PBHG INSURANCE SERIES FUND INC, 497, 1997-06-02

PBHG INSURANCE SERIES FUND INC
497, 1997-06-02

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Filed pursuant to Rule 497(c)
File No. 333-19497

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO

PROSPECTUS DATED MAY 1, 1997

PBHG Insurance Series Fund, Inc. (the "Fund") is an open-end diversified
management investment company authorized to issue multiple series of shares,
each representing a diversified portfolio of investments (individually, a
"Portfolio" and collectively, the "Portfolios"). The Fund currently has
authorized six series, two of which are available hereunder.

This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. The Fund's shares are offered
only to insurance companies ("Participating Insurance Companies") to fund
benefits under their variable annuity contracts ("VA Contracts") and variable
life insurance policies ("VLI Policies").

Please read this Prospectus carefully and retain it for future reference. This
Prospectus should be read in conjunction with the prospectuses issued by the
Participating Insurance Companies for the VA Contracts and VLI Policies that
accompany this Prospectus. Additional information about the Fund and the
Portfolios is contained in a Statement of Additional Information which has been
filed with the Securities and Exchange Commission (the "SEC") and is available
to investors without charge by calling the Fund at 1-800-347-9256. The Statement
of Additional Information, as amended from time to time, bears the same date as
this Prospectus and is incorporated by reference in its entirety into this
Prospectus.

This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the securities of the Fund in any jurisdiction in which such sale,
offer to sell, or solicitation may not be lawfully made.

INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE
THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED,
THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE
INVESTOR.

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

SHARES OF THE FUND ARE AVAILABLE AND ARE BEING OFFERED EXCLUSIVELY AS A POOLED
FUNDING VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL TYPES OF VARIABLE LIFE
INSURANCE POLICIES AND VARIABLE ANNUITY CONTRACTS.
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TABLE OF CONTENTS

PAGE
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SUMMARY.............................................................. 1

INVESTMENT OBJECTIVES AND POLICIES................................... 2

GENERAL INVESTMENT POLICIES AND STRATEGIES........................... 3

RISK FACTORS......................................................... 3

INVESTMENT LIMITATIONS............................................... 4

PURCHASES AND REDEMPTIONS............................................ 5

NET ASSET VALUE...................................................... 5

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.............................. 6

PERFORMANCE ADVERTISING.............................................. 6

GENERAL INFORMATION.................................................. 8

GLOSSARY OF PERMITTED INVESTMENTS.................................... 11

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SUMMARY
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THE FUND

The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios, two of which are available hereunder.
The two available Portfolios are: the PBHG Growth II Portfolio (the "Growth II
Portfolio") and the PBHG Large Cap Growth Portfolio (the "Large Cap Growth
Portfolio"). Each of the Portfolios has distinct investment objectives and
policies. See "Investment Objectives and Policies." Additional Portfolios may be
added to the Fund in the future. This Prospectus will be supplemented or amended
to reflect the addition of any new Portfolios.

This summary, which provides basic information about the Portfolios and the
Fund, is qualified in its entirety by reference to the more detailed information
provided elsewhere in this Prospectus and in the Statement of Additional
Information.

WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II
Portfolio seeks capital appreciation. The Large Cap Growth Portfolio seeks
long-term growth of capital. There can be no assurance that a Portfolio will
achieve its investment objective. Each Portfolio will invest primarily in a
variety of equity securities in accordance with its particular investment
program and policies. The Growth II Portfolio invests primarily in equity
securities of small and medium capitalization companies believed by Pilgrim
Baxter & Associates, Ltd. (the "Adviser") to have an outlook for strong earnings
growth and the potential for significant capital appreciation. The Large Cap
Growth Portfolio invests primarily in equity securities of larger capitalization
companies that are perceived by the Adviser to have a strong potential for
capital appreciation.

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? Each
Portfolio invests in securities that fluctuate in value, and investors should
expect each Portfolio's net asset value per share to fluctuate. Each Portfolio
may invest in stocks and convertible securities that may be traded in the
over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, the Growth II Portfolio invests extensively
in securities of small capitalization companies and, therefore, may experience
greater price volatility than investment companies that invest primarily in more
established, larger capitalized companies. Each of the Portfolios may invest in
equity securities of non-U.S. issuers, which are subject to certain risks not
typically associated with domestic securities. Such risks include changes in
currency rates and in exchange control regulations, costs associated with
conversions between various currencies, limited publicly available information
regarding foreign issuers, lack of uniformity in accounting, auditing and
financial standards and requirements, greater securities market volatility, less
liquidity, less government supervision of securities markets, changes in taxes
on income on securities, and possible seizure, nationalization or expropriation
of the foreign issuer or foreign deposits. The Portfolios also may enter into
futures contracts, which are subject to special risks. When futures contracts
are being used for hedging purposes, such risks include the potential of
imperfect correlation between the change in the value of a futures contract
purchased or sold and the market value of the securities held by the Portfolios,
the possible failure to correctly predict movements in the direction of the
market; and the risk that the Portfolios may not be able to close out a
particular futures contract because of a lack of a liquid secondary market in
such futures contract. Other risks of investing in futures contracts include
that the prices of futures contracts are volatile and are influenced by changes
in market and interest rates and that futures trading involves an extremely high
degree of leverage which may result in losses in excess of the amount invested
in the futures contract. See "Investment Objectives and Policies", "Risk
Factors" and "Glossary of Permitted Investments" in this Prospectus and see
"Risks of Transactions in Futures Contracts and Options" in the Statement of
Additional Information.

WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. See "The Adviser."

WHO ARE THE ADMINISTRATOR AND SUB-ADMINISTRATOR? PBHG Fund Services serves
as the Administrator of the Fund and SEI Fund Resources, an affiliate of the
Fund's distributor, serves as Sub-Administrator of the Fund. See "The
Administrator and Sub-Administrator."

WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."

HOW ARE SHARES PURCHASED AND REDEEMED? Individual investors may not
purchase or redeem shares of the Portfolios directly; shares may be purchased or
redeemed only through VA Contracts and VLI Policies offered by separate accounts
of Participating Insurance Companies. See "Purchases and Redemptions."

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INVESTMENT OBJECTIVES AND POLICIES
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GROWTH II PORTFOLIO

The Growth II Portfolio seeks capital appreciation. The Portfolio will normally
be as fully invested as practicable in common stocks and securities convertible
into common stocks, but also may invest up to 5% of its assets in warrants and
rights to purchase common stocks. In the opinion of the Adviser, there may be
times when the shareholders' interests are best served and the investment
objective is more likely to be achieved by having varying amounts of the
Portfolio's assets invested in convertible securities. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in common
stocks and convertible securities of small and medium sized growth companies
(market capitalization or annual revenues up to $4 billion). The average market
capitalizations of holdings in the Portfolio may, however, fluctuate over time
as a result of market valuation levels and the availability of specific
investment opportunities. In addition, the Portfolio may continue to hold
securities of companies whose market capitalizations or annual revenues grow
above $4 billion subsequent to purchase, if the company continues to satisfy the
other investment policies of the Portfolio.

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

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depository Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board of Directors of the Fund. See "Risk Factors"
and "Glossary of Permitted Investments" in this Prospectus for a fuller
description of the Portfolio's permitted investments and their risks.

LARGE CAP GROWTH PORTFOLIO

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

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

While it has no present intention to do so, the Portfolio reserves the right to
invest up to 10% of its net assets in restricted securities and securities of
foreign issuers traded outside the United States and Canada and, for hedging
purposes only, to purchase and sell options on stocks and stock indices. The
Portfolio may also invest up to 15% of its net assets in illiquid securities,
but will not invest more than 5% of its net assets in restricted securities that
the Adviser determines are illiquid based on guidelines approved by the Board of
Directors of the Fund. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.

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GENERAL INVESTMENT POLICIES AND STRATEGIES
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INVESTMENT PROCESS: GROWTH II AND LARGE CAP GROWTH PORTFOLIOS

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

PORTFOLIO TURNOVER

Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rate for the Growth II and Large Cap Growth Portfolios will
not exceed 150%. High rates of portfolio turnover necessarily result in
correspondingly greater brokerage and portfolio trading costs, which are paid by
the Portfolios. Trading in fixed-income securities does not generally involve
the payment of brokerage commissions, but does involve indirect transaction
costs. In addition, high rates of portfolio turnover may adversely affect each
Portfolio's status as a "regulated investment company" ("RIC") under Section 851
of the Internal Revenue Code of 1986, as amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

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

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RISK FACTORS
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SMALL AND MEDIUM CAPITALIZATION STOCKS

3
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the over-the-counter market, and might not be traded in volumes typical of
securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.

OVER-THE-COUNTER MARKET

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

FOREIGN SECURITIES

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

FUTURES CONTRACTS

The primary risks associated with the use of futures contracts for hedging
purposes are: (i) imperfect correlations between the change in market value of
the securities held by a Portfolio and the prices of futures contracts purchased
or sold by a Portfolio; (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position, which
could have an adverse impact on a Portfolio's ability to execute futures and
options strategies; and (iii) the possible failure to correctly predict
movements in the direction of the market. Other risks of investing in futures
contracts include that the prices of futures contracts are volatile and are
influenced by changes in market and interest rates and that futures trading
involves an extremely high degree of leverage which may result in losses in
excess of the amount invested in the futures contract.

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

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

A Portfolio, as a fundamental policy, may not:

1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total assets.

4
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according to their services, for example, gas distribution, gas transmission,
electric and telephone will each be considered a separate industry, and (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry. For purposes of this
limitation, supranational organizations are deemed to be issuers conducting
their principal business activities in the same industry.

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

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

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PURCHASES AND REDEMPTIONS
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Individual investors may not purchase or redeem shares of the Portfolios
directly; shares may be purchased or redeemed only through VA Contracts and VLI
Policies offered by separate accounts of Participating Insurance Companies.
Please refer to the prospectus of the sponsoring Participating Insurance Company
separate account for instructions on purchasing a VA Contract or VLI Policy and
on how to select the Portfolios as investment options for a VA Contract or VLI
Policy.

PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of the
investments by the Portfolios. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of each Portfolio
on each day that the Portfolio calculates its net asset value (a "Business
Day"). That night, all orders received by the Participating Insurance Company
prior to the close of regular trading on the New York Stock Exchange, Inc. (the
"NYSE") (currently 4:00 p.m., Eastern time) on that Business Day are aggregated,
and the Participating Insurance Company places a net purchase or redemption
order for shares of the Portfolios during the morning of the next Business Day.
These orders are executed at the net asset value (described below under "Net
Asset Value") next computed after receipt of such order by the Participating
Insurance Company.

The Portfolios reserve the right to reject any specific purchase order. Purchase
orders may be refused if, in the Adviser's opinion, they are of a size that
would disrupt the management of the Portfolio. A Portfolio may discontinue sales
of its shares if management believes that a substantial further increase in
assets may adversely effect the Portfolio's ability to achieve its investment
objective. In such event, however, it is anticipated that existing VA Contract
owners and VLI Policy owners would be permitted to continue to authorize
investments in the Portfolios.

REDEMPTIONS. Shares of a Portfolio may be redeemed on any Business Day.
Redemption orders which are received by a Participating Insurance Company prior
to the close of regular trading on the NYSE on any Business Day and transmitted
to the Fund or its specified agent during the morning of the next Business Day
will be processed at the next net asset value computed after receipt of such
order by the Participating Insurance Company. Redemption proceeds will normally
be wired to the Participating Insurance Company on the Business Day following
receipt of the redemption order by the Participating Insurance Company, but in
no event later than seven days after receipt of such order.

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NET ASSET VALUE
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Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the close of trading on the NYSE (currently 4:00 p.m.,
Eastern time). Portfolio securities listed on an exchange or quoted on a
national market system are valued at the last sales price. Other securities are
quoted at the mean between the most recent bid and asked prices. Short-term
obligations are valued at amortized cost. Securities for which market quotations
are not readily available and other assets held by the Fund, if any, are valued
at their fair value as determined in good faith by the Board of Directors. See
"Determination of Net Asset Value" in the Statement of Additional Information.

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TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
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TAXES

For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus.

Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Code. As
such, a Portfolio will not be subject to federal income tax on its net ordinary
income and net realized capital gains to the extent such income and gains are
distributed to the separate accounts of Participating Insurance Companies which
hold its shares. Because shares of the Portfolios may be purchased only through
VA Contracts and VLI Policies, it is anticipated that any income, dividends or
capital gain distributions from the Portfolios are taxable, if at all, to the
Participating Insurance Companies and will be exempt from current taxation of
the VA Contract owner and VLI Policy owner if left to accumulate within the VA
Contract or VLI Policy.

INTERNAL REVENUE SERVICE REQUIREMENTS

The Portfolios intend to comply with the diversification requirements currently
imposed by the Internal Revenue Service on separate accounts of insurance
companies as a condition of maintaining the tax-deferred status of VA Contracts
and VLI Policies. See the Statement of Additional Information for more specific
information.

DIVIDENDS AND DISTRIBUTIONS

Each of the Portfolios will declare and distribute dividends from net ordinary
income at least annually and will distribute its net realized capital gains, if
any, at least annually. Distributions of ordinary income and capital gains will
be made in shares of such Portfolios unless an election is made on behalf of a
separate account of a Participating Insurance Company to receive distributions
in cash. Participating Insurance Companies will be informed at least annually
about the amount and character of distributions from the Fund for federal income
tax purposes.

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

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

Total returns quoted for a Portfolio include the effect of deducting the
Portfolio's expenses, but may not include charges and expenses attributable to
any particular Variable Contract. Accordingly, the prospectus of the sponsoring
Participating Insurance Company separate account should be carefully reviewed
for information on relevant charges and expenses. Excluding these charges and
expenses from quotations of a Portfolio's performance has the effect of
increasing the performance quoted, and the effect of these charges should be
considered when comparing a Portfolio's performance to that of other mutual
funds.

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

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

PUBLIC FUND PERFORMANCE

The Large Cap Growth Portfolio is newly organized and does not yet have its own
performance record. However, the Portfolio has the same investment objective and
follows substantially the same investment strategies as a series of a mutual
fund ("public fund") whose shares are currently sold to the public and managed
by the Adviser.

Set forth below is the historical performance of the corresponding series of the
public fund. Investors should not consider the performance data of the series of
the public fund as an indication of the future performance of the Large Cap
Growth Portfolio. The performance figures shown below reflect the deduction of
the historical fees and expenses paid by the corresponding series of the public
fund, AND NOT THOSE TO BE PAID BY THE PORTFOLIO. The figures also do not reflect
the deduction of any insurance fees or charges which are imposed by the
Participating Insurance Company in connection with its sale of the VA Contracts
and VLI Policies. Investors should refer to the separate account prospectuses
describing the VA Contracts and VLI Policies for information pertaining to these
insurance fees and charges. The insurance separate account fees will have a
detrimental effect on the performance of the Portfolio. Additionally, although
it is anticipated that the Large Cap Growth Portfolio and its corresponding
public fund series will hold similar securities, their investment results are
expected to differ. In particular, differences in asset size and in cash flow
resulting from purchases and redemptions of Portfolio shares may result in
different security selections, differences in the relative weightings of
securities or differences in the price paid for particular portfolio holdings.
The results shown reflect the reinvestment of dividends and distributions, and
were calculated in the same manner that will be used by the Portfolio to
calculate its own performance.

The following table shows average annualized total returns for the time periods
shown for the series of the public fund.

LARGE CAP GROWTH PORTFOLIO

SINCE
1 YEAR INCEPTION
------ ---------
CORRESPONDING SERIES OF THE
PUBLIC FUND
The PBHG Funds, Inc. --
PBHG Large Cap Growth Fund..... -1.77% 21.49%

Results shown are through the period ended March 31, 1997 for the public fund
series. The inception date for the public fund series is April 5, 1995 for the
PBHG Large Cap Growth Fund.

