PBHG
FUNDS
PBHG Growth II Portfolio
PBHG Technology & Communications Portfolio
PBHG
Insurance
Series
Fund,
Inc.
Semi-Annual Report
June 30, 1997
<PAGE>
Table of Contents
PBHG Growth II Portfolio
Letter to Shareholders Page 1
Statement of Net Assets Page 3
Statement of Operations Page 5
Statement of Changes in Net Assets Page 6
Financial Highlights Page 7
Notes to Financial Statements Page 8
PBHG Technology & Communications Portfolio
Letter to Shareholders Page 10
Schedule of Investments Page 12
Statement of Assets and Liabilities Page 14
Statement of Operations Page 15
Statement of Changes in Net Assets Page 16
Financial Highlights Page 17
Notes to Financial Statements Page 18
<PAGE>
PBHG
FUNDS
PBHG Growth II Portfolio
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- Growth II Portfolio ended an abbreviated
first half on June 30, 1997. In its first two months of operation, the fund
generated a total return of 4.50%, compared with the benchmark Russell Mid-Cap
Growth Index return of 11.97%. Performance in this initial period was somewhat
constrained by the high proportion of cash in the portfolio, a consequence of
being in a start-up mode when large (relative to a small base) daily cash
inflows can create an "under-invested" portfolio. This was particularly true
early in the month of May, when the market was rising rapidly. Generally
speaking, however, the equity investments made during this period have performed
quite well.
<PAGE>
Market Overview
The broad equity market has continued to move to new highs, led by the large
capitalization, stable growth companies that characterize the Dow Jones and
Standard & Poor's 500 Indexes. During the second quarter of the year, their
smaller capitalization growth brethren were finally able to keep pace for the
first time in almost a year. Several elements that we've come to recognize as
positives for our investment style were clearly present during the quarter.
Economists grew increasingly confident as the quarter progressed that real
growth would slow from the first quarter's torrid pace. And with reported rates
of inflation still quite low and the Fed unwilling to follow up on its initial
"preemptive" rate hike, the bond market enjoyed a significant rally. Equally as
important, evidence continued to suggest that the relative valuation correction
of smaller company growth stocks that began last summer had largely run its
course, staying -- at least for the moment -- within the confines of historic
statistical high/low ranges vis-a-vis the broad market. And finally, we should
note that we've had no trouble maintaining the operating and financial
characteristics of the underlying companies in our portfolios. At June 30th, the
position-weighted latest twelve-month earnings growth on our invested assets was
57%, with a 21% return on equity. For the first time in a while, this was the
right combination.
Supported by an economic environment that appears ideal for equity investors,
the outlook seems promising. A slowing rate of growth is reducing pressure on
inflation and interest rates, yet the economy appears able to produce real
expansion at a pace fast enough to allow competitive and efficient companies to
generate solid growth. As long as economic statistics continue pointing to this
"ideal" scenario, the upward trend in equity prices should continue. We hasten
to add, however, that with the broad market's valuation at or above historic
norms, volatility is likely to be an increasingly pervasive characteristic on a
day-to-day basis. Fortunately, as portfolio managers, we believe periods of
volatility allow us to do some of our most opportunistic buying.
The Pilgrim Baxter Discipline
As part of our first semi-annual review, it seems worthwhile to review our
investment philosophy. Our investment philosophy and methodology remain the same
through both up and down cycles. We continue to seek out and invest in the
highest quality, fastest growing companies we can find within the capitalization
parameters established for the portfolio. As long-time managers following this
style, we are pleased to report that we believe there is currently no shortage
of very good companies, quality management, and strong ideas in which to invest.
1
<PAGE>
PBHG Insurance Series Fund, Inc.
PBHG Growth II Portfolio
We continue to find most of our investments in the technology, health care,
consumer, and service sectors -- those industries in which company and stock
price performance have been most remarkable over the last several years. As a
result, we often find our portfolios highly concentrated in particular sectors
of the market at different times. We tend to hold significant positions in
industries while their growth curves are the steepest -- either due to
technological improvement, an under-supply of new or key industry products, or
perhaps consolidation among competitors. Our companies are most often
characterized by rapid unit growth and by problem-solving capacity for their
customers. This concentration can contribute to very favorable returns while the
companies scale the growth curve, and there aren't enough shares to go around
Wall Street. But the ride down may be equally steep, once investors get a hint
that the growth may be slowing. Our disciplined investment process identifies
and drives us toward those companies whose fortunes are meeting or exceeding
operating expectations, and away from those whose business opportunities are
flagging.
Our disciplined investment approach has always and will continue to strictly
follow a "bottom-up" approach, i.e., focusing on individual companies -- their
fundamental business characteristics and the sustainability of their growth
rates. We don't make market forecasts and don't use others' "big picture"
forecasts to guide our investment process. Finally, we strive to be fully
invested at all times, since we believe attempting to "time" the market is also
not a productive endeavor.
In closing, we thank you for your confidence in Pilgrim Baxter & Associates and
in the PBHG Insurance Series Fund.
Sincerely,
/s/ Bruce J. Muzina /s/ Gary L. Pilgrim
- ----------------------------- ------------------------
Bruce J. Muzina Gary L. Pilgrim
Portfolio Manager Portfolio Manager
PBHG Growth II Portfolio PBHG Growth II Portfolio
2
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 87.6%
CONSUMER -- 16.4%
CONSUMER PRODUCTS-MISCELLANEOUS -- 1.2%
Blyth Industries* 495 $ 16,706
- ---------------------------------------------------------------------
16,706
- ---------------------------------------------------------------------
HOTELS/RESORTS -- 0.5%
Capstar Hotel* 200 6,400
- ---------------------------------------------------------------------
6,400
- ---------------------------------------------------------------------
LEISURE/RECREATIONAL -- 0.9%
Callaway Golf 369 13,100
- ---------------------------------------------------------------------
13,100
- ---------------------------------------------------------------------
RESTAURANTS -- 0.6%
Landry's Seafood Restaurants* 330 7,590
- ---------------------------------------------------------------------
7,590
- ---------------------------------------------------------------------
RETAIL-APPAREL -- 3.8%
Jones Apparel Group* 305 14,564
Nautica Enterprises* 632 16,708
Polo Ralph Lauren* 110 3,011
Tommy Hilfiger* 467 18,768
- ---------------------------------------------------------------------
53,051
- ---------------------------------------------------------------------
RETAIL-CATALOG -- 1.1%
CDW Computer Centers* 290 15,388
- ---------------------------------------------------------------------
15,388
- ---------------------------------------------------------------------
RETAIL-DISCOUNT STORES -- 1.2%
Dollar Tree Stores* 330 16,624
- ---------------------------------------------------------------------
16,624
- ---------------------------------------------------------------------
RETAIL-HOME FURNISHING -- 2.2%
Bed Bath and Beyond* 995 30,223
- ---------------------------------------------------------------------
30,223
- ---------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 1.6%
Staples* 981 22,808
- ---------------------------------------------------------------------
22,808
- ---------------------------------------------------------------------
RETAIL-SPECIALTY -- 3.3%
Borders Group* 300 7,238
General Nutrition Companies* 520 14,560
Just for Feet* 572 9,974
Tiffany & Company 320 14,780
- ---------------------------------------------------------------------
46,552
- ---------------------------------------------------------------------
TOTAL CONSUMER (COST $219,858) 228,442
- ---------------------------------------------------------------------
ENERGY -- 3.5%
CONTRACT DRILLING -- 1.6%
Global Marine* 759 17,647
Santa Fe International* 130 4,420
- ---------------------------------------------------------------------
22,067
- ---------------------------------------------------------------------
EXPLORATION & PRODUCTION -- 0.6%
Chesapeake Energy 908 8,910
- ---------------------------------------------------------------------
8,910
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONTINUED
SERVICE/EQUIPMENT -- 1.3%
BJ Services* 100 $ 5,362
Tidewater 293 12,892
- ---------------------------------------------------------------------
18,254
- ---------------------------------------------------------------------
TOTAL ENERGY (COST $53,741) 49,231
- ---------------------------------------------------------------------
FINANCIAL -- 1.7%
CONSUMER FINANCE -- 1.7%
Money Store (The) 818 23,466
- ---------------------------------------------------------------------
23,466
- ---------------------------------------------------------------------
TOTAL FINANCIAL (COST $21,326) 23,466
- ---------------------------------------------------------------------
HEALTH -- 14.8%
CONTRACT RESEARCH -- 1.8%
Quintiles Transnational* 367 25,552
- ---------------------------------------------------------------------
25,552
- ---------------------------------------------------------------------
DRUGS/PHARMACEUTICALS -- 1.6%
Dura Pharmaceuticals* 200 7,975
Jones Medical Industries 300 14,250
- ---------------------------------------------------------------------
22,225
- ---------------------------------------------------------------------
INFORMATION SYSTEMS -- 2.9%
HBO & Company 585 40,292
- ---------------------------------------------------------------------
40,292
- ---------------------------------------------------------------------
MANAGED HEALTH CARE -- 2.8%
Oxford Health Plans* 541 38,817
- ---------------------------------------------------------------------
38,817
- ---------------------------------------------------------------------
OUTPATIENT FACILITIES -- 3.2%
HealthSouth* 1,225 30,549
Total Renal Care Holdings* 353 14,186
- ---------------------------------------------------------------------
44,735
- ---------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 2.5%
PhyCor* 1,009 34,747
- ---------------------------------------------------------------------
34,747
- ---------------------------------------------------------------------
TOTAL HEALTH (COST $195,255) 206,368
- ---------------------------------------------------------------------
INDUSTRIAL -- 2.1%
AUTO-RELATED -- 1.1%
Harley-Davidson 310 14,861
- ---------------------------------------------------------------------
14,861
- ---------------------------------------------------------------------
PLASTIC/CARBON -- 1.0%
Zoltek Companies* 383 14,650
- ---------------------------------------------------------------------
14,650
- ---------------------------------------------------------------------
TOTAL INDUSTRIAL (COST $26,481) 29,511
- ---------------------------------------------------------------------
SERVICE -- 18.6%
CORRECTIONAL SERVICES -- 2.9%
Corrections Corp. of America* 1,009 40,108
- ---------------------------------------------------------------------
40,108
- ---------------------------------------------------------------------
EDUCATIONAL SERVICES -- 1.4%
Apollo Group, Cl A* 583 20,551
- ---------------------------------------------------------------------
20,551
- ---------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.1%
Accustaff* 645 15,278
- ---------------------------------------------------------------------
15,278
- ---------------------------------------------------------------------
</TABLE>
3
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONTINUED
ENVIRONMENTAL -- 4.5%
Allied Waste Industries* 500 $ 8,688
United Waste Systems* 376 15,416
US Filter* 440 11,990
USA Waste Services* 685 26,458
- ---------------------------------------------------------------------
62,552
- ---------------------------------------------------------------------
INFORMATION/COMPUTER SERVICES -- 2.3%
Gartner Group, Cl A* 895 32,164
- ---------------------------------------------------------------------
32,164
- ---------------------------------------------------------------------
RADIO/TELEVISION -- 3.1%
Clear Channel Communications* 588 36,199
Jacor Communications* 181 6,923
- ---------------------------------------------------------------------
43,122
- ---------------------------------------------------------------------
TELEMARKETING -- 1.0%
TeleTech Holdings* 558 14,543
- ---------------------------------------------------------------------
14,543
- ---------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.3%
Paychex 834 31,692
- ---------------------------------------------------------------------
31,692
- ---------------------------------------------------------------------
TOTAL SERVICE (COST $249,487) 260,010
- ---------------------------------------------------------------------
TECHNOLOGY -- 30.5%
CONTRACT MANUFACTURING -- 1.3%
Solectron* 255 17,850
- ---------------------------------------------------------------------
17,850
- ---------------------------------------------------------------------
DATA STORAGE -- 0.4%
Western Digital* 200 6,325
- ---------------------------------------------------------------------
6,325
- ---------------------------------------------------------------------
EMBEDDED SOFTWARE -- 1.3%
Wind River Systems* 460 17,595
- ---------------------------------------------------------------------
17,595
- ---------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 2.7%
Electronics for Imaging* 790 37,327
- ---------------------------------------------------------------------
37,327
- ---------------------------------------------------------------------
NETWORKING SECURITY -- 1.5%
Security Dynamics Technologies* 570 21,019
- ---------------------------------------------------------------------
21,019
- ---------------------------------------------------------------------
NETWORKING SOFTWARE -- 2.6%
McAfee Associates* 571 36,044
- ---------------------------------------------------------------------
36,044
- ---------------------------------------------------------------------
PC-PERIPHERALS MANUFACTURING -- 1.5%
Adaptec* 599 20,815
- ---------------------------------------------------------------------
20,815
- ---------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.7%
Altera* 541 27,320
Lattice Semiconductor* 170 9,605
Linear Technology 400 20,700
Microchip Technology* 228 6,783
Vitesse Semiconductor* 470 15,363
- ---------------------------------------------------------------------
79,771
- ---------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
Shares/Face Market
Description Amount Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONCLUDED
SEMI-CONDUCTOR TESTING EQUIPMENT -- 0.5%
Uniphase* 120 $ 6,990
- ---------------------------------------------------------------------
6,990
- ---------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 3.9%
HNC Software* 411 15,670
Peoplesoft* 747 39,404
- ---------------------------------------------------------------------
55,074
- ---------------------------------------------------------------------
SOFTWARE-INTERNET -- 1.2%
America Online* 290 16,131
- ---------------------------------------------------------------------
16,131
- ---------------------------------------------------------------------
SOFTWARE-OTHER -- 1.0%
Viasoft* 275 13,956
- ---------------------------------------------------------------------
13,956
- ---------------------------------------------------------------------
SOFTWARE-SYSTEM/MAINFRAME -- 1.5%
BMC Software* 380 21,043
- ---------------------------------------------------------------------
21,043
- ---------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 5.4%
ADC Telecommunications* 934 31,172
Advanced Fibre Communication* 120 7,245
Tellabs* 661 36,934
- ---------------------------------------------------------------------
75,351
- ---------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $416,347) 425,291
- ---------------------------------------------------------------------
Total Common Stocks
(Cost $1,182,495) 1,222,319
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 13.1%
Lehman Brothers Inc.
