARGE CAP CORE GROWTH GROWTH GROWTH CAP 20 GROWTH FUND FUND FUND FUND FUND ---------- ------------ ----------- ---------- ---------- 4/1/01 4/1/01 4/1/01 4/1/01 4/1/01 to to to to to 3/31/02 3/31/02 3/31/02 3/31/02 3/31/02 --------- ------------ ----------- ---------- ---------- INVESTMENT INCOME: Dividends $ 69 $ 51 $ 810 $ 1,528 $ 1,190 Interest 117 1,610 8,817 1,414 753 Less: Foreign Taxes Withheld (1) -- (9) -- (4) ------- -------- --------- -------- -------- Total Investment Income 185 1,661 9,618 2,942 1,939 ------- -------- --------- -------- -------- Investment Advisory Fees 541 4,416 21,978 3,631 2,316 Administrative Fees 95 779 3,878 641 463 Transfer Agent Fees 247 1,670 7,012 1,241 846 Shareholder Service Fee -- -- -- -- -- Printing Fees 19 152 708 123 94 Professional Fees 7 65 313 54 38 Line of Credit Fees 5 41 195 34 29 Distribution Fees 1 -- -- 164 -- -- Registration and Filing Fees 19 75 116 51 82 Directors' Fees 2 17 86 15 10 Miscellaneous Fees -- -- -- -- -- Custodian Fees 11 20 74 14 12 Reorganizational Costs -- -- -- -- -- ------- -------- --------- -------- -------- TOTAL EXPENSES 946 7,235 34,524 5,804 3,890 ------- -------- --------- -------- -------- Waiver of Investment Advisory Fees -- -- -- -- -- Expense Reduction 2 (14) (45) (138) (46) (22) Directed Brokerage -- -- -- -- -- ------- -------- --------- -------- -------- Net Expenses 932 7,190 34,386 5,758 3,868 ------- -------- --------- -------- -------- NET INVESTMENT INCOME (LOSS) (747) (5,529) (24,768) (2,816) (1,929) ------- -------- --------- -------- -------- Transactions (28,193) (178,897) (633,241) (168,552) (74,233) Net Change in Unrealized Appreciation (Depreciation) on Investments 26,138 151,287 502,772 103,904 29,478 ------- -------- --------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (2,055) (27,610) (130,469) (64,648) (44,755) ------- -------- --------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($2,802) ($33,139) ($155,237) ($67,464) ($46,684) ======= ======== ========= ======== ======== 1. All distribution fees are incurred in the Advisor Class. Currently, the PBHG Growth, PBHG Large Cap 20, PBHG Large Cap Growth, PBHG Large Cap Value and PBHG Mid-Cap Value Funds offer Advisor Class Shares. Distribution Fees incurred for the year ended March 31, 2002, were as follows: $164,138, $167, $240, $346 and $115, respectively. 2. All expense reductions are for transfer agent expenses. 3. On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust.
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 104
PBHG FUNDS -------- --------- ---------- ------------------------ PBHG PBHG PBHG NEW SELECT PBHG LIMITED OPPORTUNITIES EQUITY CLIPPER FOCUS FUND FUND FUND FUND3 -------- --------- ---------- ------------------------ 4/1/01 4/1/01 4/1/01 5/1/01 5/1/00 to to to to to 3/31/02 3/31/02 3/31/02 3/31/02 4/30/01 -------- --------- ---------- --------- --------- INVESTMENT INCOME: Dividends $ 10 $ 7 $ 482 $ 7,370 $ 4,125 Interest 275 153 1,924 307 463 Less: Foreign Taxes Withheld -- -- -- -- -- ------ ------- -------- ------- ------- Total Investment Income 285 160 2,406 7,677 4,588 ------ ------- -------- ------- ------- Investment Advisory Fees 796 550 4,759 2,885 1,634 Administrative Fees 119 83 840 336 194 Transfer Agent Fees 141 100 1,739 493 20 Shareholder Service Fee -- -- -- -- 232 Printing Fees 21 11 165 101 47 Professional Fees 9 6 69 73 33 Line of Credit Fees 7 4 44 17 -- Distribution Fees 1 -- -- -- -- -- Registration and Filing Fees 13 25 71 86 63 Directors' Fees 3 2 19 17 7 Miscellaneous Fees -- -- -- 70 42 Custodian Fees 9 8 20 26 29 Reorganizational Costs -- -- -- 38 -- ------ ------- -------- ------- ------- TOTAL EXPENSES 1,118 789 7,726 4,142 2,301 ------ ------- -------- ------- ------- Waiver of Investment Advisory Fees -- -- -- (107) (19) Expense Reduction 2 (7) (5) (67) -- (2) Directed Brokerage -- -- -- -- -- ------ ------- -------- ------- ------- Net Expenses 1,111 784 7,659 4,035 2,280 ------ ------- -------- ------- ------- NET INVESTMENT INCOME (LOSS) (826) (624) (5,253) 3,642 2,308 ------ ------- -------- ------- ------- Transactions (7,211) (17,920) (342,434) 22,402 28,312 Net Change in Unrealized Appreciation (Depreciation) on Investments 8,780 14,804 270,414 31,830 26,603 ------ ------- -------- ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS 1,569 (3,116) (72,020) 54,232 54,915 ------ ------- -------- ------- ------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 743 ($3,740) ($77,273) $57,874 $57,223 ====== ======= ======== ======= =======
--------- ---------- --------- PBHG PBHG PBHG FOCUSED LARGE CAP MID-CAP VALUE VALUE VALUE FUND FUND FUND --------- ---------- --------- 4/1/01 4/1/01 4/1/01 to to to 3/31/02 3/31/02 3/31/02 --------- ---------- --------- INVESTMENT INCOME: Dividends $ 514 $ 6,441 $ 3,345 Interest 157 994 1,060 Less: Foreign Taxes Withheld (1) -- (4) ------- -------- ------- Total Investment Income 670 7,435 4,401 ------- -------- ------- Investment Advisory Fees 505 3,519 3,210 Administrative Fees 89 812 566 Transfer Agent Fees 161 1,403 926 Shareholder Service Fee -- -- -- Printing Fees 17 165 108 Professional Fees 7 63 44 Line of Credit Fees 6 54 35 Distribution Fees 1 -- -- -- Registration and Filing Fees 23 102 58 Directors' Fees 2 16 10 Miscellaneous Fees -- -- -- Custodian Fees 7 28 19 Reorganizational Costs -- -- -- ------- -------- ------- TOTAL EXPENSES 817 6,162 4,976 ------- -------- ------- Waiver of Investment Advisory Fees -- -- -- Expense Reduction 2 (5) (16) (14) Directed Brokerage (1) (5) (2) ------- -------- ------- Net Expenses 811 6,141 4,960 ------- -------- ------- NET INVESTMENT INCOME (LOSS) (141) 1,294 (559) ------- -------- ------- Transactions (3,129) (43,701) (7,584) Net Change in Unrealized Appreciation (Depreciation) on Investments (746) 12,994 26,652 ------- -------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (3,875) (30,707) 19,068 ------- -------- ------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($4,016) ($29,413) $18,509 ======= ======== =======
[LOGO OMITTED] 105 PBHG FUNDS STATEMENTS OF OPERATIONS (000) - ----------------------------- For the Year Ended March 31, 2002 (unless otherwise indicated)
----------- ------------------------------- ---------------------------- PBHG SMALL CAP PBHG PBHG VALUE SPECIAL EQUITY DISCIPLINED EQUITY FUND FUND3 FUND4 ----------- ------------------------------- ---------------------------- 4/1/01 11/1/01 11/1/00 1/1/02 1/1/01 to to to to to 3/31/02 3/31/02 10/31/01 3/31/02 12/31/01 ----------- ------------- --------------- ------------ ------------- INVESTMENT INCOME: Dividends $ 1,405 $ 181 $ 600 $ 379 $ 1,618 Interest 700 7 79 12 90 Crediting Rate Interest -- -- -- -- -- Less: Foreign Taxes Withheld -- (1) (1) -- -- -------- -------- -------- -------- --------- Total Investment Income 2,105 187 678 391 1,708 -------- -------- -------- -------- --------- EXPENSES: Investment Advisory Fees 2,776 85 322 165 630 Administrative Fees 416 19 112 35 144 Transfer Agent Fees 713 15 23 35 59 Shareholder Services Fee -- -- 22 -- 151 Printing Fees 82 9 30 10 55 Professional Fees 37 4 28 7 42 Line of Credit Fees 26 -- -- 2 -- Distribution Fees 1 1 -- 8 -- -- Registration and Filing Fees 45 19 26 18 21 Directors' Fees 9 1 5 1 9 Miscellaneous Fees -- 3 10 7 8 Wrapper Fees -- -- -- -- -- Custodian Fees 20 3 6 3 20 Organizational Costs -- -- -- -- -- Reorganizational Costs -- 38 -- 38 -- -------- -------- -------- -------- --------- TOTAL EXPENSES 4,125 196 592 321 1,139 -------- -------- -------- -------- --------- Waiver of Investment Advisory Fees -- (85) (110) (82) (99) Reimbursement of Other Expenses by Adviser -- -- -- -- Recapture of Advisory Fees Waived -- -- -- -- -- Expense Reduction 2 (9) -- -- -- -- -------- -------- -------- -------- --------- Net Expenses 4,116 111 482 239 1,040 -------- -------- -------- -------- --------- NET INVESTMENT INCOME (LOSS) (2,011) 76 196 152 668 -------- -------- -------- -------- --------- Net Realized Gain (Loss) from Security Transactions (7,360) (162) 5,544 (720) (8,228) Net Realized Gain (Loss) on Futures -- -- -- 108 (1,233) Net Realized Loss on Foreign Currency Transactions -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments 32,628 3,795 (5,124) 1,645 1,244 Net Change in Unrealized Appreciation (Depreciation) on Futures -- -- -- (144) 108 Net Change in Unrealized Appreciation (Depreciation) on Wrapper Agreements -- -- -- -- -- -------- -------- -------- -------- --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES, AND FOREIGN CURRENCY TRANSACTIONS 25,268 3,633 420 889 (8,109) -------- -------- -------- -------- --------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $23,257 $3,709 $616 $1,041 ($7,441) ======== ======== ======== ======== ========= 1. All distribution fees are incurred in the Advisor Class. Currently, the PBHG Small Cap Value, PBHG REIT and PBHG Technology & Communications Funds offer Advisor Class Shares. Distribution Fees incurred for the year ended March 31, 2002, were as follows: $560, $11,738 and 10,177, respectively. 2. All expense reductions are for transfer agent expenses except for $46,000 of the PBHG Global Technology & Communications Fund, which is from interest earned on uninvested cash balances used to offset a portion of the custodian expense. 3. On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition agreement. were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. 4. On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Defensive Equity Fund. The Analytic Enhanced Equity Fund was a series of the UAM Funds, Inc. II. 5. On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. 6. On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust.
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 106
PBHG FUNDS ---------------- -------------------------- ------------- PBHG PBHG GLOBAL STRATEGIC TECHNOLOGY & SMALL COMMUNICATIONS PBHG COMPANY FUND REIT FUND5 FUND ---------------- -------------------------- ------------- 4/1/01 1/1/02 1/1/01 4/1/01 to to to to 3/31/02 3/31/02 12/31/01 3/31/02 ---------------- ------------ ----------- ------------- INVESTMENT INCOME: Dividends $ 113 $ 1,358 $ 5,379 $ 283 Interest 71 11 81 209 Crediting Rate Interest -- -- -- -- Less: Foreign Taxes Withheld (19) -- (14) -- -------- -------- -------- -------- Total Investment Income 165 1,369 5,446 492 -------- -------- -------- -------- EXPENSES: Investment Advisory Fees 623 179 716 918 Administrative Fees 62 32 165 138 Transfer Agent Fees 257 28 68 206 Shareholder Services Fee -- -- -- -- Printing Fees 19 13 63 25 Professional Fees 5 5 35 11 Line of Credit Fees 4 2 2 8 Distribution Fees 1 -- 12 52 -- Registration and Filing Fees 19 10 14 18 Directors' Fees 1 1 7 3 Miscellaneous Fees 10 1 54 3 Wrapper Fees -- -- -- -- Custodian Fees 77 3 11 22 Organizational Costs 4 -- -- -- Reorganizational Costs -- 37 -- -- -------- -------- -------- -------- TOTAL EXPENSES 1,081 323 1,187 1,352 -------- -------- -------- -------- Waiver of Investment Advisory Fees (125) (25) (3) -- Reimbursement of Other Expenses by Adviser -- -- -- -- Recapture of Advisory Fees Waived -- -- -- 21 Expense Reduction 2 (63) -- -- (6) -------- -------- -------- -------- Net Expenses 893 298 1,184 1,367 -------- -------- -------- -------- NET INVESTMENT INCOME (LOSS) (728) 1,071 4,262 (875) -------- -------- -------- -------- Net Realized Gain (Loss) from Security Transactions (36,403) 1,608 11,237 (5,950) Net Realized Gain (Loss) on Futures -- -- -- -- Net Realized Loss on Foreign Currency Transactions (2) -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments 26,319 5,837 (6,888) 12,900 Net Change in Unrealized Appreciation (Depreciation) on Futures -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Wrapper Agreements -- -- -- -- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES, AND FOREIGN CURRENCY TRANSACTIONS (10,086) 7,445 4,349 6,950 -------- -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($10,814) $8,516 $8,611 $6,075 ======== ======== ======== ========
----------------- ------------------------- ----------- PBHG PBHG TECHNOLOGY & PBHG CASH COMMUNICATION IRA CAPITAL RESERVES FUND PRESERVATION FUND6 FUND ----------------- ------------------------- ----------- 4/1/01 11/1/01 11/1/00 4/1/01 to to to to 3/31/02 3/31/02 10/31/01 3/31/02 ---------------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends $ 351 $ -- $ -- $ -- Interest 1,310 4,630 2,151 15,417 Crediting Rate Interest -- 937 130 -- Less: Foreign Taxes Withheld (27) -- -- -- -------- ------ -------- -------- Total Investment Income 1,634 5,567 2,281 15,417 -------- ------ -------- -------- EXPENSES: Investment Advisory Fees 6,635 578 164 1,322 Administrative Fees 1,171 146 93 661 Transfer Agent Fees 2,648 205 22 310 Shareholder Services Fee -- -- 46 -- Printing Fees 243 22 36 117 Professional Fees 89 15 48 48 Line of Credit Fees 49 5 -- 4 Distribution Fees 1 10 -- -- -- Registration and Filing Fees (3) 73 34 89 Directors' Fees 27 4 3 16 Miscellaneous Fees -- 37 11 -- Wrapper Fees -- 203 63 -- Custodian Fees 25 8 10 22 Organizational Costs -- -- -- -- Reorganizational Costs -- 38 -- -- -------- ------ -------- -------- TOTAL EXPENSES 10,894 1,334 530 2,589 -------- ------ -------- -------- Waiver of Investment Advisory Fees -- (320) (164) -- Reimbursement of Other Expenses by Adviser -- -- -- -- Recapture of Advisory Fees Waived -- -- -- -- Expense Reduction 2 (121) -- -- (22) -------- ------ -------- -------- Net Expenses 10,773 1,014 327 2,567 -------- ------ -------- -------- NET INVESTMENT INCOME (LOSS) (9,139) 4,553 1,954 12,850 -------- ------ -------- -------- Net Realized Gain (Loss) from Security Transactions (855,133) 495 352 (5) Net Realized Gain (Loss) on Futures -- -- -- -- Net Realized Loss on Foreign Currency Transactions -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments 659,933 (4,137) 1,303 -- Net Change in Unrealized Appreciation (Depreciation) on Futures -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Wrapper Agreements -- 3,829 (1,655) -- -------- ------ -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES, AND FOREIGN CURRENCY TRANSACTIONS (195,200) 187 -- (5) -------- ------ -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($204,339) $4,740 $1,954 $12,845 ========= ====== ======== ========
[LOGO OMITTED] 107 PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000) - -----------------------------------------
------------------------- --------------------------- ------------------------ PBHG PBHG PBHG CORE GROWTH EMERGING GROWTH GROWTH FUND FUND FUND ------------------------- --------------------------- ------------------------ 4/1/01 4/1/00 4/1/01 4/1/00 4/1/01 4/1/00 to to to to to to 3/31/02 3/31/01 3/31/02 3/31/01 3/31/02 3/31/01 --------- ---------- ----------- ----------- --------- ------------ INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (747) $ (1,026) $ (5,529) $ (3,379) $ (24,768) $ (23,781) Net Realized Gain (Loss) from Security Transactions (28,193) (42,021) (178,897) (98,628) (633,241) (361,015) Net Change in Unrealized Appreciation (Depreciation) on Investments 26,138 (60,254) 151,287 (604,370) 502,772 (3,290,729) --------- --------- ---------- ----------- ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations (2,802) (103,301) (33,139) (706,377) (155,237) (3,675,525) --------- --------- ---------- ----------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions -- (15,505) -- (67,730) -- (748,829) --------- --------- ---------- ----------- ---------- ---------- Total Distributions -- (15,505) -- (67,730) -- (748,829) --------- --------- ---------- ----------- ---------- ---------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 105,308 348,047 2,503,165 5,025,331 16,862,245 21,370,875 Shares Issued upon Reinvestment of Distributions -- 14,788 -- 64,484 -- 679,044 Shares Redeemed (112,351) (346,769) (2,600,159) (5,114,352) (17,674,625) (21,307,853) --------- --------- ---------- ----------- ---------- ---------- Total PBHG Class Transactions (7,043) 16,066 (96,994) (24,537) (812,380) 742,066 --------- --------- ---------- ----------- ---------- ---------- Advisor Class Shares Issued -- -- -- -- 28,200 45,600 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- 16,160 Shares Redeemed -- -- -- -- (37,407) (36,138) --------- --------- ---------- ----------- ---------- ---------- Total Advisor Class Transactions -- -- -- -- (9,207) 25,622 --------- --------- ---------- ----------- ---------- ---------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (7,043) 16,066 (96,994) (24,537) (821,587) 767,688 --------- --------- ---------- ----------- ---------- ---------- Total Increase (Decrease) in Net Assets (9,845) (102,740) (130,133) (798,644) (976,824) (3,656,666) --------- --------- ---------- ----------- ---------- ---------- NET ASSETS: Beginning of Period 63,359 166,099 538,294 1,336,938 2,952,505 6,609,171 --------- --------- ---------- ----------- ---------- ---------- End of Period $ 53,514 $ 63,359 $ 408,161 $ 538,294 $1,975,681 $2,952,505 ========= ========= ========== =========== ========== ========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 9,143 15,564 144,194 172,364 760,668 533,216 Shares Issued upon Reinvestment of Distributions -- 724 -- 2,393 -- 18,732 Shares Redeemed (9,791) (15,858) (149,231) (174,452) (791,641) (529,391) --------- --------- ---------- ----------- ---------- ---------- Total PBHG Class Share Transactions (648) 430 (5,037) 305 (30,973) 22,557 --------- --------- ---------- ----------- ---------- ---------- Advisor Class Shares Issued -- -- -- -- 1,258 1,086 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- 453 Shares Redeemed -- -- -- -- (1,802) (776) --------- --------- ---------- ----------- ---------- ---------- Total Advisor Class Share Transactions -- -- -- -- (544) 763 --------- --------- ---------- ----------- ---------- ---------- Net Increase (Decrease) in Shares Outstanding (648) 430 (5,037) 305 (31,517) 23,320 ========= ========= ========== =========== ========== ==========
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 108 PBHG FUNDS
--------------------------- -------------------------- PBHG PBHG LARGE CAP 20 LARGE CAP GROWTH FUND FUND --------------------------- -------------------------- 4/1/01 4/1/00 4/1/01 4/1/00 to to to to 3/31/02 3/31/01 3/31/02 3/31/01 ------------ ---------- ----------- ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (2,816) $ (3,105) $ (1,929) $ (502) Net Realized Gain (Loss) from Security Transactions (168,552) (125,919) (74,233) (83,356) Net Change in Unrealized Appreciation (Depreciation) on Investments 103,904 (530,060) 29,478 (111,400) ----------- ----------- -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations (67,464) (659,084) (46,684) (195,258) ----------- ----------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions -- (120,025) -- (25,405) ----------- ----------- -------- -------- Total Distributions -- (120,025) -- (25,405) ----------- ----------- -------- -------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 185,342 1,231,571 1,023,132 642,816 Shares Issued upon Reinvestment of Distributions -- 111,811 -- 24,151 Shares Redeemed (286,695) (1,145,841) (1,045,855) (375,601) ----------- ----------- -------- -------- Total PBHG Class Transactions (101,353) 197,541 (22,723) 291,366 ----------- ----------- -------- -------- Advisor Class Shares Issued -- 100 92 100 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- -- -- ----------- ----------- -------- -------- Total Advisor Class Transactions -- 100 92 100 ----------- ----------- -------- -------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (101,353) 197,641 (22,631) 291,466 ----------- ----------- -------- -------- Total Increase (Decrease) in Net Assets (168,817) (581,468) (69,315) 70,803 ----------- ----------- -------- -------- NET ASSETS: Beginning of Period 501,992 1,083,460 327,768 256,965 ----------- ----------- -------- -------- End of Period $ 333,175 $ 501,992 $258,453 $327,768 =========== =========== ======== ======== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 10,349 36,400 48,686 18,532 Shares Issued upon Reinvestment of Distributions -- 3,816 -- 784 Shares Redeemed (16,541) (36,471) (49,868) (11,701) ----------- ----------- -------- -------- Total PBHG Class Share Transactions (6,192) 3,745 (1,182) 7,615 ----------- ----------- -------- -------- Advisor Class Shares Issued -- 4 5 3 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- -- -- ----------- ----------- -------- -------- Total Advisor Class Share Transactions -- 4 5 3 ----------- ----------- -------- -------- Net Increase (Decrease) in Shares Outstanding (6,192) 3,749 (1,177) 7,618 =========== =========== ======== ========
-------------------------- -------------------------- PBHG PBHG LIMITED NEW OPPORTUNITIES FUND FUND -------------------------- -------------------------- 4/1/01 4/1/00 4/1/01 4/1/00 to to to to 3/31/02 3/31/01 3/31/02 3/31/01 ---------- ----------- ----------- ---------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (826) $ (582) $ (624) $ (1,153) Net Realized Gain (Loss) from Security Transactions (7,211) 8,865 (17,920) (2,723) Net Change in Unrealized Appreciation (Depreciation) on Investments 8,780 (69,599) 14,804 (137,696) ------- --------- ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations 743 (61,316) (3,740) (141,572) ------- --------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions (1,125) (33,301) -- (43,833) ------- --------- ---------- ---------- Total Distributions (1,125) (33,301) -- (43,833) ------- --------- ---------- ---------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 6,350 7,633 9,132 145,672 Shares Issued upon Reinvestment of Distributions 1,083 31,778 -- 41,535 Shares Redeemed (10,480) (22,419) (22,936) (292,045) ------- --------- ---------- ---------- Total PBHG Class Transactions (3,047) 16,992 (13,804) (104,838) ------- --------- ---------- ---------- Advisor Class Shares Issued -- -- -- -- Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- -- -- ------- --------- ---------- ---------- Total Advisor Class Transactions -- -- -- -- ------- --------- ---------- ---------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (3,047) 16,992 (13,804) (104,838) ------- --------- ---------- ---------- Total Increase (Decrease) in Net Assets (3,429) (77,625) (17,544) (290,243) ------- --------- ---------- ---------- NET ASSETS: Beginning of Period 77,505 155,130 65,357 355,600 ------- --------- ---------- ---------- End of Period $74,076 $ 77,505 $ 47,813 $ 65,357 ======= ========= ========== =========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 610 461 333 2,162 Shares Issued upon Reinvestment of Distributions 107 2,326 -- 973 Shares Redeemed (1,062) (1,272) (856) (4,402) ------- --------- ---------- ---------- Total PBHG Class Share Transactions (345) 1,515 (523) (1,267) ------- --------- ---------- ---------- Advisor Class Shares Issued -- -- -- -- Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- -- -- ------- --------- ---------- ---------- Total Advisor Class Share Transactions -- -- -- -- ------- --------- ---------- ---------- Net Increase (Decrease) in Shares Outstanding (345) 1,515 (523) (1,267) ======= ========= ========== ===========
[LOGO OMITTED] 109 PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000) -- Continued - ------------------------------------------------------
----------------------------- ---------------------------------------- PBHG PBHG SELECT EQUITY CLIPPER FOCUS FUND FUND1 ----------------------------- ---------------------------------------- 4/1/01 4/1/00 5/1/01 5/1/00 5/1/99 to to to to to 3/31/02 3/31/01 3/31/02 4/30/01 4/30/00 ------------- ------------- ----------- ------------ ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (5,253) $ (6,081) $ 3,642 $ 2,308 $ 1,249 Net Realized Gain (Loss) from Security Transactions (342,434) (789,986) 22,402 28,312 (196) Net Change in Unrealized Appreciation (Depreciation) on Investments and Foreign Currency Transactions 270,414 (592,767) 31,830 26,603 (9,829) ----------- ----------- -------- ---------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (77,273) (1,388,834) 57,874 57,223 (8,776) ----------- ----------- -------- ---------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- (2,442) (2,434) (1,201) Net Realized Gains from Security Transactions -- (67,200) (37,316) (6,491) (1,069) ----------- ----------- -------- ---------- --------- Total Distributions -- (67,200) (39,758) (8,925) (2,270) ----------- ----------- -------- ---------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 1,790,443 5,554,120 506,039 401,377 82,007 Shares Issued upon Reinvestment of Distributions -- 61,963 39,220 8,341 2,248 Shares Redeemed (1,962,587) (5,188,796) (213,709) (270,173) (53,118) ----------- ----------- -------- ---------- --------- Total PBHG Class Transactions (172,144) 427,287 331,550 139,545 31,137 ----------- ----------- -------- ---------- --------- Advisor Class Shares Issued -- -- -- -- -- Shares Redeemed -- -- -- -- -- ----------- ----------- -------- ---------- --------- Total Advisor Class Transactions -- -- -- -- -- ----------- ----------- -------- ---------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (172,144) 427,287 331,550 139,545 31,137 ----------- ----------- -------- ---------- --------- Total Increase (Decrease) in Net Assets (249,417) (1,028,747) 349,666 187,843 20,091 ----------- ----------- -------- ---------- --------- NET ASSETS: Beginning of Period 662,551 1,691,298 272,069 84,226 64,135 ----------- ----------- -------- ---------- --------- End of Period $ 413,134 $ 662,551 $621,735 $ 272,069 $ 84,226 =========== =========== ======== ========== ========= PBHG Class Shares Issued 69,120 93,667 31,778 27,255 7,141 Shares Issued upon Reinvestment of Distributions -- 1,194 2,660 573 203 Shares Redeemed (75,883) (91,670) (13,627) (18,486) (4,857) ----------- ----------- -------- ---------- --------- Total PBHG Class Share Transactions (6,763) 3,191 20,811 9,342 2,487 ----------- ----------- -------- ---------- --------- Advisor Class Shares Issued -- -- -- -- -- Shares Redeemed -- -- -- -- -- ----------- ----------- -------- ---------- --------- Total Advisor Class Share Transactions -- -- -- -- -- ----------- ----------- -------- ---------- --------- Net Increase (Decrease) in Shares Outstanding (6,763) 3,191 20,811 9,342 2,487 =========== =========== ======== ========== =========
1. On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 110 PBHG FUNDS
-------------------------- ------------------------- PBHG PBHG FOCUSED VALUE LARGE CAP VALUE FUND FUND -------------------------- ------------------------- 4/1/01 4/1/00 4/1/01 4/1/00 to to to to 3/31/02 3/31/01 3/31/02 3/31/01 ----------- --------- ----------- ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (141) $ 166 $ 1,294 $ 1,230 Net Realized Gain (Loss) from Security Transactions (3,129) (461) (43,701) (8,037) Net Change in Unrealized Appreciation (Depreciation) on Investments and Foreign Currency Transactions (746) (1,124) 12,994 969 --------- ------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (4,016) (1,419) (29,413) (5,838) --------- ------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income (166) -- (998) (656) Net Realized Gains from Security Transactions (225) (1,197) -- (3,235) --------- ------- --------- --------- Total Distributions (391) (1,197) (998) (3,891) --------- ------- --------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 45,511 96,660 592,134 687,752 Shares Issued upon Reinvestment of Distributions 365 1,090 886 3,565 Shares Redeemed (65,518) (58,966) (463,795) (289,096) --------- ------- --------- --------- Total PBHG Class Transactions (19,642) 38,784 129,225 402,221 --------- ------- --------- --------- Advisor Class Shares Issued -- -- 116 100 Shares Redeemed -- -- (13) -- --------- ------- --------- --------- Total Advisor Class Transactions -- -- 103 100 --------- ------- --------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (19,642) 38,784 129,328 402,321 --------- ------- --------- --------- Total Increase (Decrease) in Net Assets (24,049) 36,168 98,917 392,592 --------- ------- --------- --------- NET ASSETS: Beginning of Period 58,724 22,556 425,514 32,922 --------- ------- --------- --------- End of Period $ 34,675 $ 8,724 $ 524,431 $425,514 ========= ======= ========= ========= PBHG Class Shares Issued 2,549 5,481 42,144 48,746 Shares Issued upon Reinvestment of Distributions 21 64 65 269 Shares Redeemed (3,804) (3,389) (33,511) (21,154) --------- ------- --------- --------- Total PBHG Class Share Transactions (1,234) 2,156 8,698 27,861 --------- ------- --------- --------- Advisor Class Shares Issued -- -- 9 7 Shares Redeemed -- -- (1) -- --------- ------- --------- --------- Total Advisor Class Share Transactions -- -- 8 7 --------- ------- --------- --------- Net Increase (Decrease) in Shares Outstanding (1,234) 2,156 8,706 27,868 ========= ======= ========= =========
------------------------- ------------------------- PBHG PBHG MID-CAP VALUE SMALL CAP VALUE FUND FUND ------------------------- ------------------------- 4/1/01 4/1/00 4/1/01 4/1/00 to to to to 3/31/02 3/31/01 3/31/02 3/31/01 ----------- ----------- ----------- ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (559) $ 483 $ (2,011) $ (156) Net Realized Gain (Loss) from Security Transactions (7,584) (5,759) (7,360) 3,852 Net Change in Unrealized Appreciation (Depreciation on Investments and Foreign Currency Transactions 26,652 6,331 32,628 (12,146) --------- --------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations 18,509 1,055 23,257 (8,450) --------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- (277) -- -- Net Realized Gains from Security Transactions -- (5,809) -- (9,012) --------- --------- --------- --------- Total Distributions -- (6,086) -- (9,012) --------- --------- --------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 565,684 364,087 444,666 443,137 Shares Issued upon Reinvestment of Distributions -- 5,507 -- 8,752 Shares Redeemed (350,309) (194,136) (426,850) (275,073) --------- --------- --------- --------- Total PBHG Class Transactions 215,375 175,458 17,816 176,816 --------- --------- --------- --------- Advisor Class Shares Issued 124 -- 234 100 Shares Redeemed (11) -- (24) -- --------- --------- --------- --------- Total Advisor Class Transactions 113 -- 210 100 --------- --------- --------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 215,488 175,458 18,026 176,916 --------- --------- --------- --------- Total Increase (Decrease) in Net Assets 233,997 170,427 41,283 159,454 --------- --------- --------- --------- NET ASSETS: Beginning of Period 231,117 60,690 252,088 92,634 --------- --------- --------- --------- End of Period $ 465,114 $ 231,117 $293,371 $ 252,088 ========= ========= ========= ========= PBHG Class Shares Issued 36,386 24,797 22,423 22,627 Shares Issued upon Reinvestment of Distributions -- 387 -- 475 Shares Redeemed (22,850) (13,569) (21,869) (14,409) --------- --------- --------- --------- Total PBHG Class Share Transactions 13,536 11,615 554 8,693 --------- --------- --------- --------- Advisor Class Shares Issued 9 -- 14 5 Shares Redeemed (1) -- (1) -- --------- --------- --------- --------- Total Advisor Class Share Transactions 8 -- 13 5 --------- --------- --------- --------- Net Increase (Decrease) in Shares Outstanding 13,544 11,615 567 8,698 ========= ========= ========= =========
[LOGO OMITTED] 111 PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000) -- Continued - ------------------------------------------------------
--------------------------------------- -------------------------------------- PBHG PBHG SPECIAL EQUITY DISCIPLINED EQUITY FUND1 FUND3 --------------------------------------- -------------------------------------- 11/1/01 11/1/00 11/1/99 1/1/02 1/1/01 1/1/00 to to to to to to 3/31/02 10/31/01 10/31/00 3/31/02 12/31/01 12/31/00 ----------- ----------- ----------- ----------- ----------- ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ 76 $ 196 $ 148 $ 152 $ 668 $ 757 Net Realized Gain (Loss) from Security Transactions and Futures (162) 5,544 2,311 (612) (9,461) (5,304) Net Realized Gain (Loss) on Foreign Currency Transactions -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures and Foreign Currency Transactions 3,795 (5,124) 1,540 1,501 1,352 (8,581) ---------- ---------- ---------- ---------- ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations 3,709 616 3,999 1,041 (7,441) (13,128) ---------- ---------- ---------- ---------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income (88) (175) (158) (16) (665) (757) Return of Capital -- -- -- -- -- (19) Net Realized Gains from Security Transactions -- (4,885) (199) -- -- (181) ---------- ---------- ---------- ---------- ---------- ---------- Total Distributions (88) (5,060) (357) (16) (665) (957) ---------- ---------- ---------- ---------- ---------- ---------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 6,476 12,914 15,349 11,774 27,162 75,172 Shares Issued in Connection with the Reorganization of the International Fund5 -- -- -- -- -- -- Shares Issued upon Reinvestment of Distributions 83 4,635 294 16 651 946 Shares Redeemed (1,602) (25,714) (5,488) (6,231) (43,221) (88,673) ---------- ---------- ---------- ---------- ---------- ---------- Total PBHG Class Transactions 4,957 (8,165) 10,155 5,559 (15,408) (12,555) ---------- ---------- ---------- ---------- ---------- ---------- Advisor Class2 Shares Issued -- 408 654 -- -- -- Shares Issued upon Reinvestment of Distributions 2 386 63 -- -- -- Shares Redeemed (1,015) (4,528) (2,851) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Advisor Class Transactions (1,013) (3,734) (2,134) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 3,944 (11,899) 8,021 5,559 (15,408) (12,555) ---------- ---------- ---------- ---------- ---------- ---------- Total Increase (Decrease) in Net Assets 7,565 (16,343) 11,663 6,584 (23,514) (26,640) ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS: Beginning of Period 17,940 34,283 22,620 95,031 118,545 145,185 ---------- ---------- ---------- ---------- ---------- ---------- End of Period $ 25,505 $ 17,940 $ 34,283 $ 101,615 $ 95,031 $ 118,545 ========== ========== ========== ========== ========== ========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 496 975 1,240 1,156 2,555 6,344 Shares Issued in Connection with the Reorganization of the International Fund5 -- -- -- -- -- -- Shares Issued upon Reinvestment of Distributions 7 380 24 1 65 78 Shares Redeemed (120) (2,131) (424) (612) (4,107) (7,526) ---------- ---------- ---------- ---------- ---------- ---------- Total PBHG Class Share Transactions 383 (776) 840 545 (1,487) (1,104) ---------- ---------- ---------- ---------- ---------- ---------- Advisor Class2 Shares Issued -- 31 55 -- -- -- Shares Issued upon Reinvestment of Distributions -- 31 5 -- -- -- Shares Redeemed (81) (400) (229) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total Advisor Class Share Transactions (81) (338) (169) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net Increase (Decrease) in Shares Outstanding 302 (1,114) 671 545 (1,487) (1,104) ========== ========== ========== ========== ========== ========== 1. On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. 2. Information presented for the PBHG Special Equity Fund represents the Institutional Service Class shares of the NWQ Special Equity Portfolio. Upon the business combination of the NWQ Special Equity Portfolio and the PBHG Special Equity Fund on December 14, 2001, the Institutional Service Class shares of the NWQ Special Equity Portfolio were fully liquidated and exchanged for PBHG Class shares of the PBHG Special Equity Fund. Reference Note 1 to Financial Statements. Amounts designated as "-" are either $0 or have been rounded to $0.
[LOGO OMITTED] 112 PBHG FUNDS
---------------------- ----------------------------------- PBHG PBHG GLOBAL TECHNOLOGY & REIT COMMUNICATIONS FUND FUND6 ---------------------- ----------------------------------- 4/1/01 5/31/004 1/1/02 1/1/01 1/1/00 to to to to to 3/31/02 3/31/01 3/31/02 12/31/01 12/31/00 --------- --------- -------- -------- --------- - INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (728) $ (1,053) $ 1,071 $ 4,262 $ 3,782 Net Realized Gain (Loss) from Security Transactions and Futures (36,403) (35,536) 1,608 11,237 193 Net Realized Gain (Loss) on Foreign Currency Transactions (2) (1) -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures and Foreign Currency Transactions 26,319 (28,065) 5,837 (6,888) 17,053 --------- --------- --------- -------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (10,814) (64,655) 8,516 8,611 21,028 --------- --------- --------- -------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- (867) (4,401) (3,811) Return of Capital -- -- -- (358) (802) Net Realized Gains from Security Transactions -- -- -- (10,469) -- --------- --------- --------- -------- --------- Total Distributions -- -- (867) (15,228) (4,613) --------- --------- --------- -------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 22,092 188,400 12,341 30,959 26,463 Shares Issued in Connection with the Reorganization of the International Fund5 -- 7,805 -- -- -- Shares Issued upon Reinvestment of Distributions -- -- 327 4,727 1,542 Shares Redeemed (25,541) (81,641) (3,356) (44,237) (30,953) --------- --------- --------- -------- --------- Total PBHG Class Transactions (3,449) 114,564 9,312 (8,551) (2,948) --------- --------- --------- -------- --------- Advisor Class2 Shares Issued -- -- 272 1,361 1,946 Shares Issued upon Reinvestment of Distributions -- -- 132 3,139 1,001 Shares Redeemed -- -- (1,184) (7,525) (13,254) --------- --------- --------- -------- --------- Total Advisor Class Transactions -- -- (780) (3,025) (10,307) --------- --------- --------- -------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (3,449) 114,564 8,532 (11,576) (13,255) --------- --------- --------- -------- --------- Total Increase (Decrease) in Net Assets (14,263) 49,909 16,181 (18,193) 3,160 --------- --------- --------- -------- --------- NET ASSETS: Beginning of Period 49,909 -- 80,236 98,429 95,269 --------- --------- --------- -------- --------- End of Period $ 35,646 $ 49,909 $ 96,417 $ 80,236 $ 98,429 ========= ========= ========= ======== ======== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 4,813 17,529 1,346 3,166 3,044 Shares Issued in Connection with the Reorganization of the International Fund5 -- 1,084 -- -- -- Shares Issued upon Reinvestment of Distributions -- -- 34 534 173 Shares Redeemed (5,523) (8,531) (363) (4,555) (3,552) --------- --------- --------- -------- --------- Total PBHG Class Share Transactions (710) 10,082 1,017 (855) (335) --------- --------- --------- -------- --------- Advisor Class2 Shares Issued -- -- 30 139 225 Shares Issued upon Reinvestment of Distributions -- -- 14 358 113 Shares Redeemed -- -- (130) (794) (1,557) --------- --------- --------- -------- --------- Total Advisor Class Share Transactions -- -- (86) (297) (1,219) --------- --------- --------- -------- --------- Net Increase (Decrease) in Shares Outstanding (710) 10,082 931 (1,152) (1,554) ========= ========= ========= ======== ========
---------------------- ---------------------- PBHG PBHG TECHNOLOGY & STRATEGIC SMALL COMMUNICATIONS COMPANY FUND FUND ---------------------- ----------------------- 4/1/01 4/1/00 4/1/01 4/1/00 to to to to 3/31/02 3/31/01 3/31/02 3/31/01 --------- --------- ---------- ------------ INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (875) $ (525) $ (9,139) $ (20,968) Net Realized Gain (Loss) from Security Transactions and Futures (5,950) (4,700) (855,133) (1,311,096) Net Realized Gain (Loss) on Foreign Currency Transactions -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures and Foreign Currency Transactions 12,900 (22,211) 659,933 (1,436,054) --------- -------- ---------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations 6,075 (27,436) (204,339) (2,768,118) --------- -------- ---------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- -- -- Return of Capital -- -- -- -- Net Realized Gains from Security Transactions -- (12,717) -- (230,780) --------- -------- ---------- ---------- Total Distributions -- (12,717) -- (230,780) --------- -------- ---------- ---------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 89,908 133,854 2,064,008 11,663,880 Shares Issued in Connection with the Reorganization of the International Fund5 -- -- -- -- Shares Issued upon Reinvestment of Distributions -- 12,049 -- 212,689 Shares Redeemed (86,071) (104,644) (2,199,759)(11,800,780) --------- -------- ---------- ---------- Total PBHG Class Transactions 3,837 41,259 (135,751) 75,789 --------- -------- ---------- ---------- Advisor Class2 Shares Issued -- -- 10,528 300 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- (196) -- --------- -------- ---------- ---------- Total Advisor Class Transactions -- -- 10,332 300 --------- -------- ---------- ---------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 3,837 41,259 (125,419) 76,089 --------- -------- ---------- ---------- Total Increase (Decrease) in Net Assets 9,912 1,106 (329,758) (2,922,809) --------- -------- ---------- ---------- NET ASSETS: Beginning of Period 76,331 75,225 921,137 3,843,946 --------- -------- ---------- ---------- End of Period $ 86,243 $ 76,331 $ 591,379 $ 921,137 ========= ======== ========== ========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 6,741 7,734 99,302 208,728 Shares Issued in Connection with the Reorganization of the International Fund5 -- -- -- -- Shares Issued upon Reinvestment of Distributions -- 780 -- 4,593 Shares Redeemed (6,610) (6,084) (106,770) (211,785) --------- -------- ---------- ---------- Total PBHG Class Share Transactions 131 2,430 (7,468) 1,536 --------- -------- ---------- ---------- Advisor Class2 Shares Issued -- -- 700 9 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- (12) -- --------- -------- ---------- ---------- Total Advisor Class Share Transactions -- -- 688 9 --------- -------- ---------- ---------- Net Increase (Decrease) in Shares Outstanding 131 2,430 (6,780) 1,545 ========= ======== ========== ========== 3. On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Enhanced Equity Fund. The Analytic Defensive Equity Fund was a series of the UAM Funds, Inc. II. 4. The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. 5. Net asset value of shares issued in connection with the reorganization of the PBHG International Fund. Reference Note 8 to Financial Statements. 6. On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust.
The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 113 PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000) -- Concluded - ------------------------------------------------------
----------------------------------------- ------------------------------ PBHG PBHG IRA CAPITAL PRESERVATION CASH RESERVES FUND1 FUND ----------------------------------------- ------------------------------ 11/1/01 11/1/00 11/1/99 4/1/01 4/1/00 to to to to to 3/31/02 10/31/01 10/31/00 3/31/02 3/31/01 ---------- ----------- ----------- ------------- ------------ INVESTMENT ACTIVITIES: Net Investment Income $ 4,553 $ 1,954 $ 1,040 $ 12,850 $ 34,009 Net Realized Gain (Loss) from Security Transactions 495 352 28 (5) 7 Net Change in Unrealized Depreciation on Investments and Wrapper Agreements (308) (352) (28) -- -- -------- -------- -------- ------------ ----------- Net Increase in Net Assets Resulting from Operations 4,740 1,954 1,040 12,845 34,016 -------- -------- -------- ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income (4,757) (1,978) (1,057) (12,919) (33,948) Net Realized Gains from Security Transactions (685) -- -- -- -- -------- -------- -------- ------------ ----------- Total Distributions (5,442) (1,978) (1,057) (12,919) (33,948) -------- -------- -------- ------------ ----------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 450,353 53,737 23,524 21,459,733 33,620,936 Shares Issued upon Reinvestment of Distributions 5,324 1,718 865 9,841 23,525 Redemption Fees 17 24 17 -- -- Shares Redeemed (8,286) (8,222) (1,191) (21,887,450) (33,698,524) -------- -------- -------- ------------ ----------- Total PBHG Class Transactions 447,408 47,257 23,215 (417,876) (54,063) -------- -------- -------- ------------ ----------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 447,408 47,257 23,215 (417,876) (54,063) -------- -------- -------- ------------ ----------- Total Increase (Decrease) in Net Assets 446,706 47,233 23,198 (417,950) (53,995) -------- -------- -------- ------------ ----------- NET ASSETS: Beginning of Period 71,298 24,065 867 525,463 579,458 -------- -------- -------- ------------ ----------- End of Period $518,004 $ 71,298 $ 24,065 $ 107,513 $ 525,463 ======== ======== ======== ============ =========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 45,035 5,373 2,352 21,459,733 33,620,936 Shares Issued upon Reinvestment of Distributions 532 172 87 9,841 23,525 Effect of Reverse Stock Split (Note 2) (68) -- -- -- -- Shares Redeemed (828) (822) (119) (21,887,450) (33,698,524) -------- -------- -------- ------------ ----------- Total PBHG Class Share Transactions 44,671 4,723 2,320 (417,876) (54,063) -------- -------- -------- ------------ ----------- Net Increase (Decrease) in Shares Outstanding 44,671 4,723 2,320 (417,876) (54,063) ======== ======== ======== ============ =========== 1. On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust.
Amounts designated as "-" are either $0 or have been rounded to $0. [LOGO OMITTED] 114
PBHG FUNDS FINANCIAL HIGHLIGHTS -------------------- For a Share Outstanding Throughout Each Period For the Period Ended March 31, 2002 Net Realized and Net Asset Net Unrealized Distributions Distributions Asset Value Investment Gains or from Net from Value Beginning Income (Losses) Investment Capital End Total of Period (Loss) on Securities Income Gains of Period Return - ------------------------------------------------------------------------------------------------------------------------- - --------------------- PBHG CORE GROWTH FUND - --------------------- PBHG CLASS 2002 1 $10.70 $(0.13) $(0.42) -- -- $10.15 (5.14)% 2001 1 30.25 (0.17) (16.62) -- $(2.76) 10.70 (59.85)% 2000 1 14.06 (0.20) 16.39 -- -- 30.25 115.15% 1999 1 13.53 (0.14) 0.67 -- -- 14.06 3.92% 1998 10.34 (0.33) 3.52 -- -- 13.53 30.85% - ------------------------- PBHG EMERGING GROWTH FUND - ------------------------- PBHG CLASS 2002 1 $15.96 $(0.17) $(1.56) -- -- $14.23 (10.84)% 2001 1 40.00 (0.10) (21.81) -- $(2.13) 15.96 (56.95)% 2000 1 20.61 (0.21) 20.76 -- (1.16) 40.00 101.33% 1999 1 25.83 (0.18) (4.96) -- (0.08) 20.61 (19.91)% 1998 19.26 (0.24) 6.81 -- -- 25.83 34.11% - ---------------- PBHG GROWTH FUND - ---------------- PBHG CLASS 2002 1 $21.74 $(0.20) $(2.60) -- -- $18.94 (12.88)% 2001 1 58.73 (0.20) (30.53) -- $(6.26) 21.74 (56.57)% 2000 1 24.51 (0.33) 36.14 -- (1.59) 58.73 148.57% 1999 1 28.23 (0.24) (3.48) -- -- 24.51 (13.18)% 1998 21.06 (0.26) 7.43 -- -- 28.23 34.05% ADVISOR CLASS 2002 1 $21.46 $(0.26) $(2.54) -- -- $18.66 (13.05)% 2001 1 58.19 (0.30) (30.17) -- $(6.26) 21.46 (56.65)% 2000 1 24.35 (0.42) 35.85 -- (1.59) 58.19 147.98% 1999 1 28.12 (0.30) (3.47) -- -- 24.35 (13.41)% 1998 21.03 (0.15) 7.24 -- -- 28.12 33.71% - ---------------------- PBHG LARGE CAP 20 FUND - ---------------------- PBHG CLASS 2002 1 $17.81 $(0.11) $(2.55) -- -- $15.15 (14.94)% 2001 1 44.34 (0.12) (22.04) -- $(4.37) 17.81 (53.84)% 2000 1 24.10 (0.25) 26.26 -- (5.77) 44.34 117.88% 1999 1 15.98 (0.12) 8.46 -- (0.22) 24.10 52.52% 1998 9.25 (0.07) 6.80 -- -- 15.98 72.76% ADVISOR CLASS 2002 1 $17.80 $(0.16) $(2.54) -- -- $15.10 (15.17)% 2001 1,2 25.20 (0.02) (7.38) -- -- 17.80 (29.37)%+ - -------------------------- PBHG LARGE CAP GROWTH FUND - -------------------------- PBHG CLASS 2002 1 $22.90 $(0.14) $(3.09) -- -- $19.67 (14.10)% 2001 1 38.37 (0.05) (13.48) -- $(1.94) 22.90 (36.55)% 2000 1 24.57 (0.23) 21.32 -- (7.29) 38.37 98.60% 1999 1 22.69 (0.16) 3.53 -- (1.49) 24.57 15.90% 1998 14.26 (0.19) 8.82 -- (0.20) 22.69 60.80% ADVISOR CLASS 2002 1 $22.89 $(0.19) $(3.08) -- -- $19.62 (14.29)% 2001 1,2 29.10 (0.03) (6.18) -- -- 22.89 (21.34)%+
Ratio Ratio of Net Ratio Ratio of Expenses Investment of Expenses of Net to Average Income (Loss) Net to Average Investment Net Assets to Average Assets Ratio Net Assets Income (Excluding Net Assets End of Expenses (Including (Loss) Waivers (Excluding Portfolio of Period to Average Expense to Average and Expense Waivers and Turnover (000) Net Assets Reduction) Net Assets Reduction) Expense Reduction) Rate - ------------------------------------------------------------------------------------------------------------------------------------ - --------------------- PBHG CORE GROWTH FUND - --------------------- PBHG CLASS 2002 1 $ 53,514 1.49% 1.47% (1.17)% 1.49% (1.19)% 226.55% 2001 1 63,359 1.31% 1.31% (0.73)% 1.31% (0.73)% 133.31% 2000 1 166,099 1.33% 1.33% (1.02)% 1.33% (1.02)% 312.32% 1999 1 86,485 1.45% 1.45% (1.16)% 1.45% (1.16)% 120.93% 1998 165,510 1.35% 1.35% (1.07)% 1.35% (1.07)% 72.78% - ------------------------- PBHG EMERGING GROWTH FUND - ------------------------- PBHG CLASS 2002 1 $ 408,161 1.39% 1.38% (1.06)% 1.39% (1.07)% 150.95% 2001 1 538,294 1.26% 1.26% (0.33)% 1.26% (0.33)% 89.91% 2000 1 1,336,938 1.24% 1.24% (0.76)% 1.24% (0.76)% 141.81% 1999 1 736,008 1.34% 1.34% (0.80)% 1.34% (0.80)% 101.53% 1998 1,404,157 1.27% 1.27% (0.80)% 1.27% (0.80)% 95.21% - ---------------- PBHG GROWTH FUND - ---------------- PBHG CLASS 2002 1 $1,925,422 1.33% 1.32% (0.95)% 1.33% (0.96)% 170.67% 2001 1 2,883,036 1.25% 1.25% (0.46)% 1.25% (0.46)% 104.48% 2000 1 6,465,234 1.23% 1.23% (0.90)% 1.23% (0.90)% 107.73% 1999 1 3,228,740 1.32% 1.32% (0.99)% 1.32% (0.99)% 80.51% 1998 5,338,380 1.26% 1.26% (0.74)% 1.26% (0.74)% 94.21% ADVISOR CLASS 2002 1 $ 50,259 1.58% 1.57% (1.20)% 1.58% (1.22)% 170.67% 2001 1 69,469 1.50% 1.50% (0.71)% 1.50% (0.71)% 104.48% 2000 1 143,937 1.48% 1.48% (1.15)% 1.48% (1.15)% 107.73% 1999 1 66,235 1.57% 1.57% (1.24)% 1.57% (1.24)% 80.51% 1998 89,227 1.51% 1.51% (1.02)% 1.51% (1.02)% 94.21% - ---------------------- PBHG LARGE CAP 20 FUND - ---------------------- PBHG CLASS 2002 1 $ 333,115 1.36% 1.35% (0.66)% 1.36% (0.67)% 152.53% 2001 1 501,921 1.23% 1.23% (0.34)% 1.23% (0.34)% 142.46% 2000 1 1,083,460 1.23% 1.23% (0.82)% 1.23% (0.82)% 147.35% 1999 1 603,077 1.27% 1.27% (0.64)% 1.27% (0.64)% 76.41% 1998 192,631 1.41% 1.41% (0.79)% 1.41% (0.79)% 98.27% ADVISOR CLASS 2002 1 $ 60 1.61% 1.60% (0.91)% 1.61% (0.92)% 152.53% 2001 1,2 71 1.54%* 1.54%* (0.40)%* 1.54%* (0.40)%* 142.46% - -------------------------- PBHG LARGE CAP GROWTH FUND - -------------------------- PBHG CLASS 2002 1 $ 258,297 1.26% 1.25% (0.62)% 1.26% (0.63)% 148.93% 2001 1 327,689 1.18% 1.18% (0.14)% 1.18% (0.14)% 146.18% 2000 1 256,965 1.17% 1.17% (0.79)% 1.17% (0.79)% 184.36% 1999 1 144,089 1.25% 1.25% (0.71)% 1.25% (0.71)% 46.16% 1998 145,662 1.22% 1.22% (0.79)% 1.22% (0.79)% 46.56% ADVISOR CLASS 2002 1 $ 156 1.51% 1.50% (0.87)% 1.51% (0.88)% 148.93% 2001 1,2 79 1.43%* 1.43%* (0.42)%* 1.43%* (0.42)%* 146.18%
The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 115 PBHG FUNDS FINANCIAL HIGHLIGHTS - -------------------- For a Share Outstanding Throughout Each Period For the Period Ended March 31, 2002
Net Realized and Net Asset Net Unrealized Distributions Distributions Asset Value Investment Gains or from Net from Value Beginning Income (Losses) Investment Capital End Total of Period (Loss) on Securities Income Gains of Period Return - ------------------------------------------------------------------------------------------------------------------------- - ----------------- PBHG LIMITED FUND - ----------------- PBHG CLASS 2002 1 $9.42 $(0.10) $0.22 -- $ (0.14) $9.40 1.17% 2001 1 23.11 (0.08) (8.17) -- (5.44) 9.42 (42.99)% 2000 1 11.95 (0.12) 15.20 -- (3.92) 23.11 137.27% 1999 1 14.08 (0.10) (1.45) -- (0.58) 11.95 (11.01)% 1998 9.05 (0.10) 5.53 -- (0.40) 14.08 60.78% - --------------------------- PBHG NEW OPPORTUNITIES FUND - --------------------------- PBHG CLASS 2002 1 $27.77 $(0.30) $(1.36) -- -- $26.11 (5.98)% 2001 1 98.19 (0.48) (43.78) -- $(26.16) 27.77 (54.38)% 2000 1 16.47 (0.71) 85.60 -- (3.17) 98.19 529.94% 1999 3 13.52 (0.01) 2.96 -- -- 16.47 21.82%+ - ----------------------- PBHG SELECT EQUITY FUND - ----------------------- PBHG CLASS 2002 1 $26.58 $(0.25) $(3.59) -- -- $22.74 (14.45)% 2001 1 77.81 (0.24) (48.55) -- $ (2.44) 26.58 (64.23)% 2000 1 25.93 (0.34) 58.71 -- (6.49) 77.81 240.82% 1999 1 24.15 (0.21) 1.99 -- -- 25.93 7.37% 1998 15.91 (0.44) 8.68 -- -- 24.15 51.79% - ----------------------- PBHG CLIPPER FOCUS FUND - ----------------------- PBHG CLASS 2002 4 $15.92 $0.20 $2.34 $(0.14) $ (1.92) $16.40 17.48%+ 2001 5 10.87 0.21 5.49 (0.21) (0.44) 15.92 53.22% 2000 5 12.19 0.16 (1.18) (0.16) (0.14) 10.87 (8.39)% 1999 5,6 10.00 0.05 2.18 (0.04) --** 12.19 22.33%+ - ----------------------- PBHG FOCUSED VALUE FUND - ----------------------- PBHG CLASS 2002 1 $17.41 $(0.04) $(1.03) $(0.06) $ (0.08) $16.20 (6.18)% 2001 1 18.51 0.07 (0.74) -- (0.43) 17.41 (3.59)% 2000 1 10.46 (0.01) 8.93 -- (0.87) 18.51 89.17% 1999 3 10.32 -- 0.14 -- -- 10.46 1.36%+ - ------------------------- PBHG LARGE CAP VALUE FUND - ------------------------- PBHG CLASS 2002 1 $13.90 $0.03 $(0.57) $(0.02) -- $13.34 (3.86)% 2001 1 11.97 0.21 2.21 (0.08) $ (0.41) 13.90 20.42% 2000 13.85 0.12 1.78 (0.08) (3.70) 11.97 14.25% 1999 13.01 0.08 2.45 (0.10) (1.59) 13.85 20.29% 1998 10.11 0.02 3.84 (0.06) (0.90) 13.01 39.47% ADVISOR CLASS 2002 1 $13.88 -- $(0.58) -- -- $13.30 (4.15)% 2001 1,2 13.88 $ 0.01 (0.01) -- -- 13.88 0.00%+
Ratio Ratio of Net Ratio Ratio of Expenses Investment of Expenses of Net to Average Income (Loss) Net to Average Investment Net Assets to Average Assets Ratio Net Assets Income (Excluding Net Assets End of Expenses (Including (Loss) Waivers (Excluding Portfolio of Period to Average Expense to Average and Expense Waivers and Turnover (000) Net Assets Reduction) Net Assets Reduction) Expense Reduction) Rate - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------- PBHG LIMITED FUND - ----------------- PBHG CLASS 2002 1 $ 74,076 1.41% 1.40% (1.04)% 1.41% (1.05)% 156.08% 2001 1 77,505 1.33% 1.33% (0.48)% 1.33% (0.48)% 85.07% 2000 1 155,130 1.32% 1.32% (0.76)% 1.32% (0.76)% 107.78% 1999 1 108,011 1.40% 1.40% (0.81)% 1.40% (0.81)% 111.07% 1998 178,168 1.40% 1.40% (0.72)% 1.40% (0.72)% 81.36% - --------------------------- PBHG NEW OPPORTUNITIES FUND - --------------------------- PBHG CLASS 2002 1 $ 47,813 1.44% 1.43% (1.13)% 1.44% (1.14)% 295.41% 2001 1 65,357 1.34% 1.34% (0.76)% 1.34% (0.76)% 267.34% 2000 1 355,600 1.34% 1.34% (1.15)% 1.34% (1.15)% 668.31% 1999 3 16,742 1.50%* 1.50%* (0.80)%* 1.59%* (0.89)%* 109.43%+ - ----------------------- PBHG SELECT EQUITY FUND - ----------------------- PBHG CLASS 2002 1 $ 413,134 1.38% 1.37% (0.94)% 1.38% (0.95)% 301.58% 2001 1 662,551 1.26% 1.26% (0.43)% 1.26% (0.43)% 157.72% 2000 1 1,691,298 1.18% 1.18% (0.68)% 1.18% (0.68)% 200.56% 1999 1 235,904 1.34% 1.34% (0.90)% 1.34% (0.90)% 56.59% 1998 336,076 1.35% 1.35% (1.15)% 1.35% (1.15)% 72.16% - ----------------------- PBHG CLIPPER FOCUS FUND - ----------------------- PBHG CLASS 2002 4 $ 621,735 1.40%* 1.40%* 1.26%* 1.44%* 1.23%* 39.02%+ 2001 5 272,069 1.40% 1.40% 1.41% 1.41% 1.40% 111.00% 2000 5 84,226 1.40% 1.40% 1.47% 1.47% 1.40% 54.00% 1999 5,6 64,135 1.40%* 1.40%* 1.05%* 2.08%* 0.37%* 22.00%+ - ----------------------- PBHG FOCUSED VALUE FUND - ----------------------- PBHG CLASS 2002 1 $ 34,675 1.37% 1.36% (0.24)% 1.37% (0.25)% 433.98% 2001 1 58,724 1.34% 1.34% 0.37% 1.34% 0.37% 404.36% 2000 1 22,556 1.50% 1.50% (0.10)% 1.55% (0.15)% 853.36% 1999 3 3,658 1.50%* 1.50%* 0.09%* 2.67%* (1.08)%* 173.09%+ - ------------------------- PBHG LARGE CAP VALUE FUND - ------------------------- PBHG CLASS 2002 1 $ 524,236 1.14% 1.13% 0.24% 1.14% 0.24% 947.66% 2001 1 425,414 1.16% 1.16% 0.91% 1.16% 0.91% 1184.89% 2000 32,922 1.11% 1.11% 0.71% 1.11% 0.71% 1018.03% 1999 44,922 1.01% 1.01% 0.59% 1.01% 0.59% 568.20% 1998 76,476 1.17% 1.17% 0.98% 1.17% 0.98% 403.59% ADVISOR CLASS 2002 1 $ 195 1.39% 1.38% (0.04)% 1.39% (0.04)% 947.66% 2001 1,2 100 1.40%* 1.40%* 0.39%* 1.40%* 0.39%* 1184.89%
The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 116
PBHG FUNDS Net Realized and Asset Net Unrealized Distributions Distributions Value Investment Gains or from Net from Return Beginning Income (Losses) Investment Capital of of Period (Loss) on Securities Income Gains Capital - ------------------------------------------------------------------------------------------------------------------------------------ - ----------------------- PBHG MID-CAP VALUE FUND - ----------------------- PBHG CLASS 2002 1 $14.44 $(0.02) $1.32 -- -- -- 2001 1 13.82 0.09 1.20 $(0.03) $(0.64) -- 2000 1 15.09 (0.02) 5.03 -- (6.28) -- 1999 15.30 -- 0.92 -- (1.13) -- 1998 7 10.00 (0.01) 6.00 -- (0.69) -- ADVISOR CLASS 2002 1,8 $13.90 $(0.03) $1.85 -- -- -- - ------------------------- PBHG SMALL CAP VALUE FUND - ------------------------- PBHG CLASS 2002 1 $18.48 $(0.14) $2.31 -- -- -- 2001 1 18.75 (0.02) 0.58 -- $(0.83) -- 2000 1 11.38 (0.08) 7.45 -- -- -- 1999 1 15.38 (0.09) (3.06) -- (0.85) -- 1998 7 10.00 (0.03) 6.15 -- (0.74) -- ADVISOR CLASS 2002 1 $18.47 $(0.22) $2.35 -- -- -- 2001 1,2 19.67 (0.02) (1.18) -- -- -- - ------------------------ PBHG SPECIAL EQUITY FUND - ------------------------ PBHG CLASS 2002 9 $11.73 $0.05 $2.20 $(0.06) -- -- 2001 10 13.28 0.08 0.09 (0.06) $ (1.66) -- 2000 10 11.84 0.07 1.55 (0.07) (0.11) -- 1999 10 10.01 0.03 1.88 (0.03) (0.05) -- 1998 10,11 10.00 0.02 (0.01) -- -- -- - ---------------------------- PBHG DISCIPLINED EQUITY FUND - ---------------------------- PBHG CLASS 2002 12 $10.33 $0.02 $0.07 --** -- -- 2001 13 11.09 0.07 (0.76) $(0.07) -- -- 2000 13 12.31 0.06 (1.20) (0.06) $(0.02) -- 1999 13 10.90 0.10 2.06 (0.10) (0.65) -- 1998 13 8.43 0.06 3.07 (0.07) (0.59) -- 1997 13 7.43 0.09 2.12 (0.10) (1.11) -- - -------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - -------------------------------------------- 2002 1 $4.95 $(0.08) $(1.07) -- -- -- 2001 1,14 10.00 (0.12) (4.93) -- -- -- - -------------- PBHG REIT FUND - -------------- PBHG CLASS 2002 15 $8.78 $0.09 $0.80 $(0.09) -- -- 2001 13 9.56 0.47 0.46 (0.45) $(1.21) $(0.05)16 2000 13 8.04 0.36 1.60 (0.36) -- (0.08)16 1999 13 8.62 0.43 (0.54) (0.47) -- -- 1998 13 10.49 0.32 (1.88) (0.31) -- -- 1997 13 10.96 0.40 1.82 (0.45) (2.24) -- ADVISOR CLASS 2002 15 $8.75 $0.09 $0.79 $(0.08) -- -- 2001 13 9.55 0.43 0.45 (0.43) $(1.21) $(0.04)16 2000 13 8.04 0.31 1.60 (0.33) -- (0.07)16 1999 13 8.62 0.39 (0.53) (0.44) -- -- 1998 13 10.50 0.25 (1.86) (0.27) -- -- 1997 13 10.98 0.35 1.80 (0.39) (2.24) --
PBHG FUNDS Ratio of Ratio Ratio Expenses of Expenses of Net to Average Net Net to Average Investment Net Assets Asset Assets Ratio Net Assets Income (Excluding Value End of Expenses (Including (Loss) Waivers of Total of Period to Average Expense to Average and Expense Period Return (000) Net Assets Reduction) Net Assets Reduction) - -------------------------------------------------------------------------------------------------------------------------- - ----------------------- PBHG MID-CAP VALUE FUND - ----------------------- PBHG CLASS 2002 1 $15.74 9.00% $464,987 1.32% 1.31% (0.15)% 1.32% 2001 1 14.44 9.43% 231,117 1.35% 1.35% 0.40% 1.35% 2000 11 13.82 42.21% 60,690 1.44% 1.44% (0.15)% 1.44% 1999 15.09 8.35% 56,981 1.33% 1.33% 0.01% 1.33% 1998 7 15.30 61.06%+ 54,173 1.47%* 1.47%* (0.17)%* 1.47%* ADVISOR CLASS 2002 1,8 $15.72 13.09%+ $127 1.55%* 1.54%* (0.49)%* 1.55%* - ------------------------- PBHG SMALL CAP VALUE FUND - ------------------------- PBHG CLASS 2002 1 $20.65 11.74% $290,007 1.48% 1.48% (0.72)% 1.48% 2001 1 18.48 2.99% 251,994 1.49% 1.49% (0.09)% 1.49% 2000 1 18.75 64.76% 92,634 1.50% 1.50% (0.56)% 1.58% 1999 1 11.38 (20.93)% 69,787 1.48% 1.48% (0.71)% 1.48% 1998 7 15.38 62.27%+ 125,834 1.49%* 1.49%* (0.52)%* 1.49%* ADVISOR CLASS 2002 1 $20.60 11.53% $364 1.73% 1.73% (1.12)% 1.73% 2001 1,2 18.47 (6.10)%+ 94 1.73%* 1.73%* (0.34)%* 1.73%* - ------------------------ PBHG SPECIAL EQUITY FUND - ------------------------ PBHG CLASS 2002 9 $13.92 19.20%+ $25,505 1.25%* 1.25%* 0.86% * 2.21%* 2001 10 11.73 1.23% 16,996 1.25% 1.25% 0.54% 1.54% 2000 10 13.28 13.80% 29,547 1.15% 1.15% 0.60% 1.66% 1999 10 11.84 19.33% 16,406 1.22% 1.22% 0.26% 1.70% 1998 10,11 10.01 0.10%+ 14,167 1.16%* 1.16%* 0.42%* 1.98%* - ---------------------------- PBHG DISCIPLINED EQUITY FUND - ---------------------------- PBHG CLASS 2002 12 $10.42 0.89%+ $101,615 0.99%* 0.99%* 0.63%* 1.33%* 2001 13 10.33 (6.22)% 95,031 0.99% 0.99% 0.64% 1.09% 2000 13 11.09 (9.33)% 118,545 0.97% 0.97% 0.53% 0.97% 1999 13 12.31 20.06% 145,185 0.99% 0.99% 1.08% 1.11% 1998 13 10.90 37.82% 33,889 1.26% 1.26% 0.78% 2.25% 1997 13 8.43 29.86% 7,331 1.00% 1.00% 1.17% 2.24% - -------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - -------------------------------------------- 2002 1 $3.80 (23.23)% $35,646 2.30% 2.15% (1.75)% 2.60% 2001 1,14 4.95 (50.50)%+ 49,909 2.15%* 2.15%* (1.57)%* 2.15%* - -------------- PBHG REIT FUND - -------------- PBHG CLASS 2002 15 $9.58 10.11%+ $76,679 1.36%* 1.36%* 4.20% * 1.47%* 2001 13 8.78 10.41% 61,378 1.14% 1.14% 4.57% 1.14% 2000 13 9.56 24.90% 75,013 1.36% 1.36% 4.14% 1.36% 1999 13 8.04 (1.16)% 65,767 1.25% 1.25% 5.12% 1.25% 1998 13 8.62 (15.12)% 79,717 1.22% 1.22% 3.14% 1.22% 1997 13 10.49 21.12% 134,746 1.09% 1.09% 3.57% 1.09% ADVISOR CLASS 2002 15 $9.55 10.08%+ $19,738 1.61%* 1.61%* 3.86%* 1.72%* 2001 13 8.75 9.88%17 18,858 1.62% 1.62% 4.07% 1.62% 2000 13 9.55 24.22%17 23,417 1.89% 1.89% 3.54% 1.89% 1999 13 8.04 (1.62)%17 29,502 1.73% 1.73% 4.64% 1.73% 1998 13 8.62 (15.54)%17 46,665 1.73% 1.73% 2.65% 1.73% 1997 13 10.50 20.44%17 85,222 1.59% 1.59% 3.14% 1.59%
Ratio of Net Investment Income (Loss) to Average Net Assets (Excluding Waivers Portfolio and Expense Turnover Reduction) Rate - ------------------------------------------- - ----------------------- PBHG MID-CAP VALUE FUND - ----------------------- PBHG CLASS 2002 1 (0.15)% 236.85% 2001 1 0.40% 248.10% 2000 11 (0.15)% 742.57% 1999 0.01% 732.73% 1998 7 (0.17)%* 399.96%+ ADVISOR CLASS 2002 1,8 (0.49)%* 236.85% - ------------------------- PBHG SMALL CAP VALUE FUND - ------------------------- PBHG CLASS 2002 1 (0.72)% 144.85% 2001 1 (0.09)% 177.69% 2000 1 (0.64)% 352.85% 1999 1 (0.71)% 273.87% 1998 7 (0.52)%* 263.04%+ ADVISOR CLASS 2002 1 (1.12)% 144.85% 2001 1,2 (0.34)%* 177.69% - ------------------------ PBHG SPECIAL EQUITY FUND - ------------------------ PBHG CLASS 2002 9 (0.10)%* 13.92%+ 2001 10 0.25% 66.00% 2000 10 0.09% 49.00% 1999 10 (0.22)% 26.00% 1998 10,11 (0.41)%* 23.00%+ - ---------------------------- PBHG DISCIPLINED EQUITY FUND - ---------------------------- PBHG CLASS 2002 12 0.29%* 65.99%+ 2001 13 0.54% 229.00% 2000 13 0.53% 270.00% 1999 13 0.96% 261.00% 1998 13 (0.21)% 297.00% 1997 13 (0.07)% 189.00% - -------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - -------------------------------------------- 2002 1 (2.20)% 192.61% 2001 1,14 (1.57)%* 314.47%+ - -------------- PBHG REIT FUND - -------------- PBHG CLASS 2002 15 4.09%* 25.08%+ 2001 13 4.57% 139.00% 2000 13 4.14% 76.00% 1999 13 5.12% 49.00% 1998 13 3.14% 80.00% 1997 13 3.57% 90.00% ADVISOR CLASS 2002 15 3.73%* 25.08%+ 2001 13 4.07% 139.00% 2000 13 3.54% 76.00% 1999 13 4.64% 49.00% 1998 13 2.65% 80.00% 1997 13 3.14% 90.00% The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 117 PBHG FUNDS FINANCIAL HIGHLIGHTS -- Concluded - --------------------------------- For a Share Outstanding Throughout Each Period For the Period Ended March 31, 2002
Net Realized and Asset Net Unrealized Distributions Distributions Value Investment Gains or from Net from Reverse Beginning Income Redemption (Losses) Investment Capital Stock Split of Period (Loss) Fees on Securities Income Gains (Note 2) - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - --------------------------------- PBHG CLASS 2002 1 $12.08 $(0.13) -- $1.42 -- -- -- 2001 1 19.34 (0.11) -- (4.55) -- $(2.60) -- 2000 1 10.54 (0.13) -- 10.18 -- (1.25) -- 1999 1 12.89 (0.11) -- (1.78) -- (0.46) -- 1998 8.86 (0.11) -- 5.01 -- (0.87) -- - ------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - ------------------------------------- PBHG CLASS 2002 1 $19.70 $(0.21) -- $(4.70) -- -- -- 2001 1 85.02 (0.46) -- (59.61) -- $(5.25) -- 2000 1 27.59 (0.54) -- 62.84 -- (4.87) -- 1999 1 19.27 (0.19) -- 8.80 -- (0.29) -- 1998 14.63 (0.23) -- 5.72 -- (0.85) -- ADVISOR CLASS 2002 1 $19.70 $(0.23) -- $(4.72) -- -- -- 2001 1,3 34.43 (0.04) -- (14.69) -- -- -- - ---------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - ---------------------------------- PBHG CLASS 2002 18 $10.00 $0.20 --** -- $(0.20) $(0.04) $0.04 2001 10 10.00 0.61 $0.01 -- (0.62) -- -- 2000 10 10.00 0.65 0.01 -- (0.66) -- -- 1999 10,19 10.00 0.11 -- -- (0.11) -- -- - ----------------------- PBHG CASH RESERVES FUND - ----------------------- PBHG CLASS 2002 $1.00 $0.03 -- -- $(0.03) -- -- 2001 1.00 0.06 -- -- (0.06) -- -- 2000 1.00 0.05 -- -- (0.05) -- -- 1999 1.00 0.05 -- -- (0.05) -- -- 1998 1.00 0.05 -- -- (0.05) -- --
Ratio Ratio of Expenses of Net Net Net to Average Investment Asset Assets Ratio Net Assets Income Value End of Expenses (Including (Loss) End Total of Period to Average Expense to Average of Period Return (000) Net Assets Reduction) Net Assets - -------------------------------------------------------------------------------------------------------------- - --------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - --------------------------------- PBHG CLASS 2002 1 $13.37 10.68% $ 86,243 1.50% 1.49% (0.96)% 2001 1 12.08 (27.04)% 76,331 1.50% 1.50% (0.63)% 2000 1 19.34 99.74% 75,225 1.50% 1.50% (0.93)% 1999 1 10.54 (14.52)% 48,029 1.50% 1.50% (0.97)% 1998 12.89 56.54 % 111,983 1.45% 1.45% (0.92)% - ------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - ------------------------------------- PBHG CLASS 2002 1 $14.79 (24.92)% $581,091 1.39% 1.38% (1.17)% 2001 1 19.70 (74.20)% 920,965 1.25% 1.25% (0.81)% 2000 1 85.02 233.99% 3,843,946 1.19% 1.19% (0.96)% 1999 1 27.59 45.33% 536,405 1.34% 1.34% (0.96)% 1998 19.27 38.29% 495,697 1.30% 1.30% (0.91)% ADVISOR CLASS 2002 1 $14.75 (25.13)% $10,288 1.64% 1.63% (1.42)% 2001 1,3 19.70 (42.78)%+ 172 1.50%* 1.50%* (0.58)%* - ---------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - ---------------------------------- PBHG CLASS 2002 18 $10.00 1.98%+ $518,004 1.00%* 1.00%* 4.67%* 2001 10 10.00 6.34% 71,298 1.00% 1.00% 5.97% 2000 10 10.00 6.80% 24,065 1.03% 1.03% 6.53% 1999 10,19 10.00 1.12%+ 867 1.00%* 1.00%* 6.67%* - ----------------------- PBHG CASH RESERVES FUND - ----------------------- PBHG CLASS 2002 $1.00 2.55% $107,513 0.59% 0.58% 2.92% 2001 1.00 5.98% 525,463 0.52% 0.52% 5.78% 2000 1.00 4.81% 579,458 0.69% 0.69% 4.78% 1999 1.00 4.84% 144,239 0.70% 0.70% 4.72% 1998 1.00 5.13% 117,574 0.68% 0.68% 5.00%