PRIVATE ACCOUNT PERFORMANCE

The Growth II Portfolio is newly organized and does not yet have its own
performance record. However, the Growth II Portfolio has an investment
objective, policies and strategies which are substantially similar to those
employed by the Adviser with respect to certain Private Accounts.

Thus, the performance information derived from these Private Accounts may be
relevant to an investor. The performance of the Growth II Portfolio will vary
from the Private Account composite information because the Growth II Portfolio
will be actively managed and its investments will vary from time to time and
will not be identical to the past portfolio investments of the Private Accounts.
Moreover, the Private Accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Code which, if applicable, may have
adversely affected the performance results of the Private Account Composites.

The chart below shows performance information derived from historical composite
performance of the Private Accounts included in the Pilgrim Baxter & Associates,
Ltd. Mid-Cap Growth Composite. The performance figures shown represent the
performance results of the composite of Private Accounts managed in a comparable
manner, adjusted to reflect the deduction of the fees and expenses anticipated
to be paid by the Growth II Portfolio.

The Private Account composite performance figures are time-weighted rates of
return which include all income and realized and unrealized gains or losses,

7
<PAGE>
but do not reflect the deduction of investment advisory fees actually charged to
the Private Accounts.

Investors should not consider the performance data of these Private Accounts as
an indication of the future performance of the Growth II Portfolio.

The following table shows performance information derived from Private Account
historical composite performance reduced by anticipated Growth II Portfolio fees
and expenses, as well as comparisons with the S&P 500, an unmanaged index
generally considered to be representative of the stock market.

PRIVATE ACCOUNT COMPOSITE PERFORMANCE

1 YEAR 5 YEARS 10 YEARS
------ ------- --------

Pilgrim Baxter &
Associates, Ltd.
Mid-Cap Growth
Composite*................ -13.85% 11.42% 9.66%

S&P 500 Stock Index......... 19.88% 16.41% 13.39%

* Results shown are through the period ended March 31, 1997. The inception date
is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth
Composite.

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

THE FUND

The Fund, an open-end management investment company, was incorporated in
Maryland in 1997. All consideration received by the Fund for shares of any
Portfolio and all assets of such Portfolio belong to that Portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional series.

Each Portfolio of the Fund pays its respective expenses relating to its
operation, including fees of its service providers, audit and legal expenses,
expenses of preparing prospectuses, proxy solicitation material and reports to
shareholders, costs of custodial services and registering the shares of the
Portfolio under federal securities laws, pricing and insurance expenses and pays
additional expenses including litigation and other extraordinary expenses,
brokerage costs, interest charges, taxes and organization expenses.

THE ADVISER

Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $12 billion in assets. In addition to advising
the Portfolios, the Adviser provides advisory services to other mutual funds and
to pension and profit-sharing plans, charitable institutions, corporations,
trusts and estates, and other investment companies. The principal business
address of the Adviser is 1255 Drummers Lane, Suite 300, Wayne, Pennsylvania
19087.

The Adviser serves as the investment adviser to each of the Portfolios under an
investment advisory agreement with the Fund (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser continuously reviews, supervises and
administers the investment program of each Portfolio, which includes managing
and selecting investments, subject to the supervision of, and policies
established by, the Board of Directors of the Fund.

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.85% of the Growth II Portfolio's
average daily net assets and 0.75% of the Large Cap Growth Portfolio's average
daily net assets. The advisory fees paid by each Portfolio are higher than those
paid by most investment companies, although the Adviser believes the fees to be
comparable to those paid by investment companies with similar investment
objectives and policies.

EXPENSE LIMITATION AGREEMENT

8
<PAGE>

than 1.20% of the average daily net assets of the Growth II Portfolio and to not
more than 1.10% of the average daily net assets of the Large Cap Growth
Portfolio, through December 31, 1997. Such waivers and assumption of expenses by
the Adviser may be discontinued at any time after such date. Reimbursement by
the Portfolios of the advisory fees waived or limited and other expenses paid by
the Adviser pursuant to the Expense Limitation Agreement may be made at a later
date when the Portfolios have reached a sufficient asset size to permit
reimbursement to be made without causing the total annual expense ratio of each
Portfolio to exceed the Total Operating Expense percentages described above.

THE PORTFOLIO MANAGERS

The Growth II Portfolio will be managed by Gary L. Pilgrim, CFA, and Bruce J.
Muzina. Mr. Pilgrim has served as the Chief Investment Officer of the Adviser
since 1990 and has been its President since 1993. Mr. Pilgrim currently manages
or co-manages several series of The PBHG Funds, Inc., another mutual fund
managed by the Adviser. Mr. Muzina joined the Adviser in 1985 from Citibank,
where he was Vice President/Portfolio Manager of U.S. equity portfolios for
international institutional accounts. His experience includes security analysis
and investment research focused on health care and chemical industries, as well
as pension and profit sharing portfolio management at a major advisory firm and
at Philadelphia National Bank. Mr. Muzina is an honors MBA graduate of Temple
University and received his undergraduate degree from Pennsylvania State
University.

The Large Cap Growth Portfolio will be managed by James D. McCall. Mr. McCall
has been a portfolio manager with the Adviser since 1994. Prior to joining the
Adviser, Mr. McCall was a portfolio manager with First Maryland Bank Corporation
(May 1992 to November 1994) and a portfolio manager with Provident Mutual
Management, Inc. prior to that time. Mr. McCall currently manages three series
of The PBHG Funds, Inc., and has managed or co-managed such series since their
inception. Mr. McCall also manages the PBHG Large Cap 20 Fund, a series of The
PBHG Funds, Inc. and has done so since its inception.

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

PBHG Fund Services (the "Administrator") provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the Fund. The
principal place of business of the Administrator is 1255 Drummers Lane, Suite
300, Wayne, Pennsylvania 19087.

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

THE TRANSFER AGENT AND SUB-TRANSFER AGENT

DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent, dividend disbursing agent and shareholder servicing agent
for the Fund under a transfer agent agreement with the Fund.

From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund. These services may include,
among other things, sub-accounting services, answering inquiries relating to the
Fund, delivering, on behalf of the Fund, proxy statements, annual reports,
updated Prospectuses, other communications regarding the Fund, and related
services as the Fund or the beneficial owners may reasonably request.

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, a wholly-owned subsidiary of SEI, provides the Fund
with distribution services.

DIRECTORS OF THE FUND

The management and affairs of the Fund are supervised by the Board of Directors
under the laws of the State of Maryland. The Directors have approved agreements
under which, as described above, certain

9
<PAGE>

companies provide essential management services to the Fund.

VOTING RIGHTS

Each share held entitles the shareholder of record to one vote. Shareholders of
each Portfolio will vote separately on matters relating solely to it, such as
approval of advisory agreements and changes in fundamental policies, and matters
affecting some but not all Portfolios of the Fund will be voted on only by
shareholders of the affected Portfolios. Shareholders of all Portfolios of the
Fund will vote together in matters affecting the Fund generally, such as the
election of Directors or selection of accountants. As a Maryland corporation,
the Fund is not required to hold annual meetings of shareholders but shareholder
approval will be sought for certain changes in the operation of the Fund and for
the election of Directors under certain circumstances. In addition, a Director
may be removed by the remaining Directors or by shareholders at a special
meeting called upon written request of shareholders owning at least 10% of the
outstanding shares of the Fund. In the event that such a meeting is requested,
the Fund will provide appropriate assistance and information to the shareholders
requesting the meeting. Under current law, a Participating Insurance Company is
required to request voting instructions from VA Contract owners and VLI Policy
owners and must vote all shares held in the separate account in proportion to
the voting instructions received. For a more complete discussion of voting
rights, refer to the Participating Insurance Company separate account
prospectus.

CONFLICTS OF INTEREST. Each Portfolio offers its shares to VA Contracts
and VLI Policies offered through separate accounts of Participating Insurance
Companies which may or may not be affiliated with each other. Due to differences
of tax treatment and other considerations, the interests of VA Contract and VLI
Policy owners participating in the Portfolios may conflict. The Board will
monitor the Portfolios for any material conflicts that may arise and will
determine what action, if any, should be taken. If a conflict occurs, the Board
may require one or more Participating Insurance Company separate accounts to
withdraw its investments in the Portfolios. As a result, the Portfolios may be
forced to sell securities at disadvantageous prices and orderly portfolio
management could be disrupted. In addition, the Board may refuse to sell shares
of the Portfolios to any VA Contract or VLI Policy or may suspend or terminate
the offering of shares of the Portfolios if such action is required by law or
regulatory authority or is in the best interests of the shareholders of the
Portfolios.

REPORTING

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

COUNSEL AND INDEPENDENT ACCOUNTANTS

Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, L.L.P.
serves as the independent accountants of the Fund.

CUSTODIAN

CoreStates Bank, N.A. ("Custodian"), Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, serves as the custodian for the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
1940 Act.

MISCELLANEOUS

As of the date of this Prospectus, the Adviser, as each Portfolio's initial
shareholder, owned of record or beneficially, all of the outstanding shares of
each Portfolio, and may be deemed to be a controlling person of each Portfolio
for purposes of the 1940 Act.

10
<PAGE>

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

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

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

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

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

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

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

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

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

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

11
<PAGE>

from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. Under normal circumstances, consideration of the prospect
for changes in currency exchange rates will be incorporated into each
Portfolio's long-term investment strategies. However, the Adviser believes that
it is important to have the flexibility to enter into forward foreign currency
contracts when it determines that the best interests of a Portfolio will be
served.

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

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

Generally, a Portfolio will enter into forward foreign currency contracts only
as a hedge against foreign currency exposure affecting the Portfolio or to hedge
a specific security transaction or portfolio position. If a Portfolio enters
into forward foreign currency contracts to cover activities which are
essentially speculative, the Portfolio will segregate cash or readily marketable
securities with its custodian, or a designated sub-custodian, in an amount at
all times equal to or exceeding the Portfolio's commitment with respect to such
contracts.

Forward contracts may substantially change the Fund's investment exposure to
changes in currency exchange rates, and could result in losses to the Fund if
currencies do not perform as the Adviser anticipates. For example, if a
currency's value rose at a time when the Adviser had hedged the Fund by selling
that currency in exchange for dollars, the Fund would be unable to participate
in the currency's appreciation. Similarly, if the Adviser increases the Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss.

FUTURES CONTRACTS -- Futures contracts are derivatives. Futures contracts
provide for the sale by one party and purchase by another party of a specified
amount of a specific security, securities index or currency at a specified
future time and price. A Portfolio will maintain assets sufficient to meet its
obligations under such futures contracts in a segregated margin account with the
custodian bank or will otherwise comply with the SEC's position on asset
coverage. The prices of futures contracts are volatile and are influenced by,
among other things, actual and anticipated changes in the market and interest
rates.

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

MORTGAGE-BACKED SECURITIES -- Securities that include interests in pools of
lower-rated debt securities, or consumer loans or mortgages, or complex
instruments such as collateralized mortgage obligations and stripped
mortgage-backed securities. The value of these securities may be significantly
affected by changes in interest rates, the market's perception of the issuers,
and the creditworthiness of the parties involved. Some securities may have a
structure that makes their reaction to interest rates and other factors
difficult to predict, making their value highly volatile. These securities may
also be subject to prepayment risk.

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

12
<PAGE>

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

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

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

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

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

U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities. When U.S. Treasury obligations have been stripped of their
unmatured interest coupons by the holder, the stripped coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. The principal or corpus is sold at a deep discount because
the buyer receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic interest (cash) payments.
Purchasers of stripped obligations acquire, in effect, discount obligations that
are economically identical to the securities that the Treasury sells itself.
Other facilities are available to facilitate the transfer of ownership of
non-Treasury securities by accounting separately for the beneficial ownership of
particular interest coupon or corpus payments on such securities through a
book-entry record-keeping system.

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

13
<PAGE>

WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.

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

14
<PAGE>

Filed pursuant to Rule 497(c)
File No: 333-19497

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO

PROSPECTUS DATED MAY 1, 1997

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
SUMMARY.................................................................................................... 1

INVESTMENT OBJECTIVES AND POLICIES......................................................................... 3

GENERAL INVESTMENT POLICIES AND STRATEGIES................................................................. 4

RISK FACTORS............................................................................................... 4

INVESTMENT LIMITATIONS..................................................................................... 6

PURCHASES AND REDEMPTIONS.................................................................................. 6

NET ASSET VALUE............................................................................................ 7

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.................................................................... 7

PERFORMANCE ADVERTISING.................................................................................... 7

GENERAL INFORMATION........................................................................................ 9

GLOSSARY OF PERMITTED INVESTMENTS.......................................................................... 12
</TABLE>

<PAGE>
SUMMARY
- --------------------------------------------------------------------------------

THE FUND

The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios, two of which are available hereunder.
The two available Portfolios are: the PBHG Growth II Portfolio (the "Growth II
Portfolio") and the PBHG Technology & Communications Portfolio (the "Technology
& Communications Portfolio"). Each of the Portfolios has distinct investment
objectives and policies. See "Investment Objectives and Policies." Additional
Portfolios may be added to the Fund in the future. This Prospectus will be
supplemented or amended to reflect the addition of any new Portfolios.

WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II
Portfolio seeks capital appreciation. The Technology & Communications Portfolio
seeks long-term growth of capital. There can be no assurance that a Portfolio
will achieve its investment objective. Each Portfolio will invest primarily in a
variety of equity securities in accordance with its particular investment
program and policies. The Growth II Portfolio invests primarily in equity
securities of small and medium capitalization companies believed by Pilgrim
Baxter & Associates, Ltd. (the "Adviser") to have an outlook for strong earnings
growth and the potential for significant capital appreciation. The Technology &
Communications Portfolio invests primarily in equity securities of companies,
without regard to market capitalization, which rely extensively on science and
technology in their product development or operations, or which are expected to
benefit from technological improvements and which may be experiencing
exceptional growth in sales and earnings driven by technology-related products
and services.

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? Each
Portfolio invests in securities that fluctuate in value, and investors should
expect each Portfolio's net asset value per share to fluctuate. Each Portfolio
may invest in stocks and convertible securities that may be traded in the
over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, the Growth II Portfolio invests extensively
in securities of small capitalization companies and, to a lesser extent, the
Technology & Communications Portfolio also invests in small or medium
capitalization company stocks and, therefore, may experience greater price
volatility than investment companies that invest primarily in more established,
larger capitalized companies. Although the Technology & Communications Portfolio
will invest in the securities of technology companies in many different
industries, many of these industries share common characteristics. Furthermore,
equity securities of technology companies may be subject to greater price
volatility than securities of companies in many other industries. Each of the
Portfolios may invest in equity securities of non-U.S. issuers, which are
subject to certain risks not typically associated with domestic securities. Such
risks include changes in currency rates and in exchange control regulations,
costs associated with conversions between various currencies, limited publicly
available information regarding foreign issuers, lack of uniformity in
accounting, auditing and financial standards and requirements, greater
securities market volatility, less liquidity, less government supervision of
securities markets, changes in taxes on income on securities, and possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits. The Portfolios also may enter into futures contracts, which are
subject to special risks. When futures contracts are being used for hedging
purposes, such risks include the potential of imperfect correlation between the
change in the value of a futures contract purchased or sold and the market value
of the securities held by the Portfolios; the possible failure to correctly
predict movements in the direction of the market; and the risk that the
Portfolios may not be able to close out a particular futures contract because of
a lack of a liquid secondary market in such futures contract. Other risks of
investing in futures contracts include that the prices of futures contracts are
volatile and are influenced by changes in market and interest rates and that
futures trading involves an extremely high degree of leverage which may result
in losses in excess of the amount invested in the futures contract. See
"Investment Objectives and Policies," "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus and see "Risks of Transactions in Futures
Contracts and Options" in the Statement of Additional Information.