5.41%, dated 06/30/97, matures 07/01/97,
repurchase price $182,890
(collateralized by U.S. Treasury Note,
par value $188,818, 6.00%, 06/30/99:
market value $194,365) (A) $182,863 182,863
- ---------------------------------------------------------------------
Total Repurchase Agreements
(Cost $182,863) 182,863
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.7%
(COST $1,365,358) 1,405,182
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- (0.7%) (9,115)
- ---------------------------------------------------------------------
NET ASSETS:
Portfolio Shares (authorized 500 million
shares -- $0.001 par value) based on
133,591 outstanding shares of common stock 1,356,514
Accumulated undistributed net investment
income 811
Accumulated net realized loss on
investments (1,082)
Net unrealized appreciation on investments 39,824
- ---------------------------------------------------------------------
TOTAL NET ASSETS -- 100% $1,396,067
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.45
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
Cl -- Class
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF OPERATIONS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 75
Interest.................................................. 1,884
-------
Total Investment Income................................. 1,959
-------
EXPENSES:
Investment Advisory Fees.................................. 813
Waiver of Investment Advisory Fees........................ (813)
Reimbursement of Other Expenses by Adviser................ (16,307)
Administrative Fees....................................... 143
Custodian Fees............................................ 593
Professional Fees......................................... 7,727
Transfer Agent Fees....................................... 3,333
Printing Fees............................................. 1,405
Directors' Fees........................................... 3,091
Registration and Filing Fees.............................. 118
Amortization of Deferred Organizational Costs............. 334
Pricing Fees.............................................. 711
-------
Total Expenses.......................................... 1,148
-------
NET INVESTMENT INCOME..................................... 811
-------
Net Realized Loss from Security Transactions.............. (1,082)
Net Change in Unrealized Appreciation on Investments...... 39,824
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS........... 38,742
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $39,553
=======
</TABLE>
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF CHANGES IN NET ASSETS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 811
Net Realized Loss from Security Transactions.............. (1,082)
Net Change in Unrealized Appreciation on Investments...... 39,824
----------
Net Increase in Net Assets Resulting from Operations...... 39,553
----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income..................................... --
Net Realized Gains........................................ --
----------
Total Distributions....................................... --
----------
CAPITAL SHARE TRANSACTIONS:
Shares Issued............................................. 1,495,499
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (138,985)
----------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 1,356,514
----------
Total Increase in Net Assets............................ 1,396,067
----------
NET ASSETS:
Beginning of Period....................................... --
----------
End of Period............................................. $1,396,067
==========
SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 147,050
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (13,459)
----------
Net Increase in Share Transactions........................ 133,591
==========
</TABLE>
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
FINANCIAL HIGHLIGHTS
May 1, 1997 -- June 30, 1997 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized Net
Asset and Distributions Distributions Asset Net
Value Net Unrealized from Net from Value Assets
Beginning Investment Gains Investment Capital End Total End
of Period Income on Securities Income Gains of Period Return of Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 $0.01 $0.44 -- -- $10.45 4.50% $1,396,067
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
Ratio to Average to Average
Ratio of Net Net Assets Net Assets
of Expenses Income (Loss) (Excluding (Excluding Portfolio Average
to Average to Average Waivers and Waivers and Turnover Commission
Net Assets Net Assets Reimbursements) Reimbursements) Rate Rate+
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997(1) 1.20%* 0.85%* 19.10%* (17.05)%* 9.16% $0.0411
</TABLE>
* Annualized.
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997. Total
return has not been annualized.
+ Average Commission rate paid per share for security purchases and sales
during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1997 (Unaudited)
1. ORGANIZATION
The PBHG Growth II Portfolio is part of the PBHG Insurance Series Fund, Inc.
(the "Fund"), a Maryland corporation, registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment
company. The Fund consists of this Portfolio and five others: the PBHG Large Cap
Growth Portfolio (the "Large Cap Growth Portfolio"), the PBHG Small Cap Value
Portfolio (the "Small Cap Value Portfolio"), the PBHG Large Cap Value Portfolio
(the "Large Cap Value Portfolio"), the PBHG Technology & Communications
Portfolio (the "Technology & Communications Portfolio"), and the PBHG Select 20
Portfolio (the "Select 20 Portfolio") (each a "Portfolio" and, collectively, the
"Portfolios"). As of June 30, 1997, the Small Cap Value, the Large Cap Value,
and the Select 20 Portfolios had not commenced operations. Each Portfolio's
prospectus provides a description of the Portfolio's investment objectives,
policies and strategies. The assets of each Portfolio are segregated, and a
shareholder's interest is limited to the Portfolio in which shares are held. The
Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of life
insurance companies.
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 for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recent bid price.
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. 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. Distributions of net realized capital gains,
for all portfolios, are generally made to shareholders annually. 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 generally accepted accounting
principles. 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.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or 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.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure 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.
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.
All organizational costs incurred in connection with the start up of the Growth
II Portfolio, the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Technology & Communications Portfolio, and the
Select 20 Portfolio are being amortized on a straight line basis over a period
of sixty months. In the event that any of the initial shares of the Portfolio
are redeemed by any holder thereof during the period that the Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, 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 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 at an annual rate of 0.85% of the average daily net assets of
the Growth II Portfolio. In the interest of limiting expenses of the Portfolios,
the Adviser has entered into an expense limitation agreement with the Fund
("Expense Limitation Agreement"). With respect to the Growth II Portfolio, the
Adviser has agreed to waive or limit its fees and to assume other expenses of
the Portfolio to the extent necessary to limit the total annual expenses
(expressed as a percentage of the
8
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Portfolio's average daily net assets) to 1.20%. Reimbursement by the Portfolio
of the advisory fees waived or limited and other expenses paid by the Adviser
pursuant to the Expense Limitation Agreement during any of the two previous
fiscal years may be made at a later date when the Portfolio has reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual expense ratio of the Growth II Portfolio to exceed 1.20%.
Consequently, no reimbursement by the Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.20%, and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis.
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 Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Fund and (ii) The PBHG Funds, Inc., and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion.
Certain officers and directors 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 Growth II Portfolio for the period from
May 1, 1997 through June 30, 1997, amounted to $1,231,942 and $48,365,
respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Growth II Portfolio amounted to $59,637 and $19,813, respectively.
The total cost of securities and the net realized gains or losses on securities
sold for Federal income tax purposes at June 30, 1997 was not materially
different from amounts reported for financial reporting purposes.
5. CONSENT OF SOLE SHAREHOLDER
On March 10, 1997, the sole shareholder of the Portfolios approved the following
appointments: Pilgrim Baxter & Associates, Ltd. as investment adviser to the
Portfolios, Newbold's Asset Management, Inc. as investment sub-adviser to the
Small Cap Value and Large Cap Value Portfolios, PBHG Fund Services as
administrator to the Portfolios, SEI Fund Resources as sub-administrator to the
Portfolios and SEI Investments Distribution Co. to serve as distributor of the
shares of the Portfolios.
6. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund and (ii) The PBHG
Funds, Inc. No Portfolio had an outstanding borrowing at June 30, 1997, or at
any time during the period from May 1, 1997 (commencement of operations) through
June 30, 1997.
9
<PAGE>
PBHG
FUNDS
PBHG TECHNOLOGY &
COMMUNICATIONS PORTFOLIO
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- Technology & Communications Portfolio
ended an abbreviated first half on June 30, 1997. In its first two months of
operation, the fund generated a total return of 3.2%, compared with the
benchmark Pacific Stock Exchange High Technology Index return of 12.8%.
Performance in this initial period was somewhat constrained by the high
proportion of cash in the portfolio, a consequence of being in a start-up mode
when large (relative to a small base) daily cash inflows can create an
"under-invested" portfolio. This was particularly true early in the month of
May, when the market was rising rapidly. Generally speaking, however, the equity
investments made during this period have performed quite well.
MARKET OVERVIEW
The technology sector rebounded sharply in May after spending much of the last
twelve months under significant pressure, along with much of the growth segment
of the market. Investors seemed to regain their confidence in the technology
sector in late April and to realize that many of these companies still have
significant room for growth. Of the 207 technology concerns in the Pilgrim
Baxter Universe that had posted quarterly results by mid-June, the average
earnings outperformance was more than 10%. Market attention has also been
refocused on technology stocks by reports that telecommunications and computer
infrastructure spending is expected to increase in 1997.
The broad equity market has continued to move to new highs, led by the large
capitalization, stable growth companies that characterize the Dow Jones and
Standard & Poor's 500 Indexes. During the second quarter of the year, their
smaller capitalization growth brethren were finally able to keep pace for the
first time in almost a year. Several elements we've come to recognize as
positives for our investment style were clearly present during the quarter.
Economists grew increasingly confident as the quarter progressed that real
growth would slow from the first quarter's torrid pace. And with reported rates
of inflation still quite low and the Fed unwilling to follow its initial
"preemptive" rate hike, the bond market enjoyed a significant rally. Equally as
important, evidence continued to suggest that the relative valuation correction
of smaller company growth stocks that began last summer had largely run its
course, staying -- at least for the moment -- within the confines of historic
statistical high/low ranges vis-a-vis the broad market. And finally, we should
note that we've had no trouble maintaining the operating and financial
characteristics of the underlying companies in our portfolios. At June 30th, the
position-weighted latest twelve-month earnings growth on our invested assets was
68%, with a 20% return on equity. For the first time in a while, this was the
right combination.
Supported by an economic environment that appears ideal for equity investors,
the outlook seems promising. A slowing rate of growth is reducing pressure on
inflation and interest rates, yet the economy appears able to produce real
expansion at a pace fast enough to allow competitive and efficient companies to
generate solid growth. As long as economic statistics continue pointing to this
"ideal" scenario, the upward trend in equity prices should continue. We hasten
to add, however, that with the broad market's valuation at or above historic
norms, volatility is likely to be an increasingly pervasive characteristic on a
day-to-day basis. Fortunately, as portfolio managers, we believe periods of
volatility allow us to do some of our most opportunistic buying.
10
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- -------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
THE PILGRIM BAXTER DISCIPLINE
As part of our first semi-annual review, it seems worthwhile to review our
investment philosophy. Our investment philosophy and methodology remain the same
through both up and down cycles. We continue to seek out and invest in the
highest quality, fastest growing companies we can find within the capitalization
parameters established for the portfolio. As long-time managers following this
style, we are pleased to report that we believe there is currently no shortage
of very good companies, quality management, and strong ideas in which to invest.
The Technology & Communications Portfolio invests at least 65% of its assets in
companies that rely extensively on technology or communications in their product
development or operations, or those benefiting sharply from technological
advancements. We tend to hold significant positions in industries while their
growth curves are the steepest--either due to technological improvement, an
under-supply of new or key industry products, or perhaps consolidation among
competitors. Our companies are most often characterized by rapid unit growth and
by problem-solving capacity for their customers. This concentration can
contribute to very favorable returns while the companies scale the growth curve,
and there aren't enough shares to go around Wall Street. But the ride down may
be equally steep, once investors get a hint that the growth may be slowing. Our
disciplined investment process identifies and drives us toward those companies
whose fortunes are meeting or exceeding operating expectations, and away from
those whose business opportunities are flagging.