Ratio Ratio of Net of Expenses Investment to Average Income (Loss) Net Assets to Average (Excluding Net Assets Waivers (Excluding Waivers Portfolio and Expense and Expense Turnover Reduction) Reduction) Rate - ---------------------------------------------------- - --------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - --------------------------------- PBHG CLASS 2002 1 1.52% (0.97)% 118.88% 2001 1 1.50% (0.63)% 143.04% 2000 1 1.55% (0.98)% 240.55% 1999 1 1.54% (1.01)% 140.89% 1998 1.45% (0.92)% 215.46% - ------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - ------------------------------------- PBHG CLASS 2002 1 1.39% (1.19)% 185.33% 2001 1 1.25% (0.81)% 291.41% 2000 1 1.19% (0.96)% 362.38% 1999 1 1.34% (0.96)% 276.07% 1998 1.30% (0.91)% 259.89% ADVISOR CLASS 2002 1 1.64% (1.44)% 185.33% 2001 1,3 1.50%* (0.58)%* 291.41% - ---------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - ---------------------------------- PBHG CLASS 2002 18 1.32%* 4.35%* 116.91%+ 2001 10 1.62% 5.35% 196.00% 2000 10 1.84% 5.69% 72.00% 1999 10,19 46.23%* (38.56)%* 137.00%+ - ----------------------- PBHG CASH RESERVES FUND - ----------------------- PBHG CLASS 2002 0.59% 2.91% n/a 2001 0.52% 5.78% n/a 2000 0.69% 4.78% n/a 1999 0.70% 4.72% n/a 1998 0.68% 5.00% n/a * Annualized ** Amount is less than $0.01 per share. + Total return and portfolio turnover have not been annualized. 1 Per share calculations were performed using average shares for the period. 2 The PBHG Large Cap 20 Fund Advisor Class, PBHG Large Cap Growth Fund Advisor Class, PBHG Large Cap Value Fund Advisor Class, PBHG Small Cap Value Fund Advisor Class and PBHG Technology & Communications Fund Advisor Class commenced operations on December 29, 2000. 3 The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced operations on February 12, 1999. 4 On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. 5 For the year or period ended April 30. 6 The PBHG Clipper Focus Fund commenced operations on September 10, 1998. 7 The PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund commenced operations on April 30, 1997. 8 The PBHG Mid-Cap Value Fund Advisor class commenced operations on October 31, 2001. 9 On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. 10 For the year or period ended October 31. 11 The PBHG Special Equity Fund commenced operations on November 4, 1997. 12 On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Enhanced Equity Fund. The Enhanced Equity Fund was a series of the UAM Funds, Inc. II. 13 For the year ended December 31. 14 The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. 15 On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. 16 Historically, the PBHG REIT Fund has distributed to its shareholders amounts approximating dividends received from the REITs. A portion of such distributions may include a return of capital. 17 The total returns prior to the acquisition do not include the sales charge. The Advisor Class of the Fund's predecessor carried a maximum front-end sales charge of 4.75%. Total Returns shown in the chart have been adjusted to reflect the elimination of the front-end sales charge. If the charge had been included, the returns would have been lower. 18 On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust. 19 The PBHG IRA Capital Preservation Fund commenced operations on August 31, 1999. Amounts designated as "-" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements. [LOGO OMITTED] 118 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS ----------------------------- As of March 31, 2002 1. ORGANIZATION PBHG Funds (the "Fund"), a Delaware business trust, is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund became a Delaware business trust effective July 16, 2001 and changed its name from The PBHG Funds, Inc. The Fund currently offers twenty-one series: the PBHG Core Growth Fund (the "Core Growth Fund"), the PBHG Emerging Growth Fund (the "Emerging Growth Fund"), the PBHG Growth Fund (the "Growth Fund"), the PBHG Large Cap 20 Fund (the "Large Cap 20 Fund"), the PBHG Large Cap Growth Fund (the "Large Cap Growth Fund"), the PBHG Limited Fund (the "Limited Fund"), the PBHG New Opportunities Fund (the "New Opportunities Fund"), the PBHG Select Equity Fund (the "Select Equity Fund"), the PBHG Clipper Focus Fund (the "Clipper Focus Fund"), the PBHG Focused Value Fund (the "Focused Value Fund"), the PBHG Large Cap Value Fund (the "Large Cap Value Fund"), the PBHG Mid-Cap Value Fund (the "Mid-Cap Value Fund"), the PBHG Special Equity Fund (the "Special Equity Fund", formerly the PBHG New Perspective Fund), the PBHG Small Cap Value Fund (the "Small Cap Value Fund"), the PBHG Disciplined Equity Fund (the "Disciplined Equity Fund"), the PBHG Global Technology & Communications Fund (the "Global Technology & Communications Fund"), the PBHG REIT Fund (the "REIT Fund"), the PBHG Strategic Small Company Fund (the "Strategic Small Company Fund"), the PBHG Technology & Communications Fund (the "Technology & Communications Fund"), the PBHG IRA Capital Preservation Fund (the "IRA Capital Preservation Fund") and the PBHG Cash Reserves Fund (the "Cash Reserves Fund") (each a "Portfolio" and, collectively, the "Portfolios"). Each Portfolio is classified as a diversified management investment company, with the exception of the Large Cap 20, Clipper Focus, Focused Value, Technology & Communications, and Global Technology & Communications Funds, which are classified as non-diversified management investment companies. Each Portfolio's prospectus provides a description of its investment objectives, policies and investment strategies. The Fund is registered to offer two classes of shares, PBHG Class and Advisor Class, formerly known as the "Trust Class." Currently, the Advisor Class of shares is only offered by the Growth, Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, Small Cap Value, REIT and Technology & Communications Funds. The assets of each Portfolio are segregated, and a shareholders interest is limited to the Portfolio in which shares are held. The Clipper Focus, REIT, IRA Capital Preservation, Special Equity and Disciplined Equity Funds (each an "Acquiring Fund" and collectively the "Acquiring Funds") have each acquired all of the assets of the Clipper Focus, Heitman Real Estate and IRA Capital Preservation Portfolios of UAM Funds Trust, the NWQ Special Equity Portfolio of UAM Funds, Inc. and the Analytic Enhanced Equity Fund of UAM Funds, Inc. II, respectively (each an "Acquired Fund" and collectively the "Acquired Funds"). Following approval by their respective Boards and shareholders, the tax-free reorganizations for the Clipper Focus, NWQ Special Equity and Heitman Real Estate Portfolios took place on December 14, 2001 and the tax-free reorganizations of the Enhanced Equity Fund and the IRA Capital Preservation Portfolio took place on January 11, 2002. All of the shareholders of the Acquired Funds received PBHG Class shares of the respective Acquiring Funds, except that the Advisor Class shareholders of Heitman Real Estate Portfolio received Advisor Class shares of REIT Fund. Each shareholder of an Acquired Fund received a number of shares of the corresponding Acquiring Fund with an aggregate net asset value equal tot hat of his or her shares of the Acquired Funds. The net assets upon reorganization, and the number of shares issued and redeemed by the corresponding Acquiring Funds, are as follows:
NET ASSETS UPON ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND REORGANIZATION SHARES ISSUED SHARES REDEEMED - --------------------------------------------------------------------------------------------- PBHG Clipper Focus Fund - PBHG Class $323,953,417 22,134,825 22,134,825 PBHG Special Equity Fund PBHG Class/Institutional Class 19,703,207 1,575,743 1,512,416 Advisor Class/Institutional Service Class -- -- 64,928 PBHG Disciplined Equity Fund - PBHG Class 95,694,351 9,274,069 9,274,069 PBHG REIT Fund PBHG Class/Institutional Class 60,671,839 7,022,527 7,022,527 Advisor Class/Advisor Class 19,046,055 2,212,278 2,212,278 PBHG IRA Capital Preservation Fund - PBHG Cla 190,638,690 19,063,848 19,063,848
The assets of the Acquired Funds prior to the reorganization and the unrealized gain/(loss) included in the net assets were as follows:
UNREALIZED NET ASSETS GAIN/(LOSS) BEFORE INCLUDED IN REORGANIZATION NET ASSETS - ---------------------------------------------------------------------------------------- UAM Funds Trust Clipper Focus Portfolio1 $323,953,417 $14,367,725 UAM Funds, Inc. NWQ Special Equity Portfolio1 19,703,207 173,989 UAM Funds, Inc. II Analytic Enhanced Equity Fund1 95,694,351 692,256 UAM Funds Trust Heitman Real Estate Portfolio1 79,717,894 3,983,453 UAM Funds Trust IRA Capital Preservation Portfolio1 90,638,690 (713,818)
1 DENOTES THE SURVIVING OR CONTINUING PORTFOLIO FOR PURPOSES OF MAINTAINING THE FINANCIAL STATEMENTS AND PERFORMANCE HISTORY IN THE POST-REORGANIZATION PORTFOLIOS. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies followed by the Portfolios. SECURITY VALUATION -- Investment securities of the Portfolios that are listed on a securities exchange or quoted on a national market system, and for which market quotations are readily available, are valued at the last quoted sales price at the close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time). If there is no such reported sale, these securities and unlisted securities for which market quotations are not readily available, are valued at the last bid price. However, debt securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities, without exclusive reliance upon exchange or over-the-counter prices. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value. Foreign securities are valued based upon quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. In addition, if quotations, including the Wrapper Agreements, are not readily available, or if the values have been materially affected by events occurring after the closing of a foreign market, assets may be valued by another method that the Board of Trustees believes accurately reflects fair value. The values of investment securities held by the Cash Reserves Fund are stated at amortized cost, which approximates market value. Under this valuation method, acquisition discounts and premiums are accreted and amortized ratably to maturity and are included in interest income. Wrapper Agreements will generally be valued at the difference between the Book Value and Market Value (plus accrued interest) on the applicable covered assets and will either be reflected as an asset or liability of the IRA Capital Preservation Fund. The Board of Trustees, in performing its fair value determination of the Wrapper Agreements, considers the credit worthiness and the ability of the Wrap Providers to pay amounts due under the Wrapper Agreements. [LOGO OMITTED] 119 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Continued - ----------------------------- As of March 31, 2002 SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the date the securities are purchased or sold (trade date). Dividend income and distributions to shareholders are recognized on the ex-dividend date; interest income is recognized on the accrual basis and includes amortization of premiums and accretion of discounts on investments. Costs used in determining realized capital gains and losses on the sale of investment securities are those of the specific securities sold adjusted for the accretion and amortization of acquisition discounts and premiums during the respective holding periods. DIVIDENDS -- Dividends from net investment income for the Portfolios are declared annually, if available, with the exception of the REIT, IRA Capital Preservation and Cash Reserves Funds. Dividends from net investment income for the REIT Fund are declared on a quarterly basis. Dividends from net investment income for the IRA Capital Preservation and Cash Reserves Funds are declared daily and paid monthly. Distributions of net realized capital gains, for each Portfolio, are generally made to shareholders annually, if available. To maintain a stable NAV, the IRA Capital Preservation Fund may have to declare and pay dividends in amounts that are not equal to the amount of net investment income it actually earns. This may cause the Portfolio to take some or all of the following actions: (i) if the Portfolio distributes more money than it actually earned through its investments, it may have to make a distribution that may be considered a return of capital or (ii) if the income the Portfolio receives exceeds the amount of dividends distributed, the Fund may have to distribute that excess income to shareholders and declare a reverse split of its shares. In order to comply with requirements of the Internal Revenue Code applicable to regulated investment companies, the Portfolio is required to distribute accumulated net realized gains, if any, on an annual basis. When such distributions are made, the immediate impact is a corresponding reduction in net asset value per share. Given the objective of the Portfolio to maintain a stable net asset value of $10 per share, the Portfolio intends to declare a reverse stock split immediately subsequent to any such distributions at a rate that will cause the total number of shares held by each shareholder, including shares acquired on reinvestment of that distribution to remain the same as before the distribution was paid and in effect reinstate a net asset value of $10 per share. On December 12, 2001, the IRA Capital Preservation Fund declared a capital gain distribution to shareholders of record on December 12, 2001 in the amount of $0.0186 per share (the short-term capital gain distribution was $0.0178 per share and the long-term capital gain distribution was $0.0008 per share). On the same day, the Portfolio declared a reverse share split with a factor of 0.99814 in order to restore the Portfolio's net asset value per share to $10.00. On January 9, 2002, the IRA Capital Preservation Fund declared a capital gain distribution to shareholders of record on January 9, 2002 in the amount of $0.0174 per share (the short-term capital gain distribution was $0.0136 per share and the long-term capital gain distribution was $0.0038 per share). On the same day, the Portfolio declared a reverse share split with a factor of 0.99826 in order to restore the Portfolio's net asset value per share to $10.00. FOREIGN WITHHOLDING TAXES -- The Funds may be subject to taxes imposed by countries in which they invest with respect to their investments in issuers existing or operating in such countries. Such taxes are generally based on income earned. The Portfolio's accrue such taxes when the related income is earned. NET ASSET VALUE PER SHARE -- The value of an individual share in a fund is computed by adding the value of the proportionate interest of each class in a Portfolio's securities, cash and other assets, subtracting the actual and accrued liabilities of the class and dividing the result by the number of outstanding shares of the class. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by a third party custodian bank until the respective agreements mature. Provisions of the repurchase agreements and procedures adopted by the Fund's Board of Trustees require that the market value of the collateral including accrued interest thereon, is sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines, or if the counterparty enters into insolvency proceedings, realization of the collateral by a Portfolio may be delayed or limited. TBA PURCHASE COMMITMENTS -- The IRA Capital Preservation Fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed price at a future date, typically not exceeding 45 days. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date, which risk is in addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security Valuation" above. MORTGAGE DOLLAR ROLLS -- The IRA Capital Preservation Fund may enter into mortgage dollar rolls (principally using TBA's) in which the Portfolio sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Portfolio accounts for such dollar rolls as purchases and sales and receives compensation as consideration for entering into the commitment to repurchase. The Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that the Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. The Portfolio engages in dollar rolls for the purpose of enhancing its yield, principally by earning a negotiated fee. FOREIGN CURRENCY TRANSLATION-- The books and records of the Global Technology & Communications Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, other assets and liabilities at the current rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Global Technology & Communications Fund does not isolate that portion of gains and losses on investment securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. The Global Technology & Communications Fund reports gains and losses on foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income or loss for Federal income tax purposes. WRAPPER AGREEMENTS -- The IRA Capital Preservation Fund intends to enter into Wrapper Agreements with insurance companies, banks or other financial institutions ("Wrap Providers") that are rated, at the time of purchase, in one of the top two rating categories by a rating agency. A Wrapper Agreement is a derivative instrument that is designed to protect the Portfolio from investment losses and, under most circumstances, permit the Portfolio to maintain a constant NAV per share. There is no active trading market for Wrapper Agreements, and none is expected to develop; therefore, they will be considered illiquid. Pursuant to the terms of the Wrapper Agreements, the sub-adviser will manage the Portfolio's securities to have an overall duration between 1.5 and 4.0 years. In addition, the terms of the Wrapper Agreements require the Portfolio to maintain minimum cash and cash equivalent balances. Throughout the term of the Wrapper Agreements, the Portfolio will pay the Wrap Providers an annual fee based on the Wrapper Agreements book value balance. [LOGO OMITTED] 120 PBHG FUNDS The crediting rate used in computing book value is the actual yield of the covered assets, plus or minus the amortization of unrealized gain or loss on the covered assets, based on fluctuations in the market value of the covered assets. The crediting rate is calculated by a formula specified by each of the Wrapper Agreements and is adjusted periodically. A default by the issuer of a Portfolio security or a Wrap Providers on its obligations may result in a decrease in the value of the Portfolio assets and, consequently, the shares. Wrapper Agreements generally do not protect the Portfolio from loss if an issuer of Portfolio securities defaults on payments of interest or principal. Additionally, a Portfolio shareholder may realize more or less than the actual investment return on the Portfolio securities depending upon the timing of the shareholder's purchases and redemption of shares, as well as those of other shareholders. FUTURES CONTRACTS -- The Disciplined Equity Fund utilizes futures contracts primarily to hedge against changes in security prices. Upon entering into a futures contract, the Portfolio will deposit securities for the initial margin with its custodian in a segregated account. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying instrument, are made or received by the Portfolio each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of ) the closing transactions and the Portfolio's basis in the contract. Risks of entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Portfolio could lose more than the original margin deposit required to initiate the futures transaction. The Disciplined Equity Fund had the following futures contracts open as of March 31, 2002: CONTRACT UNREALIZED CONTRACT NUMBER OF VALUE DEPRECIATION DESCRIPTION CONTRACTS (000) EXPIRATION (000) - --------------------------------------------------------------- S&P 500 Composite Index 19 $5,459 Jun-02 $(42) S&P 500 Composite Index E-Mini 13 747 Jun-02 (6) ----- $(48) ===== FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Global Technology & Communications Fund may enter into forward foreign currency exchange contracts. Foreign currency exchange contracts are recorded at mar-ket value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Realized gains or losses arising from such transactions are included in net realized gain (loss) from foreign currency transactions. As of March 31, 2002, there were no outstanding forward foreign currency contracts. OTHER -- Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are prorated to the Portfolios on the basis of relative net assets. Class specific expenses, such as 12b-1 service fees, are borne by that class. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day. The Fund has an arrangement with the transfer agent, DST Systems, Inc., whereby interest earned on uninvested cash balances is used to offset a portion of the transfer agent expense. The transfer agent expenses shown in the Statement of Operations are in total and do not reflect the expense reductions. The IRA Capital Preservation Fund retains a redemption fee of 2.00% on redemptions of capital shares held for less than twelve months. For the period ended March 31, 2002, there were $17,491 in redemption fees retained. DIRECTED BROKERAGE -- Some Portfolios direct certain portfolio trades to brokers who pay a portion of their expenses. Under this arrangement, the following Portfolios had expenses reduced by the amounts shown below. During the year ended March 31, 2002, the Focused Value, Large Cap Value and Mid-Cap Value Fund's expenses were reduced by $729, $5,178, and $1,689, respectively. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS -- On April 1, 2001, the Fund implemented the provisions of the AICPA Audit and Accounting Guide, AUDITS OF INVESTMENT COMPANIES (the "Guide"), as required for fiscal years beginning after December 15, 2000. Prior to April 1, 2001, the IRA Capital Preservation Fund recorded paydown gains and losses on mortgage- and asset-backed securities as realized gains and losses, not as adjustments to interest income. The implementation of the accounting changes had no impact on total net assets of the Fund or the Fund's net asset value, but resulted in a $184,654 decrease in interest income and a corresponding $184,654 increase in realized gains. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change. 3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Fund and Pilgrim Baxter & Associates, Ltd. (the "Adviser") are parties to an Investment Advisory Agreement (the "Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is paid a monthly fee that is calculated daily and paid monthly, at an annual rate based on the average daily net assets of each Portfolio. In the interest of limiting expenses of the Portfolios, the Adviser has entered into expense limitation agreements with the Fund ("Expense Limitation Agreements"), with respect to the Core Growth, Large Cap 20, Limited, New Opportunities, Clipper Focus, Focused Value, Large Cap Value, Mid-Cap Value, Special Equity, Small Cap Value, Disciplined Equity, Global Technology & Communications, REIT, Strategic Small Company and IRA Capital Preservation Funds, pursuant to which the Adviser has agreed to waive or limit its fees and to assume other expenses of these Portfolios to the extent necessary to limit the total annual expenses to a specified percentage of the Portfolios' average daily net assets, exclusive of certain expenses such as brokerage commissions, fees and expenses incurred under the PBHG Funds service plan and extraordinary expenses. In addition, in connection with Old Mutual plc's acquisition of Pilgrim Baxter's parent company, Old Mutual and Pilgrim Baxter have agreed to maintain these expense limitation agreements until March 31, 2003. Reimbursement by the Portfolios of the advisory fees waived or limited and other expenses paid by the Adviser pursuant to the Expense Limitation Agreements during any of the previous two fiscal years may be made at a later date when the Portfolios have reached a sufficient asset size to permit reimbursement to be made without causing the total annual expense rate of each Portfolio to exceed the specified percentage of the Portfolio's average daily net assets, exclusive of certain expenses such as brokerage commissions, fees and expenses incurred under the PBHG Funds Service Plan, and extraordinary expenses. With respect to the Clipper Focus, Special Equity, Disciplined Equity, REIT and IRA Capital Preservation Funds, effective September 25, 2002, the Adviser will be allowed to be reimbursed for any advisory fees waived or limited and other expenses paid by the Adviser to the Acquiring Funds after September 25, 2002. Consequently, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense ratio is less than the specified percentage of the Portfolio's average daily net assets, and (iii) the payment of such reimbursement was approved by the Board of Trustees. [LOGO OMITTED] 121 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Continued - ----------------------------- As of March 31, 2002 The advisory fee and expense limitations are as follows: ADVISER EXPENSE FEE LIMITATION - ------------------------------------------------------------------------------ Core Growth Fund 0.85% 1.50% Emerging Growth Fund 0.85% n/a Growth Fund 0.85% n/a Large Cap 20 Fund 0.85% 1.50% Large Cap Growth Fund 0.75% n/a Limited Fund 1.00% 1.50% New Opportunities Fund 1.00% 1.50% Select Equity Fund 0.85% n/a Clipper Focus Fund 1.00% 1.40% Focused Value Fund 0.85% 1.50% Large Cap Value Fund 0.65% 1.50% Mid-Cap Value Fund 0.85% 1.50% Special Equity Fund 1.00% 1.25% Small Cap Value Fund 1.00% 1.50% Disciplined Equity Fund 0.70% 0.99% Global Technology & Communications Fund 1.50% 2.15% REIT Fund 0.85% 1.36% Strategic Small Company Fund 1.00% 1.50% Technology & Communications Fund 0.85% n/a IRA Capital Preservation Fund 0.60% 1.00% Cash Reserves Fund 0.30% n/a The expense limitation will be increased to 1.50% for the Clipper Focus, Special Equity, Disciplined Equity and REIT Funds and 1.25% for the IRA Capital Preservation Fund after September 25, 2002. In addition, the Adviser is entitled to receive the adviser fee disclosed in the above table, however the Adviser has contractually agreed to waive a portion of its fee and receive a lower management fee from the Special Equity, Disciplined Equity, REIT and IRA Capital Preservation Funds until September 25, 2002. At March 31, 2002, the amount of advisory fee waiver and reimbursement of third party expenses by the Adviser subject to possible reimbursement for the Global Technology & Communications Fund was $124,745. During the year ended March 31, 2002, the Board of Trustees approved the reimbursement of previously waived fees by the Adviser for the prior fiscal year in the amount of $20,944 for the Strategic Small Company Fund. Pilgrim Baxter Value Investors, Inc. ("PBVI"), a wholly-owned subsidiary of the Adviser serves as the sub-adviser to the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and the Strategic Small Company Funds. For its services provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and the Fund, Pilgrim Baxter Value Investors, Inc. receives a fee from the Adviser at an annual rate of 0.50%, 0.50%, 0.50%, 0.40% and 0.50%, respectively, of the average daily net assets of the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and the Strategic Small Company Funds. Pilgrim Baxter Value Investors, Inc. receives no fees directly from the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value or the Strategic Small Company Funds. Wellington Management Company, LLP ("WMC") serves as the sub-adviser to the Cash Reserves Fund. For its services provided pursuant to the Investment Sub-Advisory Agreement with the Adviser and the Fund, WMC is entitled to receive a fee from the Adviser, computed daily and paid monthly, at an annual rate equal to 0.075% of the Cash Reserves Fund's average daily net assets up to and including $500 million and 0.020% of the Cash Reserves Fund's average daily net assets over $500 million, but subject to a minimum annual fee of $50,000. WMC may, from time to time, waive all or a portion of its fee from the Adviser. WMC receives no fees directly from the Cash Reserves Fund. Prior to December 14, 2001, Pacific Financial Research, Inc. ("PFR") served as investment adviser to the Clipper Focus Portfolio pursuant to an investment advisory agreement with UAM Funds Trust and was paid a fee calculated at an annual rate of 1.00% of average daily net assets. For the period May 1, 2001 to December 14, 2001. PFR was paid $2,884,503 by the Clipper Focus Portfolio for its services. Effective December 14, 2001 PFR became the Sub-adviser to the Clipper Focus Fund. PBHG Funds, on behalf of the Clipper Focus Fund, and the Adviser have entered into a sub-advisory agreement with PFR. Pursuant to the sub-advisory agreement, PFR has agreed to manage the investment operations of the Clipper Focus Fund and the composition of its investment portfolio, to provide supervision of the Clipper Focus Fund's investments and to determine the securities to be purchased or sold by the Clipper Focus Fund. For the services it provides, PFR is entitled to receive from the Adviser a sub-advisory fee equal to 0.40% of the Portfolio's average daily net assets. PFR receives no fees directly from the Clipper Focus Fund. Prior to December 14, 2001, NWQ Investment Management Company ("NWQ") served as investment adviser to the NWQ Special Equity Portfolio pursuant to an investment advisory agreement with UAM Funds, Inc. and was paid a fee calculated at an annual rate of 0.85% of average daily net assets. For the period November 1, 2001 to December 14, 2001, NWQ was paid $20,808 by the NWQ Special Equity Portfolio for its services. Effective December 14, 2001, NWQ became the sub-adviser to the Special Equity Fund. PBHG Funds, on behalf of the Special Equity Fund, and the Adviser have entered into a sub-advisory agreement with NWQ. Pursuant to the sub-advisory agreement, NWQ has agreed to manage the investment operations of the Special Equity Fund and the composition of its investment portfolio, to provide supervision of the Special Equity Fund's investments and to determine the securities to be purchased or sold by the Special Equity Fund. For the services it provides, NWQ is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, NWQ will receive a sub-advisory fee equal to 0.85% of the assets transferred to the Special Equity Fund in connection with the reorganization and 0.425% of the average daily net assets after the reorganization (less the amount of any expense reimbursements) on other assets of the Portfolio. NWQ receives no fees directly from the Special Equity Fund. Prior to January 11, 2002, Analytic Investors, Inc. ("Analytic") served as investment adviser to the Analytic Enhanced Equity Fund pursuant to an investment advisory agreement with UAM Funds, Inc. II and was paid a fee calculated at an annual rate of 0.60% of average daily net assets. For the period January 1, 2002 to January 11, 2002, Analytic was paid $20,599 by the Enhanced Equity Fund for its services. Effective January 11, 2002, Analytic became the sub-adviser to the Disciplined Equity Fund. PBHG Funds, on behalf of the Disciplined Equity Fund, and the Adviser have entered into a sub-advisory agreement with Analytic. Pursuant to the sub-advisory agreement, Analytic has agreed to manage the investment operations of the Disciplined Equity Fund and the composition of its investment portfolio, to provide supervision of the Disciplined Equity Fund's investments and to determine the securities to be purchased or sold by the Disciplined Equity Fund. For the services it provides, Analytic is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Analytic will receive a sub-advisory fee equal to 0.60% of the assets transferred to the Disciplined Equity Fund in connection with the reorganization and 0.30% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Analytic receives no fees directly from the Disciplined Equity Fund. Prior to December 14, 2001, Heitman Real Estate Securities LLC ("Heitman") served as investment adviser to the Heitman Real Estate Portfolio pursuant to an investment advisory agreement with UAM Funds Trust and was paid a fee calculated at an annual rate of 0.75% of the first $100 million of daily average net assets and 0.65% of daily average net assets in excess of $100 million. For the [LOGO OMITTED] 122 PBHG FUNDS period January 1, 2001 to December 14, 2001, Heitman was paid $688,016 by the Heitman Real Estate Portfolio for its services. Effective December 14, 2001, Heitman became the sub-adviser to the REIT Fund. PBHG Funds, on behalf of the REIT Fund, and the Adviser have entered into a sub-advisory agreement with Heitman. Pursuant to the sub-advisory agreement, Heitman has agreed to manage the investment operations of the REIT Fund and the composition of its investment portfolio, to provide supervision of the REIT Fund's investments and to determine the securities to be purchased or sold by the REIT Fund. For the services it provides, Heitman is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Heitman will receive a sub-advisory fee equal to 0.75% of the first $100 million of the assets transferred to the REIT Fund in connection with the reorganization, 0.65% of the assets transferred to the REIT Fund in excess of $100 million and 0.37% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Heitman receives no fees directly from the REIT Fund. Prior to January 11, 2002, Dwight Asset Management Company ("Dwight") served as investment adviser to the IRA Capital Preservation Portfolio pursuant to an investment advisory agreement with UAM Funds Trust and was paid a fee calculated at an annual rate of 0.50% of average daily net assets. For the period November 1, 2001 to January 11, 2002, Dwight was paid $151,109 by the IRA Capital Preservation Portfolio for its services. Effective January 11, 2002, Dwight became the sub-adviser to the IRA Capital Preservation Fund. PBHG Funds, on behalf of the IRA Capital Preservation Fund, and the Adviser have entered into a sub-advisory agreement with Dwight. Pursuant to the sub-advisory agreement, Dwight has agreed to manage the investment operations of the IRA Capital Preservation Fund and the composition of its investment portfolio, to provide supervision of the IRA Capital Preservation Fund's investments and to determine the securities to be purchased or sold by the IRA Capital Preservation Fund. For the services it provides, Dwight is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Dwight will receive a sub-advisory fee equal to 0.50% of the assets transferred to the IRA Capital Preservation Fund in connection with the reorganization and 0.25% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Dwight receives no fees directly from the IRA Capital Preservation Fund. PBHG Fund Services (the "Administrator"), a wholly owned subsidiary of the Adviser, provides the Fund with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. For these administrative services, the Administrator receives a fee, which is calculated daily and paid monthly, at an annual rate of 0.15% of the average daily net assets of each Portfolio. SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company, is the owner of all beneficial interest in SEI Mutual Funds Services (the "Sub-Administrator"). The Sub-Administrator assists the Administrator in providing administrative services to the Fund. For acting in this capacity, the Administrator pays the Sub-Administrator the following fees. The fee will be the greater of $50,000 per portfolio or at the annual rate of 0.0165% of the first $10 billion of the average daily net assets of (i) the Fund, and (ii) PBHG Insurance Series Fund, another fund family managed by the Adviser (collectively known as the "PBHG Fund Family"), 0.0125% of the next $10 billion of the average daily net assets of each portfolio in the PBHG Fund Family, and 0.0100% of the average daily net assets of each portfolio in the PBHG Fund Family in excess of $20 billion. Prior to the reorganization dates, the Sub-Administrator was the administrator (the "predecessor Administrator") and provided administrative services to the UAM Fund Family, which included UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II, under an Administration Agreement (the "former Administration Agreement"). Pursuant to the former Administration Agreement, the Acquired Funds paid the predecessor Administrator 0.093% per annum of the daily net assets and an annual base fee of $54,500. The Acquired Funds paid the following amounts to the Predecessor Administrator for its services for the periods listed: PERIOD AMOUNT - --------------------------------------------------------------- Clipper Focus Fund 5/01/01-12/14/01 $336,245 Special Equity Fund 11/01/01-12/14/01 9,758 Disciplined Equity Fund 1/01/02-1/11/02 4,447 REIT Fund 01/01/01-12/14/01 109,142 IRA Capital Preservation Fund 11/01/01-1/11/02 39,155 PERIOD AMOUNT - --------------------------------------------------------------- Clipper Focus Fund 4/1/01-4/30/01 $19,419 Special Equity Fund 4/1/01-10/31/01 53,816 Disciplined Equity Fund 4/1/01-12/31/01 96,703 IRA Capital Preservation Fund 4/1/01-10/31/01 52,673 Prior to April 1, 2001, UAM Fund Services, Inc. ("UAMFSI") provided and oversaw administrative, fund accounting, dividend disbursing, shareholder servicing, and transfer agent services to the UAM Fund Family under a Fund Administration Agreement (the "Agreement"). UAMFSI had entered into Service Agreements with the Sub-Administrator, DST and UAM Shareholder Service Center ("UAMSSC"), an affiliate of UAM, to assist in providing certain services to the UAM Fund Family. After May 25, 2001, UAMSSC became PBHG Shareholder Services, Inc. ("PBHGSS"). Pursuant to the Agreement, the Clipper Focus Portfolio, Analytic Enhanced Equity Fund and IRA Capital Preservation Portfolio paid UAMFSI 0.073% per annum of their average daily net assets, an annual base fee of $72,500 and a fee based on the number of active shareholder accounts and the NWQ Special Equity Portfolio and Heitman Real Estate Portfolio paid UAMFSI 0.073% per annum of their average daily net assets, an annual base fee of $94,250 and a fee based on the number of active shareholder accounts. The Acquired Funds paid the following amounts to UAMFSI, the Sub-Administrator, DST and UAMSSC for their services for the periods listed:
ADMIN- PORTION PORTION PORTION ISTRATION PAID TO PAID TO PAID TO PERIOD FEES SEI DST UAMSSC - ----------------------------------------------------------------------------------- Clipper Focus Fund 5/1/00-3/31/01 $214,876 $74,998 $19,768 $20,160 Special Equity Fund 11/1/00-3/31/01 58,395 21,039 13,750 7,550 Disciplined Equity Fund 1/1/01-3/31/01 47,493 17,283 8,190 4,808 REIT Fund 1/1/01-3/31/01 50,904 16,839 -- 13,684 IRA Capital Preservation Fund 11/1/01-3/31/01 40,394 17,610 4,542 3,600
SEI Investments has agreed to act as an agent in placing repurchase agreements for the Portfolios, excluding the Cash Reserves Fund. Listed below are the amounts SEI Investments earned for its services from each Portfolio, excluding the Cash Reserves Fund, for the year or period ended March 31, 2002, and are reflected as a reduction of interest income. Core Growth Fund $ 1,916 Emerging Growth Fund 23,099 Growth Fund 132,687 Large Cap 20 Fund 22,688 Large Cap Growth Fund 12,201 Limited Fund 4,391 New Opportunities Fund 2,741 Select Equity Fund 30,785 Clipper Focus Fund 3,611 Focused Value Fund 2,360 [LOGO OMITTED] 123 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Continued - ----------------------------- As of March 31, 2002 Large Cap Value Fund $ 18,086 Mid-Cap Value Fund 16,596 Small Cap Value Fund 8,808 Special Equity Fund 153 Disciplined Equity Fund 267 Global Technology & Communications Fund 1,834 REIT Fund 338 Strategic Small Company Fund 6,316 Technology & Communications Fund 20,199 IRA Capital Preservation Fund 12,118 Prior to December 17, 2001, the Heitman Real Estate Portfolio charged 0.50% of the average daily net assets of its Advisor Class shares for Rule 12b-1 services in the amount of $52,019. In addition, the NWQ Special Equity Portfolio Institutional Service Class shares paid service fees for the period from November 1, 2000 to October 31, 2001 at an annual rate of 0.40% of the average daily net assets of the Institutional Service Class shares in the amount of $8,060. Effective July 16, 2001, the Fund has entered into a distribution agreement (the "Distribution Agreement") with PBHG Fund Distributors (the "Distributor") a wholly owned subsidiary of the Adviser. Prior to July 16, 2001, SEI Investments Distribution Co. ("SEI") a wholly owned subsidiary of SEI Investments Company, and the Fund were parties to a distribution agreement pursuant to which SEI served as principal underwriter for the Fund. The Distributor and SEI received no fees for its distribution services. The Fund has adopted a Service Plan (the "Plan") on behalf of the Advisor Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides for the payment of a service fee by the Fund of 0.25% of the average daily net assets of the Advisor Class shares to the Distributor for providing or arranging with and paying others to provide personal service to shareholders of Advisor Class Shares and/or the maintenance of those accounts. Currently, only the Growth, Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, REIT, Small Cap Value and Technology & Communications Funds offer Advisor Class Shares. Of the service fees the Distributor received, it retained $167, $186, $248, $138, $249, $889, and $406 from the Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, REIT, Small Cap Value and Technology & Communications Funds, respectively. DST Systems, Inc. serves as the transfer agent and dividend disbursing agent of the Fund. From time to time, the Fund may pay amounts to third parties that provide sub-transfer agency and other administrative services relating to the Fund to persons who beneficially own interests in the Fund. First Union National Bank, serves as the custodian for each of the Portfolios except the the Global Technology & Communications Fund. The Northern Trust Company serves as the custodian for the Global Technology & Communications Fund. The Fund has entered into a shareholder servicing agreement with PBHG Fund Services to provide shareholder support and other shareholder account-related services. PBHG Fund Services has, in turn, contracted with PBHG Shareholder Services, Inc. ("PBHGSS") to assist in the provision of those services. Prior to May 25, 2001, PBHGSS was known as UAMSSC. PBHGSS received no fees directly from the Portfolios. Certain brokers, dealers, banks, trust companies and other financial representatives receive compensation from the UAM Fund Family for providing a variety of services, including record keeping and transaction processing. Such fees are based on the assets of the UAM Funds that are serviced by the financial representative. The Acquired Funds paid UAMSSC the following shareholder service fees (including out of pocket expenses) for the periods listed: PERIOD AMOUNT - ---------------------------------------------------------- Clipper Focus Fund 5/01/01-12/14/01 $57,411 Special Equity Fund 11/01/01-12/14/01 1,610 Disciplined Equity Fund 01/01/02-1/11/02 694 IRA Capital Preservation Fund 11/1/01-1/11/02 6,576 Shareholder service fees (including out of pocket expenses) paid to PBHG Fund Services for the year or period ended March 31, 2002 were: AMOUNT ------ Core Growth Fund $ 107,152 Emerging Growth Fund 349,580 Growth Fund 1,152,127 Large Cap 20 Fund 372,893 Large Cap Growth Fund 180,154 Limited Fund 53,215 New Opportunities Fund 35,878 Select Equity Fund 532,285 Clipper Focus Fund 9,357 Focused Value Fund 33,985 Large Cap Value Fund 140,937 Mid-Cap Value Fund 126,256 Small Cap Value Fund 67,238 Special Equity Fund 760 Disciplined Equity Fund 859 Global Technology & Communications Fund 127,364 REIT Fund 2,385 Strategic Small Company Fund 50,791 Technology & Communications Fund 886,513 IRA Capital Preservation Fund 2,204 Cash Reserves Fund 133,568 On April 4, 2000, the Board of Trustees approved an agreement between the Fund and PBHG Fund Services to provide shareholder related web development and maintenance services. For its services over the year, PBHG Fund Services received a fee of $541,693, which was allocated to each fund quarterly based on average net assets. This amount is included in transfer agent expense on the Statement of Operations. The fee is reviewed semi-annually by the Board of Trustees. Officers and trustees of the Fund who are or were officers of the Adviser, Administrator, Sub-Administrator and the Distributor received no compensation from the Fund. 4. INVESTMENT TRANSACTIONS The cost of securities purchased and the proceeds from securities sold, other than short-term investments, for the Portfolios, excluding the Cash Reserves Fund, for the year or period ended March 31, 2002 were as follows: PURCHASES SALES (000) (000) ------------- ----------- Core Growth Fund $ 134,128 $ 134,568 Emerging Growth Fund 702,589 718,772 Growth Fund 3,925,432 4,129,077 Large Cap 20 Fund 584,370 670,133 Large Cap Growth Fund 418,449 423,086 Limited Fund 114,404 110,254 New Opportunities Fund 147,244 161,351 Select Equity Fund 1,483,291 1,626,414 Clipper Focus Fund 399,948 121,252 Focused Value Fund 232,977 251,651 Large Cap Value Fund 4,920,321 4,781,038 Mid-Cap Value Fund 1,000,564 795,164 Small Cap Value Fund 390,435 366,344 Special Equity Fund 5,681,551 2,854,154 Disciplined Equity Fund 67,263 62,853 Global Technology & Communications Fund 75,365 76,788 [LOGO OMITTED] 124 PBHG FUNDS PURCHASES SALES (000) (000) ------------- ----------- REIT Fund $ 26,811 $ 20,759 Strategic Small Company Fund 104,336 100,161 Technology & Communications Fund 1,351,864 1,424,676 IRA Capital Preservation Fund 391,703 118,857 During the period ended March 31, 2002, the IRA Capital Preservation Fund purchased U.S. Government Securities of $156,181 and received proceeds from the sale of U.S. Government Securities of $104,787. 5. FEDERAL TAX INFORMATION Each Portfolio has qualified and intends to continue to qualify as a regulated investment company for Federal income tax purposes and to distribute all of its taxable income and net capital gains. Accordingly, no provision has been made for Federal income taxes. Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. Federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. Accordingly, the following permanent differences as of March 31, 2002, attributable to certain net operating losses which for tax purposes, are not available to offset future income, were reclassified to the following accounts:
INCREASE/ INCREASE/ (DECREASE) (DECREASE) INCREASE/ ACCUMULATED UNDISTRIBUTED (DECREASE) NET REALIZED NET INVESTMENT PAID IN-CAPITAL GAIN INCOME (000) (000) (000) --------------- ------------ -------------- Core Growth Fund $ (741) -- $ 741 Emerging Growth Fund (5,529) -- 5,529 Growth Fund (24,769) -- 24,769 Large Cap 20 Fund (2,816) -- 2,816 Large Cap Growth Fund (1,929) -- 1,929 Limited Fund (832) -- 832 New Opportunities Fund (624) -- 624 Select Equity Fund (5,253) -- 5,253 Clipper Focus Fund (11) -- (11) Focused Value Fund (141) -- 141 Mid-Cap Value Fund (564) -- 564 Small Cap Value Fund (2,015) -- 2,015 Special Equity Fund (55) $(24) 79 Disciplined Equity Fund (38) -- 38 Global Technology & Communications Fund (731) -- 731 Strategic Small Company Fund (878) -- 878 Technology & Communications Fund (9,139) -- 9,139 IRA Capital Preservation Fund (234) -- 234
These reclassifications had no effect on net assets or net asset value per share. The tax character of dividends and distributions paid during the last two fiscal years or periods were as follows:
ORDINARY LONG-TERM RETURN OF INCOME CAPITAL GAIN CAPITAL TOTAL (000) (000) (000) (000) ------------ ------------ ---------- ------------ Core Growth Fund 2001 $ 9,944 $ 5,537 $ 24 $ 15,505 Emerging Growth Fund 2001 37,138 30,592 -- 67,730 Growth Fund 2001 91,803 657,026 -- 748,829 Large Cap 20 Fund 2001 79,901 40,124 -- 120,025 Large Cap Growth Fund 2001 20,023 5,380 2 25,405 Limited Fund 2002 -- 1,125 -- 1,125 2001 11,400 21,901 -- 33,301 New Opportunities Fund 2001 43,429 -- 404 43,833 Select Equity Fund 2001 65,129 1,981 90 67,200 Clipper Focus Fund 2002 29,150 10,608 -- 39,758 2001 5,591 3,334 -- 8,925 Focused Value Fund 2002 391 -- -- 391 2001 1,197 -- -- 1,197 Large Cap Value Fund 2002 998 -- -- 998 2001 3,736 155 -- 3,891 Mid-Cap Value Fund 2001 5,830 256 -- 6,086 Small Cap Value Fund 2001 8,629 383 -- 9,012 Special Equity Fund 2002 79 -- 9 88 2001 828 4,232 -- 5,060 Disciplined Equity Fund 2002 16 -- -- 16 2001 665 -- -- 665 REIT Fund 2002 867 -- -- 867 2001 7,496 7,374 358 15,228 Strategic Small Company Fund 2001 6,808 5,909 -- 12,717 Technology & Communications Fund 2001 218,733 12,043 4 230,780 IRA Capital Preservation Fund 2002 5,158 88 196 5,442 2001 1,978 -- -- 1,978 Cash Reserves Fund 2002 12,919 -- -- 12,919 2001 33,948 -- -- 33,948
[LOGO OMITTED] 125 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Concluded - ----------------------------- As of March 31, 2002
As of March 31, 2002, the components of Distributable Earnings/(Accumulated Losses) were as follows: UNDISTRIBUTED UNDISTRIBUTED CAPITAL POST UNREALIZED ORDINARY LONG-TERM LOSS OCTOBER APPRECIATION INCOME CAPITAL GAIN CARRYFORWARDS LOSSES (DEPRECIATION) (000) (000) (000) (000) (000) ------------ ------------ ---------------- -------------- -------------- Core Growth Fund -- -- $ (68,001) $ (2,477) $ 6,149 Emerging Growth Fund -- -- (271,959) (19,732) 54,920 Growth Fund -- -- (1,372,228) (88,442) 275,974 Large Cap 20 Fund -- -- (264,338) (52,697) 12,833 Large Cap Growth Fund -- -- (125,328) (30,330) 12,619 Limited Fund -- -- (7,211) -- 14,491 New Opportunities Fund -- -- (23,303) (160) 6,652 Select Equity Fund -- -- (1,104,927) (37,974) 26,342 Clipper Focus Fund $7,909 $1,295 -- -- 49,299 Focused Value Fund -- -- (3,069) (528) 158 Large Cap Value Fund 297 -- (50,113) -- 12,318 Mid-Cap Value Fund -- -- (10,427) (834) 35,263 Small Cap Value Fund -- -- (4,539) (6,296) 32,760 Special Equity Fund 94 -- (134) (28) 2,585 Disciplined Equity Fund 178 -- (11,976) (2,130) 882 Global Technology & Communications Fund (16) -- (69,591) (1,680)1 (2,371) REIT Fund2 518 490 -- -- 3,749 Strategic Small Company Fund -- -- (10,148) (965) 10,542 Technology & Communications Fund -- -- (2,066,064) (104,744) (79,115) IRA Capital Preservation Fund 204 -- -- (23) (690) Cash Reserves 2 -- (9) -- --
1 INCLUDES POST-OCTOBER CURRENCY LOSSES OF $546. 2 INFORMATION PROVIDED AS OF DECEMBER 31, 2001, THE REIT FUND'S YEAR END FOR FEDERAL INCOME TAX PURPOSES. Post-October losses represent losses realized on investment transactions from November 1, 2001 through March 31, 2002 that, in accordance with Federal income tax regulations, the Portfolios defer and treat as having arisen in the following fiscal year. For Federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. At March 31, 2002, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:
EXPIRING MARCH 31, ------------------------------------------------------------------- 2006 2007 2008 2009 2010 TOTAL (000) (000) (000) (000) (000) (000) -------- -------- -------- ----------- ------------ ------------ Core Growth Fund -- -- -- $ 2,944 $ 65,057 $ 68,001 Emerging Growth Fund -- -- -- -- 271,959 271,959 Growth Fund -- -- -- -- 1,372,228 1,372,228 Large Cap 20 Fund -- -- -- -- 264,338 264,338 Large Cap Growth Fund -- -- -- 10,837 114,491 125,328 Limited Fund -- -- -- 7,211 7,211 New Opportunities Fund -- -- -- 137 23,166 23,303 Select Equity Fund -- -- -- 226,961 877,966 1,104,927 Focused Value Fund -- -- -- -- 3,069 3,069 Large Cap Value Fund -- -- -- -- 50,113 50,113 Mid-Cap Value Fund -- -- -- -- 10,427 10,427 Small Cap Value Fund -- -- -- -- 4,539 4,539 Special Equity Fund -- -- -- 134 -- 134 Disciplined Equity Fund $2,263 $9,344 $195 -- 174 11,976 Global Technology & Communications Fund -- -- -- 3,800 65,791 69,591 Strategic Small Company Fund -- -- -- -- 10,148 10,148 Technology & Communications Fund -- -- -- 117,211 1,948,853 2,066,064 Cash Reserves Fund -- -- 4 -- 5 9
[LOGO OMITTED] 126 PBHG FUNDS At March 31, 2002, the total cost of securities and the net realized gains or losses on securities sold for Federal income tax purposes were different from amounts reported for financial reporting purposes. The Federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by each Portfolio, excluding Cash Reserves Fund, at March 31, 2002 were as follows:
NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION/ TAX COST APPRECIATION DEPRECIATION DEPRECIATION (000) (000) (000) (000) ----------- ------------ ------------ ------------- Core Growth Fund $ 46,598 $ 6,553 $ (404) $ 6,149 Emerging Growth Fund 344,359 79,852 (24,932) 54,920 Growth Fund 1,760,816 320,886 (44,912) 275,974 Large Cap 20 Fund 327,651 21,395 (8,562) 12,833 Large Cap Growth Fund 241,349 24,816 (12,197) 12,619 Limited Fund 58,309 17,361 (2,870) 14,491 New Opportunities Fund 43,559 7,268 (616) 6,652 Select Equity Fund 384,879 36,234 (9,892) 26,342 Clipper Focus Fund 566,904 55,651 (6,352) 49,299 Focused Value Fund 34,716 2,215 (2,057) 158 Large Cap Value Fund 575,721 24,304 (11,986) 12,318 Mid-Cap Value Fund 422,328 50,151 (14,888) 35,263 Small Cap Value Fund 265,253 46,439 (13,679) 32,760 Special Equity Fund 22,715 3,663 (1,078) 2,585 Disciplined Equity Fund 100,742 5,467 (4,585) 882 Global Technology & Communications Fund 37,104 3,789 (6,160) (2,371) REIT Fund 85,915 10,497 (641) 9,856 Strategic Small Company Fund 76,396 15,098 (4,556) 10,542 Technology & Communications Fund 663,133 44,649 (123,764) (79,115) IRA Capital Preservation Fund 558,190 1,416 (3,887) (2,471)
6. CONCENTRATIONS/RISKS The Cash Reserves Fund invests primarily in a portfolio of money market instruments maturing in 397 days or less whose ratings are within one of the two highest ratings categories assigned by a nationally recognized statistical rating agency, or, if not rated, are believed to be of comparable quality. The ability of the issuers of the securities held by the Portfolio to meet their obligations may be affected by economic developments in a specific industry, state or region. Certain funds invest a high percentage of their assets in specific sectors of the market, especially technology, health care, consumer non-cyclical and financial, in order to achieve a potentially greater investment return. As a result, the economic, political and regulatory developments in a particular sector of the market, 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 in a particular sector. In addition, the Global Technology & Communications, REIT and Technology & Communications Funds are concentrated which means they will invest 25% or more of their net assets in specific industries in order to achieve a potentially greater investment return. The Global Technology & Communications Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the United States, as a result of, among other factors, the possibility of future political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries. 7. LINE OF CREDIT Except for the PBHG Cash Reserves Fund, each Portfolio may borrow an amount up to its prospectus defined limitations, from a $500 million committed line of credit available to the Funds in the PBHG Fund Family. Borrowings from the line of credit will bear interest at the Federal Funds Rate plus 0.50%. The PBHG Fund Family pays an annual commitment fee of 0.10% of the outstanding committed amount. Each Fund is allocated a portion of this fee based on its net assets relative to the net assets of the PBHG FundFamily. The Funds had no outstanding borrowings at March 31, 2002 or at any time during the year or period ended March 31, 2002. Prior to the close of business December 14, 2001, the Clipper Focus, NWQ Special Equity and the Heitman Real Estate Portfolios and prior to the close of business January 11, 2002, the IRA Capital Preservation Portfolio and the Analytic Enhanced Equity Fund along with certain other portfolios of the UAM Fund Family which includes UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II, collectively entered an agreement which enabled them to participate in a $100 million unsecured line of credit with several banks. Borrowings were made solely to temporarily finance the repurchase of capital shares. Interest was charged to each participating portfolio based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.75%. In addition, a commitment fee of 0.10% per annum (provided that for the period April 27, 2001 through July 27, 2001, such commitment fee was computed at 0.09% per annum), payable at the end of each calendar quarter, was accrued by each participating portfolio based on its average daily unused portion of its line of credit. Prior to December 14, 2001, the Clipper Focus, NWQ Special Equity and Heitman Real Estate Portfolios had no borrowings. Prior to January 11, 2002, the IRA Capital Preservation Portfolio and Analytic Enhanced Equity Fund had no borrowings. Effective January 14, 2002, the Acquiring Funds became eligible borrowers under the PBHG Line of Credit Agreement. 8. FUND MERGER On February 15, 2001, the assets of the PBHG International Fund were reorganized into the Global Technology & Communications Fund. Under the Agreement and Plan of Reorganization, 910,147 shares of the PBHG International Fund were exchanged for 1,083,960 shares of the Global Technology & Communications Fund in a tax-free exchange. The value of the PBHG International Fund on February 15, 2001 was $7,804,734, which included $49,891 in unrealized gains. Upon the business combination of such Funds on February 15, 2001, the value of the Global Technology & Communications Fund combined with the International Fund was $74,547,980. 9. SUBSEQUENT EVENTS On May 1, 2002, the assets of PBVI, a wholly owned subsidiary of the Adviser and the sub-adviser to the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and the Strategic Small Company Funds were merged into the Adviser. After this merger, the Adviser will no longer pay sub-adviser fees to PBVI. The merger will have no impact on the management of the Funds. Effective May 1, 2002, First Union National Bank will become the Custodian of the PBHG Global Technology & Communications Fund. [LOGO OMITTED] 127 PBHG FUNDS NOTICE TO SHAREHOLDERS (unaudited) - --------------------------------- For shareholders that do not have a March 31, 2002 tax year end, this notice is for informational purposes only. For shareholders with a March 31, 2002 tax year end, please consult your tax advisor as to the pertinance of this notice. For the fiscal year ended March 31, 2001, each portfolio is designating the following items with regard to distributions paid during the year. These designations include the impact from utilizing earnings and profits distributed to shareholders on redemption of shares which will be part of the dividends paid deduction for each fund.
Long Term Qualified (20% Rate) 5-Year Ordinary Foreign Capital Gain Gain Income Tax-Exempt Total Qualifying Tax Fund Distribution Distribution Distributions Interest Distributions Dividends(1) Credit(2) - ----------------------------------------------------------------------------------------------------------------------------------- Core Growth Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Emerging Growth Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Growth Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Large Cap 20 Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Large Cap Growth Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Limited Fund 100.00% 0.00% 0.00% 0.00% 100.00% 0.00% 0.00% New Opportunities Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Select Equity Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Clipper Focus Fund 26.65% 0.00% 73.35% 0.00% 100.00% 84.30% 0.00% Focused Value Fund 0.00% 0.00% 100.00% 0.00% 100.00% 10.29% 0.00% Large Cap Value Fund 0.00% 0.00% 100.00% 0.00% 100.00% 100.00% 0.00% Mid-Cap Value Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Small Cap Value Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Special Equity Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Disciplined Equity Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Global Technology & Communications Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Strategic Small Company Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Technology & Communications Fund 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% IRA Capital Preservation Fund 2.31% 0.00% 97.69% 0.00% 100.00% 0.00% 0.00% Cash Reserves Fund 0.00% 0.00% 100.00% 0.00% 100.00% 0.00% 0.00% =================================================================================================================================== (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction and is reflected as a percentage of "Ordinary Income Distributions". (2) The foreign tax credit represents dividends which qualify for the foreign tax credit and is reflected as a percentage of "Ordinary Income Distributions".
[LOGO OMITTED] 128 PBHG FUNDS SHAREHOLDER MEETINGS (unaudited) -------------------------------- A special meeting of the shareholders of the Heitman Real Estate Portfolio of the UAM Funds Trust was held on December 11, 2001 to vote on the following matter:
TOTAL FOR AGAINST ABSTAIN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ To approve the Agreement and Plan of Reorganization for the Heitman Real Estate Portfolio into the PBHG REIT Fund 6,444,854 24,316 60,183 9,401,324 A special meeting of the shareholders of the Clipper Focus Portfolio of the UAM Funds Trust was held on December 14, 2001 to vote on the following matter: TOTAL FOR AGAINST ABSTAIN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ To approve the Agreement and Plan of Reorganization for the Clipper Focus Portfolio into the PBHG Clipper Focus Fund 7,851,689 797,247 127,569 16,948,564 A special meeting of the shareholders of the NWQ Special Equity Portfolio of the UAM Funds, Inc. was held on December 14, 2001 to vote on the following matter: TOTAL FOR AGAINST ABSTAIN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ To approve the Agreement and Plan of Reorganization for the NWQ Special Equity Portfolio into the PBHG Special Equity Fund 914,987 -- 1,534 1,493,519 A special meeting of the shareholders of the Analytic Enhanced Equity Fund of the UAM Funds, Inc. II was held on December 14, 2001, and adjourned and reconvened on January 10, 2002, to vote on the following matter: TOTAL FOR AGAINST ABSTAIN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ To approve the Agreement and Plan of Reorganization for the Analytic Enhanced Equity Fund into the PBHG Disciplined Equity Fund 4,959,647 174,559 152,922 9,541,091 A special meeting of the shareholders of the IRA Capital Preservation Portfolio of the UAM Funds Trust was held on December 14, 2001, and adjourned and reconvened on January 10, 2002, to vote on the following matter: TOTAL FOR AGAINST ABSTAIN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------------------ To approve the Agreement and Plan of Reorganization for the IRA Capital Preservation Portfolio into the PBHG IRA Capital Preservation Fund 3,255,681 35,510 52,411 5,761,219
[LOGO OMITTED] 129 PBHG FUNDS TRUSTEES AND OFFICERS OF THE TRUST (unaudited) - ---------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES* - ------------------------------------------------------------------------------------------------------------------------------------ TERM OF NUMBER OF POSITION OFFICE AND PORTFOLIOS IN OTHER HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS NAME, ADDRESS, AND AGE THE FUND TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD - ------------------------------------------------------------------------------------------------------------------------------------ John R. Bartholdson Trustee Trustee Chief Financial Officer, The Triumph 31 Director, 1255 Drummers Lane, since Group, Inc. (manufacturing) since 1992. The Triumph Suite 200 1997 Group, Inc. Wayne, PA 19087 since 1992 (57) - ------------------------------------------------------------------------------------------------------------------------------------ Jettie M. Edwards Trustee Trustee Consultant, Syrus Associates (business and 31 Trustee, 76 Seaview Drive, since marketing consulting firm) since 1986. Provident Santa Barbara, 1997 Investment California 93108 Counsel (55) Trust (investment company) since 1992. Trustee, EQ Advisors Trust (investment company) since 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Albert A. Miller Trustee Trustee Senior Vice President, Cherry & Webb, CWT 31 None 7 Jennifer Drive since Specialty Stores since 1995-2000, Advisor Holmdel, New Jersey 07733 1997 and Secretary, the Underwoman Shoppes Inc. (67) (retailclothing stores) since 1980. Merchandising Group Vice President, R.H. Macy & Co. (retail department stores), 1958-1995. Retired. - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES* - ------------------------------------------------------------------------------------------------------------------------------------ Harold J. Baxter** Chairman of Trustee Chairman, Chief Executive Officer and 31 Director, 1400 Liberty Ridge Drive the Board and since Director, Pilgrim Baxter & Associates, Old Mutual Wayne, PA 19087-5593 Trustee 1997 Ltd. since 1982. Trustee, the (US) (55) Administrator since May 1996. Chairman, Holdings, Chief Executive Officer and Director, Inc.since Pilgrim Baxter Value Investors, Inc. 1996 since June 1996. Trustee, PBHG Fund Distributors sinc January 1998. - ------------------------------------------------------------------------------------------------------------------------------------ *Trustee of the Trust until such time as his or her successor is duly elected and appointed. **Mr. Baxter is a trustee who may be deemed to be an "interested person" of the Trust, as that term is defined in the 1940 Act, because he is a Director of the Adviser. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS* - ------------------------------------------------------------------------------------------------------------------------------------ Gary L. Pilgrim President President President and Director, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive since Associates, Ltd. since 1982. Trustee, the Wayne, PA 19087-5593 1997 PBHG Fund Services since May 1996. (61) President and Director, Pilgrim Baxter Value Investors, Inc. since June 1996. - ------------------------------------------------------------------------------------------------------------------------------------ Lee T. Cummings Treasurer, Treasurer, Vice President, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive Chief Chief Associates, Ltd. since 2001 and Director Wayne, PA 19087-5593 Financial Financial of Mutual Fund Operations, Pilgrim Baxter (38) Officer, Officer, & Associates, Ltd., 1996-2001. President, Controller Controller PBHG Shareholder Services, Inc. since since 2001. President, PBHG Fund Distributor 1997 since 1999 and Treasurer, PBHG Fund Services, May 1996-1999. President, PBHG Fund Services since December 1998. Investment Accounting Officer, Delaware Investments Funds (investment companies), 1994-1996. - ------------------------------------------------------------------------------------------------------------------------------------
[LOGO OMITTED] 130
PBHG FUNDS - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS* (CONTINUED) - ------------------------------------------------------------------------------------------------------------------------------------ TERM OF NUMBER OF POSITION OFFICE AND PORTFOLIOS IN OTHER HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS NAME, ADDRESS, AND AGE THE FUND TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD - ------------------------------------------------------------------------------------------------------------------------------------ John M. Zerr Vice President Vice Senior Vice President, Pilgrim Baxter N/A N/A 1400 Liberty Ridge Drive and Secretary President & Associates, Ltd. since 2001 and Wayne, PA 19087-5593 and General Counsel and Secretary, Pilgrim (40) Secretary Baxter & Associates, Ltd. since November since 1996. General Counsel and Secretary, 1977 Pilgrim Baxter Value Investors, Inc. since November 1996. General Counsel and Secretary, PBHG Fund Services since January 1998. General Counsel and Secretary, PBHG Fund Distributors since January 1998. Vice President and Assistant Secretary, Delaware Management Company, Inc. (investment adviser) and the Delaware Investments Funds (investment companies), 1995-1996. - ------------------------------------------------------------------------------------------------------------------------------------ Meghan M. Mahon Vice President Vice Vice President and Assistant Secretary, Pilgrim N/A N/A 1400 Liberty Ridge Drive and Assistant President Baxter & Associates, Ltd. since 2001 and Senior Wayne, PA 19087-5593 Secretary and Counsel since January 2002, Counsel, Pilgrim (34) Assistant Baxter & Associates, Ltd. April 1998 to December Secretary 2001. Assistant Secretary, Value Investors since January since 2000, Senior Counsel since January 2002 and Counsel 1998 January 2000 to December 2001. Assistant Secretary, PBHG Fund Services since January 2000, Senior Counsel since January 2002, Counsel January 2000 to December 31, 2001. Vice President, Assistant Secretary and Counsel, Delaware Management Company, Inc. (investment adviser) and the Delaware Investments Funds (investment companies), 1997-1998. Associate, Drinker Biddle & Reath, LLP (law firm) 1994-1997. - ------------------------------------------------------------------------------------------------------------------------------------ Robert E. Putney, III Vice President Vice Vice President, Senior Legal Counsel and N/A N/A 1400 Liberty Ridge Drive and Assistant President Assistant Secretary, Pilgrim Baxter & Associates, Wayne, PA 19087-5593 Secretary and Ltd. since December 2001; Director and Senior (42) Assistant Counsel, Merrill Lynch Investment Managers, L.P. Secretary and Princeton Administrators, L.P. until December since 2001; Secretary of various Merrill Lynch and Mercury 2002 open-end 2002 funds, as well as Somerset Exchange Fund and The Europe Fund, Inc., until December 2001. - ------------------------------------------------------------------------------------------------------------------------------------ Brian C. Dillon Vice President Vice Chief Compliance Officer, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive President Associates, Ltd. since April 2001. Chief Wayne, PA 19087-5593 since Compliance Officer, Pilgrim Baxter Value (38) 2001 Investors, Inc., PBHG Fund Services and PBHG Fund Distributors since April 2001. Vice President and Senior Compliance Officer, Delaware Investments, 1995-2001. - ------------------------------------------------------------------------------------------------------------------------------------ James R. Foggo Vice President Vice Vice President and Assistant Secretary of the N/A N/A One Freedom Valley Road and Assistant President Sub-Administrator and SEI Investments Oaks, PA 19456 Secretary and Distribution Co. since 1998. Associate, Paul Weiss, (37) Assistant Rifkind, Wharton & Garrison (law firm), 1998. Secretary Associate, Baker & McKenzie (law firm), since 1995-1998. 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Timothy D. Barto Vice President Vice Vice President and Assistant Secretary of SEI N/A N/A One Freedom Valley Road and Assistant President Investments Co. and Vice President and Assistant Oaks, PA 19456 Secretary and Secretary of SEI Investments Mutual Fund (34) Assistant Services and SEI Investments Distribution Co. Secretary since November 1999. Associate, Dechert Price & since Rhoads (law firm) 1997-1999. 1999 - ------------------------------------------------------------------------------------------------------------------------------------ *Officer of the Trust until such time as his or her successor is duly elected and qualified.