1
<PAGE>
WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. See "The Adviser."

WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."

2
<PAGE>
- ------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------

GROWTH II PORTFOLIO

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depositary Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. See "Risk Factors" and "Glossary of
Permitted Investments" in this Prospectus for a fuller description of the
Portfolio's permitted investments and their risks.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

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

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

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

Normally, the Portfolio will purchase securities traded in the U.S. or Canada on
registered exchanges or in the over-the-counter market. The Portfolio may

3
<PAGE>
also invest, in the aggregate, up to 10% of its net assets in restricted
securities and securities of foreign issuers traded outside the U.S. and Canada
and, for hedging purposes, may purchase and sell options on stocks or stock
indices. The Portfolio also may invest up to 15% of its net assets in illiquid
securities. See "Risk Factors" and "Glossary of Permitted Investments" in this
Prospectus for a fuller description of the Portfolio's permitted investments and
their risks.

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

INVESTMENT PROCESS: GROWTH II AND TECHNOLOGY & COMMUNICATIONS PORTFOLIOS

PORTFOLIO TURNOVER

Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rate for the Growth II Portfolio will not exceed 150%. It is
expected that under normal market conditions, the annual portfolio turnover rate
for the Technology & Communications Portfolio will not exceed 300%. High rates
of portfolio turnover necessarily result in correspondingly greater brokerage
and portfolio trading costs, which are paid by the Portfolios. Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition, high
rates of portfolio turnover may adversely affect each Portfolio's status as a
"regulated investment company" ("RIC") under Section 851 of the Internal Revenue
Code of 1986, as amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

4
<PAGE>
issued by small capitalization companies and, in certain cases, the Technology &
Communications Portfolio invests in securities of issuers with small or medium
market capitalizations. While the Adviser intends to invest in small and medium
capitalization companies that have strong balance sheets and that the Adviser's
research indicates should exceed consensus earnings expectations, any investment
in small and medium capitalization companies involves greater risk and price
volatility than that customarily associated with investments in larger, more
established companies. This increased risk may be due to the greater business
risks of their small size, limited markets and financial resources, narrow
product lines and frequent lack of management depth. The securities of small and
medium capitalization companies are often traded in the over-the-counter market,
and might not be traded in volumes typical of securities traded on a national
securities exchange. Thus, the securities of small and medium capitalization
companies are likely to be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established companies.

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

INVESTMENTS IN TECHNOLOGY COMPANIES

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

FUTURES CONTRACTS

5
<PAGE>

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

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

A Portfolio, as a fundamental policy, may not:

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

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

- ------------------------------------------------------
PURCHASES AND REDEMPTIONS
- ------------------------------------------------------

PURCHASES. All investments in the Portfolios are credited to a Participating
Insurance Company's separate account immediately upon acceptance of the
investments by the Portfolios. Each Participating Insurance Company receives
orders from its contract owners to purchase or redeem shares of each Portfolio
on each day that the Portfolio calculates its net asset value (a "Business
Day"). That night, all orders received by the Participating Insurance Company
prior to the close of regular trading on the New York Stock Exchange Inc. (the
"NYSE") (currently 4:00 p.m., Eastern time) on that Business Day are aggregated,
and the Participating Insurance Company places a net purchase or redemption
order for shares of the Portfolios during the morning of the next Business Day.
These orders are executed at the net asset value (described below under "Net
Asset Value") next computed after receipt of such order by the Participating
Insurance Company.

6
<PAGE>

Fund or its specified agent during the morning of the next Business Day will be
processed at the next net asset value computed after receipt of such order by
the Participating Insurance Company. Redemption proceeds will normally be wired
to the Participating Insurance Company on the Business Day following receipt of
the redemption order by the Participating Insurance Company, but in no event
later than seven days after receipt of such order.

- ------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------

- ------------------------------------------------------
TAX STATUS, DIVIDENDS AND DISTRIBUTIONS
- ------------------------------------------------------

TAXES

For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus.

Each Portfolio intends to qualify and elect to be treated as a regulated
investment company that is taxed under the rules of Subchapter M of the Internal
Revenue Code of 1986. As such, a Portfolio will not be subject to federal income
tax on its net ordinary income and net realized capital gains to the extent such
income and gains are distributed to the separate accounts of Participating
Insurance Companies which hold its shares. Because shares of the Portfolios may
be purchased only through VA Contracts and VLI Policies, it is anticipated that
any income, dividends or capital gain distributions from the Portfolios are
taxable, if at all, to the Participating Insurance Companies and will be exempt
from current taxation of the VA Contract owner and VLI Policy owner if left to
accumulate within the VA Contract or VLI Policy.

INTERNAL REVENUE SERVICE REQUIREMENTS

DIVIDENDS AND DISTRIBUTIONS

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

7
<PAGE>

separate account should be carefully reviewed for information on relevant
charges and expenses. Excluding these charges and expenses from quotations of a
Portfolio's performance has the effect of increasing the performance quoted, and
the effect of these charges should be considered when comparing a Portfolio's
performance to that of other mutual funds.

PUBLIC FUND PERFORMANCE

The Technology & Communications Portfolio is newly organized and does not yet
have its own performance record. However, the Portfolio has the same investment
objective and follows substantially the same investment strategies as a series
of a mutual fund ("public fund") whose shares are currently sold to the public
and managed by the Adviser.

Set forth below is the historical performance of the corresponding series of the
public fund. Investors should not consider the performance data of the series of
the public fund as an indication of the future performance of the Technology &
Communications Portfolio. The performance figures shown below reflect the
deduction of the historical fees and expenses paid by the corresponding series
of the public fund, and NOT THOSE TO BE PAID BY THE PORTFOLIO. The figures also
do not reflect the deduction of any insurance fees or charges which are imposed
by the Participating Insurance Company in connection with its sale of the VA
Contracts and VLI Policies. Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance separate account
fees will have a detrimental effect on the performance of the Portfolio.
Additionally, although it is anticipated that the Technology & Communications
Portfolio and its corresponding public fund series will hold similar securities,
their investment results are expected to differ. In particular, differences in
asset size and in cash flow resulting from purchases and redemptions of
Portfolio shares may result in different security selections, differences in the
relative weightings of securities or differences in the price paid for
particular portfolio holdings. The results shown reflect the reinvestment of
dividends and distributions, and were calculated in the same manner that will be
used by the Portfolio to calculate its own performance.

The following table shows average annualized total returns for the time periods
shown for the series of the public fund.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

SINCE
1 YEAR INCEPTION
------ -------
CORRESPONDING SERIES OF THE
PUBLIC FUND
The PBHG Funds, Inc. --
PBHG Technology &
Communications Fund............ 19.59% 30.52%

Results shown are through the period ended March 31, 1997 for the public fund
series. The inception date for the public fund series is October 2, 1995.

PRIVATE ACCOUNT PERFORMANCE

8
<PAGE>
Thus, the performance information derived from these Private Accounts may be
relevant to an investor. The performance of the Growth II Portfolio will vary
from the Private Account composite information because the Growth II Portfolio
will be actively managed and its investments will vary from time to time and
will not be identical to the past portfolio investments of the Private Accounts.
Moreover, the Private Accounts are not subject to certain investment
limitations, diversification requirements and other restrictions imposed by the
Investment Company Act of 1940 and the Code which, if applicable, may have
adversely affected the performance results of the Private Account Composites.

The Private Account composite performance figures are time-weighted rates of
return which include all income and realized and unrealized gains or losses, but
do not reflect the deduction of investment advisory fees actually charged to the
Private Accounts.

Investors should not consider the performance data of these Private Accounts as
an indication of the future performance of the Growth II Portfolio.

The following tables show performance information derived from Private Account
historical composite performance reduced by anticipated Growth II Portfolio fees
and expenses, as well as comparisons with the S&P 500, an unmanaged index
generally considered to be representative of the stock market.

PRIVATE ACCOUNT COMPOSITE PERFORMANCE

1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Pilgrim Baxter &
Associates, Ltd.
Mid-Cap Growth
Composite*............. -13.85% 11.42% 9.66%
S&P 500 Stock
Index.................. 19.88% 16.41% 13.39%

* Results shown are through the period ended March 31, 1997. The inception date
is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth
Composite.

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

THE FUND

THE ADVISER

9
<PAGE>

supervision of, and policies established by, the Board of Directors of the Fund.

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.85% of each of the Growth II and
Technology & Communications Portfolios' average daily net assets. The advisory
fees paid by each Portfolio are higher than those paid by most investment
companies, although the Adviser believes the fees to be comparable to those paid
by investment companies with similar investment objectives and policies.

EXPENSE LIMITATION AGREEMENT

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 each Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolios
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of each Portfolio's average daily net assets) to not more than
1.20% of the average daily net assets of the Growth II and Technology &
Communications Portfolios through December 31, 1997. Such waivers and assumption
of expenses by the Adviser may be discontinued at any time after such date.
Reimbursement by the Portfolios of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expense ratio
of each Portfolio to exceed the Total Operating Expense percentages described
above.

THE PORTFOLIO MANAGERS

John F. Force, CFA, will manage the Technology & Communications Portfolio. Mr.
Force joined the Adviser in 1993 and is a portfolio manager and equity analyst
for the Adviser. He currently co-manages the PBHG Technology & Communications
Fund, a series of The PBHG Funds, Inc. Prior to joining the Adviser, Mr. Force
was Vice President/Portfolio Manager at Fiduciary Management Associates from
July, 1987 to September, 1992.

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

THE TRANSFER AGENT AND SUB-TRANSFER AGENT

10
<PAGE>

the Fund, delivering, on behalf of the Fund, proxy statements, annual reports,
updated Prospectuses, other communications regarding the Fund, and related
services as the Fund or the beneficial owners may reasonably request.

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, a wholly-owned subsidiary of SEI, provides the Fund
with distribution services.

DIRECTORS OF THE FUND

VOTING RIGHTS

CONFLICTS OF INTEREST. Each Portfolio offers its shares to VA Contracts and VLI
Policies offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other. Due to differences of tax
treatment and other considerations, the interests of VA Contract and VLI Policy
owners participating in the Portfolios may conflict. The Board will monitor the
Portfolios for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts to withdraw its
investments in the Portfolios. As a result, the Portfolios may be forced to sell
securities at disadvantageous prices and orderly portfolio management could be
disrupted. In addition, the Board may refuse to sell shares of the Portfolios to
any VA Contract or VLI Policy or may suspend or terminate the offering of shares
of the Portfolios if such action is required by law or regulatory authority or
is in the best interests of the shareholders of the Portfolios.

REPORTING

COUNSEL AND INDEPENDENT ACCOUNTANTS

Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, L.L.P.
serves as the independent accountants of the Fund.

CUSTODIAN

MISCELLANEOUS

11
<PAGE>

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

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

12
<PAGE>

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

13
<PAGE>

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

U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of securities
recorded directly into the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities. When U.S. Treasury obligations have been stripped of their
unmatured interest coupons by the holder, the stripped coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. The principal or corpus is sold at a deep discount because
the buyer receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic interest (cash) payments.
Purchasers of stripped obligations acquire, in effect, discount obligations that
are economically identical to the securities that the Treasury sells itself.
Other facilities are available to facilitate the transfer of ownership of
non-Treasury securities by accounting separately for the beneficial ownership of
particular interest coupon or corpus payments on such securities through a
book-entry record-keeping system.

14
<PAGE>

WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.

15
<PAGE>

Filed pursuant to Rule 497(c)
File No: 333-19497

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO

PROSPECTUS DATED MAY 1, 1997

PAGE
----

SUMMARY............................................................... 1

INVESTMENT OBJECTIVES AND POLICIES.................................... 3

GENERAL INVESTMENT POLICIES AND STRATEGIES............................ 4

RISK FACTORS.......................................................... 5

INVESTMENT LIMITATIONS................................................ 6

PURCHASES AND REDEMPTIONS............................................. 6

NET ASSET VALUE....................................................... 7

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS............................... 7

PERFORMANCE ADVERTISING............................................... 8

GENERAL INFORMATION................................................... 9

GLOSSARY OF PERMITTED INVESTMENTS..................................... 13

<PAGE>

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

THE FUND

The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios, three of which are available
hereunder. The three available Portfolios are: the PBHG Growth II Portfolio (the
"Growth II Portfolio"), PBHG Large Cap Growth Portfolio (the "Large Cap Growth
Portfolio") and PBHG Technology & Communications Portfolio (the "Technology &
Communications Portfolio"). Each of the Portfolios has distinct investment
objectives and policies. See "Investment Objectives and Policies." Additional
Portfolios may be added to the Fund in the future. This Prospectus will be
supplemented or amended to reflect the addition of any new Portfolios.

WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II
Portfolio seeks capital appreciation. The Large Cap Growth and Technology &
Communications Portfolios each seek long-term growth of capital. There can be no
assurance that a Portfolio will achieve its investment objective. Each Portfolio
will invest primarily in a variety of equity securities in accordance with its
particular investment program and policies. The Growth II Portfolio invests
primarily in equity securities of small and medium capitalization companies
believed by Pilgrim Baxter & Associates, Ltd. (the "Adviser") to have an outlook
for strong earnings growth and the potential for significant capital
appreciation. The Large Cap Growth Portfolio invests primarily in equity
securities of larger capitalization companies that are perceived by the Adviser
to have a strong potential for capital appreciation. The Technology &
Communications Portfolio invests primarily in equity securities of companies,
without regard to market capitalization, which rely extensively on science and
technology in their product development or operations, or which are expected to
benefit from technological improvements and which may be experiencing
exceptional growth in sales and earnings driven by technology-related products
and services.

WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIOS? Each
Portfolio invests in securities that fluctuate in value, and investors should
expect each Portfolio's net asset value per share to fluctuate. Each Portfolio
may invest in stocks and convertible securities that may be traded in the
over-the-counter market. Some of these securities may not be as liquid as
exchange-listed stocks. In addition, the Growth II Portfolio invests extensively
in securities of small capitalization companies and, to a lesser extent, the
Technology & Communications Portfolio also invests in small or medium
capitalization company stocks and, therefore, may experience greater price
volatility than investment companies that invest primarily in more established,
larger capitalized companies. Although the Technology & Communications Portfolio
will invest in the securities of technology companies in many different
industries, many of these industries share common characteristics. Furthermore,
equity securities of technology companies may be subject to greater price
volatility than securities of companies in many other industries. Each of the
Portfolios may invest in equity securities of non-U.S. issuers, which are
subject to certain risks not typically associated with domestic securities. Such
risks include changes in currency rates and in exchange control regulations,
costs associated with conversions between various currencies, limited publicly
available information regarding foreign issuers, lack of uniformity in
accounting, auditing and financial standards and requirements, greater
securities market volatility, less liquidity, less government supervision of
securities markets, changes in taxes on income on securities, and possible
seizure, nationalization or expropriation of the foreign issuer or foreign
deposits. The Portfolios also may enter into futures contracts, which are
subject to special risks. When futures contracts are being used for hedging
purposes, such risks include the potential of imperfect correlation between the
change in the value of a futures contract purchased or sold and the market value
of the securities held by the Portfolios; the possible failure to correctly
predict movements in the direction of the market; and the risk that the
Portfolios may not be able to close out a particular futures contract because of
a lack of a liquid secondary market in such futures contract. Other risks of
investing in futures contracts include that the prices of futures contracts are
volatile and are influenced by changes in market and interest rates and that
futures trading involves an extremely high degree of leverage which may result
in losses in

1
<PAGE>

excess of the amount invested in the futures contract. See "Investment
Objectives and Policies", "Risk Factors" and "Glossary of Permitted Investments"
in this Prospectus and see "Risks of Transactions in Futures Contracts and
Options" in the Statement of Additional Information.