Our disciplined investment approach has always and will continue to strictly
follow a "bottom-up" approach, i.e., focusing on individual companies -- their
fundamental business characteristics and the sustainability of their growth
rates. We don't make market forecasts and don't use others' "big picture"
forecasts to guide our investment process, as we believe this would not be the
most productive use of our time. Finally, we strive to be fully invested at all
times, since we believe attempting to "time" the market is also not a productive
endeavor.
In closing, we thank you for your confidence in Pilgrim Baxter & Associates and
in the PBHG Insurance Series Funds.
Sincerely,
/s/ John S. Force
- ------------------------
John S. Force
Portfolio Manager
PBHG Technology & Communications Portfolio
11
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
SCHEDULE OF INVESTMENTS
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C> <C>
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- 76.6%
HEALTH -- 5.5%
CONTRACT RESEARCH -- 3.5%
Quintiles Transnational* 100 $ 6,962
- ---------------------------------------------------------------------
6,962
- ---------------------------------------------------------------------
DRUGS/PHARMACEUTICALS -- 2.0%
Dura Pharmaceuticals* 100 3,987
- ---------------------------------------------------------------------
3,987
- ---------------------------------------------------------------------
TOTAL HEALTH (COST $10,643) 10,949
- ---------------------------------------------------------------------
SERVICE -- 13.8%
EMPLOYMENT SERVICES -- 1.2%
Accustaff* 100 2,369
- ---------------------------------------------------------------------
2,369
- ---------------------------------------------------------------------
PRINTING SERVICES/FORMS -- 2.1%
Consolidated Graphics* 100 4,175
- ---------------------------------------------------------------------
4,175
- ---------------------------------------------------------------------
SYSTEMS INTEGRATORS -- 3.3%
Cambridge Technology Partners* 200 6,400
- ---------------------------------------------------------------------
6,400
- ---------------------------------------------------------------------
TRANSACTION PROCESSING -- 7.2%
Ace Comm* 100 1,962
Concord EFS* 100 2,588
National Data 100 4,331
Saville Systems ADR* 100 5,200
- ---------------------------------------------------------------------
14,081
- ---------------------------------------------------------------------
TOTAL SERVICE (COST $19,271) 27,025
- ---------------------------------------------------------------------
TECHNOLOGY -- 57.3%
CABLES/FIBEROPTICS -- 1.5%
Cable Design Technologies* 100 2,944
- ---------------------------------------------------------------------
2,944
- ---------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.1%
Scopus Technology* 100 2,238
- ---------------------------------------------------------------------
2,238
- ---------------------------------------------------------------------
DATA STORAGE -- 1.9%
Network Appliance* 100 3,800
- ---------------------------------------------------------------------
3,800
- ---------------------------------------------------------------------
DESIGN AUTOMATION SOFTWARE -- 8.0%
Cadence Design Systems* 100 3,350
Parametric Technology* 100 4,256
Stratasys* 100 1,612
Technomatix Technologies Limited* 200 6,500
- ---------------------------------------------------------------------
15,718
- ---------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.7%
Peerless Systems* 100 1,375
- ---------------------------------------------------------------------
1,375
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONTINUED
GRAPHIC/IMAGE PROCESSING -- 4.8%
Electronics for Imaging* 200 $ 9,450
- ---------------------------------------------------------------------
9,450
- ---------------------------------------------------------------------
NETWORKING SECURITY -- 0.6%
Raptor Systems* 100 1,119
- ---------------------------------------------------------------------
1,119
- ---------------------------------------------------------------------
PC-PERIPHERALS MANUFACTURING -- 3.0%
Encad* 100 4,150
Trident International* 100 1,800
- ---------------------------------------------------------------------
5,950
- ---------------------------------------------------------------------
PRECISION INSTRUMENTS -- 3.7%
LeCroy* 100 3,687
Remec* 150 3,525
- ---------------------------------------------------------------------
7,212
- ---------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 6.5%
Altera* 100 5,050
CP Clare 100 1,575
Microchip Technology* 100 2,975
Vitesse Semiconductor* 100 3,269
- ---------------------------------------------------------------------
12,869
- ---------------------------------------------------------------------
SEMI-CONDUCTOR PRODUCTION EQUIPMENT -- 1.9%
PRI Automation* 100 3,794
- ---------------------------------------------------------------------
3,794
- ---------------------------------------------------------------------
SOFTWARE-MANUFACTURING -- 1.9%
Aspen Technology* 100 3,763
- ---------------------------------------------------------------------
3,763
- ---------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 4.5%
Citrix Systems* 100 4,388
Documentum* 100 2,488
Iona Technologies ADR* 100 1,975
- ---------------------------------------------------------------------
8,851
- ---------------------------------------------------------------------
SOFTWARE-DATABASE -- 1.6%
Cognos* 100 3,112
- ---------------------------------------------------------------------
3,112
- ---------------------------------------------------------------------
SOFTWARE-OTHER -- 2.1%
JDA Software Group* 100 3,413
Oshap Technologies Limited* 100 738
- ---------------------------------------------------------------------
4,151
- ---------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 10.4%
ADC Telecommunications* 100 3,337
Ciena* 100 4,713
P-COM* 100 3,300
Teledata Communication* 100 3,437
Tellabs* 100 5,587
- ---------------------------------------------------------------------
20,374
- ---------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 3.1%
Nice Systems Limited* 200 6,000
- ---------------------------------------------------------------------
6,000
- ---------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $117,029) 112,720
- ---------------------------------------------------------------------
Total Common Stocks
(Cost $146,943) 150,694
- ---------------------------------------------------------------------
</TABLE>
12
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C> <C>
Shares/Face Market
Description Amount Value
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 20.0%
Lehman Brothers Inc.
5.41% dated 06/30/97, matures 07/01/97,
repurchase price $39,315 (collateralized by
U.S. Treasury Note, par value $40,589,
6.00%, 06/30/99: market value $41,782) (A) $39,309 $ 39,309
- ---------------------------------------------------------------------
Total Repurchase Agreements
(Cost $39,309) 39,309
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 96.6%
(COST $186,252) 190,003
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $146,943)..................... $150,694
Short-term investments, at value (Cost $39,309)........... 39,309
Cash...................................................... 11,396
Receivable from Adviser................................... 6,143
Accrued Income............................................ 379
--------
Total assets.............................................. 207,921
--------
LIABILITIES:
Payable for Investment securities purchased............... 3,433
Accrued Expenses.......................................... 7,760
--------
Total liabilities......................................... 11,193
--------
NET ASSETS:
Portfolio shares (authorized 500 million shares -- $0.001
par value) based on 19,069 outstanding shares of common
stock................................................... 191,245
Accumulated undistributed net investment income........... 268
Accumulated net realized gain on investments.............. 1,464
Net unrealized appreciation on investments................ 3,751
--------
Total Net Assets.......................................... $196,728
========
Net Asset Value, Offering Price and Redemption Price Per
Share................................................... $ 10.32
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF OPERATIONS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ --
Interest.................................................. 455
------
Total Investment Income................................. 455
------
EXPENSES:
Investment Advisory Fees.................................. 133
Waiver of Investment Advisory Fees........................ (133)
Reimbursement of Other Expenses by Adviser................ (6,143)
Administrative Fees....................................... 23
Custodian Fees............................................ 590
Professional Fees......................................... 1,214
Transfer Agent Fees....................................... 3,333
Printing Fees............................................. 221
Directors' Fees........................................... 486
Registration and Filing Fees.............................. 17
Amortization of Deferred Organizational Costs............. 334
Pricing Fees.............................................. 112
------
Total Expenses.......................................... 187
------
NET INVESTMENT INCOME....................................... $ 268
------
Net Realized Gain from Security Transactions.............. 1,464
Net Change in Unrealized Appreciation on Investments...... 3,751
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 5,215
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $5,483
======
</TABLE>
(1) The PBHG Technology & Communications Portfolio commenced operations on
May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF CHANGES IN NET ASSETS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<S> <C>
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 268
Net Realized Gain from Security Transactions.............. 1,464
Net Change in Unrealized Appreciation on Investments...... 3,751
--------
Net Increase in Net Assets Resulting from Operations.... 5,483
--------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income..................................... --
Net Realized Gains........................................ --
--------
Total Distributions..................................... --
--------
CAPITAL SHARE TRANSACTIONS:
Shares Issued............................................. 199,447
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (8,202)
--------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 191,245
--------
Total Increase in Net Assets............................ 196,728
--------
NET ASSETS:
Beginning of Period....................................... --
--------
End of Period............................................. $196,728
========
SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 19,874
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (805)
--------
Net Increase in Share Transactions........................ 19,069
========
</TABLE>
(1) The PBHG Technology & Communications Portfolio commenced operations on
May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
FINANCIAL HIGHLIGHTS
May 1, 1997 -- June 30, 1997 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset Net
Value Net Unrealized from Net from Value Assets
Beginning Investment Gains or Losses Investment Capital End Total End
of Period Income on Securities Income Gains of Period Return of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1997(1).............. $10.00 $ 0.01 $0.31 -- -- $10.32 3.20% $196,728
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
Ratio to Average to Average
Ratio of Net Net Assets Net Assets
of Expenses Income (Loss) (Excluding (Excluding Portfolio Average
to Average to Average Waivers and Waivers and Turnover Commission
Net Assets Net Assets Reimbursements) Reimbursements) Rate Rate+
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1997(1).............. 1.20%* 1.72%* 41.45%* (38.53)%* 47.06% $0.0365
</TABLE>
* Annualized.
(1) The PBHG Technology & Communications Portfolio commenced operations on May
1, 1997. Total return has not been annualized.
+ Average Commission rate paid per share for security purchases and sales
during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1997 (Unaudited)
1. ORGANIZATION
The PBHG Technology & Communications Portfolio is part of the PBHG Insurance
Series Fund, Inc. (the "Fund"), a Maryland corporation, registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Fund consists of this Portfolio and five others: the
PBHG Growth II Portfolio (the "Growth II Portfolio"), the PBHG Large Cap Growth
Portfolio (the "Large Cap Growth Portfolio"), the PBHG Small Cap Value Portfolio
(the "Small Cap Value Portfolio"), the PBHG Large Cap Value Portfolio (the
"Large Cap Value Portfolio") and the PBHG Select 20 Portfolio (the "Select 20
Portfolio") (each a "Portfolio" and, collectively, the "Portfolios"). As of June
30, 1997, the Small Cap Value, the Large Cap Value, and the Select 20 Portfolios
had not commenced operations. Each Portfolio's prospectus provides a description
of the Portfolio's investment objectives, policies and strategies. The assets of
each Portfolio are segregated, and a shareholder's interest is limited to the
Portfolio in which shares are held. The Fund is intended to be a funding vehicle
for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of life insurance companies.
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 for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recent bid price.
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. 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. Distributions of net realized capital gains,
for all portfolios, are generally made to shareholders annually. 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 generally accepted accounting
principles. 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.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or 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.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure 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.
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.
All organizational costs incurred in connection with the start up of the Growth
II Portfolio, the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Technology & Communications Portfolio, and the
Select 20 Portfolio are being amortized on a straight line basis over a period
of sixty months. In the event that any of the initial shares of the Portfolio
are redeemed by any holder thereof during the period that the Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, 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 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 at an annual rate of 0.85% of the average daily net assets of
the Technology & Communications Portfolio. In the interest of limiting expenses
of the Portfolios, the Adviser has entered into an expense limitation agreement
with the Fund ("Expense Limitation Agreement"). With respect to the Technology &
Communications Portfolio, the Adviser has agreed to waive or limit its fees and
to assume other expenses of the Portfolio to the extent necessary to limit the
total annual expenses (expressed as a percentage of the Portfolio's average
daily net assets) to 1.20%. Reimbursement by the Portfolio of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreement during any of the two previous fiscal years may be made at
a later date when the Portfolio has reached a sufficient asset size to permit
reimbursement to be made without causing the total annual expense ratio of the
Technology & Communications Portfolio to exceed 1.20%.
18
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Consequently, no reimbursement by the Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.20%, and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis.
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 Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Fund, and (ii) The PBHG Funds, Inc. and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion.
Certain officers and directors 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 Technology & Communications Portfolio for
the period from May 1, 1997 through June 30, 1997, amounted to $169,742 and
$24,263, respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Technology & Communications Portfolio amounted to $7,386 and $3,635,
respectively.
The total cost of securities and the net realized gains or losses on securities
sold for Federal income tax purposes at June 30, 1997 was not materially
different from amounts reported for financial reporting purposes.