[LOGO OMITTED] 131 PBHG FUNDS [This page is intentionally left blank.] [LOGO OMITTED] 132 [PBHG LOGO OMITTED] P.O. BOX 219534 KANSAS CITY,MO 64121-9534 Investment Adviser: PILGRIM BAXTER & ASSOCIATES,LTD. Distributor: PBHG FUND DISTRIBUTORS This annual report is for the information of PBHG Funds shareholders, but may be used with prospective investors when preceded or accompanied by a current prospectus for PBHG Funds and a performance update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. 1.800.433.0051 WWW.PBHGFUNDS.COM PBHG-Annual 2002 02-252 APPENDIX III SEMI-ANNUAL REPORT SEPTEMBER 30, 2002 [GRAPHIC ART OMITTED] THE POWER OF DISCIPLINE. THE REWARDS OF TIME.SM [PBHG LOGO OMITTED] PBHG FUNDS
TABLE OF CONTENTS - ----------------- Message to Shareholders ................................................................................................. 1 PBHG Growth Funds PBHG Core Growth Fund (PBCRX) ..................................................................................... 2 PBHG Emerging Growth Fund (PBEGX) ................................................................................. 6 PBHG Growth Fund - PBHG Class (PBHGX), Advisor Class (PBGWX) ...................................................... 9 PBHG Large Cap 20 Fund - PBHG Class (PLCPX), Advisor Class (PLTAX) ................................................ 13 PBHG Large Cap Growth Fund - PBHG Class (PBHLX), Advisor Class (PBLAX) ............................................ 15 PBHG Limited Fund (PBLDX) ......................................................................................... 19 PBHG New Opportunities Fund (PBNOX) ............................................................................... 22 PBHG Select Equity Fund (PBHEX) ................................................................................... 25 PBHG Value Funds PBHG Clipper Focus Fund (PBFOX) ................................................................................... 28 PBHG Focused Value Fund (PBFVX) ................................................................................... 31 PBHG Large Cap Value Fund - PBHG Class (PLCVX), Advisor Class (PBLVX) ............................................. 34 PBHG Mid-Cap Value Fund - PBHG Class (PBMCX), Advisor Class (PMCAX) ............................................... 37 PBHG Small Cap Value Fund - PBHG Class (PBSVX), Advisor Class (PVAAX) ............................................. 42 PBHG Special Equity Fund (PBNPX) .................................................................................. 47 PBHG Specialty Funds PBHG Disciplined Equity Fund (PBDEX) .............................................................................. 51 PBHG Global Technology & Communications Fund (PBGTX) .............................................................. 55 PBHG REIT Fund - PBHG Class (PBRTX), Advisor Class (PBRAX) ........................................................ 59 PBHG Strategic Small Company Fund - PBHG Class (PSSCX), Advisor Class (PBSSX) ..................................... 61 PBHG Technology & Communications Fund - PBHG Class (PBTCX), Advisor Class (PTNAX) ................................. 68 PBHG FIXED INCOME Funds PBHG IRA Capital Preservation Fund - PBHG Class (PBCPX), Advisor Class (PACPX) .................................... 71 PBHG money market Funds PBHG Cash Reserves Fund (PBCXX) ................................................................................... 76 Statements of Assets and Liabilities .................................................................................... 79 Statements of Operations ................................................................................................ 80 Statements of Changes in Net Assets ..................................................................................... 84 Financial Highlights .................................................................................................... 91 Notes to Financial Statements ........................................................................................... 96 Trustees and Officers of the Trust ...................................................................................... 103
PBHG FUNDS MESSAGE TO SHAREHOLDERS Dear Fellow Shareholders: The six months ended September 30, 2002 were difficult ones for equity investors. At the onset of the period, the string of accounting improprieties and corporate malfeasance cast a shadow on the market, dampening investor sentiment. The outlook for the macro-economic environment remained cloudy throughout the period, as investors continued to grapple with conflicting signals regarding the state of the recovery. Several rays of light did manage to shine through. Led by inventory adjustments, strong first quarter 2002 Gross Domestic Product (GDP) growth was announced in April, which at 6.1% came in higher than originally estimated by the Commerce Department. Manufacturing also saw marked improvements in April, May and June, as exports benefited from the weaker dollar. Unfortunately, many of the improvements that began to emerge in the spring evaporated in the summer months. Concerns regarding the strength of the economic recovery and growing geo-political events created a treacherous environment for most asset classes during July through September. Second quarter 2002 GDP growth, while positive, was anemic. And while the Commerce Department reported that third quarter 2002 GDP grew at an annual rate of 3.1%, this growth was below earlier expectations. While August was mild, stormy volatility and gloomy performance in July and September were enough to send investors packing. We believe excessive uncertainty has been the driving force behind the market's poor showing. While the Federal Reserve opted to keep interest rates unchanged throughout the past six months, the inconsistent economic data and uneven recovery did not go unnoticed. Two opposing votes at September's FOMC meeting - something that according to Fed meeting minutes has not happened since 1998 - suggests that an additional rate cut may be forthcoming. Talk of a "double-dip" recession has been persistent throughout the period, referring to a return to economic decline following one or more quarters of growth. Most economists still see this as unlikely, although sluggish growth, faltering consumer sentiment, and a weakening job market have raised concerns among their ranks. Additionally, corporate spending has remained stagnant, doing little to shake the economy from its doldrums. We believe deflationary pressures have been partly to blame, impairing pricing power and profitability. Falling mortgage rates during the period kept the refinancing wave rolling, which in our opinion should help to sustain the consumer and offset some of the effects of rising oil prices. Although consumer sentiment showed steady declines, both consumer confidence and employment can be lagging indicators. Even after the economy has bottomed, it can take several months for corporations to create new jobs. This in turn can keep consumer sentiment suppressed. While the economy does appear to be staging a recovery, albeit a fragile one, many experts believe the pace of this growth simply has not been fast enough to build new jobs, strengthen confidence, or inspire business spending. What we would like to see happen in the short term is a lessening in the current, pervasive uncertainty. Investors need greater assurance regarding domestic issues, such as the economy, and global ones, primarily the situation with Iraq, before the market can stage a sustained rebound. For the six months ended September 30, 2002, the major averages finished in negative territory. The Dow Jones Industrial Average fell 27.03% and the S&P 500 Index retreated 28.36%. The tech-heavy Nasdaq Composite Index dropped 36.36%, as technology fundamentals and corporate IT spending remained extremely weak. Consistent with broad market returns, performance for most of the PBHG Funds was negative for the period. Many of our funds struggled against the tremendous selling pressure on equities and overwhelming investor preference for perceived safer investments. While economic uncertainty, extreme volatility, and geo-political tensions could keep equities under pressure, we have several reasons to believe now is a better time to be buying stocks than selling. Harsh market conditions during the last six months moved many stocks into attractive territory from a valuation standpoint. Furthermore, accommodative monetary policy, low interest rates and low inflation have generally led to price/earnings ratio expansion. Flagging investor sentiment could suggest we are approaching the bottom. With bond yields at historic lows, investors are simply waiting for some good reasons to turn their interest back to stocks. The market's recent short rallies suggest that stocks are poised to go higher on signs of positive news. All of these factors hint at an improved outlook for equity investing. We believe, however, that growth will be selective and volatility will remain a factor. It is our view that current conditions will favor active management over passive investing. Accordingly, we remain confident in the disciplined processes we use in our search for investment in quality companies with promising business prospects. Thank you for your continued investment. Sincerely, /s/Harold J. Baxter /s/Gary L. Pilgrim, CFA Harold J. Baxter [PHOTO OMITTED] Gary L. Pilgrim, CFA [PHOTO OMITTED] CHAIRMAN PRESIDENT PBHG FUNDS PBHG FUNDS 1 PBHG FUNDS PBHG CORE GROWTH FUND (UNAUDITED) PBHG CORE GROWTH FUND PBCRX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Core Growth Fund (25.32)% (18.76)% (19.43)% (7.77)% (2.20)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CORE GROWTH FUND1 VERSUS THE RUSSELL MIDCAP(R)GROWTH INDEX AND THE LIPPER MULTI-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Core Russell Mid-Cap Lipper Multi-Cap Growth Growth Fund Growth Index Funds Classification 12/31/95 $10,000 $10,000 $10,000 1/31/96 10,590 10,177 10,077 2/29/96 11,450 10,562 10,446 3/31/96 11,820 10,645 10,552 4/30/96 13,310 11,159 11,174 5/31/96 14,230 11,387 11,561 6/30/96 13,800 11,043 11,189 7/31/96 12,040 10,186 10,210 8/31/96 13,000 10,736 10,735 9/30/96 14,200 11,418 11,512 10/31/96 13,410 11,284 11,375 11/30/96 13,740 11,949 11,905 12/31/96 13,280 11,748 11,709 1/31/97 13,300 12,268 12,316 2/28/97 11,690 11,997 11,728 3/31/97 10,340 11,319 11,021 4/30/97 10,200 11,597 11,260 5/31/97 11,680 12,636 12,385 6/30/97 12,230 12,986 12,849 7/31/97 12,990 14,228 14,065 8/31/97 12,480 14,090 13,791 9/30/97 12,890 14,803 14,716 10/31/97 12,280 14,062 14,054 11/30/97 11,910 14,209 14,012 12/31/97 11,990 14,396 14,086 1/31/98 11,470 14,137 14,097 2/28/98 12,830 15,466 15,302 3/31/98 13,530 16,114 16,101 4/30/98 13,620 16,333 16,315 5/31/98 12,540 15,661 15,580 6/30/98 13,560 16,104 16,517 7/31/98 12,540 15,414 16,048 8/31/98 9,680 12,472 13,206 9/30/98 10,790 13,416 14,384 10/31/98 10,520 14,403 15,101 11/30/98 11,260 15,375 16,369 12/31/98 12,880 16,967 18,526 1/31/99 13,420 17,476 19,864 2/28/99 12,670 16,621 18,742 3/31/99 14,060 17,547 20,117 4/30/99 14,160 18,347 20,602 5/31/99 13,890 18,111 20,186 6/30/99 15,530 19,375 21,706 7/31/99 15,560 18,758 21,350 8/31/99 16,300 18,563 21,581 9/30/99 16,450 18,405 21,755 10/31/99 17,990 19,828 23,418 11/30/99 20,130 21,882 25,790 12/31/99 25,450 25,671 30,579 1/31/2000 25,140 25,665 29,863 2/29/2000 34,490 31,061 35,227 3/31/2000 30,250 31,093 34,765 4/30/2000 25,710 28,075 31,459 5/31/2000 23,230 26,028 29,213 6/30/2000 29,900 28,790 32,537 7/31/2000 27,850 26,967 31,600 8/31/2000 33,470 31,034 35,253 9/30/2000 31,710 29,517 33,470 10/31/2000 26,200 27,497 30,889 11/30/2000 18,810 21,522 25,548 12/31/2000 20,089 22,655 26,018 1/31/2001 20,588 23,949 26,833 2/28/2001 15,015 19,806 22,459 3/31/2001 12,144 16,972 19,813 4/30/2001 14,720 19,801 22,250 5/31/2001 14,482 19,708 22,001 6/30/2001 14,584 19,718 21,643 7/31/2001 13,585 18,388 20,502 8/31/2001 12,189 17,056 18,714 9/30/2001 10,589 14,237 16,158 10/31/2001 11,202 15,733 17,198 11/30/2001 12,076 17,427 18,937 12/31/2001 12,303 18,090 19,236 1/31/2002 11,849 17,502 18,671 2/28/2002 10,941 16,510 17,545 3/31/2002 11,520 17,770 18,506 4/30/2002 11,361 16,829 17,409 5/31/2002 10,918 16,327 16,873 6/30/2002 10,135 14,525 15,353 7/31/2002 9,170 13,114 14,017 8/31/2002 9,034 13,068 13,937 9/30/2002 8,603 12,030 12,854
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Core Growth Fund commenced operations on December 29, 1995. 4 The Russell Midcap(R) Growth Index is an unmanaged index comprised of those securities in the Russell 1000(R) Index with a higher price to book ratio and higher forecasted growth values. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Multi-Cap Growth Funds Average represents the average performance of 430 mutual funds classified by Lipper, Inc. in the Multi-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Growth Funds Average at that month's end, December 31, 1995. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 17% Consumer Non-Cyclical 7% Financial 6% Health Care 28% Industrial 10% Services 17% Technology 15% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Anheuser-Busch 3.7% Apollo Group, Cl A 3.6% Corinthian Colleges 3.3% Lockheed Martin 3.0% Dell Computer 2.9% Microsoft 2.9% L-3 Communications Holdings 2.4% Express Scripts, Cl A 2.4% Electronic Arts 2.4% Career Education 2.3% - -------------------------------------------------------------------------------- Total Top Ten Holdings 28.9% *As a % of Common Stock 2 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG CORE GROWTH FUND PBCRX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 98.2% CONSUMER CYCLICAL -- 16.4% APPAREL MANUFACTURERS -- 0.6% Coach* 8,800 $ 225 ------------- 225 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 3.5% Activision* 18,500 443 Electronic Arts* 13,000 857 ------------- 1,300 - -------------------------------------------------------------------------------- MOTORCYCLE/MOTOR SCOOTER -- 2.1% Harley-Davidson 16,500 766 ------------- 766 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 1.4% Michaels Stores* 11,500 526 ------------- 526 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 0.8% O'Reilly Automotive* 9,800 281 ------------- 281 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 1.0% Bed Bath & Beyond* 11,100 362 ------------- 362 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 0.5% CDW Computer Centers* 4,300 182 ------------- 182 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 0.8% Wal-Mart Stores 5,700 281 ------------- 281 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 1.5% Walgreen 17,400 535 ------------- 535 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.7% Brinker International* 7,200 186 Cheesecake Factory* 12,300 367 Darden Restaurants 11,800 286 Sonic* 21,550 498 ------------- 1,337 - -------------------------------------------------------------------------------- RETAIL-VARIETY STORE -- 0.5% 99 Cents Only Stores* 9,600 199 ------------- 199 ------------- TOTAL CONSUMER CYCLICAL (COST $6,303) 5,994 ------------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 6.5% BREWERY -- 3.7% Anheuser-Busch 26,500 1,341 ------------- 1,341 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FOOD-RETAIL -- 1.3% Whole Foods Market* 11,500 $ 492 ------------- 492 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 1.5% Performance Food Group* 16,100 547 ------------- 547 ------------- TOTAL CONSUMER NON-CYCLICAL (COST $2,355) 2,380 ------------- - -------------------------------------------------------------------------------- FINANCIAL -- 6.2% COMMERCIAL BANKS-CENTRAL US -- 1.7% Associated Banc-Corp 9,400 298 TCF Financial 7,400 313 ------------- 611 - -------------------------------------------------------------------------------- COMMERCIAL BANKS-EASTERN US -- 2.4% Commerce Bancorp 10,400 432 North Fork Bancorporation 12,100 458 ------------- 890 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 2.1% Independence Community Bank 14,700 369 New York Community Bancorp 14,300 403 ------------- 772 ------------- TOTAL FINANCIAL (COST $2,486) 2,273 ------------- - -------------------------------------------------------------------------------- HEALTH CARE -- 27.1% DENTAL SUPPLIES & EQUIPMENT -- 2.2% Dentsply International 8,300 333 Patterson Dental* 9,000 461 ------------- 794 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 1.8% Caremark Rx* 26,100 444 First Health Group* 7,900 214 ------------- 658 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.3% Varian Medical Systems* 19,300 830 ------------- 830 - -------------------------------------------------------------------------------- MEDICAL STERILIZING PRODUCTS -- 0.8% Steris* 12,200 304 ------------- 304 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 1.8% Amgen* 11,100 463 Idec Pharmaceuticals* 4,500 187 ------------- 650 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.0% Forest Laboratories* 8,900 730 ------------- 730 - -------------------------------------------------------------------------------- 3 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG CORE GROWTH FUND PBCRX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-HMO -- 5.8% Coventry Health Care* 13,400 $ 435 Mid Atlantic Medical Services* 17,400 630 UnitedHealth Group 8,500 741 WellPoint Health Networks* 4,200 308 ------------- 2,114 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 6.0% Community Health Systems* 24,000 639 HCA 6,900 329 LifePoint Hospitals* 16,000 499 Triad Hospitals* 14,100 535 United Surgical Partners International* 9,700 214 ------------- 2,216 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 3.8% Accredo Health* 11,100 529 Express Scripts, Cl A* 16,000 872 ------------- 1,401 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.6% Gilead Sciences* 6,500 218 ------------- 218 ------------- TOTAL HEALTH CARE (COST $9,617) 9,915 ------------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 10.1% AEROSPACE/DEFENSE -- 2.9% Lockheed Martin 16,500 1,067 ------------- 1,067 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 1.8% Alliant Techsystems* 9,450 655 ------------- 655 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.8% Gentex* 10,700 291 ------------- 291 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 2.4% L-3 Communications Holdings* 16,700 880 ------------- 880 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 1.4% Stericycle* 15,500 526 ------------- 526 - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.8% Waste Connections* 8,200 285 ------------- 285 ------------- TOTAL INDUSTRIAL (COST $3,342) 3,704 ------------- - -------------------------------------------------------------------------------- SERVICES -- 16.7% COMMERCIAL SERVICES -- 2.2% ChoicePoint* 22,500 802 ------------- 802 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 3.8% Affiliated Computer Services* 13,500 $ 574 CACI International* 19,200 681 Manhattan Associates* 10,100 137 MicroStrategy* 1 -- ------------- 1,392 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 0.9% Corporate Executive Board* 11,400 325 ------------- 325 - -------------------------------------------------------------------------------- SCHOOLS -- 9.8% Apollo Group, Cl A* 30,100 1,307 Career Education* 17,400 835 Corinthian Colleges* 31,000 1,170 Education Management* 6,300 279 ------------- 3,591 ------------- TOTAL SERVICES (COST $4,827) 6,110 ------------- - -------------------------------------------------------------------------------- TECHNOLOGY -- 15.2% APPLICATIONS SOFTWARE -- 3.1% Mercury Interactive* 5,600 96 Microsoft* 23,600 1,032 ------------- 1,128 - -------------------------------------------------------------------------------- COMPUTERS -- 2.9% Dell Computer* 44,600 1,049 -------------- 1,049 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.5% Documentum* 16,700 193 ------------- 193 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 3.2% Intersil* 15,000 194 Microchip Technology* 35,100 718 QLogic* 9,600 250 ------------- 1,162 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 1.9% Symantec* 21,100 710 ------------- 710 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 0.6% Integrated Circuit Systems* 15,000 235 ------------- 235 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.5% Nokia Oyj ADR 40,700 539 ------------- 539 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 1.5% Qualcomm* 19,300 533 ------------- 533 ------------- TOTAL TECHNOLOGY (COST $6,230) 5,549 ------------- TOTAL COMMON STOCK (COST $35,160) 35,925 ------------- - -------------------------------------------------------------------------------- 4 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG CORE GROWTH FUND PBCRX Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.1% MicroStrategy, Series A 7.500%, 06/24/07 $ 132 $ 27 ------------- 27 ------------- TOTAL CONVERTIBLE BOND (COST $0) 27 ------------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.0% Morgan Stanley 1.83%, dated 09/30/02, matures 10/01/02, repurchase price $1,459,161 (collateralized by U.S. Government Obligations: total market value $1,488,270) (A) 1,459 1,459 ------------- TOTAL REPURCHASE AGREEMENT (COST $1,459) 1,459 ------------- TOTAL INVESTMENTS-- 102.3% (COST $36,619) 37,411 ------------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (2.3)% Receivable for Investment Securities Sold 440 Payable for Administrative Fees (5) Payable for Investment Advisory Fees (21) Payable for Investment Securities Purchased (1,017) Other Assets and Liabilities, Net (248) ------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (851) ------------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 4,824,758 outstanding shares of common stock 113,878 Accumulated net investment loss (268) Accumulated net realized loss on investments (77,842) Unrealized appreciation on investments 792 ------------- TOTAL NET ASSETS-- 100.0% $ 36,560 ============= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $7.58 ===== * Non-income producing security. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class The accompanying notes are an integral part of the financial statements. 5 PBHG FUNDS PBHG EMERGING GROWTH FUND (UNAUDITED) PBHG EMERGING GROWTH FUND PBEGX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium - ------------------------------------------ Small X - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Emerging Growth Fund (47.22)% (39.78)% (29.86)% (20.51)% (0.07)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG EMERGING GROWTH FUND1 VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Emerging Russell 2000 Lipper Small Cap Growth Growth Fund Growth Index Funds Classification 6/14/93 $10,000 $10,000 10,000 6/30/93 10,120 11,413 10,000 7/31/93 10,320 11,527 10,071 8/31/93 11,440 12,079 10,613 9/30/93 12,650 12,478 11,055 10/31/93 13,220 12,839 11,192 11/30/93 12,480 12,319 10,767 12/31/93 13,258 12,806 11,288 1/31/94 13,800 13,146 11,603 2/28/94 14,244 13,089 11,587 3/31/94 13,258 12,285 10,906 4/30/94 13,420 12,303 10,899 5/31/94 13,008 12,028 10,641 6/30/94 12,152 11,514 10,103 7/31/94 12,520 11,678 10,280 8/31/94 13,854 12,535 11,013 9/30/94 14,797 12,587 11,132 10/31/94 15,816 12,721 11,364 11/30/94 15,621 12,207 10,984 12/31/94 16,411 12,494 11,238 1/31/95 15,704 12,240 11,055 2/28/95 16,324 12,805 11,530 3/31/95 17,497 13,179 11,928 4/30/95 17,878 13,377 12,045 5/31/95 17,976 13,553 12,216 6/30/95 19,617 14,487 13,120 7/31/95 21,584 15,616 14,260 8/31/95 21,834 15,808 14,438 9/30/95 22,627 16,134 14,858 10/31/95 21,942 15,340 14,417 11/30/95 23,257 16,018 14,968 12/31/95 24,361 16,372 15,207 1/31/96 23,780 16,237 15,096 2/29/96 25,136 16,977 15,859 3/31/96 26,275 17,313 16,364 4/30/96 30,079 18,642 17,937 5/31/96 31,457 19,598 18,857 6/30/96 29,509 18,325 17,967 7/31/96 25,443 16,088 16,160 8/31/96 27,448 17,279 17,241 9/30/96 29,999 18,168 18,344 10/31/96 28,404 17,385 17,735 11/30/96 28,347 17,868 18,104 12/31/96 28,522 18,216 18,318 1/31/97 28,817 18,671 18,783 2/28/97 24,603 17,544 17,622 3/31/97 22,672 16,306 16,441 4/30/97 21,601 16,117 16,226 5/31/97 25,874 18,540 18,475 6/30/97 27,357 19,168 19,556 7/31/97 28,216 20,150 20,874 8/31/97 28,522 20,755 21,250 9/30/97 31,289 22,411 22,986 10/31/97 28,687 21,065 21,841 11/30/97 27,616 20,563 21,424 12/31/97 27,475 20,575 21,542 1/31/98 27,145 20,300 21,234 2/28/98 29,111 22,092 22,996 3/31/98 30,406 23,019 24,167 4/30/98 30,618 23,160 24,386 5/31/98 27,899 21,478 22,777 6/30/98 28,758 21,697 23,324 7/31/98 26,321 19,885 21,721 8/31/98 21,401 15,295 17,099 9/30/98 23,296 16,846 18,375 10/31/98 23,013 17,724 19,119 11/30/98 24,826 19,099 20,757 12/31/98 28,300 20,828 22,993 1/31/99 28,394 21,764 23,584 2/28/99 25,098 19,773 21,496 3/31/99 24,353 20,478 22,515 4/30/99 23,762 22,286 23,526 5/31/99 24,790 22,321 23,755 6/30/99 27,579 23,497 25,966 7/31/99 26,929 22,771 25,932 8/31/99 26,669 21,919 25,616 9/30/99 28,784 22,342 26,262 10/31/99 30,699 22,914 27,766 11/30/99 34,007 25,337 31,240 12/31/99 41,981 29,803 36,882 1/31/2000 40,339 29,525 36,531 2/29/2000 53,650 36,395 45,584 3/31/2000 49,029 32,569 43,255 4/30/2000 42,901 29,281 38,518 5/31/2000 37,691 26,717 35,348 6/30/2000 47,522 30,168 41,209 7/31/2000 43,244 27,583 38,514 8/31/2000 50,353 30,484 42,978 9/30/2000 47,595 28,970 41,392 10/31/2000 40,425 26,618 38,602 11/30/2000 29,859 21,785 31,931 12/31/2000 31,394 23,118 34,655 1/31/2001 31,182 24,989 35,546 2/28/2001 24,729 21,564 30,790 3/31/2001 21,105 19,603 27,862 4/30/2001 25,707 22,003 31,219 5/31/2001 24,914 22,513 31,900 6/30/2001 25,152 23,127 32,818 7/31/2001 22,758 21,154 30,912 8/31/2001 20,537 19,833 29,051 9/30/2001 16,490 16,633 24,574 10/31/2001 18,381 18,233 26,584 11/30/2001 20,497 19,755 28,647 12/31/2001 21,172 20,985 30,409 1/31/2002 20,114 20,238 29,451 2/28/2002 16,980 18,928 27,478 3/31/2002 18,818 20,574 29,610 4/30/2002 16,834 20,128 28,763 5/31/2002 15,353 18,951 27,331 6/30/2002 13,555 17,344 25,338 7/31/2002 11,743 14,679 21,738 8/31/2002 11,306 14,672 21,740 9/30/2002 9,931 13,612 20,331
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Emerging Growth Fund commenced operations on June 14, 1993. 4 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Small-Cap Growth Funds Average represents the average performance of 459 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, June 30, 1993. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 18% Consumer Non-Cyclical 2% Health Care 13% Industrial 2% Services 26% Technology 39% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Corinthian Colleges 3.9% Corporate Executive Board 3.9% Career Education 3.7% NetScreen Technologies 3.3% Medicis Pharmaceutical, Cl A 3.2% Silicon Laboratories 3.2% Accredo Health 3.1% Integrated Circuit Systems 3.1% Quest Software 2.8% Marvell Technology Group 2.6% - ------------------------------------------------------------------------------- Total Top Ten Holdings 32.8% *As a % of Common Stock 6 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 89.7% CONSUMER CYCLICAL -- 16.3% APPAREL MANUFACTURERS -- 1.2% Coach* 94,600 $ 2,422 ------------- 2,422 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 2.9% Activision* 129,800 3,106 Take-Two Interactive Software* 53,400 1,549 THQ* 45,000 936 ------------- 5,591 - -------------------------------------------------------------------------------- RADIO -- 2.9% Emmis Communications* 139,000 2,641 Radio One* 184,900 3,049 ------------- 5,690 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 2.0% AnnTaylor Stores* 87,900 2,024 HOT Topic* 106,400 1,919 ------------- 3,943 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.3% Electronics Boutique Holdings* 91,400 2,509 ------------- 2,509 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 1.9% J Jill Group* 146,600 2,554 Sharper Image* 58,300 1,114 ------------- 3,668 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.7% Krispy Kreme Doughnuts* 97,700 3,054 PF Chang's China Bistro* 74,300 2,157 Rare Hospitality International* 83,500 1,955 ------------- 7,166 - -------------------------------------------------------------------------------- TOYS -- 0.4% Leapfrog Enterprises* 37,300 705 ------------- 705 ------------- TOTAL CONSUMER CYCLICAL (COST $31,087) 31,694 ------------- - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 2.0% FOOD-RETAIL -- 2.0% Whole Foods Market* 94,200 4,036 ------------- 4,036 ------------- TOTAL CONSUMER NON-CYCLICAL (COST $2,225) 4,036 ------------- - -------------------------------------------------------------------------------- HEALTH CARE -- 11.7% MEDICAL INSTRUMENTS -- 0.9% Advanced Neuromodulation Systems* 50,700 1,687 ------------- 1,687 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.9% Charles River Laboratories International* 105,300 $ 4,133 Martek Biosciences* 208,100 3,409 ------------- 7,542 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.9% Medicis Pharmaceutical, Cl A* 138,850 5,675 ------------- 5,675 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 1.2% Eon Labs* 108,500 2,341 ------------- 2,341 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 2.8% Accredo Health* 115,100 5,488 ------------- 5,488 ------------- TOTAL HEALTH CARE (COST $18,124) 22,733 ------------- - -------------------------------------------------------------------------------- INDUSTRIAL -- 1.5% ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.5% Benchmark Electronics* 44,800 943 ------------- 943 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 1.0% Cymer* 104,500 1,948 ------------- 1,948 ------------- TOTAL INDUSTRIAL (COST $4,261) 2,891 ------------- - -------------------------------------------------------------------------------- SERVICES -- 23.3% ADVERTISING SERVICES -- 1.9% Getty Images* 180,900 3,629 ------------- 3,629 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 6.7% Anteon International* 115,800 3,147 Cognizant Technology Solutions* 54,200 3,115 Factset Research Systems 148,700 3,948 Manhattan Associates* 205,700 2,781 ------------- 12,991 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 4.9% Advisory Board* 96,300 2,852 Corporate Executive Board* 236,900 6,764 ------------- 9,616 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 1.4% Pharmaceutical Product Development* 141,500 2,737 ------------- 2,737 - -------------------------------------------------------------------------------- SCHOOLS -- 8.4% Career Education* 133,100 6,390 Corinthian Colleges* 181,300 6,842 Strayer Education 54,300 3,230 ------------- 16,462 ------------- TOTAL SERVICES (COST $42,147) 45,435 ------------- - -------------------------------------------------------------------------------- 7 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG EMERGING GROWTH FUND PBEGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 34.9% APPLICATIONS SOFTWARE -- 3.4% Mercury Interactive* 100,000 $ 1,716 Quest Software* 515,200 4,843 ------------- 6,559 - -------------------------------------------------------------------------------- COMPUTER DATA SECURITY -- 2.9% NetScreen Technologies* 528,800 5,738 ------------- 5,738 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 1.9% Sandisk* 277,100 3,633 ------------- 3,633 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.0% Documentum* 341,100 3,940 ------------- 3,940 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 4.3% Cognos*^ 105,600 1,775 NETIQ* 144,400 2,094 Precise Software Solutions* 490,400 4,492 ------------- 8,361 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 5.5% ChipPAC* 398,100 852 Semtech* 201,500 1,955 Silicon Laboratories* 302,100 5,537 Skyworks Solutions* 525,400 2,380 ------------- 10,724 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 1.5% Magma Design Automation* 157,900 1,408 Nassda* 299,400 1,563 ------------- 2,971 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 2.4% Foundry Networks* 540,900 2,964 Ixia* 410,500 1,683 ------------- 4,647 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 7.9% Exar* 135,700 1,567 Integrated Circuit Systems* 344,500 5,409 Integrated Device Technology* 174,000 1,817 Marvell Technology Group* 286,700 4,544 Power Integrations* 160,500 1,956 ------------- 15,293 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 2.7% ATMI* 149,800 2,112 Entegris* 275,500 2,141 Mykrolis* 175,000 1,076 ------------- 5,329 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SOFTWARE TOOLS -- 0.4% Altiris* 76,000 $ 756 ------------- 756 ------------- TOTAL TECHNOLOGY (COST $104,526) 67,951 ------------- TOTAL COMMON STOCK (COST $202,370) 174,740 ------------- - -------------------------------------------------------------------------------- WARRANTS-- 0.0% K2, Expiration: 12/31/02, Strike Price: $30 2,319 -- ------------- -- ------------- TOTAL WARRANTS (COST $0) -- ------------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 13.9% UBS Warburg LLC 1.88%, dated 09/30/02, matures 10/01/02, repurchase price $26,991,507, (collateralized by U.S. Government Agency Obligations: total market value $27,534,383)(A) $26,990 26,990 ------------- TOTAL REPURCHASE AGREEMENT (COST $26,990) 26,990 ------------- TOTAL INVESTMENTS-- 103.6% (COST $229,360) 201,730 ------------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (3.6)% Receivable for Investment Securities Sold 5,472 Payable for Administrative Fees (26) Payable for Investment Advisory Fees (150) Payable for Investment Securities Purchased (10,881) Other Assets and Liabilities, Net (1,420) ------------- TOTAL OTHER ASSETS AND LIABILITIES, NET (7,005) ------------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 25,939,873 outstanding shares of common stock 615,700 Accumulated net investment loss (1,976) Accumulated net realized loss on investments (391,369) Unrealized depreciation on investments (27,630) ------------- TOTAL NET ASSETS-- 100.0% $ 194,725 ============= NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $7.51 ===== * Non-income producing security. ^ The fund held a Canadian domiciled security traded on the Nasdaq stock market as of September 30, 2002. (A) -- Tri-party repurchase agreement Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. 8 PBHG FUNDS PBHG GROWTH FUND (UNAUDITED) PBHG GROWTH FUND PBHGX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized Annualized 6 Year 3 Year 5 Year 10 Year Inception Months2 Return Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Growth Fund - PBHG Class3 (24.82)% (19.14)% (16.59)% (9.00)% 9.06% 10.84% - --------------------------------------------------------------------------------------------------------------------------- PBHG Growth Fund - Advisor Class4 (24.92)% (19.34)% (16.77)% (9.22)% 8.90% 10.75% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GROWTH FUND - PBHG CLASS1 VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER MID-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Growth Fund 2000 Growth Index Mid-Cap Growth Funds 12/31/85 $10,000 $10,000 $10,000 1/31/86 10,250 10,228 10,219 2/28/86 11,080 10,983 10,960 3/31/86 11,510 11,482 11,534 4/30/86 11,640 11,763 11,677 5/31/86 12,580 12,194 12,401 6/30/86 12,680 12,233 12,561 7/31/86 11,700 10,918 11,497 8/31/86 12,380 11,153 12,017 9/30/86 11,240 10,245 11,056 10/31/86 12,193 10,766 11,653 11/30/86 12,676 10,718 11,769 12/31/86 12,394 10,358 11,525 1/31/87 14,728 11,691 13,046 2/28/87 16,509 12,823 14,198 3/31/87 16,871 13,175 14,357 4/30/87 16,911 12,767 14,131 5/31/87 17,046 12,677 14,249 6/30/87 16,508 12,991 14,454 7/31/87 16,604 13,302 14,958 8/31/87 17,548 13,687 15,571 9/30/87 17,524 13,413 15,285 10/31/87 12,898 8,994 11,346 11/30/87 11,840 8,399 10,576 12/31/87 13,832 9,273 11,898 1/31/88 13,566 9,454 11,959 2/29/88 14,814 10,334 12,803 3/31/88 14,660 10,888 12,947 4/30/88 15,011 11,151 13,171 5/31/88 14,576 10,783 12,942 6/30/88 15,684 11,579 13,844 7/31/88 14,969 11,363 13,433 8/31/88 14,099 10,950 12,920 9/30/88 14,744 11,260 13,418 10/31/88 14,449 11,073 13,270 11/30/88 14,119 10,642 12,942 12/31/88 14,780 11,162 13,510 1/31/89 15,792 11,638 14,287 2/28/89 15,553 11,667 14,242 3/31/89 15,244 11,991 14,564 4/30/89 16,467 12,588 15,463 5/31/89 18,020 13,191 16,258 6/30/89 17,004 12,767 15,832 7/31/89 18,401 13,365 16,907 8/31/89 19,177 13,749 17,419 9/30/89 19,896 13,907 17,555 10/31/89 18,852 13,146 16,856 11/30/89 18,698 13,263 17,045 12/31/89 19,109 13,413 17,239 1/31/90 17,501 12,029 15,796 2/28/90 18,537 12,485 16,237 3/31/90 19,377 13,057 16,919 4/30/90 18,948 12,669 16,527 5/31/90 21,627 13,799 18,267 6/30/90 21,823 13,881 18,398 7/31/90 20,716 13,250 17,830 8/31/90 17,984 11,332 15,731 9/30/90 15,483 10,259 14,504 10/31/90 14,787 9,683 14,047 11/30/90 16,614 10,574 15,264 12/31/90 17,266 11,078 16,027 1/31/91 19,518 12,118 17,367 2/28/91 20,782 13,510 18,754 3/31/91 22,659 14,462 19,756 4/30/91 22,284 14,290 19,558 5/31/91 23,271 14,980 20,603 6/30/91 20,664 13,961 19,389 7/31/91 22,323 14,593 20,652 8/31/91 23,449 15,238 21,531 9/30/91 23,074 15,467 21,505 10/31/91 23,745 16,126 22,215 11/30/91 22,724 15,285 21,393 12/31/91 26,179 16,748 24,174 1/31/92 27,174 18,064 24,721 2/29/92 27,447 18,257 25,109 3/31/92 25,782 17,207 23,934 4/30/92 24,862 16,208 23,041 5/31/92 24,688 16,171 23,131 6/30/92 23,544 15,140 22,148 7/31/92 23,420 15,615 22,980 8/31/92 22,649 15,014 22,445 9/30/92 23,644 15,433 22,912 10/31/92 25,061 16,068 23,773 11/30/92 28,298 17,568 25,466 12/31/92 33,612 18,050 26,184 1/31/93 33,003 18,274 26,661 2/28/93 30,891 17,281 25,568 3/31/93 34,668 17,726 26,473 4/30/93 33,868 17,164 25,570 5/31/93 37,613 18,193 27,120 6/30/93 39,822 18,236 27,388 7/31/93 40,302 18,418 27,506 8/31/93 43,375 19,300 29,005 9/30/93 47,344 19,938 30,017 10/31/93 48,145 20,514 30,278 11/30/93 46,320 19,684 29,306 12/31/93 49,312 20,461 30,505 1/31/94 51,258 21,006 31,356 2/28/94 51,777 20,913 31,140 3/31/94 47,592 19,629 29,377 4/30/94 47,884 19,659 29,348 5/31/94 45,192 19,218 28,878 6/30/94 41,591 18,397 27,512 7/31/94 42,888 18,659 28,189 8/31/94 47,657 20,028 30,052 9/30/94 49,052 20,112 29,980 10/31/94 50,577 20,326 30,601 11/30/94 49,571 19,504 29,392 12/31/94 51,654 19,964 29,915 1/31/95 49,122 19,557 29,712 2/28/95 51,849 20,461 30,978 3/31/95 54,219 21,058 32,074 4/30/95 53,667 21,375 32,286 5/31/95 54,089 21,655 32,851 6/30/95 59,998 23,147 35,072 7/31/95 67,238 24,951 37,772 8/31/95 67,141 25,259 38,256 9/30/95 70,712 25,779 39,369 10/31/95 72,660 24,511 38,609 11/30/95 75,550 25,593 39,987 12/31/95 77,660 26,160 40,227 1/31/96 74,186 25,944 40,412 2/29/96 79,673 27,127 42,009 3/31/96 82,140 27,663 42,748 4/30/96 89,056 29,787 45,668 5/31/96 93,114 31,314 47,367 6/30/96 89,348 29,279 45,571 7/31/96 80,128 25,705 41,242 8/31/96 84,218 27,608 43,725 9/30/96 91,621 29,030 46,742 10/31/96 85,192 27,777 45,555 11/30/96 87,465 28,550 47,135 12/31/96 85,290 29,107 46,787 1/31/97 85,225 29,834 48,611 2/28/97 76,102 28,032 46,045 3/31/97 68,375 26,054 43,033 4/30/97 68,667 25,752 43,309 5/31/97 77,141 29,623 48,099 6/30/97 80,420 30,627 50,061 7/31/97 85,972 32,197 54,056 8/31/97 84,153 33,163 53,818 9/30/97 90,192 35,809 57,672 10/31/97 85,160 33,659 54,707 11/30/97 82,465 32,856 54,122 12/31/97 82,433 32,875 54,609 1/31/98 80,290 32,436 53,861 2/28/98 87,757 35,300 58,671 3/31/98 91,653 36,781 61,510 4/30/98 92,010 37,006 62,119 5/31/98 83,569 34,318 58,759 6/30/98 88,212 34,668 61,262 7/31/98 80,095 31,774 57,954 8/31/98 60,388 24,439 45,905 9/30/98 65,063 26,917 49,265 10/31/98 66,524 28,321 51,650 11/30/98 72,530 30,518 55,611 12/31/98 82,920 33,279 62,407 1/31/99 84,705 34,776 64,647 2/28/99 76,167 31,595 60,044 3/31/99 79,576 32,720 64,031 4/30/99 76,102 35,610 66,791 5/31/99 78,764 35,666 66,664 6/30/99 88,764 37,545 71,851 7/31/99 87,530 36,384 70,852 8/31/99 89,803 35,023 70,618 9/30/99 96,978 35,699 71,557 10/31/99 105,776 36,613 77,726 11/30/99 122,561 40,485 86,711 12/31/99 159,576 47,620 102,483 1/31/2000 159,543 47,177 100,864 2/29/2000 216,428 58,153 124,698 3/31/2000 197,803 52,040 120,222 4/30/2000 166,851 46,785 108,825 5/31/2000 151,392 42,689 100,086 6/30/2000 180,997 48,203 113,888 7/31/2000 168,367 44,072 110,187 8/31/2000 198,511 48,708 124,720 9/30/2000 182,277 46,288 120,268 10/31/2000 166,582 42,531 111,693 11/30/2000 120,137 34,809 91,230 12/31/2000 122,895 36,939 97,626 1/31/2001 129,968 39,929 99,481 2/28/2001 101,003 34,455 85,165 3/31/2001 85,908 31,322 75,371 4/30/2001 101,833 35,157 85,539 5/31/2001 100,212 35,972 85,573 6/30/2001 101,319 36,952 85,154 7/31/2001 92,033 33,800 80,240 8/31/2001 81,600 31,689 74,407 9/30/2001 69,588 26,576 63,469 10/31/2001 73,342 29,133 67,633 11/30/2001 78,479 31,565 73,415 12/31/2001 80,454 33,530 76,352 1/31/2002 76,266 32,337 74,000 2/28/2002 70,101 30,244 69,930 3/31/2002 74,843 32,873 74,532 4/30/2002 74,883 32,161 72,057 5/31/2002 71,800 30,281 69,651 6/30/2002 65,952 27,713 63,570 7/31/2002 60,025 23,454 56,851 8/31/2002 59,037 23,443 56,237 9/30/2002 56,271 21,750 52,604
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Growth Fund-PBHG Class commenced operations on December 19, 1985. 4 The performance shown for the Advisor Class (formerly known as the Trust Class) prior to its inception on August 16, 1996, is based on the performance and expenses of the PBHG Class. Subsequent to August 16, 1996, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception date to September 30, 2002 was (6.28)%. 5 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. The chart assumes $10,000 invested in the Russell 2000(R) Growth Index at that month's end, December 31, 1985. 6 The Lipper Mid-Cap Growth Funds Average represents the average performance of 516 mutual funds classified by Lipper, Inc. in the Mid-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Mid-Cap Growth Funds Average at that month's end, December 31, 1985. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 15% Consumer Non-Cyclical 3% Energy 5% Financial 8% Health Care 26% Industrial 9% Services 20% Technology 14% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Apollo Group, Cl A 4.0% Corinthian Colleges 4.0% Alliant Techsystems 3.9% Varian Medical Systems 3.8% Career Education 3.7% Electronic Arts 3.1% L-3 Communications Holdings 3.0% Express Scripts, Cl A 2.6% Community Health Systems 2.6% ChoicePoint 2.4% - ------------------------------------------------------------------------------- Total Top Ten Holdings 33.1% *As a % of Common Stock 9 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG GROWTH FUND PBHGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 90.2% CONSUMER CYCLICAL -- 13.0% APPAREL MANUFACTURERS -- 0.6% Coach* 311,400 $ 7,972 ------------ 7,972 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 4.8% Activision* 872,700 20,884 Electronic Arts* 562,500 37,102 Take-Two Interactive Software* 192,900 5,594 ------------ 63,580 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 0.7% Ross Stores 252,700 9,006 ------------ 9,006 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 1.5% Michaels Stores* 433,000 19,788 ------------ 19,788 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 0.8% O'Reilly Automotive* 352,100 10,077 ------------ 10,077 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 0.6% CDW Computer Centers* 194,300 8,231 ------------ 8,231 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 0.5% Family Dollar Stores 213,000 5,725 ------------ 5,725 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 1.0% Williams-Sonoma* 560,900 13,254 ------------ 13,254 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 2.2% Brinker International* 246,800 6,392 Cheesecake Factory* 392,200 11,699 Darden Restaurants 445,850 10,808 ------------ 28,899 - -------------------------------------------------------------------------------- RETAIL-VARIETY STORE -- 0.3% 99 Cents Only Stores* 206,800 4,281 ------------ 4,281 ------------ TOTAL CONSUMER CYCLICAL (COST $171,933) 170,813 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 2.9% FOOD-RETAIL -- 2.4% American Italian Pasta* 251,400 8,973 Whole Foods Market* 504,700 21,621 ------------ 30,594 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.5% Performance Food Group* 200,000 $ 6,792 ------------ 6,792 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $37,951) 37,386 ------------ - -------------------------------------------------------------------------------- ENERGY -- 4.3% OIL & GAS DRILLING -- 2.6% ENSCO International 434,700 10,885 GlobalSantaFe 380,000 8,493 Nabors Industries Limited* 252,800 8,279 Transocean 305,000 6,344 ------------ 34,001 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.2% National-Oilwell* 387,800 7,516 Smith International* 280,000 8,207 ------------ 15,723 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 0.5% Weatherford International Limited* 186,600 6,930 ------------ 6,930 ------------ TOTAL ENERGY (COST $58,777) 56,654 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 7.0% COMMERCIAL BANKS-CENTRAL US -- 2.1% Associated Banc-Corp 394,590 12,520 TCF Financial 345,500 14,625 ------------ 27,145 - -------------------------------------------------------------------------------- COMMERCIAL BANKS-EASTERN US -- 2.3% Commerce Bancorp 347,800 14,437 North Fork Bancorporation 407,700 15,428 ------------ 29,865 - -------------------------------------------------------------------------------- COMMERCIAL BANKS-SOUTHERN US -- 0.4% Southwest Bancorp of Texas* 162,700 5,924 ------------ 5,924 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 2.2% Independence Community Bank 536,400 13,458 New York Community Bancorp 565,800 15,939 ------------ 29,397 - -------------------------------------------------------------------------------- TOTAL FINANCIAL (COST $100,401) 92,331 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 23.7% DENTAL SUPPLIES & EQUIPMENT -- 2.2% Dentsply International 295,800 11,882 Patterson Dental* 329,200 16,849 ------------ 28,731 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 2.2% Caremark Rx* 932,300 15,849 First Health Group* 475,200 12,888 ------------ 28,737 - -------------------------------------------------------------------------------- 10 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG GROWTH FUND PBHGX Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 3.9% Cooper Companies 126,300 $ 6,631 Varian Medical Systems* 1,045,900 44,963 ------------ 51,594 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 1.3% Charles River Laboratories International*178,900 7,022 Idec Pharmaceuticals* 226,600 9,408 ------------ 16,430 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 3.5% Coventry Health Care* 612,000 19,890 Mid Atlantic Medical Services* 735,000 26,607 ------------ 46,497 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 6.1% Community Health Systems* 1,149,300 30,606 LifePoint Hospitals* 845,300 26,363 Triad Hospitals* 622,500 23,624 ------------ 80,593 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 3.8% Accredo Health* 401,250 19,132 Express Scripts, Cl A* 570,000 31,076 ------------ 50,208 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.7% Gilead Sciences* 265,500 8,902 ------------ 8,902 ------------ TOTAL HEALTH CARE (COST $282,685) 311,692 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 8.5% AEROSPACE/DEFENSE-EQUIPMENT -- 3.5% Alliant Techsystems* 661,050 45,778 ------------ 45,778 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.6% Gentex* 307,001 8,347 ------------ 8,347 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 2.7% L-3 Communications Holdings* 674,300 35,536 ------------ 35,536 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 0.6% Stericycle* 250,900 8,510 ------------ 8,510 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 0.3% Cymer* 181,600 3,385 ------------ 3,385 - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.8% Waste Connections* 295,600 10,284 ------------ 10,284 ------------ TOTAL INDUSTRIAL (COST $94,877) 111,840 ------------ - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- SERVICES -- 18.0% COMMERCIAL SERVICES -- 2.2% ChoicePoint* 808,900 $ 28,829 ------------ 28,829 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 3.5% Affiliated Computer Services* 488,400 20,781 CACI International* 723,700 25,655 ------------ 46,436 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 1.7% Corporate Executive Board* 805,600 23,000 ------------ 23,000 - -------------------------------------------------------------------------------- SCHOOLS -- 10.6% Apollo Group, Cl A* 1,097,350 47,658 Career Education* 922,800 44,302 Corinthian Colleges* 1,243,700 46,937 ------------ 138,897 ------------ TOTAL SERVICES (COST $188,761) 237,162 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 12.8% APPLICATIONS SOFTWARE -- 0.7% JD Edwards* 547,800 5,067 Mercury Interactive* 201,000 3,449 ------------ 8,516 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.2% Brocade Communications Systems* 306,900 2,311 ------------ 2,311 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.5% Documentum* 568,900 6,571 ------------ 6,571 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 0.8% Cognos*^ 625,400 10,513 ------------ 10,513 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 4.8% Broadcom, Cl A* 523,400 5,590 Cree* 760,100 9,501 Intersil* 526,300 6,821 Microchip Technology* 1,339,950 27,402 QLogic* 344,200 8,963 Silicon Laboratories* 269,500 4,940 ------------ 63,217 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 1.9% Symantec* 755,100 25,394 ------------ 25,394 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.3% Foundry Networks* 756,500 4,145 ------------ 4,145 - -------------------------------------------------------------------------------- 11 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG GROWTH FUND PBHGX Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 1.6% Integrated Circuit Systems* 431,300 $ 6,771 Marvell Technology Group* 934,300 14,809 ------------ 21,580 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.5% Lam Research* 318,000 2,830 Novellus Systems* 189,600 3,946 ------------ 6,776 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.1% Advanced Fibre Communication* 863,800 11,463 Utstarcom* 150,000 2,290 ------------ 13,753 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 0.4% RF Micro Devices* 965,000 5,790 ------------ 5,790 ------------ TOTAL TECHNOLOGY (COST $216,846) 168,566 ------------ TOTAL COMMON STOCK (COST $1,152,231) 1,186,444 ------------ - -------------------------------------------------------------------------------- INVESTMENT COMPANY -- 1.2% INDEX FUND-LARGE CAP -- 1.2% Nasdaq-100 Index Tracking Stock* 750,000 15,563 ------------ 15,563 ------------ TOTAL INVESTMENT COMPANY (COST $16,882) 15,563 ------------ - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.0% MicroStrategy, Series A 7.500%, 06/24/07 $ 685 141 ------------- 141 ------------ TOTAL CONVERTIBLE BOND (COST $0) 141 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 9.8% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $14,378,241 (collateralized by U.S. Government Obligations: total market value $14,669,524) (A) 14,377 14,377 Deutsche Bank 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $15,869,639 (collateralized by U.S. Government Obligations: total market value $16,186,599) (A) 15,869 15,869 Greenwich 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $20,460,863 (collateralized by U.S. Government Obligations: total market value $20,873,479) (A) 20,460 20,460 Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- JP Morgan Chase 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $61,940,451 (collateralized by U.S. Government Obligations: total market value $63,180,596)(A) $61,937 $61,937 UBS Warburg LLC 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $16,317,855 (collateralized by U.S. Government Obligations: total market value $16,647,835) (A) 16,317 16,317 ------------ TOTAL REPURCHASE AGREEMENTS (COST $128,960) 128,960 ------------ TOTAL INVESTMENTS-- 101.2% (COST $1,298,073) 1,331,108 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (1.2%) Receivable for Investment Securities Sold 14,926 Payable for Adminstrative Fees (168) Payable for Distribution Fees (8) Payable for Investment Advisory Fees (950) Payable for Investment Securities Purchased (27,081) Other Assets and Liabilities, Net (2,624) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (15,905) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 89,854,068 outstanding shares of common stock 2,877,280 Fund Shares of Advisor Class ($0.001 par value) based on 2,578,586 outstanding shares of common stock 86,838 Accumulated net investment loss (9,072) Accumulated net realized loss on investments (1,672,878) Unrealized appreciation on investments 33,035 ------------ TOTAL NET ASSETS-- 100.0% $ 1,315,203 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $14.24 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $14.01 ====== * Non-income producing security. ^ The fund held a Canadian domiciled security traded on the Nasdaq stock market as of September 30, 2002. (A) -- Tri-party repurchase agreement Cl -- Class LLC -- Limited Liability Company The accompanying notes are an integral part of the financial statements. 12 PBHG FUNDS PBHG LARGE CAP 20 FUND (UNAUDITED) PBHG LARGE CAP 20 FUND PLCPX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 Fund - PBHG Class3 (26.01)% (22.80)% (15.25)% 3.65% 7.74% - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap 20 Fund - Advisor Class4 (26.03)% (22.97)% (15.35)% 3.57% 7.67% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP 20 FUND - PBHG CLASS1 VERSUS THE S&P 500 INDEX, RUSSELL 1000(R) GROWTH INDEX AND THE LIPPER LARGE-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG S&P Lipper Large-Cap Russell 1000 Large Cap 20 500 Index Growth Funds Growth Index 11/30/96 $10,000 $10,000 $10,000 $10,000 12/31/96 9,841 9,802 9,804 9,767 1/31/97 10,462 10,414 10,492 10,362 2/28/97 10,001 10,496 10,421 10,199 3/31/97 9,260 10,065 9,857 9,659 4/30/97 9,881 10,666 10,511 10,171 5/31/97 10,912 11,315 11,270 10,875 6/30/97 11,523 11,821 11,721 11,326 7/31/97 12,854 12,761 12,758 12,379 8/31/97 12,234 12,047 12,011 11,811 9/30/97 12,914 12,706 12,602 12,438 10/31/97 12,424 12,283 12,136 11,996 11/30/97 12,494 12,851 12,652 12,263 12/31/97 13,084 13,071 12,793 12,424 1/31/98 13,355 13,216 13,176 12,607 2/28/98 15,097 14,168 14,167 13,602 3/31/98 15,998 14,893 14,732 14,221 4/30/98 16,278 15,043 14,935 14,428 5/31/98 15,848 14,785 14,512 14,056 6/30/98 17,589 15,385 15,400 14,883 7/31/98 17,609 15,221 15,298 14,740 8/31/98 14,516 13,023 13,002 12,341 9/30/98 16,708 13,858 14,001 13,177 10/31/98 17,069 14,985 15,127 14,060 11/30/98 18,320 15,893 16,277 15,036 12/31/98 21,960 16,809 17,745 16,565 1/31/99 23,995 17,512 18,787 17,597 2/28/99 22,294 16,968 17,929 16,884 3/31/99 24,400 17,647 18,873 17,833 4/30/99 23,337 18,330 18,897 17,911 5/31/99 22,527 17,897 18,317 17,372 6/30/99 24,178 18,891 19,599 18,606 7/31/99 23,540 18,301 18,977 18,064 8/31/99 24,512 18,210 19,287 18,073 9/30/99 25,372 17,711 18,881 17,900 10/31/99 28,136 18,831 20,307 19,131 11/30/99 33,614 19,214 21,403 20,174 12/31/99 44,567 20,346 23,629 22,534 1/31/2000 43,320 19,324 22,521 21,662 2/29/2000 51,964 18,958 23,622 23,057 3/31/2000 53,163 20,813 25,313 24,404 4/30/2000 47,264 20,186 24,109 23,096 5/31/2000 41,293 19,772 22,895 21,846 6/30/2000 49,926 20,259 24,630 23,338 7/31/2000 49,542 19,943 23,603 22,874 8/31/2000 56,665 21,181 25,740 24,823 9/30/2000 51,916 20,063 23,305 23,140 10/31/2000 46,677 19,978 22,202 22,094 11/30/2000 35,502 18,403 18,930 19,288 12/31/2000 34,725 18,493 18,331 19,261 1/31/2001 35,483 19,149 19,597 19,823 2/28/2001 29,172 17,403 16,270 16,963 3/31/2001 24,542 16,301 14,500 15,289 4/30/2001 27,008 17,568 16,333 16,877 5/31/2001 26,719 17,685 16,093 16,729 6/30/2001 25,741 17,255 15,720 16,218 7/31/2001 24,652 17,085 15,327 15,686 8/31/2001 22,089 16,016 14,074 14,422 9/30/2001 20,008 14,722 12,669 13,007 10/31/2001 21,111 15,003 13,333 13,525 11/30/2001 22,819 16,154 14,614 14,786 12/31/2001 22,447 16,295 14,587 14,824 1/31/2002 20,918 16,058 14,329 14,493 2/28/2002 20,325 15,748 13,735 13,834 3/31/2002 20,876 16,340 14,210 14,404 4/30/2002 20,284 15,350 13,050 13,393 5/31/2002 19,443 15,237 12,734 13,099 6/30/2002 18,368 14,151 11,556 12,016 7/31/2002 16,357 13,048 10,921 11,126 8/31/2002 16,246 13,134 10,954 11,145 9/30/2002 15,447 11,706 9,817 10,119
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Funds that invest in a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Large Cap 20 Fund - PBHG Class commenced operations on November 29, 1996. 4 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to September 30, 2002 was (37.09)%. 5 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Russell 1000(R) Growth Index is an unmanaged index that measures the performance of those securities in the Russell 1000(R) Index with higher price-to-book ratios and higher forecasted growth values. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 7 The Lipper Large-Cap Growth Funds Average represents the average performance of 729 mutual funds classified by Lipper, Inc. in the Large-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Large-Cap Growth Funds Average at that month's end, November 30, 1996. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 17% Consumer Non-Cyclical 7% Financial 15% Health Care 38% Industrial 13% Technology 10% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* UnitedHealth Group 8.6% Lockheed Martin 8.4% Procter & Gamble 7.3% Bed Bath & Beyond 6.8% HCA 5.8% Freddie Mac 5.8% Wal-Mart Stores 5.6% Bank of America 5.5% Microsoft 5.4% Quest Diagnostics 5.1% - -------------------------------------------------------------------------------- Total Top Ten Holdings 64.3% *As a % of Common Stock 13 PBHG FUNDS SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LARGE CAP 20 FUND PLCPX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 88.1% CONSUMER CYCLICAL -- 15.2% ENTERTAINMENT SOFTWARE -- 1.5% Electronic Arts* 49,100 $ 3,239 ------------ 3,239 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 5.9% Bed Bath & Beyond* 395,500 12,882 ------------ 12,882 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 5.0% Wal-Mart Stores 218,300 10,749 ------------ 10,749 - -------------------------------------------------------------------------------- RETAIL-REGIONAL DEPARTMENT STORE -- 2.8% Kohl's* 99,300 6,038 ------------ 6,038 ------------ TOTAL CONSUMER CYCLICAL (COST $36,502) 32,908 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 6.4% COSMETICS & TOILETRIES -- 6.4% Procter & Gamble 155,600 13,907 ------------ 13,907 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $14,245) 13,907 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 13.1% FINANCE-MORTGAGE LOAN/BANKER -- 5.1% Freddie Mac 196,400 10,979 ------------ 10,979 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.1% American International Group 123,600 6,761 ------------ 6,761 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 4.9% Bank of America 164,800 10,514 ------------ 10,514 ------------ TOTAL FINANCIAL (COST $32,574) 28,254 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 33.6% MEDICAL LABS & TESTING SERVICES -- 4.5% Quest Diagnostics* 156,900 9,654 ------------ 9,654 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 4.0% Johnson & Johnson 161,500 8,734 ------------ 8,734 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.9% Amgen* 203,120 8,470 ------------ 8,470 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 8.5% Forest Laboratories* 115,800 9,497 Pfizer 306,400 8,892 ------------ 18,389 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- MEDICAL-HMO -- 7.6% UnitedHealth Group 188,800 $ 16,467 ------------ 16,467 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 5.1% HCA 231,300 11,012 ------------ 11,012 ------------ TOTAL HEALTH CARE (COST $75,498) 72,726 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 11.4% AEROSPACE/DEFENSE -- 11.4% Lockheed Martin 247,600 16,012 Northrop Grumman 69,800 8,658 ------------ 24,670 ------------ TOTAL INDUSTRIAL (COST $23,385) 24,670 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 8.4% APPLICATIONS SOFTWARE -- 4.8% Microsoft* 235,400 10,296 ------------ 10,296 - -------------------------------------------------------------------------------- COMPUTERS -- 3.6% Dell Computer* 332,200 7,810 ------------ 7,810 ------------ TOTAL TECHNOLOGY (COST $19,754) 18,106 ------------ TOTAL COMMON STOCK (COST $201,958) 190,571 ------------ - -------------------------------------------------------------------------------- INVESTMENT COMPANY -- 2.5% INDEX FUND-LARGE CAP -- 2.5% SPDR Trust Series 1 65,900 5,390 ------------ 5,390 ------------ TOTAL INVESTMENT COMPANY (COST $5,918) 5,390 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 4.3% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $3,433,823 (collateralized by U.S. Government Obligations: total market value $3,506,130) (A) $3,434 3,434 Deutsche Bank 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $2,938,687 (collateralized by U.S. Government Obligations: total market value $2,997,389) (A) 2,939 2,939 UBS Warburg LLC 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $2,793,207 (collateralized by U.S. Government Obligations: total market value $2,853,656) (A) 2,793 2,793 ------------ TOTAL REPURCHASE AGREEMENTS (COST $9,166) 9,166 ------------ TOTAL INVESTMENTS-- 94.9% (COST $217,042) $ 205,127 ============ Percentages are based on Net Assets of $216,178,338 * Non-income producing security. (A) -- Tri-party repurchase agreement LLC -- Limited Liability Company SPDR -- Standard & Poor's 500 Composite Index Depositary Receipt The accompanying notes are an integral part of the financial statements. 14 PBHG FUNDS PBHG LARGE CAP GROWTH FUND (UNAUDITED) PBHG LARGE CAP GROWTH FUND PBHLX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - ------------------------------------------------------------------------------------------------- PBHG Large Cap Growth Fund - PBHG Class3 (24.15)% (21.39)% (6.53)% 2.27% 11.46% - ------------------------------------------------------------------------------------------------- PBHG Large Cap Growth Fund - Advisor Class4 (24.26)% (21.58)% (6.66)% 2.19% 11.40% - -------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP GROWTH FUND - PBHG CLASS1 VERSUS THE S&P 500 INDEX, RUSSELL 1000(R) GROWTH INDEX AND THE LIPPER LARGE-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Large Cap Growth Funds Russell 1000 Growth Fund S&P 500 Index Classification Growth 4/5/95 10,000 10,000 10,000 10,000 4/30/95 10,000 10,189 10,000 10,000 5/31/95 10,070 10,595 10,349 10,310 6/30/95 10,920 10,841 10,748 10,817 7/31/95 11,740 11,200 11,195 11,360 8/31/95 12,310 11,229 11,207 11,418 9/30/95 13,160 11,702 11,724 11,809 10/31/95 13,510 11,660 11,732 11,734 11/30/95 13,720 12,172 12,188 12,124 12/31/95 13,383 12,406 12,258 12,068 1/31/96 14,146 12,828 12,668 12,389 2/29/96 14,827 12,947 12,899 12,711 3/31/96 14,992 13,072 12,916 12,752 4/30/96 15,880 13,264 13,256 13,124 5/31/96 16,509 13,606 13,719 13,515 6/30/96 16,158 13,658 13,738 13,392 7/31/96 15,023 13,055 12,933 12,604 8/31/96 15,601 13,330 13,267 13,020 9/30/96 16,870 14,080 14,233 13,896 10/31/96 16,365 14,468 14,318 13,990 11/30/96 16,994 15,561 15,393 14,844 12/31/96 16,514 15,253 15,092 14,498 1/31/97 17,247 16,205 16,151 15,381 2/28/97 16,504 16,332 16,041 15,139 3/31/97 14,727 15,662 15,173 14,337 4/30/97 15,626 16,597 16,181 15,098 5/31/97 17,330 17,606 17,348 16,143 6/30/97 18,197 18,395 18,043 16,811 7/31/97 19,860 19,858 19,638 18,375 8/31/97 18,941 18,746 18,489 17,531 9/30/97 20,139 19,772 19,399 18,462 10/31/97 19,282 19,113 18,682 17,807 11/30/97 19,365 19,997 19,475 18,202 12/31/97 20,206 20,340 19,693 18,442 1/31/98 19,893 20,565 20,282 18,713 2/28/98 22,450 22,047 21,808 20,190 3/31/98 23,681 23,175 22,677 21,109 4/30/98 23,817 23,408 22,991 21,417 5/31/98 23,160 23,006 22,338 20,864 6/30/98 24,861 23,940 23,707 22,091 7/31/98 24,621 23,686 23,550 21,879 8/31/98 19,945 20,266 20,015 18,319 9/30/98 21,458 21,564 21,553 19,559 10/31/98 21,573 23,318 23,285 20,870 11/30/98 22,993 24,731 25,056 22,318 12/31/98 26,353 26,156 27,316 24,588 1/31/99 27,213 27,250 28,920 26,120 2/28/99 25,671 26,403 27,599 25,062 3/31/99 27,447 27,460 29,052 26,471 4/30/99 27,157 28,523 29,089 26,587 5/31/99 26,029 27,850 28,196 25,787 6/30/99 27,950 29,395 30,170 27,618 7/31/99 26,933 28,478 29,212 26,814 8/31/99 27,135 28,336 29,689 26,827 9/30/99 27,593 27,559 29,065 26,570 10/31/99 30,363 29,303 31,260 28,398 11/30/99 34,284 29,899 32,947 29,945 12/31/99 44,025 31,660 36,373 33,449 1/31/00 44,792 30,069 34,668 32,155 2/29/00 56,129 29,500 36,363 34,225 3/31/00 54,509 32,386 38,966 36,224 4/30/00 48,628 31,412 37,112 34,283 5/31/00 44,409 30,767 35,243 32,428 6/30/00 52,833 31,525 37,914 34,643 7/31/00 52,876 31,033 36,333 33,953 8/31/00 59,709 32,960 39,623 36,846 9/30/00 56,882 31,220 35,875 34,348 10/31/00 51,355 31,088 34,177 32,795 11/30/00 42,661 28,637 29,139 28,630 12/31/00 43,945 28,777 28,217 28,590 1/31/01 44,051 29,798 30,167 29,425 2/28/01 39,143 27,081 25,045 25,179 3/31/01 34,584 25,366 22,320 22,694 4/30/01 37,499 27,337 25,143 25,052 5/31/01 37,438 27,520 24,773 24,831 6/30/01 36,638 26,850 24,199 24,074 7/31/01 35,264 26,586 23,594 23,284 8/31/01 32,364 24,922 21,665 21,408 9/30/01 28,664 22,909 19,502 19,308 10/31/01 29,872 23,346 20,525 20,076 11/30/01 31,835 25,137 22,497 21,947 12/31/01 31,413 25,357 22,454 22,004 1/31/02 30,129 24,987 22,058 21,513 2/28/02 28,589 24,505 21,142 20,535 3/31/02 29,706 25,427 21,874 21,381 4/30/02 28,724 23,885 20,088 19,880 5/31/02 27,939 23,709 19,602 19,444 6/30/02 26,233 22,020 17,789 17,836 7/31/02 23,741 20,304 16,811 16,515 8/31/02 23,741 20,437 16,861 16,543 9/30/02 22,533 18,216 15,112 15,021
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Large Cap Growth Fund - PBHG Class commenced operations on April 5, 1995. 4 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to September 30, 2002 was (31.81)%. 5 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Russell 1000(R) Growth Index is an unmanaged index that measures the performance of those securities in the Russell 1000(R) Index with higher price-to-book ratios and higher forecasted growth values. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 7 The Lipper Large-Cap Growth Funds Average represents the average performance of 729 mutual funds classified by Lipper, Inc. in the Large-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Large-Cap Growth Funds Average at that month's end, April 30, 1995. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 23% Consumer Non-Cyclical 9% Financial 12% Health Care 34% Industrial 5% Services 6% Technology 9% Transportation 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Procter & Gamble 3.7% Forest Laboratories 3.6% Quest Diagnostics 3.5% UnitedHealth Group 3.5% Bed Bath & Beyond 3.4% WellPoint Health Networks 3.0% Microsoft 3.0% HCA 2.9% Wal-Mart Stores 2.9% Johnson & Johnson 2.9% - ----------------------------------------------------------------------------- Total Top Ten Holdings 32.4% *As a % of Common Stock 15 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LARGE CAP GROWTH FUND PBHLX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 89.2% CONSUMER CYCLICAL -- 20.2% CASINO SERVICES -- 1.0% International Game Technology* 27,000 $ 1,867 ------------ 1,867 - -------------------------------------------------------------------------------- CRUISE LINES -- 1.4% Carnival 96,200 2,415 ------------ 2,415 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 2.2% Electronic Arts* 59,569 3,929 ------------ 3,929 - -------------------------------------------------------------------------------- MOTORCYCLE/MOTOR SCOOTER -- 1.5% Harley-Davidson 57,900 2,690 ------------ 2,690 - -------------------------------------------------------------------------------- RETAIL-BEDDING -- 3.0% Bed Bath & Beyond* 166,700 5,430 ------------ 5,430 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 1.2% Lowe's 51,500 2,132 ------------ 2,132 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 3.8% Costco Wholesale* 65,300 2,114 Wal-Mart Stores 95,200 4,687 ------------ 6,801 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 2.0% Walgreen 118,400 3,642 ------------ 3,642 - -------------------------------------------------------------------------------- RETAIL-REGIONAL DEPARTMENT STORE -- 2.1% Kohl's* 61,000 3,709 ------------ 3,709 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 0.9% Starbucks* 81,500 1,682 ------------ 1,682 - -------------------------------------------------------------------------------- TOYS -- 1.1% Mattel 108,000 1,945 ------------ 1,945 ------------ TOTAL CONSUMER CYCLICAL (COST $37,564) 36,242 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 7.8% BEVERAGES-NON-ALCOHOLIC -- 1.1% Coca-Cola 40,100 1,923 ------------ 1,923 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- BREWERY -- 2.1% Anheuser-Busch 74,500 $ 3,770 ------------ 3,770 - -------------------------------------------------------------------------------- COSMETICS & TOILETRIES -- 3.3% Procter & Gamble 65,500 5,855 ------------ 5,855 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 1.3% Kroger* 173,500 2,446 ------------ 2,446 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $15,219) 13,994 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 11.1% FINANCE-CONSUMER LOANS -- 1.6% SLM 30,900 2,878 ------------ 2,878 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 3.9% Fannie Mae 48,200 2,870 Freddie Mac 72,500 4,053 ------------ 6,923 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 1.0% American International Group 31,707 1,734 ------------ 1,734 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 4.6% Bank of America 55,200 3,522 Fifth Third Bancorp 49,500 3,031 Wells Fargo 36,600 1,762 ------------ 8,315 ------------ TOTAL FINANCIAL (COST $22,072) 19,850 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 30.1% MEDICAL INSTRUMENTS -- 2.1% Boston Scientific* 76,400 2,411 Guidant* 44,000 1,422 ------------ 3,833 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 4.9% Laboratory Corporation of America Holdings* 96,700 3,266 Quest Diagnostics* 90,000 5,538 ------------ 8,804 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.6% Johnson & Johnson 84,200 4,553 ------------ 4,553 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.3% Amgen* 88,700 3,699 Idec Pharmaceuticals* 54,000 2,242 ------------ 5,941 - -------------------------------------------------------------------------------- 16 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LARGE CAP GROWTH FUND PBHLX Market Description Shares Value (000 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 5.0% Forest Laboratories* 70,800 $ 5,806 Pfizer 107,600 3,123 ------------ 8,929 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 6.6% Anthem* 22,100 1,437 UnitedHealth Group 63,200 5,512 WellPoint Health Networks* 65,500 4,801 ------------ 11,750 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 3.9% HCA 98,700 4,699 Tenet Healthcare* 45,750 2,265 ------------ 6,964 - -------------------------------------------------------------------------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS-- 1.7% AmerisourceBergen 42,600 3,042 ------------ 3,042 ------------ TOTAL HEALTH CARE (COST $49,320) 53,816 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 4.6% AEROSPACE/DEFENSE -- 4.6% Lockheed Martin 69,900 4,520 Northrop Grumman 29,600 3,672 ------------ 8,192 ------------ TOTAL INDUSTRIAL (COST $7,828) 8,192 ------------ - -------------------------------------------------------------------------------- SERVICES -- 5.2% COMMERCIAL SERVICES-FINANCE -- 2.0% Concord EFS* 55,100 875 Moody's 56,900 2,760 ------------ 3,635 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 1.4% DST Systems* 82,600 2,434 ------------ 2,434 - -------------------------------------------------------------------------------- SCHOOLS -- 1.8% Apollo Group, Cl A* 74,300 3,227 ------------ 3,227 ------------ TOTAL SERVICES (COST $9,527) 9,296 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 8.4% APPLICATIONS SOFTWARE -- 2.7% Microsoft* 108,400 4,742 ------------ 4,742 - -------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS -- 1.1% Nextel Communications* 262,131 1,979 ------------ 1,979 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- COMPUTERS -- 1.4% Dell Computer* 110,000 $ 2,586 ------------ 2,586 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.7% First Data 47,800 1,336 ------------ 1,336 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 1.8% Intel 157,000 2,181 Texas Instruments 70,100 1,035 ------------ 3,216 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.7% Applied Materials* 107,100 1,237 ------------ 1,237 - -------------------------------------------------------------------------------- TOTAL TECHNOLOGY (COST $19,349) 15,096 ------------ - -------------------------------------------------------------------------------- TRANSPORTATION -- 1.8% TRANSPORT-SERVICES -- 1.8% United Parcel Service 51,200 3,201 ------------ 3,201 ------------ TOTAL TRANSPORTATION (COST $3,255) 3,201 ------------ TOTAL COMMON STOCK (COST $164,134) 159,687 ------------ - -------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 6.6% INDEX FUND-LARGE CAP -- 6.6% Nasdaq-100 Index Tracking Stock* 250,400 5,196 SPDR Trust Series 1 52,400 4,286 Technology Select Sector SPDR Fund* 197,100 2,331 ------------ 11,813 ------------ TOTAL INVESTMENT COMPANIES (COST $15,418) 11,813 ------------ - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.0% MicroStrategy, Series A 7.500%, 06/24/07 $103 21 ------------ 21 ------------ TOTAL CONVERTIBLE BOND (COST $0) 21 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 6.2% UBS Warburg LLC 1.88%, dated 09/30/02, matures 10/01/02, repurchase price $11,152,226 (collateralized by U.S. Government Obligations: total market value $11,378,295) (A) 11,152 11,152 ------------ TOTAL REPURCHASE AGREEMENT (COST $11,152) 11,152 ------------ TOTAL INVESTMENTS-- 102.0% (COST $190,704) 182,673 ------------ - -------------------------------------------------------------------------------- 17 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LARGE CAP GROWTH FUND PBHLX Market Description Value (000) - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (2.0)% Payable for Administrative Fees $ (23) Payable for Investment Advisory Fees (115) Payable for Investment Securities Purchased (4,056) Other Assets and Liabilities, Net 663 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (3,531) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 11,999,863 outstanding shares of common stock 382,513 Fund Shares of Advisor Class ($0.001 par value) based on 7,213 outstanding shares of common stock 195 Accumulated net investment loss (669) Accumulated net realized loss on investments (194,866) Unrealized depreciation on investments (8,031) ------------ TOTAL NET ASSETS-- 100.0% $ 179,142 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $14.92 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $14.86 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class LLC -- Limited Liability Company SPDR -- Standard & Poor's 500 Composite Index Depositary Receipt The accompanying notes are an integral part of the financial statements. 18 PBHG FUNDS PBHG LIMITED FUND (UNAUDITED) PBHG LIMITED FUND PBLDX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium - ------------------------------------------ Small X - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Limited Fund (43.94)% (34.20)% (15.73)% (6.05)% (0.05)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LIMITED FUND1 VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Limited Russell 2000 Lipper Small Cap Growth Fund Growth Index Funds Classification 6/30/96 $10,000 $10,000 $10,000 7/31/96 9,950 8,779 8,994 8/31/96 10,320 9,429 9,596 9/30/96 11,010 9,915 10,210 10/31/96 10,570 9,487 9,871 11/30/96 10,560 9,751 10,076 12/31/96 11,082 9,941 10,195 1/31/97 11,273 10,189 10,454 2/28/97 10,048 9,574 9,808 3/31/97 9,085 8,898 9,151 4/30/97 8,984 8,795 9,031 5/31/97 10,741 10,117 10,283 6/30/97 11,454 10,460 10,884 7/31/97 12,016 10,996 11,618 8/31/97 12,257 11,326 11,827 9/30/97 13,622 12,230 12,793 10/31/97 13,070 11,496 12,156 11/30/97 12,809 11,222 11,924 12/31/97 12,864 11,228 11,989 1/31/98 12,708 11,078 11,818 2/28/98 13,756 12,056 12,799 3/31/98 14,606 12,562 13,450 4/30/98 14,720 12,639 13,573 5/31/98 13,621 11,721 12,677 6/30/98 14,057 11,841 12,981 7/31/98 13,154 10,852 12,089 8/31/98 10,509 8,347 9,517 9/30/98 11,691 9,193 10,227 10/31/98 11,681 9,673 10,641 11/30/98 12,770 10,423 11,553 12/31/98 14,542 11,366 12,797 1/31/99 15,053 11,877 13,126 2/28/99 13,422 10,791 11,964 3/31/99 12,998 11,175 12,531 4/30/99 12,965 12,162 13,094 5/31/99 13,966 12,181 13,221 6/30/99 15,989 12,823 14,452 7/31/99 15,380 12,426 14,433 8/31/99 15,358 11,962 14,257 9/30/99 16,663 12,192 14,616 10/31/99 18,077 12,505 15,454 11/30/99 20,524 13,827 17,387 12/31/99 24,968 16,264 20,527 1/31/2000 24,821 16,113 20,332 2/29/2000 32,988 19,861 25,371 3/31/2000 30,840 17,774 24,074 4/30/2000 26,583 15,979 21,438 5/31/2000 23,407 14,580 19,674 6/30/2000 29,946 16,463 22,936 7/31/2000 27,677 15,052 21,436 8/31/2000 30,787 16,636 23,920 9/30/2000 31,093 15,809 23,037 10/31/2000 27,704 14,526 21,485 11/30/2000 21,645 11,888 17,772 12/31/2000 23,255 12,616 19,288 1/31/2001 23,758 13,637 19,784 2/28/2001 19,914 11,768 17,137 3/31/2001 17,581 10,698 15,507 4/30/2001 20,474 12,008 17,376 5/31/2001 21,015 12,286 17,754 6/30/2001 21,537 12,621 18,266 7/31/2001 19,932 11,544 17,204 8/31/2001 18,383 10,823 16,169 9/30/2001 15,155 9,077 13,677 10/31/2001 16,666 9,950 14,796 11/30/2001 18,141 10,780 15,944 12/31/2001 19,035 11,452 16,925 1/31/2002 18,108 11,044 16,392 2/28/2002 15,667 10,329 15,293 3/31/2002 17,786 11,227 16,480 4/30/2002 16,102 10,984 16,009 5/31/2002 14,494 10,342 15,212 6/30/2002 13,188 9,465 14,103 7/31/2002 11,448 8,010 12,099 8/31/2002 11,145 8,007 12,100 9/30/2002 9,972 7,428 11,316