WHO IS THE ADVISER? Pilgrim Baxter & Associates, Ltd. serves as the
investment adviser to each Portfolio. See "The Adviser."

WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."

2
<PAGE>

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

GROWTH II PORTFOLIO

LARGE CAP GROWTH PORTFOLIO

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

3
<PAGE>

65% of its total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements, and
that may be experiencing exceptional growth in sales and earnings driven by
technology- or communication-related products and services.

Normally, the Portfolio will purchase securities traded in the U.S. or Canada on
registered exchanges or in the over-the-counter market. The Portfolio may also
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the U.S. and Canada and, for
hedging purposes, may purchase and sell options on stocks or stock indices. The
Portfolio also may invest up to 15% of its net assets in illiquid securities.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.
- ------------------------------------------------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- ------------------------------------------------------------------------------

INVESTMENT PROCESS: GROWTH II, LARGE CAP GROWTH AND TECHNOLOGY & COMMUNICATIONS
PORTFOLIOS

PORTFOLIO TURNOVER

Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases
realized gains and losses. It is expected that under normal market conditions,
the annual portfolio turnover rate for the Growth II and Large Cap Growth
Portfolios will not exceed 150%. It is expected that under normal market
conditions, the annual portfolio turnover rate for the Technology &
Communications Portfolio will not exceed 300%. High rates of portfolio turnover
necessarily result in correspondingly greater brokerage and portfolio trading
costs, which are paid by the Portfolios. Trading in fixed-income securities does
not generally involve the payment of brokerage commissions, but does involve
indirect transaction costs. In addition, high rates of portfolio turnover may
adversely affect

4
<PAGE>

each Portfolio's status as a "regulated investment company" ("RIC") under
Section 851 of the Internal Revenue Code of 1986, as amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Growth II Portfolio invests extensively in securities
issued by small capitalization companies and, in certain cases, the Technology &
Communications Portfolio invests in securities of issuers with small or medium
market capitalizations. While the Adviser intends to invest in small and medium
capitalization companies that have strong balance sheets and that the Adviser's
research indicates should exceed consensus earnings expectations, any investment
in small and medium capitalization companies involves greater risk and price
volatility than that customarily associated with investments in larger, more
established companies. This increased risk may be due to the greater business
risks of their small size, limited markets and financial resources, narrow
product lines and frequent lack of management depth. The securities of small and
medium capitalization companies are often traded in the over-the-counter market,
and might not be traded in volumes typical of securities traded on a national
securities exchange. Thus, the securities of small and medium capitalization
companies are likely to be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established companies.

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

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

5
<PAGE>
INVESTMENTS IN TECHNOLOGY COMPANIES

FUTURES CONTRACTS

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

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

A Portfolio, as a fundamental policy, may not:

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

- ------------------------------------------------------------------------------
PURCHASES AND REDEMPTIONS
- ------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
NET ASSET VALUE
- -------------------------------------------------------------------------------

TAXES

For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus.

INTERNAL REVENUE SERVICE REQUIREMENTS

DIVIDENDS AND DISTRIBUTIONS

7
<PAGE>

the amount and character of distributions from the Fund for federal income tax
purposes.

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

PUBLIC FUND PERFORMANCE

The Large Cap Growth and Technology & Communications Portfolios are newly
organized and do not yet have their own performance records. However, the
Portfolios have the same investment objectives and follow substantially the same
investment strategies as two series of a mutual fund ("public fund") whose
shares are currently sold to the public and managed by the Adviser.

Set forth below is the historical performance of each of the corresponding
series of the public fund. Investors should not consider the performance data of
the series of the public fund as an indication of the future performance of the
Large Cap Growth and Technology & Communications Portfolios. The performance
figures shown below reflect the deduction of the historical fees and expenses
paid by the corresponding series of the public fund, and NOT THOSE TO BE PAID BY
THE PORTFOLIOS. The figures also do not reflect the deduction of any insurance
fees or charges which are imposed by the Participating Insurance Company in
connection with its sale of the VA Contracts and VLI Policies. Investors should
refer to the separate account prospectuses describing the VA Contracts and VLI
Policies for information pertaining to these insurance fees and charges. The
insurance separate account fees will have a detrimental effect on the
performance of the Portfolios. Additionally, although it is anticipated that
each Portfolio and its corresponding public fund series will hold similar
securities, their investment results are expected to differ. In particular,
differences in asset size and in cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security selections,
differences in the relative weightings of securities or differences in the price
paid for particular portfolio holdings. The results shown reflect the
reinvestment of dividends

8
<PAGE>

and distributions, and were calculated in the same manner that will be used by
the Portfolios to calculate their own performance.

The following tables show average annualized total returns for the time periods
shown for the series of the public fund.

LARGE CAP GROWTH PORTFOLIO

SINCE
1 YEAR INCEPTION
------ ---------

CORRESPONDING SERIES OF THE PUBLIC
FUND
The PBHG Funds, Inc. --
PBHG Large Cap Growth Fund.............. -1.77% 21.49%

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

SINCE
1 YEAR INCEPTION
------ ---------

CORRESPONDING SERIES OF THE PUBLIC
FUND
The PBHG Funds, Inc. --
PBHG Technology & Communications
Fund.................................... 19.59% 30.52%

Results shown are through the period ended March 31, 1997 for each public fund
series shown. The inception dates for each public fund series are April 5, 1995
for the PBHG Large Cap Growth Fund and October 2, 1995 for the PBHG Technology &
Communications Fund.

PRIVATE ACCOUNT PERFORMANCE

Investors should not consider the performance data of these Private Accounts as
an indication of the future performance of the Growth II Portfolio.

PRIVATE ACCOUNT COMPOSITE PERFORMANCE

5 10
1 YEAR YEARS YEARS
------ ------ -------

Pilgrim Baxter &
Assocates, Ltd. Mid-Cap
Growth Composite*............... -13.85% 11.42% 9.66%
S&P 500 Stock Index............... 19.88% 16.41% 13.39%

* Results shown are through the period ended March 31, 1997. The inception date
is January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth
Composite.

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

THE FUND

9
<PAGE>

and reports to shareholders, costs of custodial services and registering the
shares of the Portfolio under federal securities laws, pricing and insurance
expenses and pays additional expenses including litigation and other
extraordinary expenses, brokerage costs, interest charges, taxes and
organization expenses.

THE ADVISER

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.85% of each of the Growth II and
Technology & Communications Portfolios' average daily net assets and 0.75% of
the Large Cap Growth Portfolio's average daily net assets. The advisory fees
paid by each Portfolio are higher than those paid by most investment companies,
although the Adviser believes the fees to be comparable to those paid by
investment companies with similar investment objectives and policies.

EXPENSE LIMITATION AGREEMENT

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 each Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolios
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of each Portfolio's average daily net assets) to not more than
1.20% of the average daily net assets of the Growth II and Technology &
Communications Portfolios and to not more than 1.10% of the average daily net
assets of the Large Cap Growth Portfolio, through December 31, 1997. Such
waivers and assumption of expenses by the Adviser may be discontinued at any
time after such date. Reimbursement by the Portfolios of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreement may be made at a later date when the Portfolios have
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual expense ratio of each Portfolio to exceed the Total
Operating Expense percentages described above.

THE PORTFOLIO MANAGERS

10
<PAGE>

The PBHG Funds, Inc. and has managed or co-managed such series since their
inception. Mr. McCall also manages the PBHG Large Cap 20 Fund, a series of The
PBHG Funds, Inc., and has done so since its inception.

John F. Force, CFA, will manage the Technology & Communications Portfolio. Mr.
Force joined the Adviser in 1993 and is a portfolio manager and equity analyst
for the Adviser. He currently manages the PBHG Technology & Communications Fund,
a series of The PBHG Funds, Inc. Prior to joining the Adviser, Mr. Force was
Vice President/Portfolio Manager at Fiduciary Management Associates from July,
1987 to September, 1992.

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

THE TRANSFER AGENT AND SUB-TRANSFER AGENT

From time to time, the Fund may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Fund to
persons who beneficially own interests in the Fund, such as participants in
Qualified Plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Fund, delivering, on behalf of the
Fund, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Fund, and related services as the Fund or the
beneficial owners may reasonably request.

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, a wholly-owned subsidiary of SEI, provides the Fund
with distribution services.

DIRECTORS OF THE FUND

VOTING RIGHTS

CONFLICTS OF INTEREST. Each Portfolio offers its shares to VA Contracts and VLI
Policies offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with

11
<PAGE>

each other. Due to differences of tax treatment and other considerations, the
interests of VA Contract and VLI Policy owners participating in the Portfolios
may conflict. The Board will monitor the Portfolios for any material conflicts
that may arise and will determine what action, if any, should be taken. If a
conflict occurs, the Board may require one or more Participating Insurance
Company separate accounts to withdraw its investments in the Portfolios. As a
result, the Portfolios may be forced to sell securities at disadvantageous
prices and orderly portfolio management could be disrupted. In addition, the
Board may refuse to sell shares of the Portfolios to any VA Contract or VLI
Policy or may suspend or terminate the offering of shares of the Portfolios if
such action is required by law or regulatory authority or is in the best
interests of the shareholders of the Portfolios.

REPORTING

COUNSEL AND INDEPENDENT ACCOUNTANTS

Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, L.L.P.
serves as the independent accountants of the Fund.

CUSTODIAN

MISCELLANEOUS

12
<PAGE>

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

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

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

13
<PAGE>

foreign currency contracts when it determines that the best interests of a
Portfolio will be served.

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

REPURCHASE AGREEMENTS -- Agreements by which a person obtains a security and
simultaneously commits to return it to the seller at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days from the date of purchase. The Custodian or its agents will hold the
security as collateral for the repurchase agreement. Collateral must be
maintained at a value at least equal to 102% of the purchase price. Each
Portfolio bears a risk of loss in the event the other party defaults on its
obligations and the Portfolio is delayed or prevented from its right to dispose
of the collateral securities or if the Portfolio realizes a loss on the sale of
the collateral securities. The Adviser will enter into repurchase agreements on
behalf of a Portfolio only with financial institutions deemed to present minimal
risk of bankruptcy during the term of the agreement based on guidelines
established and periodically reviewed by the Directors. Repurchase agreements
are considered loans under the 1940 Act, as well as for federal and state income
tax purposes.

14
<PAGE>

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

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

U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidence of ownership of the underlying U.S. Treasury
securities. When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the stripped coupons are sold separately or
grouped with other coupons with like maturity dates and sold in such bundled
form. The principal or corpus is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the securities that the Treasury sells itself. Other
facilities are available to facilitate the transfer of ownership of non-Treasury
securities by accounting separately for the beneficial ownership of particular
interest coupon or corpus payments on such securities through a book-entry
record-keeping system.

WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.

<PAGE>

Filed pursuant to Rule 497(c)
File No: 333-19497

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG LARGE CAP VALUE PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG SELECT 20 PORTFOLIO

PROSPECTUS DATED MAY 1, 1997

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
SUMMARY.................................................................................................... 1

INVESTMENT OBJECTIVES AND POLICIES......................................................................... 3

GENERAL INVESTMENT POLICIES AND STRATEGIES................................................................. 5

RISK FACTORS............................................................................................... 7

INVESTMENT LIMITATIONS..................................................................................... 8

PURCHASES AND REDEMPTIONS.................................................................................. 8

NET ASSET VALUE............................................................................................ 9

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS.................................................................... 9

PERFORMANCE ADVERTISING.................................................................................... 9

GENERAL INFORMATION........................................................................................ 11

GLOSSARY OF PERMITTED INVESTMENTS.......................................................................... 15
</TABLE>

<PAGE>

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

THE FUND

The Fund is an open-end diversified management investment company which
currently offers shares of six Portfolios, five of which are available
hereunder. The five available Portfolios are: the PBHG Growth II Portfolio (the
"Growth II Portfolio"), PBHG Small Cap Value Portfolio (the "Small Cap Value
Portfolio"), PBHG Large Cap Value Portfolio (the "Large Cap Value Portfolio"),
PBHG Technology & Communications Portfolio (the "Technology & Communications
Portfolio") and PBHG Select 20 Portfolio (the "Select 20 Portfolio"). Each of
the Portfolios has distinct investment objectives and policies. See "Investment
Objectives and Policies." Additional Portfolios may be added to the Fund in the
future. This Prospectus will be supplemented or amended to reflect the addition
of any new Portfolios.

WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS? The Growth II
Portfolio seeks capital appreciation. The Small Cap Value Portfolio seeks to
achieve above-average total return over a market cycle of three to five years.
The Large Cap Value Portfolio seeks long-term growth of capital and income.
Current income is a secondary objective. The Technology & Communications
Portfolio seeks long-term growth of capital. The Select 20 Portfolio seeks
long-term capital appreciation. There can be no assurance that a Portfolio will
achieve its investment objective. Each Portfolio will invest primarily in a
variety of equity securities in accordance with its particular investment
program and policies. The Growth II Portfolio invests primarily in equity
securities of small and medium capitalization companies believed by Pilgrim
Baxter & Associates, Ltd. (the "Adviser") to have an outlook for strong earnings
growth and the potential for significant capital appreciation. The Small Cap
Value Portfolio invests primarily in a diversified portfolio of equity
securities with market capitalizations in the range of companies represented in
the Russell 2000 Index which are deemed by the Adviser and Newbold's Asset
Management, Inc. (the "Sub-Adviser") to be relatively undervalued based on
certain proprietary measures of value. The Large Cap Value Portfolio invests
primarily in a diversified portfolio of equity securities of large
capitalization companies which, in the opinion of the Adviser and Sub-Adviser,
are undervalued or overlooked by the market. The Technology & Communications
Portfolio invests primarily in equity securities of companies, without regard to
market capitalization, which rely extensively on science and technology in their
product development or operations, or which are expected to benefit from
technological improvements and which may be experiencing exceptional growth in
sales and earnings driven by technology-related products and services. The
Select 20 Portfolio invests primarily in equity securities of a limited number
of larger capitalization companies (no more than 20) that are perceived by the
Adviser to have a strong potential for capital appreciation.

1
<PAGE>

and requirements, greater securities market volatility, less liquidity, less
government supervision of securities markets, changes in taxes on income on
securities, and possible seizure, nationalization or expropriation of the
foreign issuer or foreign deposits. The Portfolios also may enter into futures
contracts, which are subject to special risks. When futures contracts are being
used for hedging purposes, such risks include the potential of imperfect
correlation between the change in the value of a futures contract purchased or
sold and the market value of the securities held by the Portfolios; the possible
failure to correctly predict movements in the direction of the market; and the
risk that the Portfolios may not be able to close out a particular futures
contract because of a lack of a liquid secondary market in such futures
contract. Other risks of investing in futures contracts include that the prices
of futures contracts are volatile and are influenced by changes in market and
interest rates and that futures trading involves an extremely high degree of
leverage which may result in losses in excess of the amount invested in the
futures contract. See "Investment Objectives and Policies", "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus and see "Risks of
Transactions in Futures Contracts and Options" in the Statement of Additional
Information.

WHO ARE THE ADVISER AND SUB-ADVISER? Pilgrim Baxter & Associates, Ltd.
serves as the investment adviser to each Portfolio. Newbold's Asset Management,
Inc. serves as the investment sub-adviser to the Small Cap Value and Large Cap
Value Portfolios. See "The Adviser" and "The Sub-Adviser."

WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent,
dividend disbursing agent and shareholder servicing agent of the Fund. See "The
Transfer Agent."

WHO IS THE DISTRIBUTOR? SEI Financial Services Company provides the Fund
with distribution services. See "The Distributor."