5. CONSENT OF SOLE SHAREHOLDER
On March 10, 1997, the sole shareholder of the Portfolios approved the following
appointments: Pilgrim Baxter & Associates, Ltd. as investment adviser to the
Portfolios, Newbold's Asset Management, Inc. as investment sub-adviser to the
PBHG Small Cap Value and PBHG Large Cap Value Portfolios, PBHG Fund Services as
administrator to the Portfolios, SEI Fund Resources as sub-administrator to the
Portfolios and SEI Investments Distribution Co. to serve as distributor of the
shares of the Portfolios.
6. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund and (ii) The PBHG
Funds, Inc. No Portfolio had an outstanding borrowing at June 30, 1997, or at
any time during the period from May 1, 1997 (commencement of operations) through
June 30, 1997.
19
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
[This page intentionally left blank]
20
PBHG
FUNDS
PBHG Insurance Series Fund, Inc.
Investment Adviser: Distributor:
Pilgrim Baxter & Associates, Ltd. SEI Investments Distribution Co.
<PAGE>
PBHG
FUNDS
PBHG LARGE CAP GROWTH
PORTFOLIO
------------------
INVESTMENT ADVISER:
PILGRIM BAXTER
& ASSOCIATES, LTD.
DISTRIBUTOR:
SEI INVESTMENTS
DISTRIBUTION CO.
------------------
PBHG
INSURANCE
SERIES
FUND,
INC.
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
PBHG
FUNDS
Dear Shareholder:
The PBHG Insurance Series Fund, Inc.--Large Cap Growth Portfolio ended an
abbreviated first half on June 30, 1997. In its first two months of operation,
the fund generated a total return of 7.80%, compared to the benchmark Russell
1000 Growth Index return of 11.51%. Performance in this initial period was
somewhat constrained by the high proportion of cash in the portfolio, a
consequence of being in a start-up mode when large (relative to a small base)
daily cash inflows can create an "under-invested" portfolio. This was
particularly true early in the month of May, when the market was rising rapidly.
Generally speaking, however, the equity investments made during this period have
performed quite well.
MARKET OVERVIEW
The broad equity market has continued to move to new highs, led by the large
capitalization, stable growth companies that characterize the Dow Jones and
Standard & Poor's 500 Indexes. During the second quarter of the year, their
smaller capitalization growth brethren were finally able to keep pace for the
first time in almost a year. Several elements that we've come to recognize as
positives for our investment style were clearly present during the quarter.
Economists grew increasingly confident as the quarter progressed that real
growth would slow from the first quarter's torrid pace. And with reported rates
of inflation still quite low and the Fed unwilling to follow up on its initial
"pre-emptive" rate hike, the bond market enjoyed a significant rally. Equally as
important, evidence continued to suggest that the relative valuation correction
of growth stocks that began last summer had largely run its course, staying--at
least for the moment--within the confines of historic statistical high/low
ranges vis-a-vis the broad market. And finally, we should note that we've had no
trouble maintaining the operating and financial characteristics of the
underlying companies in our portfolios. At June 30th, the position-weighted
latest twelve-month earnings growth on our invested assets was 42%, with a 23%
return on equity. For the first time in a while, this was the right combination.
Supported by an economic environment that appears ideal for equity investors,
the outlook seems promising. A slowing rate of growth is reducing pressure on
inflation and interest rates, yet the economy appears able to produce real
expansion at a pace fast enough to allow competitive and efficient companies to
generate solid growth. As long as economic statistics continue pointing to this
"ideal" scenario, the upward trend in equity prices should continue. We hasten
to add, however, that with the broad market's valuation at or above historic
norms, volatility is likely to be an increasingly pervasive characteristic on a
day-to-day basis. Fortunately, as portfolio managers, we believe periods of
volatility allow us to do some of our most opportunistic buying.
THE PILGRIM BAXTER DISCIPLINE
As part of our first semi-annual review, it seems worthwhile to review our
investment philosophy. Our investment philosophy and methodology remain the same
through both up and down cycles. We continue to seek out and invest in the
highest quality, fastest growing companies we can find within the capitalization
parameters established for the portfolio. As long-time managers following this
style, we are pleased to report that we believe there is currently no shortage
of very good companies, quality management, and strong ideas in which to invest.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- -------------------------------------------------------------------------------
PBHG LARGE CAP GROWTH PORTFOLIO
We continue to find most of our investments in the technology, health care,
consumer, and service sectors--those industries in which company and stock price
performance have been most remarkable over the last several years. As a result,
we often find our portfolios highly concentrated in particular sectors of the
market at different times. We tend to hold significant positions in industries
while their growth curves are the steepest--either due to technological
improvement, an under-supply of new or key industry products, or perhaps
consolidation among competitors. Our companies are most often characterized by
rapid unit growth and by problem-solving capacity for their customers. This
concentration can contribute to very favorable returns while the companies scale
the growth curve, and there aren't enough shares to go around Wall Street. But
the ride down may be equally steep, once investors get a hint that the growth
may be slowing. Our disciplined investment process identifies and drives us
toward those companies whose fortunes are meeting or exceeding operating
expectations, and away from those whose business opportunities are flagging.
Our disciplined investment approach has always and will continue to strictly
follow a "bottom-up" approach, i.e., focusing on individual companies--their
fundamental business characteristics and the sustainability of their growth
rates. We don't make market forecasts and don't use others' "big picture"
forecasts to guide our investment process. Finally, we strive to be fully
invested at all times, since we believe attempting to "time" the market is also
not a productive endeavor.
In closing, we thank you for your confidence in Pilgrim Baxter & Associates and
in the PBHG Insurance Series Fund.
Sincerely,
/s/ James D. McCall
- -------------------------
James D. McCall, CFA
Portfolio Manager
PBHG Large Cap Growth Portfolio
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- ---------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
SCHEDULE OF INVESTMENTS
As of June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- 83.8%
CONSUMER -- 9.5%
CONSUMER PRODUCTS-MISCELLANEOUS -- 1.8%
Gillette 100 $ 9,475
- ---------------------------------------------------------------------
9,475
- ---------------------------------------------------------------------
FUNERAL SERVICES -- 1.2%
Service Corp. International 188 6,181
- ---------------------------------------------------------------------
6,181
- ---------------------------------------------------------------------
HOTELS/RESORTS -- 1.9%
HFS* 63 3,654
Marriot Corp. International 100 6,138
- ---------------------------------------------------------------------
9,792
- ---------------------------------------------------------------------
RETAIL-APPAREL -- 3.3%
Jones Apparel Group* 200 9,550
Polo Ralph Lauren* 200 5,475
Tommy Hilfiger* 65 2,612
- ---------------------------------------------------------------------
17,637
- ---------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 1.3%
Staples* 300 6,975
- ---------------------------------------------------------------------
6,975
- ---------------------------------------------------------------------
TOTAL CONSUMER (COST $50,401) 50,060
- ---------------------------------------------------------------------
ENERGY -- 3.1%
CONTRACT DRILLING -- 3.1%
Sante Fe International* 200 6,800
Transocean Offshore 130 9,441
- ---------------------------------------------------------------------
16,241
- ---------------------------------------------------------------------
TOTAL ENERGY (COST $15,147) 16,241
- ---------------------------------------------------------------------
FINANCIAL -- 6.9%
BANKS -- 1.9%
Banc One 201 9,713
- ---------------------------------------------------------------------
9,713
- ---------------------------------------------------------------------
CONSUMER FINANCE -- 3.2%
Associates First Capital 200 11,100
Money Store (The) 200 5,738
- ---------------------------------------------------------------------
16,838
- ---------------------------------------------------------------------
MORTGAGE RELATED -- 1.8%
MGIC Investment 200 9,588
- ---------------------------------------------------------------------
9,588
- ---------------------------------------------------------------------
TOTAL FINANCIAL (COST $34,742) 36,139
- ---------------------------------------------------------------------
HEALTH -- 12.5%
CONTRACT RESEARCH -- 1.3%
Quintiles Transnational* 100 6,962
- ---------------------------------------------------------------------
6,962
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
DRUGS/PHARMACEUTICALS -- 2.2%
Lilly (Eli) & Company 50 $ 5,466
Merck 28 2,898
Pfizer 28 3,346
- ---------------------------------------------------------------------
11,710
- ---------------------------------------------------------------------
HOSPITAL -- 1.6%
Health Management Associates, Cl A* 300 8,550
- ---------------------------------------------------------------------
8,550
- ---------------------------------------------------------------------
INFORMATION SYSTEMS -- 1.3%
HBO & Company 100 6,887
- ---------------------------------------------------------------------
6,887
- ---------------------------------------------------------------------
MANAGED HEALTHCARE -- 1.4%
Oxford Health Plans* 100 7,175
- ---------------------------------------------------------------------
7,175
- ---------------------------------------------------------------------
OUTPATIENT FACILITIES -- 1.6%
HealthSouth* 337 8,404
- ---------------------------------------------------------------------
8,404
- ---------------------------------------------------------------------
PHARMACEUTICAL SERVICES -- 1.8%
Omnicare 300 9,413
- ---------------------------------------------------------------------
9,413
- ---------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 1.3%
PhyCor* 200 6,887
- ---------------------------------------------------------------------
6,887
- ---------------------------------------------------------------------
TOTAL HEALTH (COST $62,022) 65,988
- ---------------------------------------------------------------------
INDUSTRIAL -- 2.8%
AUTO-RELATED -- 1.4%
Harley-Davidson 150 7,191
- ---------------------------------------------------------------------
7,191
- ---------------------------------------------------------------------
MULTI-INDUSTRY -- 1.4%
Danaher 150 7,622
- ---------------------------------------------------------------------
7,622
- ---------------------------------------------------------------------
TOTAL INDUSTRIAL (COST $14,434) 14,813
- ---------------------------------------------------------------------
SERVICE -- 25.0%
COMMERCIAL SERVICES -- 3.3%
DST Systems* 256 8,528
Pittston Brinks Group 300 9,000
- ---------------------------------------------------------------------
17,528
- ---------------------------------------------------------------------
COMMUNICATION SERVICES -- 1.7%
LCI International* 400 8,750
- ---------------------------------------------------------------------
8,750
- ---------------------------------------------------------------------
EDUCATIONAL SERVICES -- 1.7%
Apollo Group, Cl A* 250 8,813
- ---------------------------------------------------------------------
8,813
- ---------------------------------------------------------------------
ELECTRONIC COMMERCE -- 1.9%
Sterling Commerce* 300 9,863
- ---------------------------------------------------------------------
9,863
- ---------------------------------------------------------------------
3
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- ---------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
EMPLOYMENT SERVICES -- 3.0%
Accustaff* 300 $ 7,106
Manpower 200 8,900
- ---------------------------------------------------------------------
16,006
- ---------------------------------------------------------------------
ENVIRONMENTAL -- 2.7%
Thermo Electron* 166 5,644
USA Waste Services* 220 8,498
- ---------------------------------------------------------------------
14,142
- ---------------------------------------------------------------------
INFORMATION/TECHNOLOGY SERVICES -- 1.4%
Gartner Group, Cl A* 199 7,152
- ---------------------------------------------------------------------
7,152
- ---------------------------------------------------------------------
RADIO/TELEVISION -- 0.9%
Clear Channel Communications* 74 4,556
- ---------------------------------------------------------------------
4,556
- ---------------------------------------------------------------------
SYSTEM INTEGRATORS -- 4.9%
Cambridge Technology Partners* 260 8,320
Computer Sciences* 100 7,213
Keane* 200 10,400
- ---------------------------------------------------------------------
25,933
- ---------------------------------------------------------------------
TRANSACTION PROCESSING -- 3.5%
First Data 217 9,534
FISERV* 200 8,925
- ---------------------------------------------------------------------
18,459
- ---------------------------------------------------------------------
TOTAL SERVICE (COST $129,686) 131,202
- ---------------------------------------------------------------------
TECHNOLOGY -- 24.0%
COMPUTER MANUFACTURING -- 2.2%
Dell Computer* 100 11,744
- ---------------------------------------------------------------------
11,744
- ---------------------------------------------------------------------
DATA STORAGE -- 1.5%
EMC* 200 7,800
- ---------------------------------------------------------------------
7,800
- ---------------------------------------------------------------------
DESIGN AUTOMATION SOFTWARE -- 1.2%
Synopsys* 170 6,248
- ---------------------------------------------------------------------
6,248
- ---------------------------------------------------------------------
NETWORKING HARDWARE -- 1.3%
Cisco Systems* 100 6,713
- ---------------------------------------------------------------------
6,713
- ---------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 6.6%
Altera* 200 10,100
Intel 100 14,181
Linear Technology 200 10,350
- ---------------------------------------------------------------------
34,631
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Shares/Face
Amount Market
Description (000) Value
- ---------------------------------------------------------------------
COMMON STOCKS -- CONCLUDED
SEMI-CONDUCTOR PRODUCTION EQUIPMENT -- 1.3%
Applied Materials* 100 $ 7,081
- ---------------------------------------------------------------------
7,081
- ---------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 1.0%
Peoplesoft* 100 5,275
- ---------------------------------------------------------------------
5,275
- ---------------------------------------------------------------------
SOFTWARE-DESKTOP -- 2.4%
Microsoft* 100 12,638
- ---------------------------------------------------------------------
12,638
- ---------------------------------------------------------------------
SOFTWARE-SYSTEM/MAINFRAME -- 2.1%
BMC Software* 200 11,075
- ---------------------------------------------------------------------
11,075
- ---------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 4.4%
ADC Telecommunications* 140 4,673
Lucent Technologies* 100 7,206
Tellabs* 200 11,170
- ---------------------------------------------------------------------
23,049
- ---------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $124,931) 126,254
- ---------------------------------------------------------------------
Total Common Stocks
(Cost $431,363) 440,697
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 20.1%
Lehman Brothers, Inc.