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Limited Fund commenced operations on June 28, 1996. 4 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Small-Cap Growth Funds Average represents the average performance of 459 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, June 30, 1996. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 17% Consumer Non-Cyclical 2% Health Care 16% Industrial 2% Services 27% Technology 35% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Corinthian Colleges 4.0% Corporate Executive Board 3.9% Career Education 3.6% NetScreen Technologies 3.4% Medicis Pharmaceutical, Cl A 3.3% Silicon Laboratories 3.2% Integrated Circuit Systems 3.2% Quest Software 2.8% Accredo Health 2.8% Precise Software Solutions 2.6% - ------------------------------------------------------------------------------ Total Top Ten Holdings 32.8% *As a % of Common Stock 19 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LIMITED FUND PBLDX Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 87.0% CONSUMER CYCLICAL -- 14.7% ENTERTAINMENT SOFTWARE -- 2.8% Activision* 25,350 $ 607 Take-Two Interactive Software* 10,500 304 THQ* 8,900 185 ------------ 1,096 - -------------------------------------------------------------------------------- RADIO -- 2.8% Emmis Communications* 27,700 526 Radio One* 35,700 589 ------------ 1,115 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 2.0% AnnTaylor Stores* 16,750 386 HOT Topic* 21,200 382 ------------ 768 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.2% Electronics Boutique Holdings* 17,400 478 ------------ 478 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 1.9% J Jill Group* 30,050 523 Sharper Image* 11,500 220 ------------ 743 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.6% Krispy Kreme Doughnuts* 19,100 597 PF Chang's China Bistro* 14,400 418 Rare Hospitality International* 16,600 389 ------------ 1,404 - -------------------------------------------------------------------------------- TOYS -- 0.4% Leapfrog Enterprises* 7,300 138 ------------ 138 ------------ TOTAL CONSUMER CYCLICAL (COST $5,750) 5,742 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 1.9% FOOD-RETAIL -- 1.9% Whole Foods Market* 17,900 767 ------------ 767 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $439) 767 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 14.0% MEDICAL INSTRUMENTS -- 2.6% Advanced Neuromodulation Systems* 10,100 336 SurModics* 21,300 677 ------------ 1,013 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 2.7% Integra LifeSciences Holdings* 25,000 397 Martek Biosciences* 39,700 650 ------------ 1,047 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 4.9% Array Biopharma* 102,200 $ 796 Medicis Pharmaceutical, Cl A* 27,725 1,133 ------------ 1,929 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 1.3% Eon Labs* 23,800 514 ------------ 514 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 2.5% Accredo Health* 20,175 962 ------------ 962 ------------ TOTAL HEALTH CARE (COST $4,202) 5,465 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 2.0% CIRCUIT BOARDS -- 0.5% Merix* 26,400 215 ------------ 215 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.5% Benchmark Electronics* 8,800 185 ------------ 185 - -------------------------------------------------------------------------------- LASERS-SYSTEMS/COMPONENTS -- 1.0% Cymer* 20,200 377 ------------ 377 ------------ TOTAL INDUSTRIAL (COST $1,384) 777 ------------ - -------------------------------------------------------------------------------- SERVICES -- 23.4% ADVERTISING SERVICES -- 1.8% Getty Images* 35,600 714 ------------ 714 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 6.4% Anteon International* 23,100 628 Cognizant Technology Solutions* 10,500 603 Factset Research Systems 28,700 762 Manhattan Associates* 39,100 529 ------------ 2,522 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 5.6% Advisory Board* 19,600 580 Corporate Executive Board* 46,100 1,316 DiamondCluster International* 91,300 298 ------------ 2,194 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 1.4% Pharmaceutical Product Development* 27,500 532 ------------ 532 - -------------------------------------------------------------------------------- 20 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) PBHG LIMITED FUND PBLDX Market Description Shares Value (000) - -------------------------------------------------------------------------------- SCHOOLS -- 8.2% Career Education* 25,400 $ 1,219 Corinthian Colleges* 36,100 1,363 Strayer Education 10,400 619 ------------ 3,201 ------------ TOTAL SERVICES (COST $8,196) 9,163 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 31.0% APPLICATIONS SOFTWARE -- 2.5% Quest Software* 102,500 963 ------------ 963 - -------------------------------------------------------------------------------- COMPUTER DATA SECURITY -- 2.9% NetScreen Technologies* 105,500 1,145 ------------ 1,145 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 2.4% M-Systems Flash Disk Pioneers* 35,400 221 Sandisk* 54,500 715 ------------ 936 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.0% Documentum* 66,100 763 ------------ 763 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 4.0% Cognos*^ 15,300 257 NETIQ* 27,700 402 Precise Software Solutions* 97,800 896 ------------ 1,555 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 4.5% ChipPAC* 77,100 165 Silicon Laboratories* 60,200 1,103 Skyworks Solutions* 104,600 474 ------------ 1,742 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 1.4% Magma Design Automation* 29,900 267 Nassda* 55,200 288 ------------ 555 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 2.3% Foundry Networks* 107,700 590 Ixia* 79,900 328 ------------ 918 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 5.4% Exar* 25,900 299 Integrated Circuit Systems* 68,600 1,077 Integrated Device Technology* 33,500 350 Power Integrations* 32,100 391 ------------ 2,117 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 2.8% ATMI* 29,500 $ 416 Entegris* 53,200 413 Mykrolis* 45,800 282 ------------ 1,111 - -------------------------------------------------------------------------------- SOFTWARE TOOLS -- 0.8% Altiris* 31,900 317 ------------ 317 - -------------------------------------------------------------------------------- TOTAL TECHNOLOGY (COST $16,226) 12,122 ------------ TOTAL COMMON STOCK (COST $36,197) 34,036 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 16.4% Morgan Stanley 1.83%, dated 09/30/02, matures 10/01/02, repurchase price $6,421,147 (collateralized by U.S. Government Obligations: total market value $6,549,242) (A) $6,421 6,421 ------------ TOTAL REPURCHASE AGREEMENT (COST $6,421) 6,421 ------------ TOTAL INVESTMENTS-- 103.4% (COST $42,618) 40,457 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (3.4)% Receivable for Investment Securities Sold 1,058 Payable for Administrative Fees (5) Payable for Investment Advisory Fees (34) Payable for Investment Securities Purchased (2,313) Other Assets and Liabilities, Net (28) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (1,322) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 7,429,602 outstanding shares of common stock 63,670 Accumulated net investment loss (344) Accumulated net realized loss on investments (22,030) Unrealized depreciation on investments (2,161) ------------ TOTAL NET ASSETS-- 100.0% $ 39,135 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $5.27 ===== * Non-income producing security. ^ The fund held a Canadian domiciled security traded on the Nasdaq stock market as of September 30, 2002. (A) -- Tri-party repurchase agreement Cl -- Class The accompanying notes are an integral part of the financial statements. 21 PBHG FUNDS PBHG NEW OPPORTUNITIES FUND PBNOX PBHG NEW OPPORTUNITIES FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium - ------------------------------------------ Small X - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized 6 Year 3 Year Inception Months2 Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG New Opportunities Fund (31.48)% (15.53)% 3.48% 25.11% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG NEW OPPORTUNITIES FUND1 VERSUS THE RUSSELL 2000(R) GROWTH INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Russell 2000 Lipper Mid-Cap New Opportunities 731 Growth Index Growth Funds Average 2/12/99 $10,000 $10,000 $10,000 2/28/99 10,399 14,461 10,000 3/31/99 12,182 14,976 10,474 4/30/99 12,618 16,299 10,944 5/31/99 13,306 16,324 11,050 6/30/99 17,944 17,184 12,079 7/31/99 19,519 16,653 12,064 8/31/99 19,808 16,030 11,916 9/30/99 20,355 16,339 12,217 10/31/99 25,769 16,758 12,917 11/30/99 34,645 18,530 14,533 12/31/99 53,900 21,796 17,157 1/31/2000 56,972 21,593 16,994 2/29/2000 85,782 26,617 21,205 3/31/2000 76,739 23,819 20,122 4/30/2000 55,596 21,414 17,918 5/31/2000 52,462 19,539 16,444 6/30/2000 69,860 22,063 19,170 7/31/2000 55,838 20,172 17,916 8/31/2000 62,904 22,294 19,993 9/30/2000 61,935 21,186 19,255 10/31/2000 59,668 19,467 17,957 11/30/2000 44,575 15,932 14,854 12/31/2000 51,376 16,907 16,121 1/31/2001 50,406 18,275 16,536 2/28/2001 41,341 15,770 14,323 3/31/2001 35,012 14,336 12,961 4/30/2001 37,281 16,092 14,523 5/31/2001 38,101 16,464 14,839 6/30/2001 39,929 16,913 15,267 7/31/2001 35,251 15,470 14,380 8/31/2001 32,667 14,504 13,514 9/30/2001 26,703 12,164 11,432 10/31/2001 30,107 13,334 12,367 11/30/2001 31,570 14,447 13,326 12/31/2001 35,604 15,347 14,146 1/31/2002 34,230 14,801 13,700 2/28/2002 30,170 13,843 12,782 3/31/2002 32,919 15,046 13,774 4/30/2002 31,557 14,720 13,380 5/31/2002 30,498 13,860 12,714 6/30/2002 28,683 12,684 11,787 7/31/2002 24,333 10,735 10,112 8/31/2002 24,005 10,730 10,113 9/30/2002 22,555 9,955 9,458
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG New Opportunities Fund commenced operations on February 12, 1999. 4 The Russell 2000(R) Growth Index is an unmanaged index comprised of those securities in the Russell 2000(R) Index with a greater-than-average growth orientation. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Small-Cap Growth Funds Average represents the average performance of 459 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Small-Cap Growth Funds Average at that month's end, February 28, 1999. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 13% Energy 4% Health Care 31% Industrial 8% Services 23% Technology 21% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Veridian 4.2% Corinthian Colleges 3.9% AC Moore Arts & Crafts 3.9% Odyssey HealthCare 3.8% SRA International 3.6% Wright Medical Group 3.5% CACI International 3.4% Career Education 3.3% Taro Pharmaceuticals Industries 3.2% FTI Consulting 3.2% - -------------------------------------------------------------------------------- Total Top Ten Holdings 36.0% *As a % of Common Stock 22 PBHG FUNDS PBHG NEW OPPORTUNITIES FUND PBNOX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 88.8% CONSUMER CYCLICAL -- 11.6% RETAIL-APPAREL/SHOE -- 2.7% Aeropostale* 12,000 $ 185 Pacific Sunwear of California* 29,800 606 ------------ 791 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 3.4% AC Moore Arts & Crafts* 48,000 1,014 ------------ 1,014 - -------------------------------------------------------------------------------- RETAIL-MAIL ORDER -- 1.8% J Jill Group* 29,800 519 ------------ 519 - -------------------------------------------------------------------------------- RETAIL-MISCELLANEOUS/DIVERSIFIED -- 1.0% Blue Rhino* 19,600 300 ------------ 300 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 2.7% PF Chang's China Bistro* 28,000 813 ------------ 813 ------------ TOTAL CONSUMER CYCLICAL (COST $3,491) 3,437 ------------ - -------------------------------------------------------------------------------- ENERGY -- 3.4% OIL & GAS DRILLING -- 1.3% Atwood Oceanics* 13,000 380 ------------ 380 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 2.1% Oceaneering International* 23,900 609 ------------ 609 ------------ TOTAL ENERGY (COST $1,259) 989 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 27.5% DIAGNOSTIC EQUIPMENT -- 2.2% Immucor* 40,000 650 ------------ 650 - -------------------------------------------------------------------------------- DISPOSABLE MEDICAL PRODUCTS -- 5.0% ICU Medical* 20,000 730 Merit Medical Systems* 39,000 753 ------------ 1,483 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 2.3% Endocare* 47,000 673 ------------ 673 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 2.8% Inveresk Research Group* 43,800 828 ------------ 828 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 6.5% American Medical Systems Holdings* 27,600 $ 573 Possis Medical* 40,900 417 Wright Medical Group* 48,500 923 ------------ 1,913 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 0.5% Martek Biosciences* 9,800 161 ------------ 161 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 2.8% Taro Pharmaceuticals Industries* 25,000 844 ------------ 844 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 2.1% United Surgical Partners International*28,000 619 ------------ 619 - -------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL -- 3.3% Odyssey HealthCare* 33,000 988 ------------ 988 ------------ TOTAL HEALTH CARE (COST $7,493) 8,159 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 7.2% AEROSPACE/DEFENSE-EQUIPMENT -- 3.7% Veridian* 44,000 1,099 ------------ 1,099 - -------------------------------------------------------------------------------- BATTERIES/BATTERY SYSTEMS -- 2.3% Wilson Greatbatch Technologies* 24,200 673 ------------ 673 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 1.2% Itron* 19,500 359 ------------ 359 ------------ TOTAL INDUSTRIAL (COST $1,861) 2,131 ------------ - -------------------------------------------------------------------------------- SERVICES -- 20.1% COMPUTER SERVICES -- 6.9% CACI International* 25,100 890 Manhattan Associates* 15,000 203 SRA International* 33,200 950 ------------ 2,043 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 6.8% Advisory Board* 27,900 826 Corporate Executive Board* 12,700 363 FTI Consulting* 20,900 831 ------------ 2,020 - -------------------------------------------------------------------------------- 23 PBHG FUNDS PBHG NEW OPPORTUNITIES FUND PBNOX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- SCHOOLS -- 6.4% Career Education* 18,200 $ 874 Corinthian Colleges* 27,200 1,026 ------------ 1,900 ------------ TOTAL SERVICES (COST $4,706) 5,963 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 19.0% APPLICATIONS SOFTWARE -- 1.3% Quest Software* 39,600 372 ------------ 372 - -------------------------------------------------------------------------------- COMPUTER DATA SECURITY -- 2.4% NetScreen Technologies* 64,600 701 ------------ 701 - -------------------------------------------------------------------------------- DECISION SUPPORT SOFTWARE -- 1.5% Precise Software Solutions* 47,600 436 ------------ 436 - -------------------------------------------------------------------------------- E-SERVICES/CONSULTING -- 1.2% Websense* 30,000 348 ------------ 348 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 5.5% Cree* 53,500 669 Omnivision Technologies* 61,100 402 Silicon Laboratories* 30,000 550 ------------ 1,621 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 2.2% Verisity* 55,000 657 ------------ 657 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.5% Foundry Networks* 30,000 165 ------------ 165 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 3.4% O2Micro International* 87,300 688 Power Integrations* 27,100 330 ------------ 1,018 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 1.0% Intrado* 32,100 310 ------------ 310 ------------ TOTAL TECHNOLOGY (COST $7,244) 5,628 ------------ TOTAL COMMON STOCK (COST $26,054) 26,307 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.5% MicroStrategy, Series A 7.500%, 06/24/07 $ 720 $ 148 ------------ 148 - -------------------------------------------------------------------------------- TOTAL CONVERTIBLE BOND (COST $0) 148 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 8.7% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $2,575,616 (collateralized by U.S. Government Obligations: total market value $2,627,957) (A) 2,575 2,575 ------------ TOTAL REPURCHASE AGREEMENT (COST $2,575) 2,575 ------------ TOTAL INVESTMENTS-- 98.0% (COST $28,629) 29,030 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 2.0% Receivable for Investment Securities Sold 1,009 Payable for Administrative Fees (4) Payable for Investment Advisory Fees (26) Payable for Investment Securities Purchased (378) Other Assets and Liabilities, Net 4 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 605 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 1,656,251 outstanding shares of common stock 60,657 Accumulated net investment loss (208) Accumulated net realized loss on investments (31,215) Unrealized appreciation on investments 401 ------------ TOTAL NET ASSETS-- 100.0% $ 29,635 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $17.89 ====== * Non-income producing security (A)-- Tri-party repurchase agreement The accompanying notes are an integral part of the financial statements. 24 PBHG FUNDS PBHG SELECT EQUITY FUND (UNAUDITED) PBHG SELECT EQUITY FUND PBHEX INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Select Equity Fund (31.40)% (25.64)% (13.01)% (3.39)% 9.10% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SELECT EQUITY FUND1 VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Select S&P 500 Lipper Multi-Cap Growth Equity Fund Composite Index Funds Classification 4/5/95 $10,000 $10,000 $10,000 4/30/95 10,210 10,189 10,000 5/31/95 10,620 10,595 10,259 6/30/95 11,930 10,841 10,976 7/31/95 13,680 11,201 11,755 8/31/95 14,240 11,229 11,875 9/30/95 14,850 11,702 12,241 10/31/95 15,300 11,661 11,988 11/30/95 15,690 12,172 12,416 12/31/95 15,836 12,406 12,445 1/31/96 16,184 12,828 12,541 2/29/96 17,382 12,947 13,000 3/31/96 17,690 13,072 13,133 4/30/96 19,206 13,265 13,906 5/31/96 20,804 13,606 14,388 6/30/96 20,015 13,658 13,926 7/31/96 18,059 13,055 12,707 8/31/96 19,257 13,331 13,360 9/30/96 21,562 14,080 14,328 10/31/96 20,322 14,468 14,157 11/30/96 20,793 15,561 14,817 12/31/96 20,269 15,253 14,572 1/31/97 20,765 16,205 15,327 2/28/97 18,324 16,332 14,596 3/31/97 16,461 15,663 13,716 4/30/97 16,927 16,597 14,014 5/31/97 19,203 17,607 15,414 6/30/97 19,979 18,395 15,992 7/31/97 21,852 19,858 17,504 8/31/97 20,765 18,747 17,163 9/30/97 22,804 19,773 18,315 10/31/97 21,231 19,113 17,491 11/30/97 20,600 19,997 17,438 12/31/97 21,655 20,340 17,531 1/31/98 21,221 20,565 17,545 2/28/98 23,383 22,047 19,045 3/31/98 24,987 23,176 20,039 4/30/98 24,935 23,409 20,305 5/31/98 23,476 23,007 19,389 6/30/98 26,466 23,941 20,557 7/31/98 24,325 23,686 19,973 8/31/98 19,596 20,266 16,436 9/30/98 21,490 21,564 17,902 10/31/98 20,196 23,318 18,793 11/30/98 21,707 24,732 20,372 12/31/98 25,773 26,157 23,057 1/31/99 26,115 27,251 24,722 2/28/99 23,745 26,404 23,325 3/31/99 26,829 27,460 25,037 4/30/99 25,897 28,524 25,640 5/31/99 24,790 27,850 25,122 6/30/99 26,942 29,396 27,014 7/31/99 26,363 28,479 26,571 8/31/99 28,318 28,336 26,858 9/30/99 29,157 27,560 27,076 10/31/99 35,023 29,304 29,144 11/30/99 44,490 29,899 32,096 12/31/99 67,241 31,660 38,057 1/31/2000 70,543 30,070 37,166 2/29/2000 101,120 29,501 43,841 3/31/2000 91,437 32,387 43,267 4/30/2000 71,213 31,412 39,152 5/31/2000 63,034 30,768 36,357 6/30/2000 86,290 31,526 40,494 7/31/2000 83,575 31,033 39,328 8/31/2000 97,524 32,961 43,874 9/30/2000 89,239 31,221 41,654 10/31/2000 77,124 31,089 38,443 11/30/2000 51,729 28,638 31,796 12/31/2000 50,732 28,778 32,381 1/31/2001 52,922 29,799 33,395 2/28/2001 40,987 27,082 27,951 3/31/2001 32,706 25,366 24,659 4/30/2001 37,677 27,337 27,692 5/31/2001 37,369 27,520 27,381 6/30/2001 37,246 26,851 26,935 7/31/2001 33,887 26,586 25,516 8/31/2001 30,072 24,922 23,291 9/30/2001 25,815 22,910 20,109 10/31/2001 27,341 23,346 21,404 11/30/2001 30,220 25,137 23,568 12/31/2001 30,011 25,358 23,941 1/31/2002 28,510 24,988 23,237 2/28/2002 26,639 24,506 21,836 3/31/2002 27,981 25,428 23,032 4/30/2002 26,492 23,886 21,666 5/31/2002 25,286 23,710 20,999 6/30/2002 23,243 22,021 19,107 7/31/2002 21,078 20,304 17,445 8/31/2002 20,401 20,438 17,345 9/30/2002 19,195 18,216 15,998
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Select Equity Fund commenced operations on April 5, 1995. 4 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Multi-Cap Growth Funds Average represents the average performance of 430 mutual funds classified by Lipper, Inc. in the Multi-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Growth Funds Average at that month's end, April 30, 1995. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 19% Financial 9% Health Care 38% Industrial 3% Services 11% Technology 20% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Forest Laboratories 6.2% Microsoft 5.6% Weight Watchers International 5.5% Apollo Group, Cl A 5.2% Dell Computer 5.1% SLM 5.1% Anthem 5.1% Boston Scientific 5.1% Kohl's 4.6% Wal-Mart Stores 4.6% - -------------------------------------------------------------------------------- Total Top Ten Holdings 52.1% *As a % of Common Stock 25 PBHG FUNDS PBHG SELECT EQUITY FUND PBHEX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 86.6% CONSUMER CYCLICAL -- 16.3% ENTERTAINMENT SOFTWARE -- 4.8% Activision* 165,300 $ 3,956 Electronic Arts* 116,500 7,684 ------------ 11,640 - -------------------------------------------------------------------------------- MOTORCYCLE/MOTOR SCOOTER -- 3.3% Harley-Davidson 172,000 7,989 ------------ 7,989 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 3.9% Wal-Mart Stores 196,300 9,666 ------------ 9,666 - -------------------------------------------------------------------------------- RETAIL-REGIONAL DEPARTMENT STORE -- 4.0% Kohl's* 159,500 9,699 ------------ 9,699 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 0.3% Cheesecake Factory* 25,000 746 ------------ 746 ------------ TOTAL CONSUMER CYCLICAL (COST $42,782) 39,740 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 7.4% FINANCE-CONSUMER LOANS -- 4.4% SLM 115,800 10,785 ------------ 10,785 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 3.0% Countrywide Credit Industry 125,000 5,894 Fannie Mae 23,800 1,417 ------------ 7,311 ------------ TOTAL FINANCIAL (COST $18,692) 18,096 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 33.3% DENTAL SUPPLIES & EQUIPMENT -- 3.1% Patterson Dental* 146,700 7,508 ------------ 7,508 - -------------------------------------------------------------------------------- DIALYSIS CENTERS -- 1.0% DaVita* 106,700 2,518 ------------ 2,518 - -------------------------------------------------------------------------------- MEDICAL IMAGING SYSTEMS -- 2.7% CTI Molecular Imaging* 262,600 6,644 ------------ 6,644 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 4.4% Boston Scientific* 340,400 10,743 ------------ 10,743 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 5.0% Baxter International 90,000 $ 2,749 Varian Medical Systems* 148,800 6,397 Zimmer Holdings* 77,400 2,968 ------------ 12,114 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 3.7% Idec Pharmaceuticals* 218,100 9,056 ------------ 9,056 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 9.0% Forest Laboratories* 160,800 13,187 Pfizer 300,000 8,706 ------------ 21,893 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 4.4% Anthem* 165,300 10,744 ------------ 10,744 ------------ TOTAL HEALTH CARE (COST $76,097) 81,220 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 2.9% ELECTRONICS-MILITARY -- 2.9% L-3 Communications Holdings* 136,600 7,199 ------------ 7,199 ------------ TOTAL INDUSTRIAL (COST $7,465) 7,199 ------------ - -------------------------------------------------------------------------------- SERVICES -- 9.2% COMMERCIAL SERVICES -- 4.7% Weight Watchers International* 268,400 11,638 ------------ 11,638 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 0.0% MicroStrategy* 1 -- ------------ -- - -------------------------------------------------------------------------------- SCHOOLS -- 4.5% Apollo Group, Cl A* 251,450 10,920 ------------ 10,920 ------------ TOTAL SERVICES (COST $18,429) 22,558 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 17.5% APPLICATIONS SOFTWARE -- 4.8% Microsoft* 270,000 11,810 ------------ 11,810 - -------------------------------------------------------------------------------- COMPUTERS -- 4.4% Dell Computer* 462,800 10,880 ------------ 10,880 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.1% Brocade Communications Systems* 20,000 151 ------------ 151 - ------------------------------------------------------------- 26 PBHG FUNDS PBHG SELECT EQUITY FUND PBHEX STATEMENT OF NET ASSETS As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 8.2% Intel 633,300 $ 8,797 Microchip Technology* 320,000 6,544 Texas Instruments 311,800 4,605 ------------ 19,946 ------------ TOTAL TECHNOLOGY (COST $50,071) 42,787 ------------ TOTAL COMMON STOCK (COST $213,536) 211,600 ------------ - -------------------------------------------------------------------------------- INVESTMENT COMPANY -- 3.6% INDEX FUND-LARGE CAP -- 3.6% Technology Select Sector SPDR Fund* 733,000 8,671 ------------ 8,671 TOTAL INVESTMENT COMPANY (COST $11,073) 8,671 ------------ - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.3% MicroStrategy, Series A 7.500%, 06/24/07 $3,223 661 ------------ 661 ------------ TOTAL CONVERTIBLE BOND (COST $0) 661 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 10.1% Greenwich Capital 1.90%, dated 09/30/02, matures 10/01/02, repurchase price $24,728,913 (collateralized by U.S. Government Obligations: total market value $25,225,874) (A) 24,728 24,728 ------------ TOTAL REPURCHASE AGREEMENT (COST $24,728) 24,728 ------------ TOTAL INVESTMENTS-- 100.6% (COST $249,337) 245,660 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- (0.6%) Receivable for Investment Securities Sold 6,520 Payable for Adminstrative Fees (32) Payable for Investment Advisory Fees (179) Payable for Investment Securities Purchased (7,317) Other Assets and Liabilities, Net (432) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (1,440) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 15,655,255 outstanding shares of common stock 1,481,776 Accumulated net investment loss (1,577) Accumulated net realized loss on investments (1,232,302) Unrealized depreciation on investments (3,677) ------------ TOTAL NET ASSETS-- 100.0% $ 244,220 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $15.60 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement Cl-- Class SPDR-- Standard & Poor's 500 Composite Index Depositary Receipt The accompanying notes are an integral part of the financial statements. 27 PBHG FUNDS PBHG CLIPPER FOCUS FUND PBFOX PBHG CLIPPER FOCUS FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized 6 Year 3 Year Inception Months2 Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Clipper Focus Fund (23.84)% (7.47)% 9.66% 11.17% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISONOF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG CLIPPER FOCUS FUND1 VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Clipper Focus S&P 500 Index Lipper Multi-Cap Value Funds 9/10/98 $10,000 $10,000 $10,000 9/30/98 10,260 10,387 10,000 10/31/98 11,700 11,232 10,799 11/30/98 12,040 11,913 11,299 12/31/98 11,791 12,599 11,648 1/31/99 11,501 13,126 11,727 2/28/99 11,290 12,718 11,400 3/31/99 11,230 13,227 11,731 4/30/99 12,233 13,739 12,654 5/31/99 12,203 13,415 12,626 6/30/99 12,354 14,159 13,057 7/31/99 12,122 13,718 12,694 8/31/99 11,971 13,649 12,321 9/30/99 11,649 13,275 11,819 10/31/99 11,528 14,115 12,204 11/30/99 11,447 14,402 12,281 12/31/99 11,569 15,250 12,674 1/31/2000 11,046 14,484 12,122 2/29/2000 9,856 14,210 11,637 3/31/2000 10,846 15,600 12,873 4/30/2000 11,207 15,130 12,848 5/31/2000 11,805 14,820 12,969 6/30/2000 11,542 15,185 12,680 7/31/2000 12,039 14,948 12,774 8/31/2000 12,920 15,876 13,597 9/30/2000 13,915 15,038 13,493 10/31/2000 14,758 14,975 13,834 11/30/2000 15,195 13,794 13,337 12/31/2000 16,692 13,862 14,148 1/31/2001 16,445 14,353 14,537 2/28/2001 16,972 13,045 14,141 3/31/2001 16,697 12,218 13,663 4/30/2001 17,171 13,168 14,439 5/31/2001 17,527 13,256 14,732 6/30/2001 17,492 12,933 14,487 7/31/2001 17,341 12,806 14,454 8/31/2001 17,438 12,004 13,955 9/30/2001 16,603 11,035 12,772 10/31/2001 16,776 11,245 12,942 11/30/2001 18,209 12,108 13,751 12/31/2001 18,684 12,214 14,112 1/31/2002 18,955 12,036 13,972 2/28/2002 19,238 11,804 13,883 3/31/2002 20,172 12,248 14,524 4/30/2002 19,730 11,505 14,116 5/31/2002 20,431 11,420 14,068 6/30/2002 18,278 10,607 13,029 7/31/2002 17,528 9,780 11,880 8/31/2002 18,143 9,844 12,002 9/30/2002 15,363 8,774 10,699
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments to a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. Prior to the acquisition, the PBHG class shares of the fund were known as the Institutional Class shares of the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. The Clipper Focus Portfolio was managed by Pacific Financial Research, Inc., the PBHG Clipper Focus Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Clipper Focus Portfolio. Data includes performance of the Fund's predecessor, whose inception date was September 10, 1998. 4 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Multi-Cap Value Funds Average represents the average performance of 508 mutual funds classified by Lipper, Inc. in the Multi-Cap Value Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Value Funds Average at that month's end, September 30, 1998. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 8% Consumer Non-Cyclical 25% Energy 4% Financial 35% Health Care 5% Industrial 9% Services 10% Technology 4% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Tyco International 9.4% Freddie Mac 8.7% Philip Morris 6.5% Fannie Mae 6.4% American Express 5.6% Safeway 5.1% Electronic Data Systems 5.0% Kroger 4.5% Interpublic Group 4.4% El Paso 4.1% - ----------------------------------------------------------------------------- Total Top Ten Holdings 59.7% *As a % of Common Stock 28 PBHG FUNDS PBHG CLIPPER FOCUS FUND PBFOX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 97.8% CONSUMER CYCLICAL -- 7.7% ATHLETIC FOOTWEAR -- 0.4% Nike, Cl B 56,800 $ 2,453 ------------ 2,453 - -------------------------------------------------------------------------------- MULTIMEDIA -- 2.6% AOL Time Warner* 1,268,200 14,838 ------------ 14,838 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 0.6% CVS 137,000 3,473 ------------ 3,473 - -------------------------------------------------------------------------------- RETAIL-OFFICE SUPPLIES -- 1.1% Staples* 497,100 6,358 ------------ 6,358 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 3.0% McDonald's 989,500 17,474 ------------ 17,474 ------------ TOTAL CONSUMER CYCLICAL (COST $52,133) 44,596 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 24.8% FOOD-MEAT PRODUCTS -- 2.7% Tyson Foods, Cl A 1,364,000 15,863 ------------ 15,863 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 4.0% Kraft Foods, Cl A 157,600 5,746 Sara Lee 940,100 17,195 ------------ 22,941 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 9.4% Kroger* 1,800,600 25,388 Safeway* 1,303,800 29,075 ------------ 54,463 - -------------------------------------------------------------------------------- TOBACCO -- 8.7% Philip Morris 954,100 37,019 UST 480,500 13,555 ------------ 50,574 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $191,026) 143,841 ------------ - -------------------------------------------------------------------------------- ENERGY -- 4.0% PIPELINES -- 4.0% El Paso 2,828,900 23,395 ------------ 23,395 ------------ TOTAL ENERGY (COST $32,110) 23,395 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 33.9% FINANCE-CREDIT CARD -- 5.5% American Express 1,028,300 32,062 ------------ 32,062 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FINANCE-INVESTMENT BANKER/BROKER -- 1.8% Merrill Lynch 321,400 $ 10,590 ------------ 10,590 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 14.8% Fannie Mae 612,400 36,462 Freddie Mac 885,100 49,477 ------------ 85,939 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 3.1% Old Republic International 627,500 17,809 ------------ 17,809 - -------------------------------------------------------------------------------- REITS-APARTMENTS-- 6.9% Apartment Investment & Management, Cl A 281,300 10,929 Archstone-Smith Trust 478,100 11,417 Equity Residential 737,100 17,646 ------------ 39,992 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 1.8% Equity Office Properties Trust 222,900 5,755 Mack-Cali Realty 146,000 4,691 ------------ 10,446 ------------ TOTAL FINANCIAL (COST $231,789) 196,838 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 5.0% MEDICAL INFORMATION SYSTEMS -- 0.8% IMS Health 312,400 4,677 ------------ 4,677 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 4.2% Merck 240,200 10,980 Pfizer 98,800 2,867 Wyeth 326,900 10,395 ------------ 24,242 ------------ TOTAL HEALTH CARE (COST $29,274) 28,919 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 12.6% DIVERSIFIED MANUFACTURING OPERATIONS-- 9.2% Tyco International 3,788,000 53,411 ------------ 53,411 - -------------------------------------------------------------------------------- OFFICE AUTOMATION & EQUIPMENT -- 3.4% Pitney Bowes 655,700 19,992 ------------ 19,992 ------------ TOTAL INDUSTRIAL (COST $93,783) 73,403 ------------ - -------------------------------------------------------------------------------- SERVICES -- 9.8% ADVERTISING AGENCIES -- 4.3% Interpublic Group 1,572,700 24,927 ------------ 24,927 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 4.9% Electronic Data Systems 2,037,000 28,477 ------------ 28,477 - -------------------------------------------------------------------------------- 29 PBHG FUNDS PBHG CLIPPER FOCUS FUND PBFOX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 0.6% Manpower 123,500 $ 3,624 ------------ 3,624 ------------ TOTAL SERVICES (COST $80,159) 57,028 ------------ TOTAL COMMON STOCK (COST $710,274) 568,020 - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.8% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $10,506,571 (collateralized by U.S. Government Obligations: total market value $10,717,151) (A)$10,506 10,506 ------------ TOTAL REPURCHASE AGREEMENT (COST $10,506) 10,506 - -------------------------------------------------------------------------------- TOTAL INVESTMENTS-- 99.6% (COST $720,780) 578,526 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 0.4% Receivable for Investment Securities Sold 11,014 Payable for Administrative Fees (80) Payable for Investment Advisory Fees (474) Payable for Investment Securities Purchased (9,797) Other Assets and Liabilities, Net 1,775 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 2,438 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 46,500,479 outstanding shares of common stock 702,720 Undistributed net investment income 3,994 Accumulated net realized gain on investments 16,504 Unrealized depreciation on investments (142,254) ------------ TOTAL NET ASSETS-- 100.0% $ 580,964 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $12.49 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 30 PBHG FUNDS PBHG FOCUSED VALUE FUND PBFVX PBHG FOCUSED VALUE FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized 6 Year 3 Year Inception Months2 Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Focused Value Fund (26.91)% (25.20)% 2.89% 6.75% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG FOCUSED VALUE FUND1 VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Focused Value Fund S&P 500 Index Multi-Cap Core Funds Average 2/28/99 $10,000 $10,000 $10,000 2/28/99 9,932 10,072 10,000 3/31/99 10,136 10,475 10,351 4/30/99 10,058 10,881 10,764 5/31/99 10,446 10,624 10,638 6/30/99 11,318 11,213 11,215 7/31/99 11,541 10,864 10,991 8/31/99 11,560 10,809 10,826 9/30/99 11,638 10,513 10,637 10/31/99 11,986 11,178 11,153 11/30/99 12,888 11,405 11,637 12/31/99 14,802 12,077 12,643 1/31/2000 16,066 11,470 12,199 2/29/2000 16,739 11,253 12,806 3/31/2000 19,173 12,354 13,562 4/30/2000 17,381 11,983 13,063 5/31/2000 17,516 11,737 12,672 6/30/2000 17,827 12,026 13,202 7/31/2000 17,464 11,838 12,991 8/31/2000 18,656 12,573 13,960 9/30/2000 18,676 11,909 13,410 10/31/2000 18,780 11,859 13,171 11/30/2000 17,029 10,924 12,007 12/31/2000 18,475 10,978 12,393 1/31/2001 19,558 11,367 12,766 2/28/2001 19,314 10,331 11,694 3/31/2001 18,486 9,676 10,926 4/30/2001 19,834 10,428 11,784 5/31/2001 20,248 10,498 11,845 6/30/2001 19,930 10,242 11,646 7/31/2001 19,696 10,142 11,392 8/31/2001 19,027 9,507 10,778 9/30/2001 16,946 8,739 9,738 10/31/2001 17,392 8,906 10,013 11/30/2001 18,645 9,589 10,743 12/31/2001 19,111 9,673 10,946 1/31/2002 17,676 9,532 10,765 2/28/2002 17,237 9,348 10,498 3/31/2002 17,344 9,700 10,971 4/30/2002 16,894 9,112 10,527 5/31/2002 16,937 9,044 10,388 6/30/2002 15,599 8,400 9,632 7/31/2002 14,143 7,745 8,815 8/31/2002 14,271 7,796 8,846 9/30/2002 12,676 6,949 8,037
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments to a limited number of securities may involve greater risk than more diversified funds, including a greater potential for volatility. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Focused Value Fund commenced operations on February 12, 1999. 4 The S&P 500 Index is a capitalization-weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Multi-Cap Core Funds Average represents the average performance of 490 mutual funds classified by Lipper, Inc. in the Multi-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Core Funds Average at that month's end, February 28, 1999. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 24% Consumer Non-Cyclical 4% Energy 9% Financial 22% Health Care 19% Services 10% Technology 8% Utilities 4% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Aetna 7.9% Freddie Mac 6.8% Pfizer 6.3% DST Systems 6.0% Walt Disney 6.0% Wyeth 5.1% JC Penney 4.7% Devon Energy 4.7% Microsoft 4.5% Consolidated Edison 4.3% - -------------------------------------------------------------------------------- Total Top Ten Holdings 56.3% *As a % of Common Stock 31 PBHG FUNDS PBHG FOCUSED VALUE FUND PBFVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 93.3% CONSUMER CYCLICAL -- 22.5% MULTIMEDIA -- 5.6% Walt Disney 95,000 $ 1,439 ------------ 1,439 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 9.6% Costco Wholesale* 25,000 809 Target 22,400 661 Wal-Mart Stores 20,100 990 ------------ 2,460 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 2.9% CVS 29,200 740 ------------ 740 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 4.4% JC Penney 70,800 1,127 ------------ 1,127 ------------ TOTAL CONSUMER CYCLICAL (COST $7,314) 5,766 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 3.7% FOOD-RETAIL -- 3.7% Safeway* 41,800 932 ------------ 932 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $1,666) 932 ------------ - -------------------------------------------------------------------------------- ENERGY -- 8.2% OIL COMPANIES-EXPLORATION & PRODUCTION-- 4.4% Devon Energy 23,200 1,119 ------------ 1,119 - -------------------------------------------------------------------------------- OIL COMPANIES-INTEGRATED -- 3.8% Exxon Mobil 31,000 989 ------------ 989 ------------ TOTAL ENERGY (COST $2,350) 2,108 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 20.4% FINANCE-CREDIT CARD -- 2.1% American Express 17,300 539 ------------ 539 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 6.3% Freddie Mac 28,900 1,616 ------------ 1,616 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 5.4% American International Group 11,700 640 Prudential Financial* 26,400 754 ------------ 1,394 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 3.4% Travelers Property Casualty* 65,000 $ 858 ------------ 858 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 3.2% Bank of America 12,900 823 ------------ 823 - -------------------------------------------------------------------------------- TOTAL FINANCIAL (COST $5,417) 5,230 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 18.0% MEDICAL-DRUGS -- 10.6% Pfizer 52,000 1,509 Wyeth 38,400 1,221 ------------ 2,730 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 7.4% Aetna 52,700 1,887 ------------ 1,887 ------------ TOTAL HEALTH CARE (COST $4,908) 4,617 ------------ - -------------------------------------------------------------------------------- SERVICES -- 9.1% COMPUTER SERVICES -- 5.6% DST Systems* 48,900 1,441 ------------ 1,441 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 3.5% SBC Communications 44,400 893 ------------ 893 ------------ TOTAL SERVICES (COST $3,655) 2,334 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 7.4% APPLICATIONS SOFTWARE -- 4.2% Microsoft* 24,800 1,085 ------------ 1,085 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 2.2% First Data 20,000 559 ------------ 559 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 1.0% Mykrolis* 40,000 246 ------------ 246 ------------ TOTAL TECHNOLOGY (COST $2,615) 1,890 ------------ - -------------------------------------------------------------------------------- 32 PBHG FUNDS PBHG FOCUSED VALUE FUND PBFVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- UTILITIES -- 4.0% ELECTRIC-INTEGRATED -- 4.0% Consolidated Edison 25,500 $ 1,026 ------------ 1,026 ------------ TOTAL UTILITIES (COST $988) 1,026 ------------ TOTAL COMMON STOCK (COST $28,913) 23,903 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 4.6% JP Morgan Chase 1.85%, dated 09/30/02, matures 10/01/02, repurchase price $1,166,398 (collateralized by U.S. Government Obligations: total market value $1,189,894) (A) $1,166 1,166 ------------ TOTAL REPURCHASE AGREEMENT (COST $1,166) 1,166 ------------ TOTAL INVESTMENTS-- 97.9% (COST $30,079) 25,069 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 2.1% Receivable for Investment Securities Sold 603 Payable for Administrative Fees (3) Payable for Investment Advisory Fees (19) Other Assets and Liabilities, Net (43) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 538 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 2,163,124 outstanding shares of common stock 38,817 Accumulated net investment loss (87) Accumulated net realized loss on investments (8,113) Unrealized depreciation on investments (5,010) ------------ TOTAL NET ASSETS-- 100.0% $ 25,607 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $11.84 ====== * Non-income producing security. (A) -- Tri-party repurchase agreement. The accompanying notes are an integral part of the financial statements. 33 PBHG FUNDS PBHG LARGE CAP VALUE FUND PLCVX PBHG LARGE CAP VALUE FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value Fund - PBHG Class3 (29.24)% (24.04)% (3.82)% 4.98% 8.37% - --------------------------------------------------------------------------------------------------------------------------- PBHG Large Cap Value Fund - Advisor Class4 (29.32)% (24.23)% (4.00)% 4.86% 8.26% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG LARGE CAP VALUE FUND - PBHG CLASS1 VERSUS THE S&P 500 INDEX AND THE LIPPER LARGE-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Large Cap S&P 500 Lipper Multi-Cap Value Value Fund Index Funds Classification 12/31/96 $10,000 $10,000 $10,000 1/31/97 10,240 10,624 10,398 2/28/97 10,430 10,708 10,498 3/31/97 10,110 10,269 10,156 4/30/97 10,380 10,881 10,447 5/31/97 11,080 11,543 11,124 6/30/97 11,560 12,060 11,526 7/31/97 12,400 13,019 12,366 8/31/97 12,000 12,291 12,073 9/30/97 12,450 12,963 12,728 10/31/97 12,110 12,531 12,245 11/30/97 12,390 13,110 12,477 12/31/97 12,562 13,335 12,674 1/31/98 12,540 13,483 12,633 2/28/98 13,407 14,455 13,499 3/31/98 14,101 15,194 14,101 4/30/98 14,198 15,347 14,180 5/31/98 14,101 15,084 13,851 6/30/98 14,339 15,696 13,912 7/31/98 14,318 15,529 13,464 8/31/98 12,312 13,287 11,419 9/30/98 13,201 14,138 11,936 10/31/98 14,578 15,288 12,890 11/30/98 15,553 16,214 13,487 12/31/98 16,925 17,149 13,904 1/31/99 17,244 17,866 13,998 2/28/99 16,509 17,311 13,608 3/31/99 16,962 18,003 14,002 4/30/99 17,415 18,701 15,104 5/31/99 17,550 18,259 15,071 6/30/99 18,701 19,272 15,585 7/31/99 18,297 18,671 15,152 8/31/99 17,991 18,578 14,706 9/30/99 17,844 18,069 14,108 10/31/99 18,787 19,212 14,567 11/30/99 19,142 19,602 14,659 12/31/99 18,796 20,757 15,128 1/31/2000 18,634 19,714 14,469 2/29/2000 17,372 19,341 13,890 3/31/2000 19,379 21,233 15,365 4/30/2000 19,962 20,594 15,336 5/31/2000 20,723 20,172 15,480 6/30/2000 20,270 20,669 15,135 7/31/2000 19,460 20,346 15,247 8/31/2000 20,771 21,610 16,230 9/30/2000 21,516 20,469 16,105 10/31/2000 21,743 20,382 16,513 11/30/2000 22,034 18,775 15,920 12/31/2000 23,303 18,867 16,888 1/31/2001 24,881 19,536 17,352 2/28/2001 24,679 17,755 16,879 3/31/2001 23,336 16,630 16,308 4/30/2001 24,528 17,923 17,234 5/31/2001 24,780 18,043 17,584 6/30/2001 24,310 17,604 17,292 7/31/2001 24,427 17,430 17,253 8/31/2001 23,403 16,339 16,657 9/30/2001 20,902 15,020 15,245 10/31/2001 21,103 15,306 15,448 11/30/2001 22,849 16,480 16,413 12/31/2001 22,974 16,625 16,845 1/31/2002 22,116 16,382 16,678 2/28/2002 22,099 16,066 16,571 3/31/2002 22,436 16,671 17,337 4/30/2002 21,460 15,660 16,850 5/31/2002 22,032 15,544 16,792 6/30/2002 20,165 14,437 15,551 7/31/2002 18,500 13,312 14,180 8/31/2002 18,500 13,399 14,326 9/30/2002 15,877 11,943 12,770
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Large Cap Value Fund - PBHG Class commenced operations on December 31, 1996. 4 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to September 30, 2002 was (19.90)%. 5 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Large-Cap Value Funds Average represents the average performance of 379 mutual funds classified by Lipper, Inc. in the Large-Cap Value category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 7% Consumer Non-Cyclical 17% Energy 11% Financial 17% Health Care 15% Industrial 4% Services 15% Technology 6% Utilities 8% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Verizon Communications 5.5% SBC Communications 5.1% PNC Financial Services Group 4.5% Aetna 4.2% BellSouth 4.1% Walt Disney 3.9% Wyeth 3.8% Philip Morris 3.8% Merck 3.7% Sara Lee 3.7% - -------------------------------------------------------------------------------- Total Top Ten Holdings 42.3% *As a % of Common Stock 34 PBHG FUNDS PBHG LARGE CAP VALUE FUND PLCVX SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000 - -------------------------------------------------------------------------------- COMMON STOCK -- 96.1% CONSUMER CYCLICAL -- 6.5% DISTRUBUTION/WHOLESALE -- 0.8% Genuine Parts 87,500 $ 2,681 ------------ 2,681 - -------------------------------------------------------------------------------- MULTIMEDIA -- 3.8% Walt Disney 787,100 11,917 ------------ 11,917 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 1.9% JC Penney 379,100 6,035 ------------ 6,035 ------------ TOTAL CONSUMER CYCLICAL (COST $27,030) 20,633 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 16.4% FOOD-FLOUR & GRAIN -- 0.5% Archer-Daniels-Midland 136,800 1,711 ------------ 1,711 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 8.0% Campbell Soup 160,000 3,533 Conagra Foods 423,400 10,521 Sara Lee 610,600 11,168 ------------ 25,222 - -------------------------------------------------------------------------------- TOBACCO -- 7.9% Loews-Carolina Group 210,200 3,954 Philip Morris 299,400 11,617 RJ Reynolds Tobacco Holdings 129,100 5,205 UST 147,000 4,147 ------------ 24,923 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $57,768) 51,856 ------------ - -------------------------------------------------------------------------------- ENERGY -- 10.9% OIL COMPANIES-INTEGRATED -- 10.9% BP^ 178,700 7,130 ChevronTexaco 147,800 10,235 ConocoPhillips 69,100 3,195 Exxon Mobil 216,300 6,900 Royal Dutch Petroleum 178,600 7,175 ------------ 34,635 ------------ TOTAL ENERGY (COST $40,461) 34,635 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 16.6% MULTI-LINE INSURANCE -- 3.7% Metlife 142,500 3,243 Prudential Financial* 295,300 8,434 ------------ 11,677 - -------------------------------------------------------------------------------- REITS-DIVERSIFIED -- 0.6% Vornado Realty Trust 47,100 1,858 ------------ 1,858 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 0.6% Equity Office Properties Trust 68,100 $ 1,758 ------------ 1,758 - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.6% Simon Property Group 54,000 1,930 ------------ 1,930 - -------------------------------------------------------------------------------- REITS-WAREHOUSE/INDUSTRIAL -- 0.6% Prologis 76,400 1,903 ------------ 1,903 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 10.5% Keycorp 262,600 6,557 National City 246,400 7,030 PNC Financial Services Group 321,800 13,570 US Bancorp 335,500 6,234 ------------ 33,391 ------------ TOTAL FINANCIAL (COST $59,223) 52,517 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 14.2% MEDICAL-DRUGS -- 10.1% Bristol-Myers Squibb 198,900 4,734 Merck 249,400 11,400 Schering-Plough 190,500 4,062 Wyeth 368,000 11,702 ------------ 31,898 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 4.1% Aetna 359,900 12,888 ------------ 12,888 ------------ TOTAL HEALTH CARE (COST $47,403) 44,786 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 3.6% AEROSPACE/DEFENSE -- 3.6% General Dynamics 44,700 3,636 Raytheon 264,200 7,741 ------------ 11,377 ------------ TOTAL INDUSTRIAL (COST $14,016) 11,377 ------------ - -------------------------------------------------------------------------------- SERVICES -- 14.1% TELEPHONE-INTEGRATED -- 14.1% BellSouth 671,100 12,321 SBC Communications 774,100 15,559 Verizon Communications 609,100 16,714 ------------ 44,594 ------------ TOTAL SERVICES (COST $62,291) 44,594 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 5.8% COMPUTERS -- 2.7% Hewlett-Packard 727,000 8,484 ------------ 8,484 - -------------------------------------------------------------------------------- 35 PBHG FUNDS PBHG LARGE CAP VALUE FUND PLCVX SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- OFFICE AUTOMATION & EQUIPMENT -- 3.1% Pitney Bowes 326,600 $ 9,958 ------------ 9,958 ------------ TOTAL TECHNOLOGY (COST $21,258) 18,442 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 8.0% ELECTRIC-INTEGRATED -- 8.0% Cinergy 157,000 4,935 Consolidated Edison 84,100 3,382 FPL Group 133,000 7,155 Progress Energy 119,100 4,868 TXU 118,200 4,930 ------------ 25,270 ------------ TOTAL UTILITIES (COST $26,499) 25,270 ------------ TOTAL COMMON STOCK (COST $355,949) 304,110 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 7.6% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $24,134,361 (collateralized by U.S. Government Obligations: total market value $24,616,270) (A)$24,133 24,133 ------------ TOTAL REPURCHASE AGREEMENT (COST $24,133) 24,133 ------------ TOTAL INVESTMENTS-- 103.7% (COST $380,082) $ 328,243 ============ Percentages are based on Net Assets of $316,617,943 * Non-income producing security. ^ The fund held a United Kingdom domiciled security traded on the New York Stock Exchange as of September 30, 2002. (A) -- Tri-party repurchase agreement REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 36 PBHG FUNDS PBHG MID-CAP VALUE FUND PBMCX PBHG MID-CAP VALUE FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value Fund - PBHG Class3 (24.84)% (10.92)% 5.08% 9.24% 15.91% - --------------------------------------------------------------------------------------------------------------------------- PBHG Mid-Cap Value Fund - Advisor Class4 (24.94)% (11.14)% 4.99% 9.19% 15.86% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG MID-CAP VALUE FUND-PBHG CLASS1 VERSUS THE S&P MIDCAP 400 INDEX, S&P MIDCAP 400/BARRA VALUE INDEX AND THE LIPPER MID-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Mid-Cap S&P 400 Lipper Mid-Cap Value S & P BARRA Value Fund Mid-Cap Index Funds Classification MidCap Value 4/30/97 $10,000 $10,000 $10,000 $10,000 5/31/97 10,740 10,874 10,638 10,898 6/30/97 11,410 11,180 10,926 11,349 7/31/97 12,890 12,285 11,733 12,271 8/31/97 13,240 12,271 11,811 12,288 9/30/97 14,300 12,976 12,472 13,125 10/31/97 13,760 12,411 12,100 12,617 11/30/97 13,870 12,595 12,402 12,665 12/31/97 14,148 13,083 13,147 12,904 1/31/98 14,138 12,834 12,845 12,720 2/28/98 15,443 13,896 13,795 13,754 3/31/98 16,106 14,523 14,440 14,406 4/30/98 16,422 14,787 14,533 14,547 5/31/98 15,717 14,123 13,946 13,882 6/30/98 15,896 14,211 13,842 14,047 7/31/98 15,580 13,660 13,240 13,360 8/31/98 12,769 11,119 11,072 10,886 9/30/98 13,906 12,157 11,933 11,602 10/31/98 15,358 13,243 12,874 12,333 11/30/98 16,538 13,904 13,174 13,042 12/31/98 18,087 15,584 13,761 14,151 1/31/99 18,122 14,977 13,042 14,039 2/28/99 17,023 14,193 12,419 13,282 3/31/99 17,451 14,589 12,653 13,714 4/30/99 17,764 15,740 13,878 14,592 5/31/99 18,666 15,808 14,104 14,671 6/30/99 20,042 16,656 14,542 15,498 7/31/99 20,215 16,301 14,349 15,194 8/31/99 19,487 15,742 13,805 14,752 9/30/99 19,174 15,256 13,125 14,537 10/31/99 19,313 16,033 13,388 15,149 11/30/99 20,007 16,875 13,658 16,011 12/31/99 22,017 17,878 14,080 17,625 1/31/2000 20,903 17,374 13,472 17,064 2/29/2000 21,622 18,590 12,978 19,044 3/31/2000 24,818 20,146 14,964 19,853 4/30/2000 24,639 19,443 14,827 18,850 5/31/2000 25,788 19,200 15,255 18,285 6/30/2000 25,698 19,482 14,566 19,161 7/31/2000 25,321 19,790 15,143 18,938 8/31/2000 27,943 21,999 16,226 20,906 9/30/2000 27,153 21,849 16,466 20,555 10/31/2000 26,883 21,108 16,309 19,907 11/30/2000 25,321 19,515 16,331 18,056 12/31/2000 27,779 21,007 18,001 19,435 1/31/2001 28,494 21,475 18,803 19,888 2/28/2001 27,911 20,250 18,181 18,604 3/31/2001 27,159 18,744 17,380 17,368 4/30/2001 29,510 20,812 18,953 19,001 5/31/2001 30,525 21,297 19,328 19,427 6/30/2001 30,657 21,211 19,358 19,401 7/31/2001 30,130 20,895 19,360 18,918 8/31/2001 29,058 20,211 18,968 18,141 9/30/2001 24,977 17,697 16,839 15,795 10/31/2001 26,143 18,480 17,104 16,507 11/30/2001 28,607 19,855 18,143 17,772 12/31/2001 29,942 20,880 19,286 18,620 1/31/2002 28,851 20,772 19,282 18,320 2/28/2002 28,212 20,797 19,739 18,058 3/31/2002 29,604 22,284 21,200 19,192 4/30/2002 29,547 22,180 21,518 18,906 5/31/2002 29,133 21,806 21,145 18,549 6/30/2002 26,989 20,210 19,956 17,172 7/31/2002 24,131 18,252 17,886 15,476 8/31/2002 24,375 18,344 18,043 15,555 9/30/2002 22,250 16,866 16,269 14,329
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. Products of technology companies may be subject to severe competition and rapid obsolescence. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Mid-Cap Value Fund-PBHG Class commenced operations on April 30, 1997. 4 The performance shown for the Advisor Class prior to its inception on October 31, 2001 is based on the performance and expenses of the PBHG Class. Subsequent to October 31, 2001, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The cumulative total return of the Advisor Class from its inception to September 30, 2002 was (15.11)%. 5 The S&P MidCap 400 Index is an unmanaged capitalization-weighted index that measures the performance of the mid-range sector of the U.S. stock market. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The S&P MidCap 400/Barra Value Index is an unmanaged capitalization weighted index that consists of those securities in the S&P MidCap 400 Index with lower price to book ratios. The Index reflects the reinvestments of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 7 The Lipper Mid-Cap Core Funds Average represents the average performance of 266 mutual funds classified by Lipper, Inc. in the Mid-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Basic Materials 2% Consumer Cyclical 23% Consumer Non-Cyclical 6% Energy 11% Financial 22% Health Care 14% Industrial 6% Services 7% Technology 6% Utilities 3% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Lincare Holdings 3.4% Aetna 2.9% DST Systems 2.5% Devon Energy 2.4% JC Penney 2.2% Metro-Goldwyn-Mayer 2.1% Sara Lee 2.0% Abercrombie & Fitch 1.9% Pier 1 Imports 1.8% Park Place Entertainment 1.8% - ---------------------------------------------------------------------------- Total Top Ten Holdings 23.0% *As a % of Common Stock 37 PBHG FUNDS PBHG MID-CAP VALUE FUND PBMCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 96.6% BASIC MATERIALS -- 1.7% CHEMICALS-SPECIALTY -- 1.7% International Flavors & Fragrances 157,200 $ 5,007 ------------ 5,007 ------------ TOTAL BASIC MATERIALS (COST $5,182) 5,007 ------------ - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 22.5% BUILDING-RESIDENTIAL/COMMERCIAL -- 0.6% Lennar 33,800 1,885 ------------ 1,885 - -------------------------------------------------------------------------------- CASINO HOTELS -- 2.3% Harrah's Entertainment* 32,300 1,557 Park Place Entertainment* 643,600 5,117 ------------ 6,674 - -------------------------------------------------------------------------------- CRUISE LINES -- 1.4% Royal Caribbean Cruises 255,000 4,060 ------------ 4,060 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 2.0% Metro-Goldwyn-Mayer* 492,700 5,888 ------------ 5,888 - -------------------------------------------------------------------------------- MULTIMEDIA -- 0.6% E. W. Scripps, Cl A 24,600 1,705 ------------ 1,705 - -------------------------------------------------------------------------------- PUBLISHING-BOOKS -- 1.1% Scholastic* 73,200 3,270 ------------ 3,270 - -------------------------------------------------------------------------------- PUBLISHING-PERIODICALS -- 1.7% Reader's Digest Association 321,250 5,027 ------------ 5,027 - -------------------------------------------------------------------------------- RADIO -- 1.0% Hispanic Broadcasting* 155,100 2,893 ------------ 2,893 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 2.5% Abercrombie & Fitch* 272,200 5,354 Gap 193,400 2,098 ------------ 7,452 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 1.0% RadioShack 145,400 2,917 ------------ 2,917 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 0.5% BJ's Wholesale Club* 73,300 1,393 ------------ - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 1.2% CVS 142,800 $ 3,620 ------------ 3,620 - -------------------------------------------------------------------------------- RETAIL-HOME FURNISHINGS -- 1.8% Pier 1 Imports 274,300 5,231 ------------ 5,231 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 2.1% JC Penney 384,100 6,115 ------------ 6,115 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 0.5% Brinker International* 61,200 1,585 ------------ 1,585 - -------------------------------------------------------------------------------- RETAIL-TOY STORE -- 1.4% Toys R' Us* 390,200 3,972 ------------ 3,972 - -------------------------------------------------------------------------------- TOYS -- 0.8% Mattel 123,200 2,219 ------------ 2,219 ------------ TOTAL CONSUMER CYCLICAL (COST $80,319) 65,906 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 5.5% BEVERAGES-NON-ALCOHOLIC -- 0.9% PepsiAmericas 196,700 2,793 ------------ 2,793 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.9% Aurora Foods* 11,821 7 Sara Lee 303,100 5,544 ------------ 5,551 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 1.4% Supervalu 252,300 4,075 ------------ 4,075 - -------------------------------------------------------------------------------- TOBACCO -- 1.3% Loews-Carolina Group 203,500 3,828 ------------ 3,828 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $18,922) 16,247 ------------ - -------------------------------------------------------------------------------- ENERGY -- 10.1% OIL & GAS DRILLING -- 2.4% ENSCO International 124,900 3,127 Nabors Industries Limited* 58,300 1,909 Pride International* 146,200 1,901 ------------ 6,937 - -------------------------------------------------------------------------------- 38 PBHG FUNDS PBHG MID-CAP VALUE FUND PBMCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 5.8% Anadarko Petroleum 104,200 $ 4,641 Burlington Resources 96,900 3,717 Devon Energy 144,000 6,948 Spinnaker Exploration* 56,100 1,610 ------------ 16,916 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 0.5% FMC Technologies* 95,244 1,596 ------------ 1,596 - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 1.0% Valero Energy 112,500 2,978 ------------ 2,978 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 0.4% Tidewater 48,900 1,320 ------------ 1,320 ------------ TOTAL ENERGY (COST $33,034) 29,747 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 21.0% COMMERCIAL BANKS-CENTRAL US -- 0.8% Associated Banc-Corp 78,640 2,495 ------------ 2,495 - -------------------------------------------------------------------------------- COMMERCIAL BANKS-WESTERN US -- 1.0% Zions Bancorporation 66,600 2,899 ------------ 2,899 - -------------------------------------------------------------------------------- FIDUCIARY BANKS -- 1.6% Wilmington Trust 160,400 4,639 ------------ 4,639 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 1.3% Countrywide Credit Industry 82,800 3,904 ------------ 3,904 - -------------------------------------------------------------------------------- INSURANCE BROKERS -- 0.9% Willis Group Holdings* 80,100 2,683 ------------ 2,683 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 2.0% Federated Investors 120,700 3,258 Franklin Resources 80,000 2,488 ------------ 5,746 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 2.1% Principal Financial Group* 61,200 1,602 Protective Life 146,300 4,502 ------------ 6,104 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 4.2% Allmerica Financial 145,500 $ 1,746 HCC Insurance Holdings 122,000 2,929 Prudential Financial* 160,900 4,596 Safeco 97,200 3,089 ------------ 12,360 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 0.6% Fidelity National Financial 63,700 1,831 ------------ 1,831 - -------------------------------------------------------------------------------- REINSURANCE -- 1.4% Odyssey Re Holdings 243,500 4,044 ------------ 4,044 - -------------------------------------------------------------------------------- REITS-APARTMENTS -- 1.3% Archstone-Smith Trust 69,882 1,669 AvalonBay Communities 48,600 2,031 ------------ 3,700 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 1.6% Boston Properties 64,600 2,403 Equity Office Properties Trust 93,952 2,426 ------------ 4,829 - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.6% Simon Property Group 46,400 1,658 ------------ 1,658 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 1.0% Astoria Financial 98,500 2,403 Hudson City Bancorp 35,600 578 ------------ 2,981 - -------------------------------------------------------------------------------- S&L/THRIFTS-WESTERN US -- 0.6% Golden State Bancorp 55,800 1,803 ------------ 1,803 ------------ TOTAL FINANCIAL (COST $63,493) 61,676 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 13.9% DISPOSABLE MEDICAL PRODUCTS -- 0.7% C.R. Bard 39,800 2,174 ------------ 2,174 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 0.7% Beckman Coulter 48,800 1,889 ------------ 1,889 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 0.6% Varian Medical Systems* 39,300 1,689 ------------ 1,689 - -------------------------------------------------------------------------------- 39 PBHG FUNDS PBHG MID-CAP VALUE FUND PBMCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 1.8% Enzon* 233,900 $ 4,500 Millennium Pharmaceuticals* 88,600 826 ------------ 5,326 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.2% Shire Pharmaceuticals ADR* 194,800 4,825 Teva Pharmaceutical Industries ADR 25,100 1,682 ------------ 6,507 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 4.6% Aetna 231,100 8,276 Anthem* 56,600 3,679 WellPoint Health Networks* 22,700 1,664 ------------ 13,619 - -------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL -- 3.3% Lincare Holdings* 309,500 9,607 ------------ 9,607 ------------ TOTAL HEALTH CARE (COST $42,184) 40,811 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 6.2% AEROSPACE/DEFENSE -- 0.6% Raytheon 56,600 1,658 ------------ 1,658 - -------------------------------------------------------------------------------- CAPACITORS -- 0.2% Kemet* 49,100 420 ------------ 420 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 0.5% Textron 45,200 1,541 ------------ 1,541 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.3% Vishay Intertechnology* 84,500 744 ------------ 744 - -------------------------------------------------------------------------------- FILTRATION/SEPARATION PRODUCTS -- 1.1% Pall 201,600 3,183 ------------ 3,183 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.6% PerkinElmer 128,700 702 Waters* 48,800 1,183 ------------ 1,885 - -------------------------------------------------------------------------------- MACHINERY-FARM -- 1.6% AGCO* 203,900 4,730 ------------ 4,730 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 1.3% Republic Services* 207,700 $ 3,905 ------------ 3,905 ------------ TOTAL INDUSTRIAL (COST $22,716) 18,066 ------------ - -------------------------------------------------------------------------------- SERVICES -- 6.8% COMPUTER SERVICES -- 4.4% Ceridian* 205,700 2,931 DST Systems* 244,300 7,200 Factset Research Systems 36,300 964 Sungard Data Systems* 96,000 1,867 ------------ 12,962 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 2.4% Catalina Marketing* 111,300 3,125 Harte-Hanks 210,850 3,924 ------------ 7,049 ------------ TOTAL SERVICES (COST $25,216) 20,011 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 6.2% APPLICATIONS SOFTWARE -- 1.5% Citrix Systems* 404,500 2,439 Parametric Technology* 393,400 708 Rational Software* 282,400 1,220 ------------ 4,367 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.6% Dun & Bradstreet* 48,700 1,637 ------------ 1,637 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 0.8% Broadcom* 146,700 1,567 LSI Logic* 147,200 935 ------------ 2,502 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 0.9% Avocent* 187,300 2,506 ------------ 2,506 - -------------------------------------------------------------------------------- SATELLITE TELECOMMUNICATIONS -- 0.6% Hughes Electronics* 206,600 1,891 ------------ 1,891 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 0.2% Atmel* 446,300 473 ------------ 473 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.7% Lam Research* 236,200 2,102 ------------ 2,102 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 0.6% Comverse Technology* 251,700 1,759 ------------ 1,759 - -------------------------------------------------------------------------------- 40 PBHG FUNDS PBHG MID-CAP VALUE FUND PBMCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 0.3% Amdocs* 152,700 $ 977 ------------ 977 ------------ TOTAL TECHNOLOGY (COST $41,082) 18,214 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 2.7% ELECTRIC-INTEGRATED -- 2.7% Allete 86,400 1,866 Consolidated Edison 75,000 3,017 Public Service Enterprise Group 103,900 3,169 ------------ 8,052 ------------ TOTAL UTILITIES (COST $9,110) 8,052 ------------ TOTAL COMMON STOCK (COST $341,258) 283,737 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 3.7% Morgan Stanley 1.85%, dated 09/30/02, matures 10/01/02, repurchase price $10,751,082 (collateralized by U.S. Government Obligations: total market value $11,027,460) (A)$10,751 10,751 ------------ TOTAL REPURCHASE AGREEMENT (COST $10,751) 10,751 ------------ TOTAL INVESTMENTS-- 100.3% (COST $352,009) 294,488 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (0.3)% Payable for Administrative Fees (40) Payable for Investment Advisory Fees (225) Other Assets and Liabilities, Net (645) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (910) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 24,803,830 outstanding shares of common stock 378,341 Fund Shares of Advisor Class ($0.001 par value) based on 22,440 outstanding shares of common stock 322 Accumulated net investment loss (643) Accumulated net realized loss on investments (26,921) Unrealized depreciation on investments (57,521) ------------ TOTAL NET ASSETS-- 100.0% $ 293,578 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $11.83 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $11.80 ====== * Non-income producing security. (A)-- Tri-party repurchase agreement ADR-- American Depositary Receipt Cl-- Class REIT-- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 41 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBSVX PBHG SMALL CAP VALUE FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium - ------------------------------------------ Small X - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value Fund - PBHG Class3 (33.03)% (15.77)% 2.50% 2.29% 9.43% - --------------------------------------------------------------------------------------------------------------------------- PBHG Small Cap Value Fund - Advisor Class4 (33.11)% (15.92)% 2.38% 2.22% 9.36% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SMALL CAP VALUE FUND - PBHG CLASS1 VERSUS THE RUSSELL 2000(R) INDEX, RUSSELL 2000(R) VALUE INDEX AND THE LIPPER SMALL-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Small Cap Russell Russell 2000 Lipper Value Fund 724 2000 Index Value Index Small Cap Value 4/30/97 $10,000 $10,000 $10,000 $10,000 5/31/97 10,880 11,113 10,796 11,009 6/30/97 11,800 11,589 11,342 11,603 7/31/97 13,070 12,128 11,819 12,315 8/31/97 13,370 12,405 12,006 12,623 9/30/97 14,550 13,313 12,805 13,528 10/31/97 14,210 12,729 12,456 13,065 11/30/97 14,200 12,646 12,593 12,967 12/31/97 14,539 12,868 13,020 13,108 1/31/98 14,518 12,665 12,784 12,901 2/28/98 15,615 13,601 13,557 13,839 3/31/98 16,227 14,162 14,107 14,486 4/30/98 16,438 14,240 14,177 14,597 5/31/98 15,520 13,473 13,675 13,892 6/30/98 15,098 13,501 13,598 13,785 7/31/98 14,402 12,409 12,533 12,832 8/31/98 11,490 9,999 10,570 10,379 9/30/98 11,838 10,782 11,167 10,852 10/31/98 12,872 11,221 11,498 11,323 11/30/98 13,811 11,809 11,809 11,957 12/31/98 14,703 12,540 12,180 12,635 1/31/99 14,410 12,706 11,903 12,527 2/28/99 13,237 11,677 11,091 11,588 3/31/99 12,831 11,860 10,999 11,592 4/30/99 13,429 12,922 12,003 12,516 5/31/99 14,004 13,111 12,372 12,876 6/30/99 14,962 13,704 12,820 13,583 7/31/99 15,255 13,328 12,516 13,507 8/31/99 15,131 12,835 12,059 13,056 9/30/99 15,131 12,838 11,818 13,010 10/31/99 14,771 12,890 11,581 13,009 11/30/99 15,605 13,659 11,641 13,809 12/31/99 17,443 15,205 11,999 15,070 1/31/2000 17,217 14,961 11,685 14,755 2/29/2000 19,845 17,432 12,399 16,540 3/31/2000 21,141 16,283 12,457 16,581 4/30/2000 20,149 15,303 12,531 15,930 5/31/2000 20,431 14,411 12,340 15,351 6/30/2000 22,348 15,667 12,700 16,520 7/31/2000 21,649 15,163 13,124 16,174 8/31/2000 23,734 16,320 13,710 17,544 9/30/2000 23,362 15,840 13,633 17,150 10/31/2000 22,325 15,133 13,584 16,699 11/30/2000 20,532 13,580 13,308 15,234 12/31/2000 23,176 14,746 14,737 16,689 1/31/2001 24,165 15,514 15,144 17,522 2/28/2001 22,916 14,496 15,123 16,530 3/31/2001 21,774 13,787 14,881 15,728 4/30/2001 23,317 14,865 15,570 17,051 5/31/2001 24,024 15,231 15,970 17,641 6/30/2001 24,071 15,757 16,612 18,096 7/31/2001 23,729 14,904 16,240 17,633 8/31/2001 23,140 14,422 16,184 17,132 9/30/2001 19,346 12,481 14,397 14,987 10/31/2001 20,831 13,211 14,773 15,797 11/30/2001 22,834 14,234 15,835 16,875 12/31/2001 24,319 15,113 16,804 17,944 1/31/2002 23,364 14,956 17,027 17,822 2/28/2002 22,575 14,546 17,131 17,483 3/31/2002 24,330 15,715 18,414 18,833 4/30/2002 23,706 15,858 19,062 18,995 5/31/2002 22,598 15,154 18,432 18,313 6/30/2002 20,902 14,402 18,024 17,342 7/31/2002 17,049 12,227 15,346 14,992 8/31/2002 17,520 12,196 15,278 15,037 9/30/2002 16,295 11,320 14,186 13,970
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of smaller companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Small Cap Value Fund - PBHG Class commenced operations on April 30, 1997. 4 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to September 30, 2002 was (18.35)%. 5 The Russell 2000(R) Index is an unmanaged index comprised of the 2,000 smallest securities in the Russell 3000(R) Index. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Russell 2000(R) Value Index is an unmanaged index that measures the performance of those securities in the Russell 2000(R) Index with lower price to book ratios and lower fore- casted growth values. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 7 The Lipper Small-Cap Core Funds Average represents the average performance of 414 mutual funds classified by Lipper, Inc. in the Small-Cap Core category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Basic Materials 4% Consumer Cyclical 21% Consumer Non-Cyclical 3% Energy 5% Financial 21% Health Care 12% Industrial 10% Services 11% Technology 6% Utilities 7% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Haemonetics 3.0% Fisher Scientific International 2.6% Affiliated Managers Group 2.6% Station Casinos 2.5% Cima Labs 2.2% First American 2.1% Hooper Holmes 2.0% PRG-Schultz International 1.9% Advo 1.8% Electronics Boutique Holdings 1.8% - -------------------------------------------------------------------------------- Total Top Ten Holdings 22.5% *As a % of Common Stock 42 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBSVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 99.2% BASIC MATERIALS -- 4.0% AGRICULTURAL CHEMICALS -- 1.5% Agrium^ 146,900 $ 1,344 IMC Global 57,700 695 ------------ 2,039 - -------------------------------------------------------------------------------- CHEMICALS-SPECIALTY -- 0.5% Cabot Microelectronics* 18,300 681 ------------ 681 - -------------------------------------------------------------------------------- PAPER & RELATED PRODUCTS -- 1.0% Glatfelter 115,200 1,331 ------------ 1,331 - -------------------------------------------------------------------------------- PLATINUM -- 0.5% Stillwater Mining* 105,500 633 ------------ 633 - -------------------------------------------------------------------------------- STEEL-PRODUCERS -- 0.5% Carpenter Technology 48,200 627 ------------ 627 ------------ TOTAL BASIC MATERIALS (COST $7,904) 5,311 ------------ - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 21.3% AUDIO/VIDEO PRODUCTS -- 1.6% Harman International Industries 40,000 2,070 ------------ 2,070 - -------------------------------------------------------------------------------- BUILDING-RESIDENTIAL/COMMERCIAL -- 0.4% Beazer Homes USA* 8,400 513 ------------ 513 - -------------------------------------------------------------------------------- CABLE TV -- 0.4% Lodgenet Entertainment* 72,800 558 ------------ 558 - -------------------------------------------------------------------------------- CASINO HOTELS -- 2.5% Station Casinos* 196,500 3,342 ------------ 3,342 - -------------------------------------------------------------------------------- DISTRIBUTION/WHOLESALE -- 0.7% Bell Microproducts* 230,900 965 ------------ 965 - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 0.4% Zomax* 142,400 555 ------------ 555 - -------------------------------------------------------------------------------- PUBLISHING-BOOKS -- 1.1% Scholastic* 32,300 1,443 ------------ 1,443 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 0.3% Journal Register* 22,200 $ 418 ------------ 418 - -------------------------------------------------------------------------------- RADIO -- 1.5% Cumulus Media* 112,300 1,982 ------------ 1,982 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 4.3% Kenneth Cole Productions, Cl A* 98,000 1,989 Men's Wearhouse* 134,800 1,982 Urban Outfitters* 74,300 1,805 ------------ 5,776 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.8% Electronics Boutique Holdings* 88,800 2,438 ------------ 2,438 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.7% Tweeter Home Entertainment Group* 141,400 976 ------------ 976 - -------------------------------------------------------------------------------- RETAIL-CONVENIENCE STORE -- 0.7% Casey's General Stores 82,200 949 ------------ 949 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 1.1% Duane Reade* 95,700 1,531 ------------ 1,531 - -------------------------------------------------------------------------------- RETAIL-HOME FURNISHINGS -- 1.8% Pier 1 Imports 122,900 2,344 ------------ 2,344 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 1.5% Buca* 176,700 1,414 CEC Entertainment* 18,000 614 ------------- 2,028 - -------------------------------------------------------------------------------- TELEVISION -- 0.5% Lin TV* 27,600 683 ------------ 683 ------------ TOTAL CONSUMER CYCLICAL (COST $33,168) 28,571 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 2.6% CONSUMER PRODUCTS-MISCELLANEOUS -- 1.5% Playtex Products* 230,300 1,960 ------------ 1,960 - -------------------------------------------------------------------------------- 43 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBSVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.1% Aurora Foods* 29,791 $ 19 Dole Food 34,300 996 Monterey Pasta* 112,100 521 ------------ 1,536 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $4,125) 3,496 ------------ - -------------------------------------------------------------------------------- ENERGY -- 5.4% OIL & GAS DRILLING -- 1.0% Atwood Oceanics* 47,000 1,375 ------------ 1,375 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 2.0% Spinnaker Exploration* 28,100 807 Tom Brown* 80,400 1,841 ------------ 2,648 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.0% Universal Compression Holdings* 80,500 1,304 ------------ 1,304 - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 0.3% Premcor* 31,000 486 ------------ 486 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 1.1% CAL Dive International* 71,500 1,442 ------------ 1,442 ------------ TOTAL ENERGY (COST $8,505) 7,255 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 20.8% COMMERCIAL BANKS-WESTERN US -- 0.7% City National 19,800 926 ------------ 926 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 3.6% Affiliated Managers Group* 76,800 3,426 Federated Investors 54,100 1,460 ------------ 4,886 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 2.7% Scottish Annuity & Life Holdings 84,300 1,437 Stancorp Financial Group 42,200 2,233 ------------ 3,670 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 1.4% HCC Insurance Holdings 77,200 1,853 ------------ 1,853 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 2.1% First American 135,100 $ 2,760 ------------ 2,760 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.8% Trammell Crow* 102,800 1,014 ------------ 1,014 - -------------------------------------------------------------------------------- REINSURANCE -- 1.7% Odyssey Re Holdings 135,200 2,246 ------------ 2,246 - -------------------------------------------------------------------------------- REITS-APARTMENTS -- 1.1% Camden Property Trust 21,000 696 Essex Property Trust 17,000 841 ------------ 1,537 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 1.6% Brandywine Realty Trust 28,900 652 Mack-Cali Realty 45,100 1,449 - - ------------ 2,101 - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.8% Rouse 35,100 1,121 ------------ 1,121 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 3.8% Berkshire Hills Bancorp 51,400 1,208 Brookline Bancorp 181,518 2,133 Willow Grove Bancorp 154,200 1,819 ------------ 5,160 - -------------------------------------------------------------------------------- S&L/THRIFTS-SOUTHERN US -- 0.5% Ocwen Financial* 222,100 644 ------------ 644 ------------ TOTAL FINANCIAL (COST $26,766) 27,918 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 12.3% HEALTH CARE COST CONTAINMENT -- 2.0% Hooper Holmes 438,700 2,720 ------------ 2,720 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.9% Haemonetics* 165,900 3,937 ------------ 3,937 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 2.3% Enzon* 103,000 1,982 Serologicals* 83,800 1,122 ------------ 3,104 - -------------------------------------------------------------------------------- 44 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBSVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 3.2% Adolor* 97,400 $ 1,366 Cima Labs* 115,800 2,912 ------------ 4,278 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 1.9% Coventry Health Care* 45,600 1,482 Humana* 87,100 1,080 ------------ 2,562 ------------ TOTAL HEALTH CARE (COST $17,654) 16,601 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 10.2% AEROSPACE/DEFENSE -- 1.2% Teledyne Technologies* 89,000 1,616 ------------ 1,616 - -------------------------------------------------------------------------------- BATTERIES/BATTERY SYSTEMS -- 1.3% Wilson Greatbatch Technologies* 62,200 1,729 ------------ 1,729 - -------------------------------------------------------------------------------- BUILDING PRODUCTS-LIGHT FIXTURES -- 0.8% Genlyte Group* 30,500 1,081 ------------ 1,081 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 1.1% DSP Group* 92,800 1,490 ------------ 1,490 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 0.5% Avnet 58,900 636 ------------ 636 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 0.8% Stericycle* 33,600 1,140 ------------ 1,140 - -------------------------------------------------------------------------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.8% Brooks-PRI Automation* 92,900 1,064 ------------ 1,064 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 2.6% Fisher Scientific International* 114,400 3,472 ------------ 3,472 - -------------------------------------------------------------------------------- MACHINERY-THERMAL PROCESSING -- 0.1% Global Power Equipment Group* 40,500 190 ------------ 190 - -------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURING -- 0.9% Aptargroup 45,000 1,209 ------------ 1,209 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 0.1% Artesyn Technologies* 94,100 $ 142 ------------ 142 ------------ TOTAL INDUSTRIAL (COST $14,880) 13,769 ------------ - -------------------------------------------------------------------------------- SERVICES -- 10.7% ADVERTISING SERVICES -- 0.4% RH Donnelley* 23,200 603 ------------ 603 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 4.1% Alliance Data Systems* 151,800 2,300 Arbitron* 66,900 2,281 ChoicePoint* 26,733 953 ------------ 5,534 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 1.9% PRG-Schultz International* 206,400 2,556 ------------ 2,556 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 1.5% Forrester Research* 97,200 1,455 Watson Wyatt & Co Holdings* 25,800 516 ------------ 1,971 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 2.4% Advo* 77,200 2,451 Valuevision Media, Cl A* 67,600 795 ------------ 3,246 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 0.4% CDI* 19,200 502 ------------ 502 ------------ TOTAL SERVICES (COST $15,173) 14,412 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 5.5% COMPUTER GRAPHICS -- 0.5% Pixar* 14,400 693 ------------ 693 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 0.8% Silicon Storage Technology* 269,000 1,052 ------------ 1,052 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.5% Fair Isaac 20,725 678 ------------ 678 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 0.3% JDA Software Group* 50,500 353 ------------ 353 - -------------------------------------------------------------------------------- 45 PBHG FUNDS PBHG SMALL CAP VALUE FUND PBSVX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 0.8% Avocent* 84,000 $ 1,124 ------------ 1,124 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.7% Adaptec* 225,400 994 ------------ 994 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 0.6% GlobespanVirata* 319,100 753 ------------ 753 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.7% Lam Research* 104,500 930 ------------ 930 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 0.6% Advanced Fibre Communication* 60,700 805 ------------ 805 ------------ TOTAL TECHNOLOGY (COST $12,314) 7,382 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 6.4% ELECTRIC-INTEGRATED -- 3.0% DQE 100,600 1,509 Hawaiian Electric Industries 25,800 1,112 Idacorp 21,800 530 MGE Energy 32,200 826 ------------ 3,977 - -------------------------------------------------------------------------------- GAS-DISTRIBUTION -- 2.2% UGI 66,100 2,403 WGL Holdings 25,000 598 ------------ 3,001 - -------------------------------------------------------------------------------- WATER -- 1.2% Philadelphia Suburban 80,200 1,628 ------------ 1,628 ------------ TOTAL UTILITIES (COST $7,807) 8,606 ------------ TOTAL COMMON STOCK (COST $148,296) 133,321 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.5% Morgan Stanley 1.50%, dated 09/30/02, matures 10/01/02, repurchase price $2,075,509 (collateralized by U.S. Government Obligations: total market value $2,116,994) (A) $2,075 $ 2,075 ------------ TOTAL REPURCHASE AGREEMENT (COST $2,075) 2,075 ------------ TOTAL INVESTMENTS-- 100.7% (COST $150,371) 135,396 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (0.7)% Payable for Administrative Fees (18) Payable for Investment Advisory Fees (105) Payable for Capital Shares Redeemed (1,423) Other Assets and Liabilities, Net 576 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (970) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 9,704,504 outstanding shares of common stock 196,357 Fund Shares of Advisor Class ($0.001 par value) based on 12,567 outstanding shares of common stock 235 Accumulated net investment loss (1,010) Accumulated net realized loss on investments (46,181) Unrealized depreciation on investments (14,975) ------------ TOTAL NET ASSETS-- 100.0% $ 134,426 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $13.83 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $13.78 ====== * Non-income producing security. ^ The fund held a Canadian domiciled security traded on the New York Stock Exchange as of September 30, 2002. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 46 PBHG FUNDS PBHG SPECIAL EQUITY FUND PBNPX PBHG SPECIAL EQUITY FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized 6 Year 3 Year Inception Months2 Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Special Equity Fund (26.58)% (12.60)% 1.84% 3.84% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG SPECIAL EQUITY FUND1 VERSUS THE S&P 500 INDEX AND THE LIPPER MULTI-CAP VALUE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Special Equity S&P 500 Index Fund/Index Multi-Cap Value Funds 11/4/97 $10,000 $10,000 $10,000 11/30/97 9,630 10,172 10,000 12/31/97 9,910 10,347 10,158 1/31/98 9,820 10,461 10,124 2/28/98 10,540 11,215 10,819 3/31/98 11,330 11,789 11,302 4/30/98 11,530 11,907 11,365 5/31/98 10,970 11,703 11,101 6/30/98 11,220 12,178 11,150 7/31/98 10,710 12,049 10,791 8/31/98 8,780 10,309 9,152 9/30/98 9,220 10,969 9,566 10/31/98 10,000 11,861 10,331 11/30/98 10,300 12,580 10,809 12/31/98 10,645 13,305 11,143 1/31/99 11,108 13,862 11,219 2/28/99 10,614 13,431 10,906 3/31/99 11,168 13,968 11,222 4/30/99 12,397 14,509 12,105 5/31/99 12,578 14,167 12,079 6/30/99 12,961 14,953 12,491 7/31/99 12,437 14,486 12,143 8/31/99 11,842 14,414 11,786 9/30/99 11,388 14,019 11,307 10/31/99 11,933 14,906 11,675 11/30/99 12,134 15,209 11,749 12/31/99 12,865 16,105 12,125 1/31/2000 11,969 15,296 11,596 2/29/2000 11,094 15,006 11,132 3/31/2000 12,887 16,474 12,314 4/30/2000 12,551 15,979 12,291 5/31/2000 12,815 15,651 12,407 6/30/2000 12,353 16,036 12,130 7/31/2000 12,486 15,786 12,220 8/31/2000 13,374 16,766 13,008 9/30/2000 13,252 15,881 12,908 10/31/2000 13,580 15,814 13,234 11/30/2000 13,038 14,567 12,759 12/31/2000 14,358 14,638 13,535 1/31/2001 14,719 15,158 13,907 2/28/2001 14,423 13,776 13,527 3/31/2001 14,332 12,903 13,070 4/30/2001 14,825 13,906 13,813 5/31/2001 15,164 13,999 14,093 6/30/2001 15,184 13,658 13,859 7/31/2001 15,458 13,524 13,827 8/31/2001 15,041 12,677 13,350 9/30/2001 13,765 11,653 12,218 10/31/2001 13,746 11,876 12,381 11/30/2001 14,754 12,787 13,154 12/31/2001 15,232 12,899 13,500 1/31/2002 15,444 12,711 13,367 2/28/2002 15,550 12,465 13,281 3/31/2002 16,385 12,934 13,895 4/30/2002 16,668 12,150 13,504 5/31/2002 16,680 12,061 13,458 6/30/2002 15,385 11,201 12,464 7/31/2002 13,878 10,328 11,364 8/31/2002 14,266 10,396 11,482 9/30/2002 12,030 9,266 10,235