<PAGE>

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

GROWTH II PORTFOLIO

Normally, the Portfolio will purchase only securities traded in the United
States or Canada on registered exchanges or in the over-the-counter market. The
Portfolio may invest up to 15% of its total assets in securities of foreign
issuers (including American Depository Receipts ("ADRs")), and may invest up to
15% of its net assets in illiquid securities. This limitation does not include
any Rule 144A security that has been determined to be liquid pursuant to
procedures established by the Board. See "Risk Factors" and "Glossary of
Permitted Investments" in this Prospectus for a fuller description of the
Portfolio's permitted investments and their risks.

SMALL CAP VALUE PORTFOLIO

The Small Cap Value Portfolio seeks to achieve above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in a diversified portfolio of common stocks of small
companies with market capitalizations in the range of companies represented in
the Russell 2000 Index which are considered to be relatively undervalued based
on certain proprietary measures of value.

The current market capitalization of companies in the Russell 2000 Index is
typically between $100 million and $1.5 billion. It is expected that securities
purchased by the Portfolio will typically exhibit lower price/earnings and
price/book value ratios than the average of those in the Russell 2000 Index.
Under normal circumstances, the Portfolio will be structured taking into account
the economic sector weightings of the Russell 2000 Index, with the Portfolio's
sector weightings normally within 10% of the sector weightings of that Index.

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

<PAGE>

market price of their securities. The utilization of a valuation approach may
result in investment selections that may be out-of-favor or counter to those of
other investors. However, such an approach may also produce significant capital
appreciation.

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

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

See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.

LARGE CAP VALUE PORTFOLIO

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

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

The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total assets
in securities of foreign issuers, including ADRs, and may also invest up to 15%
of its net assets in restricted or illiquid securities. The Portfolio may use
high-quality money market investments or short-term bonds to reduce downside
volatility during uncertain or declining market conditions. For temporary or
defensive purposes, the Portfolio may invest in money market securities or
short-term bonds without limitation. The Portfolio may purchase securities on a
when-issued or delayed delivery basis.

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

<PAGE>

description of the Portfolio's permitted investments and their risks.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

SELECT 20 PORTFOLIO

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

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of a limited number (i.e., no more than 20
stocks) of large capitalization companies that, in the Adviser's opinion, have a
strong earnings growth outlook and potential for capital appreciation. Such
large companies have market capitalization in excess of $1 billion. Because the
Portfolio focuses on equity securities of a small number of companies, the
impact of a change in value of a single stock holding may be magnified.

While it has no present intention to do so, the Portfolio reserves the right to
invest up to 10% of its net assets in restricted securities and securities of
foreign issuers traded outside the United States and Canada and, for hedging
purposes only, to purchase and sell options on stocks or stock indices. The
Portfolio may also invest up to 15% of its net assets in illiquid securities,
but will not invest more than 5% of its net assets in restricted securities that
the Adviser determines are illiquid based on guidelines approved by the Board of
Directors of the Fund. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.
- ------------------------------------------------------
GENERAL INVESTMENT POLICIES AND STRATEGIES
- ------------------------------------------------------

INVESTMENT PROCESS: GROWTH II, TECHNOLOGY & COMMUNICATIONS AND SELECT 20
PORTFOLIOS

The Adviser's investment process in managing the assets of the Growth II,
Technology & Communications and Select 20 Portfolios is both quantitative and

<PAGE>

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

INVESTMENT PROCESS: SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS

The Sub-Adviser's investment process with respect to the Small Cap Value and
Large Cap Value Portfolios, like that of the Adviser, is both quantitative and
fundamental. In seeking to identify attractive investment opportunities for the
Small Cap Value and Large Cap Value Portfolios, the Sub-Adviser first creates a
universe of companies each of whose current share price is low in relation to
its real worth or future prospects. Using custom designed research models and
proprietary software, which incorporate certain key elements of value investing
(such as consistency of dividend payment, balance sheet strength and, low stock
price relative to its assets, earnings, cash flow and business franchise), the
Sub-Adviser screens more than 8,000 possible companies and creates an initial
universe of statistically attractive value companies. Following the creation of
this universe of possible investments, the Sub-Adviser uses its strong
fundamental research capabilities to carefully identify securities that are
currently out of favor but which have the potential to achieve significant
appreciation as the marketplace recognizes their fundamental value. Once
constructed, portfolios are continually monitored for change. The Sub-Adviser
follows a disciplined valuation approach that requires it to sell any portfolio
security that becomes overvalued relative to the market. Sales of portfolio
securities are primarily triggered by the relative change in a company's
price/earnings ratio. Adverse changes in other key value elements are, of
course, factors that would also trigger a sale. Of course, there can be no
assurance that use of these techniques will be successful.

PORTFOLIO TURNOVER

Portfolio turnover will tend to rise during periods of economic turbulence and
decline during periods of stable growth. A higher turnover rate (100% or more)
increases transaction costs (e.g., brokerage commissions) and increases realized
gains and losses. It is expected that under normal market conditions, the annual
portfolio turnover rate for the Large Cap Value Portfolio will not exceed 100%,
and with respect to the Growth II Portfolio will not exceed 150%. It is expected
that under normal market conditions, the annual portfolio turnover rate for the
Small Cap Value Portfolio will not exceed 200% and with respect to the Select 20
and Technology & Communications Portfolios will not exceed 300%. High rates of
portfolio turnover necessarily result in correspondingly greater brokerage and
portfolio trading costs, which are paid by the Portfolios. Trading in
fixed-income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. In addition, high
rates of portfolio turnover may adversely affect each Portfolio's status as a
"regulated investment company" ("RIC") under Section 851 of the Internal Revenue
Code of 1986, as amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

Under normal market conditions, each Portfolio expects to be fully invested in
its primary investments, as described above. However, for temporary defensive
purposes, when the Adviser or Sub-Adviser, as appropriate, determines that
market conditions warrant, each Portfolio may invest up to 100% of its assets in
cash and money market instruments (consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations having net assets of at least $500 million as stated on their
most recently published financial statements; commercial paper rated in one of
the two highest rating categories by at least one NRSRO; repurchase agreements
involving such securities; and, to the extent permitted by applicable law and
each Portfolio's investment restrictions, shares of other investment companies
investing solely in money market securities). To the

<PAGE>

extent a Portfolio is invested in temporary defensive instruments, it will not
be pursuing its investment objective. See "Glossary of Permitted Investments"
and the Statement of Additional Information.

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

Investments in common stocks in general are subject to market risks that may
cause their prices to fluctuate over time. Therefore, an investment in each
Portfolio may be more suitable for long-term investors who can bear the risk of
these fluctuations. The Growth II and Small Cap Value Portfolios invest
extensively in securities issued by small capitalization companies and, in
certain cases, the Technology & Communications Portfolio invests in securities
of issuers with small or medium market capitalizations. While the Adviser and
Sub-Adviser intend to invest in small and medium capitalization companies that
have strong balance sheets and that the Adviser's and/or Sub-Adviser's research
indicates should exceed consensus earnings expectations, any investment in small
and medium capitalization companies involves greater risk and price volatility
than that customarily associated with investments in larger, more established
companies. This increased risk may be due to the greater business risks of their
small size, limited markets and financial resources, narrow product lines and
frequent lack of management depth. The securities of small and medium
capitalization companies are often traded in the over-the-counter market, and
might not be traded in volumes typical of securities traded on a national
securities exchange. Thus, the securities of small and medium capitalization
companies are likely to be less liquid, and subject to more abrupt or erratic
market movements, than securities of larger, more established companies.

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

INVESTMENTS IN TECHNOLOGY COMPANIES

FUTURES CONTRACTS

The primary risks associated with the use of futures contracts for hedging
purposes are: (i) imperfect correlations between the change in market value of

<PAGE>

the securities held by a Portfolio and the prices of futures contracts purchased
or sold by a Portfolio; (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position, which
could have an adverse impact on a Portfolio's ability to execute futures and
options strategies; and (iii) the possible failure to correctly predict
movements in the direction of the market. Other risks of investing in futures
contracts include that the prices of futures contracts are volatile and are
influenced by changes in market and interest rates and that futures trading
involves an extremely high degree of leverage which may result in losses in
excess of the amount invested in the futures contract.

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

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

A Portfolio, as a fundamental policy, may not:

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

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

- ------------------------------------------------------
PURCHASES AND REDEMPTIONS
- ------------------------------------------------------

The Portfolios reserve the right to reject any specific purchase order. Purchase
orders may be refused if, in
8

<PAGE>
the Adviser's opinion, they are of a size that would disrupt the management of
the Portfolio. A Portfolio may discontinue sales of its shares if management
believes that a substantial further increase in assets may adversely effect the
Portfolio's ability to achieve its investment objective. In such event, however,
it is anticipated that existing VA Contract owners and VLI Policy owners would
be permitted to continue to authorize investments in the Portfolios.

- ------------------------------------------------------
NET ASSET VALUE
- ------------------------------------------------------

- ------------------------------------------------------
TAX STATUS, DIVIDENDS AND
DISTRIBUTIONS
- ------------------------------------------------------

TAXES

For a discussion of the tax status of a VA Contract or VLI Policy, refer to the
Participating Insurance Company separate account prospectus.

INTERNAL REVENUE SERVICE REQUIREMENTS

DIVIDENDS AND DISTRIBUTIONS

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

9
<PAGE>
commenced operations through the specified date), assuming that the entire
investment is redeemed at the end of each period and assuming the reinvestment
of all dividend and capital gain distributions.

PUBLIC FUND PERFORMANCE

The Technology & Communications and Select 20 Portfolios are newly organized and
do not yet have their own performance records. However, the Portfolios have the
same investment objectives and follow substantially the same investment
strategies as two series of a mutual fund ("public fund") whose shares are
currently sold to the public and managed by the Adviser.

Set forth below is the historical performance of each of the corresponding
series of the public fund. Investors should not consider the performance data of
the series of the public fund as an indication of the future performance of the
Technology & Communications and Select 20 Portfolios. The performance figures
shown below reflect the deduction of the historical fees and expenses paid by
the corresponding series of the public fund, AND NOT THOSE TO BE PAID BY THE
PORTFOLIOS. The figures also do not reflect the deduction of any insurance fees
or charges which are imposed by the Participating Insurance Company in
connection with its sale of the VA Contracts and VLI Policies. Investors should
refer to the separate account prospectuses describing the VA Contracts and VLI
Policies for information pertaining to these insurance fees and charges. The
insurance separate account fees will have a detrimental effect on the
performance of the Portfolios. Additionally, although it is anticipated that
each Portfolio and its corresponding public fund series will hold similar
securities, their investment results are expected to differ. In particular,
differences in asset size and in cash flow resulting from purchases and
redemptions of Portfolio shares may result in different security selections,
differences in the relative weightings of securities or differences in the price
paid for particular portfolio holdings. The results shown reflect the
reinvestment of dividends and distributions, and were calculated in the same
manner that will be used by the Portfolios to calculate their own performance.

The following table for the Technology & Communications Portfolio shows average
annualized total returns for the time periods shown for the corresponding series
of the public fund.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

SINCE
1 YEAR INCEPTION
------ ---------
CORRESPONDING SERIES OF THE
PUBLIC FUND
The PBHG Funds, Inc. --
PBHG Technology &
Communications Fund............ 19.59% 30.52%

<PAGE>

The following table for the Select 20 Portfolio shows the aggregate total return
for the time period shown for the corresponding series of the public fund.

SELECT 20 PORTFOLIO
SINCE
INCEPTION
-------
CORRESPONDING SERIES OF THE PUBLIC FUND
The PBHG Funds, Inc. --
PBHG Large Cap 20 Fund................... -7.40%

Results shown are through the period ended March 31, 1997 for each public fund
series shown. The inception dates for each public fund series are October 2,
1995 for the PBHG Technology & Communications Fund and December 2, 1996 for the
PBHG Large Cap 20 Fund.

PRIVATE ACCOUNT PERFORMANCE

Investors should not consider the performance data of these Private Accounts as
an indication of the future performance of the Growth II Portfolio.

PRIVATE ACCOUNT COMPOSITE PERFORMANCE

1 YEAR 5 YEARS 10 YEARS
------- ------- --------

Pilgrim Baxter &
Associates, Ltd.
Mid-Cap Growth
Composite*......... -13.85% 11.42% 9.66%
S&P 500 Stock
Index.............. 19.88% 16.41% 13.39%

Results shown are through the period ended March 31, 1997. The inception date is
January 1, 1983 for the Pilgrim Baxter & Associates, Ltd. Mid-Cap Growth
Composite.
- ------------------------------------------------------
GENERAL INFORMATION
- ------------------------------------------------------

THE FUND

THE ADVISER

Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling

<PAGE>

shareholder of the Adviser is United Asset Management Corporation ("UAM"), a New
York Stock Exchange listed holding company principally engaged, through
affiliated firms, in providing institutional investment management services and
acquiring institutional investment management firms. UAM's corporate
headquarters are located at One International Place, Boston, Massachusetts
02110. The Adviser currently has discretionary management authority with respect
to over $12 billion in assets. In addition to advising the Portfolios, the
Adviser provides advisory services to other mutual funds and to pension and
profit-sharing plans, charitable institutions, corporations, trusts and estates,
and other investment companies. The principal business address of the Adviser is
1255 Drummers Lane, Suite 300, Wayne, Pennsylvania 19087.

The Adviser serves as the investment adviser to each of the Portfolios under an
investment advisory agreement with the Fund (the "Advisory Agreement"). Under
the Advisory Agreement, the Adviser either continuously reviews, supervises and
administers the investment program of each Portfolio, which includes managing
and selecting investments, or, with respect to the Small Cap Value and Large Cap
Value Portfolios, oversees the investment management of the Portfolios by the
Portfolios' Sub-Adviser, subject to the supervision of, and policies established
by, the Board of Directors of the Fund.

For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the Small Cap Value Portfolio's
average daily net assets, 0.85% of each of the Growth II, Technology &
Communications and Select 20 Portfolios' average daily net assets and 0.65% of
the Large Cap Value Portfolio's average daily net assets. The advisory fees paid
by each Portfolio are higher than those paid by most investment companies,
although the Adviser believes the fees to be comparable to those paid by
investment companies with similar investment objectives and policies.

THE SUB-ADVISER (SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS)

Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, Pennsylvania,
is a registered investment adviser that was formed in 1940. As with the Adviser,
the controlling shareholder of the Sub-Adviser is UAM. The Sub-Adviser currently
has discretionary management authority with respect to over $4 billion in
assets. In addition to advising the Portfolios, the Sub-Adviser provides
advisory services to pension and profit-sharing plans, charitable institutions,
trusts, estates and other investment companies.

The Sub-Adviser serves as the investment sub-adviser for the Small Cap Value and
Large Cap Value Portfolios pursuant to a sub-advisory agreement with the Fund
and the Adviser ("Sub-Advisory Agreement"). Under the Sub-Advisory Agreement,
the Sub-Adviser manages the investments of the Small Cap Value and Large Cap
Value Portfolios, selects investments and places all orders for purchases and
sales of the Portfolios' securities, subject to the general supervision of the
Board of Directors of the Fund and the Adviser.

For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive from the Adviser a fee,
computed daily and paid monthly, at an annual rate equal to 0.65% of the Small
Cap Value Portfolio's average daily net assets and 0.40% of the Large Cap Value
Portfolio's average daily net assets.