5.41%, dated 06/30/97, matures 07/01/97,
repurchase price $105,731 (collateralized
by U.S. Treasury Note, par value $109,158,
6.00%, 06/30/99: market value $112,365)(A) $105,715 105,715
- ---------------------------------------------------------------------
Total Repurchase Agreements
(Cost $105,715) 105,715
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.9%
(COST $537,078) 546,412
- ---------------------------------------------------------------------
* Non-income producing security
(A) -- Tri-Party repurchase agreement
Cl -- Class
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- -------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
ASSETS:
Investments at value (Cost $431,363)...................... $440,697
Short-term Investments, at value (Cost $105,715).......... 105,715
Cash...................................................... 34,621
Receivable from Adviser................................... 14,419
Accrued Income............................................ 703
--------
Total assets.............................................. 596,155
--------
LIABILITIES:
Payable for Investment securities purchased............... 50,224
Accrued Expenses.......................................... 20,067
--------
Total liabilities......................................... 70,291
--------
NET ASSETS:
Portfolio shares (authorized 500 million shares - $0.001
par value) based on 48,803 outstanding shares of common
stock................................................... 510,440
Accumulated undistributed net investment income........... 520
Accumulated net realized gain on investments.............. 5,570
Net unrealized appreciation on investments................ 9,334
--------
Total Net Assets.......................................... $525,864
========
Net Asset Value, Offering Price and Redemption Price Per
Share................................................... $ 10.78
========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- -------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
STATEMENT OF OPERATIONS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
INVESTMENT INCOME:
Dividends................................................. $ 49
Interest.................................................. 897
-------
Total Investment Income................................. 946
-------
EXPENSES:
Investment Advisory Fees.................................. 290
Waiver of Investment Advisory Fees........................ (290)
Reimbursement of Other Expenses by Adviser................ (14,419)
Administrative Fees....................................... 58
Custodian Fees............................................ 592
Professional Fees......................................... 5,971
Transfer Agent Fees....................................... 3,333
Printing Fees............................................. 1,086
Directors' Fees........................................... 2,875
Registration and Filing Fees.............................. 44
Insurance and Other Fees.................................. 2
Amortization of Deferred Organizational Costs............. 335
Pricing Fees.............................................. 549
-------
Total Expenses.......................................... 426
-------
NET INVESTMENT INCOME....................................... 520
-------
Net Realized Gain from Security Transactions.............. 5,570
Net Change in Unrealized Appreciation on Investments...... 9,334
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 14,904
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $15,424
=======
(1) The PBHG Large Cap Growth Portfolio commenced operations on May 1, 1997.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- ---------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
STATEMENT OF CHANGES IN NET ASSETS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 520
Net Realized Gain from Security Transactions.............. 5,570
Net Change in Unrealized Appreciation on Investments...... 9,334
--------
Net Increase in Net Assets Resulting from Operations...... 15,424
--------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income..................................... --
Net Realized Gains........................................ --
--------
Total Distributions....................................... --
--------
CAPITAL SHARE TRANSACTIONS:
Shares Issued............................................. 664,771
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (154,331)
--------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 510,440
--------
Total Increase in Net Assets............................ 525,864
--------
NET ASSETS:
Beginning of Period....................................... --
--------
End of Period............................................. $525,864
========
SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 64,062
Shares Issued upon Reinvestment Distributions............. --
Shares Redeemed........................................... (15,259)
--------
Net Increase in Share Transactions........................ 48,803
========
(1) The PBHG Large Cap Growth Portfolio commenced operations on May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- ---------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
FINANCIAL HIGHLIGHTS
May 1, 1997 -- June 30, 1997 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset Net
Value Net Unrealized from Net from Value Assets
Beginning Investment Gain Investment Capital End Total End
of Period Income on Securities Income Gains of Period Return of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1997(1).............. $10.00 $ 0.01 $0.77 -- -- $10.78 7.80% $525,864
<CAPTION>
Ratio
Ratio of Net
Ratio of Expenses Income (Loss)
Ratio of Net to Average to Average
of Expenses Income (Loss) Net Assets Net Assets Portfolio Average
to Average to Average (Excluding (Excluding Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
1997(1).............. 1.10%* 1.34%* 39.14%* (36.69)%* 68.26% $0.0560
</TABLE>
* Annualized.
(1) The PBHG Large Cap Growth Portfolio commenced operations on May 1, 1997.
Total return has not been annualized.
+ Average Commission rate paid per share for security purchases and sales
during the period. Amounts designated as "--" are either $0 or have been
rounded to $0.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1997 (Unaudited)
1. ORGANIZATION
The PBHG Large Cap Growth Portfolio is part of the PBHG Insurance Series Fund,
Inc. (the "Fund"), a Maryland corporation, registered under the Investment
Company Act of 1940, as amended, as a diversified open-end management investment
company. The Fund consists of this Portfolio and five others: the PBHG Growth II
Portfolio (the "Growth II Portfolio"), the PBHG Small Cap Value Portfolio (the
"Small Cap Value Portfolio"), the PBHG Large Cap Value Portfolio (the "Large Cap
Value Portfolio"), the PBHG Technology & Communications Portfolio (the
"Technology & Communications Portfolio"), and the PBHG Select 20 Portfolio (the
"Select 20 Portfolio") (each a "Portfolio" and, collectively, the "Portfolios").
As of June 30, 1997, the Small Cap Value, the Large Cap Value, and the Select 20
Portfolios had not commenced operations. Each Portfolio's prospectus provides a
description of the Portfolio's investment objectives, policies and strategies.
The assets of each Portfolio are segregated, and a shareholder's interest is
limited to the Portfolio in which shares are held. The Fund is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of life insurance companies.
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 for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recent bid price.
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. 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. Distributions of net realized capital gains,
for all portfolios, are generally made to shareholders annually. 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 generally accepted accounting
principles. 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.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or 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.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure 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.
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.
All organizational costs incurred in connection with the start up of the Growth
II Portfolio, the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Technology & Communications Portfolio, and the
Select 20 Portfolio are being amortized on a straight line basis over a period
of sixty months. In the event that any of the initial shares of the Portfolio
are redeemed by any holder thereof during the period that the Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, 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 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 at an annual rate of 0.75% of the average daily
net assets of the Large Cap Growth Portfolio. In the interest of limiting
expenses of the Portfolios, the Adviser has entered into an expense limitation
agreement with the Fund ("Expense Limitation Agreement"). With respect to the
Large Cap Growth Portfolio, the Adviser has agreed to waive or limit its fees
and to assume other expenses of the Portfolio to the extent necessary to limit
the total annual expenses (expressed
9
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
as a percentage of the Portfolio's average daily net assets) to 1.10%.
Reimbursement by the Portfolio of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement during
any of the two previous fiscal years may be made at a later date when the
Portfolio has reached a sufficient asset size to permit reimbursement to be made
without causing the total annual expense ratio of the Large Cap Growth Portfolio
to exceed 1.10%. Consequently, no reimbursement by the Portfolio will be made
unless: (i) the Portfolio's assets exceed $75 million; (ii) the Portfolio's
total annual expense ratio is less than 1.10%, and (iii) the payment of such
reimbursement was approved by the Board of Directors on a quarterly basis.
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 Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Fund, and (ii) The PBHG Funds, Inc. and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion.
Certain officers and directors 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 Large Cap Growth Portfolio for the period
from May 1, 1997 through June 30, 1997, amounted to $545,949 and $120,155,
respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Large Cap Growth Portfolio amounted to $15,453 and $6,119, respectively.
The total cost of securities and the net realized gains or losses on securities
sold for Federal income tax purposes at June 30, 1997 was not materially
different from amounts reported for financial reporting purposes.
5. CONSENT OF SOLE SHAREHOLDER
On March 10, 1997, the sole shareholder of the Portfolios approved the following
appointments: Pilgrim Baxter & Associates, Ltd. as investment adviser to the
Portfolios, Newbold's Asset Management, Inc. as investment sub-adviser to the
PBHG Small Cap Value and PBHG Large Cap Value Portfolios, PBHG Fund Services as
administrator of the Portfolios, SEI Fund Resources as sub-administrator to the
Portfolios and SEI Investments Distribution Co. to serve as distributor of the
shares of the Portfolios.
6. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund and (ii) The PBHG
Funds, Inc. No Portfolio had an outstanding borrowing at June 30, 1997, or at
any time during the period from May 1, 1997 (commencement of operations) through
June 30, 1997.
10
<PAGE>
[PBHG FUNDS LOGO]
PBHG Growth II Portfolio
-------------------------
INVESTMENT ADVISER:
PILGRAM BAXTER
& ASSOCIATES, LTD.
DISTRIBUTOR:
SEI INVESTMENTS
DISTRIBUTION CO.
-------------------------
PBHG
Insurance
Series
Fund,
Inc.
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
[PBHG FUNDS LOGO]
PBHG GROWTH II PORTFOLIO
Dear Shareholder:
The PBHG Insurance Series Fund, Inc.--Growth II Portfolio ended an abbreviated
first half on June 30, 1997. In its first two months of operation, the fund
generated a total return of 4.50%, compared with the benchmark Russell Mid-Cap
Growth Index return of 11.97%. Performance in this initial period was somewhat
constrained by the high proportion of cash in the portfolio, a consequence of
being in a start-up mode when large (relative to a small base) daily cash
inflows can create an "under-invested" portfolio. This was particularly true
early in the month of May, when the market was rising rapidly. Generally
speaking, however, the equity investments made during this period have performed
quite well.
MARKET OVERVIEW
The broad equity market has continued to move to new highs, led by the large
capitalization, stable growth companies that characterize the Dow Jones and
Standard & Poor's 500 Indexes. During the second quarter of the year, their
smaller capitalization growth brethren were finally able to keep pace for the
first time in almost a year. Several elements that we've come to recognize as
positives for our investment style were clearly present during the quarter.
Economists grew increasingly confident as the quarter progressed that real
growth would slow from the first quarter's torrid pace. And with reported rates
of inflation still quite low and the Fed unwilling to follow up on its initial
"pre-emptive" rate hike, the bond market enjoyed a significant rally. Equally as
important, evidence continued to suggest that the relative valuation correction
of smaller company growth stocks that began last summer had largely run its
course, staying--at least for the moment--within the confines of historic
statistical high/low ranges vis-a-vis the broad market. And finally, we should
note that we've had no trouble maintaining the operating and financial
characteristics of the underlying companies in our portfolios. At June 30th, the
position-weighted latest twelve-month earnings growth on our invested assets was
57%, with a 21% return on equity. For the first time in a while, this was the
right combination.
Supported by an economic environment that appears ideal for equity investors,
the outlook seems promising. A slowing rate of growth is reducing pressure on
inflation and interest rates, yet the economy appears able to produce real
expansion at a pace fast enough to allow competitive and efficient companies to
generate solid growth. As long as economic statistics continue pointing to this
"ideal" scenario, the upward trend in equity prices should continue. We hasten
to add, however, that with the broad market's valuation at or above historic
norms, volatility is likely to be an increasingly pervasive characteristic on a
day-to-day basis. Fortunately, as portfolio managers, we believe periods of
volatility allow us to do some of our most opportunistic buying.