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 On December 14, 2001, the PBHG Special Equity Fund (formerly the PBHG New Perspective Fund) acquired the assets of the NWQ Special Equity Portfolio. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the NWQ Special Equity Portfolio. The Institutional Service Class shares of the NWQ Special Equity Portfolio were exchanged for PBHG Class shares of the PBHG Special Equity Fund upon the business combination on December 14, 2001. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. The NWQ Special Equity Portfolio was managed by NWQ Investment Management Company, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the NWQ Special Equity Portfolio. Data includes performance of the Fund's predecessor, whose inception date was November 4, 1997. 4 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Multi-Cap Value Funds Average represents the average performance of 508 mutual funds classified by Lipper, Inc. in the Multi-Cap Value Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Multi-Cap Value Funds Average at that month's end, November 30, 1997. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Basic Materials 5% Consumer Cyclical 7% Consumer Non-Cyclical 5% Energy 6% Financial 38% Health Care 4% Industrial 10% Services 7% Technology 16% Utilities 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* IndyMac Bancorp 5.1% Liberty Media, Cl A 4.0% ConocoPhillips 3.9% Computer Associates International 3.6% Countrywide Credit Industry 3.5% Agere Systems** 3.5% Philip Morris 3.2% CIT Group 3.1% Noble Energy 3.1% Alltel 3.0% - ----------------------------------------------------------------------------- Total Top Ten Holdings 36.0% *As a % of Common Stock **Percentage is a combination of Class A and Class B shares. 47 PBHG FUNDS PBHG SPECIAL EQUITY FUND PBNPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 98.0% BASIC MATERIALS -- 5.1% DIVERSIFIED MINERALS -- 1.2% Cia Vale do Rio Doce ADR* 9,700 $ 221 ------------ 221 - -------------------------------------------------------------------------------- GOLD MINING -- 2.3% Barrick Gold 28,000 435 ------------ 435 - -------------------------------------------------------------------------------- INDUSTRIAL GASES -- 1.6% Praxair 6,000 307 ------------ 307 ------------ TOTAL BASIC MATERIALS (COST $919) 963 ------------ - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 7.1% AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 1.3% Delphi 28,700 246 ------------ 246 - -------------------------------------------------------------------------------- BROADCAST SERVICES/PROGRAMMING -- 3.9% Liberty Media, Cl A* 103,876 746 ------------ 746 - -------------------------------------------------------------------------------- RETAIL-TOY STORE -- 1.9% Toys R' Us* 35,000 356 ------------ 356 ------------ TOTAL CONSUMER CYCLICAL (COST $2,352) 1,348 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 4.7% FOOD-RETAIL -- 1.5% Albertson's 12,000 290 ------------ 290 - -------------------------------------------------------------------------------- TOBACCO -- 3.2% Philip Morris 15,600 605 ------------ 605 - -------------------------------------------------------------------------------- TOTAL CONSUMER NON-CYCLICAL (COST $986) 895 ------------ - -------------------------------------------------------------------------------- ENERGY -- 9.0% OIL & GAS DRILLING -- 5.2% Noble Energy 16,900 574 Transocean 20,000 416 ------------ 990 - -------------------------------------------------------------------------------- OIL COMPANIES-INTEGRATED -- 3.8% ConocoPhillips 15,840 732 ------------ 732 ------------ TOTAL ENERGY (COST $1,961) 1,722 ------------ - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- FINANCIAL -- 37.3% DIVERSIFIED HOLDING COMPANY -- 1.7% Loews 7,600 $ 326 ------------ 326 - -------------------------------------------------------------------------------- FINANCE-AUTO LOANS -- 1.4% AmeriCredit* 34,200 276 ------------ 276 - -------------------------------------------------------------------------------- FINANCE-CONSUMER LOANS -- 3.1% CIT Group* 32,300 581 ------------ 581 - -------------------------------------------------------------------------------- FINANCE-INVESTMENT BANKER/BROKER -- 0.9% JP Morgan Chase 8,850 168 ------------ 168 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 10.8% Countrywide Credit Industry 14,000 660 Fannie Mae 7,500 446 IndyMac Bancorp* 49,000 944 ------------ 2,050 - -------------------------------------------------------------------------------- FINANCIAL GUARANTEE INSURANCE -- 4.4% MGIC Investment 11,000 449 Radian Group 12,000 392 ------------ 841 ------------ - -------------------------------------------------------------------------------- INSURANCE BROKERS -- 1.8% AON 16,300 334 ------------ 334 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 2.6% Hartford Financial Services Group 11,800 484 ------------ 484 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 1.4% PMA Capital 18,100 271 ------------ 271 - -------------------------------------------------------------------------------- REITS-HOTELS -- 1.3% FelCor Lodging Trust 19,700 253 ------------ 253 - -------------------------------------------------------------------------------- REITS-MORTGAGE -- 3.5% FBR Asset Investment 7,800 244 MFA Mortgage Investments 51,500 417 ------------ 661 - -------------------------------------------------------------------------------- 48 PBHG FUNDS STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 4.4% Bank of America 7,267 $ 464 FleetBoston Financial 18,600 378 ------------ 842 ------------ TOTAL FINANCIAL (COST $8,492) 7,087 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 3.7% MEDICAL-HMO -- 1.9% Aetna 10,000 358 ------------ 358 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 1.8% HCA 7,100 338 ------------ 338 ------------ TOTAL HEALTH CARE (COST $577) 696 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 7.2% AEROSPACE/DEFENSE -- 1.7% Raytheon 11,000 322 ------------ 322 - -------------------------------------------------------------------------------- CONTAINERS-PAPER/PLASTIC -- 1.8% Packaging Corporation of America* 19,400 340 ------------ 340 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 1.1% Agilent Technologies* 16,600 217 ------------ 217 - -------------------------------------------------------------------------------- INSTRUMENTS-CONTROLS -- 1.7% Parker Hannifin 8,200 313 ------------ 313 - -------------------------------------------------------------------------------- MACHINERY-GENERAL INDUSTRY -- 0.9% Ingersoll-Rand, Cl A 5,100 176 ------------ 176 ------------ TOTAL INDUSTRIAL (COST $1,716) 1,368 ------------ - -------------------------------------------------------------------------------- SERVICES -- 6.8% TELEPHONE-INTEGRATED -- 6.8% Alltel 13,900 558 Sprint (FON Group) 40,200 367 Telephone & Data Systems 7,500 378 ------------ 1,303 ------------ TOTAL SERVICES (COST $2,119) 1,303 ------------ - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- TECHNOLOGY -- 15.5% COMPUTERS-MEMORY DEVICES -- 0.9% Maxtor* 62,600 $ 163 ------------ 163 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 3.4% Agere Systems, Cl A 327 360 Agere Systems, Cl B 300 297 ------------ 657 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 2.7% Numerical Technologies* 178,700 518 ------------ 518 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 3.6% Computer Associates International 70,800 680 ------------ 680 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 1.1% SonicWALL* 75,400 207 ------------ 207 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 0.8% GlobespanVirata* 61,000 144 ------------ 144 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 1.7% Comverse Technology* 46,700 327 ------------ 327 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 1.3% Amdocs* 40,000 256 ------------ 256 ------------ TOTAL TECHNOLOGY (COST $4,808) 2,952 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 1.6% ELECTRIC-INTEGRATED -- 1.6% DTE Energy 7,500 305 ------------ 305 ------------ TOTAL UTILITIES (COST $307) 305 ------------ TOTAL COMMON STOCK (COST $24,237) 18,639 ------------ - -------------------------------------------------------------------------------- 49 PBHG FUNDS PBHG SPECIAL EQUITY FUND PBNPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.8% Agere Systems 6.500%, 12/15/09 $280 $ 153 ------------ 153 ------------ TOTAL CONVERTIBLE BOND (COST $280) 153 ------------ TOTAL INVESTMENTS-- 98.8% (COST $24,517) 18,792 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 1.2% Receivable for Investment Securities Sold 446 Payable for Administrative Fees (3) Payable for Investment Advisory Fees (13) Payable for Investment Securities Purchased (356) Other Assets and Liabilities, Net 147 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 221 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 1,860,109 outstanding shares of common stock 23,966 Undistributed net investment income 186 Accumulated net realized gain on investments 586 Unrealized depreciation on investments (5,725) ------------ TOTAL NET ASSETS-- 100.0% $ 19,013 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $10.22 ====== * Non-income producing security. ADR -- American Depositary Receipt Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 50 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PBDEX PBHG DISCIPLINED EQUITY FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large X - ------------------------------------------ Medium - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Disciplined Equity Fund (30.71)% (24.26)% (13.23)% (0.45)% 8.93% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN PBHG DISCIPLINED EQUITY FUND1 VERSUS THE S&P 500 INDEX AND THE LIPPER LARGE-CAP CORE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Disciplined Equity S&P 500 Index Lipper Large-Cap Core Funds 7/1/93 $10,000 $10,000 $10,000 7/31/93 9,845 10,189 10,000 8/31/93 10,217 10,575 10,383 9/30/93 10,109 10,491 10,406 10/31/93 10,343 10,708 10,575 11/30/93 10,156 10,606 10,415 12/31/93 10,401 10,735 10,674 1/31/94 10,734 11,099 11,017 2/28/94 10,501 10,798 10,800 3/31/94 10,078 10,328 10,329 4/30/94 10,196 10,461 10,425 5/31/94 10,397 10,632 10,510 6/30/94 10,167 10,372 10,219 7/31/94 10,438 10,712 10,517 8/31/94 10,810 11,150 10,936 9/30/94 10,500 10,878 10,694 10/31/94 10,704 11,122 10,858 11/30/94 10,262 10,717 10,459 12/31/94 10,375 10,876 10,584 1/31/95 10,632 11,158 10,736 2/28/95 11,010 11,592 11,144 3/31/95 11,303 11,934 11,445 4/30/95 11,666 12,285 11,707 5/31/95 12,132 12,775 12,081 6/30/95 12,437 13,071 12,420 7/31/95 12,888 13,504 12,880 8/31/95 12,888 13,538 12,922 9/30/95 13,448 14,109 13,368 10/31/95 13,378 14,059 13,260 11/30/95 13,849 14,675 13,789 12/31/95 14,041 14,958 13,966 1/31/96 14,483 15,467 14,375 2/29/96 14,748 15,610 14,619 3/31/96 14,802 15,761 14,764 4/30/96 14,908 15,993 15,035 5/31/96 15,334 16,405 15,384 6/30/96 15,367 16,467 15,358 7/31/96 14,638 15,740 14,650 8/31/96 14,922 16,073 15,038 9/30/96 15,499 16,976 15,843 10/31/96 15,927 17,444 16,130 11/30/96 17,120 18,762 17,206 12/31/96 17,268 18,390 16,901 1/31/97 18,081 19,538 17,773 2/28/97 17,965 19,692 17,768 3/31/97 17,505 18,884 17,032 4/30/97 18,273 20,011 17,836 5/31/97 19,111 21,228 18,951 6/30/97 20,123 22,179 19,720 7/31/97 21,897 23,943 21,272 8/31/97 21,127 22,603 20,332 9/30/97 22,553 23,840 21,363 10/31/97 21,171 23,044 20,626 11/30/97 22,178 24,110 21,290 12/31/97 22,418 24,524 21,650 1/31/98 22,684 24,795 21,797 2/28/98 24,625 26,582 23,382 3/31/98 26,147 27,942 24,445 4/30/98 26,786 28,223 24,700 5/31/98 26,786 27,739 24,161 6/30/98 27,873 28,865 25,007 7/31/98 27,761 28,558 24,632 8/31/98 23,549 24,434 20,915 9/30/98 25,641 26,000 22,168 10/31/98 27,846 28,115 23,837 11/30/98 29,203 29,819 25,241 12/31/98 30,897 31,537 26,902 1/31/99 31,832 32,856 27,838 2/28/99 30,925 31,835 26,922 3/31/99 31,946 33,108 27,999 4/30/99 34,043 34,391 29,021 5/31/99 33,561 33,579 28,368 6/30/99 35,801 35,442 29,940 7/31/99 34,793 34,336 29,092 8/31/99 34,850 34,165 28,763 9/30/99 33,752 33,228 28,050 10/31/99 35,177 35,331 29,694 11/30/99 35,519 36,049 30,457 12/31/99 37,096 38,172 32,510 1/31/2000 34,926 36,255 31,089 2/29/2000 34,233 35,568 31,139 3/31/2000 37,429 39,048 33,702 4/30/2000 36,071 37,873 32,630 5/31/2000 35,528 37,096 31,814 6/30/2000 36,328 38,010 32,759 7/31/2000 35,663 37,416 32,297 8/31/2000 38,022 39,740 34,490 9/30/2000 36,396 37,642 32,724 10/31/2000 36,063 37,483 32,423 11/30/2000 33,575 34,528 29,807 12/31/2000 33,636 34,697 30,236 1/31/2001 34,819 35,928 30,952 2/28/2001 32,726 32,652 28,210 3/31/2001 31,043 30,583 26,348 4/30/2001 33,230 32,960 28,356 5/31/2001 33,503 33,181 28,478 6/30/2001 32,971 32,373 27,661 7/31/2001 32,910 32,055 27,237 8/31/2001 31,481 30,048 25,532 9/30/2001 29,113 27,622 23,388 10/31/2001 29,235 28,148 23,942 11/30/2001 31,460 30,308 25,728 12/31/2001 31,545 30,573 25,949 1/31/2002 31,000 30,127 25,464 2/28/2002 30,603 29,546 24,919 3/31/2002 31,825 30,658 25,836 4/30/2002 30,084 28,799 24,366 5/31/2002 29,596 28,586 24,134 6/30/2002 27,091 26,550 22,363 7/31/2002 24,648 24,480 20,632 8/31/2002 24,800 24,641 20,727 9/30/2002 22,052 21,963 18,605
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the Analytic Enhanced Equity Fund. The Analytic Enhanced Equity Fund was a series of the UAM Funds, Inc II. The Analytic Enhanced Equity Fund was managed by Analytic Investors, Inc., the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Analytic Enhanced Equity Fund. Data includes performance of the Fund's predecessor, whose inception date was July 1, 1993. 4 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The Lipper Large-Cap Core Funds Average represents the average performance of 962 mutual funds classified by Lipper, Inc. in the Large-Cap Core Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Large-Cap Core Funds Average at that month's end, July 31, 1993. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Basic Materials 2% Consumer Cyclical 11% Consumer Non-Cyclical 9% Energy 5% Financial 20% Health Care 17% Industrial 10% Services 7% Technology 15% Transportation 2% Utilities 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* General Electric 5.0% Johnson & Johnson 4.2% Microsoft 3.8% Citigroup 3.5% Bank of America 3.5% ChevronTexaco 3.0% Medtronic 2.6% Pfizer 2.4% US Bancorp 2.4% Union Pacific 2.3% - -------------------------------------------------------------------------- Total Top Ten Holdings 32.7% *As a % of Common Stock 51 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PBDEX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 98.3% BASIC MATERIALS -- 2.1% CHEMICALS-SPECIALTY -- 1.1% Ashland 13,359 $ 358 Engelhard 9,238 220 ------------ 578 - -------------------------------------------------------------------------------- METAL-DIVERSIFIED -- 1.0% Freeport-McMoRan Copper & Gold, Cl B* 42,697 575 ------------ 575 ------------ TOTAL BASIC MATERIALS (COST $1,490) 1,153 ------------ - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 11.1% BUILDING-RESIDENTIAL/COMMERCIAL -- 0.7% Centex 3,669 163 KB Home 3,819 186 Pulte Homes 531 23 ------------ 372 - -------------------------------------------------------------------------------- CABLE TV -- 1.3% Comcast* 34,649 723 ------------ 723 - -------------------------------------------------------------------------------- CRUISE LINES -- 0.2% Carnival 4,848 122 ------------ 122 - -------------------------------------------------------------------------------- MULTIMEDIA -- 1.1% Meredith 15,091 649 ------------ 649 - -------------------------------------------------------------------------------- RETAIL-AUTO PARTS -- 1.8% Autozone* 12,671 999 ------------ 999 - -------------------------------------------------------------------------------- RETAIL-BUILDING PRODUCTS -- 2.1% Home Depot 46,004 1,201 ------------ 1,201 - -------------------------------------------------------------------------------- RETAIL-DISCOUNT -- 0.9% Wal-Mart Stores 10,102 497 ------------ 497 - -------------------------------------------------------------------------------- RETAIL-MAJOR DEPARTMENT STORE -- 1.3% Sears Roebuck 18,766 732 ------------ 732 - -------------------------------------------------------------------------------- RETAIL-OFFICE SUPPLIES -- 1.3% Office Depot* 57,276 707 ------------ 707 - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 0.2% McDonald's 5,459 96 ------------ 96 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- TRAVEL SERVICES -- 0.2% Sabre Holdings* 7,335 $ 142 ------------ 142 ------------ TOTAL CONSUMER CYCLICAL (COST $7,901) 6,240 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 8.4% BEVERAGES-NON-ALCOHOLIC -- 2.2% PepsiCo 32,393 1,197 ------------ 1,197 - -------------------------------------------------------------------------------- COSMETICS & TOILETRIES -- 0.8% Procter & Gamble 4,946 442 ------------ 442 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.3% General Mills 10,439 464 Sara Lee 14,679 268 ------------ 732 - -------------------------------------------------------------------------------- FOOD-RETAIL -- 0.6% Kroger* 22,456 317 ------------ 317 - -------------------------------------------------------------------------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.9% Supervalu 32,081 518 ------------ 518 - -------------------------------------------------------------------------------- TOBACCO -- 2.6% Philip Morris 26,359 1,023 RJ Reynolds Tobacco Holdings 320 13 UST 15,537 438 ------------ 1,474 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $4,723) 4,680 ------------ - -------------------------------------------------------------------------------- ENERGY -- 5.4% OIL COMPANIES-EXPLORATION & PRODUCTION-- 0.9% Apache 8,844 526 ------------ 526 - -------------------------------------------------------------------------------- OIL COMPANIES-INTEGRATED -- 4.1% ChevronTexaco 24,153 1,673 ConocoPhillips 2,903 134 Exxon Mobil 14,840 473 ------------ 2,280 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 0.4% Schlumberger 5,563 214 ------------ 214 ------------ TOTAL ENERGY (COST $3,562) 3,020 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 20.0% COMMERCIAL BANKS-SOUTHERN US -- 1.3% BB&T 21,430 751 ------------ 751 - -------------------------------------------------------------------------------- 52 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PBDEX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES -- 3.5% Citigroup 65,313 $ 1,937 ------------ 1,937 - -------------------------------------------------------------------------------- FINANCE-CONSUMER LOANS -- 0.9% Household International 18,801 532 ------------ 532 - -------------------------------------------------------------------------------- FINANCE-MORTGAGE LOAN/BANKER -- 3.1% Fannie Mae 15,142 902 Freddie Mac 14,748 824 ------------ 1,726 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 1.9% John Hancock Financial Services 38,868 1,081 ------------ 1,081 - -------------------------------------------------------------------------------- MONEY CENTER BANKS -- 3.4% Bank of America 30,086 1,919 ------------ 1,919 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 2.3% American International Group 3,477 190 Loews 12,804 549 Metlife 23,318 531 ------------ 1,270 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 0.1% Travelers Property Casualty, Cl B* 4,603 62 ------------ 62 - -------------------------------------------------------------------------------- S&L/THRIFTS-WESTERN US -- 1.1% Washington Mutual 19,396 610 ------------ 610 - -------------------------------------------------------------------------------- SUPER-REGIONAL BANKS-US -- 2.4% US Bancorp 70,868 1,317 ------------ 1,317 ------------ TOTAL FINANCIAL (COST $13,467) 11,205 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 16.6% MEDICAL INSTRUMENTS -- 2.6% Medtronic 34,360 1,447 ------------ 1,447 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 5.0% Amgen* 8,119 338 Biogen* 5,487 161 Johnson & Johnson 42,838 2,317 ------------ 2,816 - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 9.0% Abbott Laboratories 26,368 1,065 Merck 23,572 1,078 Pfizer 45,616 1,324 Pharmacia 9,806 381 Schering-Plough 42,715 911 Wyeth 7,837 249 ------------ 5,008 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- PHYSICAL THERAPY/REHABILITATION CENTERS-- 0.0% Healthsouth* 5,368 $ 22 ------------ 22 ------------ TOTAL HEALTH CARE (COST $10,293) 9,293 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 9.5% AEROSPACE/DEFENSE -- 1.9% General Dynamics 13,283 1,080 ------------ 1,080 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 2.2% Goodrich 9,829 186 United Technologies 18,638 1,053 ------------ 1,239 - -------------------------------------------------------------------------------- CONTAINERS-PAPER/PLASTIC -- 0.3% Sealed Air* 11,163 189 ------------ 189 - -------------------------------------------------------------------------------- DIVERSIFIED MANUFACTURING OPERATIONS-- 4.9% General Electric 110,601 2,726 ------------ 2,726 - -------------------------------------------------------------------------------- TRUCKING & LEASING -- 0.2% Ryder System 3,905 97 ------------ 97 ------------ TOTAL INDUSTRIAL (COST $6,481) 5,331 ------------ - -------------------------------------------------------------------------------- SERVICES -- 6.4% COMMERCIAL SERVICES-FINANCE -- 2.0% Deluxe 21,715 979 H&R Block 2,862 120 ------------ 1,099 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 4.4% BellSouth 43,920 806 CenturyTel 17,669 396 SBC Communications 55,094 1,107 Verizon Communications 5,630 155 ------------ 2,464 - -------------------------------------------------------------------------------- TOTAL SERVICES (COST $4,574) 3,563 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 14.5% APPLICATIONS SOFTWARE -- 3.8% Microsoft* 48,391 2,117 ------------ 2,117 - -------------------------------------------------------------------------------- COMPUTER AIDED DESIGN -- 0.3% Autodesk 13,515 171 ------------ 171 - -------------------------------------------------------------------------------- COMPUTERS -- 1.5% Hewlett-Packard 65,123 760 International Business Machines 975 57 ------------ 817 - -------------------------------------------------------------------------------- 53 PBHG FUNDS PBHG DISCIPLINED EQUITY FUND PBDEX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 3.4% Automatic Data Processing 29,211 $ 1,016 First Data 32,129 898 ------------ 1,914 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 0.7% Nvidia* 46,102 395 ------------ 395 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.4% Novell* 17,324 36 Oracle* 93,897 738 ------------ 774 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.8% Cisco Systems* 45,729 479 ------------ 479 - -------------------------------------------------------------------------------- OFFICE AUTOMATION & EQUIPMENT -- 0.5% Pitney Bowes 9,361 285 ------------ 285 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.9% Kla-Tencor* 19,128 534 ------------ 534 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 1.2% Motorola 64,999 662 ------------ 662 ------------ TOTAL TECHNOLOGY (COST $10,559) 8,148 ------------ - -------------------------------------------------------------------------------- TRANSPORTATION -- 2.4% TRANSPORTATION-RAIL -- 2.4% CSX 3,986 105 Union Pacific 21,669 1,254 ------------ 1,359 ------------ TOTAL TRANSPORTATION (COST $1,345) 1,359 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 1.9% ELECTRIC-INTEGRATED -- 1.9% Edison International* 26,212 262 Entergy 4,123 172 NiSource 19,072 329 Public Service Enterprise Group 422 13 Reliant Energy 3,326 33 TECO Energy 2,821 45 Xcel Energy 22,148 206 ------------ 1,060 ------------ TOTAL UTILITIES (COST $1,658) 1,060 ------------ TOTAL COMMON STOCK (COST $66,053) 55,052 ------------ - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- RIGHTS -- 0.0% Seagate Escrow Security+ 6,002 $ -- ------------ -- ------------ TOTAL RIGHTS (COST $0) -- ------------ - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS-- 0.4% U.S. Treasury Bill (A) (B) 1.64%, 3/13/2003 $200 199 ------------ 199 ------------ TOTAL U.S. TREASURY OBLIGATIONS (COST $199) 199 ------------ TOTAL INVESTMENTS-- 98.7% (COST $66,252) 55,251 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 1.3% Receivable for Investment Securities Sold 711 Payable for Administrative Fees (7) Payable for Investment Advisory Fees (22) Other Assets and Liabilities, Net 59 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 741 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 7,759,239 outstanding shares of common stock 97,064 Undistributed net investment income 502 Accumulated net realized loss on investments (30,426) Unrealized depreciation on investments and futures contracts (11,148) ------------ TOTAL NET ASSETS-- 100.0% $ 55,992 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $7.22 ===== * Non-income producing security. + These rights represent a potential distribution settlement in a legal claim and do not have a strike price or expiration date. (A) -- Security has been pledged as collateral for open futures contracts. (B) -- The rate reflected on the Statement of Net Assets represents the security's effective yield at time of purchase. Cl -- Class The accompanying notes are an integral part of the financial statements. 54 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized 6 Year Inception Months2 Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Global Technology & Communications Fund (51.05)% (38.82)% (51.37)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND1 VERSUS THE MSCI WORLD FREE INDEX, THE PSE TECHNOLOGY INDEX(R) AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Global Tech & MSCI World PSE Lipper Science Comm Free Index Tech Index & Technology 5/31/2000 $10,000 $10,000 $10,000 $10,000 6/30/2000 11,820 10,335 11,075 11,726 7/31/2000 11,570 10,043 10,331 11,173 8/31/2000 12,750 10,369 11,770 12,927 9/30/2000 11,310 9,816 10,447 11,644 10/31/2000 10,100 9,651 9,772 10,338 11/30/2000 7,180 9,063 8,169 7,657 12/31/2000 7,390 9,209 8,194 7,496 1/31/2001 7,860 9,386 9,235 8,236 2/28/2001 6,180 8,592 7,551 5,957 3/31/2001 4,950 8,026 6,666 4,967 4/30/2001 5,940 8,618 7,751 5,959 5/31/2001 5,410 8,505 7,472 5,710 6/30/2001 4,860 8,238 7,310 5,644 7/31/2001 4,600 8,128 6,929 5,128 8/31/2001 3,860 7,736 6,372 4,456 9/30/2001 3,040 7,054 5,212 3,477 10/31/2001 3,490 7,188 6,035 4,036 11/30/2001 4,120 7,612 6,851 4,664 12/31/2001 4,100 7,660 6,931 4,716 1/31/2002 3,970 7,427 6,896 4,634 2/28/2002 3,420 7,361 6,333 3,987 3/31/2002 3,800 7,686 6,911 4,366 4/30/2002 3,390 7,424 6,108 3,827 5/31/2002 3,030 7,437 5,863 3,593 6/30/2002 2,550 6,984 5,183 3,118 7/31/2002 2,290 6,395 4,579 2,773 8/31/2002 2,200 6,406 4,521 2,691 9/30/2002 1,860 5,701 3,897 2,296
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. International investing involves special risks including currency exchange fluctuation, government regulation and the potential for economic and political instability. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. 4 The MSCI World Free Index is the Morgan Stanley Capital International Index that reflects the performance of both the developed and the emerging equity markets of the world. The Index excludes the performance impact of companies that are restricted with respect to foreign investors. The Index reflects the reinvestment of income dividends and capital gain distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 5 The PSE Technology Index(R) is a price-weighted index of the top 100 U.S. technology stocks. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Science & Technology Funds Average represents the average performance of 400 mutual funds classified by Lipper, Inc. in the Science & Technology category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. COUNTRY WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Bermuda 6% France 1% India 1% Israel 1% Japan 18% South Korea 1% United Kingdom 2% United States 70% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Marvell Technology Group 6.0% Cisco Systems 5.0% Microsoft 5.0% Take-Two Interactive Software 4.5% Sega 3.9% Dell Computer 3.2% Hirose Electric 3.1% Broadcom 3.0% Microchip Technology 2.7% Rohm 2.6% - --------------------------------------------------------------------- Total Top Ten Holdings 39.0% *As a % of Common Stock 55 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 82.0% BERMUDA -- 5.0% Marvell Technology Group* 50,700 $ 803 ------------ 803 ------------ TOTAL BERMUDA (COST $1,863) 803 ------------ - -------------------------------------------------------------------------------- FRANCE -- 1.1% STMicroelectronics 13,200 179 ------------ 179 ------------ TOTAL FRANCE (COST $430) 179 ------------ - -------------------------------------------------------------------------------- INDIA -- 0.7% Infosys Technologies ADR 2,000 108 ------------ 108 ------------ TOTAL INDIA (COST $115) 108 ------------ - -------------------------------------------------------------------------------- ISRAEL -- 0.5% Precise Software Solutions* 9,500 87 ------------ 87 ------------ TOTAL ISRAEL (COST $98) 87 ------------ - -------------------------------------------------------------------------------- JAPAN -- 14.7% Canon 8,000 262 Fanuc 400 18 Fuji Machine Manufacturing 3,000 28 Fujitsu 47,000 203 Hirose Electric 5,800 416 Matsushita Electric Industrial 2,884 30 Mitsumi Electric 26,400 311 Rohm 3,000 352 Sega* 28,000 523 Sony 6,000 252 ------------ TOTAL JAPAN (COST $3,757) 2,395 ------------ - -------------------------------------------------------------------------------- SOUTH KOREA -- 0.9% KT ADR 6,900 153 ------------ 153 ------------ TOTAL SOUTH KOREA (COST $138) 153 ------------ - -------------------------------------------------------------------------------- UNITED KINGDOM -- 1.5% Vodafone Group Plc ADR 19,000 244 ------------ 244 ------------ TOTAL UNITED KINGDOM (COST $412) 244 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- UNITED STATES -- 57.6% Activision* 10,500 $ 251 Advanced Fibre Communication* 13,400 178 Agilent Technologies* 8,000 105 Applied Materials* 15,000 173 BellSouth 8,000 147 Broadcom, Cl A* 37,400 399 Brocade Communications Systems* 31,600 238 Brooks-PRI Automation* 2,200 25 CDW Computer Centers* 4,300 182 Cisco Systems* 63,200 662 Cognizant Technology Solutions* 3,600 207 Comcast* 9,900 207 Concord EFS* 8,000 127 Cymer* 7,400 138 Dell Computer* 18,100 426 DSP Group* 1,800 29 DST Systems* 4,300 127 Electronic Arts* 4,700 310 EMC* 24,500 112 General Dynamics 2,100 171 Hewlett-Packard 15,000 175 Integrated Circuit Systems* 14,600 229 Intel 17,900 249 Intersil* 16,900 219 Lam Research* 7,200 64 Lexmark International* 3,800 179 Linear Technology 7,400 153 Lockheed Martin 3,000 194 Maxim Integrated Products* 4,300 106 Mercury Interactive* 8,200 141 Microchip Technology* 17,700 362 Microsoft* 15,100 660 NetScreen Technologies* 28,200 306 Paychex 6,000 146 QLogic* 4,500 117 Qualcomm* 7,300 202 SBC Communications 8,000 161 Silicon Laboratories* 4,500 83 Sungard Data Systems* 6,000 117 Synopsys* 900 34 Take-Two Interactive Software* 20,600 597 Texas Instruments 10,100 149 Verizon Communications 6,500 178 Vishay Intertechnology* 1,200 11 Western Digital* 33,500 157 Xilinx* 9,500 150 ------------ TOTAL UNITED STATES (COST $13,248) 9,353 ------------ TOTAL COMMON STOCK (COST $20,061) 13,322 ------------ - -------------------------------------------------------------------------------- 56 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- INVESTMENT COMPANY -- 2.5% Technology Select Sector SPDR Fund* 33,700 $ 399 ------------ 399 ------------ TOTAL INVESTMENT COMPANY (COST $453) 399 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 8.2% JP Morgan Chase 1.85%, dated 09/30/02, matures 10/01/02, repurchase price $1,337,527 (collateralized by U.S. Government Obligations: total market value $1,364,931) (A) $1,337 1,337 ------------ TOTAL REPURCHASE AGREEMENT (COST $1,337) 1,337 ------------ TOTAL INVESTMENTS-- 92.7% (COST $21,851) $ 15,058 ============ Percentages are based on Net Assets of $16,250,430 * Non-income producing security. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class Plc -- Public Limited Company SPDR -- Standard & Poor's 500 Composite Index Depositary Receipt 57 PBHG FUNDS PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND PBGTX SECTOR/INDUSTRY DIVERSIFICATION - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market % of Value (000) Net Assets - -------------------------------------------------------------------------------- CONSUMER CYCLICAL Audio/Video Products $ 282 1.7% Cable TV 206 1.3 Entertainment Software 1,159 7.1 Retail-Computer Equipment 182 1.1 Toys 523 3.2 ------ ---- TOTAL CONSUMER CYCLICAL 2,352 14.4 ------ ---- INDUSTRIAL Aerospace/Defense 365 2.2 Capacitors 312 1.9 Electronic Components-Miscellaneous 57 0.4 Electronic Connectors 416 2.6 Electronic Measuring Instruments 104 0.6 Industrial Automation/Robotics 25 0.2 Lasers-Systems/Components 138 0.8 Machinery-Material Handling 28 0.2 ------ ---- TOTAL INDUSTRIAL 1,445 8.9 ------ ---- SERVICES Commercial Services-Finances 273 1.7 Computer Services 450 2.8 Telephone-Integrated 639 3.9 ------ ---- TOTAL SERVICES 1,362 8.4 ------ ---- Market % of Value (000) Net Assets - -------------------------------------------------------------------------------- TECHNOLOGY Applications Software $ 909 5.6% Cellular Telecommunications 244 1.5 Computer Data Security 306 1.9 Computers 601 3.7 Computers-Integrated Systems 441 2.7 Computers-Memory Devices 269 1.7 Computers-Peripheral Equipment 179 1.1 Decision Support Software 87 0.5 Electronic Components-Semiconductors 2,259 13.9 Electronic Design Automation 34 0.2 Networking Products 662 4.1 Office Automation & Equipment 262 1.6 Semiconductor Components-Integrated Circuits 1,293 8.0 Semiconductor Equipment 237 1.5 Telecommunication Equipment 178 1.1 Wireless Equipment 202 1.2 ------- ----- TOTAL TECHNOLOGY 8,163 50.3 ======= ===== TOTAL COMMON STOCK 13,322 82.0 TOTAL INVESTMENT COMPANY 399 2.5 TOTAL REPURCHASE AGREEMENT 1,337 8.2 TOTAL OTHER ASSETS AND LIABILITIES, NET 1,192 7.3 ------- ----- TOTAL NET ASSETS $16,250 100.0% ======= ===== The accompanying notes are an integral part of the financial statements. 58 PBHG FUNDS PBHG REIT FUND PBRTX PBHG REIT FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized Annualized 6 Year 3 Year 5 Year 10 Year Inception Months2 Return Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG REIT Fund - PBHG Class3 (8.91)% 7.41% 10.93% 3.46% 10.97% 8.45% - --------------------------------------------------------------------------------------------------------------------------- PBHG REIT Fund - Advisor Class3,4 (8.96)% 7.23% 10.50% 3.01% 10.64% 8.21% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG REIT FUND - PBHG CLASS1 VERSUS THE S&P 500 INDEX, WILSHIRE REAL ESTATE SECURITIES INDEX AND THE LIPPER REAL ESTATE FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG S&P 500 Wilshire Real Lipper Real REIT Index Estate Securities Estate Funds 3/13/89 $10,000 $10,000 $10,000 $10,000 3/31/89 9,960 10,000 10,000 10,000 4/30/89 10,140 10,519 10,218 10,182 5/31/89 10,170 10,893 10,293 10,357 6/30/89 10,281 10,881 10,419 10,473 7/31/89 10,747 11,863 10,908 10,804 8/31/89 10,706 12,094 10,943 10,690 9/30/89 10,481 12,045 10,957 10,666 10/31/89 10,308 11,765 10,657 10,133 11/30/89 10,121 12,004 10,658 9,982 12/31/89 9,944 12,292 10,744 9,978 1/31/90 9,833 11,467 10,415 9,508 2/28/90 9,769 11,616 10,385 9,504 3/31/90 9,598 11,924 10,423 9,482 4/30/90 9,718 11,627 10,234 9,298 5/31/90 9,392 12,758 10,305 9,257 6/30/90 9,413 12,672 10,467 9,275 7/31/90 9,489 12,632 10,551 8,920 8/31/90 8,714 11,491 9,688 7,878 9/30/90 7,740 10,933 8,962 6,965 10/31/90 7,313 10,886 8,845 6,463 11/30/90 7,789 11,589 9,177 6,726 12/31/90 7,741 11,911 9,222 6,640 1/31/91 8,715 12,429 9,962 7,286 2/28/91 8,968 13,317 10,498 7,714 3/31/91 9,523 13,639 11,063 8,401 4/30/91 9,534 13,671 11,208 8,333 5/31/91 9,698 14,259 11,338 8,462 6/30/91 9,534 13,606 10,995 8,045 7/31/91 9,499 14,240 11,159 8,011 8/31/91 9,226 14,576 11,108 7,915 9/30/91 9,253 14,332 11,342 7,824 10/31/91 9,012 14,531 11,205 7,648 11/30/91 8,879 13,948 11,064 7,394 12/31/91 9,564 15,540 12,001 7,970 1/31/92 10,116 15,250 12,444 8,345 2/29/92 9,920 15,448 12,250 8,324 3/31/92 9,910 15,148 12,088 8,144 4/30/92 9,749 15,592 12,001 8,009 5/31/92 10,097 15,668 12,449 8,041 6/30/92 9,924 15,435 12,237 7,799 7/31/92 10,314 16,066 12,583 7,828 8/31/92 10,365 15,737 12,722 7,710 9/30/92 10,594 15,922 12,968 8,003 10/31/92 10,799 15,977 13,147 8,088 11/30/92 10,722 16,519 13,291 8,158 12/31/92 11,273 16,722 13,923 8,559 1/31/93 11,959 16,862 14,561 9,154 2/28/93 12,658 17,092 15,114 9,597 3/31/93 13,861 17,452 16,104 10,241 4/30/93 12,986 17,030 15,615 9,661 5/31/93 12,751 17,485 15,541 9,509 6/30/93 13,104 17,536 15,837 9,758 7/31/93 13,460 17,465 16,187 9,956 8/31/93 13,724 18,126 16,646 10,163 9/30/93 14,594 17,983 17,369 10,624 10/31/93 14,274 18,355 17,270 10,325 11/30/93 13,101 18,181 16,374 9,875 12/31/93 13,538 18,401 16,878 9,863 1/31/94 13,697 19,026 17,070 10,159 2/28/94 14,536 18,510 17,668 10,574 3/31/94 14,031 17,704 17,083 10,085 4/30/94 14,192 17,931 17,218 10,198 5/31/94 14,529 18,225 17,282 10,410 6/30/94 13,983 17,778 16,881 10,205 7/31/94 13,820 18,362 16,817 10,228 8/31/94 13,894 19,113 16,976 10,221 9/30/94 13,855 18,647 16,684 10,050 10/31/94 13,164 19,064 16,102 9,683 11/30/94 12,624 18,371 15,511 9,304 12/31/94 13,945 18,643 16,806 10,025 1/31/95 13,189 19,126 16,257 9,701 2/28/95 13,256 19,870 16,444 10,005 3/31/95 13,312 20,456 16,496 10,063 4/30/95 13,107 21,058 16,338 9,990 5/31/95 13,654 21,898 17,053 10,321 6/30/95 13,830 22,406 17,400 10,501 7/31/95 14,143 23,149 17,760 10,670 8/31/95 14,317 23,206 18,000 10,800 9/30/95 14,759 24,185 18,423 10,999 10/31/95 14,266 24,099 17,918 10,658 11/30/95 14,459 25,156 18,050 10,769 12/31/95 15,461 25,640 19,307 11,393 1/31/96 15,479 26,512 19,554 11,550 2/29/96 15,747 26,758 19,757 11,779 3/31/96 15,933 27,016 19,781 11,875 4/30/96 15,951 27,414 19,755 11,928 5/31/96 16,350 28,120 20,259 12,194 6/30/96 16,707 28,227 20,591 12,438 7/31/96 16,634 26,981 20,505 12,327 8/31/96 17,405 27,551 21,399 12,851 9/30/96 17,878 29,100 21,957 13,172 10/31/96 18,324 29,902 22,442 13,529 11/30/96 19,272 32,160 23,452 14,091 12/31/96 21,345 31,523 25,784 15,594 1/31/97 21,540 33,492 26,152 15,817 2/28/97 21,638 33,754 26,207 15,827 3/31/97 21,879 32,370 26,283 15,881 4/30/97 20,975 34,301 25,350 15,368 5/31/97 21,564 36,388 26,138 15,826 6/30/97 22,716 38,017 27,592 16,610 7/31/97 23,570 41,041 28,759 17,157 8/31/97 23,471 38,744 28,615 17,030 9/30/97 25,309 40,865 31,362 18,709 10/31/97 24,788 39,501 30,415 17,914 11/30/97 25,008 41,328 30,789 18,274 12/31/97 25,854 42,038 31,553 18,682 1/31/98 25,534 42,502 31,070 18,418 2/28/98 25,361 45,566 30,974 18,182 3/31/98 26,131 47,897 31,705 18,541 4/30/98 25,236 48,379 30,712 17,957 5/31/98 24,589 47,548 30,261 17,784 6/30/98 24,291 49,478 29,913 17,690 7/31/98 23,162 48,953 28,025 16,459 8/31/98 21,079 41,884 25,108 14,749 9/30/98 22,108 44,567 26,376 15,575 10/31/98 21,259 48,192 26,138 15,361 11/30/98 21,794 51,113 26,693 15,650 12/31/98 21,946 54,058 26,530 15,426 1/31/99 21,361 56,319 25,943 15,091 2/28/99 20,826 54,569 25,593 14,972 3/31/99 20,750 56,752 25,371 14,891 4/30/99 22,647 58,950 28,067 16,479 5/31/99 23,577 57,558 28,660 16,757 6/30/99 23,293 60,753 28,367 16,472 7/31/99 22,392 58,857 27,318 15,842 8/31/99 22,313 58,563 26,862 15,604 9/30/99 21,978 56,958 25,798 14,900 10/31/99 21,287 60,562 25,220 14,623 11/30/99 20,729 61,793 24,963 14,393 12/31/99 21,692 65,433 25,971 14,935 1/31/2000 21,530 62,146 25,805 14,996 2/29/2000 21,018 60,969 25,340 14,709 3/31/2000 21,910 66,934 26,493 15,354 4/30/2000 23,221 64,920 27,898 16,448 5/31/2000 23,331 63,588 28,196 16,646 6/30/2000 24,254 65,155 29,344 17,207 7/31/2000 25,888 64,137 31,580 18,752 8/31/2000 25,085 68,120 30,765 18,077 9/30/2000 26,005 64,524 31,823 18,664 10/31/2000 24,800 64,251 30,398 17,854 11/30/2000 25,444 59,186 30,838 18,256 12/31/2000 27,094 59,475 32,858 19,525 1/31/2001 26,980 61,585 33,013 19,720 2/28/2001 26,414 55,970 32,521 19,310 3/31/2001 26,299 52,424 32,326 19,325 4/30/2001 26,701 56,498 33,079 19,785 5/31/2001 27,303 56,877 33,721 20,339 6/30/2001 28,907 55,492 35,481 21,439 7/31/2001 28,502 54,946 34,917 21,011 8/31/2001 29,545 51,507 35,957 21,744 9/30/2001 27,933 47,347 34,368 20,424 10/31/2001 27,198 48,250 33,340 19,660 11/30/2001 28,933 51,952 35,047 20,934 12/31/2001 29,913 52,407 36,004 21,541 1/31/2002 30,118 51,642 36,051 21,634 2/28/2002 30,936 50,646 36,743 22,129 3/31/2002 32,939 52,551 38,834 23,490 4/30/2002 33,042 49,365 39,393 23,633 5/31/2002 33,180 49,001 39,937 23,872 6/30/2002 33,712 45,510 40,771 24,361 7/31/2002 31,596 41,963 38,561 22,854 8/31/2002 31,388 42,239 38,596 22,863 9/30/2002 30,002 37,648 37,106 21,852
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Funds that concentrate investments in one or more groups or industries may involve greater risks than more diversified funds, including greater potential for volatility. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. Prior to the acquisition, the PBHG Class shares of the Fund were known as the Institutional Class shares of the Heitman Real Estate Portfolio and Advisor Class shares were known as Advisor Class shares of the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. The Heitman Real Estate Portfolio was managed by Heitman Real Estate Securities LLC, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the Heitman Real Estate Portfolio. Data includes performance of the Fund's predecessor class, whose inception date was March 13, 1989. 4 The performance shown for the Advisor Class prior to its inception date of May 15, 1995 is based on the performance and expenses of the PBHG Class. Subsequent to May 15, 1995, the performance is that of the Advisor Class, which will cause returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception date to September 30, 2002 was 10.79%. The Advisor Class of the Fund's predecessor carried a maximum front-end sales charge of 4.75% and a 12b-1 fee of 0.50% of average daily net assets. The PBHG REIT Fund Advisor Class does not carry a sales charge and carries a 12b-1 fee of 0.25% of average daily net assets. Returns shown in the chart have been adjusted to reflect the elimination of the front-end sales charge. No adjustment has been made to reflect the lower 12b-1 fee. The Advisor Class shares returns going forward will reflect the 0.25% 12b-1 fee. 5 The S&P 500 Index is a capitalization weighted index of 500 stocks. The Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Index is unmanaged and reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Wilshire Real Estate Securities Index is a market capitalization weighted index of publicly traded real estate securities, including real estate investment trusts, real estate operating companies and partnerships. The Index is used by the institutional investment community as a broad measure of the performance of public real estate equity for asset allocation and performance comparison. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 7 The Lipper Real Estate Funds Average represents the average performance of 159 mutual funds classified by Lipper, Inc. in the Real Estate category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Real Estate Funds Average at that month's end March 31, 1989. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Consumer Cyclical 17% Financial (REITS) 83% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Apartment Investment & Management, Cl A 7.1% Starwood Hotels & Resorts Worldwide 6.9% Equity Office Properties Trust 6.3% Rouse 4.9% Prologis 4.8% AvalonBay Communities 4.4% General Growth Properties 4.2% CarrAmerica Realty 4.1% Vornado Realty Trust 4.1% PS Business Parks 4.0% - ---------------------------------------------------------------------------- Total Top Ten Holdings 50.8% *As a % of Common Stock 59 PBHG FUNDS PBHG REIT FUND PBRTX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 99.2% CONSUMER CYCLICAL -- 9.0% HOTELS & MOTELS -- 9.0% Extended Stay America* 124,200 $ 1,577 Prime Hospitality* 63,500 521 Starwood Hotels & Resorts Worldwide 299,700 6,683 ------------ 8,781 ------------ TOTAL CONSUMER CYCLICAL (COST $11,678) 8,781 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 90.2% REAL ESTATE OPERATION/DEVELOPMENT -- 7.5% Catellus Development* 210,300 3,880 Highwoods Properties 148,400 3,473 ------------ 7,353 - -------------------------------------------------------------------------------- REITS -- 82.7% APARTMENTS -- 17.3% AMLI Residential Properties 56,900 1,256 Apartment Investment & Management, Cl A178,000 6,915 AvalonBay Communities 102,700 4,293 Summit Properties 102,300 1,985 United Dominion Realty Trust 155,800 2,479 ------------ 16,928 - -------------------------------------------------------------------------------- DIVERSIFIED -- 6.5% Duke Realty 78,300 1,928 Entertainment Properties Trust 21,400 473 Vornado Realty Trust 100,600 3,968 ------------ 6,369 - -------------------------------------------------------------------------------- HOTELS -- 3.0% Innkeepers USA Trust 58,300 466 LaSalle Hotel Properties 152,000 1,900 Meristar Hospitality 19,300 166 Winston Hotels 50,500 365 ------------ 2,897 - -------------------------------------------------------------------------------- MANUFACTURED HOMES -- 2.6% Sun Communities 69,500 2,551 ------------ 2,551 - -------------------------------------------------------------------------------- OFFICE PROPERTY -- 21.2% Boston Properties 102,300 3,806 Brandywine Realty Trust 40,300 909 CarrAmerica Realty 158,900 3,999 Cousins Properties 64,800 1,490 Equity Office Properties Trust 234,810 6,063 Kilroy Realty 85,000 2,015 Koger Equity 63,700 1,076 SL Green Realty 44,900 1,380 Trizec Properties 63 1 ------------ 20,739 - -------------------------------------------------------------------------------- REGIONAL MALLS -- 12.6% General Growth Properties 78,500 4,043 Rouse 149,700 4,783 Taubman Centers 245,756 3,497 ------------ 12,323 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SHOPPING CENTERS -- 8.2% Center Trust 61,700 $ 358 Developers Diversified Realty 147,800 3,253 Federal Realty Investment Trust 11,000 297 IRT Property 97,200 1,142 Pan Pacific Retail Properties 68,200 2,352 Philips International Realty 28,300 53 Ramco-Gershenson Properties 25,600 503 ------------ 7,958 - -------------------------------------------------------------------------------- STORAGE -- 2.6% Public Storage 78,300 2,498 ------------ 2,498 - -------------------------------------------------------------------------------- WAREHOUSE/INDUSTRIAL -- 8.7% Prologis 185,270 4,615 PS Business Parks 114,416 3,890 ------------ 8,505 ------------ TOTAL FINANCIAL (COST $91,857) 88,121 ------------ TOTAL COMMON STOCK (COST $103,535) 96,902 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 1.2% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $1,173,945 (collateralized by U.S. Government Obligations: total market value $1,199,074) (A) $1,174 1,174 ------------ TOTAL REPURCHASE AGREEMENT (COST $1,174) 1,174 ------------ TOTAL INVESTMENTS-- 100.4% (COST $104,709) 98,076 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (0.4)% Payable for Administrative Fees (12) Payable for Distribution Fees (4) Payable for Investment Advisory Fees (63) Other Assets and Liabilities, Net (311) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (390) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 9,547,374 outstanding shares of common stock 83,517 Fund Shares of Advisor Class ($0.001 par value) based on 1,972,601 outstanding shares of common stock 14,660 Undistributed net investment income 155 Accumulated net realized gain on investments 5,987 Unrealized depreciation on investments (6,633) ------------ TOTAL NET ASSETS-- 100.0% $ 97,686 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $8.48 ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $8.46 ===== * Non-income producing security. (A) -- Tri-party repurchase agreement Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 60 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX PBHG STRATEGIC SMALL COMPANY FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium - ------------------------------------------ Small X - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company Fund - PBHG Class3 (33.73)% (19.23)% (3.97)% (1.17)% 4.21% - --------------------------------------------------------------------------------------------------------------------------- PBHG Strategic Small Company Fund - Advisor Class4 (33.73)% (19.23)% (3.97)% (1.17)% 4.21% - --------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG STRATEGIC SMALL COMPANY FUND - PBHG CLASS1 VERSUS THE RUSSELL 2000(R) INDEX AND THE LIPPER SMALL-CAP GROWTH FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Strategic Small Russell Lipper Small-Cap Growth Company Fund 2000 Index Growth Funds Classification 12/31/96 $10,000 $10,000 $10,000 1/31/97 10,120 10,200 10,254 2/28/97 9,350 9,952 9,620 3/31/97 8,860 9,483 8,976 4/30/97 8,750 9,509 8,858 5/31/97 10,270 10,567 10,086 6/30/97 11,130 11,020 10,676 7/31/97 12,170 11,533 11,395 8/31/97 12,410 11,797 11,601 9/30/97 13,440 12,660 12,548 10/31/97 12,820 12,104 11,923 11/30/97 12,520 12,026 11,696 12/31/97 12,567 12,236 11,760 1/31/98 12,502 12,043 11,592 2/28/98 13,439 12,933 12,554 3/31/98 13,870 13,467 13,193 4/30/98 13,999 13,541 13,313 5/31/98 12,922 12,812 12,434 6/30/98 13,073 12,839 12,733 7/31/98 12,244 11,800 11,858 8/31/98 9,466 9,508 9,335 9/30/98 10,004 10,252 10,031 10/31/98 10,381 10,671 10,437 11/30/98 11,501 11,230 11,332 12/31/98 12,835 11,924 12,552 1/31/99 13,105 12,083 12,875 2/28/99 11,957 11,104 11,735 3/31/99 11,856 11,278 12,292 4/30/99 12,092 12,288 12,844 5/31/99 12,576 12,468 12,968 6/30/99 13,937 13,032 14,175 7/31/99 13,960 12,674 14,157 8/31/99 14,083 12,205 13,984 9/30/99 14,308 12,208 14,337 10/31/99 14,815 12,257 15,158 11/30/99 16,209 12,989 17,055 12/31/99 19,482 14,459 20,135 1/31/2000 19,188 14,227 19,943 2/29/2000 24,796 16,577 24,885 3/31/2000 23,682 15,484 23,614 4/30/2000 21,514 14,552 21,028 5/31/2000 20,559 13,704 19,297 6/30/2000 24,625 14,898 22,497 7/31/2000 22,898 14,419 21,025 8/31/2000 26,265 15,519 23,462 9/30/2000 26,008 15,063 22,597 10/31/2000 24,331 14,391 21,074 11/30/2000 19,727 12,913 17,432 12/31/2000 21,799 14,022 18,919 1/31/2001 22,342 14,752 19,405 2/28/2001 19,024 13,785 16,809 3/31/2001 17,279 13,110 15,210 4/30/2001 19,353 14,136 17,043 5/31/2001 20,039 14,483 17,415 6/30/2001 20,425 14,983 17,916 7/31/2001 19,496 14,172 16,875 8/31/2001 18,509 13,715 15,859 9/30/2001 15,691 11,868 13,415 10/31/2001 17,093 12,563 14,513 11/30/2001 18,466 13,536 15,639 12/31/2001 19,624 14,371 16,601 1/31/2002 18,938 14,222 16,078 2/28/2002 17,579 13,832 15,001 3/31/2002 19,124 14,943 16,165 4/30/2002 18,537 15,080 15,702 5/31/2002 17,450 14,410 14,920 6/30/2002 16,177 13,695 13,833 7/31/2002 13,603 11,627 11,867 8/31/2002 13,688 11,597 11,868 9/30/2002 12,673 10,764 11,099
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Products of technology companies may be subject to severe competition and rapid obsolescence. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Strategic Small Company Fund - PBHG Class commenced operations on December 31, 1996. 4 The performance shown for the Advisor Class prior to its inception on August 31, 2002, is based on the performance and expenses of the PBHG Class. Subsequent to August 31, 2002, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The cumulative total return of the Advisor Class from its inception date to September 30, 2002 was (7.42%). 5 The Russell 2000(R) Index is an unmanaged index comprised of the 2,000 smallest securities in the Russell 3000(R) Index. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Small-Cap Growth Funds Average represents the average performance of 459 mutual funds classified by Lipper, Inc. in the Small-Cap Growth category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Strategic Small Company Basic Materials 2% Consumer Cyclical 25% Consumer Non-Cyclical 2% Energy 3% Financial 11% Health Care 20% Industrial 8% Services 16% Technology 11% Utilities 2% % of Total Portfolio Investments in Common Stock TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Career Education 1.8% Cognizant Technology Solutions 1.7% PF Chang's China Bistro 1.7% Krispy Kreme Doughnuts 1.6% Electronics Boutique Holdings 1.6% Coventry Health Care 1.5% Cima Labs 1.5% Haemonetics 1.4% Kenneth Cole Productions, Cl A 1.4% Affiliated Managers Group 1.3% - -------------------------------------------------------------------------- Total Top Ten Holdings 15.5% *As a % of Common Stock 61 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 90.9% BASIC MATERIALS -- 1.8% AGRICULTURAL CHEMICALS -- 0.7% Agrium^ 28,400 $ 260 IMC Global 11,600 139 ------------ 399 - -------------------------------------------------------------------------------- CHEMICALS-SPECIALTY -- 0.2% Cabot Microelectronics* 3,700 138 ------------ 138 - -------------------------------------------------------------------------------- PAPER & RELATED PRODUCTS -- 0.5% Glatfelter 23,000 266 ------------ 266 - -------------------------------------------------------------------------------- PRECIOUS METALS -- 0.2% Stillwater Mining* 21,500 129 ------------ 129 - -------------------------------------------------------------------------------- STEEL-PRODUCERS -- 0.2% Carpenter Technology 8,900 116 ------------ 116 ------------ TOTAL BASIC MATERIALS (COST $1,564) 1,048 ------------ - -------------------------------------------------------------------------------- CONSUMER CYCLICAL -- 22.5% ATHLETIC EQUIPMENT -- 0.7% Nautilus Group* 20,225 395 ------------ 395 - -------------------------------------------------------------------------------- ATHLETIC FOOTWEAR -- 0.4% K-Swiss 12,500 267 ------------ 267 - -------------------------------------------------------------------------------- AUDIO/VIDEO PRODUCTS -- 0.7% Harman International Industries 7,900 409 ------------ 409 - -------------------------------------------------------------------------------- BUILDING-RESIDENTIAL/COMMERCIAL -- 0.5% Beazer Homes USA* 1,500 92 Hovnanian Enterprises* 8,100 274 ------------ 366 - -------------------------------------------------------------------------------- CABLE TV -- 0.2% Lodgenet Entertainment* 15,000 115 ------------ 115 - -------------------------------------------------------------------------------- CASINO HOTELS -- 1.1% Station Casinos* 37,700 641 ------------ 641 - -------------------------------------------------------------------------------- DISTRIBUTION/WHOLESALE -- 1.2% Bell Microproducts* 43,300 181 Scansource* 8,700 505 ------------ 686 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MOTION PICTURES & SERVICES -- 0.2% Zomax* 27,000 $ 105 ------------ 105 - -------------------------------------------------------------------------------- PUBLISHING-BOOKS -- 0.5% Scholastic* 6,600 295 ------------ 295 - -------------------------------------------------------------------------------- PUBLISHING-NEWSPAPERS -- 0.1% Journal Register* 4,200 79 ------------ 79 - -------------------------------------------------------------------------------- RADIO -- 0.6% Cumulus Media* 20,700 365 ------------ 365 - -------------------------------------------------------------------------------- RETAIL-APPAREL/SHOE -- 4.5% Christopher & Banks* 24,113 606 Joseph A Bank Clothiers* 14,400 258 Kenneth Cole Productions, Cl A* 36,000 731 Men's Wearhouse* 25,500 375 Urban Outfitters* 27,900 677 ------------ 2,647 - -------------------------------------------------------------------------------- RETAIL-ARTS & CRAFTS -- 0.7% AC Moore Arts & Crafts* 18,600 393 ------------ 393 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.9% Electronics Boutique Holdings* 30,800 845 Insight Enterprises* 25,600 260 ------------ 1,105 - -------------------------------------------------------------------------------- RETAIL-CONSUMER ELECTRONICS -- 0.3% Tweeter Home Entertainment Group* 28,000 193 ------------ 193 - -------------------------------------------------------------------------------- RETAIL-CONVENIENCE STORE -- 0.3% Casey's General Stores 15,200 176 ------------ 176 - -------------------------------------------------------------------------------- RETAIL-DRUG STORE -- 0.5% Duane Reade* 19,800 317 ------------ 317 - -------------------------------------------------------------------------------- RETAIL-GARDENING PRODUCTS -- 0.8% Tractor Supply* 15,800 502 ------------ 502 - -------------------------------------------------------------------------------- RETAIL-HOME FURNISHINGS -- 0.8% Pier 1 Imports 25,000 477 ------------ 477 - -------------------------------------------------------------------------------- RETAIL-MISCELLANEOUS/DIVERSIFIED -- 0.4% Blue Rhino* 15,700 240 ------------ 240 - -------------------------------------------------------------------------------- 62 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- RETAIL-RESTAURANTS -- 5.4% Buca* 31,800 $ 255 CEC Entertainment* 11,000 375 Krispy Kreme Doughnuts* 27,600 863 Landry's Restaurants 17,000 384 Panera Bread, Cl A* 16,300 440 PF Chang's China Bistro* 30,800 894 ------------ 3,211 - -------------------------------------------------------------------------------- TELEVISION -- 0.4% Lin TV* 9,100 225 ------------ 225 - -------------------------------------------------------------------------------- TRAVEL SERVICES -- 0.3% Hotels.com* 3,800 192 ------------ 192 ------------ TOTAL CONSUMER CYCLICAL (COST $12,784) 13,401 ------------ - -------------------------------------------------------------------------------- CONSUMER NON-CYCLICAL -- 1.5% CONSUMER PRODUCTS-MISCELLANEOUS -- 0.7% Playtex Products* 46,400 395 ------------ 395 - -------------------------------------------------------------------------------- FOOD-DAIRY PRODUCTS -- 0.3% Horizon Organic Holding* 10,000 156 ------------ 156 - -------------------------------------------------------------------------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 0.5% Aurora Foods* 11,352 8 Dole Food 7,200 209 Monterey Pasta* 21,800 101 ------------ 318 ------------ TOTAL CONSUMER NON-CYCLICAL (COST $967) 869 ------------ - -------------------------------------------------------------------------------- ENERGY -- 2.4% OIL & GAS DRILLING -- 0.4% Atwood Oceanics* 8,700 255 ------------ 255 - -------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION-- 0.9% Spinnaker Exploration* 6,900 198 Tom Brown* 15,200 348 ------------ 546 - -------------------------------------------------------------------------------- OIL FIELD MACHINERY & EQUIPMENT -- 0.4% Universal Compression Holdings* 15,000 243 ------------ 243 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- OIL REFINING & MARKETING -- 0.2% Premcor* 7,600 $ 119 ------------ 119 - -------------------------------------------------------------------------------- OIL-FIELD SERVICES -- 0.5% CAL Dive International* 14,600 294 ------------ 294 ------------ TOTAL ENERGY (COST $1,689) 1,457 ------------ - -------------------------------------------------------------------------------- FINANCIAL -- 9.8% COMMERCIAL BANKS-WESTERN US -- 0.4% City National 4,574 214 ------------ 214 - -------------------------------------------------------------------------------- INVESTMENT MANAGEMENT/ADVISORY SERVICES-- 1.7% Affiliated Managers Group* 15,900 709 Federated Investors 11,000 297 ------------ 1,006 - -------------------------------------------------------------------------------- LIFE/HEALTH INSURANCE -- 1.2% Scottish Annuity & Life Holdings 15,400 263 Stancorp Financial Group 8,700 460 ------------ 723 - -------------------------------------------------------------------------------- MULTI-LINE INSURANCE -- 0.7% HCC Insurance Holdings 16,600 398 ------------ 398 - -------------------------------------------------------------------------------- PROPERTY/CASUALTY INSURANCE -- 1.0% First American 29,800 609 ------------ 609 - -------------------------------------------------------------------------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.4% Trammell Crow* 20,900 206 ------------ 206 - -------------------------------------------------------------------------------- REINSURANCE -- 0.7% Odyssey Re Holdings 25,700 427 ------------ 427 - -------------------------------------------------------------------------------- REITS-APARTMENTS -- 0.5% Camden Property Trust 4,300 143 Essex Property Trust 3,500 173 ------------ 316 - -------------------------------------------------------------------------------- REITS-OFFICE PROPERTY -- 0.7% Brandywine Realty Trust 5,900 133 Mack-Cali Realty 8,300 267 ------------ 400 - -------------------------------------------------------------------------------- 63 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- REITS-REGIONAL MALLS -- 0.3% CBL & Associates Properties 5,100 $ 198 ------------ 198 - -------------------------------------------------------------------------------- S&L/THRIFTS-EASTERN US -- 2.0% Berkshire Hills Bancorp 10,300 242 Brookline Bancorp 33,660 396 Willow Grove Bancorp 30,800 363 Woronoco Bancorp 9,500 199 ------------ 1,200 - -------------------------------------------------------------------------------- S&L/THRIFTS-SOUTHERN US -- 0.2% Ocwen Financial* 46,000 133 ------------ 133 ------------ TOTAL FINANCIAL (COST $5,437) 5,830 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 18.2% DIAGNOSTIC EQUIPMENT -- 1.2% Cholestech* 23,600 245 Immucor* 28,650 465 ------------ 710 - -------------------------------------------------------------------------------- DISPOSABLE MEDICAL PRODUCTS -- 0.7% ICU Medical* 11,000 402 ------------ 402 - -------------------------------------------------------------------------------- HEALTH CARE COST CONTAINMENT -- 0.8% Hooper Holmes 79,400 492 ------------ 492 - -------------------------------------------------------------------------------- MEDICAL INSTRUMENTS -- 1.1% Kensey Nash* 14,000 211 SurModics* 14,300 454 ------------ 665 - -------------------------------------------------------------------------------- MEDICAL LABS & TESTING SERVICES -- 1.1% Dianon Systems* 9,400 445 LabOne* 12,400 200 ------------ 645 - -------------------------------------------------------------------------------- MEDICAL PRODUCTS -- 2.9% American Medical Systems Holdings* 13,100 272 Haemonetics* 32,300 766 Possis Medical* 30,900 316 Zoll Medical* 12,800 389 ------------ 1,743 - -------------------------------------------------------------------------------- MEDICAL-BIOMEDICAL/GENETIC -- 2.0% Enzon* 21,300 410 Integra LifeSciences Holdings* 18,500 294 Myriad Genetics* 15,700 248 Serologicals* 15,000 201 ------------ 1,153 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- MEDICAL-DRUGS -- 2.0% Adolor* 19,700 $ 276 Cima Labs* 32,600 820 Dr Reddy's Laboratories ADR 6,300 106 ------------ 1,202 - -------------------------------------------------------------------------------- MEDICAL-GENERIC DRUGS -- 1.0% Eon Labs* 11,000 237 Taro Pharmaceuticals Industries* 10,300 348 ------------ 585 - -------------------------------------------------------------------------------- MEDICAL-HMO -- 1.7% Coventry Health Care* 25,400 826 Humana* 15,900 197 ------------ 1,023 - -------------------------------------------------------------------------------- MEDICAL-HOSPITALS -- 0.7% Curative Health Services* 14,200 154 United Surgical Partners International*12,700 281 ------------ 435 - -------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL -- 0.8% Odyssey HealthCare* 15,600 467 ------------ 467 - -------------------------------------------------------------------------------- PHARMACY SERVICES -- 0.9% Accredo Health* 10,800 515 ------------ 515 - -------------------------------------------------------------------------------- PHYSICAL PRACTICE MANAGEMENT -- 0.5% American Healthways* 19,850 321 ------------ 321 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.5% Sangstat Medical* 14,500 303 ------------ 303 - -------------------------------------------------------------------------------- X-RAY EQUIPMENT -- 0.3% Bruker AXS* 83,400 175 ------------ 175 ------------ TOTAL HEALTH CARE (COST $11,639) 10,836 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 7.4% AEROSPACE/DEFENSE -- 0.5% Teledyne Technologies* 17,800 323 ------------ 323 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 0.8% DRS Technologies* 12,700 473 ------------ 473 - -------------------------------------------------------------------------------- BATTERIES/BATTERY SYSTEMS -- 0.6% Wilson Greatbatch Technologies* 12,200 339 ------------ 339 - -------------------------------------------------------------------------------- 64 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- BUILDING PRODUCTS-LIGHT FIXTURES -- 0.3% Genlyte Group* 5,600 $ 199 ------------ 199 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 0.9% DSP Group* 19,200 308 OSI Systems* 14,100 244 ------------ 552 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 0.2% Avnet 12,200 132 ------------ 132 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 0.2% Integrated Defense Technologies* 4,700 93 ------------ 93 - -------------------------------------------------------------------------------- ENVIRONMENTAL CONSULTING & ENGINEERING-- 0.2% TRC* 5,850 100 ------------ 100 - -------------------------------------------------------------------------------- HAZARDOUS WASTE DISPOSAL -- 0.4% Stericycle* 6,400 217 ------------ 217 - -------------------------------------------------------------------------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.3% Brooks-PRI Automation* 17,800 204 ------------ 204 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 1.2% Fisher Scientific International* 22,900 695 ------------ 695 - -------------------------------------------------------------------------------- MACHINERY-THERMAL PROCESSING -- 0.1% Global Power Equipment Group* 7,700 36 ------------ 36 - -------------------------------------------------------------------------------- MISCELLANEOUS MANUFACTURING -- 0.4% Aptargroup 9,300 250 ------------ 250 - -------------------------------------------------------------------------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.9% Waste Connections* 15,900 553 ------------ 553 - -------------------------------------------------------------------------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 0.1% Artesyn Technologies* 19,400 29 ------------ 29 - -------------------------------------------------------------------------------- REMEDIATION SERVICES -- 0.3% Clean Harbors* 18,800 174 ------------ 174 ------------ TOTAL INDUSTRIAL (COST $4,709) 4,369 ------------ - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- SERVICES -- 14.8% ADVERTISING SERVICES -- 0.2% RH Donnelley* 4,100 $ 107 ------------ 107 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES -- 2.7% Alliance Data Systems* 27,700 419 Arbitron* 13,800 470 ChoicePoint* 5,633 201 Gaiam* 15,500 178 Icon ADR* 11,200 240 Plexus* 13,700 127 ------------ 1,635 - -------------------------------------------------------------------------------- COMMERCIAL SERVICES-FINANCE -- 1.7% Coinstar* 18,100 467 PRG-Schultz International* 42,500 526 ------------ 993 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 3.0% Anteon International* 7,900 215 Cognizant Technology Solutions* 15,700 902 Manhattan Associates* 19,600 265 Pec Solutions* 17,200 383 ------------ 1,765 - -------------------------------------------------------------------------------- CONSULTING SERVICES -- 2.5% Advisory Board* 12,900 382 Forrester Research* 20,000 299 FTI Consulting* 17,050 678 Watson Wyatt & Company Holdings* 7,300 146 ------------ 1,505 - -------------------------------------------------------------------------------- DIRECT MARKETING -- 1.1% Advo* 15,500 492 Valuevision Media, Cl A* 12,900 152 ------------ 644 - -------------------------------------------------------------------------------- HUMAN RESOURCES -- 0.2% CDI* 3,700 97 ------------ 97 - -------------------------------------------------------------------------------- RESEARCH & DEVELOPMENT -- 0.4% Albany Molecular Research* 12,800 218 Kendle International* 3,800 25 ------------ 243 - -------------------------------------------------------------------------------- SCHOOLS -- 2.5% Career Education* 20,300 974 University of Phoenix Online* 15,833 509 ------------ 1,483 - -------------------------------------------------------------------------------- 65 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- SECURITY SERVICES -- 0.5% Kroll* 16,000 $ 317 ------------ 317 ------------ TOTAL SERVICES (COST $8,754) 8,789 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 10.4% COMMUNICATIONS SOFTWARE -- 0.3% Inter-Tel 9,300 189 ------------ 189 - -------------------------------------------------------------------------------- COMPUTER GRAPHICS -- 0.2% Pixar* 2,800 135 ------------ 135 - -------------------------------------------------------------------------------- COMPUTERS -- 0.5% Neoware Systems* 20,000 278 ------------ 278 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.4% Catapult Communications* 10,600 103 McData* 19,800 109 ------------ 212 - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 1.0% Sandisk* 30,300 397 Silicon Storage Technology* 57,400 225 ------------ 622 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 0.2% Fair Isaac 4,400 144 ------------ 144 - -------------------------------------------------------------------------------- E-SERVICES/CONSULTING -- 0.4% Websense* 17,800 207 ------------ 207 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 1.3% Actel* 11,700 122 Intersil* 27,192 352 Silicon Laboratories* 17,600 323 ------------ 797 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 0.1% JDA Software Group* 9,400 66 ------------ 66 - -------------------------------------------------------------------------------- INTERNET CONTENT-ENTERTAINMENT -- 0.2% Alloy* 13,400 111 ------------ 111 - -------------------------------------------------------------------------------- INTERNET INFRASTRUCTURE EQUIPMENT -- 0.4% Avocent* 16,400 219 ------------ 219 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- INTERNET TELEPHONY -- 0.5% j2 Global Communications* 15,000 $ 298 ------------ 298 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 0.8% Adaptec* 42,600 188 Extreme Networks* 33,900 142 SafeNet* 9,600 156 ------------ 486 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 1.5% Emulex* 20,500 231 Exar* 30,300 350 GlobespanVirata* 65,900 155 Power Integrations* 14,900 182 ------------ 918 - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 0.9% Lam Research* 21,800 194 LTX* 26,600 121 MKS Instruments* 20,300 222 ------------ 537 - -------------------------------------------------------------------------------- TELECOMMUNICATION EQUIPMENT -- 0.3% Advanced Fibre Communication* 11,200 149 ------------ 149 - -------------------------------------------------------------------------------- TELECOMMUNICATION SERVICES -- 0.3% Intrado* 16,700 161 ------------ 161 - -------------------------------------------------------------------------------- WEB PORTALS/ISP -- 1.1% Overture Services* 20,300 479 United Online* 18,500 177 ------------ 656 ------------ TOTAL TECHNOLOGY (COST $10,074) 6,185 ------------ - -------------------------------------------------------------------------------- UTILITIES -- 2.1% ELECTRIC-INTEGRATED -- 0.7% Hawaiian Electric Industries 5,200 224 Idacorp 4,100 100 MGE Energy 3,700 95 ------------ 419 - -------------------------------------------------------------------------------- GAS-DISTRIBUTION -- 0.8% UGI 10,900 396 WGL Holdings 4,800 115 ------------ 511 - -------------------------------------------------------------------------------- WATER -- 0.6% Philadelphia Suburban 16,700 339 ------------ 339 ------------ TOTAL UTILITIES (COST $1,131) 1,269 ------------ TOTAL COMMON STOCK (COST $58,748) 54,053 ------------ - -------------------------------------------------------------------------------- 66 PBHG FUNDS PBHG STRATEGIC SMALL COMPANY FUND PSSCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 8.9% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $5,277,419 (collateralized by U.S. Government Obligations: total market value $5,383,337) (A) $5,277 $ 5,277 ------------ TOTAL REPURCHASE AGREEMENT (COST $5,277) 5,277 ------------ TOTAL INVESTMENTS-- 99.8% (COST $64,025) 59,330 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET -- 0.2% Receivable for Investment Securities Sold 634 Payable for Administrative Fees (8) Payable for Investment Advisory Fees (46) Other Assets and Liabilities, Net (487) ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET 93 ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 6,697,579 outstanding shares of common stock 90,763 Fund Shares of Advisor Class ($0.001 par value) based on 10,463 outstanding shares of common stock 100 Accumulated net investment loss (430) Accumulated net realized loss on investments (26,315) Unrealized depreciation on investments (4,695) ------------ TOTAL NET ASSETS-- 100.0% $ 59,423 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $8.86 ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $8.86 ===== * Non-income producing security. ^ The fund held a Canadian domiciled security traded on the New York Stock Exchange as of September 30, 2002. (A) -- Tri-party repurchase agreement ADR -- American Depositary Receipt Cl -- Class REIT -- Real Estate Investment Trust The accompanying notes are an integral part of the financial statements. 67 PBHG FUNDS PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX PBHG TECHNOLOGY & COMMUNICATIONS FUND (UNAUDITED) INVESTMENT FOCUS STYLE MARKET CAPITALIZATION VALUE BLEND GROWTH - ------------------------------------------ Large - ------------------------------------------ Medium X - ------------------------------------------ Small - ------------------------------------------ Source: Pilgrim Baxter & Associates, Ltd.