EXPENSE LIMITATION AGREEMENT

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 each Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolios
to the extent necessary to limit the total annual operating expenses (expressed
as a percentage of each Portfolio's average daily net assets) to not more than
1.20% of the average daily net assets of the Growth II, Small Cap Value,
Technology & Communications and Select 20 Portfolios and to not more than 1.00%
of the average daily net assets of the Large Cap Value Portfolio, through
December 31, 1997. Such waivers and assumption of expenses by the Adviser may be
discontinued at any time after such date. Reimbursement by the Portfolios of the
advisory fees waived or limited and other expenses paid by the Adviser pursuant
to the Expense Limitation Agreement may be made at a later date when the
Portfolios have reached a sufficient asset size to permit reimbursement to be
made without causing the total annual expense ratio of each Portfolio to exceed
the Total Operating Expense percentages described above.

THE PORTFOLIO MANAGERS

<PAGE>

series of The PBHG Funds, Inc., another mutual fund managed by the Adviser. Mr.
Muzina joined the Adviser in 1985 from Citibank, where he was Vice
President/Portfolio Manager of U.S. equity portfolios for international
institutional accounts. His experience includes security analysis and investment
research focused on health care and chemical industries, as well as pension and
profit sharing portfolio management at a major advisory firm and at Philadelphia
National Bank. Mr. Muzina is an honors MBA graduate of Temple University and
received his undergraduate degree from Pennsylvania State University.

The Select 20 Portfolio will be managed by James D. McCall. Mr. McCall has been
a portfolio manager with the Adviser since 1994. Prior to joining the Adviser,
Mr. McCall was a portfolio manager with First Maryland Bank Corporation (May
1992 to November 1994) and a portfolio manager with Provident Mutual Management,
Inc. prior to that time. Mr. McCall manages two series of The PBHG Funds, Inc.
and has managed or co-managed such series since their inception. Mr. McCall also
manages the PBHG Large Cap 20 Fund and has done so since its inception.

The Small Cap Value Portfolio will be managed by Gary D. Haubold, CFA. Mr.
Haubold joined the Sub-Adviser in January 1997. Prior to joining the Sub-
Adviser, Mr. Haubold was employed by Miller Anderson & Sherrerd LLP ("MAS") from
1993 until January 6, 1997. At MAS, Mr. Haubold served as the co-manager of the
Mid Cap Value Portfolio of the MAS Fund and the co-manager of the Small Cap
Value Portfolio of the MAS Fund. Prior to joining MAS, Mr. Haubold was Senior
Vice President of Wood, Struthers & Winthrop.

The Large Cap Value Portfolio will be managed by James H. Farrell, CFA. Mr.
Farrell joined the Sub-Adviser in September, 1996 and is its Chief Investment
Officer. Mr. Farrell also manages another mutual fund advised by the
Sub-Adviser, a series of The PBHG Funds, Inc. Prior to joining the Sub-Adviser,
he was an Investment Counselor in a sole proprietorship for two years. From 1983
to 1994, he was a partner at Cashman, Farrell and Associates, an investment
advisory firm.

John F. Force, CFA, will manage the Technology & Communications Portfolio. Mr.
Force joined the Adviser in 1993 and is a portfolio manager and equity analyst
for the Adviser. He currently manages the PBHG Technology & Communications Fund,
a series of The PBHG Funds, Inc. Prior to joining the Adviser, Mr. Force was
Vice President/Portfolio Manager at Fiduciary Management Associates from July,
1987 to September, 1992.

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

THE TRANSFER AGENT AND SUB-TRANSFER AGENT

THE DISTRIBUTOR

SEI Financial Services Company (the "Distributor"), One Freedom Valley Road,
Oaks, Pennsylvania 19456, a wholly-owned subsidiary of SEI, provides the Fund
with distribution services.

<PAGE>

DIRECTORS OF THE FUND

VOTING RIGHTS

CONFLICTS OF INTEREST. Each Portfolio offers its shares to VA Contracts and VLI
Policies offered through separate accounts of Participating Insurance Companies
which may or may not be affiliated with each other. Due to differences of tax
treatment and other considerations, the interests of VA Contract and VLI Policy
owners participating in the Portfolios may conflict. The Board will monitor the
Portfolios for any material conflicts that may arise and will determine what
action, if any, should be taken. If a conflict occurs, the Board may require one
or more Participating Insurance Company separate accounts to withdraw its
investments in the Portfolios. As a result, the Portfolios may be forced to sell
securities at disadvantageous prices and orderly portfolio management could be
disrupted. In addition, the Board may refuse to sell shares of the Portfolios to
any VA Contract or VLI Policy or may suspend or terminate the offering of shares
of the Portfolios if such action is required by law or regulatory authority or
is in the best interests of the shareholders of the Portfolios.

REPORTING

COUNSEL AND INDEPENDENT ACCOUNTANTS

Katten Muchin & Zavis serves as counsel to the Fund. Coopers & Lybrand, L.L.P.
serves as the independent accountants of the Fund.

CUSTODIAN

MISCELLANEOUS

<PAGE>

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

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

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

<PAGE>

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

<PAGE>

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

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

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

U.S. TREASURY OBLIGATIONS -- Bills, notes and bonds issued by the U.S. Treasury,
and separately traded interest and principal component parts of such obligations
that are transferable through the Federal book-entry system known as Separately
Traded Registered Interest and Principal Securities ("STRIPS"). Under the STRIPS
program, a Portfolio will be able to have its beneficial ownership of securities
recorded directly in the book-entry record-keeping system in lieu of having to
hold certificates or other evidences of ownership of the underlying U.S.
Treasury securities. When U.S. Treasury obligations have been stripped of their
unmatured interest coupons by the holder, the stripped coupons are sold
separately or grouped with other coupons with like maturity dates and sold in
such bundled form. The principal or corpus is sold at a deep discount because
the buyer receives only the right to receive a future fixed payment on the
security and does not receive any rights to periodic interest (cash) payments.
Purchasers of stripped obligations acquire, in effect, discount obligations that
are economically identical to the securities that the Treasury sells itself.
Other facilities are available to facilitate the transfer of ownership of
non-Treasury securities by accounting separately for the beneficial ownership of
particular interest coupon and corpus payments on such securities through a
book-entry record-keeping system.

<PAGE>

WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.

<PAGE>
Fund:
PBHG INSURANCE SERIES FUND, INC.

Portfolios:
PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO
PBHG SMALL CAP VALUE PORTFOLIO
PBHG LARGE CAP VALUE PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO
PBHG SELECT 20 PORTFOLIO

Investment Adviser:
PILGRIM BAXTER & ASSOCIATES, LTD.

This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of the
PBHG Insurance Series Fund, Inc. (the "Fund") and the PBHG Growth II Portfolio,
PBHG Large Cap Growth Portfolio, PBHG Small Cap Value Portfolio, PBHG Large Cap
Value Portfolio, PBHG Technology & Communications Portfolio and the PBHG Select
20 Portfolio (the "Portfolios"). It should be read in conjunction with the
Prospectus dated May 1, 1997. The Prospectus may be obtained without charge by
calling 1-800-347-9256.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND................................................................................................... 1
DESCRIPTION OF PERMITTED INVESTMENTS....................................................................... 1
INVESTMENT LIMITATIONS..................................................................................... 7
THE ADVISER................................................................................................ 8
THE SUB-ADVISER............................................................................................ 9
THE ADMINISTRATOR AND SUB-ADMINISTRATOR.................................................................... 9
THE DISTRIBUTOR............................................................................................ 10
DIRECTORS AND OFFICERS OF THE FUND......................................................................... 11
PERFORMANCE INFORMATION.................................................................................... 13
PURCHASE AND REDEMPTION OF SHARES.......................................................................... 13
DETERMINATION OF NET ASSET VALUE........................................................................... 13
TAXES...................................................................................................... 14
PORTFOLIO TRANSACTIONS..................................................................................... 15
DESCRIPTION OF SHARES...................................................................................... 16
INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO................................................ 16
FINANCIAL STATEMENTS....................................................................................... 17
</TABLE>

May 1, 1997
<PAGE>
- ------------------------------------------------------
THE FUND
- ------------------------------------------------------

This Statement of Additional Information relates to all Portfolios of the Fund.
Each share of each Portfolio represents an equal proportionate interest in that
Portfolio. See "Description of Shares." No investment in shares of a Portfolio
should be made without first reading the Prospectus. Capitalized terms not
defined herein are defined in the Prospectus. Pilgrim Baxter & Associates, Ltd.
("Adviser") serves as the investment adviser to each Portfolio. Newbold's Asset
Management, Inc. ("Sub-Adviser") serves as the investment sub-adviser to the
Small Cap Value and Large Cap Value Portfolios. The Adviser and the Sub-Adviser
are collectively referred to herein as the "Advisers."

- ------------------------------------------------------
DESCRIPTION OF PERMITTED INVESTMENTS
- ------------------------------------------------------

REPURCHASE AGREEMENTS

Repurchase agreements are agreements by which a person (e.g., a Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.

Repurchase agreements are considered to be loans by a Portfolio for purposes of
its investment limitations. The repurchase agreements entered into by a
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by a Portfolio, the Fund's custodian or its agent must
take possession of the underlying collateral. However, if the seller defaults, a
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, a
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor of the seller and is required to return the underlying
security to the seller's estate.

FUTURES CONTRACTS

FUTURES TRANSACTIONS. A futures contract is a bilateral agreement to buy or sell
a security (or deliver a cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures contracts
are designated by boards of trade which have been designated "contracts markets"
by the Commodity Futures Trading Commission ("CFTC").

No purchase price is paid or received when the contract is entered into.
Instead, a Portfolio upon entering into a futures contract (and to maintain the
Portfolio's open positions in futures contracts) would be required to deposit
with its custodian in a segregated account in the name of the futures broker an
amount of cash, or other assets, known as "initial margin." The margin required
for a particular futures contract is set by the exchange on which the contract
is traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margin that may range upward from less than 5% of the value of the
contract being traded.

If the price of an open futures contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the futures
contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Portfolio. These subsequent payments called "variation
margin," to and from the futures broker, are made on a daily basis as the price
of the underlying assets fluctuate making the long and short positions in the
futures contract more or less valuable, a process known as "marking to the
market." A Portfolio expects to earn interest income on its initial and
variation margin deposits.

1
<PAGE>
A Portfolio will incur brokerage fees when it purchases and sells futures
contracts. Positions taken in the futures markets are not normally held until
delivery or cash settlement is required, but are instead liquidated through
offsetting transactions which may result in a gain or a loss.

While futures positions taken by a Portfolio will usually be liquidated in this
manner, a Portfolio may instead make or take delivery of underlying securities
whenever it appears economically advantageous to the Portfolio to do so. A
clearing organization associated with the exchange on which futures are traded
assumes responsibility for closing out transactions and guarantees that as
between the clearing members of an exchange, the sale and purchase obligations
will be performed with regard to all positions that remain open at the
termination of the contract.

SECURITIES INDEX FUTURES CONTRACTS. Purchases or sales of securities index
futures contracts may be used in an attempt to protect a Portfolio's current or
intended investments from broad fluctuations in securities prices. A securities
index futures contract does not require the physical delivery of securities, but
merely provides for profits and losses resulting from changes in the market
value of the contract to be credited or debited at the close of each trading day
to the respective accounts of the parties to the contract. On the contract's
expiration date a final cash settlement occurs and the futures positions are
simply closed out. Changes in the market value of a particular index futures
contract reflect changes in the specified index of securities on which the
future is based.

By establishing an appropriate "short" position in index futures, the Portfolio
may also seek to protect the value of its portfolio against an overall decline
in the market for such securities. Alternatively, in anticipation of a generally
rising market, a Portfolio can seek to avoid losing the benefit of apparently
low current prices by establishing a "long" position in securities index futures
and later liquidating that position as particular securities are in fact
acquired. To the extent that these hedging strategies are successful, a
Portfolio will be affected to a lesser degree by adverse overall market price
movements than would otherwise be the case.

LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS. A Portfolio will not
purchase or sell futures contracts unless either (1) futures contracts are
purchased for "bona fide hedging" purposes (as that term is defined under the
CFTC regulations) or (2) if purchased for other purposes, the sum of the amounts
of initial margin deposits on the Portfolio's existing futures contracts and
premiums required to establish non-hedging positions would not exceed 5% of the
liquidation value of the Portfolio's total assets. In instances involving the
purchase of futures contracts by a Portfolio, an amount of cash or other liquid
assets, equal to the cost of such futures contracts (less any related margin
deposits), will be deposited in a segregated account with its custodian, thereby
insuring that the use of such futures contracts is unleveraged. In instances
involving the sale of futures contracts by a Portfolio, the securities
underlying such futures contracts or options will at all times be maintained by
the Portfolio or, in the case of index futures contracts, the Portfolio will own
securities the price changes of which are, in the opinion of its Advisers
expected to replicate substantially the movement of the index upon which the
futures contract is based.

For information concerning the risks associated with utilizing futures
contracts, please see "Risks of Transactions in Futures Contracts and Options"
below.

OPTIONS

Options are contracts that give one of the parties to the contract the right to
buy or sell the security that is subject to the option at a stated price during
the option period, and obligates the other party to the contract to buy or sell
such security at the stated price during the option period. The types of options
transactions that the Portfolios are permitted to utilize are discussed below.

WRITING CALL OPTIONS. A call option is a contract which gives the purchaser of
the option (in return for a premium paid) the right to buy, and the writer of
the option (in return for a premium received) the obligation to sell, the
underlying security at the exercise price at any time prior to the expiration of
the option, regardless of the market price of the security during the option
period. A call option on a security is covered, for example, when the writer of
the call option owns the security on which the option is written (or on a
security convertible into such a security without additional consideration)
throughout the option period.

A Portfolio will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Portfolio will
give up the

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opportunity to profit from an increase in the market price of the underlying
security above the exercise price so long as its obligations under the contract
continue, except insofar as the premium represents a profit. Moreover, in
writing the call option, a Portfolio will retain the risk of loss should the
price of the security decline. The premium is intended to offset that loss in
whole or in part. Unlike the situation in which a Portfolio owns securities not
subject to a call option, a Portfolio, in writing call options, must assume that
the call may be exercised at any time prior to the expiration of its obligation
as a writer, and that in such circumstances the net proceeds realized from the
sale of the underlying securities pursuant to the call may be substantially
below the prevailing market price.

A Portfolio may terminate its obligation under an option it has written by
buying an identical option. Such a transaction is called a "closing purchase
transaction." The Portfolio will realize a gain or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received from the sale of the corresponding call option. Also,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the exercise or closing out of a call option is likely to be offset in
whole or part by unrealized appreciation of the underlying security owned by the
Portfolio. When an underlying security is sold from the Portfolio's securities
portfolio, the Portfolio will effect a closing purchase transaction so as to
close out any existing covered call option on that underlying security.

WRITING PUT OPTIONS. The writer of a put option becomes obligated to purchase
the underlying security at a specified price during the option period if the
buyer elects to exercise the option before its expiration date. A Portfolio when
it writes a put option will be required to "cover" it, for example, by
depositing and maintaining in a segregated account with its custodian cash, or
other liquid obligations having a value equal to or greater than the exercise
price of the option.

A Portfolio may write put options either to earn additional income in the form
of option premiums (anticipating that the price of the underlying security will
remain stable or rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost below the
current value (e.g., the option is exercised because of a decline in the price
of the underlying security, but the amount paid by the Portfolio, offset by the
option premium, is less than the current price). The risk of either strategy is
that the price of the underlying security may decline by an amount greater than
the premium received. The premium which the Portfolio receives from writing a
put option will reflect, among other things, the current market price of the
underlying security, the relationship of the exercise price to that market
price, the historical price volatility of the underlying security, the option
period, supply and demand and interest rates.

A Portfolio may effect a closing purchase transaction to realize a profit on an
outstanding put option or to prevent an outstanding put option from being
exercised.