THE PILGRIM BAXTER DISCIPLINE
As part of our first semi-annual review, it seems worthwhile to review our
investment philosophy. Our investment philosophy and methodology remain the same
through both up and down cycles. We continue to seek out and invest in the
highest quality, fastest growing companies we can find within the capitalization
parameters established for the portfolio. As long-time managers following this
style, we are pleased to report that we believe there is currently no shortage
of very good companies, quality management, and strong ideas in which to invest.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
We continue to find most of our investments in the technology, health care,
consumer, and service sectors--those industries in which company and stock price
performance have been most remarkable over the last several years. As a result,
we often find our portfolios highly concentrated in particular sectors of the
market at different times. We tend to hold significant positions in industries
while their growth curves are the steepest--either due to technological
improvement, an under-supply of new or key industry products, or perhaps
consolidation among competitors. Our companies are most often characterized by
rapid unit growth and by problem-solving capacity for their customers. This
concentration can contribute to very favorable returns while the companies scale
the growth curve, and there aren't enough shares to go around Wall Street. But
the ride down may be equally steep, once investors get a hint that the growth
may be slowing. Our disciplined investment process identifies and drives us
toward those companies whose fortunes are meeting or exceeding operating
expectations, and away from those whose business opportunities are flagging.
Our disciplined investment approach has always and will continue to strictly
follow a "bottom-up" approach, i.e., focusing on individual companies--their
fundamental business characteristics and the sustainability of their growth
rates. We don't make market forecasts and don't use others' "big picture"
forecasts to guide our investment process. Finally, we strive to be fully
invested at all times, since we believe attempting to "time" the market is also
not a productive endeavor.
In closing, we thank you for your confidence in Pilgrim Baxter & Associates and
in the PBHG Insurance Series Fund.
Sincerely,
/s/ Bruce J. Muzina /s/ Gary L. Pilgrim
------------------------ ----------------------
Bruce J. Muzina Gary L. Pilgrim
Portfolio Manager Portfolio Manager
PBHG Growth II Portfolio PBHG Growth II Portfolio
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- 87.6%
CONSUMER -- 16.4%
CONSUMER PRODUCTS-MISCELLANEOUS -- 1.2%
Blyth Industries* 495 $ 16,706
- ---------------------------------------------------------------------
16,706
- ---------------------------------------------------------------------
HOTELS/RESORTS -- 0.5%
Capstar Hotel* 200 6,400
- ---------------------------------------------------------------------
6,400
- ---------------------------------------------------------------------
LEISURE/RECREATIONAL -- 0.9%
Callaway Golf 369 13,100
- ---------------------------------------------------------------------
13,100
- ---------------------------------------------------------------------
RESTAURANTS -- 0.6%
Landry's Seafood Restaurants* 330 7,590
- ---------------------------------------------------------------------
7,590
- ---------------------------------------------------------------------
RETAIL-APPAREL -- 3.8%
Jones Apparel Group* 305 14,564
Nautica Enterprises* 632 16,708
Polo Ralph Lauren* 110 3,011
Tommy Hilfiger* 467 18,768
- ---------------------------------------------------------------------
53,051
- ---------------------------------------------------------------------
RETAIL-CATALOG -- 1.1%
CDW Computer Centers* 290 15,388
- ---------------------------------------------------------------------
15,388
- ---------------------------------------------------------------------
RETAIL-DISCOUNT STORES -- 1.2%
Dollar Tree Stores* 330 16,624
- ---------------------------------------------------------------------
16,624
- ---------------------------------------------------------------------
RETAIL-HOME FURNISHING -- 2.2%
Bed Bath and Beyond* 995 30,223
- ---------------------------------------------------------------------
30,223
- ---------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS -- 1.6%
Staples* 981 22,808
- ---------------------------------------------------------------------
22,808
- ---------------------------------------------------------------------
RETAIL-SPECIALTY -- 3.3%
Borders Group* 300 7,238
General Nutrition Companies* 520 14,560
Just for Feet* 572 9,974
Tiffany & Company 320 14,780
- ---------------------------------------------------------------------
46,552
- ---------------------------------------------------------------------
TOTAL CONSUMER (COST $219,858) 228,442
- ---------------------------------------------------------------------
ENERGY -- 3.5%
CONTRACT DRILLING -- 1.6%
Global Marine* 759 17,647
Santa Fe International* 130 4,420
- ---------------------------------------------------------------------
22,067
- ---------------------------------------------------------------------
EXPLORATION & PRODUCTION -- 0.6%
Chesapeake Energy 908 8,910
- ---------------------------------------------------------------------
8,910
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONTINUED
SERVICE/EQUIPMENT -- 1.3%
BJ Services* 100 $ 5,362
Tidewater 293 12,892
- ---------------------------------------------------------------------
18,254
- ---------------------------------------------------------------------
TOTAL ENERGY (COST $53,741) 49,231
- ---------------------------------------------------------------------
FINANCIAL -- 1.7%
CONSUMER FINANCE -- 1.7%
Money Store (The) 818 23,466
- ---------------------------------------------------------------------
23,466
- ---------------------------------------------------------------------
TOTAL FINANCIAL (COST $21,326) 23,466
- ---------------------------------------------------------------------
HEALTH -- 14.8%
CONTRACT RESEARCH -- 1.8%
Quintiles Transnational* 367 25,552
- ---------------------------------------------------------------------
25,552
- ---------------------------------------------------------------------
DRUGS/PHARMACEUTICALS -- 1.6%
Dura Pharmaceuticals* 200 7,975
Jones Medical Industries 300 14,250
- ---------------------------------------------------------------------
22,225
- ---------------------------------------------------------------------
INFORMATION SYSTEMS -- 2.9%
HBO & Company 585 40,292
- ---------------------------------------------------------------------
40,292
- ---------------------------------------------------------------------
MANAGED HEALTH CARE -- 2.8%
Oxford Health Plans* 541 38,817
- ---------------------------------------------------------------------
38,817
- ---------------------------------------------------------------------
OUTPATIENT FACILITIES -- 3.2%
HealthSouth* 1,225 30,549
Total Renal Care Holdings* 353 14,186
- ---------------------------------------------------------------------
44,735
- ---------------------------------------------------------------------
PHYSICIAN PRACTICE MANAGEMENT -- 2.5%
PhyCor* 1,009 34,747
- ---------------------------------------------------------------------
34,747
- ---------------------------------------------------------------------
TOTAL HEALTH (COST $195,255) 206,368
- ---------------------------------------------------------------------
INDUSTRIAL -- 2.1%
AUTO-RELATED -- 1.1%
Harley-Davidson 310 14,861
- ---------------------------------------------------------------------
14,861
- ---------------------------------------------------------------------
PLASTIC/CARBON -- 1.0%
Zoltek Companies* 383 14,650
- ---------------------------------------------------------------------
14,650
- ---------------------------------------------------------------------
TOTAL INDUSTRIAL (COST $26,481) 29,511
- ---------------------------------------------------------------------
SERVICE -- 18.6%
CORRECTIONAL SERVICES -- 2.9%
Corrections Corp. of America* 1,009 40,108
- ---------------------------------------------------------------------
40,108
- ---------------------------------------------------------------------
EDUCATIONAL SERVICES -- 1.4%
Apollo Group, Cl A* 583 20,551
- ---------------------------------------------------------------------
20,551
- ---------------------------------------------------------------------
EMPLOYMENT SERVICES -- 1.1%
Accustaff* 645 15,278
- ---------------------------------------------------------------------
15,278
- ---------------------------------------------------------------------
</TABLE>
3
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONTINUED
ENVIRONMENTAL -- 4.5%
Allied Waste Industries* 500 $ 8,688
United Waste Systems* 376 15,416
US Filter* 440 11,990
USA Waste Services* 685 26,458
- ---------------------------------------------------------------------
62,552
- ---------------------------------------------------------------------
INFORMATION/COMPUTER SERVICES -- 2.3%
Gartner Group, Cl A* 895 32,164
- ---------------------------------------------------------------------
32,164
- ---------------------------------------------------------------------
RADIO/TELEVISION -- 3.1%
Clear Channel Communications* 588 36,199
Jacor Communications* 181 6,923
- ---------------------------------------------------------------------
43,122
- ---------------------------------------------------------------------
TELEMARKETING -- 1.0%
TeleTech Holdings* 558 14,543
- ---------------------------------------------------------------------
14,543
- ---------------------------------------------------------------------
TRANSACTION PROCESSING -- 2.3%
Paychex 834 31,692
- ---------------------------------------------------------------------
31,692
- ---------------------------------------------------------------------
TOTAL SERVICE (COST $249,487) 260,010
- ---------------------------------------------------------------------
TECHNOLOGY -- 30.5%
CONTRACT MANUFACTURING -- 1.3%
Solectron* 255 17,850
- ---------------------------------------------------------------------
17,850
- ---------------------------------------------------------------------
DATA STORAGE -- 0.4%
Western Digital* 200 6,325
- ---------------------------------------------------------------------
6,325
- ---------------------------------------------------------------------
EMBEDDED SOFTWARE -- 1.3%
Wind River Systems* 460 17,595
- ---------------------------------------------------------------------
17,595
- ---------------------------------------------------------------------
GRAPHIC/IMAGE PROCESSING -- 2.7%
Electronics for Imaging* 790 37,327
- ---------------------------------------------------------------------
37,327
- ---------------------------------------------------------------------
NETWORKING SECURITY -- 1.5%
Security Dynamics Technologies* 570 21,019
- ---------------------------------------------------------------------
21,019
- ---------------------------------------------------------------------
NETWORKING SOFTWARE -- 2.6%
McAfee Associates* 571 36,044
- ---------------------------------------------------------------------
36,044
- ---------------------------------------------------------------------
PC-PERIPHERALS MANUFACTURING -- 1.5%
Adaptec* 599 20,815
- ---------------------------------------------------------------------
20,815
- ---------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.7%
Altera* 541 27,320
Lattice Semiconductor* 170 9,605
Linear Technology 400 20,700
Microchip Technology* 228 6,783
Vitesse Semiconductor* 470 15,363
- ---------------------------------------------------------------------
79,771
- ---------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------
Shares/Face Market
Description Amount Value
- ---------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS -- CONCLUDED
SEMI-CONDUCTOR TESTING EQUIPMENT -- 0.5%
Uniphase* 120 $ 6,990
- ---------------------------------------------------------------------
6,990
- ---------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 3.9%
HNC Software* 411 15,670
Peoplesoft* 747 39,404
- ---------------------------------------------------------------------
55,074
- ---------------------------------------------------------------------
SOFTWARE-INTERNET -- 1.2%
America Online* 290 16,131
- ---------------------------------------------------------------------
16,131
- ---------------------------------------------------------------------
SOFTWARE-OTHER -- 1.0%
Viasoft* 275 13,956
- ---------------------------------------------------------------------
13,956
- ---------------------------------------------------------------------
SOFTWARE-SYSTEM/MAINFRAME -- 1.5%
BMC Software* 380 21,043
- ---------------------------------------------------------------------
21,043
- ---------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 5.4%
ADC Telecommunications* 934 31,172
Advanced Fibre Communication* 120 7,245
Tellabs* 661 36,934
- ---------------------------------------------------------------------
75,351
- ---------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $416,347) 425,291
- ---------------------------------------------------------------------
Total Common Stocks
(Cost $1,182,495) 1,222,319
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 13.1%
Lehman Brothers Inc.