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications Fund - PBHG Class3 (54.63)% (44.22)% (38.53)% (17.05)% (1.80)% - --------------------------------------------------------------------------------------------------------------------------- PBHG Technology & Communications Fund - Advisor Class4 (54.64)% (44.25)% (38.59)% (17.09)% (1.84)% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG TECHNOLOGY & COMMUNICATIONS FUND - PBHG CLASS1 VERSUS THE PSE TECHNOLOGY INDEX(R) AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG Technology & PSE Lipper Science & Technology Communication Fund Tech Index Funds Objective 9/30/95 $10,000 $10,000 $10,000 10/31/95 10,800 10,057 9,835 11/30/95 11,720 10,210 9,965 12/31/95 11,602 9,919 9,605 1/31/96 11,462 10,154 9,595 2/29/96 12,562 10,451 10,058 3/31/96 12,482 9,899 9,791 4/30/96 14,132 10,901 10,848 5/31/96 15,303 11,005 11,261 6/30/96 14,973 10,244 10,533 7/31/96 13,712 9,456 9,540 8/31/96 14,963 10,038 10,159 9/30/96 16,643 10,945 11,299 10/31/96 16,793 10,780 11,162 11/30/96 17,663 12,243 12,104 12/31/96 17,916 11,954 11,839 1/31/97 18,539 13,217 12,570 2/28/97 16,580 12,659 11,524 3/31/97 14,927 11,955 10,691 4/30/97 15,437 12,365 10,992 5/31/97 18,100 13,861 12,471 6/30/97 18,641 13,958 12,646 7/31/97 20,865 16,113 14,236 8/31/97 20,773 16,092 14,246 9/30/97 22,416 16,638 14,960 10/31/97 19,732 14,929 13,724 11/30/97 19,151 14,971 13,591 12/31/97 18,511 14,392 13,275 1/31/98 17,697 14,981 13,591 2/28/98 19,850 16,819 15,132 3/31/98 20,643 17,151 15,598 4/30/98 21,061 17,820 16,192 5/31/98 19,047 16,410 15,049 6/30/98 20,332 17,164 16,173 7/31/98 19,186 17,121 15,890 8/31/98 16,004 13,912 12,710 9/30/98 17,997 15,881 14,384 10/31/98 18,072 17,683 15,404 11/30/98 20,322 19,647 17,435 12/31/98 23,324 22,319 20,262 1/31/99 28,435 25,591 23,417 2/28/99 25,325 22,967 21,392 3/31/99 30,000 24,724 23,822 4/30/99 31,653 25,599 24,570 5/31/99 30,120 26,347 24,255 6/30/99 34,622 29,839 27,134 7/31/99 34,067 29,662 26,863 8/31/99 36,916 31,189 28,222 9/30/99 37,916 31,233 29,125 10/31/99 45,517 33,074 32,300 11/30/99 54,107 37,846 37,824 12/31/99 80,210 48,396 47,310 1/31/2000 82,496 47,350 46,491 2/29/2000 117,027 58,153 59,211 3/31/2000 100,197 57,869 56,707 4/30/2000 81,848 54,187 49,953 5/31/2000 68,637 49,542 43,978 6/30/2000 93,468 54,868 51,569 7/31/2000 85,195 51,182 49,135 8/31/2000 99,596 58,310 56,849 9/30/2000 92,089 51,759 51,210 10/31/2000 74,246 48,413 45,464 11/30/2000 45,137 40,471 33,675 12/31/2000 45,165 40,596 32,968 1/31/2001 48,379 45,754 36,222 2/28/2001 34,067 37,410 26,199 3/31/2001 25,853 33,024 21,845 4/30/2001 31,719 38,400 26,205 5/31/2001 30,000 37,019 25,110 6/30/2001 28,399 36,213 24,821 7/31/2001 26,102 34,328 22,550 8/31/2001 21,509 31,568 19,598 9/30/2001 15,787 25,819 15,291 10/31/2001 18,517 29,899 17,751 11/30/2001 21,942 33,944 20,513 12/31/2001 21,509 34,336 20,738 1/31/2002 21,378 34,165 20,380 2/28/2002 17,664 31,375 17,535 3/31/2002 19,409 34,237 19,202 4/30/2002 16,535 30,258 16,833 5/31/2002 15,039 29,046 15,803 6/30/2002 12,257 25,676 13,712 7/31/2002 11,181 22,686 12,197 8/31/2002 10,538 22,400 11,834 9/30/2002 8,806 19,306 10,096
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The Fund's investment in technology companies involves the risk of volatility. Securities of small and medium companies involve greater risk and price volatility than larger, more established companies. Products of technology companies may be subject to severe competition and rapid obsolescence. Funds that concentrate investments in one or a group of industries may involve greater risks than more diversified funds, including greater potential for volatility. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 The PBHG Technology & Communications Fund - PBHG Class commenced operations on September 29, 1995. 4 The performance shown for the Advisor Class prior to its inception on December 29, 2000, is based on the performance and expenses of the PBHG Class. Subsequent to December 29, 2000, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The average annual total return of the Advisor Class from its inception to September 30, 2002 was (60.67)%. 5 The PSE Technology Index(R) is a price-weighted index of the top 100 U.S. technology stocks. The Index reflects the reinvestment of income dividends and capital gains distributions, if any, but does not reflect fees, brokerage commissions, or other expenses of investing. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Science & Technology Funds Average represents the average performance of 400 mutual funds classified by Lipper, Inc. in the Science & Technology category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. The chart assumes $10,000 invested in the Lipper Science & Technology Funds Average at that month's end, September 30, 1995. SUB-SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002+ [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Other 1% Aerospace/Defense 4% Biotech 1% Computer Hardware 17% Internet 6% Networking/ Telecom Eq 7% Semiconducter 24% Semiconducter Eq 4% Services 11% Software 16% Telecom/Media 9% + As a % of Equity TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Microsoft 5.6% Dell Computer 4.1% Microchip Technology 3.5% Cisco Systems 3.1% Symantec 3.1% Sungard Data Systems 2.7% Electronic Arts 2.5% Verizon Communications 2.4% Silicon Laboratories 2.4% Comcast 2.2% - -------------------------------------------------------------------- Total Top Ten Holdings 31.6% *As a % of Common Stock 68 PBHG FUNDS PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMMON STOCK -- 89.3% CONSUMER CYCLICAL -- 7.8% CABLE TV -- 1.9% Comcast* 225,300 $ 4,700 ------------ 4,700 - -------------------------------------------------------------------------------- ENTERTAINMENT SOFTWARE -- 4.4% Activision* 131,800 3,154 Electronic Arts* 83,300 5,494 Take-Two Interactive Software* 65,400 1,897 ------------ 10,545 - -------------------------------------------------------------------------------- RETAIL-COMPUTER EQUIPMENT -- 1.5% Electronics Boutique Holdings* 134,900 3,703 ------------ 3,703 ------------ TOTAL CONSUMER CYCLICAL (COST $18,316) 18,948 ------------ - -------------------------------------------------------------------------------- HEALTH CARE -- 1.3% MEDICAL-BIOMEDICAL/GENETIC -- 0.7% Amgen* 7,800 325 Idec Pharmaceuticals* 31,300 1,300 ------------ 1,625 - -------------------------------------------------------------------------------- THERAPEUTICS -- 0.6% Gilead Sciences* 42,900 1,438 ------------ 1,438 ------------ TOTAL HEALTH CARE (COST $3,150) 3,063 ------------ - -------------------------------------------------------------------------------- INDUSTRIAL -- 9.4% AEROSPACE/DEFENSE -- 2.5% General Dynamics 27,600 2,245 Lockheed Martin 16,000 1,035 Raytheon 75,400 2,209 Veridian* 26,500 662 ------------ 6,151 - -------------------------------------------------------------------------------- AEROSPACE/DEFENSE-EQUIPMENT -- 0.4% Alliant Techsystems* 14,100 976 ------------ 976 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-MISCELLANEOUS-- 1.8% DSP Group* 206,700 3,319 Vishay Intertechnology* 136,000 1,197 ------------ 4,516 - -------------------------------------------------------------------------------- ELECTRONIC MEASURING INSTRUMENTS -- 1.5% Agilent Technologies* 272,800 3,563 ------------ 3,563 - -------------------------------------------------------------------------------- ELECTRONIC PARTS DISTRIBUTION -- 1.2% Avnet 262,300 2,830 ------------ 2,830 - -------------------------------------------------------------------------------- ELECTRONICS-MILITARY -- 0.4% L-3 Communications Holdings* 17,400 917 ------------ 917 - -------------------------------------------------------------------------------- Market Description Shares Value (000) - -------------------------------------------------------------------------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.8% Brooks-PRI Automation* 172,800 $ 1,979 ------------ 1,979 - -------------------------------------------------------------------------------- INSTRUMENTS-SCIENTIFIC -- 0.8% Applera-Applied Biosystems Group 106,600 1,951 ------------ 1,951 ------------ TOTAL INDUSTRIAL (COST $27,863) 22,883 ------------ - -------------------------------------------------------------------------------- SERVICES -- 16.8% COMMERCIAL SERVICES-FINANCE -- 2.6% Concord EFS* 216,200 3,434 Paychex 117,600 2,854 - - ------------ 6,288 - -------------------------------------------------------------------------------- COMPUTER SERVICES -- 5.5% CACI International* 19,000 673 DST Systems* 134,200 3,955 SRA International* 22,800 653 Sungard Data Systems* 305,600 5,944 Unisys* 329,300 2,305 ------------ 13,530 - -------------------------------------------------------------------------------- E-COMMERCE/SERVICES -- 2.3% eBay* 50,700 2,677 Expedia* 59,600 3,019 ------------ 5,696 - -------------------------------------------------------------------------------- TELEPHONE-INTEGRATED -- 6.4% AT&T 239,100 2,872 BellSouth 161,100 2,958 SBC Communications 221,900 4,460 Verizon Communications 190,100 5,216 ------------ 15,506 ------------ TOTAL SERVICES (COST $48,649) 41,020 ------------ - -------------------------------------------------------------------------------- TECHNOLOGY -- 54.0% APPLICATIONS SOFTWARE -- 6.6% Mercury Interactive* 67,900 1,165 Microsoft* 277,900 12,155 Quest Software* 292,600 2,751 ------------ 16,071 - -------------------------------------------------------------------------------- COMPUTER DATA SECURITY -- 1.5% NetScreen Technologies* 344,100 3,733 ------------ 3,733 - -------------------------------------------------------------------------------- COMPUTERS -- 7.2% Apple Computer* 116,400 1,688 Dell Computer* 376,100 8,842 Hewlett-Packard 260,400 3,039 Sun Microsystems* 1,476,400 3,824 ------------ 17,393 - -------------------------------------------------------------------------------- COMPUTERS-INTEGRATED SYSTEMS -- 0.3% Brocade Communications Systems* 99,800 752 ------------ 752 - -------------------------------------------------------------------------------- 69 PBHG FUNDS PBHG TECHNOLOGY & COMMUNICATIONS FUND PBTCX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Market Description Shares Value (000) - -------------------------------------------------------------------------------- COMPUTERS-MEMORY DEVICES -- 2.0% EMC* 732,600 $ 3,348 Western Digital* 296,200 1,392 ------------ 4,740 - -------------------------------------------------------------------------------- COMPUTERS-PERIPHERAL EQUIPMENT -- 1.4% Lexmark International* 73,400 3,450 ------------ 3,450 - -------------------------------------------------------------------------------- DATA PROCESSING/MANAGEMENT -- 1.9% Documentum* 390,900 4,515 ------------ 4,515 - -------------------------------------------------------------------------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS-- 13.3% Broadcom, Cl A* 287,600 3,071 Intel 332,300 4,616 International Rectifier* 207,300 3,238 Intersil* 130,000 1,685 Microchip Technology* 369,000 7,546 National Semiconductor* 169,700 2,026 QLogic* 114,900 2,992 Silicon Laboratories* 282,100 5,171 Texas Instruments 136,200 2,012 ------------ 32,357 - -------------------------------------------------------------------------------- ELECTRONIC DESIGN AUTOMATION -- 0.8% Synopsys* 53,400 2,037 ------------ 2,037 - -------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES -- 1.3% Oracle* 403,000 3,168 ------------ 3,168 - -------------------------------------------------------------------------------- INTERNET SECURITY -- 2.7% Symantec* 197,900 6,655 ------------ 6,655 - -------------------------------------------------------------------------------- NETWORKING PRODUCTS -- 3.2% Adaptec* 112,700 497 Cisco Systems* 648,300 6,794 Foundry Networks* 80,500 441 ------------ 7,732 - -------------------------------------------------------------------------------- OFFICE AUTOMATION & EQUIPMENT -- 1.2% Pitney Bowes 94,200 2,872 ------------ 2,872 - -------------------------------------------------------------------------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS-- 5.3% Integrated Circuit Systems* 180,900 2,840 Linear Technology 110,800 2,296 Marvell Technology Group* 200,800 3,183 Maxim Integrated Products* 84,700 2,097 Triquint Semiconductor* 700,900 2,474 ------------ 12,890 - -------------------------------------------------------------------------------- Shares/Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT -- 2.0% Applied Materials* 239,900 $ 2,771 Lam Research* 244,300 2,174 ------------ 4,945 - -------------------------------------------------------------------------------- WIRELESS EQUIPMENT -- 3.3% Motorola 300,000 3,054 Qualcomm* 119,200 3,292 RF Micro Devices* 281,000 1,686 ------------ 8,032 - -------------------------------------------------------------------------------- TOTAL TECHNOLOGY (COST $190,294) 131,342 ------------ TOTAL COMMON STOCK (COST $288,272) 217,256 ------------ - -------------------------------------------------------------------------------- INVESTMENT COMPANY -- 1.1% INDEX FUND-LARGE CAP -- 1.1% Nasdaq-100 Index Tracking Stock* 129,100 2,679 ------------ 2,679 ------------ TOTAL INVESTMENT COMPANY (COST $3,182) 2,679 ------------ - -------------------------------------------------------------------------------- CONVERTIBLE BOND -- 0.1% MicroStrategy, Series A 7.500%, 06/24/07 $1,203 247 ------------ 247 ------------ TOTAL CONVERTIBLE BOND (COST $0) 246 ------------ - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 12.1% Deutsche Bank 1.90%, dated 09/30/02, matures 10/01/02, repurchase price $29,476,967 (collateralized by U.S. Government Obligations: total market value $30,065,343) (A) 29,475 29,475 ------------ TOTAL REPURCHASE AGREEMENT (COST $29,475) 29,475 ------------ TOTAL INVESTMENTS-- 102.6% (COST $320,929) 249,656 ------------ - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (2.6)% Receivable for Investment Securities Sold 8,276 Payable for Administrative Fees (34) Payable for Distribution Fees (1) Payable for Investment Advisory Fees (190) Payable for Investment Securities Purchased (14,557) Other Assets and Liabilities, Net 282 ------------ TOTAL OTHER ASSETS AND LIABILITIES, NET (6,224) ------------ - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 35,358,306 outstanding shares of common stock 2,789,622 Fund Shares of Advisor Class ($0.001 par value) based on 916,407 outstanding shares of common stock 12,700 Accumulated net investment loss (2,772) Accumulated net realized loss on investments (2,484,845) Unrealized depreciation on investments (71,273) ------------ TOTAL NET ASSETS-- 100.0% $ 243,432 ============ NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $6.71 ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $6.69 ===== * Non-income producing security. (A)-- Tri-party repurchase agreement Cl-- Class The accompanying notes are an integral part of the financial statements. 70 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBCPX PBHG IRA CAPITAL PRESERVATION FUND (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized 6 Year 3 Year Inception Months2 Return Return to Date - --------------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation Fund - PBHG Class3 2.25% 4.77% 6.00% 6.02% - --------------------------------------------------------------------------------------------------------------------------- PBHG IRA Capital Preservation Fund - Advisor Class4 2.20% 4.72% 5.98% 6.00% - --------------------------------------------------------------------------------------------------------------------------
COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT IN THE PBHG IRA CAPITAL PRESERVATION FUND1 VERSUS THE RYAN 5-YEAR GIC MASTER INDEX AND LIPPER MONEY MARKET FUNDS AVERAGE [LINE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG IRA Cap Preservation Ryan 5-Yr Index Lipper Money Mkt Average 8/31/99 $10,000 $10,000 $10,000 9/30/99 10,055 10,053 10,037 10/31/99 10,112 10,106 10,076 11/30/99 10,166 10,159 10,115 12/31/99 10,224 10,212 10,158 1/31/2000 10,279 10,264 10,201 2/29/2000 10,331 10,317 10,241 3/31/2000 10,386 10,370 10,286 4/30/2000 10,441 10,422 10,331 5/31/2000 10,499 10,475 10,378 6/30/2000 10,555 10,528 10,427 7/31/2000 10,613 10,581 10,478 8/31/2000 10,674 10,634 10,529 9/30/2000 10,738 10,688 10,579 10/31/2000 10,799 10,741 10,631 11/30/2000 10,857 10,795 10,681 12/31/2000 10,917 10,848 10,733 1/31/2001 10,978 10,902 10,783 2/28/2001 11,032 10,956 10,826 3/31/2001 11,098 11,010 10,868 4/30/2001 11,154 11,064 10,906 5/31/2001 11,209 11,118 10,941 6/30/2001 11,263 11,171 10,971 7/31/2001 11,319 11,225 11,001 8/31/2001 11,377 11,279 11,028 9/30/2001 11,430 11,332 11,053 10/31/2001 11,484 11,385 11,073 11/30/2001 11,532 11,438 11,088 12/31/2001 11,577 11,490 11,101 1/31/2002 11,621 11,543 11,114 2/28/2002 11,665 11,595 11,124 3/31/2002 11,711 11,647 11,134 4/30/2002 11,753 11,699 11,144 5/31/2002 11,800 11,751 11,154 6/30/2002 11,844 11,802 11,164 7/31/2002 11,887 11,854 11,174 8/31/2002 11,930 11,905 11,183 9/30/2002 11,974 11,955 11,192
1 Performance is historical, reflects the reinvestment of all distributions and is not indicative of future results. While not fixed at $1.00 per share like a money market fund, the wrapper agreements are likely to cause the net asset value of the Fund to be considerably more stable than a typical high-quality fixed-income fund. A money market fund will generally have a shorter average maturity than the Fund and its yield will tend to more closely track the direction of current market rates than the yield of the Fund. Over the long-term, however, the Sub-Adviser believes the Fund's mix of investments and longer average duration will offset those differences by producing higher returns than a money market fund. The investment return and principal value of an investment will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month returns have not been annualized. 3 On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. Prior to the acquisition, the PBHG Class shares of the fund were known as the Institutional Class shares of the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust. The IRA Capital Preservation Portfolio was managed by Dwight Asset Management Company, the Fund's sub-adviser. The investment goal, strategies and policies of the Fund are substantially similar to those of its predecessor, the IRA Capital Preservation Portfolio. Data includes performance of the Fund's predecessor, whose inception date was August 31, 1999. 4 The performance shown for the Advisor Class prior to its inception on July 31, 2002, is based on the performance and expenses of the PBHG Class. Subsequent to July 31, 2002, the performance is that of the Advisor Class and reflects the expenses specific to the Advisor Class, which will cause its returns to be less than those of the PBHG Class. The cumulative total return of the Advisor Class from its inception date to September 30, 2002 was 0.69%. 5 The Ryan 5-Year GIC Master Index is an unmanaged index with an arithmetic mean or market rates of $1 million GIC contracts held for five years. The market rates are representative of a diversified, investment grade portfolio of contracts issued by credit worthy insurance companies. The Index is not intended to imply the Fund's past or future performance. A direct investment in the Index is not possible. 6 The Lipper Money Market Funds Average represents the average performance of 388 mutual funds classified by Lipper, Inc. in the Money Market Funds category. The performance figures are based on changes in net asset value of the funds in the category with all capital gain distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Fund's past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Residential Mortgages-Agency 14% Commercial Mortgages 16% Residential Mortgages 6% Asset-Backed Securities 57% Corporate Bonds 4% Interest Only Strips 3% % of Total Portfolio Investments in Long-Term Obligations TOP TEN HOLDINGS AT SEPTEMBER 30, 2002* Federal National Mortgage Association 30 year Fixed TBA, 7.50% 4.2% Federal Home Loan Mortgage Association 30 year Fixed TBA, 6.50% 3.0% Federal National Mortgage Association 30 year Fixed TBA, 6.50% 3.0% Providian Master Trust, Ser 2000-1, Cl A 2.6% Merrill Lynch Mortgage Investors, Ser 1997-C1, Cl A3 2.6% Conseco Private Label Master Note Trust, Ser 2001-A, Cl A 2.5% Delta Air Lines, Ser 2002-1, Cl G-1 2.4% EQCC Trust, Ser 2002-1, Cl 2A 2.3% CNH Equipment Trust, Ser 2000-A, Cl A4 2.3% Arran Master Trust, Ser 2000-B, Cl A 2.2% - ---------------------------------------------------------------------------- Total Top Ten Holdings 27.1% *As a % of Long-Term Obligations 71 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBCPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- RESIDENTIAL MORTGAGES-AGENCY-- 14.4% Federal Home Loan Mortgage Association, 30 year Fixed TBA 6.500%, 10/15/32 $25,000 $ 25,922 Federal Home Loan Mortgage Corporation 2360 IP CMO 5.750%, 07/15/26 5,000 5,102 Federal National Mortgage Association 15 year Fixed TBA 6.500%, 10/21/17 15,000 15,703 6.500%, 10/21/17 15,000 15,703 Federal National Mortgage Association 30 year Fixed TBA 7.500%, 10/15/32 35,000 36,936 6.500%, 10/15/32 25,000 25,898 Federal National Mortgage Association Ser 1997-88, Cl B 9.000%, 11/18/24 37 37 ----------- TOTAL RESIDENTIAL MORTGAGES-AGENCY (COST $124,707) 125,301 ----------- - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGES-- 9.7% Asset Securitization Corporation, Ser 1997-D4, Cl PS1 IO 1.320%, 04/14/29 86,241 4,481 Banc of America Commercial Mortgage, Ser 2000-1, Cl A1A 7.109%, 11/15/31 5,951 6,642 Banc of America Commercial Mortgage, Ser 2001-1, Cl X IO 1.340%, 04/15/36 14,817 975 Bank of America-First Union National Bank Commercial Mortgage, Ser 2001-3, Cl XC IO 0.880%, 04/11/37 13,020 734 Citicorp Mortgage Securities, Ser 2002-3, Cl 1A1 6.250%, 03/25/32 4,000 4,246 Deutsche Mortgage & Asset Receiving, Ser 1998-C1 A1 6.220%, 06/15/31 8,110 8,691 DLJ Commercial Mortgage, Ser 1999-CG1, Cl A1A 6.080%, 03/10/32 3,876 4,178 First Union-Lehman Brothers- Bank of America 1998-C2 IO 0.783%, 11/18/35 76,365 2,237 GMAC Commercial Mortgage Securities, Ser 2002-C1, Cl X1 IO 0.630%, 11/15/39 78,528 2,879 Keycorp, Series 2000-C1, Cl A1 7.617%, 06/15/09 2,729 3,080 LB-UBS Commercial Mortgage Trust, Ser 2002-C1, Cl XCL IO 0.360%, 03/15/34 132,752 3,223 Merrill Lynch Mortgage Investors, Ser 1997-C1, Cl A3 7.120%, 06/18/29 20,000 22,247 Midland Realty Acceptance Corporate CMO, Ser 1996-C1, Cl A2 7.475%, 08/25/28 161 163 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- COMMERCIAL MORTGAGES -- CONTINUED Midland Realty Acceptance Corporate CMO, Ser 1996-C2, Cl A2 7.233%, 01/25/29 $ 1,450 $ 1,624 Morgan Stanley Capital, Ser 1999-LIFE, Cl A1 6.970%, 10/15/08 2,064 2,283 Mortgage Capital Funding, Ser 1996-MC2, Cl A2 6.909%, 02/20/06 4,000 4,187 Mortgage Capital Funding, Ser 1997-MC1, Cl A2 7.223%, 02/20/27 6,171 6,581 Nationslink Funding Corporation, Ser 1999-2, Cl A3 7.181%, 06/20/31 5,000 5,634 ----------- TOTAL COMMERCIAL MORTGAGES (COST $79,680) 84,085 ----------- - -------------------------------------------------------------------------------- RESIDENTIAL MORTGAGES-- 8.1% Bank of America Mortgage Securities, Ser 2002-E, Cl A1 7.019%, 06/20/31 15,921 16,319 Crusade Global Trust, Ser 2002-1, Cl A 2.070%, 02/20/33 4,331 4,329 Granite Mortgages Plc, Ser 2002-1, Cl 1A1 1.951%, 12/20/16 8,066 8,065 Holmes Financing Plc, Ser 2, Cl 2A 2.040%, 07/15/17 10,000 10,005 Wells Fargo Mortgage Backed Securities Trust, Ser 2001-31, Cl A2 6.500%, 01/25/32 10,593 10,886 Wells Fargo Mortgage Backed Securities Trust, Ser 2001-26, Cl A2 6.250%, 11/25/31 9,783 9,919 Wells Fargo Mortgage Backed Securities Trust, Ser 2001-32, Cl A1 6.500%, 01/25/32 10,955 11,138 ----------- TOTAL RESIDENTIAL MORTGAGES (COST $70,582) 70,661 ----------- - -------------------------------------------------------------------------------- ASSET-BACKED SECURITIES -- 50.3% AUTO & TRANSPORTATION -- 5.5% Associates Automobile Receivables Trust, Ser 2000-1, Cl A3 7.300%, 01/15/04 2,095 2,129 Capital One Auto Finance Trust, Ser 2002-A, Cl A4 4.790%, 01/15/09 10,000 10,602 Daimler Chrysler Auto Trust, Ser 2001-A, Cl A2 4.980%, 01/06/04 2,206 2,214 Harley-Davidson Motorcycle Trust, Ser 2001-2, Cl A1 3.770%, 04/17/06 3,959 3,999 Navistar Financial Corp Owner Trust, Ser 2001-B, Cl A4 4.370%, 11/17/08 4,597 4,801 - -------------------------------------------------------------------------------- 72 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBCPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- AUTO & TRANSPORTATION-- CONTINUED Premier Auto Trust, Ser 1999-1, Cl A4 5.820%, 10/08/03 $ 1,422 $ 1,432 Provident Auto Lease ABS Trust, Private Placement 144a, Ser 1999-1, Cl A3 7.260%, 01/14/12 10,000 10,360 Provident Auto Lease ABS Trust, Private Placement 144a, Ser 1999-1, Cl A2 7.025%, 11/14/05 11,827 12,563 ----------- 48,100 - -------------------------------------------------------------------------------- BOATS -- 0.1% CIT Marine Trust, Ser 1999-A, Cl A2 5.800%, 04/15/10 494 502 ----------- 502 - -------------------------------------------------------------------------------- CORPORATES/YANKEES -- 1.4% Chilquinta Energy Private Placement 144a 6.470%, 04/01/08 1,300 1,448 Pemex Finance, Private Placement 144a, Ser 1A1, Cl A2 6.300%, 05/15/10 2,750 2,859 Pemex Finance, Private Placement 144a, Ser 2A1, Cl A1 6.125%, 11/15/03 3,023 3,124 Pemex Finance, Ser 1A1, Cl A1 5.720%, 11/15/03 4,159 4,286 ----------- 11,717 - -------------------------------------------------------------------------------- CREDIT CARD-- 9.0% Arran Master Trust, Ser 2000-B, Cl A 2.016%, 03/15/07 19,000 19,049 Conseco Private Label Master Note Trust, Ser 2001-A, Cl A 2.091%, 12/15/08 22,000 21,925 Keb Card International ABS Limited, Private Placement 144a, Ser 2002-1A, Cl 1 2.301%, 02/28/09 5,000 5,000 Providian Master Trust, Ser 1997-4, Cl A 6.250%, 06/15/07 10,000 10,050 Providian Master Trust, Ser 2000-1, Cl A 7.490%, 08/17/09 21,000 22,285 ----------- 78,309 - -------------------------------------------------------------------------------- EQUIPMENT LEASE-- 3.9% CNH Equipment Trust, Ser 2000-A, Cl A4 7.340%, 02/15/07 19,182 19,959 CNH Equipment Trust, Ser 2000-B, Cl A3 6.880%, 03/15/05 596 602 CNH Equipment Trust, Ser 2002-A, Cl A4 2.111%, 08/15/08 10,000 10,062 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- EQUIPMENT LEASE-- CONTINUED Railcar Leasing, LLC, Private Placement 144a, Ser 1, Cl A1 6.750%, 07/15/06 $ 3,037 $ 3,242 ----------- 33,865 - -------------------------------------------------------------------------------- HOME EQUITY LOANS-- 25.0% Advanta Mortgage Loan Trust, Ser 1998-1, Cl A4 6.420%, 09/25/21 24 24 Ameriquest Mortgage Securities, Ser 2002-1, Cl AF5 6.670%, 05/25/32 10,000 10,604 Ameriquest Mortgage Securities, Series 2002-3, Cl AF5 5.470%, 01/05/10 3,891 3,877 Chase Funding Loan Aquisition Trust, Ser 2002-C1, Cl IA3 5.353%, 09/25/26 10,000 10,474 Chase Funding Mortgage Loan, Ser 2001-3 Cl 1A5 6.425%, 10/25/31 12,000 12,609 CIT Group Home Equity Loan Trust, Ser 2002-1, Cl AF5 6.710%, 05/25/31 6,000 6,421 Conseco Finance, Ser 2002-A, Cl A1B 3.340%, 10/15/18 3,176 3,182 Conseco Finance, Ser 2002-A, Cl A2 4.690%, 08/15/21 5,000 5,031 Contimortgage Home Equity Loan Trust, Ser 1997-5, Cl A4 6.580%, 06/15/19 22 22 EQCC Trust, Ser 2002-1, Cl 2A 2.114%, 11/25/31 20,155 20,137 Federal Home Loan Mortgage Corporation Structured Pass Through T-9 A3 6.660%, 07/25/15 30 30 Federal Home Loan Mortgage Corporation Structured Pass Through T-10 A2 6.350%, 09/25/13 13 13 Federal Home Loan Mortgage Corporation Structured Pass Through T-14 A3 5.900%, 03/25/24 17 17 Federal Home Loan Mortgage Corporation Structured Pass Through T-49 AF3 TBA 3.410%, 09/25/32 12,000 11,999 Federal Home Loan Mortgage Corporation Structured Pass Through T-49 AF4 TBA 4.160%, 09/25/32 10,000 9,999 Federal National Mortgage Association, Ser 2002-W2, Cl AF5 6.000%, 06/25/32 10,000 10,518 - -------------------------------------------------------------------------------- 73 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBCPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- HOME EQUITY LOANS-- CONTINUED Household Home Equity Loan Trust, Ser 2002-1, Cl A 2.190%, 12/22/31 $ 9,770 $ 9,761 Independent National Mortgage Home Equity, Ser 1997-A AF3 6.700%, 12/25/25 16 16 Indymac Home Equity Loan Asset-Backed Trust, Ser 2001-B, Cl AF5 7.005%, 04/25/31 5,000 5,229 Long Beach Mortgage Loan Trust, Ser 2002-1, Cl 2A4 6.460%, 06/25/32 10,000 10,138 Mellon Residential Funding, Ser 2001-HEIL, Cl A2 5.565%, 06/25/09 5,000 5,071 Residential Asset Securities, Ser 1998-KS3, Cl AI4 6.035%, 04/25/24 758 762 Residential Asset Securities, Ser 2000-KS5, Cl AI3 7.040%, 04/25/26 5,542 5,634 Residential Asset Securities, Ser 2001-KS3, Cl AI5 6.480%, 09/25/31 1,500 1,618 Residential Asset Securities, Ser 2002-KS2, Cl AI5 6.779%, 04/25/32 8,000 8,508 Salomon Brothers Mortgage Securities VII, Ser 2002-UST1, Cl A1 6.500%, 09/25/16 6,646 6,700 Saxon Asset Securities Trust, Ser 1999-3, Cl AF4 7.550%, 10/25/26 1,290 1,330 Saxon Asset Securities Trust, Ser 2000-2, Cl AF5 8.483%, 07/25/30 6,270 6,806 Southern Pacific Secured Asset, Ser 1997-3, Cl A5 7.190%, 09/25/27 8,349 8,698 The Money Store Equity Trust, Ser 1998-B, Cl AF5 6.225%, 09/15/23 52 52 The Money Store Home Equity Trust, Ser 1996-B, Cl A8 7.910%, 05/15/24 3,408 3,514 The Money Store Home Equity Trust, Ser 1996-D, Cl A8 7.370%, 04/15/28 17,814 18,644 The Money Store Home Equity Trust, Ser 1996-D, Cl A9 7.000%, 04/15/28 2,455 2,549 The Money Store Home Equity Trust, Ser 1998-A, Cl AF5 6.370%, 12/15/23 79 80 The Money Store Home Equity Trust, Ser 1998-A, Cl AF9 6.400%, 04/15/39 10,000 10,629 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- HOME EQUITY LOANS-- CONTINUED UCFC Home Equity Loan, Ser 1996-A1, Cl A7 7.125%, 08/15/21 $ 5,641 $ 5,772 ----------- 216,468 - -------------------------------------------------------------------------------- INFRASTRUCTURE-- 1.3% California Infrastructure SCE-1, Ser 1997-1, Cl A7 6.420%, 12/26/09 4,025 4,515 Consumers Funding LLC, Ser 2001-1, Cl A1 2.590%, 04/20/05 6,791 6,805 ----------- 11,320 - -------------------------------------------------------------------------------- MANUFACTURED HOUSING -- 0.4% Lehman ABS Manufactured Housing Contract, Ser 2001-B Cl A6 6.467%, 08/15/28 3,500 3,608 Vanderbilt Mortgage Finance, Ser 1999-C, Cl 1A2 7.090%, 11/07/13 297 306 ----------- 3,914 - -------------------------------------------------------------------------------- OTHER-- 1.9% New York City Tax Lien, Private Placement 144a, Ser 2001-AA, Cl A 5.590%, 09/10/14 1,136 1,157 New York City Tax Lien, Private Placement 144a, Ser 2002-AA, Cl A 4.230%, 10/10/15 15,000 14,999 ----------- 16,156 - -------------------------------------------------------------------------------- RECREATIONAL VEHICLES-- 1.8% Distribution Financial Services Trust, Ser 1999-1, Cl A4 5.840%, 10/17/11 9,196 9,402 Distribution Financial Services Trust, Ser 1999-1, Cl A6 6.020%, 11/15/16 2,500 2,655 Distribution Financial Services Trust, Ser 2001-1, Cl A5 6.190%, 11/15/22 3,000 3,284 ----------- 15,341 ----------- TOTAL ASSET-BACKED SECURITIES (COST $429,730) 435,692 ----------- - -------------------------------------------------------------------------------- PRINCIPAL ONLY CERTIFICATES (PO)-- 0.2% Bank of America Mortgage Securities, Ser 2001-H, Cl A2 0.000%, 12/25/31 764 706 Bank of America Mortgage Securities, Ser 2002-A, Cl A5 0.000%, 02/25/32 1,223 1,065 ----------- TOTAL PRINCIPAL ONLY CERTIFICATES (PO) (COST $1,745) 1,771 ----------- - -------------------------------------------------------------------------------- 74 PBHG FUNDS PBHG IRA CAPITAL PRESERVATION FUND PBCPX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- INTEREST ONLY STRIPS (IO) -- 2.7% Fannie Mae, Ser 2002-18, Cl LI 6.500%, 02/25/23 $26,221 $ 1,370 First Union National Bank Commerical Mortgage, Private Placement 144a, Ser 2001-C3, Cl X1 0.660%, 08/15/33 268,371 9,992 Freddie Mac, Ser 2319, Cl SD 5.477%, 05/15/31 15,456 399 Freddie Mac, Ser 2410, Cl MI 6.500%, 08/15/21 15,067 623 Freddie Mac, Ser 2444, Cl BI 6.500%, 01/15/22 8,742 495 GMAC Commercial Mortgage Securities, Private Placement 144a, Ser 2002-C2, Cl X1 0.405%, 10/15/38 259,625 10,471 ----------- TOTAL INTEREST ONLY STRIPS (IO) (COST $25,282) 23,350 ----------- - -------------------------------------------------------------------------------- CORPORATE BONDS-- 16.7% America West Airlines, Ser 1999-1 7.930%, 01/02/19 2,611 2,723 America West Airlines, Private Placement 144a 7.100%, 04/02/21 8,513 8,828 American Airlines, Floating Rate Quarterly Note 2.420%, 09/23/07 10,000 10,000 Continental Airlines, Ser 2002-1, Cl G1 2.200%, 08/15/11 15,000 14,967 Continental Airlines, Ser 2002-1, Cl G2 6.563%, 02/15/12 14,000 15,094 Credipia, Private Placement 144a, Ser 2001-1A, Cl A 2.340%, 12/28/07 15,000 15,000 Delta Air Lines, Ser 2002-1, Cl G-1 6.718%, 01/02/23 20,000 21,158 Mashantucket Western Pequot Tribe, Private Placement 144a 6.570%, 09/01/13 8,145 9,214 Northwest Airlines, Ser 2000-1, Cl G 8.072%, 04/01/21 7,005 7,723 Northwest Airlines, Ser 2002-1, Cl G2 6.264%, 11/20/21 10,000 10,233 PF Export Receivables Master Trust, Private Placement 144a 6.600%, 12/01/11 7,000 7,799 US Airways 7.076%, 03/20/21 11,118 11,429 US Airways, Ser 2000-3G 7.890%, 03/01/19 10,471 10,860 ----------- TOTAL CORPORATE BONDS (COST $140,390) 145,028 ----------- - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 15.2% Barclays 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $83,744,798 (collateralized by U.S. Government Obligations: total market value $85,418,761) (A)(B) $83,740 $ 83,740 UBS Warburg LLC 1.89%, dated 09/30/02, matures 10/01/02, repurchase price $47,493,551 (collateralized by U.S. Government Obligations: total market value $48,441,946) (A)(B) 47,491 47,491 ----------- TOTAL REPURCHASE AGREEMENTS (COST $131,231) 131,231 ----------- TOTAL INVESTMENTS-- 117.3% (COST $1,003,347) 1,017,119 ----------- - -------------------------------------------------------------------------------- WRAPPER AGREEMENTS -- (1.7)% American International Group*+ (1,931) Bank of America*+ (5,827) CDC Financial Products*+ (5,058) Monumental Life*+ (1,878) ----------- TOTAL WRAPPER AGREEMENTS (14,694) ----------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (15.6)% Payable for Administrative Fees (105) Payable for Investment Advisory Fees (162) Payable for Investment Securities Purchased (141,894) Payable for Wrapper Fees (474) Other Assets and Liabilities, Net 7,014 ----------- TOTAL OTHER ASSETS AND LIABILITIES, NET (135,621) ----------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 86,670,286 outstanding shares of common stock 867,290 Fund Shares of Advisor Class ($0.001 par value) based on 10,081 outstanding shares of common stock 101 Undistributed net investment income 127 Accumulated net realized gain on investments 2,211 Unrealized appreciation on investments 13,772 Unrealized depreciation on wrapper agreements (16,697) ----------- TOTAL NET ASSETS-- 100.0% $ 866,804 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $10.00 ====== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $10.00 ====== * The Wrapper Agreements are designed to maintain the book value of a portion of the Fund's covered assets up to a specified maximum dollar amount upon the occurrence of certain specific events ("termination events"). Upon the occurrence of a termination event, the wrap provider will pay to the Fund the difference between the market value and the book value of the wrap if the market value is less than the book value. If the market value is greater than the book value of the wrap than the Fund will pay the wrap provider the difference. ** Notional Amount + Fair-valued security. 144a -- Security exempt from registration under Rule 144a of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normaly to qualified institutional buyers. At September 30, 2002, these securities amounted to a value of $116,056,000 or 13.4% of net assets. (A)-- Tri-party repurchase agreement (B) -- A portion of the Repurchase Agreement is held in a segregated account maintained for liquidity purposes pursuant to the Wrapper Agreement as disclosed in Note 2. Cl -- Class CMO -- Collateralized Mortgage Obligation FHLMC -- Federal Home Loan Mortgage Corporation IO -- Interest Only LLC -- Limited Liability Company PO -- Principal Only Ser -- Series STRIPS -- Separate Trading of Registered Interest and Principal of Securities. TBA -- Securities traded under delayed delivery commitments settling after September 30, 2002. Income on these securities will not be earned until settle date. The accompanying notes are an integral part of the financial statements. 75 PBHG FUNDS PBHG CASH RESERVES FUND PBCXX PBHG CASH RESERVES FUND (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN1 AS OF SEPTEMBER 30, 2002 One Annualized Annualized Annualized 6 Year 3 Year 5 Year Inception Months2 Return Return Return to Date3 - --------------------------------------------------------------------------------------------------------------------------- PBHG Cash Reserves Fund 0.56% 1.31% 3.87% 4.25% 4.53% - ---------------------------------------------------------------------------------------------------------------------------
COMPARISON OF TOTAL RETURN, AS OF SEPTEMBER 30, 2002 FOR THE PBHG CASH RESERVES FUND, VERSUS THE LIPPER MONEY MARKET FUNDS AVERAGE1 [BAR CHART OMITTED -- PLOT POINTS AS FOLLOWS:] PBHG CASH RESERVES FUND LIPPER MONEY MARKET FUNDS AVERAGE4 ONE YEAR 1.31% 1.26% 1 Performance is historical, reflects the reinvestment of all distributions and not indicative of future results. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. An investment in the PBHG Cash Reserves Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 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. This information must be preceded or accompanied by a prospectus. Investors should read the prospectus carefully before investing or sending any money. 2 The six month return has not been annualized. 3 The PBHG Cash Reserves Fund commenced operations on April 5, 1995. 4 The Lipper Money Market Funds Average represents the average performance of 388 mutual funds classified by Lipper, Inc. in the Money Market category. These performance figures are based on the changes in net asset value of the funds in the category with all capital gains distributions and income dividends reinvested. The returns for certain periods reflect fee waivers and/or reimbursements in effect for that period; absent fee waivers and reimbursements, performance would have been lower. The Average is not intended to imply the Funds past or future performance. A direct investment in the Average is not possible. SECTOR WEIGHTINGS AT SEPTEMBER 30, 2002 [PIE CHART OMITTED -- PLOT POINTS AS FOLLOWS:] Certificates of Deposit 16% Commercial Paper 53% Government Bond 15% Cash 16% % of Total Portfolio Investments 76 PBHG FUNDS PBHG CASH RESERVES FUND PBCXX STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- CERTIFICATES OF DEPOSIT -- 16.4% Abbey National Plc 1.750%, 11/20/02 $3,000 $ 3,000 American Express Centurion 1.760%, 10/15/02 3,000 3,000 Barclays Bank 1.790%, 12/31/02 2,000 2,000 Canadian Imperial Bank NY 2.070%, 12/23/02 3,000 3,001 Standard Federal Bank 1.760%, 10/15/02 3,000 3,000 Svenska Handels 1.770%, 10/23/02 3,000 3,000 ----------- TOTAL CERTIFICATES OF DEPOSIT (COST $17,001) 17,001 ----------- - -------------------------------------------------------------------------------- COMMERCIAL PAPER -- 53.5% Alcoa 1.793%, 10/02/02 3,000 3,000 Apreco 1.788%, 10/21/02 2,000 1,998 Archer-Daniels 1.759%, 03/05/03 2,000 1,985 ChevronTexaco 1.741%, 12/06/02 1,000 997 Clipper Receivables 1.818%, 10/10/02 2,000 1,999 Coca-Cola 1.789%, 01/21/03 2,000 1,989 Corporate Receivable 1.770%, 10/07/02 2,200 2,199 Delaware Funding 1.797%, 10/24/02 2,000 1,998 Diageo Capital Plc 1.826%, 10/02/02 2,000 2,000 Edison Asset Securities 1.790%, 11/22/02 2,000 1,995 Eureka Securities 1.780%, 11/22/02 2,000 1,995 FCAR Owner Trust I 1.800%, 11/13/02 2,000 1,996 General Electric 1.785%, 11/22/02 2,000 1,995 General Electric Capital 1.705%, 05/01/03 2,000 1,980 Gillette 1.708%, 02/07/03 3,000 2,982 Glaxo Smith Kline 1.760%, 10/18/02 3,000 2,998 Goldman Sachs Group 2.915%, 04/01/03 2,000 1,971 Greyhawk Funding LLC 1.789%, 10/29/02 2,000 1,997 HBOS Treasury Services Plc 1.782%, 11/27/02 2,000 1,994 KFW International 1.792%, 10/02/02 2,500 2,500 - -------------------------------------------------------------------------------- Face Market Description Amount (000) Value (000) - -------------------------------------------------------------------------------- COMMERCIAL PAPER -- CONTINUED Kitty Hawk Funding 1.787%, 10/21/02 $ 2,000 $ 1,998 Mass Mutual Funding 1.776%, 10/09/02 2,000 1,999 Park Ave Receivable 1.807%, 10/18/02 2,000 1,998 Preferred Receivable Funding 1.760%, 10/02/02 2,000 2,000 Societe Generale 1.860%, 12/16/02 3,000 2,988 Variable Funding 1.750%, 10/09/02 2,000 1,999 ----------- TOTAL COMMERCIAL PAPER (COST $55,550) 55,550 ----------- - -------------------------------------------------------------------------------- U.S. GOVERNMENT BONDS -- 15.3% Federal Home Loan Bank 2.010%, 10/10/03 2,000 2,000 2.000%, 09/08/03 2,000 2,000 0.000%, 12/26/02 (B) 6,000 5,976 Federal Home Loan Bank, 1.925%, 10/27/03 1,000 1,000 Federal Home Loan Mortgage Corporation 0.000%, 12/30/02 (B) 5,000 4,978 ----------- TOTAL U.S. GOVERNMENT BONDS (COST $15,954) 15,954 ----------- - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT -- 15.5% Deutsche Bank 1.95%, dated 09/30/02, matures 10/02/02, repurchase price $16,100,860 (collateralized by U.S. Government Obligations: total market value $16,422,000) (A) 16,100 16,100 ----------- TOTAL REPURCHASE AGREEMENT (COST $16,100) 16,100 ----------- TOTAL INVESTMENTS-- 100.7% (COST $104,605) 104,605 ----------- - -------------------------------------------------------------------------------- OTHER ASSETS AND LIABILITIES, NET-- (0.7)% Payable for Administrative Fees (13) Payable for Investment Advisory Fees (26) Other Assets and Liabilities, Net (674) ----------- TOTAL OTHER ASSETS AND LIABILITIES, NET (713) ----------- - -------------------------------------------------------------------------------- NET ASSETS: Fund Shares of PBHG Class ($0.001 par value) based on 103,896,882 outstanding shares of common stock 103,899 Undistributed net investment income 2 Accumulated net realized loss on investments (9) ----------- TOTAL NET ASSETS-- 100.0% $ 103,892 =========== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $1.00 ===== (A)-- Tri-party repurchase agreement (B) -- Discount Notes LLC -- Limited Liability Company Plc -- Public Limited Company The accompanying notes are an integral part of the financial statements. 77 PBHG FUNDS [This page is intentionally left blank.] 78
PBHG FUNDS STATEMENTS OF ASSETS AND LIABILITIES (000) - --------------------------------------------------------------------------------------------------------------------------- September 30, 2002 (UNAUDITED) ---------------- ---------------- ---------------- PBHG PBHG PBHG LARGE CAP GLOBAL TECHNOLOGY & LARGE CAP VALUE COMMUNICATIONS 20 FUND FUND FUND ---------------- ---------------- ---------------- ASSETS: Investment Securities, At Cost 1 $ 217,042 $ 380,082 $ 21,851 ----------- ----------- ------------ Investment Securities, At Market Value 1 $ 205,127 $ 328,243 $ 15,058 Dividends and Interest Receivable 99 558 6 Foreign Tax Reclaim Receivable -- -- 8 Receivable for Capital Shares Sold 44 218 2 Receivable for Investment Securities Sold 21,972 23,226 1,234 ----------- ----------- ------------ Total Assets 227,242 352,245 16,308 ----------- ----------- ------------ LIABILITIES: Payable for Administrative Fees 28 44 2 Payable for Investment Advisory Fees 157 190 9 Payable for Investment Securities Purchased 10,594 34,356 3 Payable for Capital Shares Redeemed 238 980 30 Accrued Expenses 47 57 14 ----------- ----------- ------------ Total Liabilities 11,064 35,627 58 ----------- ----------- ------------ NET ASSETS: Fund Shares of PBHG Class 601,333 493,423 107,486 Fund Shares of Advisor Class 102 161 -- Undistributed net investment income/Accumulated net investment loss (919) 2,286 (246) Accumulated net realized loss on investments (372,423) (127,413) (84,197) Net unrealized depreciation on investments (11,915) (51,839) (6,793) ----------- ----------- ------------ NET ASSETS $ 216,178 $ 316,618 $ 16,250 =========== =========== ============ Outstanding shares of beneficial interest-- PBHG Class 2 19,276,855 33,534,467 8,725,495 Outstanding shares of beneficial interest-- Advisor Class 2 4,103 10,651 N/A NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- PBHG CLASS $11.21 $9.44 $1.86 ====== ===== ===== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE-- ADVISOR CLASS $11.17 $9.40 N/A ====== ===== ===== 1. Includes repurchase agreements amounting to (000's) $9,166 for the PBHG Large Cap 20 Fund, $24,133 for the PBHG Large Cap Value Fund, and $1,337 for the PBHG Global Technology & Communications Fund. 2. Par Value of $0.001. Shares have not been rounded. Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements.
79 PBHG FUNDS
STATEMENTS OF OPERATIONS (000) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ ---------------- ---------------- ---------------- ---------------- PBHG PBHG PBHG EMERGING PBHG LARGE CORE GROWTH GROWTH GROWTH CAP 20 FUND FUND FUND FUND ---------------- ---------------- ---------------- ---------------- 4/1/02 4/1/02 4/1/02 4/1/02 to to to to 9/30/02 9/30/02 9/30/02 9/30/02 ---------------- ---------------- ---------------- ---------------- INVESTMENT INCOME: Dividends $ 39 $ 20 $ 1,079 $ 702 Interest 19 157 1,015 291 Less: Foreign Taxes Withheld -- -- -- -- -------- --------- --------- -------- Total Investment Income 58 177 2,094 993 -------- --------- --------- -------- EXPENSES: Investment Advisory Fees 188 1,211 6,941 1,150 Administrative Fees 33 214 1,225 203 Transfer Agent Fees 108 621 2,618 502 Printing Fees 7 44 248 41 Professional Fees 3 22 126 21 Line of Credit Fees 2 11 56 9 Distribution Fees 1 -- -- 54 -- Registration and Filing Fees 8 21 33 17 Custodian Fees 5 8 32 6 Directors' Fees 1 4 23 4 Miscellaneous Fees 1 7 41 7 -------- --------- --------- -------- TOTAL EXPENSES 356 2,163 11,397 1,960 -------- --------- --------- -------- Waiver of Investment Advisory Fees (22) -- -- -- Expense Reduction 2 (2) (5) (19) (6) Directed Brokerage 3 (6) (5) (212) (42) -------- --------- --------- -------- Net Expenses 326 2,153 11,166 1,912 -------- --------- --------- -------- NET INVESTMENT INCOME (LOSS) (268) (1,976) (9,072) (919) -------- --------- --------- -------- Net Realized Gain (Loss) from Security Transactions (7,283) (96,232) (209,287) (54,809) Net Change in Unrealized Depreciation on Investments (5,438) (85,996) (245,860) (25,327) -------- --------- --------- -------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (12,721) (182,228) (455,147) (80,136) -------- --------- --------- -------- DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($12,989) ($184,204) ($464,219) ($81,055) ======== ========= ========= ======== 1. All distribution fees are incurred in the Advisor Class. Currently, the PBHG Growth, PBHG Large Cap 20, PBHG Large Cap Growth, and PBHG Large Cap Value Funds offer Advisor Class Shares. Distribution Fees incurred for the six months ended September 30, 2002, were as follows: $53,703, $67, $219, and $216, respectively. 2. All expense reductions are for transfer agent expenses. 3. See Note 2 in the Notes to Financial Statements.
Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 80
---------------- ---------------- ---------------- ---------------- PBHG PBHG PBHG LARGE CAP PBHG NEW SELECT GROWTH LIMITED OPPORTUNITIES EQUITY FUND FUND FUND FUND ---------------- ---------------- ---------------- ---------------- 4/1/02 4/1/02 4/1/02 4/1/02 to to to to 9/30/02 9/30/02 9/30/02 9/30/02 ---------------- ---------------- ---------------- ---------------- INVESTMENT INCOME: Dividends $ 587 $ 4 $ 1 $ 278 Interest 140 54 73 434 Less: Foreign Taxes Withheld -- -- -- -- -------- -------- -------- --------- Total Investment Income 727 58 74 712 -------- -------- -------- --------- EXPENSES: Investment Advisory Fees 817 269 189 1,354 Administrative Fees 164 41 28 239 Transfer Agent Fees 352 64 43 687 Printing Fees 33 8 6 49 Professional Fees 17 4 3 25 Line of Credit Fees 7 2 1 11 Distribution Fees 1 -- -- -- -- Registration and Filing Fees 16 8 8 12 Custodian Fees 6 5 4 8 Directors' Fees 3 1 1 4 Miscellaneous Fees 5 2 1 8 -------- -------- -------- --------- TOTAL EXPENSES 1,420 404 284 2,397 -------- -------- -------- --------- Waiver of Investment Advisory Fees -- -- -- -- Expense Reduction 2 (3) (1) (1) (9) Directed Brokerage 3 (21) (1) (1) (99) -------- -------- -------- --------- Net Expenses 1,396 402 282 2,289 -------- -------- -------- --------- NET INVESTMENT INCOME (LOSS) (669) (344) (208) (1,577) -------- -------- -------- --------- Net Realized Gain (Loss) from Security Transactions (37,060) (14,417) (7,699) (85,312) Net Change in Unrealized Depreciation on Investments (22,798) (17,054) (6,304) (34,108) -------- -------- -------- --------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (59,858) (31,471) (14,003) (119,420) -------- -------- -------- --------- DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($60,527) ($31,815) ($14,211) ($120,997) ======== ======== ======== =========
---------------- ---------------- ---------------- PBHG PBHG PBHG FOCUSED LARGE CAP CLIPPER FOCUS VALUE VALUE FUND FUND FUND ---------------- ---------------- ---------------- 4/1/02 4/1/02 4/1/02 to to to 9/30/02 9/30/02 9/30/02 ---------------- ---------------- ---------------- INVESTMENT INCOME: Dividends $ 7,045 $ 129 $ 4,020 Interest 251 14 102 Less: Foreign Taxes Withheld -- -- (35) --------- ------- --------- Total Investment Income 7,296 143 4,087 --------- ------- --------- EXPENSES: Investment Advisory Fees 3,273 136 1,366 Administrative Fees 491 24 315 Transfer Agent Fees 903 54 642 Printing Fees 107 5 64 Professional Fees 66 3 32 Line of Credit Fees 21 1 14 Distribution Fees 1 -- -- -- Registration and Filing Fees 38 9 30 Custodian Fees 11 3 11 Directors' Fees 9 -- 6 Miscellaneous Fees 10 1 11 --------- ------- --------- TOTAL EXPENSES 4,929 236 2,491 --------- ------- --------- Waiver of Investment Advisory Fees (338) -- -- Expense Reduction 2 (1) (1) (2) Directed Brokerage 3 (99) (5) (392) --------- ------- --------- Net Expenses 4,491 230 2,097 --------- ------- --------- NET INVESTMENT INCOME (LOSS) 2,805 (87) 1,990 --------- ------- --------- Net Realized Gain (Loss) from Security Transactions 9,793 (4,123) (74,156) Net Change in Unrealized Depreciation on Investments (192,857) (5,561) (67,300) --------- ------- --------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (183,064) (9,684) (141,456) --------- ------- --------- DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($180,259) ($9,771) ($139,466) ========= ======= =========
81
PBHG FUNDS STATEMENTS OF OPERATIONS (000)(UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ ---------------- ---------------- ---------------- ------------------ PBHG PBHG MID-CAP SMALL CAP PBHG PBHG VALUE VALUE SPECIAL EQUITY DISCIPLINED EQUITY FUND FUND FUND FUND ---------------- ---------------- ---------------- ------------------ 4/1/02 4/1/02 4/1/02 4/1/02 to to to to 9/30/02 9/30/02 9/30/02 9/30/02 ---------------- ---------------- ---------------- ------------------ INVESTMENT INCOME Dividends $ 1,804 $ 488 $ 239 $ 703 Interest 144 55 12 10 Crediting Rate Interest -- -- -- -- Less: Foreign Taxes Withheld (3) -- -- -- ------------ ---------- ---------- ---------- Total Investment Income 1,945 543 251 713 ------------ ---------- ---------- ---------- EXPENSES: Investment Advisory Fees 1,672 1,048 126 273 Administrative Fees 295 157 19 58 Transfer Agent Fees 584 339 31 89 Printing Fees 60 30 3 12 Professional Fees 30 16 3 6 Line of Credit Fees 13 8 1 2 Distribution Fees 1 -- -- -- -- Registration and Filing Fees 43 15 9 12 Custodian Fees 10 11 2 9 Directors' Fees 5 3 -- 1 Wrapper Fees -- -- -- -- Miscellaneous Fees 10 6 1 4 ------------ ---------- ---------- ---------- TOTAL EXPENSES 2,722 1,633 195 466 ------------ ---------- ---------- ---------- Waiver of Investment Advisory Fees -- (60) (37) (78) Expense Reduction 2 (3) (2) -- -- Directed Brokerage 3 (131) (18) -- -- ------------ ---------- ---------- ---------- Net Expenses 2,588 1,553 158 388 ------------ ---------- ---------- ---------- NET INVESTMENT INCOME (LOSS) (643) (1,010) 93 325 ------------ ---------- ---------- ---------- Net Realized Gain (Loss) from Security Transactions (12,076) (34,497) 753 (12,924) Net Realized Loss on Futures -- -- -- (1,136) Net Change in Unrealized Appreciation (Depreciation) on Investments (96,368) (48,584) (8,316) (14,191) Net Change in Unrealized Depreciation on Futures -- -- -- (100) Net Change in Unrealized Depreciation on Wrapper Agreements -- -- -- -- ------------ ---------- ---------- ---------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (108,444) (83,081) (7,563) (28,351) ------------ ---------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($109,087) ($84,091) ($7,470) ($28,026) ============ ========== ========== ========== 1. All distribution fees are incurred in the Advisor Class. Currently, the PBHG Mid-Cap Value, PBHG Small Cap Value, PBHG REIT, PBHG Strategic Small Company, PBHG Technology & Communications, and PBHG IRA Capital Preservation Funds offer Advisor Class Shares. Distribution Fees incurred for the six months ended September 30, 2002, were as follows: $347, $363, $23,269, $20, $9,807, and $42, respectively. 2. All expense reductions are for transfer agent expenses. 3. See Note 2 in the Notes to Financial Statements.
Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 82
---------------- ---------------- ---------------- ----------------- PBHG PBHG GLOBAL STRATEGIC PBHG TECHNOLOGY & SMALL TECHNOLOGY & COMMUNICATIONS PBHG COMPANY COMMUNICATIONS FUND REIT FUND FUND FUND ---------------- ---------------- ---------------- ----------------- 4/1/02 4/1/02 4/1/02 4/1/02 to to to to 9/30/02 9/30/02 9/30/02 9/30/02 ---------------- ---------------- ---------------- ----------------- INVESTMENT INCOME Dividends $ 28 $ 2,420 $ 90 $ 90 Interest 8 21 38 170 Crediting Rate Interest -- -- -- -- Less: Foreign Taxes Withheld (9) -- -- (12) ----------- ---------- ---------- ------------ Total Investment Income 27 2,441 128 248 ----------- ---------- ---------- ------------ EXPENSES: Investment Advisory Fees 183 428 374 1,638 Administrative Fees 18 76 56 289 Transfer Agent Fees 109 91 96 1,036 Printing Fees 5 21 11 75 Professional Fees 2 7 6 30 Line of Credit Fees 1 3 2 14 Distribution Fees 1 -- 23 -- 10 Registration and Filing Fees 9 13 9 22 Custodian Fees 11 8 15 9 Directors' Fees -- 1 1 6 Wrapper Fees -- -- -- -- Miscellaneous Fees 4 2 3 11 ----------- ---------- ---------- ------------ TOTAL EXPENSES 342 673 573 3,140 ----------- ---------- ---------- ------------ Waiver of Investment Advisory Fees (78) (51) (11) -- Expense Reduction 2 (2) -- (1) (15) Directed Brokerage 3 (5) (5) (3) (105) ----------- ---------- ---------- ------------ Net Expenses 257 617 558 3,020 ----------- ---------- ---------- ------------ NET INVESTMENT INCOME (LOSS) (230) 1,824 (430) (2,772) ----------- ---------- ---------- ------------ Net Realized Gain (Loss) from Security Transactions (12,252) 4,982 (13,017) (303,435) Net Realized Loss on Futures -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments (5,096) (16,821) (17,422) (2,760) Net Change in Unrealized Depreciation on Futures -- -- -- -- Net Change in Unrealized Depreciation on Wrapper Agreements -- -- -- -- ----------- ---------- ---------- ------------ NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS (17,348) (11,839) (30,439) (306,195) ----------- ---------- ---------- ------------ INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ($17,578) ($10,015) ($30,869) ($308,967) =========== ========== ========== ============
------------------ ---------------- PBHG PBHG CASH IRA CAPITAL RESERVES PRESERVATION FUND FUND ------------------ ---------------- 4/1/02 4/1/02 to to 9/30/02 9/30/02 ------------------ ---------------- INVESTMENT INCOME Dividends -- -- Interest $ 19,875 $ 956 Crediting Rate Interest 881 -- Less: Foreign Taxes Withheld -- -- --------- -------- Total Investment Income 20,756 956 --------- -------- EXPENSES: Investment Advisory Fees 2,301 158 Administrative Fees 575 79 Transfer Agent Fees 1,140 120 Printing Fees 133 16 Professional Fees 58 8 Line of Credit Fees 24 -- Distribution Fees 1 -- -- Registration and Filing Fees 44 9 Custodian Fees 15 5 Directors' Fees 10 1 Wrapper Fees 836 -- Miscellaneous Fees 20 (24) --------- -------- TOTAL EXPENSES 5,156 372 --------- -------- Waiver of Investment Advisory Fees (1,322) -- Expense Reduction 2 -- (2) Directed Brokerage 3 -- -- --------- -------- Net Expenses 3,834 370 --------- -------- NET INVESTMENT INCOME (LOSS) 16,922 586 --------- -------- Net Realized Gain (Loss) from Security Transactions 2,234 -- Net Realized Loss on Futures -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments 16,243 -- Net Change in Unrealized Depreciation on Futures -- -- Net Change in Unrealized Depreciation on Wrapper Agreements (18,477) -- --------- -------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS -- -- --------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 16,922 $ 586 ========= ========
83
PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000) - ------------------------------------------------------------------------------------------------------------------------------------ --------------------------- ------------------------- ----------------------------- PBHG PBHG PBHG CORE GROWTH EMERGING GROWTH GROWTH FUND FUND FUND --------------------------- ------------------------- ----------------------------- 4/1/02 4/1/02 4/1/02 to 4/1/01 to 4/1/01 to 4/1/01 9/30/02 to 9/30/02 to 9/30/02 to (Unaudited) 3/31/02 (Unaudited) 3/31/02 (Unaudited) 3/31/02 ----------- ---------- ----------- ----------- -------------- ------------ INVESTMENT ACTIVITIES: Net Investment Loss $ (268) $ (747) $ (1,976) $ (5,529) $ (9,072) $ (24,768) Net Realized Loss from Security Transactions (7,283) (28,193) (96,232) (178,897) (209,287) (633,241) Net Change in Unrealized Appreciation (Depreciation) on Investments (5,438) 26,138 (85,996) 151,287 (245,860) 502,772 --------- --------- --------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations (12,989) (2,802) (184,204) (33,139) (464,219) (155,237) --------- --------- --------- ----------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions -- -- -- -- -- -- --------- --------- --------- ----------- ----------- ----------- Total Distributions -- -- -- -- -- -- --------- --------- --------- ----------- ----------- ----------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 5,014 105,308 97,652 2,503,165 99,952 16,862,245 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- -- Shares Redeemed (8,979) (112,351) (126,884) (2,600,159) (294,250) (17,674,625) --------- --------- --------- ----------- ----------- ----------- Total PBHG Class Transactions (3,965) (7,043) (29,232) (96,994) (194,298) (812,380) --------- --------- --------- ----------- ----------- ----------- Advisor Class Shares Issued -- -- -- -- 2,402 28,200 Shares Redeemed -- -- -- -- (4,363) (37,407) --------- --------- --------- ----------- ----------- ----------- Total Advisor Class Transactions -- -- -- -- (1,961) (9,207) --------- --------- --------- ----------- ----------- ----------- Decrease in Net Assets Derived from Capital Share Transactions (3,965) (7,043) (29,232) (96,994) (196,259) (821,587) --------- --------- --------- ----------- ----------- ----------- Total Decrease in Net Assets (16,954) (9,845) (213,436) (130,133) (660,478) (976,824) --------- --------- --------- ----------- ----------- ----------- NET ASSETS: Beginning of Period 53,514 63,359 408,161 538,294 1,975,681 2,952,505 --------- --------- --------- ----------- ----------- ----------- End of Period $ 36,560 $ 53,514 $ 194,725 $ 408,161 $ 1,315,203 $ 1,975,681 ========= ========= ========= =========== =========== =========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 559 9,143 9,490 144,194 6,029 760,668 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- -- Shares Redeemed (1,006) (9,791) (12,240) (149,231) (17,840) (791,641) --------- --------- --------- ----------- ----------- ----------- Total PBHG Class Share Transactions (447) (648) (2,750) (5,037) (11,811) (30,973) --------- --------- --------- ----------- ----------- ----------- Advisor Class Shares Issued -- -- -- -- 150 1,258 Shares Redeemed -- -- -- -- (264) (1,802) --------- --------- --------- ----------- ----------- ----------- Total Advisor Class Share Transactions -- -- -- -- (114) (544) --------- --------- --------- ----------- ----------- ----------- Net Decrease in Shares Outstanding (447) (648) (2,750) (5,037) (11,925) (31,517) ========= ========= ========= =========== =========== ===========
Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 84
--------------------------- ---------------------------- ------------------------ PBHG PBHG PBHG LARGE CAP 20 LARGE CAP GROWTH LIMITED FUND FUND FUND --------------------------- ------------ ---------- ----------- -------- 4/1/02 4/1/02 4/1/02 to 4/1/01 to 4/1/01 to 4/1/01 9/30/02 to 9/30/02 to 9/30/02 to (Unaudited) 3/31/02 (Unaudited) 3/31/02 (Unaudited) 3/31/02 -------------- ----------- ------------ ---------- ----------- -------- INVESTMENT ACTIVITIES: Net Investment Loss $ (919) $ (2,816) $ (669) $ (1,929) $ (344) $ (826) Net Realized Loss from Security Transactions (54,809) (168,552) (37,060) (74,233) (14,417) (7,211) Net Change in Unrealized Appreciation (Depreciation) on Investments (25,327) 103,904 (22,798) 29,478 (17,054) 8,780 ----------- ---------- ---------- --------- -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations (81,055) (67,464) (60,527) (46,684) (31,815) 743 ----------- ---------- ---------- --------- -------- -------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions -- -- -- -- -- (1,125) ----------- ---------- ---------- --------- -------- -------- Total Distributions -- -- -- -- -- (1,125) ----------- ---------- ---------- --------- -------- -------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 5,501 185,342 23,609 1,023,132 247 6,350 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- 1,083 Shares Redeemed (41,445) (286,695) (42,397) (1,045,855) (3,373) (10,480) ----------- ---------- ---------- --------- -------- -------- Total PBHG Class Transactions (35,944) (101,353) (18,788) (22,723) (3,126) (3,047) ----------- ---------- ---------- --------- -------- -------- Advisor Class Shares Issued 2 -- 72 92 -- -- Shares Redeemed -- -- (68) -- -- -- ----------- ---------- ---------- --------- -------- -------- Total Advisor Class Transactions 2 -- 4 92 -- -- ----------- ---------- ---------- --------- -------- -------- Decrease in Net Assets Derived from Capital Share Transactions (35,942) (101,353) (18,784) (22,631) (3,126) (3,047) ----------- ---------- ---------- --------- -------- -------- Total Decrease in Net Assets (116,997) (168,817) (79,311) (69,315) (34,941) (3,429) ----------- ---------- ---------- --------- -------- -------- NET ASSETS: Beginning of Period 333,175 501,992 258,453 327,768 74,076 77,505 ----------- ---------- ---------- --------- -------- -------- End of Period $ 216,178 $ 333,175 $ 179,142 $ 258,453 $ 39,135 $ 74,076 =========== ========== ========== ========= ======== ======== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 420 10,349 1,374 48,686 35 610 Shares Issued upon Reinvestment of Distributions -- -- -- -- -- 107 Shares Redeemed (3,133) (16,541) (2,504) (49,868) (488) (1,062) ----------- ---------- ---------- --------- -------- -------- Total PBHG Class Share Transactions (2,713) (6,192) (1,130) (1,182) (453) (345) ----------- ---------- ---------- --------- -------- -------- Advisor Class Shares Issued -- -- 4 5 -- -- Shares Redeemed -- -- (5) -- -- -- ----------- ---------- ---------- --------- -------- -------- Total Advisor Class Share Transactions -- -- (1) 5 -- -- ----------- ---------- ---------- --------- -------- -------- Net Decrease in Shares Outstanding (2,713) (6,192) (1,131) (1,177) (453) (345) =========== ========== ========== ========= ======== ========
------------------------- PBHG NEW OPPORTUNITIES FUND ---------- --------- 4/1/02 to 4/1/01 9/30/02 to (Unaudited) 3/31/02 ---------- --------- INVESTMENT ACTIVITIES: Net Investment Loss $ (208) $ (624) Net Realized Loss from Security Transactions (7,699) (17,920) Net Change in Unrealized Appreciation (Depreciation) on Investments (6,304) 14,804 --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (14,211) (3,740) --------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Realized Gains from Security Transactions -- -- --------- --------- Total Distributions -- -- --------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 2,362 9,132 Shares Issued upon Reinvestment of Distributions -- -- Shares Redeemed (6,329) (22,936) --------- --------- Total PBHG Class Transactions (3,967) (13,804) --------- --------- Advisor Class Shares Issued -- -- Shares Redeemed -- -- --------- --------- Total Advisor Class Transactions -- -- --------- --------- Decrease in Net Assets Derived from Capital Share Transactions (3,967) (13,804) --------- --------- Total Decrease in Net Assets (18,178) (17,544) --------- --------- NET ASSETS: Beginning of Period 47,813 65,357 --------- --------- End of Period $ 29,635 $ 47,813 ========= ========= SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 114 333 Shares Issued upon Reinvestment of Distributions -- -- Shares Redeemed (289) (856) --------- --------- Total PBHG Class Share Transactions (175) (523) --------- --------- Advisor Class Shares Issued -- -- Shares Redeemed -- -- --------- --------- Total Advisor Class Share Transactions -- -- --------- --------- Net Decrease in Shares Outstanding (175) (523) ========= ========= 85
PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000)-- Continued - ------------------------------------------------------------------------------------------------------------------------------------ ------------------------- ---------------------------------------- PBHG PBHG SELECT EQUITY CLIPPER FOCUS FUND FUND1 ------------------------- --------------------------------------- 4/1/02 4/1/02 to 4/1/01 to 5/1/01 5/1/00 9/30/02 to 9/30/02 to to (Unaudited) 3/31/02 (Unaudited) 3/31/02 4/30/01 --------- --------- ----------- ---------- --------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (1,577) $ (5,253) $ 2,805 $ 3,642 $ 2,308 Net Realized Gain (Loss) from Security Transactions (85,312) (342,434) 9,793 22,409 28,312 Net Change in Unrealized Appreciation (Depreciation) on Investments (34,108) 270,414 (192,857) 31,823 26,603 --------- --------- --------- ---------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (120,997) (77,273) (180,259) 57,874 57,223 --------- --------- --------- ---------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- -- (2,442) (2,434) Net Realized Gains from Security Transactions -- -- -- (37,316) (6,491) --------- --------- --------- ---------- --------- Total Distributions -- -- -- (39,758) (8,925) --------- --------- --------- ---------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 10,853 1,790,443 472,083 506,039 401,377 Shares Issued upon Reinvestment of Distributions -- -- -- 39,220 8,341 Shares Redeemed (58,770) (1,962,587) (332,595) (213,709) (270,173) --------- --------- --------- ---------- --------- Total PBHG Class Transactions (47,917) (172,144) 139,488 331,550 139,545 --------- --------- --------- ---------- --------- Advisor Class Shares Issued -- -- -- -- -- Shares Redeemed -- -- -- -- -- --------- --------- --------- ---------- --------- Total Advisor Class Transactions -- -- -- -- -- --------- --------- --------- ---------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (47,917) (172,144) 139,488 331,550 139,545 --------- --------- --------- ---------- --------- Total Increase (Decrease) in Net Assets (168,914) (249,417) (40,771) 349,666 187,843 --------- --------- --------- ---------- --------- NET ASSETS: Beginning of Period 413,134 662,551 621,735 272,069 84,226 --------- --------- --------- ---------- --------- End of Period $ 244,220 $ 413,134 $ 580,964 $ 621,735 $ 272,069 ========= ========= ========= ========== ========= SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 551 69,120 31,175 31,778 27,255 Shares Issued upon Reinvestment of Distributions -- -- -- 2,660 573 Shares Redeemed (3,061) (75,883) (22,576) (13,627) (18,486) --------- --------- --------- ---------- --------- Total PBHG Class Share Transactions (2,510) (6,763) 8,599 20,811 9,342 --------- --------- --------- ---------- --------- Advisor Class Shares Issued -- -- -- -- -- Shares Redeemed -- -- -- -- -- --------- --------- --------- ---------- --------- Total Advisor Class Share Transactions -- -- -- -- -- --------- --------- --------- ---------- --------- Net Increase (Decrease) in Shares Outstanding (2,510) (6,763) 8,599 20,811 9,342 ========= ========= ========= ========== ========= 1. On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust.
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 86
------------------------ ----------------------- PBHG PBHG FOCUSED VALUE LARGE CAP VALUE FUND FUND ------------------------ ----------------------- 4/1/02 4/1/02 to 4/1/01 to 4/1/01 9/30/02 to 9/30/02 to (Unaudited) 3/31/02 (Unaudited) 3/31/02 ------------ --------- ----------- --------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (87) $ (141) $ 1,990 $ 1,294 Net Realized Gain (Loss) from Security Transactions (4,123) (3,129) (74,156) (43,701) Net Change in Unrealized Appreciation (Depreciation) on Investments (5,561) (746) (67,300) 12,994 --------- --------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (9,771) (4,016) (139,466) (29,413) --------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- (166) -- (998) Net Realized Gains from Security Transactions -- (225) -- -- --------- --------- --------- --------- Total Distributions -- (391) -- (998) --------- --------- --------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 9,303 45,511 91,261 592,134 Shares Issued upon Reinvestment of Distributions -- 365 -- 886 Shares Redeemed (8,600) (65,518) (159,566) (463,795) --------- --------- --------- --------- Total PBHG Class Transactions 703 (19,642) (68,305) 129,225 --------- --------- --------- --------- Advisor Class Shares Issued -- -- 21 116 Shares Redeemed -- -- (63) (13) --------- --------- --------- --------- Total Advisor Class Transactions -- -- (42) 103 --------- --------- --------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 703 (19,642) (68,347) 129,328 --------- --------- --------- --------- Total Increase (Decrease) in Net Assets (9,068) (24,049) (207,813) 98,917 --------- --------- --------- --------- NET ASSETS: Beginning of Period 34,675 58,724 524,431 425,514 --------- --------- --------- --------- End of Period $ 25,607 $ 34,675 $ 316,618 $ 524,431 ========= ========= ========= ========= SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 616 2,549 7,741 42,144 Shares Issued upon Reinvestment of Distributions -- 21 -- 65 Shares Redeemed (593) (3,804) (13,517) (33,511) --------- --------- --------- --------- Total PBHG Class Share Transactions 23 (1,234) (5,776) 8,698 --------- --------- --------- --------- Advisor Class Shares Issued -- -- 2 9 Shares Redeemed -- -- (6) (1) --------- --------- --------- --------- Total Advisor Class Share Transactions -- -- (4) 8 --------- --------- --------- --------- Net Increase (Decrease) in Shares Outstanding 23 (1,234) (5,780) 8,706 ========= ========= ========= =========
------------------------ ------------------------- PBHG PBHG MID-CAP VALUE SMALL CAP VALUE FUND FUND ------------------------ ------------------------- 4/1/02 4/1/02 to 4/1/01 to 4/1/01 9/30/02 to 9/30/02 to (Unaudited) 3/31/02 (Unaudited) 3/31/02 ------------ ---------- ------------- --------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (643) $ (559) $ (1,010) $ (2,011) Net Realized Gain (Loss) from Security Transactions (12,076) (7,584) (34,497) (7,360) Net Change in Unrealized Appreciation (Depreciation) on Investments (96,368) 26,652 (48,584) 32,628 ---------- ---------- ---------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (109,087) 18,509 (84,091) 23,257 ---------- ---------- ---------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- -- -- Net Realized Gains from Security Transactions -- -- -- -- ---------- ---------- ---------- --------- Total Distributions -- -- -- -- ---------- ---------- ---------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 61,594 565,684 28,271 444,666 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed (124,252) (350,309) (103,052) (426,850) ---------- ---------- ---------- --------- Total PBHG Class Transactions (62,658) 215,375 (74,781) 17,816 ---------- ---------- ---------- --------- Advisor Class Shares Issued 306 124 1 234 Shares Redeemed (97) (11) (74) (24) ---------- ---------- ---------- --------- Total Advisor Class Transactions 209 113 (73) 210 ---------- ---------- ---------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (62,449) 215,488 (74,854) 18,026 ---------- ---------- ---------- --------- Total Increase (Decrease) in Net Assets (171,536) 233,997 (158,945) 41,283 ---------- ---------- ---------- --------- NET ASSETS: Beginning of Period 465,114 231,117 293,371 252,088 ---------- ---------- ---------- --------- End of Period $ 293,578 $ 465,114 $ 134,426 $ 293,371 ========== ========== ========== ========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 4,271 36,386 1,545 22,423 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed (9,011) (22,850) (6,027) (21,869) ---------- ---------- ---------- --------- Total PBHG Class Share Transactions (4,740) 13,536 (4,482) 554 ---------- ---------- ---------- --------- Advisor Class Shares Issued 22 9 -- 14 Shares Redeemed (8) (1) (5) (1) ---------- ---------- ---------- --------- Total Advisor Class Share Transactions 14 8 (5) 13 ---------- ---------- ---------- --------- Net Increase (Decrease) in Shares Outstanding (4,726) 13,544 (4,487) 567 ========== ========== ========== ==========
87
PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000)-- Continued - ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------ -------------------------------------- PBHG PBHG SPECIAL EQUITY DISCIPLINED EQUITY FUND1 FUND3 ------------------------------------ -------------------------------------- 4/1/02 4/1/02 to 11/1/01 11/1/00 to 1/1/02 1/1/01 9/30/02 to to 9/30/02 to to (Unaudited) 3/31/02 10/31/01 (Unaudited) 3/31/02 12/31/01 ----------- ---------- --------- ------------ --------- ---------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ 93 $ 76 $ 196 $ 325 $ 152 $ 668 Net Realized Gain (Loss) from Security Transactions and Futures 753 (162) 5,544 (14,060) (194) (9,461) Net Realized Loss on Foreign Currency Transactions -- -- -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures Contracts and Foreign Currency Transactions (8,316) 3,795 (5,124) (14,291) 1,083 1,352 --------- --------- --------- --------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (7,470) 3,709 616 (28,026) 1,041 (7,441) --------- --------- --------- --------- --------- --------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- (88) (175) -- (16) (665) Return of Capital -- -- -- -- -- -- Net Realized Gains from Security Transactions -- -- (4,885) -- -- -- --------- --------- --------- --------- --------- --------- Total Distributions -- (88) (5,060) -- (16) (665) --------- --------- --------- --------- --------- --------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 7,299 6,476 12,914 9,572 11,774 27,162 Shares Issued upon Reinvestment of Distributions -- 83 4,635 -- 16 651 Shares Redeemed (6,321) (1,602) (25,714) (27,169) (6,231) (43,221) --------- --------- --------- --------- --------- --------- Total PBHG Class Transactions 978 4,957 (8,165) (17,597) 5,559 (15,408) --------- --------- --------- --------- --------- --------- Advisor Class Shares Issued -- -- 408 -- -- -- Shares Issued upon Reinvestment of Distributions -- 2 386 -- -- -- Shares Redeemed -- (1,015) (4,528) -- -- -- --------- --------- --------- --------- --------- --------- Total Advisor Class Transactions -- (1,013) (3,734) -- -- -- --------- --------- --------- --------- --------- --------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions 978 3,944 (11,899) (17,597) 5,559 (15,408) --------- --------- --------- --------- --------- --------- Total Increase (Decrease) in Net Assets (6,492) 7,565 (16,343) (45,623) 6,584 (23,514) --------- --------- --------- --------- --------- --------- NET ASSETS: Beginning of Period 25,505 17,940 34,283 101,615 95,031 118,545 --------- --------- --------- --------- --------- --------- End of Period $ 19,013 $ 25,505 $ 17,940 $ 55,992 $ 101,615 $ 95,031 ========= ========= ========= ========= ========= ========= SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 536 496 975 1,046 1,156 2,555 Shares Issued upon Reinvestment of Distributions -- 7 380 -- 1 65 Shares Redeemed (508) (120) (2,131) (3,036) (612) (4,107) --------- --------- --------- --------- --------- --------- Total PBHG Class Share Transactions 28 383 (776) (1,990) 545 (1,487) --------- --------- --------- --------- --------- --------- Advisor Class 2 Shares Issued -- -- 31 -- -- -- Shares Issued upon Reinvestment of Distributions -- -- 31 -- -- -- Shares Redeemed -- (81) (400) -- -- -- --------- --------- --------- --------- --------- --------- Total Advisor Class Share Transactions -- (81) (338) -- -- -- --------- --------- --------- --------- --------- --------- Net Increase (Decrease) in Shares Outstanding 28 302 (1,114) (1,990) 545 (1,487) ========= ========= ========= ========= ========= ========= 1. On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. 2. Information presented for the PBHG Special Equity Fund represents the Institutional Service Class shares of the NWQ Special Equity Portfolio. Upon the business combination of the NWQ Special Equity Portfolio and the PBHG Special Equity Fund on December 14, 2001, the Institutional Service Class shares of the NWQ Special Equity Portfolio were fully liquidated and exchanged for PBHG Class shares of the PBHG Special Equity Fund. Reference Note 1 to Financial Statements.
Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 88
------------------------- ------------------------------------ PBHG PBHG GLOBAL TECHNOLOGY & REIT COMMUNICATIONS FUND FUND4 ------------------------- ------------------------------------ 4/1/02 4/1/02 to 4/1/01 to 1/1/02 1/1/01 9/30/02 to 9/30/02 to to (Unaudited) 3/31/02 (Unaudited) 3/31/02 12/31/01 ------------- ---------- ----------- --------- ----------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (230) $ (728) $ 1,824 $ 1,071 $ 4,262 Net Realized Gain (Loss) from Security Transactions and Futures (12,252) (36,403) 4,982 1,608 11,237 Net Realized Loss on Foreign Currency Transactions -- (2) -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures Contracts and Foreign Currency Transactions (5,096) 26,319 (16,821) 5,837 (6,888) ---------- --------- --------- --------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations (17,578) (10,814) (10,015) 8,516 8,611 ---------- --------- --------- --------- ---------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- (1,873) (867) (4,401) Return of Capital -- -- -- -- (358) Net Realized Gains from Security Transactions -- -- (1,008) -- (10,469) ---------- --------- --------- --------- ---------- Total Distributions -- -- (2,881) (867) (15,228) ---------- --------- --------- --------- ---------- CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 2,725 22,092 47,602 12,341 30,959 Shares Issued upon Reinvestment of Distributions -- -- 1,290 327 4,727 Shares Redeemed (4,543) (25,541) (33,851) (3,356) (44,237) ---------- --------- --------- --------- ---------- Total PBHG Class Transactions (1,818) (3,449) 15,041 9,312 (8,551) ---------- --------- --------- --------- ---------- Advisor Class Shares Issued -- -- 563 272 1,361 Shares Issued upon Reinvestment of Distributions -- -- 384 132 3,139 Shares Redeemed -- -- (1,823) (1,184) (7,525) ---------- --------- --------- --------- ---------- Total Advisor Class Transactions -- -- (876) (780) (3,025) ---------- --------- --------- --------- ---------- Increase (Decrease) in Net Assets Derived from Capital Share Transactions (1,818) (3,449) 14,165 8,532 (11,576) ---------- --------- --------- --------- ---------- Total Increase (Decrease) in Net Assets (19,396) (14,263) 1,269 16,181 (18,193) ---------- --------- --------- --------- ---------- NET ASSETS: Beginning of Period 35,646 49,909 96,417 80,236 98,429 ---------- --------- --------- --------- ---------- End of Period $ 16,250 $ 35,646 $ 97,686 $ 96,417 $ 80,236 ========== ========= ========= ========= ========== SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 943 4,813 5,008 1,346 3,166 Shares Issued upon Reinvestment of Distributions -- -- 143 34 534 Shares Redeemed (1,590) (5,523) (3,609) (363) (4,555) ---------- --------- --------- --------- ---------- Total PBHG Class Share Transactions (647) (710) 1,542 1,017 (855) ---------- --------- --------- --------- ---------- Advisor Class 2 Shares Issued -- -- 60 30 139 Shares Issued upon Reinvestment of Distributions -- -- 43 14 358 Shares Redeemed -- -- (198) (130) (794) ---------- --------- --------- --------- ---------- Total Advisor Class Share Transactions -- -- (95) (86) (297) ---------- --------- --------- --------- ---------- Net Increase (Decrease) in Shares Outstanding (647) (710) 1,447 931 (1,152) ========== ========= ========= ========= ==========
-------------------------- -------------------------- PBHG PBHG TECHNOLOGY & STRATEGIC SMALL COMMUNICATIONS COMPANY FUND FUND -------------------------- -------------------------- 4/1/02 4/1/02 to 4/1/01 to 4/1/01 9/30/02 to 9/30/02 to (Unaudited) 3/31/02 (Unaudited) 3/31/02 ------------- ----------- ------------ ------------- INVESTMENT ACTIVITIES: Net Investment Income (Loss) $ (430) $ (875) $ (2,772) $ (9,139) Net Realized Gain (Loss) from Security Transactions and Futures (13,017) (5,950) (303,435) (855,133) Net Realized Loss on Foreign Currency Transactions -- -- -- -- Net Change in Unrealized Appreciation (Depreciation) on Investments, Futures Contracts and Foreign Currency Transactions (17,422) 12,900 (2,760) 659,933 ---------- ---------- ---------- ------------ Net Increase (Decrease) in Net Assets Resulting from Operations (30,869) 6,075 (308,967) (204,339) ---------- ---------- ---------- ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income -- -- -- -- Return of Capital -- -- -- -- Net Realized Gains from Security Transactions -- -- -- -- ---------- ---------- ---------- ------------ Total Distributions -- -- -- -- ---------- ---------- ---------- ------------ CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 23,378 89,908 49,330 2,064,008 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed (19,429) (86,071) (90,412) (2,199,759) ---------- ---------- ---------- ------------ Total PBHG Class Transactions 3,949 3,837 (41,082) (135,751) ---------- ---------- ---------- ------------ Advisor Class Shares Issued 100 -- 2,586 10,528 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- (484) (196) ---------- ---------- ---------- ------------ Total Advisor Class Transactions 100 -- 2,102 10,332 ---------- ---------- ---------- ------------ Increase (Decrease) in Net Assets Derived from Capital Share Transactions 4,049 3,837 (38,980) (125,419) ---------- ---------- ---------- ------------ Total Increase (Decrease) in Net Assets (26,820) 9,912 (347,947) (329,758) ---------- ---------- ---------- ------------ NET ASSETS: Beginning of Period 86,243 76,331 591,379 921,137 ---------- ---------- ---------- ------------ End of Period $ 59,423 $ 86,243 $ 243,432 $ 591,379 ========== ========== ========== ============ SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 2,075 6,741 4,782 99,302 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed (1,828) (6,610) (8,703) (106,770) ---------- ---------- ---------- ------------ Total PBHG Class Share Transactions 247 131 (3,921) (7,468) ---------- ---------- ---------- ------------ Advisor Class 2 Shares Issued 10 -- 270 700 Shares Issued upon Reinvestment of Distributions -- -- -- -- Shares Redeemed -- -- (51) (12) ---------- ---------- ---------- ------------ Total Advisor Class Share Transactions 10 -- 219 688 ---------- ---------- ---------- ------------ Net Increase (Decrease) in Shares Outstanding 257 131 (3,702) (6,780) ========== ========== ========== ============ 3. On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Enhanced Equity Fund. The Analytic Enhanced Equity Fund was a series of the UAM Funds, Inc. II. 4. On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust.
89
PBHG FUNDS STATEMENTS OF CHANGES IN NET ASSETS (000)-- Concluded - ------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------- --------------------------- PBHG PBHG IRA CAPITAL PRESERVATION CASH RESERVES FUND1 FUND ----------------------------------------- -------------------------- 4/1/02 4/1/02 to 11/1/01 11/1/00 to 4/1/01 9/30/02 to to 9/30/02 to (Unaudited) 3/31/02 10/31/01 (Unaudited) 3/31/02 ----------- ---------- ---------- ----------- ------------ INVESTMENT ACTIVITIES: Net Investment Income $ 16,922 $ 4,553 $ 1,954 $ 586 $ 12,850 Net Realized Gain (Loss) from Security Transactions 2,234 495 352 -- (5) Net Change in Unrealized Depreciation on Investments and Wrapper Agreements (2,234) (308) (352) -- -- -------- --------- -------- --------- ------------ Net Increase in Net Assets Resulting from Operations 16,922 4,740 1,954 586 12,845 -------- --------- -------- --------- ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: Net Investment Income (17,000) (4,757) (1,978) (586) (12,919) Net Realized Gains from Security Transactions -- (685) -- -- -- -------- --------- -------- --------- ------------ Total Distributions (17,000) (5,442) (1,978) (586) (12,919) -------- --------- -------- --------- ------------ CAPITAL SHARE TRANSACTIONS: PBHG Class Shares Issued 347,369 450,353 53,737 59,800 21,459,733 Shares Issued upon Reinvestment of Distributions 16,935 5,324 1,718 473 9,841 Redemption Fees 89 17 24 -- -- Shares Redeemed (15,616) (8,286) (8,222) (63,894) (21,887,450) -------- --------- -------- --------- ------------ Total PBHG Class Transactions 348,777 447,408 47,257 (3,621) (417,876) -------- --------- -------- --------- ------------ Advisor Class Shares Issued 100 -- -- -- -- Shares Issued upon Reinvestment of Distributions 1 -- -- -- -- -------- --------- -------- --------- ------------ Total Advisor Class Transactions 101 -- -- -- -- -------- --------- -------- --------- ------------ Increase (Decrease) in Net Assets Derived from Capital Share Transactions 348,878 447,408 47,257 (3,621) (417,876) -------- --------- -------- --------- ------------ Total Increase (Decrease) in Net Assets 348,800 446,706 47,233 (3,621) (417,950) -------- --------- -------- --------- ------------ NET ASSETS: Beginning of Period 518,004 71,298 24,065 107,513 525,463 -------- --------- -------- --------- ------------ End of Period $866,804 $ 518,004 $ 71,298 $ 103,892 $ 107,513 ======== ========= ======== ========= ============ SHARES ISSUED AND REDEEMED: PBHG Class Shares Issued 34,732 45,035 5,373 59,800 21,459,733 Shares Issued upon Reinvestment of Distributions 1,694 464 172 473 9,841 Shares Redeemed (1,557) (828) (822) (63,894) (21,887,450) -------- --------- -------- --------- ------------ Total PBHG Class Share Transactions 34,869 44,671 4,723 (3,621) (417,876) -------- --------- -------- --------- ------------ Advisor Class Shares Issued 10 -- -- -- -- -------- --------- -------- --------- ------------ Total Advisor Class Share Transactions 10 -- -- -- -- -------- --------- -------- --------- ------------ Net Increase (Decrease) in Shares Outstanding 34,879 44,671 4,723 (3,621) (417,876) ======== ========= ======== ========= ============ 1. On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust.
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 90
PBHG FUNDS FINANCIAL HIGHLIGHTS - ----------------------------------------------------------------------------------------------------------------------------- For a Share Outstanding Throughout Each Period For the Six Months Ended September 30, 2002 (Unaudited) Net Realized and Net Net Asset Net Unrealized Distributions Distributions Asset Assets Value Investment Gains or from Net from Value End Beginning Income (Losses) Investment Capital End Total of Period of Period (Loss) on Securities Income Gains of Period Return (000) - ----------------------------------------------------------------------------------------------------------------------------- - --------------------- PBHG CORE GROWTH FUND - --------------------- PBHG CLASS 2002 ** 1 $10.15 $(0.05) $(2.52) -- -- $ 7.58 (25.32)%+ $ 36,560 2002 1 10.70 (0.13) (0.42) -- -- 10.15 (5.14)% 53,514 2001 1 30.25 (0.17) (16.62) -- $(2.76) 10.70 (59.85)% 63,359 2000 1 14.06 (0.20) 16.39 -- -- 30.25 115.15% 166,099 1999 1 13.53 (0.14) 0.67 -- -- 14.06 3.92% 86,485 1998 10.34 (0.33) 3.52 -- -- 13.53 30.85 % 165,510 - ------------------------- PBHG EMERGING GROWTH FUND - ------------------------- PBHG CLASS 2002 ** 1 $14.23 $(0.07) $(6.65) -- -- $ 7.51 (47.22)%+ $ 194,725 2002 1 15.96 (0.17) (1.56) -- -- 14.23 (10.84)% 408,161 2001 1 40.00 (0.10) (21.81) -- $(2.13) 15.96 (56.95)% 538,294 2000 1 20.61 (0.21) 20.76 -- (1.16) 40.00 101.33% 1,336,938 1999 1 25.83 (0.18) (4.96) -- (0.08) 20.61 (19.91)% 736,008 1998 19.26 (0.24) 6.81 -- -- 25.83 34.11 % 1,404,157 - ---------------- PBHG GROWTH FUND - ---------------- PBHG CLASS 2002 ** 1 $18.94 $(0.09) $(4.61) -- -- $14.24 (24.82)%+ $1,279,079 2002 1 21.74 (0.20) (2.60) -- -- 18.94 (12.88)% 1,925,422 2001 1 58.73 (0.20) (30.53) -- $(6.26) 21.74 (56.57)% 2,883,036 2000 1 24.51 (0.33) 36.14 -- (1.59) 58.73 148.57% 6,465,234 1999 1 28.23 (0.24) (3.48) -- -- 24.51 (13.18)% 3,228,740 1998 21.06 (0.26) 7.43 -- -- 28.23 34.05 % 5,338,380 ADVISOR CLASS 2002 ** 1 $18.66 $(0.11) $(4.54) -- -- $14.01 (24.92)%+ $ 36,124 2002 1 21.46 (0.26) (2.54) -- -- 18.66 (13.05)% 50,259 2001 1 58.19 (0.30) (30.17) -- $(6.26) 21.46 (56.65)% 69,469 2000 1 24.35 (0.42) 35.85 -- (1.59) 58.19 147.98% 143,937 1999 1 28.12 (0.30) (3.47) -- -- 24.35 (13.41)% 66,235 1998 21.03 (0.15) 7.24 -- -- 28.12 33.71 % 89,227 - ---------------------- PBHG LARGE CAP 20 FUND - ---------------------- PBHG CLASS 2002 ** 1 $15.15 $(0.04) $(3.90) -- -- $11.21 (26.01)%+ $ 216,132 2002 1 17.81 (0.11) (2.55) -- -- 15.15 (14.94)% 333,115 2001 1 44.34 (0.12) (22.04) -- $(4.37) 17.81 (53.84)% 501,921 2000 1 24.10 (0.25) 26.26 -- (5.77) 44.34 117.88% 1,083,460 1999 1 15.98 (0.12) 8.46 -- (0.22) 24.10 52.52% 603,077 1998 9.25 (0.07) 6.80 -- -- 15.98 72.76% 192,631 ADVISOR CLASS 2002 ** 1 $15.10 $(0.06) $(3.87) -- -- $11.17 (26.03)%+ $ 46 2002 1 17.80 (0.16) (2.54) -- -- 15.10 (15.17)% 60 2001 1, 2 25.20 (0.02) (7.38) -- -- 17.80 (29.37)%+ 71 - -------------------------- PBHG LARGE CAP GROWTH FUND - -------------------------- PBHG CLASS 2002 ** 1 $19.67 $(0.05) $(4.70) -- -- $14.92 (24.15)%+ $ 179,035 2002 1 22.90 (0.14) (3.09) -- -- 19.67 (14.10)% 258,297 2001 1 38.37 (0.05) (13.48) -- $(1.94) 22.90 (36.55)% 327,689 2000 1 24.57 (0.23) 21.32 -- (7.29) 38.37 98.60% 256,965 1999 1 22.69 (0.16) 3.53 -- (1.49) 24.57 15.90% 144,089 1998 14.26 (0.19) 8.82 -- (0.20) 22.69 60.80 % 145,662 ADVISOR CLASS 2002 ** 1 $19.62 $(0.07) $(4.69) -- -- $14.86 (24.26)%+ $ 107 2002 1 22.89 (0.19) (3.08) -- -- 19.62 (14.29)% 156 2001 1, 2 29.10 (0.03) (6.18) -- -- 22.89 (21.34)%+ 79
Ratio of Net Investment Ratio Ratio of Net Ratio Ratio Income of Expenses Investment of Expenses of Expenses (Loss) to Average Income (Loss) to Average to Average to Average Net Assets to Average Net Assets Net Assets Net Assets (Excluding Net Assets (Excluding (Including (Including Waivers (Excluding Portfolio Expense Expense Expense and Expense Waivers and Turnover Reduction) Reduction) Reduction) Reduction) Expense Reduction) Rate - ------------------------------------------------------------------------------------------------------------ - --------------------- PBHG CORE GROWTH FUND - --------------------- PBHG CLASS 2002 ** 1 1.50%* 1.47%* (1.21)%* 1.59%* (1.33)%* 124.18%+ 2002 1 1.49% 1.47% (1.17)% 1.49% (1.19)% 226.55% 2001 1 1.31% 1.31% (0.73)% 1.31% (0.73)% 133.31% 2000 1 1.33% 1.33% (1.02)% 1.33% (1.02)% 312.32% 1999 1 1.45% 1.45% (1.16)% 1.45% (1.16)% 120.93% 1998 1.35% 1.35% (1.07)% 1.35% (1.07)% 72.78% - ------------------------- PBHG EMERGING GROWTH FUND - ------------------------- PBHG CLASS 2002 ** 1 1.51%* 1.51%* (1.39)%* 1.51%* (1.39)%* 83.80%+ 2002 1 1.39% 1.38% (1.06)% 1.39% (1.07)% 150.95% 2001 1 1.26% 1.26% (0.33)% 1.26% (0.33)% 89.91% 2000 1 1.24% 1.24% (0.76)% 1.24% (0.76)% 141.81% 1999 1 1.34% 1.34% (0.80)% 1.34% (0.80)% 101.53% 1998 1.27% 1.27% (0.80)% 1.27% (0.80)% 95.21% - ---------------- PBHG GROWTH FUND - ---------------- PBHG CLASS 2002 ** 1 1.37%* 1.36%* (1.10)%* 1.37%* (1.11)%* 85.07%+ 2002 1 1.33% 1.32% (0.95)% 1.33% (0.96)% 170.67% 2001 1 1.25% 1.25% (0.46)% 1.25% (0.46)% 104.48% 2000 1 1.23% 1.23% (0.90)% 1.23% (0.90)% 107.73% 1999 1 1.32% 1.32% (0.99)% 1.32% (0.99)% 80.51% 1998 1.26% 1.26% (0.74)% 1.26% (0.74)% 94.21% ADVISOR CLASS 2002 ** 1 1.62%* 1.61%* (1.35)%* 1.62%* (1.36)%* 85.07%+ 2002 1 1.58% 1.57% (1.20)% 1.58% (1.22)% 170.67% 2001 1 1.50% 1.50% (0.71)% 1.50% (0.71)% 104.48% 2000 1 1.48% 1.48% (1.15)% 1.48% (1.15)% 107.73% 1999 1 1.57% 1.57% (1.24)% 1.57% (1.24)% 80.51% 1998 1.51% 1.51% (1.02)% 1.51% (1.02)% 94.21% - ---------------------- PBHG LARGE CAP 20 FUND - ---------------------- PBHG CLASS 2002 ** 1 1.43%* 1.41%* (0.68)%* 1.43%* (0.70)%* 93.02%+ 2002 1 1.36% 1.35% (0.66)% 1.36% (0.67)% 152.53% 2001 1 1.23% 1.23% (0.34)% 1.23% (0.34)% 142.46% 2000 1 1.23% 1.23% (0.82)% 1.23% (0.82)% 147.35% 1999 1 1.27% 1.27% (0.64)% 1.27% (0.64)% 76.41% 1998 1.41% 1.41% (0.79)% 1.41% (0.79)% 98.27% ADVISOR CLASS 2002 ** 1 1.68%* 1.66%* (0.92)%* 1.68%* (0.94)%* 93.02%+ 2002 1 1.61% 1.60% (0.91)% 1.61% (0.92)% 152.53% 2001 1, 2 1.54%* 1.54%* (0.40)%* 1.54%* (0.40)%* 142.46%+ - -------------------------- PBHG LARGE CAP GROWTH FUND - -------------------------- PBHG CLASS 2002 ** 1 1.29%* 1.28%* (0.61)%* 1.29%* (0.62)%* 66.01%+ 2002 1 1.26% 1.25% (0.62)% 1.26% (0.63)% 148.93% 2001 1 1.18% 1.18% (0.14)% 1.18% (0.14)% 146.18% 2000 1 1.17% 1.17% (0.79)% 1.17% (0.79)% 184.36% 1999 1 1.25% 1.25% (0.71)% 1.25% (0.71)% 46.16% 1998 1.22% 1.22% (0.79)% 1.22% (0.79)% 46.56% ADVISOR CLASS 2002 ** 1 1.54%* 1.53%* (0.87)%* 1.54%* (0.88)%* 66.01%+ 2002 1 1.51% 1.50% (0.87)% 1.51% (0.88)% 148.93% 2001 1, 2 1.43%* 1.43%* (0.42)%* 1.43%* (0.42)%* 146.18%+
The accompanying notes are an integral part of the financial statements. 91
PBHG FUNDS FINANCIAL HIGHLIGHTS -- Continued - ------------------------------------------------------------------------------------------------------------------------------ For a Share Outstanding Throughout Each Period For the Six Months Ended September 30, 2002 (Unaudited) Net Realized and Net Net Asset Net Unrealized Distributions Distributions Asset Assets Value Investment Gains or from Net from Value End Beginning Income (Losses) Investment Capital End Total of Period of Period (Loss) on Securities Income Gains of Period Return (000) - ------------------------------------------------------------------------------------------------------------------------------ - ----------------- PBHG LIMITED FUND - ----------------- PBHG CLASS 2002 ** 1 $9.40 $(0.04) $(4.09) -- -- $ 5.27 (43.94)%+ $ 39,135 2002 1 9.42 (0.10) 0.22 -- $ (0.14) 9.40 1.17% 74,076 2001 1 23.11 (0.08) (8.17) -- (5.44) 9.42 (42.99)% 77,505 2000 1 11.95 (0.12) 15.20 -- (3.92) 23.11 137.27% 155,130 1999 1 14.08 (0.10) (1.45) -- (0.58) 11.95 (11.01)% 108,011 1998 9.05 (0.10) 5.53 -- (0.40) 14.08 60.78 % 178,168 - --------------------------- PBHG NEW OPPORTUNITIES FUND - --------------------------- PBHG CLASS 2002 ** 1 $26.11 $(0.12) $(8.10) -- -- $17.89 (31.48)%+ $ 29,635 2002 1 27.77 (0.30) (1.36) -- -- 26.11 (5.98)% 47,813 2001 1 98.19 (0.48) (43.78) -- $(26.16) 27.77 (54.38)% 65,357 2000 1 16.47 (0.71) 85.60 -- (3.17) 98.19 529.94% 355,600 1999 3 13.52 (0.01) 2.96 -- -- 16.47 21.82%+ 16,742 - ----------------------- PBHG SELECT EQUITY FUND - ----------------------- PBHG CLASS 2002 ** 1 $22.74 $(0.09) $(7.05) -- -- $15.60 (31.40)%+ $ 244,220 2002 1 26.58 (0.25) (3.59) -- -- 22.74 (14.45)% 413,134 2001 1 77.81 (0.24) (48.55) -- $ (2.44) 26.58 (64.23)% 662,551 2000 1 25.93 (0.34) 58.71 -- (6.49) 77.81 240.82% 1,691,298 1999 1 24.15 (0.21) 1.99 -- -- 25.93 7.37% 235,904 1998 15.91 (0.44) 8.68 -- -- 24.15 51.79 % 336,076 - ----------------------- PBHG CLIPPER FOCUS FUND - ----------------------- PBHG CLASS 2002 ** $16.40 $0.06 $(3.97) -- -- $12.49 (23.84)%+ $ 580,964 2002 4 15.92 0.20 2.34 $(0.14) $ (1.92) 16.40 17.48%+ 621,735 2001 5 10.87 0.21 5.49 (0.21) (0.44) 15.92 53.22% 272,069 2000 5 12.19 0.16 (1.18) (0.16) (0.14) 10.87 (8.39)% 84,226 1999 5,6 10.00 0.05 2.18 (0.04) --*** 12.19 22.33%+ 64,135 - ----------------------- PBHG FOCUSED VALUE FUND - ----------------------- PBHG CLASS 2002 ** 1 $16.20 $(0.04) $(4.32) -- -- $11.84 (26.91)%+ $ 25,607 2002 1 17.41 (0.04) (1.03) $(0.06) $ (0.08) 16.20 (6.18)% 34,675 2001 1 18.51 0.07 (0.74) -- (0.43) 17.41 (3.59)% 58,724 2000 1 10.46 (0.01) 8.93 -- (0.87) 18.51 89.17% 22,556 1999 3 10.32 -- 0.14 -- -- 10.46 1.36%+ 3,658 - ------------------------- PBHG LARGE CAP VALUE FUND - ------------------------- PBHG CLASS 2002 ** 1 $13.34 $0.06 $(3.96) -- -- $ 9.44 (29.24)%+ $ 316,518 2002 1 13.90 0.03 (0.57) $(0.02) -- 13.34 (3.86)% 524,236 2001 1 11.97 0.21 2.21 (0.08) $(0.41) 13.90 20.42% 425,414 2000 13.85 0.12 1.78 (0.08) (3.70) 11.97 14.25% 32,922 1999 13.01 0.08 2.45 (0.10) (1.59) 13.85 20.29% 44,922 1998 10.11 0.02 3.84 (0.06) (0.90) 13.01 39.47% 76,476 ADVISOR CLASS 2002 ** 1 $13.30 $0.04 $(3.94) -- -- $ 9.40 (29.32)%+ $ 100 2002 1 13.88 -- (0.58) -- -- 13.30 (4.15)% 195 2001 1, 2 13.88 0.01 (0.01) -- -- 13.88 0.00%+ 100
Ratio of Net Ratio Ratio of Net Ratio Ratio Investment of Expenses Investment of Expenses of Expenses Income (Loss) to Average Income (Loss) to Average to Average to Average Net Assets to Average Net Assets Net Assets Net Assets (Excluding Net Assets (Excluding (Including (Including Waivers (Excluding Portfolio Expense Expense Expense and Expense Waivers and Turnover Reduction) Reduction) Reduction) Reduction) Expense Reduction) Rate - ------------------------------------------------------------------------------------------------------------ - ----------------- PBHG LIMITED FUND - ----------------- PBHG CLASS 2002 ** 1 1.49%* 1.49%* (1.28)%* 1.49%* (1.28)%* 82.34%+ 2002 1 1.41% 1.40% (1.04)% 1.41% (1.05)% 156.08% 2001 1 1.33% 1.33% (0.48)% 1.33% (0.48)% 85.07% 2000 1 1.32% 1.32% (0.76)% 1.32% (0.76)% 107.78% 1999 1 1.40% 1.40% (0.81)% 1.40% (0.81)% 111.07% 1998 1.40% 1.40% (0.72)% 1.40% (0.72)% 81.36% - --------------------------- PBHG NEW OPPORTUNITIES FUND - --------------------------- PBHG CLASS 2002 ** 1 1.50%* 1.50%* (1.10)%* 1.50%* (1.10)%* 172.97%+ 2002 1 1.44% 1.43% (1.13)% 1.44% (1.14)% 295.41% 2001 1 1.34% 1.34% (0.76)% 1.34% (0.76)% 267.34% 2000 1 1.34% 1.34% (1.15)% 1.34% (1.15)% 668.31% 1999 3 1.50%* 1.50%* (0.80)%* 1.59%* (0.89)%* 109.43%+ - ----------------------- PBHG SELECT EQUITY FUND - ----------------------- PBHG CLASS 2002 ** 1 1.47%* 1.44%* (0.99)%* 1.47%* (1.02)%* 221.37%+ 2002 1 1.38% 1.37% (0.94)% 1.38% (0.95)% 301.58% 2001 1 1.26% 1.26% (0.43)% 1.26% (0.43)% 157.72% 2000 1 1.18% 1.18% (0.68)% 1.18% (0.68)% 200.56% 1999 1 1.34% 1.34% (0.90)% 1.34% (0.90)% 56.59% 1998 1.35% 1.35% (1.15)% 1.35% (1.15)% 72.16% - ----------------------- PBHG CLIPPER FOCUS FUND - ----------------------- PBHG CLASS 2002 ** 1.40%* 1.37%* 0.86%* 1.50%* 0.73%* 35.14%+ 2002 4 1.40%* 1.40%* 1.26%* 1.44%* 1.23%* 39.02%+ 2001 5 1.40% 1.40% 1.41% 1.41% 1.40% 111.00% 2000 5 1.40% 1.40% 1.47% 1.47% 1.40% 54.00% 1999 5,6 1.40%* 1.40%* 1.05%* 2.08%* 0.37%* 22.00%+ - ----------------------- PBHG FOCUSED VALUE FUND - ----------------------- PBHG CLASS 2002 ** 1 1.46%* 1.44%* (0.54)%* 1.46%* (0.56)%* 140.51%+ 2002 1 1.37% 1.36% (0.24)% 1.37% (0.25)% 433.98% 2001 1 1.34% 1.34% 0.37% 1.34% 0.37% 404.36% 2000 1 1.50% 1.50% (0.10)% 1.55% (0.15)% 853.36% 1999 3 1.50%* 1.50%* 0.09%* 2.67%* (1.08)%* 173.09%+ - ------------------------- PBHG LARGE CAP VALUE FUND - ------------------------- PBHG CLASS 2002 ** 1 1.09%* 1.00%* 0.95%* 1.09%* 0.86%* 218.13%+ 2002 1 1.14% 1.13% 0.24% 1.14% 0.24% 947.66% 2001 1 1.16% 1.16% 0.91% 1.16% 0.91% 1184.89% 2000 1.11% 1.11% 0.71% 1.11% 0.71% 1018.03% 1999 1.01% 1.01% 0.59% 1.01% 0.59% 568.20% 1998 1.17% 1.17% 0.98% 1.17% 0.98% 403.59% ADVISOR CLASS 2002 ** 1 1.34%* 1.25%* 0.72%* 1.34%* 0.63%* 218.13%+ 2002 1 1.39% 1.38% (0.04)% 1.39% (0.04)% 947.66% 2001 1, 2 1.40%* 1.40%* 0.39%* 1.40%* 0.39%* 1184.89%+
The accompanying notes are an integral part of the financial statements. 92
PBHG FUNDS Net Realized and Net Net Asset Net Unrealized Distributions Distributions Asset Assets Value Investment Gains or from Net from Value End Beginning Income (Losses) Investment Capital End of Total of Period of Period (Loss) on Securities Income Gains Period Return (000) - -------------------------------------------------------------------------------------------------------------------------- - ----------------------- PBHG MID-CAP VALUE FUND - ----------------------- PBHG CLASS 2002 ** 1 $15.74 $(0.02) $(3.89) -- -- $11.83 (24.84)%+ $293,313 2002 1 14.44 (0.02) 1.32 -- -- 15.74 9.00% 464,987 2001 1 13.82 0.09 1.20 $(0.03) $(0.64) 14.44 9.43% 231,117 2000 1 15.09 (0.02) 5.03 -- (6.28) 13.82 42.21% 60,690 1999 15.30 -- 0.92 -- (1.13) 15.09 8.35% 56,981 1998 7 10.00 (0.01) 6.00 -- (0.69) 15.30 61.06%+ 54,173 ADVISOR CLASS 2002 ** 1 $15.72 $(0.04) $(3.88) -- -- $11.80 (24.94)%+ $ 265 2002 1,8 13.90 (0.03) 1.85 -- -- 15.72 13.09%+ 127 - ------------------------- PBHG SMALL CAP VALUE FUND - ------------------------- PBHG CLASS 2002 ** 1 $20.65 $(0.08) $(6.74) -- -- $13.83 (33.03)%+ $134,253 2002 1 18.48 (0.14) 2.31 -- -- 20.65 11.74% 290,007 2001 1 18.75 (0.02) 0.58 -- $(0.83) 18.48 2.99% 251,994 2000 1 11.38 (0.08) 7.45 -- -- 18.75 64.76% 92,634 1999 1 15.38 (0.09) (3.06) -- (0.85) 11.38 (20.93)% 69,787 1998 7 10.00 (0.03) 6.15 -- (0.74) 15.38 62.27%+ 125,834 ADVISOR CLASS 2002 ** 1 $20.60 $(0.10) $(6.72) -- -- $13.78 (33.11)%+ $ 173 2002 1 18.47 (0.22) 2.35 -- -- 20.60 11.53% 364 2001 1, 2 19.67 (0.02) (1.18) -- -- 18.47 (6.10)%+ 94 - ------------------------ PBHG SPECIAL EQUITY FUND - ------------------------ PBHG CLASS 2002 ** $13.92 $0.05 $(3.75) -- -- $10.22 (26.58)%+ $ 19,013 2002 9 11.73 0.05 2.20 $(0.06) -- 13.92 19.20% + 25,505 2001 10 13.28 0.08 0.09 (0.06) $(1.66) 11.73 1.23% 16,996 2000 10 11.84 0.07 1.55 (0.07) (0.11) 13.28 13.80% 29,547 1999 10 10.01 0.03 1.88 (0.03) (0.05) 11.84 19.33% 16,406 1998 10,11 10.00 0.02 (0.01) -- -- 10.01 0.10% + 14,167 - ---------------------------- PBHG DISCIPLINED EQUITY FUND - ---------------------------- PBHG CLASS 2002 ** $10.42 $0.05 $(3.25) -- -- $ 7.22 (30.71)%+ $ 55,992 2002 12 10.33 0.02 0.07 --*** -- 10.42 0.89%+ 101,615 2001 13 11.09 0.07 (0.76) $(0.07) -- 10.33 (6.22)% 95,031 2000 13 12.31 0.06 (1.20) (0.06) $(0.02) 11.09 (9.33)% 118,545 1999 13 10.90 0.10 2.06 (0.10) (0.65) 12.31 20.06% 145,185 1998 13 8.43 0.06 3.07 (0.07) (0.59) 10.90 37.82% 33,889 - -------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - -------------------------------------------- PBHG CLASS 2002 ** 1 $3.80 $(0.03) $(1.91) -- -- $ 1.86 (51.05)%+ $ 16,250 2002 1 4.95 (0.08) (1.07) -- -- 3.80 (23.23)% 35,646 2001 1,14 10.00 (0.12) (4.93) -- -- 4.95 (50.50)%+ 49,909
Ratio of Net Ratio of Net Investment Ratio of Investment Ratio Ratio Income Expenses Income (Loss) of Expenses of Expenses (Loss) to Average to Average to Average to Average to Average Net Assets Net Assets Net Assets Net Assets Net Assets (Excluding (Excluding (Excluding (Including (Including Waivers Waivers Portfolio Expense Expense Expense and Expense and Expense Turnover Reduction) Reduction) Reduction) Reduction) Reduction) Rate - ---------------------------------------------------------------------------------------------------------------- - ----------------------- PBHG MID-CAP VALUE FUND - ----------------------- PBHG CLASS 2002 ** 1 1.35%* 1.32%* (0.33)%* 1.35%* (0.36)%* 91.68%+ 2002 1 1.32% 1.31% (0.15)% 1.32% (0.15)% 236.85% 2001 1 1.35% 1.35% 0.40% 1.35% 0.40% 248.10% 2000 1 1.44% 1.44% (0.15)% 1.44% (0.15)% 742.57% 1999 1.33% 1.33% 0.01% 1.33% 0.01% 732.73% 1998 7 1.47%* 1.47%* (0.17)%* 1.47%* (0.17)%* 399.96%+ ADVISOR CLASS 2002 ** 1 1.60%* 1.57%* (0.55)%* 1.60%* (0.58)%* 91.68%+ 2002 1,8 1.55%* 1.54%* (0.49)%* 1.55%* (0.49)%* 236.85%+ - ------------------------- PBHG SMALL CAP VALUE FUND - ------------------------- PBHG CLASS 2002 ** 1 1.50%* 1.48%* (0.96)%* 1.55%* (1.03)%* 55.87%+ 2002 1 1.48% 1.48% (0.72)% 1.48% (0.72)% 144.85% 2001 1 1.49% 1.49% (0.09)% 1.49% (0.09)% 177.69% 2000 1 1.50% 1.50% (0.56)% 1.58% (0.64)% 352.85% 1999 1 1.48% 1.48% (0.71)% 1.48% (0.71)% 273.87% 1998 7 1.49%* 1.49%* (0.52)%* 1.49%* (0.52)%* 263.04%+ ADVISOR CLASS 2002 ** 1 1.75%* 1.73%* (1.21)%* 1.80%* (1.28)%* 55.87%+ 2002 1 1.73% 1.73% (1.12)% 1.73% (1.12)% 144.85% 2001 1, 2 1.73%* 1.73%* (0.34)%* 1.73%* (0.34)%* 177.69%+ - ------------------------ PBHG SPECIAL EQUITY FUND - ------------------------ PBHG CLASS 2002 ** 1.25%* 1.25%* 0.74%* 1.55%* 0.44%* 33.39%+ 2002 9 1.25%* 1.25%* 0.86%* 2.21%* (0.10)%* 13.92%+ 2001 10 1.25% 1.25% 0.54% 1.54% 0.25% 66.00% 2000 10 1.15% 1.15% 0.60% 1.66% 0.09% 49.00% 1999 10 1.22% 1.22% 0.26% 1.70% (0.22)% 26.00% 1998 10,11 1.16%* 1.16%* 0.42%* 1.98%* (0.41)%* 23.00%+ - ---------------------------- PBHG DISCIPLINED EQUITY FUND - ---------------------------- PBHG CLASS 2002 ** 0.99%* 0.99%* 0.83%* 1.19%* 0.63%* 114.98%+ 2002 12 0.99%* 0.99%* 0.63%* 1.33%* 0.29%* 65.99%+ 2001 13 0.99% 0.99% 0.64% 1.09% 0.54% 229.00% 2000 13 0.97% 0.97% 0.53% 0.97% 0.53% 270.00% 1999 13 0.99% 0.99% 1.08% 1.11% 0.96% 261.00% 1998 13 1.26% 1.26% 0.78% 2.25% (0.21)% 297.00% - -------------------------------------------- PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND - -------------------------------------------- PBHG CLASS 2002 ** 1 2.15%* 2.11%* (1.88)%* 2.78%* (2.55)%* 91.17%+ 2002 1 2.30% 2.15% (1.75)% 2.60% (2.20)% 192.61% 2001 1,14 2.15%* 2.15%* (1.57)%* 2.15%* (1.57)%* 314.47%+
The accompanying notes are an integral part of the financial statements. 93
PBHG FUNDS FINANCIAL HIGHLIGHTS -- Concluded - ------------------------------------------------------------------------------------------------------------------------------ For a Share Outstanding Throughout Each Period For the Six Months Ended September 30, 2002 (Unaudited) Net Realized and Net Net Asset Net Unrealized Distributions Distributions Asset Assets Value Investment Gains or from Net from Return Value End Beginning Income (Losses) Investment Capital of End Total of Period of Period (Loss) on Securities Income Gains Capital of Period Return (000) - ------------------------------------------------------------------------------------------------------------------------------ - -------------- PBHG REIT FUND - -------------- PBHG CLASS 2002 ** 1 $ 9.58 $ 0.17 $ (1.01) $(0.17) $(0.09) -- $ 8.48 (8.91)%+ $ 81,007 2002 15 8.78 0.09 0.80 (0.09) -- -- 9.58 10.11%+ 76,679 2001 13 9.56 0.47 0.46 (0.45) (1.21) $(0.05)16 8.78 10.41% 61,378 2000 13 8.04 0.36 1.60 (0.36) -- (0.08)16 9.56 24.90% 75,013 1999 13 8.62 0.43 (0.54) (0.47) -- -- 8.04 (1.16)% 65,767 1998 13 10.49 0.32 (1.88) (0.31) -- -- 8.62 (15.12)% 79,717 ADVISOR CLASS 2002 **1 $ 9.55 $ 0.16 $ (1.00) $(0.16) $(0.09) -- $ 8.46 (8.96)%+ $ 16,679 2002 15 8.75 0.09 0.79 (0.08) -- -- 9.55 10.08% + 19,738 2001 13 9.55 0.43 0.45 (0.43) (1.21) $(0.04)16 8.75 9.88% 17 18,858 2000 13 8.04 0.31 1.60 (0.33) -- (0.07)16 9.55 24.22% 17 23,417 1999 13 8.62 0.39 (0.53) (0.44) -- -- 8.04 (1.62)% 17 29,502 1998 13 10.50 0.25 (1.86) (0.27) -- -- 8.62 (15.54)% 17 46,665 - --------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - --------------------------------- PBHG CLASS 2002 ** 1 $13.37 $(0.06) $ (4.45) -- -- -- $ 8.86 (33.73)%+ $ 59,330 2002 1 12.08 (0.13) 1.42 -- -- -- 13.37 10.68% 86,243 2001 1 19.34 (0.11) (4.55) -- $(2.60) -- 12.08 (27.04)% 76,331 2000 1 10.54 (0.13) 10.18 -- (1.25) -- 19.34 99.74% 75,225 1999 1 12.89 (0.11) (1.78) -- (0.46) -- 10.54 (14.52)% 48,029 1998 8.86 (0.11) 5.01 -- (0.87) -- 12.89 56.54% 111,983 ADVISOR CLASS 2002 ** 1,18 $ 9.57 $(0.01) $ (0.70) -- -- -- $ 8.86 (7.42)%+ $ 93 - ------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - ------------------------------------- PBHG CLASS 2002 ** 1 $14.79 $(0.07) $ (8.01) -- -- -- $ 6.71 (54.63)%+ $ 237,306 2002 1 19.70 (0.21) (4.70) -- -- -- 14.79 (24.92)% 581,091 2001 1 85.02 (0.46) (59.61) -- $(5.25) -- 19.70 (74.20)% 920,965 2000 1 27.59 (0.54) 62.84 -- (4.87) -- 85.02 233.99% 3,843,946 1999 1 19.27 (0.19) 8.80 -- (0.29) -- 27.59 45.33% 536,405 1998 14.63 (0.23) 5.72 -- (0.85) -- 19.27 38.29% 495,697 ADVISOR CLASS 2002 ** 1 $14.75 $(0.08) $ (7.98) -- -- -- $ 6.69 (54.64)%+$ 6,126 2002 1 19.70 (0.23) (4.72) -- -- -- 14.75 (25.13)% 10,288 2001 1,2 34.43 (0.04) (14.69) -- -- -- 19.70 (42.78)%+ 172
Ratio of Net Ratio Ratio of Net Ratio Ratio Investment of Expenses Investment of Expenses of Expenses Income (Loss) to Average Income (Loss) to Average to Average to Average Net Assets to Average Net Assets Net Assets Net Assets (Excluding Net Assets (Excluding (Including (Including Waivers (Excluding Waivers Portfolio Expense Expense Expense and Expense and Expense Turnover Reduction) Reduction) Reduction) Reduction) Reduction) Rate - ----------------------------------------------------------------------------------------------------------- - -------------- PBHG REIT FUND - -------------- PBHG CLASS 2002 ** 1 1.19%* 1.18%* 3.67%* 1.29%* 3.56%* 59.55%+ 2002 15 1.36%* 1.36%* 4.20%* 1.47%* 4.09%* 25.08%+ 2001 13 1.14% 1.14% 4.57% 1.14% 4.57% 139.00% 2000 13 1.36% 1.36% 4.14% 1.36% 4.14% 76.00% 1999 13 1.25% 1.25% 5.12% 1.25% 5.12% 49.00% 1998 13 1.22% 1.22% 3.14% 1.22% 3.14% 80.00% ADVISOR CLASS 2002 **1 1.44%* 1.43%* 3.37%* 1.54%* 3.26%* 59.55%+ 2002 15 1.61%* 1.61%* 3.86%* 1.72%* 3.73%* 25.08%+ 2001 13 1.62% 1.62% 4.07% 1.62% 4.07% 139.00% 2000 13 1.89% 1.89% 3.54% 1.89% 3.54% 76.00% 1999 13 1.73% 1.73% 4.64% 1.73% 4.64% 49.00% 1998 13 1.73% 1.73% 2.65% 1.73% 2.65% 80.00% - --------------------------------- PBHG STRATEGIC SMALL COMPANY FUND - --------------------------------- PBHG CLASS 2002 ** 1 1.50%* 1.49%* (1.15)%* 1.53%* (1.19)%* 60.89%+ 2002 1 1.50% 1.49% (0.96)% 1.50% (0.97)% 118.88% 2001 1 1.50% 1.50% (0.63)% 1.50% (0.63)% 143.04% 2000 1 1.50% 1.50% (0.93)% 1.55% (0.98)% 240.55% 1999 1 1.50% 1.50% (0.97)% 1.54% (1.01)% 140.89% 1998 1.45% 1.45% (0.92)% 1.45% (0.92)% 215.46% ADVISOR CLASS 2002 **1,18 1.75%* 1.75%* (1.35)%* 1.86%* (1.46)%* 60.89%+ - ------------------------------------- PBHG TECHNOLOGY & COMMUNICATIONS FUND - ------------------------------------- PBHG CLASS 2002 ** 1 1.59%* 1.56%* (1.43)%* 1.59%* (1.46)%* 126.08%+ 2002 1 1.39% 1.38% (1.17)% 1.39% (1.19)% 185.33% 2001 1 1.25% 1.25% (0.81)% 1.25% (0.81)% 291.41% 2000 1 1.19% 1.19% (0.96)% 1.19% (0.96)% 362.38% 1999 1 1.34% 1.34% (0.96)% 1.34% (0.96)% 276.07% 1998 1.30% 1.30% (0.91)% 1.30% (0.91)% 259.89% ADVISOR CLASS 2002 ** 1 1.84%* 1.81%* (1.68)%* 1.84%* (1.71)%* 126.08%+ 2002 1 1.64% 1.63% (1.42)% 1.64% (1.44)% 185.33% 2001 1,2 1.50%* 1.50%* (0.58)%* 1.50%* (0.58)%* 291.41%+
The accompanying notes are an integral part of the financial statements. 94
PBHG FUNDS Net Realized and Net Asset Unrealized Distributions Distributions Asset Value NET Gains or from Net from Reverse Value Beginning Investment Redemption (Losses) Investment Capital Stock Split End Total of Period Income Fees on Securities Income Gains (Note 2) of Period Return - -------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - ---------------------------------- PBHG CLASS 2002 ** $10.00 $0.22 --*** -- $(0.22) -- -- $10.00 2.25%+ 2002 19 10.00 0.20 --*** -- (0.20) $(0.04) $0.04 10.00 1.98%+ 2001 10 10.00 0.61 $0.01 -- (0.62) -- -- 10.00 6.34% 2000 10 10.00 0.65 0.01 -- (0.66) -- -- 10.00 6.80% 1999 10,20 10.00 0.11 -- -- (0.11) -- -- 10.00 1.12%+ ADVISOR CLASS 2002 ** 21 $10.00 $0.07 -- -- $(0.07) -- -- $10.00 0.69%+ - ----------------------- PBHG CASH RESERVES FUND - ----------------------- PBHG CLASS 2002 ** $ 1.00 $0.01 -- -- $(0.01) -- -- $1.00 0.56%+ 2002 1.00 0.03 -- -- (0.03) -- -- 1.00 2.55% 2001 1.00 0.06 -- -- (0.06) -- -- 1.00 5.98% 2000 1.00 0.05 -- -- (0.05) -- -- 1.00 4.81% 1999 1.00 0.05 -- -- (0.05) -- -- 1.00 4.84% 1998 1.00 0.05 -- -- (0.05) -- -- 1.00 5.13%
Ratio of Net Ratio Ratio of Net Ratio Ratio Investment of Expenses Investment of Expenses of Expenses Income (Loss) to Average Income (Loss) Net to Average to Average to Average Net Assets to Average Assets Net Assets Net Assets Net Assets (Excluding Net Assets End (Excluding (Including (Including Waivers (Excluding Waivers Portfolio of Period Expense Expense Expense and Expense and Expense Turnover (000) Reduction) Reduction) Reduction) Reduction) Reduction) Rate - -------------------------------------------------------------------------------------------------------------- - ---------------------------------- PBHG IRA CAPITAL PRESERVATION FUND - ---------------------------------- PBHG CLASS 2002 ** $866,703 1.00%* 1.00%* 4.41%* 1.34%* 4.07%* 100.48%+ 2002 19 518,004 1.00%* 1.00%* 4.67%* 1.32%* 4.35%* 116.91%+ 2001 10 71,298 1.00% 1.00% 5.97% 1.62% 5.35% 196.00% 2000 10 24,065 1.03% 1.03% 6.53% 1.84% 5.69% 72.00% 1999 10,20 867 1.00%* 1.00%* 6.67%* 46.23%* (38.56)%* 137.00%+ ADVISOR CLASS 2002 ** 21 $ 101 1.25%* 1.25%* 4.10%* 1.59%* 3.76%* 100.48%+ - ----------------------- PBHG CASH RESERVES FUND - ----------------------- PBHG CLASS 2002 ** $103,892 0.70%* 0.70%* 1.11%* 0.70%* 1.11%* n/a 2002 107,513 0.59% 0.58% 2.92% 0.59% 2.91% n/a 2001 525,463 0.52% 0.52% 5.78% 0.52% 5.78% n/a 2000 579,458 0.69% 0.69% 4.78% 0.69% 4.78% n/a 1999 144,239 0.70% 0.70% 4.72% 0.70% 4.72% n/a 1998 117,574 0.68% 0.68% 5.00% 0.68% 5.00% n/a * Annualized ** For the six months ended September 30, 2002. ***Amount is less than $0.01 per share. + Total return and portfolio turnover have not been annualized. 1 Per share calculations were performed using average shares for the period. 2 The PBHG Large Cap 20 Fund Advisor Class, PBHG Large Cap Growth Fund Advisor Class, PBHG Large Cap Value Fund Advisor Class, PBHG Small Cap Value Fund Advisor Class and PBHG Technology & Communications Fund Advisor Class commenced operations on December 29, 2000. 3 The PBHG New Opportunities Fund and the PBHG Focused Value Fund commenced operations on February 12, 1999. 4 On December 14, 2001, the PBHG Clipper Focus Fund acquired the assets of the Clipper Focus Portfolio. The operations of the PBHG Clipper Focus Fund prior to the acquisition were those of the predecessor fund, the Clipper Focus Portfolio. The Clipper Focus Portfolio was a series of the UAM Funds Trust. 5 For the year or period ended April 30. 6 The PBHG Clipper Focus Fund commenced operations on September 10, 1998. 7 The PBHG Mid-Cap Value Fund and the PBHG Small Cap Value Fund commenced operations on April 30, 1997. 8 The PBHG Mid-Cap Value Fund Advisor Class commenced operations on October 31, 2001. 9 On December 14, 2001, the PBHG Special Equity Fund acquired the assets of the NWQ Special Equity Portfolio. The operations of the PBHG Special Equity Fund prior to the acquisition were those of the predecessor fund, the NWQ Special Equity Portfolio. The NWQ Special Equity Portfolio was a series of the UAM Funds, Inc. 10 For the year or period ended October 31. 11 The PBHG Special Equity Fund commenced operations on November 4, 1997. 12 On January 11, 2002, the PBHG Disciplined Equity Fund acquired the assets of the Analytic Enhanced Equity Fund. The operations of the PBHG Disciplined Equity Fund prior to the acquisition were those of the predecessor fund, the Analytic Enhanced Equity Fund. The Enhanced Equity Fund was a series of the UAM Funds, Inc. II. 13 For the year ended December 31. 14 The PBHG Global Technology & Communications Fund commenced operations on May 31, 2000. 15 On December 14, 2001, the PBHG REIT Fund acquired the assets of the Heitman Real Estate Portfolio. The operations of the PBHG REIT Fund prior to the acquisition were those of the predecessor fund, the Heitman Real Estate Portfolio. The Heitman Real Estate Portfolio was a series of UAM Funds Trust. 16 Historically, the PBHG REIT Fund has distributed to its shareholders amounts approximating dividends received from the REITs. A portion of such distributions may include a return of capital. 17 The total returns prior to the acquisition do not include the sales charge. The Advisor Class of the Fund's predecessor carried a maximum front-end sales charge of 4.75%. Total Returns shown in the chart have been adjusted to reflect the elimination of the front-end sales charge. If the charge had been included, the returns would have been lower. 18 The PBHG Strategic Small Company Fund Advisor Class commenced operations on August 31, 2002. 19 On January 11, 2002, the PBHG IRA Capital Preservation Fund acquired the assets of the IRA Capital Preservation Portfolio. The operations of the PBHG IRA Capital Preservation Fund prior to the acquisition were those of the predecessor fund, the IRA Capital Preservation Portfolio. The IRA Capital Preservation Portfolio was a series of the UAM Funds Trust. 20 The PBHG IRA Capital Preservation Fund commenced operations on August 31, 1999. 21 The PBHG IRA Capital Preservation Fund Advisor Class commenced operations on July 31, 2002.