PURCHASING PUT AND CALL OPTIONS. A Portfolio may purchase put options on
securities to protect its holdings against a substantial decline in market
value. The purchase of put options on securities will enable the Portfolio to
preserve, at least partially, unrealized gains in an appreciated security in its
portfolio without actually selling the security. In addition, a Portfolio will
continue to receive interest or dividend income on the security. A Portfolio may
also purchase call options on securities to protect against substantial
increases in prices of securities that the Portfolio intends to purchase pending
its ability to invest in an orderly manner in those securities. A Portfolio may
sell put or call options it has previously purchased, which could result in a
net gain or loss depending on whether the amount received on the sale is more or
less than the premium and other transaction cost paid on the put or call option
which was bought.

SECURITIES INDEX OPTIONS. A Portfolio may write covered put and call options and
purchase call and put options on securities indexes for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Portfolio's securities or securities it intends to purchase. A Portfolio
will only write "covered" options. A call option on a securities index is
considered covered, for example, if, so long as the Portfolio is obligated as
the writer of the call, it holds securities the price changes of which are, in
the opinion of the Adviser, expected to replicate substantially the movement of
the index or indexes upon which the options written by the Portfolio are based.
A put on a securities index written by the Portfolio will be considered covered
if, so long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian cash or other liquid

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obligations having a value equal to or greater than the exercise price of the
option. Unlike a stock option, which gives the holder the right to purchase or
sell a specified stock at a specified price, an option on a securities index
gives the holder the right to receive a cash "exercise settlement amount" equal
to (i) the difference between the exercise price of the option and the value of
the underlying stock index on the exercise date, multiplied by (ii) a fixed
"index multiplier."

A securities index fluctuates with changes in the market value of the securities
so included. For example, some securities index options are based on a broad
market index such as the S&P 500 or the NYSE Composite Index, or a narrower
market index such as the S&P 100. Indexes may also be based on an industry or
market segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index.

OVER-THE-COUNTER OPTIONS. A Portfolio may enter into contracts with primary
dealers with whom it may write over-the-counter options. Such contracts will
provide that the Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but which
in no event will exceed a price determined pursuant to a formula contained in
the contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Portfolio for writing the option, plus
the amount, if any, of the option's intrinsic value (i.e., the amount the option
is "in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." A Portfolio has established
standards of creditworthiness for these primary dealers, although the Portfolio
may still be subject to the risk that firms participating in such transactions
will fail to meet their obligations. In instances in which a Portfolio has
entered into agreements with respect to the over-the-counter options it has
written, and such agreements would enable the Portfolio to have an absolute
right to repurchase at a pre-established formula price the over-the-counter
option written by it, the Portfolio would treat as illiquid only securities
equal in amount to the formula price described above less the amount by which
the option is "in-the-money," i.e., the amount by which the price of the option
exceeds the exercise price.

For information concerning the risks associated with utilizing options and
futures contracts, please see "Risks of Transactions in Futures Contracts and
Options" below.

RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS

FUTURES. The prices of futures contracts are volatile and are influenced, among
other things, by actual and anticipated changes in the market and interest
rates, which in turn are affected by fiscal and monetary policies and national
and international political and economic events.

Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a subsequent 10%
decrease in the value of the futures contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss equal to
150% of the original margin deposit, if the futures contract were closed out.
Thus, a purchase or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract.

A decision of whether, when, and how to hedge involves skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior, market trends or interest rate trends. There are
several risks

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<PAGE>
in connection with the use by a Portfolio of futures contracts as a hedging
device. One risk arises because of the imperfect correlation between movements
in the prices of the futures contracts and movements in the prices of the
underlying instruments which are the subject of the hedge. The Advisers will,
however, attempt to reduce this risk by entering into futures contracts whose
movements, in its judgment, will have a significant correlation with movements
in the prices of the Portfolio's underlying instruments sought to be hedged.

Successful use of futures contracts by a Portfolio for hedging purposes is also
subject to the Adviser's ability to correctly predict movements in the direction
of the market. It is possible that, when the Portfolio has sold futures to hedge
its portfolio against a decline in the market, the index, indices, or
instruments underlying futures might advance and the value of the underlying
instruments held in the Portfolio's portfolio might decline. If this were to
occur, the Portfolio would lose money on the futures and also would experience a
decline in value in its underlying instruments.

Positions in futures contracts may be closed out only on an exchange or a board
of trade which provides the market for such futures. Although each Portfolio
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments of variation margin.
However, in the event futures positions are used to hedge portfolio securities,
the securities will not be sold until the futures positions can be liquidated.
In such circumstances, an increase in the price of securities, if any, may
partially or completely offset losses on the futures contracts.

OPTIONS. A closing purchase transaction for exchange-traded options may be made
only on a national securities exchange (exchange). There is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options, such as over-the-counter options,
no secondary market on an exchange may exist. If a Portfolio is unable to effect
a closing purchase transaction, the Portfolio will not sell the underlying
security until the option expires or the Portfolio delivers the underlying
security upon exercise.

Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be difficult to enter into closing transactions
with respect to options traded over-the-counter. A Portfolio will engage in such
transactions only with firms of sufficient credit so as to minimize these risks.
Such options and the securities used as "cover" for such options may be
considered illiquid securities.

The effectiveness of hedging through the purchase of securities index options
will depend upon the extent to which price movements in the portion of the
securities portfolio being hedged correlate with price movements in the selected
securities index. Perfect correlation is not possible because the securities
held or to be acquired by the Portfolio will not exactly match the composition
of the securities indexes on which options are written. In the purchase of
securities index options the principal risk is that the premium and transaction
costs paid by a Portfolio in purchasing an option will be lost if the changes
(increase in the case of a call, decrease in the case of a put) in the level of
the index do not exceed the cost of the option.

INVESTMENT COMPANY SHARES

The Portfolios may invest in shares of money market mutual funds, to the extent
set forth under "Investment Limitations" below. Since such funds pay management
fees and other expenses, shareholders of a Portfolio would indirectly pay both
the Portfolio's expenses and the expenses of underlying funds with respect to
the Portfolio's assets invested therein. Applicable regulations prohibit a
Portfolio from acquiring the securities of other investment companies that are
"not part of the same group of investment companies" if, as a result of such
acquisition, the Portfolio owns more than 3% of the total voting stock of the
company; more than 5% of the Portfolio's total assets are invested in securities
of any one investment company; or more than 10% of the total assets of the
Portfolio are invested in securities (other than treasury stock) issued by all
investment companies.

ILLIQUID INVESTMENTS

Illiquid investments are investments that cannot be sold or disposed of in the
ordinary course of business within seven (7) days at approximately the prices at

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which they are valued. Under the supervision of the Board of Directors, the
Advisers determine the liquidity of the Fund's investments and, through reports
from the Advisers, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Portfolio's investments, the Advisers may
consider various factors including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the market place for
trades (including the ability to assign or offset a Portfolio's rights and
obligations relating to the investment). Investments currently considered by a
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven (7) days, over the-counter
options, and non-government stripped fixed-rate mortgage backed securities.
Also, the Advisers may determine some government-stripped fixed-rate mortgage
backed securities, loans and other direct debt instruments, and swap agreements
to be illiquid. However, with respect to over-the-counter options a Portfolio
writes, all or a portion of the value of the underlying instrument may be
illiquid depending on the assets held to cover the option and the nature and
terms of any agreement a Portfolio may have to close out the option before
expiration. In the absence of market quotations, illiquid investments are priced
at fair value as determined in good faith by a committee appointed by the Board
of Directors. If, through a change in values, net assets or other circumstances,
a Portfolio was in a position where more than 15% of its net assets were
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

RESTRICTED SECURITIES

Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
a Portfolio may be obligated to pay all or part of the registration expense and
a considerable period may elapse between the time it decides to seek
registration and the time a Portfolio may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to seek registration of the security.

FOREIGN CURRENCY TRANSACTIONS

A Portfolio may hold foreign currency deposits from time to time, and may
convert dollars and foreign currencies in the foreign exchange markets. Currency
conversion involves dealer spreads and other costs, although commissions usually
are not charged. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date and price. Forward contracts generally are traded in an interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. The parties to a forward contract may agree to
offset or terminate the contract before maturity, or may hold the contract to
maturity and complete the contemplated currency exchange.

A Portfolio may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolios.

In connection with purchases and sales of securities denominated in foreign
currencies, a Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a "settlement hedge" or
"transaction hedge." The Advisers expect to enter into settlement hedges in the
normal course of managing the Portfolio's foreign investments. A Portfolio could
also enter into forward contracts to purchase or sell a foreign currency in
anticipation of future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected by the
Advisers.

A Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if a
Portfolio owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge", would tend to offset both positive and negative
currency fluctuations, but would not offset changes in security values caused by
other factors. A Portfolio could also hedge the position by selling another
currency expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell Deutschemark or European Currency Units
in return for U.S. dollars. This type of hedge, sometimes referred to as a
"proxy hedge," could

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<PAGE>
offer advantages in terms of cost, yield, or efficiency, but generally would not
hedge currency exposure as effectively as a simple hedge into U.S. dollars.
Proxy hedges may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.

Under certain conditions, SEC guidelines require mutual funds to set aside
appropriate liquid assets in a segregated custodial account to cover currency
forward contracts. As required by SEC guidelines, each Portfolio will segregate
assets to cover currency forward contracts, if any, whose purpose is essentially
speculative. A Portfolio will not segregate assets to cover forward contracts
entered into for hedging purposes, including settlement hedges, position hedges,
and proxy hedges.

Successful use of forward currency contracts will depend on the Advisers' skill
in analyzing and predicting currency values. Forward contracts may substantially
change a Portfolio's investment exposure to changes in currency exchange rates,
and could result in losses to a Portfolio if currencies do not perform as the
Advisers anticipate. For example, if a currency's value rose at a time when the
Advisers had hedged a Portfolio by selling that currency in exchange for
dollars, a Portfolio would be unable to participate in the currency's
appreciation. If the Advisers hedge currency exposure through proxy hedges, a
Portfolio could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly, if the
Advisers increase a Portfolio's exposure to a foreign currency, and that
currency's value declines, a Portfolio will realize a loss. There is no
assurance that the Advisers' use of forward currency contracts will be
advantageous to a Portfolio or that it will hedge at an appropriate time.

The policies described in this section of the Statement of Additional
Information are non-fundamental policies of a Portfolio.

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

FUNDAMENTAL POLICIES

Each Portfolio has adopted certain investment restrictions which (in addition to
those fundamental investment restrictions set forth in the Prospectus) are
fundamental and may not be changed without approval by a majority vote of the
Portfolio's shareholders. Such majority is defined in the 1940 Act as the lesser
of (i) 67% or more of the voting securities of the Portfolio present in person
or by proxy at a meeting, if the holders of more than 50% of the outstanding
voting securities are present or represented by proxy; or (ii) more than 50% of
the outstanding voting securities of the Portfolio.

Each Portfolio may not:

1. Acquire more than 10% of the voting securities of any one issuer except that
such limitation shall only apply to 75% of the Growth II Portfolio's assets.

2. Invest in companies for the purpose of exercising control.

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

4. Make loans, except that each Portfolio, in accordance with that Portfolio's
investment objectives and policies, may (i) purchase or hold debt instruments,
and (ii) enter into repurchase agreements as described in the Portfolio's
prospectus and this Statement of Additional Information.

5. Pledge, mortgage or hypothecate assets, except (i) to secure temporary
borrowings permitted by each Portfolio's limitation on permitted borrowings, or
(ii) in connection with permitted transactions regarding options and futures
contracts.

6. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodity contracts, except that this shall
not prevent a Portfolio from (i) investing in readily marketable securities of
issuers which can invest in real estate or commodities, institutions that issue
mortgages, or real estate investment trusts which deal in real estate or
interests therein, pursuant to the Portfolio's investment objective and
policies, and (ii) entering into futures contracts and options thereon that are
listed on a national securities or commodities exchange where, as a result
thereof, no more than 5% of the total assets for that Portfolio (taken at market
value at the time of entering into the futures contracts) would be committed to
margin deposits on such futures contracts and premiums paid for unexpired
options on such futures contracts; provided that, in the case of an option that
is "in-the-money" at the time of purchase, the "in-the-money" amount,

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<PAGE>
as defined under the Commodity Futures Trading Commission regulations, may be
excluded in computing the 5% limit. Each Portfolio (as a matter of operating
policy) will utilize only listed futures contracts and options thereon.

7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may (i) obtain short-term
credits as necessary for the clearance of security transactions and (ii)
establish margin accounts as may be necessary in connection with the Portfolio's
use of options and futures contracts.

8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.

9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.

10. Issue senior securities (as defined in the 1940 Act) except in connection
with a permitted borrowing of money or pledging, mortgaging or hypothecating
assets, as described in each Portfolio's limitation on borrowing money and each
Portfolio's limitation on permitted borrowings and each Portfolio's limitation
on pledging, mortgaging or hypothecating assets, or as permitted by rule,
regulation or order of the SEC.

11. Invest in interests in oil, gas or other mineral exploration or development
programs.

12. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total assets of
the Portfolio would be invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total assets.

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

NON-FUNDAMENTAL POLICIES

In addition to the foregoing, and the policies set forth in the Portfolios'
Prospectus, each Portfolio has adopted additional investment restrictions which
may be amended by the Board of Directors without a vote of shareholders.

Each Portfolio may not:

1. Invest in illiquid securities in an amount exceeding, in the aggregate, 15%
of its net assets. This limitation does not include any Rule 144A restricted
security that has been determined by, or pursuant to procedures established by,
the Board, based on trading markets for such security, to be liquid.

2. Purchase or sell puts, calls, straddles, spreads, and any combination
thereof, if by reason thereof, the value of its aggregate investment in such
classes of securities will exceed 5% of its total assets.

- ------------------------------------------------------
THE ADVISER
- ------------------------------------------------------

The Fund and Pilgrim Baxter & Associates, Ltd. (the "Adviser") have entered into
an advisory agreement (the "Advisory Agreement"). The Advisory Agreement
provides certain limitations on the Adviser's liability, but also provides that
the Adviser shall not be protected against any liability to the Fund or each of
its Portfolios or its shareholders by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.

The Advisory Agreement obligates the Adviser to: (1) provide a program of
continuous investment management for each Portfolio in accordance with the
Portfolio's investment objectives, policies and limitations; (2) make investment
decisions for each Portfolio; and (3) place orders to purchase and sell
securities for each Portfolio, subject to the supervision of the Board of
Directors. The Advisory Agreement requires the Adviser to pay its overhead and
employee costs and the compensation and expenses of all its partners, officers
and employees who serve as officers and executive employees of the Fund. The
Advisory Agreement provides that the Adviser is not responsible for other
expenses of

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<PAGE>
operating the Fund. (See the Prospectus for a description of expenses borne by
the Fund.)

The Adviser is entitled to a fee which is calculated daily and paid monthly. The
fees to be paid under the Advisory Agreement are set forth in the Prospectus.

The Adviser has agreed to waive or limit its Advisory Fees or assume certain
operating expenses of the Portfolios as described in the Prospectus.

The continuance of the Advisory Agreement with respect to each Portfolio after
the first two years must be specifically approved at least annually (i) by the
Fund's Board of Directors or by vote of a majority of the outstanding voting
securities of such Portfolio and (ii) by the affirmative vote of a majority of
the Directors who are not parties to the agreement or interested persons of any
such party by votes cast in person at a meeting called for such purpose. The
Advisory Agreement with respect to each Portfolio may be terminated (i) at any
time without penalty by the Fund upon the vote of a majority of the Directors or
by vote of the majority of the outstanding voting securities of such Portfolio
upon sixty (60) days' written notice to the Adviser or (ii) by the Adviser at
any time without penalty upon sixty (60) days' written notice to the Fund. The
Advisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).