5.41%, dated 06/30/97, matures 07/01/97,
repurchase price $182,890
(collateralized by U.S. Treasury Note,
par value $188,818, 6.00%, 06/30/99:
market value $194,365) (A) $182,863 182,863
- ---------------------------------------------------------------------
Total Repurchase Agreements
(Cost $182,863) 182,863
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.7%
(COST $1,365,358) 1,405,182
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES, NET -- (0.7%) (9,115)
- ---------------------------------------------------------------------
NET ASSETS:
Portfolio Shares (authorized 500 million
shares -- $0.001 par value) based on
133,591 outstanding shares of common stock 1,356,514
Accumulated undistributed net investment
income 811
Accumulated net realized loss on
investments (1,082)
Net unrealized appreciation on investments 39,824
- ---------------------------------------------------------------------
TOTAL NET ASSETS -- 100% $1,396,067
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $10.45
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
Cl -- Class
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF OPERATIONS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 75
Interest.................................................. 1,884
-------
Total Investment Income................................. 1,959
-------
EXPENSES:
Investment Advisory Fees.................................. 813
Waiver of Investment Advisory Fees........................ (813)
Reimbursement of Other Expenses by Adviser................ (16,307)
Administrative Fees....................................... 143
Custodian Fees............................................ 593
Professional Fees......................................... 7,727
Transfer Agent Fees....................................... 3,333
Printing Fees............................................. 1,405
Directors' Fees........................................... 3,091
Registration and Filing Fees.............................. 118
Amortization of Deferred Organizational Costs............. 334
Pricing Fees.............................................. 711
-------
Total Expenses.......................................... 1,148
-------
NET INVESTMENT INCOME..................................... 811
-------
Net Realized Loss from Security Transactions.............. (1,082)
Net Change in Unrealized Appreciation on Investments...... 39,824
-------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS........... 38,742
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $39,553
=======
</TABLE>
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
STATEMENT OF CHANGES IN NET ASSETS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 811
Net Realized Loss from Security Transactions.............. (1,082)
Net Change in Unrealized Appreciation on Investments...... 39,824
----------
Net Increase in Net Assets Resulting from Operations...... 39,553
----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income..................................... --
Net Realized Gains........................................ --
----------
Total Distributions....................................... --
----------
CAPITAL SHARE TRANSACTIONS:
Shares Issued............................................. 1,495,499
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (138,985)
----------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 1,356,514
----------
Total Increase in Net Assets............................ 1,396,067
----------
NET ASSETS:
Beginning of Period....................................... --
----------
End of Period............................................. $1,396,067
==========
SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 147,050
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (13,459)
----------
Net Increase in Share Transactions........................ 133,591
==========
</TABLE>
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
FINANCIAL HIGHLIGHTS
May 1, 1997 -- June 30, 1997 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Realized Net
Asset and Distributions Distributions Asset Net
Value Net Unrealized from Net from Value Assets
Beginning Investment Gains Investment Capital End Total End
of Period Income on Securities Income Gains of Period Return of Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997(1) $10.00 $0.01 $0.44 -- -- $10.45 4.50% $1,396,067
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
Ratio to Average to Average
Ratio of Net Net Assets Net Assets
of Expenses Income (Loss) (Excluding (Excluding Portfolio Average
to Average to Average Waivers and Waivers and Turnover Commission
Net Assets Net Assets Reimbursements) Reimbursements) Rate Rate+
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997(1) 1.20%* 0.85%* 19.10%* (17.05)%* 9.16% $0.0411
</TABLE>
* Annualized.
(1) The PBHG Growth II Portfolio commenced operations on May 1, 1997. Total
return has not been annualized.
+ Average Commission rate paid per share for security purchases and sales
during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1997 (Unaudited)
1. ORGANIZATION
The PBHG Growth II Portfolio is part of the PBHG Insurance Series Fund, Inc.
(the "Fund"), a Maryland corporation, registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment
company. The Fund consists of this Portfolio and five others: the PBHG Large Cap
Growth Portfolio (the "Large Cap Growth Portfolio"), the PBHG Small Cap Value
Portfolio (the "Small Cap Value Portfolio"), the PBHG Large Cap Value Portfolio
(the "Large Cap Value Portfolio"), the PBHG Technology & Communications
Portfolio (the "Technology & Communications Portfolio"), and the PBHG Select 20
Portfolio (the "Select 20 Portfolio") (each a "Portfolio" and, collectively, the
"Portfolios"). As of June 30, 1997, the Small Cap Value, the Large Cap Value,
and the Select 20 Portfolios had not commenced operations. Each Portfolio's
prospectus provides a description of the Portfolio's investment objectives,
policies and strategies. The assets of each Portfolio are segregated, and a
shareholder's interest is limited to the Portfolio in which shares are held. The
Fund is intended to be a funding vehicle for variable annuity contracts and
variable life insurance policies to be offered by the separate accounts of life
insurance companies.
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 for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recent bid price.
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. 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. Distributions of net realized capital gains,
for all portfolios, are generally made to shareholders annually. 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 generally accepted accounting
principles. 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.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or 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.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure 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.
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.
All organizational costs incurred in connection with the start up of the Growth
II Portfolio, the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Technology & Communications Portfolio, and the
Select 20 Portfolio are being amortized on a straight line basis over a period
of sixty months. In the event that any of the initial shares of the Portfolio
are redeemed by any holder thereof during the period that the Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, 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 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 at an annual rate of 0.85% of the average daily net assets of
the Growth II Portfolio. In the interest of limiting expenses of the Portfolios,
the Adviser has entered into an expense limitation agreement with the Fund
("Expense Limitation Agreement"). With respect to the Growth II Portfolio, the
Adviser has agreed to waive or limit its fees and to assume other expenses of
the Portfolio to the extent necessary to limit the total annual expenses
(expressed as a percentage of the
8
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
Portfolio's average daily net assets) to 1.20%. Reimbursement by the Portfolio
of the advisory fees waived or limited and other expenses paid by the Adviser
pursuant to the Expense Limitation Agreement during any of the two previous
fiscal years may be made at a later date when the Portfolio has reached a
sufficient asset size to permit reimbursement to be made without causing the
total annual expense ratio of the Growth II Portfolio to exceed 1.20%.
Consequently, no reimbursement by the Portfolio will be made unless: (i) the
Portfolio's assets exceed $75 million; (ii) the Portfolio's total annual expense
ratio is less than 1.20%, and (iii) the payment of such reimbursement was
approved by the Board of Directors on a quarterly basis.
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 Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Fund and (ii) The PBHG Funds, Inc., and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion.
Certain officers and directors 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 Growth II Portfolio for the period from
May 1, 1997 through June 30, 1997, amounted to $1,231,942 and $48,365,
respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Growth II Portfolio amounted to $59,637 and $19,813, respectively.
The total cost of securities and the net realized gains or losses on securities
sold for Federal income tax purposes at June 30, 1997 was not materially
different from amounts reported for financial reporting purposes.
5. CONSENT OF SOLE SHAREHOLDER
On March 10, 1997, the sole shareholder of the Portfolios approved the following
appointments: Pilgrim Baxter & Associates, Ltd. as investment adviser to the
Portfolios, Newbold's Asset Management, Inc. as investment sub-adviser to the
Small Cap Value and Large Cap Value Portfolios, PBHG Fund Services as
administrator to the Portfolios, SEI Fund Resources as sub-administrator to the
Portfolios and SEI Investments Distribution Co. to serve as distributor of the
shares of the Portfolios.
6. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund and (ii) The PBHG
Funds, Inc. No Portfolio had an outstanding borrowing at June 30, 1997, or at
any time during the period from May 1, 1997 (commencement of operations) through
June 30, 1997.
9
<PAGE>
PBHG
FUNDS
PBHG TECHNOLOGY &
COMMUNICATIONS PORTFOLIO
------------------
INVESTMENT ADVISER:
PILGRIM BAXTER
& ASSOCIATES, LTD.
DISTRIBUTOR:
SEI INVESTMENTS
DISTRIBUTION CO.
------------------
PBHG
INSURANCE
SERIES
FUND,
INC.
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
PBHG
FUNDS
PBHG TECHNOLOGY &
COMMUNICATIONS PORTFOLIO
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- Technology & Communications Portfolio
ended an abbreviated first half on June 30, 1997. In its first two months of
operation, the fund generated a total return of 3.2%, compared with the
benchmark Pacific Stock Exchange High Technology Index return of 12.8%.
Performance in this initial period was somewhat constrained by the high
proportion of cash in the portfolio, a consequence of being in a start-up mode
when large (relative to a small base) daily cash inflows can create an
"under-invested" portfolio. This was particularly true early in the month of
May, when the market was rising rapidly. Generally speaking, however, the equity
investments made during this period have performed quite well.
MARKET OVERVIEW
The technology sector rebounded sharply in May after spending much of the last
twelve months under significant pressure, along with much of the growth segment
of the market. Investors seemed to regain their confidence in the technology
sector in late April and to realize that many of these companies still have
significant room for growth. Of the 207 technology concerns in the Pilgrim
Baxter Universe that had posted quarterly results by mid-June, the average
earnings outperformance was more than 10%. Market attention has also been
refocused on technology stocks by reports that telecommunications and computer
infrastructure spending is expected to increase in 1997.
The broad equity market has continued to move to new highs, led by the large
capitalization, stable growth companies that characterize the Dow Jones and
Standard & Poor's 500 Indexes. During the second quarter of the year, their
smaller capitalization growth brethren were finally able to keep pace for the
first time in almost a year. Several elements we've come to recognize as
positives for our investment style were clearly present during the quarter.
Economists grew increasingly confident as the quarter progressed that real
growth would slow from the first quarter's torrid pace. And with reported rates
of inflation still quite low and the Fed unwilling to follow its initial
"preemptive" rate hike, the bond market enjoyed a significant rally. Equally as
important, evidence continued to suggest that the relative valuation correction
of smaller company growth stocks that began last summer had largely run its
course, staying -- at least for the moment -- within the confines of historic
statistical high/low ranges vis-a-vis the broad market. And finally, we should
note that we've had no trouble maintaining the operating and financial
characteristics of the underlying companies in our portfolios. At June 30th, the
position-weighted latest twelve-month earnings-growth on our invested assets was
68%, with a 20% return on equity. For the first time in a while, this was the
right combination.
Supported by an economic environment that appears ideal for equity investors,
the outlook seems promising. A slowing rate of growth is reducing pressure on
inflation and interest rates, yet the economy appears able to produce real
expansion at a pace fast enough to allow competitive and efficient companies to
generate solid growth. As long as economic statistics continue pointing to this
"ideal" scenario, the upward trend in equity prices should continue. We hasten
to add, however, that with the broad market's valuation at or above historic
norms, volatility is likely to be an increasingly pervasive characteristic on a
day-to-day basis. Fortunately, as portfolio managers, we believe periods of
volatility allow us to do some of our most opportunistic buying.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- -------------------------------------------------------------------------------
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
THE PILGRIM BAXTER DISCIPLINE
As part of our first semi-annual review, it seems worthwhile to review our
investment philosophy. Our investment philosophy and methodology remain the same
through both up and down cycles. We continue to seek out and invest in the
highest quality, fastest growing companies we can find within the capitalization
parameters established for the portfolio. As long-time managers following this
style, we are pleased to report that we believe there is currently no shortage
of very good companies, quality management, and strong ideas in which to invest.
The Technology & Communications Portfolio invests at least 65% of its assets in
companies that rely extensively on technology or communications in their product
development or operations, or those benefiting sharply from technological
advancements. We tend to hold significant positions in industries while their
growth curves are the steepest--either due to technological improvement, an
under-supply of new or key industry products, or perhaps consolidation among
competitors. Our companies are most often characterized by rapid unit growth and
by problem-solving capacity for their customers. This concentration can
contribute to very favorable returns while the companies scale the growth curve,
and there aren't enough shares to go around Wall Street. But the ride down may
be equally steep, once investors get a hint that the growth may be slowing. Our
disciplined investment process identifies and drives us toward those companies
whose fortunes are meeting or exceeding operating expectations, and away from
those whose business opportunities are flagging.
Our disciplined investment approach has always and will continue to strictly
follow a "bottom-up" approach, i.e., focusing on individual companies -- their
fundamental business characteristics and the sustainability of their growth
rates. We don't make market forecasts and don't use others' "big picture"
forecasts to guide our investment process, as we believe this would not be the
most productive use of our time. Finally, we strive to be fully invested at all
times, since we believe attempting to "time" the market is also not a productive
endeavor.
In closing, we thank you for your confidence in Pilgrim Baxter & Associates and
in the PBHG Insurance Series Funds.