Amounts designated as "-" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 95 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) 1. ORGANIZATION PBHG Funds (the "Fund"), a Delaware business trust, is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund became a Delaware statutory trust effective July 16, 2001 and changed its name from The PBHG Funds, Inc. The Fund currently offers twenty-one series: the PBHG Core Growth Fund (the "Core Growth Fund"), the PBHG Emerging Growth Fund (the "Emerging Growth Fund"), the PBHG Growth Fund (the "Growth Fund"), the PBHG Large Cap 20 Fund (the "Large Cap 20 Fund"), the PBHG Large Cap Growth Fund (the "Large Cap Growth Fund"), the PBHG Limited Fund (the "Limited Fund"), the PBHG New Opportunities Fund (the "New Opportunities Fund"), the PBHG Select Equity Fund (the "Select Equity Fund"), the PBHG Clipper Focus Fund (the "Clipper Focus Fund"), the PBHG Focused Value Fund (the "Focused Value Fund"), the PBHG Large Cap Value Fund (the "Large Cap Value Fund"), the PBHG Mid-Cap Value Fund (the "Mid-Cap Value Fund"), the PBHG Small Cap Value Fund (the "Small Cap Value Fund"), the PBHG Special Equity Fund (the "Special Equity Fund", the PBHG Disciplined Equity Fund (the "Disciplined Equity Fund"), the PBHG Global Technology & Communications Fund (the "Global Technology & Communications Fund"), the PBHG REIT Fund (the "REIT Fund"), the PBHG Strategic Small Company Fund (the "Strategic Small Company Fund"), the PBHG Technology & Communications Fund (the "Technology & Communications Fund"), the PBHG IRA Capital Preservation Fund (the "IRA Capital Preservation Fund") and the PBHG Cash Reserves Fund (the "Cash Reserves Fund") (each a "Portfolio" and, collectively, the "Portfolios"). Each Portfolio is classified as a diversified management investment company, with the exception of the Large Cap 20, Clipper Focus, Focused Value, Technology & Communications, and Global Technology & Communications Funds, which are classified as non-diversified management investment companies. Each Portfolio's prospectus provides a description of its investment objectives, policies and investment strategies. The Fund is registered to offer two classes of shares, PBHG Class and Advisor Class. Currently, the Advisor Class of shares is only offered by the Growth, Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, Small Cap Value, REIT, Strategic Small Company, Technology & Communications and IRA Capital Preservation Funds. The assets of each Portfolio are segregated, and a shareholders interest is limited to the Portfolio in which shares are held. The Clipper Focus, REIT, IRA Capital Preservation, Special Equity and Disciplined Equity Funds (each an "Acquiring Fund" and collectively the "Acquiring Funds") have each acquired all of the assets of the Clipper Focus, Heitman Real Estate and IRA Capital Preservation Portfolios of UAM Funds Trust, the NWQ Special Equity Portfolio of UAM Funds, Inc. and the Analytic Enhanced Equity Fund of UAM Funds, Inc. II, respectively (each an "Acquired Fund" and collectively the "Acquired Funds"). Following approval by their respective Boards and shareholders, the tax-free reorganizations for the Clipper Focus, NWQ Special Equity and Heitman Real Estate Portfolios took place on December 14, 2001 and the tax-free reorganizations of the Enhanced Equity Fund and the IRA Capital Preservation Portfolio took place on January 11, 2002. All of the shareholders of the Acquired Funds received PBHG Class shares of the respective Acquiring Funds, except that the Advisor Class shareholders of Heitman Real Estate Portfolio received Advisor Class shares of REIT Fund. Each shareholder of an Acquired Fund received a number of shares of the corresponding Acquiring Fund with an aggregate net asset value equal to that of his or her shares of the Acquired Funds. The net assets upon reorganization, and the number of shares issued and redeemed by the corresponding Acquiring Funds, are as follows: NET ASSETS UPON ACQUIRING FUND ACQUIRED FUND ACQUIRING FUND REORGANIZATION SHARES ISSUED SHARES REDEEMED - -------------------------------------------------------------------------------- PBHG Clipper Focus Fund - PBHG Class $323,953,417 22,134,825 22,134,825 PBHG Special Equity Fund PBHG Class/Institutional Class 9,703,207 1,575,743 1,512,416 Advisor Class/Institutional Service Class -- -- 64,928 PBHG Disciplined Equity Fund - PBHG Class 95,694,351 9,274,069 9,274,069 PBHG REIT Fund PBHG Class/Institutional Class 60,671,839 7,022,527 7,022,527 Advisor Class/Advisor Class 19,046,055 2,212,278 2,212,278 PBHG IRA Capital Preservation Fund - PBHG Class 190,638,690 19,063,848 19,063,848 The assets of the Acquired Funds prior to the reorganization and the unrealized gain/(loss) included in the net assets were as follows:
UNREALIZED NET ASSETS GAIN/(LOSS) BEFORE INCLUDED IN REORGANIZATION NET ASSETS - ----------------------------------------------------------------------------------- UAM Funds Trust Clipper Focus Portfolio1 $323,953,417 $14,367,725 UAM Funds, Inc. NWQ Special Equity Portfolio1 19,703,207 173,989 UAM Funds, Inc. II Analytic Enhanced Equity Fund1 95,694,351 692,256 UAM Funds Trust Heitman Real Estate Portfolio1 79,717,894 3,983,453 UAM Funds Trust IRA Capital Preservation Portfolio1 190,638,690 (713,818)
1DENOTES THE SURVIVING OR CONTINUING PORTFOLIO FOR PURPOSES OF MAINTAINING THE FINANCIAL STATEMENTS AND PERFORMANCE HISTORY IN THE POST-REORGANIZATION PORTFOLIOS. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies followed by the Portfolios. SECURITY VALUATION -- Investment securities of the Portfolios that are listed on a securities exchange or quoted on a national market system, and for which market quotations are readily available, are valued at the last quoted sales price at the close of trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time). If there is no such reported sale, these securities and unlisted securities for which market quotations are not readily available, are valued at the last bid price. However, debt securities (other than short-term obligations), including listed issues, are valued on the basis of valuations furnished by a pricing service which utilizes electronic data processing techniques to determine valuations for normal institutional size trading units of debt securities, without exclusive reliance upon exchange or over-the-counter prices. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value. Foreign securities are valued based upon quotations from the primary market in which they are traded, and are translated from the local currency into U.S. dollars using current exchange rates. In addition, if quotations, including the Wrapper Agreements, are not readily available, or if the values have been materially affected by events occurring after the closing of a foreign market, assets may be valued by another method that the Board of Trustees believes accurately reflects fair value. The values of investment securities held by the Cash Reserves Fund are stated at amortized cost, which approximates market value. Under this valuation method, acquisition discounts and premiums are accreted and amortized ratably to maturity and are included in interest income. Wrapper Agreements will generally be valued at the difference between the Book Value and Market Value (plus accrued interest) on the applicable covered assets and will either be reflected as an asset or liability of the IRA Capital Preservation Fund. The Board of Trustees has determined fair value procedures for the Wrapper Agreements. 96 PBHG FUNDS SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are accounted for on the date the securities are purchased or sold (trade date). Dividend income and distributions to shareholders are recognized on the ex-dividend date; interest income is recognized on the accrual basis and includes amortization of premiums and accretion of discounts on investments. Costs used in determining realized capital gains and losses on the sale of investment securities are those of the specific securities sold adjusted for the accretion and amortization of acquisition discounts and premiums during the respective holding periods. DIVIDENDS -- Dividends from net investment income for the Portfolios are declared annually, if available, with the exception of the REIT, IRA Capital Preservation and Cash Reserves Funds. Dividends from net investment income for the REIT Fund are declared and paid on a quarterly basis. Dividends from net investment income for the IRA Capital Preservation and Cash Reserves Funds are declared daily and paid monthly. Distributions of net realized capital gains, for each Portfolio, are generally made to shareholders annually, if available. To maintain a stable NAV, the IRA Capital Preservation Fund may have to declare and pay dividends in amounts that are not equal to the amount of net investment income it actually earns. This may cause the Portfolio to take some or all of the following actions: (i) if the Portfolio distributes more money than it actually earned through its investments, it may have to make a distribution that may be considered a return of capital or (ii) if the income the Portfolio receives exceeds the amount of dividends distributed, the Fund may have to distribute that excess income to shareholders and declare a reverse split of its shares. In order to comply with requirements of the Internal Revenue Code applicable to regulated investment companies, the Portfolio is required to distribute accumulated net realized gains, if any, on an annual basis. When such distributions are made, the immediate impact is a corresponding reduction in net asset value per share. Given the objective of the Portfolio to maintain a stable net asset value of $10 per share, the Portfolio intends to declare a reverse stock split immediately subsequent to any such distributions at a rate that will cause the total number of shares held by each shareholder, including shares acquired on reinvestment of that distribution to remain the same as before the distribution was paid and in effect reinstate a net asset value of $10 per share. On December 12, 2001, the IRA Capital Preservation Fund declared a capital gain distribution to shareholders of record on December 12, 2001 in the amount of $0.0186 per share (the short-term capital gain distribution was $0.0178 per share and the long-term capital gain distribution was $0.0008 per share). On the same day, the Portfolio declared a reverse share split with a factor of 0.99814 in order to restore the Portfolio's net asset value per share to $10.00. On January 9, 2002, the IRA Capital Preservation Fund declared a capital gain distribution to shareholders of record on January 9, 2002 in the amount of $0.0174 per share (the short-term capital gain distribution was $0.0136 per share and the long-term capital gain distribution was $0.0038 per share). On the same day, the Portfolio declared a reverse share split with a factor of 0.99826 in order to restore the Portfolio's net asset value per share to $10.00. FOREIGN WITHHOLDING TAXES -- The Funds may be subject to taxes imposed by countries in which they invest with respect to their investments in issuers existing or operating in such countries. Such taxes are generally based on income earned. The Portfolio's accrue such taxes when the related income is earned. NET ASSET VALUE PER SHARE -- The value of an individual share in a fund is computed by adding the value of the proportionate interest of each class in a Portfolio's securities, cash and other assets, subtracting the actual and accrued liabilities of the class and dividing the result by the number of outstanding shares of the class. REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase agreements are held by a third party custodian bank until the respective agreements mature. Provisions of the repurchase agreements and procedures adopted by the Fund's Board of Trustees require that the market value of the collateral including accrued interest thereon, is sufficient in the event of default by the counterparty. If the counterparty defaults and the value of the collateral declines, or if the counterparty enters into insolvency proceedings, realization of the collateral by a Portfolio may be delayed or limited. TBA PURCHASE COMMITMENTS -- The IRA Capital Preservation Fund may enter into "TBA" (to be announced) purchase commitments to purchase securities for a fixed price at a future date, typically not exceeding 45 days. TBA purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to settlement date, which risk is in addition to the risk of decline in the value of the Portfolio's other assets. Unsettled TBA purchase commitments are valued at the current market value of the underlying securities, according to the procedures described under "Security Valuation" above. MORTGAGE DOLLAR ROLLS -- The IRA Capital Preservation Fund may enter into mortgage dollar rolls (principally using TBA's) in which the Portfolio sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Portfolio accounts for such dollar rolls as purchases and sales and receives compensation as consideration for entering into the commitment to repurchase. The Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that the Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. The Portfolio engages in dollar rolls for the purpose of enhancing its yield, principally by earning a negotiated fee. FOREIGN CURRENCY TRANSLATION-- The books and records of the Global Technology & Communications Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, other assets and liabilities at the current rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Global Technology & Communications Fund does not isolate that portion of gains and losses on investment securities that is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. The Global Technology & Communications Fund reports gains and losses on foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income or loss for Federal income tax purposes. WRAPPER AGREEMENTS -- The IRA Capital Preservation Fund intends to enter into Wrapper Agreements with insurance companies, banks or other financial institutions ("Wrap Providers") that are rated, at the time of purchase, in one of the top two rating categories by a rating agency. A Wrapper Agreement is a derivative instrument that is designed to protect a portion of the Portfolio from investment losses and, under most circumstances, permit the Portfolio to maintain a constant NAV per share. There is no active trading market for Wrapper Agreements, and none is expected to develop; therefore, they will be considered illiquid. Pursuant to the terms of the Wrapper Agreements, the sub-adviser will manage the Portfolio's securities to have an overall duration between 1.5 and 4.0 years. In addition, the terms of the Wrapper Agreements require the Portfolio to maintain minimum cash and cash equivalent balances. Throughout the term of the Wrapper Agreements, the Portfolio will pay the Wrap Providers an annual fee based on the Wrapper Agreements book value balance. 97 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Continued - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) The crediting rate used in computing book value is the actual yield of the covered assets, plus or minus the amortization of unrealized gain or loss on the covered assets, based on fluctuations in the market value of the covered assets. The crediting rate is calculated by a formula specified by each of the Wrapper Agreements and is adjusted periodically. A default by the issuer of a Portfolio security or a Wrap Providers on its obligations may result in a decrease in the value of the Portfolio assets and, consequently, the shares. Wrapper Agreements generally do not protect the Portfolio from loss if an issuer of Portfolio securities defaults on payments of interest or principal. Additionally, a Portfolio shareholder may realize more or less than the actual investment return on the Portfolio securities depending upon the timing of the shareholder's purchases and redemption of shares, as well as those of other shareholders. FUTURES CONTRACTS -- The Disciplined Equity Fund utilizes futures contracts primarily to hedge against changes in security prices. Upon entering into a futures contract, the Portfolio will deposit securities for the initial margin with its custodian in a segregated account. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying instrument, are made or received by the Portfolio each day (daily variation margin) and are recorded as unrealized gains or losses until the contracts are closed. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of ) the closing transactions and the Portfolio's basis in the contract. Risks of entering into futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. Second, it is possible that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Portfolio could lose more than the original margin deposit required to initiate the futures transaction. The Disciplined Equity Fund had the following futures contracts open as of September 30, 2002: UNREALIZED CONTRACT APPRECIATION/ CONTRACT NUMBER OF VALUE (DEPRECIATION) DESCRIPTION CONTRACTS (000) EXPIRATION (000) - -------------------------------------------------------------------------------- S&P 500 Composite Index 13 $2,649 Dec-02 $(164) S&P 500 Composite Index E-Mini 7 (285) Dec-02 17 ------ $(147) ===== FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Global Technology & Communications Fund may enter into forward foreign currency exchange contracts. Foreign currency exchange contracts are recorded at mar-ket value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Realized gains or losses arising from such transactions are included in net realized gain (loss) from foreign currency transactions. As of September 30, 2002, there were no outstanding forward foreign currency contracts. OTHER -- Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are prorated to the Portfolios on the basis of relative net assets. Class specific expenses, such as 12b-1 service fees, are borne by that class. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day. The Fund has an arrangement with the transfer agent, DST Systems, Inc., whereby interest earned on uninvested cash balances is used to offset a portion of the transfer agent expense. The transfer agent expenses shown in the Statement of Operations are in total and do not reflect the expense reductions. The IRA Capital Preservation Fund retains a redemption fee of 2.00% on redemptions of capital shares held for less than twelve months. For the six months ended September 30, 2002, there were $89,156 in redemption fees retained. DIRECTED BROKERAGE -- Some Portfolios direct certain portfolio trades to brokers who pay a portion of their expenses. Under this arrangement, the following Portfolios had expenses reduced by the amounts shown below during the six months ended September 30, 2002: Core Growth Fund $ 6,104 Emerging Growth Fund 4,863 Growth Fund 211,835 Large Cap 20 Fund 42,333 Large Cap Growth Fund 20,813 Limited Fund 645 New Opportunities Fund 515 Select Equity Fund 98,912 Clipper Focus Fund 99,337 Focused Value Fund 5,551 Large Cap Value Fund 392,534 Mid-Cap Value Fund 130,549 Small Cap Value Fund 18,463 Global Technology & Communications Fund 5,518 REIT Fund 5,166 Strategic Small Company Fund 3,150 Technology & Communications Fund 105,150 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH AFFILIATES The Fund and Pilgrim Baxter & Associates, Ltd. (the "Adviser") are parties to an Investment Advisory Agreement (the "Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is paid a monthly fee that is calculated daily and paid monthly, at an annual rate based on the average daily net assets of each Portfolio. In the interest of limiting expenses of the Portfolios, the Adviser has entered into separate expense limitation agreements with the Fund ("Expense Limitation Agreements"), with respect to the PBHG Class and Advisor Class Shares of the Core Growth, Large Cap 20, Limited, New Opportunities, Clipper Focus, Focused Value, Large Cap Value, Mid-Cap Value, Small Cap Value, Special Equity, Disciplined Equity, Global Technology & Communications, REIT, Strategic Small Company and IRA Capital Preservation Funds, pursuant to which the Adviser has agreed to waive or limit its fees and to assume other expenses of these Portfolios to the extent necessary to limit the total annual expenses to a specified percentage of the Portfolios' average daily net assets, exclusive of certain expenses such as brokerage commissions, fees and expenses incurred under the Rule 12b-1 service plan and extraordinary expenses. In connection with Old Mutual plc's acquisition of Pilgrim Baxter's parent company, Old Mutual and Pilgrim Baxter have agreed to maintain these expense limitation agreements until March 31, 2003. With respect to the Clipper Focus, Special Equity, Disciplined Equity, REIT and IRA Capital Preservation Funds, the Adviser may seek reimbursement by those Portfolios for any advisory fees waived or limited and other expenses paid by the Adviser to the Acquiring Funds after September 25, 2002. With respect to the other Portfolios, the Adviser may seek reimbursement for advisory fees waived or limited and other expenses paid by the Adviser pursuant to the Expense Limitation Agreements during the previous two fiscal years. In all cases, no reimbursement by a Portfolio will be made unless: (i) the Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense ratio is less than the specified percentage of the Portfolio's average daily net assets, and (iii) the payment of such reimbursement was approved by the Board of Trustees. 98 PBHG FUNDS The advisory fee and expense limitations are as follows: ADVISER EXPENSE FEE LIMITATION - -------------------------------------------------------------------------------- Core Growth Fund 0.85% 1.50% Emerging Growth Fund 0.85% n/a Growth Fund 0.85% n/a Large Cap 20 Fund 0.85% 1.50% Large Cap Growth Fund 0.75% n/a Limited Fund 1.00% 1.50% New Opportunities Fund 1.00% 1.50% Select Equity Fund 0.85% n/a Clipper Focus Fund 1.00% 1.50% Focused Value Fund 0.85% 1.50% Large Cap Value Fund 0.65% 1.50% Mid-Cap Value Fund 0.85% 1.50% Small Cap Value Fund 1.00% 1.50% Special Equity Fund 1.00% 1.50% Disciplined Equity Fund 0.70% 1.50% Global Technology & Communications Fund 1.50% 2.15% REIT Fund 0.85% 1.50% Strategic Small Company Fund 1.00% 1.50% Technology & Communications Fund 0.85% n/a IRA Capital Preservation Fund* 0.60% 1.25%* Cash Reserves Fund 0.30% n/a * Effective September 26, 2002 the Adviser has agreed to voluntarily waive advisory fees to reduce the expense limitation to 1.00%. The Adviser is entitled to receive the adviser fee disclosed in the above table, however the Adviser contractually agreed to, and did, waive a portion of its fee and receive a lower management fee for the Special Equity, Disciplined Equity, REIT and IRA Capital Preservation Funds until September 25, 2002. Effective September 26, 2002, the Adviser began receiving the full fee noted in the table above for these Portfolios. In addition, the expense limitations set forth for the Special Equity, Disciplined Equity, REIT, and IRA Capital Preservation Funds became effective September 26, 2002. Prior to that date, a lower expense limitation was in effect. At September 30, 2002, the amount of advisory fee waiver and reimbursement of third party expenses by the Adviser subject to possible reimbursement for the Core Growth, Small Cap Value, Strategic Small Company, and Global Technology & Communications Funds was $21,767, $59,881, $11,038, and $203,259, respectively. Prior to May 1, 2002, Pilgrim Baxter Value Investors, Inc. ("PBVI"), a wholly-owned subsidiary of the Adviser served as the sub-adviser to the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and the Strategic Small Company Funds. For its services provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and the Fund, PBVI received a fee from the Adviser at an annual rate of 0.50%, 0.50%, 0.50%, 0.40% and 0.50%, respectively, of the average daily net assets of the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value and the Strategic Small Company Funds. PBVI received no fees directly from the Large Cap Value, Mid-Cap Value, Small Cap Value, Focused Value or the Strategic Small Company Funds. On May 1, 2002, the assets of PBVI were merged into the Adviser. After this merger, the Adviser no longer pays sub-adviser fees to PBVI. The merger had no impact on the management of the Funds. Wellington Management Company, LLP ("WMC") serves as the sub-adviser to the Cash Reserves Fund. For its services provided pursuant to the Investment Sub-Advisory Agreement with the Adviser and the Fund, WMC is entitled to receive a fee from the Adviser, computed daily and paid monthly, at an annual rate equal to 0.075% of the Cash Reserves Fund's average daily net assets up to and including $500 million and 0.020% of the Cash Reserves Fund's average daily net assets over $500 million, but subject to a minimum annual fee of $50,000. WMC may, from time to time, waive all or a portion of its fee from the Adviser. WMC receives no fees directly from the Cash Reserves Fund. Pacific Financial Research, Inc. ("PFR") serves as the sub-adviser to the Clipper Focus Fund. For its services provided pursuant to the sub-advisory agreement, PFR is entitled to receive from the Adviser a sub-advisory fee equal to 0.40% of the Portfolio's average daily net assets. PFR receives no fees directly from the Clipper Focus Fund. NWQ Investment Management Company ("NWQ") serves as the sub-adviser to the Special Equity Fund. For the services it provides pursuant to the sub-advisory agreement, NWQ is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, NWQ received from the Adviser a sub-advisory fee equal to 0.85% of the assets transferred to the Special Equity Fund in connection with the reorganization and 0.425% of the average daily net assets after the reorganization (less the amount of any expense reimbursements) on other assets of the Portfolio. NWQ receives no fees directly from the Special Equity Fund. Analytic Investors, Inc. ("Analytic") serves as the sub-adviser to the Disciplined Equity Fund. For the services it provides pursuant to the sub-advisory agreement, Analytic is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Analytic received from the Adviser a sub-advisory fee equal to 0.60% of the assets transferred to the Disciplined Equity Fund in connection with the reorganization and 0.30% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Analytic receives no fees directly from the Disciplined Equity Fund. Heitman Real Estate Securities LLC ("Heitman") serves as the sub-adviser to the REIT Fund. For the services it provides pursuant to the sub-advisory agreement, Heitman is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Heitman received from the Adviser a sub-advisory fee equal to 0.75% of the first $100 million of the assets transferred to the REIT Fund in connection with the reorganization, 0.65% of the assets transferred to the REIT Fund in excess of $100 million and 0.37% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Heitman receives no fees directly from the REIT Fund. Dwight Asset Management Company ("Dwight") serves as the sub-adviser to the IRA Capital Preservation Fund. For the services it provides pursuant to the sub-advisory agreement, Dwight is entitled to receive from the Adviser a sub-advisory fee that will be equal to one-half of the advisory fee received by the Adviser (less the amount of any expense reimbursements) after September 25, 2002. Prior to that date, Dwight received from the Adviser a sub-advisory fee equal to 0.50% of the assets transferred to the IRA Capital Preservation Fund in connection with the reorganization and 0.25% of the average daily net assets (less the amount of any expense reimbursements) on other assets of the Portfolio. Dwight receives no fees directly from the IRA Capital Preservation Fund. PBHG Fund Services (the "Administrator"), a wholly owned subsidiary of the Adviser, provides the Fund with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. For these administrative services, the Administrator receives a fee, which is calculated daily and paid monthly, at an annual rate of 0.15% of the average daily net assets of each Portfolio. SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company, is the owner of all beneficial interest in SEI Mutual Funds Services (the "Sub-Administrator"). The Sub-Administrator assists the Administrator in providing administrative services to the Fund. For acting in this 99 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Continued - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) capacity, the Administrator pays the Sub-Administrator the following fees. The fee will be the greater of $50,000 per portfolio or at the annual rate of 0.0165% of the first $10 billion of the average daily net assets of (i) the Fund and (ii) PBHG Insurance Series Fund, another fund family managed by the Adviser (collectively known as the "PBHG Fund Family"), 0.0125% of the next $10 billion of the average daily net assets of each portfolio in the PBHG Fund Family, and 0.0100% of the average daily net assets of each portfolio in the PBHG Fund Family in excess of $20 billion. SEI Investments has agreed to act as an agent in placing repurchase agreements for all Portfolios, except the Cash Reserves Fund. Listed below are the amounts SEI Investments earned for its services from each Portfolio, excluding the Cash Reserves Fund, for the six months ended September 30, 2002, and are reflected as a reduction of interest income. Core Growth Fund $ 476 Emerging Growth Fund 4,583 Growth Fund 29,150 Large Cap 20 Fund 8,358 Large Cap Growth Fund 4,044 Limited Fund 1,591 New Opportunities Fund 1,742 Select Equity Fund 10,679 Clipper Focus Fund 7,322 Focused Value Fund 416 Large Cap Value Fund 2,988 Mid-Cap Value Fund 4,210 Small Cap Value Fund 1,628 Special Equity Fund 220 Disciplined Equity Fund 217 Global Technology & Communications Fund 258 REIT Fund 599 Strategic Small Company Fund 1,112 Technology & Communications Fund 4,255 IRA Capital Preservation Fund 32,596 The Fund has entered into a distribution agreement (the "Distribution Agreement") with PBHG Fund Distributors (the "Distributor") a wholly owned subsidiary of the Adviser. The Distributor receives no compensation for serving in such capacity. The Fund has adopted a Service Plan (the "Plan") on behalf of the Advisor Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan provides for the payment of a service fee by the Fund of 0.25% of the average daily net assets of the Advisor Class shares to the Distributor for providing or arranging with and paying others to provide personal service to shareholders of Advisor Class Shares and/or the maintenance of those accounts. Currently, only the Growth, Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, Small Cap Value, REIT, Strategic Small Company, IRA Capital Preservation and Technology & Communications Funds offer Advisor Class Shares. Of the service fees the Distributor received for the six months ended September 30, 2002, it retained $79, $81, $115, $139, $119, $8,356, $20, $21 and $128 from the Large Cap 20, Large Cap Growth, Large Cap Value, Mid-Cap Value, Small Cap Value, REIT, Strategic Small Company, IRA Capital Preservation and Technology & Communications Funds, respectively. DST Systems, Inc. serves as the transfer agent and dividend disbursing agent of the Fund. From time to time, the Fund may pay amounts to third parties that provide sub-transfer agency and other administrative services relating to the Fund to persons who beneficially own interests in the Fund. Wachovia Bank, National Association ("Wachovia", formerly known as First Union National Bank), serves as the custodian for each of the Portfolios. Prior to May 1, 2002, the Northern Trust Company served as the custodian for the Global Technology & Communications Fund. Effective May 1, 2002, Wachovia serves as custodian for the Global Technology & Communications Fund. The Fund has entered into a shareholder servicing agreement with PBHG Fund Services to provide shareholder support and other shareholder account-related services. PBHG Fund Services has, in turn, contracted with PBHG Shareholder Services, Inc. ("PBHGSS") to assist in the provision of those services. PBHGSS received no fees directly from the Portfolios. The shareholder service fees are reviewed semi-annually and approved annually by the Board of Trustees. Shareholder service fees (including out of pocket expenses) paid to PBHG Fund Services for the six months ended September 30, 2002 were: AMOUNT ------ Core Growth Fund $ 48,649 Emerging Growth Fund 156,114 Growth Fund 515,293 Large Cap 20 Fund 161,405 Large Cap Growth Fund 79,994 Limited Fund 24,296 New Opportunities Fund 15,532 Select Equity Fund 225,443 Clipper Focus Fund 45,547 Focused Value Fund 14,147 Large Cap Value Fund 65,845 Mid-Cap Value Fund 74,235 Small Cap Value Fund 34,780 Special Equity Fund 3,876 Disciplined Equity Fund 4,609 Global Technology & Communications Fund 57,228 REIT Fund 11,308 Strategic Small Company Fund 24,897 Technology & Communications Fund 391,883 IRA Capital Preservation Fund 8,568 Cash Reserves Fund 54,267 On April 4, 2000, the Board of Trustees approved an agreement between the Fund and PBHG Fund Services to provide shareholder related web development and maintenance services. For its services over the six months ended September 30, 2002, PBHG Fund Services received a fee of $296,524, which was allocated to each fund quarterly based on average net assets. This amount is included in transfer agent expense on the Statement of Operations. The fee is reviewed semi-annually and approved annually by the Board of Trustees. Officers and trustees of the Fund who are or were officers of the Adviser, Administrator, Sub-Administrator and the Distributor received no compensation from the Fund. 4. INVESTMENT TRANSACTIONS The cost of securities purchased and the proceeds from securities sold, other than short-term investments, for the Portfolios, excluding the Cash Reserves Fund, for the six months ended September 30, 2002 were as follows: PURCHASES SALES (000) (000) ------------ ------------- Core Growth Fund $ 54,089 $ 56,169 Emerging Growth Fund 226,206 254,238 Growth Fund 1,300,315 1,480,855 Large Cap 20 Fund 222,098 248,534 Large Cap Growth Fund 134,410 147,518 Limited Fund 40,075 44,076 New Opportunities Fund 55,236 59,406 Select Equity Fund 622,811 646,152 Clipper Focus Fund 380,414 217,681 Focused Value Fund 42,537 41,984 100 PBHG FUNDS PURCHASES SALES (000) (000) ------------ -------- Large Cap Value Fund $ 889,830 $950,882 Mid-Cap Value Fund 343,931 379,752 Small Cap Value Fund 113,277 173,596 Special Equity Fund 10,803 7,985 Disciplined Equity Fund 88,739 105,138 Global Technology & Communications Fund 21,137 23,689 REIT Fund 74,520 58,161 Strategic Small Company Fund 45,555 42,779 Technology & Communications Fund 469,969 498,902 IRA Capital Preservation Fund 402,530 99,299 During the period ended September 30, 2002, the IRA Capital Preservation Fund purchased U.S. Government Securities of $680,032 and received proceeds from the sale of U.S. Government Securities of $584,047. 5. FEDERAL TAX INFORMATION Each Portfolio has qualified and intends to continue to qualify as a regulated investment company for Federal income tax purposes and to distribute all of its taxable income and net capital gains. Accordingly, no provision has been made for Federal income taxes. Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. Federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. Accordingly, the following permanent differences as of March 31, 2002, attributable to certain net operating losses which for tax purposes, are not available to offset future income, were reclassified to the following accounts:
INCREASE/ INCREASE/ (DECREASE) (DECREASE) INCREASE/ ACCUMULATED UNDISTRIBUTED (DECREASE) NET REALIZED NET INVESTMENT PAID IN-CAPITAL GAIN INCOME (000) (000) (000) ---------------- ---------- --------------- Core Growth Fund $ (741) -- $ 741 Emerging Growth Fund (5,529) -- 5,529 Growth Fund (24,769) -- 24,769 Large Cap 20 Fund (2,816) -- 2,816 Large Cap Growth Fund (1,929) -- 1,929 Limited Fund (832) -- 832 New Opportunities Fund (624) -- 624 Select Equity Fund (5,253) -- 5,253 Clipper Focus Fund (11) -- 11 Focused Value Fund (141) -- 141 Mid-Cap Value Fund (564) -- 564 Small Cap Value Fund (2,015) -- 2,015 Special Equity Fund (55) $(24) 79 Disciplined Equity Fund (38) -- 38 Global Technology & Communications Fund (731) -- 731 Strategic Small Company Fund (878) -- 878 Technology & Communications Fund (9,139) -- 9,139 IRA Capital Preservation Fund (234) -- 234 These reclassifications had no effect on net assets or net asset value per share.
At March 31, 2002, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:
EXPIRING MARCH 31, ------------------------------------------------------------------ 2006 2007 2008 2009 2010 TOTAL (000) (000) (000) (000) (000) (000) ------ -------- -------- ------------ ----------- ------------- Core Growth Fund -- -- -- $ 2,944 $ 65,057 $ 68,001 Emerging Growth Fund -- -- -- -- 271,959 271,959 Growth Fund -- -- -- -- 1,372,228 1,372,228 Large Cap 20 Fund -- -- -- -- 264,338 264,338 Large Cap Growth Fund -- -- -- 10,837 114,491 125,328 Limited Fund -- -- -- 7,211 7,211 New Opportunities Fund -- -- -- 137 23,166 23,303 Select Equity Fund -- -- -- 226,961 877,966 1,104,927 Focused Value Fund -- -- -- -- 3,069 3,069 Large Cap Value Fund -- -- -- -- 50,113 50,113 Mid-Cap Value Fund -- -- -- -- 10,427 10,427 Small Cap Value Fund -- -- -- -- 4,539 4,539 Special Equity Fund -- -- -- 134 -- 134 Disciplined Equity Fund $2,263 $9,344 $195 -- 174 11,976 Global Technology & Communications Fund -- -- -- 3,800 65,791 69,591 Strategic Small Company Fund -- -- -- -- 10,148 10,148 Technology & Communications Fund -- -- -- 117,211 1,948,853 2,066,064 Cash Reserves Fund -- -- 4 -- 5 9
101 PBHG FUNDS NOTES TO FINANCIAL STATEMENTS -- Concluded - -------------------------------------------------------------------------------- As of September 30, 2002 (UNAUDITED) At September 30, 2002, the total cost of securities and the net realized gains or losses on securities sold for Federal income tax purposes were different from amounts reported for financial reporting purposes. The Federal tax cost, aggregate gross unrealized appreciation and depreciation of securities held by each Portfolio, excluding Cash Reserves Fund, at September 30, 2002 were as follows:
NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION/ TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) (000) (000) (000) (000) -------- -------- ----------- -------------- Core Growth Fund $ 36,791 $ 3,061 $ (2,441) $ 620 Emerging Growth Fund 234,193 22,045 (54,508) (32,463) Growth Fund 1,315,208 143,796 (127,896) 15,900 Large Cap 20 Fund 220,228 5,877 (20,978) (15,101) Large Cap Growth Fund 193,106 12,112 (22,545) (10,433) Limited Fund 43,179 4,602 (7,324) (2,722) New Opportunities Fund 29,091 3,030 (3,091) (61) Select Equity Fund 256,606 12,968 (23,914) (10,946) Clipper Focus Fund 722,582 11,630 (155,686) (144,056) Focused Value Fund 30,222 431 (5,584) (5,153) Large Cap Value Fund 384,086 3,396 (59,239) (55,843) Mid-Cap Value Fund 355,016 10,461 (70,989) (60,528) Small Cap Value Fund 150,753 13,127 (28,484) (15,357) Special Equity Fund 24,523 489 (6,220) (5,731) Disciplined Equity Fund 66,345 1,509 (12,603) (11,094) Global Technology & Communications Fund 21,851 183 (6,976) (6,793) REIT Fund 105,098 3,038 (10,060) (7,022) Strategic Small Company Fund 64,025 6,853 (11,548) (4,695) Technology & Communications Fund 330,565 2,745 (83,654) (80,909) IRA Capital Preservation Fund 1,003,347 3,594 (17,366) (13,772)
6. CONCENTRATIONS/RISKS The Cash Reserves Fund invests primarily in a portfolio of money market instruments maturing in 397 days or less whose ratings are within one of the two highest ratings categories assigned by a nationally recognized statistical rating agency, or, if not rated, are believed to be of comparable quality. The ability of the issuers of the securities held by the Portfolio to meet their obligations may be affected by economic developments in a specific industry, state or region. Certain funds invest a high percentage of their assets in specific sectors of the market, especially technology, health care, consumer cyclical, consumer non-cyclical, services and financial, in order to achieve a potentially greater investment return. As a result, the economic, political and regulatory developments in a particular sector of the market, 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 in a particular sector. In addition, the Global Technology & Communications, REIT and Technology & Communications Funds are concentrated which means they will invest 25% or more of their net assets in specific industries in order to achieve a potentially greater investment return. The Global Technology & Communications Fund invests in securities of foreign issuers in various countries. These investments may involve certain considerations and risks not typically associated with investments in the United States, as a result of, among other factors, the possibility of future political and economic developments and the level of governmental supervision and regulation of securities markets in the respective countries. 7. LINE OF CREDIT Except for the PBHG Cash Reserves Fund, each Portfolio may borrow an amount up to its prospectus defined limitations, from a $250 million committed line of credit available to the Funds in the PBHG Fund Family. Prior to June 5, 2002 the line of credit available to the Funds was $500 million. Borrowings from the line of credit will bear interest at the Federal Funds Rate plus 0.50%. The PBHG Fund Family pays an annual commitment fee of 0.10% of the outstanding committed amount. Each Fund is allocated a portion of this fee based on its net assets relative to the net assets of the PBHG FundFamily. The Funds had no outstanding borrowings at September 30, 2002 or at any time during the six months ended September 30, 2002. 8. SUBSEQUENT EVENTS On August 1, 2002, The John Nuveen Company acquired NWQ Investment Management Company, the sub-adviser to the PBHG Special Equity Fund, from Old Mutual plc. As a result of this transaction, the Board of Trustees of PBHG Funds has called a special meeting of PBHG Special Equity Fund shareholders to be held on December 5, 2002. At the meeting, PBHG Special Equity shareholders will be asked to approve a proposal to merge the PBHG Special Equity Fund into the Nuveen NWQ Multi-Cap Value Fund of Nuveen Investment Trust. If approved, the transaction will be completed at the close of business on December 6, 2002. The Board of Trustees of PBHG Funds has called a special meeting of PBHG Global Technology & Communications Fund shareholders to be held on February 27, 2003 to approve a proposal to merge the PBHG Global Technology & Communications Fund into the PBHG Technology & Communications Fund. If approved, the transaction will be completed at the close of business on February 28, 2003. 102 PBHG FUNDS
TRUSTEES AND OFFICERS OF THE TRUST - ------------------------------------------------------------------------------------------------------------------------------------ As of September 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES* - ------------------------------------------------------------------------------------------------------------------------------------ TERM OF NUMBER OF POSITION OFFICE AND PORTFOLIOS IN OTHER HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS NAME, ADDRESS, AND AGE THE FUND TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD - ------------------------------------------------------------------------------------------------------------------------------------ John R. Bartholdson Trustee Trustee Chief Financial Officer, The Triumph 30 Director, The Triumph 1255 Drummers Lane, since Group, Inc. (manufacturing) since 1992. Group, Inc. since Suite 200 1997 1992 Wayne, PA 19087 (58) - ------------------------------------------------------------------------------------------------------------------------------------ Jettie M. Edwards Trustee Trustee Consultant, Syrus Associates 30 Trustee, Provident 76 Seaview Drive, since (business andmarketing consulting Investment Counsel Santa Barbara, 1997 firm) since 1986. Trust (investment (56) company-5 California 93108 Portfolios) since 1992. Trustee, EQ Advisors Trust (investment company- 39 Portfolios) since 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Albert A. Miller Trustee Trustee Senior Vice President, Cherry & Webb, 30 None 7 Jennifer Drive since CWT Specialty Stores 1995-2000, Holmdel, New Jersey 07733 1997 Advisor and Secretary, the Underwoman (68) Shoppes Inc. (retail clothing stores) 1980 to 2002. Merchandising Group Vice President, R.H. Macy & Co. (retail department stores), 1958-1995. Retired - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES* - ------------------------------------------------------------------------------------------------------------------------------------ Harold J. Baxter** Chairman of Trustee Chairman, Chief Executive Officer and 30 Director, Old Mutual 1400 Liberty Ridge Drive the Board since Director, Pilgrim Baxter & Associates, (US) Holdings, Inc. Wayne, PA 19087-5593 and Trustee 1997 Ltd. since 1982. Trustee, the Administrator since 1996 (56) since May 1996. Chairman, Chief Executive Officer and Director, Pilgrim Baxter Value Investors, Inc. June 1996 to May 1, 2002. Trustee, PBHG Fund Distributors since January 1998. - ------------------------------------------------------------------------------------------------------------------------------------ *Trustee of the Trust until such time as his or her successor is duly elected and appointed. **Mr. Baxter is a trustee who may be deemed to be an "interested person" of the Trust, as that term is defined in the 1940 Act, because he is a Director of the Adviser. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS* - ------------------------------------------------------------------------------------------------------------------------------------ Gary L. Pilgrim President President President and Director, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive since Associates, Ltd. since 1982. Trustee, the Wayne, PA 19087-5593 PBHG Fund Services since May 1996. (61) 1997 President and Director, Pilgrim Baxter Value Investors, Inc. June 1996 to May 1, 2002. - ------------------------------------------------------------------------------------------------------------------------------------ Lee T. Cummings Treasurer, Treasurer Vice President, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive Chief Chief Associates, Ltd. since 2001 And Director Wayne, PA 19087-5593 Financial Financial a of Mutual Fund Operations, Pilgrim (39) Officer, Officer, Baxter & Associates, Ltd., 1996-2001 Controller Controller President, PBHG Shareholder Services, since Inc. since 2001. President, PBHG Fund 1997 Distributors since 1999 and Treasurer, PBHG Fund Services, May 1996-1999. President, PBHG Fund Services since December 1998. - ------------------------------------------------------------------------------------------------------------------------------------ John M. Zerr Vice Vice Senior Vice President, Pilgrim Baxter & N/A N/A 1400 Liberty Ridge Drive President President Associates, Ltd. since 2001 and General Wayne, PA 19087-5593 and Secretary and Counsel and Secretary, Pilgrim Baxter & (40) Secretary Associates, Ltd. since November 1996. since General Counsel and Secretary, Pilgrim 1997 Baxter Value Investors, Inc. NovembeR 1996 to May 1, 2002. General Counsel and Secretary, PBHG Fund Services since January 1998. General Counsel and Secretary, PBHG Fund Distributors since January 1998. - ------------------------------------------------------------------------------------------------------------------------------------
103
PBHG FUNDS TRUSTEES AND OFFICERS OF THE TRUST -- Concluded - ------------------------------------------------------------------------------------------------------------------------------------ As of September 30, 2002 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS* (CONTINUED) - ------------------------------------------------------------------------------------------------------------------------------------ TERM OF NUMBER OF POSITION OFFICE AND PORTFOLIOS IN OTHER HELD WITH LENGTH OF PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN DIRECTORSHIPS NAME, ADDRESS, AND AGE THE FUND TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD - ------------------------------------------------------------------------------------------------------------------------------------ Meghan M. Mahon Vice Vice Vice President and Assistant Secretary, N/A N/A 1400 Liberty Ridge Drive President President Pilgrim Baxter & Associates, Ltd. since Wayne, PA 19087-5593 and and 2001 and Senior Counsel since January (34) Assistant Assistant 2002, Counsel, Pilgrim Baxter & Secretary Secretary ssociates, Ltd. April 1998 to since December 2001. Assistant Secretary, 1998 Value Investors January 2000 to May 1, 2002, Senior Counsel January 2002 to May 1, 2002 and Counsel January 2000 to December 2001. Assistant Secretary, PBHG Fund Services since January 2000, Senior Counsel since January 2002, Counsel January 2000 to December 31, 2001. Assistant Vice President, Assistant Secretary and Counsel, Delaware Management Company, Inc. (investment adviser) and the Delaware Investments Funds (investment companies), 1997-1998. Associate, Drinker Biddle & Reath, LLP (law firm) 1994-1997. - ------------------------------------------------------------------------------------------------------------------------------------ Robert E. Putney, III Vice Vice Vice President, Senior Legal Counsel N/A N/A 1400 Liberty Ridge Drive President President and Assistant Secretary, Pilgrim Baxter Wayne, PA 19087-5593 and and & Associates, Ltd. since December (42) Assistant Assistant 2001; Director and Senior Counsel, Secretary Secretary Merrill Lynch Investment Managers, since L.P. and Princeton Administrators, L.P. 2002 until December 2001; Secretary of various Merrill Lynch and Mercury open-end funds, as well as Somerset Exchange Fund and The Europe Fund, Inc., until December 2001. - ------------------------------------------------------------------------------------------------------------------------------------ Brian C. Dillon Vice Vice Chief Compliance Officer, Pilgrim N/A N/A 1400 Liberty Ridge Drive President President Baxter & Associates, Ltd. since April Wayne, PA 19087-5593 since 2001. Chief Compliance Officer, (39) 2001 PBHG Fund Services and PBHG Fund Distributors since April 2001. Pilgrim Baxter Value Investors, Inc. April 2001 to May 1, 2002. Vice President and Senior Compliance Officer, Delaware Investments, 1995-2001. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen F. Panner Assistant Assistant Fund Administration Manager, N/A N/A 1400 Liberty Ridge Drive Treasurer Treasurer Pilgrim Baxter & Associates, Ltd. Wayne, PA 19087-5593 since since 2000. Fund Accounting (32) 2000 Manager, SEI Investments Mutual Fund Services, 1997-2000, Fund Accounting Supervisor, SEI Investments Mutual Fund Services, 1995-1997. - ------------------------------------------------------------------------------------------------------------------------------------ William P. Schanne Assistant Assistant Fund Administration Associate, N/A N/A 1400 Liberty Ridge Drive Treasurer Treasurer Pilgrim Baxter & Associates, Ltd. Wayne, PA 19087-5593 since since 2001. Fund Accounting (30) 2001 Supervisor, PFPC Inc., 1999-2001. Fund Accountant, PFPC Inc., 1998-1999. Annuity Loan Officer and Fund Auditor, Carpenters Health and Welfare of Philadelphia, 1996-1998. - ------------------------------------------------------------------------------------------------------------------------------------ John C. Munch Vice Vice Vice President and Assistant Secretary N/A N/A One Freedom Valley Drive President President of the Administrator and Distributor Oaks, PA 19456 and and since November 2001. Associate, (31) Assistant Assistant Howard, Rice, Nemorvoski, Canady, Secretary Secretary Falk & Rabkin (law firm), 1998-2001. since Associate, Seward & Kissel LLP 2002 (law firm), 1996-1998. - ------------------------------------------------------------------------------------------------------------------------------------ Timothy D. Barto Vice Vice Vice President and Assistant N/A N/A One Freedom Valley Road President President Secretary of SEI Investments Co. and Oaks, PA 19456 and and Vice President and Assistant (34) Assistant Assistant Secretary of SEI Investments Mutual Secretary Secretary Fund Services and SEI Investments since Distribution Co. since November 1999 1999. Associate, Dechert Price & Rhoads (law firm) 1997-1999. - ------------------------------------------------------------------------------------------------------------------------------------ *Officer of the Trust until such time as his or her successor is duly elected and qualified.
104 [This page is intentionally left blank.] 105 [LOGO OMITTED] P.O. BOX 219534 KANSAS CITY,MO 64121-9534 Investment Adviser: PILGRIM BAXTER & ASSOCIATES,LTD. Distributor: PBHGFUND DISTRIBUTORS This semi-annual report is for the information of PBHG Funds shareholders, but may be used with prospective investors when preceded or accompanied by a current prospectus for PBHG Funds and a performance update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. 1.800.433.0051 WWW.PBHGFUNDS.COM PBHG-SAR 2002 02-612 PART C: OTHER INFORMATION Item 15. INDEMNIFICATION The Agreement and Declaration of Trust of the Registrant include the following: ARTICLE VIII LIMITATION OF LIABILITY AND INDEMNIFICATION SECTION 8.1. Limitation of Liability. A Trustee or officer, when acting in such capacity, shall not be personally liable to any person for any act, omission or obligation of the Trust or any Trustee or officer; provided, however, that nothing contained herein or in the Delaware Act shall protect any Trustee or officer against any liability to the Trust or to Shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office with the Trust. SECTION 8.2. Indemnification of Covered Persons. Every Covered Person shall be indemnified by the Trust to the fullest extent permitted by the Delaware Act, the Bylaws and other applicable law. The Bylaws of the Registrant include the following: ARTICLE VIII INDEMNIFICATION SECTION 1. Indemnification. For the purpose of this Section 1, "Trust" includes any domestic or foreign predecessor entity of this Trust in a merger, consolidation, or other transaction in which the predecessor's existence ceased upon consummation of the transaction; "proceeding" means any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes without limitation attorney's fees and any expenses of establishing a right to indemnification under this Section 1. (a) The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Trust) by reason of the fact that such person is or was a Covered Person, against expenses, judgments, fines and amounts paid in settlements actually and reasonably incurred by such person in connection with such proceeding, if it is determined that person acted in good faith and reasonably believed: (a) in the case of conduct in his official capacity as a Covered Person, that his conduct was in the Trust's best interests and (b) in all other cases, that his conduct was at least not opposed to the Trust's best interests and (c) in the case of a criminal proceeding, that he had no reasonable cause to believe that his conduct was unlawful. The termination of any proceeding by judgment, order or settlement shall not, of itself, create a presumption that the person did not meet the requisite standard of conduct set forth in this Section 1. The termination of any proceeding by conviction, or a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the person did not meet the requisite standard of conduct set forth in this Section 1. C-1 (b) The Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by or in the right of the Trust to procure a judgment in its favor by reason of the fact that person is or was a Covered Person, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of such action or suit if that person acted in good faith, in a manner that person believed to be in the best interests of the Trust and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. (c) Notwithstanding any provision to the contrary contained herein, there shall be no right to indemnification for any liability arising by reason of willful misfeasance, bad faith, gross negligence, or the reckless disregard of the duties involved in the conduct of the Covered Person's office with the Trust. SECTION 2. Advance Payments of Indemnifiable Expenses. To the maximum extent permitted by law, the Trust or applicable Portfolio may advance to a Covered Person, in connection with the preparation and presentation of a defense to any claim, action, suit, or proceeding, expenses for which the Covered Person would ultimately be entitled to indemnification; provided that the Trust or applicable Portfolio has received an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust or applicable Portfolio if it is ultimately determined that he is not entitled to indemnification for such expenses, and further provided that (i) such Covered Person shall have provided appropriate security for such undertaking, (ii) the Trust is insured against losses arising out of any such advance payments, or (iii) either a majority of the Trustees who are not interested persons (as defined in the 1940 Act) of the Trust nor parties to the matter, or independent legal counsel in a written opinion shall have determined, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that there is reason to believe that such Covered Person will not be disqualified from indemnification for such expenses. ITEM 16. EXHIBITS: (1) (a) Agreement and Declaration of Trust incorporated herein by reference to Post-Effective Amendment ("PEA") No. 47 to the Registrant's Registration Statement on Form N-1A filed May 8, 2001. (b) Amended Schedule A dated June 5, 2001 to Agreement and Declaration of Trust incorporated herein by reference to PEA No. 50 filed on August 14, 2001. (c) Amended Schedule A dated August 9, 2001 to Agreement and Declaration of Trust incorporated herein by reference to PEA No. 50 filed on August 14, 2001. (d) Amended Schedule A dated January 26, 2002 to Agreement and Declaration of Trust incorporated herein by reference to PEA No. 55 filed on July 26, 2002. (2) Bylaws incorporated herein by reference to PEA No. 47 filed May 8, 2001. (3) Voting Trust Agreements - none. C-2 (4) A copy of the form of the Plan of Reorganization is attached as Appendix I to the prospectus included in this Registration Statement. (5) Instruments Defining Rights of Security Holders. (a) Articles II, VI, VII and IX of the Agreement and Declaration of Trust incorporated by reference to PEA No. 47 filed May 8, 2001. (b) Article IV of the Bylaws incorporated by reference to PEA No. 47 filed May 8, 2001. (6) Investment Advisory Agreement. (a) Executed Investment Advisory Agreement dated July 11, 2001, by and between the Registrant, on behalf of each fund of the Registrant, and Pilgrim Baxter & Associates, Ltd. incorporated herein by reference to PEA No. 51 filed October 29, 2001. (i) Executed Amended Schedule A dated October 23, 2001 to the Investment Advisory Agreement dated July 11, 2001 incorporated herein by reference to PEA No. 53 filed January 11, 2002. (b) Executed Investment Sub-Advisory Agreement dated July, 11, 2001 by and among the Registrant, on behalf of the PBHG Cash Reserve Fund, Pilgrim Baxter & Associates, Ltd. and Wellington Management Company, LLP incorporated herein by reference to PEA No. 55 filed July 26, 2002. (c) Executed Investment Sub-Advisory Agreement dated October 23, 2001 by and among the Registrant, on behalf of the PBHG IRA Capital Preservation Fund, Pilgrim Baxter & Associates, Ltd. and Dwight Asset Management Company incorporated herein by reference to PEA No. 53 filed January 11, 2002. (d) Executed Investment Sub-Advisory Agreement dated October 23, 2001 by and among the Registrant, on behalf of the PBHG Disciplined Equity Fund, Pilgrim Baxter & Associates, Ltd. and Analytic Investors, Inc. incorporated herein by reference to PEA No. 53 filed January 11, 2002. (e) Executed Investment Sub-Advisory Agreement dated October 23, 2001 by and among the Registrant, on behalf of the PBHG Special Equity Fund (formerly PBHG New Perspective Fund), Pilgrim Baxter & Associates, Ltd. and NWQ Investment Management Company incorporated herein by reference to PEA No. 53 filed January 11, 2002. (f) Executed Investment Sub-Advisory Agreement dated October 23, 2001 by and among the Registrant, on behalf of the PBHG REIT Fund, Pilgrim Baxter & Associates, Ltd. and Heitman Real Estate Securities LLC (formerly named Heitman/PRA Securities Advisors LLC) incorporated herein by reference to PEA No. 53 filed January 11, 2002. C-3 (g) Executed Investment Sub-Advisory Agreement dated October 23, 2001 by and among the Registrant, on behalf of the PBHG Clipper Focus Fund, Pilgrim Baxter & Associates, Ltd. and Pacific Financial Research, Inc. incorporated herein by reference to PEA No. 53 filed January 11, 2002. (h) Form of Interim Investment Sub-Advisory Agreement by and among the Registrant, on behalf of PBHG Special Equity Fund, Pilgrim Baxter & Associates, Ltd. and Investment Management Acquisition Company, LLC incorporated herein by reference to PEA No. 55 filed July 26, 2002. (i) Form of Escrow Agreement by and among the Registrant, on behalf of PBHG Special Equity Fund, Pilgrim Baxter & Associates, Ltd., NWQ Investment Management Company LLC and First Union National Bank incorporated herein by reference to PEA No. 55 filed July 26, 2002. (j) Form of Investment Sub-Advisory Agreement by and among the Registrant, on behalf of PBHG Special Equity Fund, Pilgrim Baxter & Associates, Ltd. and NWQ Investment Management Company LLC incorporated herein by reference to PEA No. 55 filed July 26, 2002. (7) Distribution Agreement. Distribution Agreement dated January 25, 2001 by and between the Registrant and PBHG Fund Distributors incorporated herein by reference to PEA No. 53 filed January 11, 2002. (a) Schedule A dated October 29, 2001 to the Distribution Agreement dated January 25, 2001 incorporated herein by reference to PEA No. 53 filed January 11, 2002. (8) Not Applicable (9) Custodian Agreement. (a) Custodian Agreement between the Registrant and First Union National Bank incorporated herein by reference to PEA No. 54 filed on March 8, 2002. (10) (a) Plan under Rule 12b-1. Form of Plan under rule 12b-1 with respect to the Advisor Class Shares incorporated herein by reference to PEA No. 53 filed January 11, 2002. (b) Rule 18f-3 Multiple Class Plan. Form of Plan under Rule 18f-3 incorporated herein by reference to PEA No. 51 filed October 29, 2001. (i) Amended Appendix A to 18f-3 Plan incorporated herein by reference to PEA No. 51 filed October 29, 2001. (11) Opinion of Ballard Spahr Andrews & Ingersoll, LLP, regarding validity of shares to be issued and related consent are filed herewith as Exhibit 11. (12) Opinion of Ballard Spahr Andrews & Ingersoll, LLP, regarding tax matters and related consent are filed herewith as Exhibit 12. C-4 (13) Other Material Contracts: (a) Executed Administrative Services Agreement dated January 25, 2001 by and between the Registrant and PBHG Fund Services incorporated herein by reference to PEA No. 53 filed January 11, 2002. (i) Schedule A dated October 29, 2001 to the Administrative Services Agreement dated January 25, 2001 incorporated herein by reference to PEA No. 55 filed July 26, 2002. (b) Sub-Administrative Services Agreement dated January 1, 2001 by and between PBHG Fund Services and SEI Fund Resources incorporated herein by reference to PEA No. 47 filed May 8, 2001. (i) Executed Schedule A dated October 29, 2001 to the Sub-Administrative Services Agreement dated January 1, 2001 incorporated herein by reference to PEA No. 53 filed January 11, 2002. (c) Executed Agency Agreement dated January 1, 1998 and Schedule A dated December 14, 2000 by and between the Registrant and DST Systems, Inc. incorporated herein by reference to PEA No. 42 filed December 15, 2000. (i) Exhibit A dated October 29, 2001 to the Agency Agreement dated January 1, 1998 incorporated herein by reference to PEA No. 53 filed January 11, 2002. (d) Expense Limitation Agreements. (i) Expense Limitation Agreement dated July 11, 2001 between Pilgrim Baxter & Associates, Ltd. and the Registrant on behalf of PBHG Class Shares of certain funds incorporated herein by reference to PEA No. 55 filed July 26, 2002. (ii) Expense Limitation Agreement dated July 11, 2002 between Pilgrim Baxter & Associates, Ltd. and the Registrant, on behalf of Advisor Class shares of certain funds incorporated herein by reference to PEA No. 55 filed July 26, 2002. (iii) Expense Limitation Agreement (15(f) Period) dated October 23, 2001 between Pilgrim Baxter & Associates, Ltd. and the Registrant, on behalf of PBHG Class shares of certain funds incorporated herein by reference to PEA No. 55 filed July 26, 2002. (iv) Expense Limitation Agreement (15(f) Period) dated October 23, 2001 between Pilgrim Baxter & Associates, Ltd. and the Registrant, on behalf of Advisor Class shares of certain funds incorporated herein by reference to PEA No. 55 filed July 26, 2002. C-5 (v) Expense Limitation Agreement effective September 26, 2002 between Pilgrim Baxter & Associates, Ltd. and the Registrant, on behalf of Advisor Class shares of certain funds incorporated herein by reference to PEA No. 55 filed July 26, 2002. (e) Executed Shareholder Services Agreement dated January 25, 2001 by and between the Registrant and PBHG Fund Services incorporated herein by reference to PEA No, 53 filed January 11, 2002. (f) Executed Shareholder Web Services Agreement dated January 25, 2001 by and between the Registrant and PBHG Fund Services incorporated herein by reference to PEA No. 53 filed January 11, 2002. (14) Consent of Pricewaterhouse Coopers LLP is filed herewith as Exhibit 14. (15) Not Applicable (16) Not Applicable (17) Form of Proxy related to the Special Meeting of Shareholders of PBHG Global Technology & Communications Fund is filed herewith as Exhibit 17. Item 17. Undertakings (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act, the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. C-6 SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant by the undersigned, thereunto duly authorized, in the City of Wayne, and Commonwealth of Pennsylvania on the 22nd day of November, 2002. PBHG FUNDS Registrant By: /s/ Harold J. Baxter ------------------------------------ Harold J. Baxter Chairman and Trustee As required by the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Harold J. Baxter Chairman and Trustee November 22, 2002 - ------------------------------------ Harold J. Baxter * Trustee November 22, 2002 - ------------------------------------ John R. Bartholdson * Trustee November 22, 2002 - ------------------------------------ Jettie M. Edwards * Trustee November 22, 2002 - ------------------------------------ Albert A. Miller /s/ Gary L. Pilgrim President November 22, 2002 - ------------------------------------ Gary L. Pilgrim /s/ Lee T. Cummings Treasurer, Chief Financial November 22, 2002 - ------------------------------------ Officer and Controller Lee T. Cummings *By /s/ John M. Zerr ----------------- John M. Zerr Attorney-in-Fact
EXHIBIT INDEX 11 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding validity of shares of PBHG Technology & Communications Fund 12 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding tax matters 14 Consent of Independent Auditors 17 Proxy Ballot for Special Meeting of Shareholders of PBHG Global Technology & Communications Fund EX-99.11 3 ex11.txt LAW OFFICES Ballard Spahr Andrews & Ingersoll, LLP 1225 17TH STREET, SUITE 2300 BALTIMORE, MD DENVER, COLORADO 80202-5596 PHILADELPHIA, PA 303-292-2400 SALT LAKE CITY, UT FAX: 303-296-3956 VOORHEES, NJ LAWYERS@BALLARDSPAHR.COM WASHINGTON, DC November 22, 2002 PBHG Funds c/o Pilgrim Baxter & Associates, Ltd. 1400 Liberty Ridge Drive Wayne, PA 19087-5593 RE: Shares of PBHG Technology & Communications Fund Ladies and Gentlemen: We have acted as counsel to PBHG Funds, a Delaware statutory trust (the "Company"), in connection with that certain Plan of Reorganization (the "Plan") adopted by the Company, on behalf of its series portfolio, PBHG Technology & Communications Fund ("PBHG Tech Fund"), and its series portfolio, PBHG Global Technology & Communications Fund ("Global Tech Fund"). The Plan provides for the reclassification of the shares of Global Tech Fund and the change of the outstanding shares of Global Tech Fund into shares of PBHG Tech Fund based on the net asset values of the two funds (the "Reorganization"). All of the assets of Global Tech Fund will become assets and liabilities of PBHG Tech Fund. The value of each PBHG Tech Fund shareholder's account immediately after the Reorganization will be the same as the value of their account prior to the Reorganization. In connection with our giving this opinion, we have examined copies of the Company's Certificate of Trust, Agreement and Declaration of Trust (the "Trust Agreement"), and resolutions of the Board of Trustees adopted October 21, 2002, and originals or copies, certified or otherwise identified to our satisfaction, of such other documents, records and other instruments as we have deemed necessary or advisable for purposes of this opinion. As to various questions of fact material to our opinion, we have relied upon information provided by officers of the Company. The opinion expressed below is based on the assumption that a Registration Statement on Form N-14 with respect to the shares of PBHG Tech Fund to be issued to the Global Tech Fund shareholders pursuant to the Plan (the "PBHG Tech Fund Shares") will have been filed by the Company with the Securities and Exchange Commission and will have become effective before the Reorganization occurs. Based on the foregoing, we are of the opinion that the PBHG Tech Fund Shares, when issued by the Company to the shareholders of Global Tech Fund in accordance with the terms and conditions of the Plan, will be legally issued, fully paid and nonassessable. We express no opinion concerning the laws of any jurisdiction other than the federal laws of the United States of America and the Delaware Statutory Trust Act. Both the Delaware Statutory Trust Act and the Trust Agreement provide that shareholders of the Company shall be entitled to the same limitation on personal liability as is extended under the Delaware General Corporation Law to stockholders of private corporations for profit. There is a remote possibility, however, that, under certain circumstances, shareholders of a Delaware statutory trust may be held personally liable for that trust's obligations to the extent that the courts of another state which does not recognize such limited liability were to apply the laws of such state to a controversy involving such obligations. The Trust Agreement also provides for indemnification out of property of a fund for all loss and expense of any shareholder held personally liable for the obligations of that fund. Therefore, the risk of any shareholder incurring financial loss beyond his investment due to shareholder liability is limited to circumstances in which a fund is unable to meet its obligations and the express limitation of shareholder liabilities is determined not to be effective. We consent to the filing of this opinion as an Exhibit to the Company's Registration Statement on Form N-14 and to the references to this firm in such Registration Statement. Very truly yours, /s/ Ballard Spahr Andrews & Ingersoll, LLP EX-99.12 4 ex12.txt LAW OFFICES Ballard Spahr Andrews & Ingersoll, LLP 1225 17TH STREET, SUITE 2300 BALTIMORE, MD DENVER, COLORADO 80202-5596 PHILADELPHIA, PA 303-292-2400 SALT LAKE CITY, UT FAX: 303-296-3956 VOORHEES, NJ LAWYERS@BALLARDSPAHR.COM WASHINGTON, DC November 22, 2002 PBHG Funds c/o Pilgrim Baxter & Associates, Ltd. 1400 Liberty Ridge Drive Wayne, PA 19087-5593 Re: Proposed Reorganization of PBHG Global Technology & Communications Fund Federal Income Tax Consequences Ladies and Gentlemen: With reference to the Registration Statement on Form N-14 (the "Registration Statement") filed on November 22, 2002, by PBHG Funds, a Delaware statutory trust ("PBHG"), with the Securities and Exchange Commission in connection with the proposed transaction (the "Transaction") contemplated by the Plan of Reorganization (the "Plan") adopted by PBHG, acting on behalf of PBHG Technology & Communications Fund (the "Acquiring Fund"), and PBHG Global Technology & Communications Fund (the "Acquired Fund"), which Plan is described in the Registration Statement and filed as an Exhibit thereto, we hereby confirm that the discussion set forth under the caption "Additional Information About the Plan of Reorganization-Federal Income Tax Consequences" in the Registration Statement provides a summary of the material federal income tax consequences that would be generally relevant to the shareholders of the Acquired Fund receiving shares of the Acquiring Fund in the Transaction and accurately describes the opinions (the "Closing Opinions") that we anticipate rendering at the closing of the Transaction ("Closing"). Our delivery of the Closing Opinions is conditioned upon (a) the Transaction taking place in the manner described in the Plan and (b) there being no change in the Internal Revenue Code, United States Treasury regulations, judicial decisions or administrative rulings and pronouncements of the Internal Revenue Service between the date hereof and the date of Closing. As described in the section of the Registration Statement referenced above, the Closing Opinions will be further conditioned upon our receiving such executed letters of representation from PBHG as we shall request. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Registration Statement and in the Proxy Statement and Prospectus included therein. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Ballard Spahr Andrews & Ingersoll, LLP EX-99.14 5 ex14.txt CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-14 of our report dated May 13, 2002, relating to the financial statements and financial highlights which appears in the March 31, 2002 Annual Report to Shareholders of PBHG Funds (the "Fund"), which is also incorporated by reference into the Registration Statement. We also consent to the reference to us under the headings "Financial Highlights" and "Financial Information" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Philadelphia, Pennsylvania November 19, 2002 EX-99.17 6 ex17.txt EVERY SHAREHOLDER'S VOTE IS IMPORTANT! PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY! Please detach at perforation before mailing. -------------------------------------------------------------------------- THIS PROXY IS SOLICITED ON BEHALF OF THE TRUSTEES. THE TRUSTEES RECOMMEND VOTING FOR THE PROPOSAL. TO VOTE, FILL IN BOX COMPLETELY.
------------------------------------------- --- ----------------- ---------------- --------------------- 1. To approve a Plan of FOR AGAINST ABSTAIN --- ------- ------- Reorganization providing for the combination of PBHG Global Technology & Communications Fund with PBHG Technology & Communications Fund. ------------------------------------------- --- ----------------- ---------------- --------------------- 2. In the discretion of such proxies, upon such other business as may properly come before the meeting or any adjournments thereof. ------------------------------------------- --- ----------------- ---------------- ---------------------
EVERY SHAREHOLDER'S VOTE IS IMPORTANT! PLEASE SIGN, DATE AND RETURN YOUR PROXY TODAY! Please detach at perforation before mailing. - ------------------------------------------------------------------------------- PROXY SOLICITED BY THE BOARD OF TRUSTEES OF PBHG FUNDS PROXY FOR SPECIAL MEETING OF SHAREHOLDERS OF PBHG GLOBAL TECHNOLOGY & COMMUNICATIONS FUND FEBRUARY 27, 2003 The undersigned hereby appoints John M. Zerr and Lee T. Cummings, and each of them separately, proxies with the power of substitution to each, and hereby authorizes them to represent and to vote, as designated below, at the Special Meeting of Shareholders of PBHG Global Technology & Communications Fund shares which the undersigned would be entitled to vote if personally present. IF THIS PROXY IS SIGNED AND RETURNED WITH NO CHOICES INDICATED, THE SHARES WILL BE VOTED FOR THE APPROVAL OF THE PROPOSAL. NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD. All joint owners should sign. When signing as executor, administrator, attorney, trustee or guardian or as custodian for a minor, please give full title as such. If a corporation, please sign in full corporate name and indicate the signer's office. If a partner, sign in the partnership name. ----------------------------------- Signature ----------------------------------- Signature (if held jointly) ----------------------------------- Dated -----END PRIVACY-ENHANCED MESSAGE-----