Sincerely,
/s/ John S. Force
- ------------------------
John S. Force
Portfolio Manager
PBHG Technology & Communications Portfolio
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
SCHEDULE OF INVESTMENTS
As of June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- 76.6%
HEALTH -- 5.5%
CONTRACT RESEARCH -- 3.5%
Quintiles Transnational* 100 $ 6,962
- ---------------------------------------------------------------------
6,962
- ---------------------------------------------------------------------
DRUGS/PHARMACEUTICALS -- 2.0%
Dura Pharmaceuticals* 100 3,987
- ---------------------------------------------------------------------
3,987
- ---------------------------------------------------------------------
TOTAL HEALTH (COST $10,643) 10,949
- ---------------------------------------------------------------------
SERVICE -- 13.8%
EMPLOYMENT SERVICES -- 1.2%
Accustaff* 100 2,369
- ---------------------------------------------------------------------
2,369
- ---------------------------------------------------------------------
PRINTING SERVICES/FORMS -- 2.1%
Consolidated Graphics* 100 4,175
- ---------------------------------------------------------------------
4,175
- ---------------------------------------------------------------------
SYSTEMS INTEGRATORS -- 3.3%
Cambridge Technology Partners* 200 6,400
- ---------------------------------------------------------------------
6,400
- ---------------------------------------------------------------------
TRANSACTION PROCESSING -- 7.2%
Ace Comm* 100 1,962
Concord EFS* 100 2,588
National Data 100 4,331
Saville Systems ADR* 100 5,200
- ---------------------------------------------------------------------
14,081
- ---------------------------------------------------------------------
TOTAL SERVICE (COST $19,271) 27,025
- ---------------------------------------------------------------------
TECHNOLOGY -- 57.3%
CABLES/FIBEROPTICS -- 1.5%
Cable Design Technologies* 100 2,944
- ---------------------------------------------------------------------
2,944
- ---------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 1.1%
Scopus Technology* 100 2,238
- ---------------------------------------------------------------------
2,238
- ---------------------------------------------------------------------
DATA STORAGE -- 1.9%
Network Appliance* 100 3,800
- ---------------------------------------------------------------------
3,800
- ---------------------------------------------------------------------
DESIGN AUTOMATION SOFTWARE -- 8.0%
Cadence Design Systems* 100 3,350
Parametric Technology* 100 4,256
Stratasys* 100 1,612
Technomatix Technologies Limited* 200 6,500
- ---------------------------------------------------------------------
15,718
- ---------------------------------------------------------------------
EMBEDDED SOFTWARE -- 0.7%
Peerless Systems* 100 1,375
- ---------------------------------------------------------------------
1,375
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Market
Description Shares Value
- ---------------------------------------------------------------------
COMMON STOCKS -- CONTINUED
GRAPHIC/IMAGE PROCESSING -- 4.8%
Electronics for Imaging* 200 $ 9,450
- ---------------------------------------------------------------------
9,450
- ---------------------------------------------------------------------
NETWORKING SECURITY -- 0.6%
Raptor Systems* 100 1,119
- ---------------------------------------------------------------------
1,119
- ---------------------------------------------------------------------
PC-PERIPHERALS MANUFACTURING -- 3.0%
Encad* 100 4,150
Trident International* 100 1,800
- ---------------------------------------------------------------------
5,950
- ---------------------------------------------------------------------
PRECISION INSTRUMENTS -- 3.7%
LeCroy* 100 3,687
Remec* 150 3,525
- ---------------------------------------------------------------------
7,212
- ---------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 6.5%
Altera* 100 5,050
CP Clare 100 1,575
Microchip Technology* 100 2,975
Vitesse Semiconductor* 100 3,269
- ---------------------------------------------------------------------
12,869
- ---------------------------------------------------------------------
SEMI-CONDUCTOR PRODUCTION EQUIPMENT -- 1.9%
PRI Automation* 100 3,794
- ---------------------------------------------------------------------
3,794
- ---------------------------------------------------------------------
SOFTWARE-MANUFACTURING -- 1.9%
Aspen Technology* 100 3,763
- ---------------------------------------------------------------------
3,763
- ---------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 4.5%
Citrix Systems* 100 4,388
Documentum* 100 2,488
Iona Technologies ADR* 100 1,975
- ---------------------------------------------------------------------
8,851
- ---------------------------------------------------------------------
SOFTWARE-DATABASE -- 1.6%
Cognos* 100 3,112
- ---------------------------------------------------------------------
3,112
- ---------------------------------------------------------------------
SOFTWARE-OTHER -- 2.1%
JDA Software Group* 100 3,413
Oshap Technologies Limited* 100 738
- ---------------------------------------------------------------------
4,151
- ---------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 10.4%
ADC Telecommunications* 100 3,337
Ciena* 100 4,713
P-COM* 100 3,300
Teledata Communication* 100 3,437
Tellabs* 100 5,587
- ---------------------------------------------------------------------
20,374
- ---------------------------------------------------------------------
VOICE/CALL TRANSACTION PROCESSING -- 3.1%
Nice Systems Limited* 200 6,000
- ---------------------------------------------------------------------
6,000
- ---------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $117,029) 112,720
- ---------------------------------------------------------------------
Total Common Stocks
(Cost $146,943) 150,694
- ---------------------------------------------------------------------
3
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
- ---------------------------------------------------------------------
Shares/Face Market
Description Amount Value
- ---------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 20.0%
Lehman Brothers Inc.
5.41% dated 06/30/97, matures 07/01/97,
repurchase price $39,315 (collateralized by
U.S. Treasury Note, par value $40,589,
6.00%, 06/30/99: market value $41,782) (A) $39,309 $ 39,309
- ---------------------------------------------------------------------
Total Repurchase Agreements
(Cost $39,309) 39,309
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 96.6%
(COST $186,252) 190,003
- ---------------------------------------------------------------------
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF ASSETS AND LIABILTIES
June 30, 1997(Unaudited)
ASSETS:
Investments, at value (Cost $146,943)..................... $150,694
Short-term investments, at value (Cost $39,309)........... 39,309
Cash...................................................... 11,396
Receivable from Adviser................................... 6,143
Accrued Income............................................ 379
--------
Total assets.............................................. 207,921
--------
LIABILITIES:
Payable for Investment securities purchased............... 3,433
Accrued Expenses.......................................... 7,760
--------
Total liabilities......................................... 11,193
--------
NET ASSETS:
Portfolio shares (authorized 500 million shares --
$0.001 par value) based on 19,069 outstanding
shares of common stock.................................. 191,245
Accumulated undistributed net investment income........... 268
Accumulated net realized gain on investments.............. 1,464
Net unrealized appreciation on investments................ 3,751
--------
Total Net Assets.......................................... $196,728
========
Net Asset Value, Offering Price and Redemption Price Per
Share................................................... $ 10.32
========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF OPERATIONS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
INVESTMENT INCOME:
Dividends................................................. $ --
Interest.................................................. 455
------
Total Investment Income................................. 455
------
EXPENSES:
Investment Advisory Fees.................................. 133
Waiver of Investment Advisory Fees........................ (133)
Reimbursement of Other Expenses by Adviser................ (6,143)
Administrative Fees....................................... 23
Custodian Fees............................................ 590
Professional Fees......................................... 1,214
Transfer Agent Fees....................................... 3,333
Printing Fees............................................. 221
Directors' Fees........................................... 486
Registration and Filing Fees.............................. 17
Amortization of Deferred Organizational Costs............. 334
Pricing Fees.............................................. 112
------
Total Expenses.......................................... 187
------
NET INVESTMENT INCOME....................................... $ 268
------
Net Realized Gain from Security Transactions.............. 1,464
Net Change in Unrealized Appreciation on Investments...... 3,751
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 5,215
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $5,483
======
(1) The PBHG Technology & Communications Portfolio commenced operations on
May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF CHANGES IN NET ASSETS
May 1, 1997 -- June 30, 1997(1) (Unaudited)
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 268
Net Realized Gain from Security Transactions.............. 1,464
Net Change in Unrealized Appreciation on Investments...... 3,751
--------
Net Increase in Net Assets Resulting from Operations.... 5,483
--------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income..................................... --
Net Realized Gains........................................ --
--------
Total Distributions..................................... --
--------
CAPITAL SHARE TRANSACTIONS:
Shares Issued............................................. 199,447
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (8,202)
--------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 191,245
--------
Total Increase in Net Assets............................ 196,728
--------
NET ASSETS:
Beginning of Period....................................... --
--------
End of Period............................................. $196,728
========
SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 19,874
Shares Issued upon Reinvestment of Distributions.......... --
Shares Redeemed........................................... (805)
--------
Net Increase in Share Transactions........................ 19,069
========
(1) The PBHG Technology & Communications Portfolio commenced operations on
May 1, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
FINANCIAL HIGHLIGHTS
May 1, 1997 -- June 30, 1997 (Unaudited)
For a Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset Net
Value Net Unrealized from Net from Value Assets
Beginning Investment Gains or Losses Investment Capital End Total End
of Period Income on Securities Income Gains of Period Return of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1997(1).............. $10.00 $ 0.01 $0.31 -- -- $10.32 3.20% $196,728
<CAPTION>
Ratio
Ratio of Net
of Expenses Income (Loss)
Ratio to Average to Average
Ratio of Net Net Assets Net Assets
of Expenses Income (Loss) (Excluding (Excluding Portfolio Average
to Average to Average Waivers and Waivers and Turnover Commission
Net Assets Net Assets Reimbursements) Reimbursements) Rate Rate+
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
1997(1).............. 1.20%* 1.72%* 41.45%* (38.53)%* 47.06% $0.0365
</TABLE>
* Annualized.
(1) The PBHG Technology & Communications Portfolio commenced operations on
May 1, 1997. Total return has not been annualized.
+ Average Commission rate paid per share for security purchases
and sales during the period.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1997 (Unaudited)
1. ORGANIZATION
The PBHG Technology & Communications Portfolio is part of the PBHG Insurance
Series Fund, Inc. (the "Fund"), a Maryland corporation, registered under the
Investment Company Act of 1940, as amended, as a diversified open-end management
investment company. The Fund consists of this Portfolio and five others: the
PBHG Growth II Portfolio (the "Growth II Portfolio"), the PBHG Large Cap Growth
Portfolio (the "Large Cap Growth Portfolio"), the PBHG Small Cap Value Portfolio
(the "Small Cap Value Portfolio"), the PBHG Large Cap Value Portfolio (the
"Large Cap Value Portfolio") and the PBHG Select 20 Portfolio (the "Select 20
Portfolio") (each a "Portfolio" and, collectively, the "Portfolios"). As of June
30, 1997, the Small Cap Value, the Large Cap Value, and the Select 20 Portfolios
had not commenced operations. Each Portfolio's prospectus provides a description
of the Portfolio's investment objectives, policies and strategies. The assets of
each Portfolio are segregated, and a shareholder's interest is limited to the
Portfolio in which shares are held. The Fund is intended to be a funding vehicle
for variable annuity contracts and variable life insurance policies to be
offered by the separate accounts of life insurance companies.
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 for which market quotations are available are valued at
the last quoted sales price on each business day. If there is no such reported
sale, these securities and unlisted securities for which market quotations are
readily available, are valued at the most recent bid price.
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. 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. Distributions of net realized capital gains,
for all portfolios, are generally made to shareholders annually. 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 generally accepted accounting
principles. 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.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or 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.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of each Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure 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.
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.
All organizational costs incurred in connection with the start up of the Growth
II Portfolio, the Large Cap Growth Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Technology & Communications Portfolio, and the
Select 20 Portfolio are being amortized on a straight line basis over a period
of sixty months. In the event that any of the initial shares of the Portfolio
are redeemed by any holder thereof during the period that the Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, 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 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 at an annual rate of 0.85% of the average daily net assets of
the Technology & Communications Portfolio. In the interest of limiting expenses
of the Portfolios, the Adviser has entered into an expense limitation agreement
with the Fund ("Expense Limitation Agreement"). With respect to the Technology &
Communications Portfolio, the Adviser has agreed to waive or limit its fees and
to assume other expenses of the Portfolio to the extent necessary to limit the
total annual
9
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
expenses (expressed as a percentage of the Portfolio's average daily net
assets) to 1.20%. Reimbursement by the Portfolio of the advisory fees waived or
limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreement during any of the two previous fiscal years may be made at
a later date when the Portfolio has reached a sufficient asset size to permit
reimbursement to be made without causing the total annual expense ratio of the
Technology & Communications Portfolio to exceed 1.20%. Consequently, no
reimbursement by the Portfolio will be made unless: (i) the Portfolio's assets
exceed $75 million; (ii) the Portfolio's total annual expense ratio is less than
1.20%, and (iii) the payment of such reimbursement was approved by the Board of
Directors on a quarterly basis.
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 Fund
Resources (the "Sub-Administrator"). The Sub-Administrator is an affiliate of
the Fund's distributor and assists the Administrator in providing administrative
services to the Fund. For acting in this capacity, the Administrator pays the
Sub-Administrator a fee at the annual rate of 0.07% of the average daily net
assets of each Portfolio with respect to $2.5 billion of the total average daily
net assets of (i) the Fund, and (ii) The PBHG Funds, Inc. and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion.
Certain officers and directors 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 Technology & Communications Portfolio for
the period from May 1, 1997 through June 30, 1997, amounted to $169,742 and
$24,263, respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Technology & Communications Portfolio amounted to $7,386 and $3,635,
respectively.
The total cost of securities and the net realized gains or losses on securities
sold for Federal income tax purposes at June 30, 1997 was not materially
different from amounts reported for financial reporting purposes.
5. CONSENT OF SOLE SHAREHOLDER
On March 10, 1997, the sole shareholder of the Portfolios approved the following
appointments: Pilgrim Baxter & Associates, Ltd. as investment adviser to the
Portfolios, Newbold's Asset Management, Inc. as investment sub-adviser to the
PBHG Small Cap Value and PBHG Large Cap Value Portfolios, PBHG Fund Services as
administrator to the Portfolios, SEI Fund Resources as sub-administrator to the
Portfolios and SEI Investments Distribution Co. to serve as distributor of the
shares of the Portfolios.
6. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund and (ii) The PBHG
Funds, Inc. No Portfolio had an outstanding borrowing at June 30, 1997, or at
any time during the period from May 1, 1997 (commencement of operations) through
June 30, 1997.
10