- ------------------------------------------------------
THE SUB-ADVISER
- ------------------------------------------------------

The Fund, on behalf of the Small Cap Value and Large Cap Value Portfolios, and
the Adviser have entered into a sub-advisory agreement ("Sub-Advisory
Agreement") with Newbold's Asset Management, Inc. ("Sub-Adviser"). The Sub-
Advisory Agreement provides certain limitations on the Sub-Adviser's liability,
but also provides that the Sub-Adviser shall not be protected against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.

The Sub-Advisory Agreement obligates the Sub-Adviser to: (1) manage the
investment operations of the Small Cap Value and Large Cap Value Portfolios and
the composition of these Portfolios' investment portfolios, including the
purchase, retention and disposition thereof in accordance with these Portfolios'
investment objectives, policies and limitations; (2) provide supervision of the
Small Cap Value and Large Cap Value Portfolios' investments and to determine
from time to time what investments and securities will be purchased, retained or
sold by these Portfolios and what portion of the assets will be invested or held
uninvested in cash; and (3) determine the securities to be purchased or sold by
the Small Cap Value and Large Cap Value Portfolios and place orders with or
through such persons, brokers or dealers to carry out the policy with respect to
brokerage set forth in the Prospectus or as the Board of Directors or the
Adviser may direct from time to time, in conformity with federal securities
laws.

The continuance of the Sub-Advisory Agreement with respect to the Small Cap
Value and Large Cap Value Portfolios, respectively, after the first two years
must be specifically approved at least annually (i) by the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of such
Portfolios and (ii) by the affirmative vote of a majority of the Directors who
are not parties to the agreement or interested persons of any such party by
votes cast in person at a meeting called for such purpose. The Sub-Advisory
Agreement with respect to the Small Cap Value and Large Cap Value Portfolios may
be terminated (i) by the Fund, without the payment of any penalty, by the vote
of a majority of the Directors of the Fund or by the vote of a majority of the
outstanding voting securities of a Portfolio, (ii) by the Adviser at any time,
without the payment of any penalty, on not more than sixty (60) days' nor less
than thirty (30) days' written notice to the other parties, or (iii) by the
Sub-Adviser at any time, without the payment of any penalty, on ninety (90)
days' written notice to the other parties. The Sub-Advisory Agreement will also
terminate automatically in the event of its assignment (as defined in the 1940
Act).
- ------------------------------------------------------
THE ADMINISTRATOR AND SUB-ADMINISTRATOR
- ------------------------------------------------------

The Fund and PBHG Fund Services (the "Administrator") entered into an
Administrative Services Agreement (the "Administrative Agreement") on April 1,
1997, pursuant to which the Administrator oversees the administration of the
business and affairs of the Fund, including services provided to it by various
third parties. The Administrator was organized as a Pennsylvania business trust
and has its principal place of business at 1255 Drummers Lane, Suite 300, Wayne,
Pennsylvania 19087. Under the Administrative Agreement, the Administrator is
entitled to a fee from the Fund, which is calculated daily and paid monthly, at
an annual rate of 0.15.% of the average daily net assets of each Portfolio of
the Fund. The

9
<PAGE>
Administrative Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the Administrative Agreement relates,
except a loss resulting from willful misfeasance, bad faith or negligence on the
part of the Administrator in the performance of its duties. The Administrative
Agreement shall remain in effect until December 31, 1998 and shall thereafter
continue in effect for successive periods of one year, unless terminated by
either party upon not less than ninety (90) days' prior written notice to the
other party.

The Fund, the Administrator and SEI Fund Resources (the "Sub-Administrator")
entered into the Sub-Administrative Services Agreement ("Sub-Administrative
Agreement") on April 1, 1997 pursuant to which the Sub-Administrator assists the
Administrator in connection with the administration of the business and affairs
of the Fund. The Sub-Administrator is a wholly-owned subsidiary of SEI Financial
Management Company ("SEI Financial"), which is a wholly-owned subsidiary of SEI
Corporation ("SEI"). The Sub-Administrator was organized as a Delaware business
trust, and has its principal business offices at One Freedom Valley Road, Oaks,
Pennsylvania 19456. Under the Sub-Administrative Agreement, the
Sub-Administrator is entitled to a fee from the Administrator, which is
calculated daily and paid monthly, (i) at an annual rate of 0.07% of the average
daily net assets of each series of the Fund, including the Portfolios, with
respect to the first $2.5 billion of the total average daily net assets of (i)
the Fund and (ii) The PBHG Funds, Inc.; and (ii) at the annual rate of 0.025% of
average daily net assets of each series of the Fund, including the Portfolios,
with respect to the total average daily net assets of (i) the Fund and (ii) The
PBHG Funds, Inc. in excess of $2.5 billion. The Sub-Administrative Agreement
provides that the Sub-Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Sub-Administrative Agreement relates, except a
loss resulting from willful misfeasance, bad faith or negligence on the part of
the Sub-Administrator in the performance of its duties. The Sub-Administrative
Agreement shall remain in effect until December 31, 1998 and shall thereafter
continue in effect for successive periods of one year, unless terminated by
either party upon not less than ninety (90) days' prior written notice to the
other party.

- ------------------------------------------------------
THE DISTRIBUTOR
- ------------------------------------------------------

SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Fund are parties to a distribution agreement (the "Distribution
Agreement") dated April 1, 1997 pursuant to which the Distributor serves as
principal underwriter for the Fund. The Distributor will receive no compensation
for serving in such capacity. The Distribution Agreement is renewable annually.
The Distribution Agreement may be terminated by the Distributor, by a majority
vote of the Directors who are not interested persons and have no financial
interest in the Distribution Agreement or by a majority vote of the outstanding
securities of the Fund upon not more than sixty (60) days' written notice by
either party or upon assignment by the Distributor.

10
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS OF THE FUND
- --------------------------------------------------------------------------------

The management and affairs of the Fund are supervised by the Directors under the
laws of the State of Maryland. The Directors and executive officers of the Fund
and their principal occupations for the last five years are set forth below.
Each may have held other positions with the named companies during that period.
The age of each Director and officer is indicated in parenthesis.

JOHN R. BARTHOLDSON (51) -- Director -- Triumph Group Holdings, Inc.
(manufacturing), 1255 Drummers Lane, Suite 200, Wayne, PA 19087-1590. Chief
Financial Officer and Director, the Triumph Group Holdings, Inc. since 1992.
Senior Vice President and Chief Financial Officer, Lukens, Inc., 1978-1992.

HAROLD J. BAXTER (50)* -- Director -- Chairman, Chief Executive Officer and
Director, the Adviser, 1255 Drummers Lane, Suite 300, Wayne, PA 19087-1590.
Trustee, the Administrator since May 1996 and Director and Chief Executive
Officer, Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA
19010, since June 1996.

JETTIE M. EDWARDS (49) -- Director -- Syrus Associates, 76 Seaview Drive, Santa
Barbara, California 93108. Consultant, Syrus Associates since 1986. Trustee,
Provident Investment Counsel Trust (investment company) since 1992.

ALBERT A. MILLER (62) -- Director -- 7 Jennifer Drive, Holmdel, New Jersey
07733. Principal and Treasurer, JK Equipment Exporters since 1995. Advisor and
Secretary, The Underwoman Shoppes Inc. (retail clothing stores) since 1980.
Merchandising Group Vice President, R.H. Macy & Co. 1958-1995 (retired).

GARY PILGRIM (55) -- President -- President, Treasurer and Director, the Adviser
since 1982. Trustee, the Administrator since May 1996. Director, Newbold's Asset
Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010 since June 1996.

SANDRA K. ORLOW (42) -- Vice President, Assistant Secretary -- Vice President
and Assistant Secretary of SEI, the Sub-Administrator and the Distributor since
1983 and SEI Financial since June 1996.

KEVIN P. ROBINS (35) -- Vice President, Assistant Secretary -- Senior Vice
President, Secretary and General Counsel of SEI, the Sub-Administrator and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Sub-Administrator and the Distributor since 1992 and SEI Financial since June
1996. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.

KATHRYN L. STANTON (37) -- Vice President, Assistant Secretary -- Vice
President, Assistant Secretary of SEI, the Sub-Administrator and the Distributor
since 1994 and SEI Financial since June 1996. Associate, Morgan, Lewis & Bockius
LLP (law firm), 1989-1994.

TODD CIPPERMAN (30) -- Vice President, Assistant Secretary -- Vice President,
Assistant Secretary of SEI, the Sub-Administrator and the Distributor since 1995
and SEI Financial since June 1996. Associate, Dewey Ballantine (law firm)
1994-1995, Associate, Winston & Strawn (law firm) 1991-1994.

BARBARA A. NUGENT (40) -- Vice President, Assistant Secretary -- Vice President
and Assistant Secretary, SEI since April 1996. Associate, Drinker, Biddle &
Reath (law firm), 1994-1996. Assistant Vice President, Delaware Service Company,
Inc. (transfer agent), 1988-1993.

- ------------------
* Mr. Baxter is a Director who may be deemed to be an "interested person" of the
Fund as that term is defined in the 1940 Act.

11
<PAGE>
STEPHEN G. MEYER (31) -- Chief Financial Officer and Controller -- Director of
Internal Audit and Risk Management at SEI Corporation since 1992. Senior
Associate at Coopers & Lybrand, LLP (accounting firm), 1990-1992.

MICHAEL J. HARRINGTON (27) -- Assistant Vice President -- Mutual Fund
Coordinator, the Adviser since 1994. Secretary, the Administrator since May
1996. Account Manager, SEI, 1991-1994.

LEE T. CUMMINGS (33) -- Vice President -- Director of Mutual Fund Operations,
the Adviser since 1996. Treasurer, the Administrator since May 1996. Investment
Accounting Officer, Delaware Group of Funds, 1994-1996. Vice President,
Fund/Plan Services, Inc., 1992-1994. Assistant Vice President, Fund/Plan
Services, Inc., 1990-1992.

BRIAN BEREZNAK (35) -- Vice President and Assistant Secretary -- Trustee and
President, the Administrator since May 1996, Chief Operating Officer, the
Adviser from 1989 through December 31, 1996, Director, Newbold's Asset
Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010 since June 1996.

JOHN M. ZERR (35) -- Vice President and Secretary -- General Counsel and
Secretary, the Adviser since November 1996. General Counsel and Secretary,
Newbold's Asset Management, Inc., 950 Haverford Road, Bryn Mawr, PA 19010 since
November 1996. Vice President and Assistant Secretary, Delaware Management
Company, Inc. and the Delaware Group of Funds, 1995-1996. Associate, Ballard
Spahr Andrews & Ingersoll (law firm), 1987-1995.

JANE A. KANTER (47) -- Vice President and Assistant Secretary -- Partner, Katten
Muchin & Zavis, 1025 Thomas Jefferson Street, N.W., East Lobby -- Suite 700,
Washington, D.C. 20007 (law firm) since 1994. Partner, Freedman Levy Kroll &
Simonds (law firm), 1987-1994.

Each current Director of the Fund who is not an "interested person" of the Fund
is expected to receive the following compensation during the fiscal year ending
December 31, 1997:

<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM REGISTRANT
COMPENSATION ACCRUED AS ANNUAL AND FUND
FROM PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME OF PERSON, POSITION REGISTRANT EXPENSES RETIREMENT DIRECTORS*
- --------------------------------------------------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
John R. Bartholdson, Director...................... $ 16,500 N/A N/A $47,000
Harold J. Baxter, Director**....................... N/A N/A N/A N/A
Jettie M. Edwards, Director........................ $ 16,500 N/A N/A $47,000
Albert A. Miller, Director......................... $ 16,500 N/A N/A $47,000
</TABLE>

- ------------------
* The Fund is expected to pay approximately $13,000 to each Director who is not
an "interested person" of the Fund for the fiscal year ending December 31,
1997. In addition, the Fund will compensate each member $500 for each Board
and committee meeting attended. Each Portfolio is expected to pay its
proportionate share of the total compensation, based on its total net assets
relative to the total net assets of the Fund.

** Mr. Baxter is a Director who may be deemed to be an "interested person" of
the Fund, as that term is defined in the 1940 Act, and consequently will be
receiving no compensation from the Fund.

As each Portfolio's initial shareholder, the Adviser holds all of the
outstanding shares, both beneficially and of record, of each Portfolio as of the
date of this Statement of Additional Information.

12
<PAGE>
PERFORMANCE INFORMATION

From time to time, a Portfolio may advertise yield and/or total return. Such
performance data for a Portfolio should be distinguished from the rate of return
of a corresponding division of a Participating Insurance Company's separate
account, which rate will reflect the deduction of additional insurance charges,
including mortality and expense risk charges, and will therefore be lower. VA
Contract owners and VLI Policy owners should consult their contract and policy
prospectuses, respectively, for further information. The Portfolio's results
also should be considered relative to the risks associated with its investment
objectives and policies.

COMPUTATION OF YIELD

From time to time, a Portfolio may advertise yield. These figures will be based
on historical earnings and are not intended to indicate future performance. The
yield of a Portfolio refers to the annualized income generated by an investment
in the Portfolio over a specified 30-day period. The yield is calculated by
assuming that the same amount of income generated by the investment during that
period is generated in each 30-day period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:

Yield = (2 (a--b/cd + 1)6 - 1) where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
current daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.

CALCULATION OF TOTAL RETURN

From time to time, a Portfolio may advertise total return. The total return of a
Portfolio refers to the average compounded rate of return to a hypothetical
investment for designated time periods (including but not limited to, the period
from which the Portfolio commenced operations through the specified date),
assuming that the entire investment is redeemed at the end of each period. In
particular, total return will be calculated according to the following formula:
P (1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value of a hypothetical $1,000 payment made at the beginning of the designated
time period as of the end of such period.

Quotations of total return, which are not annualized, represent historical
earnings and asset value fluctuations. Total return is based on past performance
and is not a guarantee of future results.

PURCHASE AND REDEMPTION OF SHARES

Purchases and redemptions may be made on any day on which the New York Stock
Exchange is open for business. Currently, the following holidays are observed by
the Fund: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Shares of each
Portfolio are offered on a continuous basis.

The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of each Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of a Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Sub-Adviser,
the Administrator, the Transfer Agent and/or the Custodian are not open for
business.

DETERMINATION OF NET ASSET VALUE

The securities of each Portfolio are valued by the Sub-Administrator. The
Sub-Administrator will use an independent pricing service to obtain valuations
of securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. The procedures of the pricing service
and its valuations are reviewed by the officers of the Fund under the general
supervision of the Board of Directors.

13
<PAGE>
Portfolio securities listed on an exchange or quoted on a national market system
are valued at the last sales price. Other securities are quoted at the mean
between the most recent bid and asked prices. In the event a listed security is
traded on more than one exchange, it is valued at the last sale price on the
exchange on which it is principally traded. If there are no transactions in a
security during the day, it is valued at the mean between the most recent bid
and asked prices. However, debt securities (other than short-term obligations)
including listed issues, are valued on the basis of valuations furnished by a
pricing service which utilizes electronic data processing techniques to
determine valuations for normal institutional size trading units of debt
securities, without exclusive reliance upon exchange or over-the-counter prices.
Short-term obligations are valued at amortized cost. Securities for which market
quotations are not readily available and other assets held by the Fund, if any,
are valued at their fair value as determined in good faith by the Board of
Directors.

TAXES

The following is only a summary of certain income tax considerations generally
affecting a Portfolio and its shareholders, and is not intended as a substitute
for careful tax planning. Shareholders are urged to consult their tax advisors
with specific reference to their own tax situations, including their state and
local income tax liabilities.

FEDERAL INCOME TAX

The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.

Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By maintaining its qualifications as a
RIC, each Portfolio intends to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.

In order to qualify for treatment as a RIC under the Code, a Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) the
Portfolio must derive less than 30% of its gross income each taxable year from
the sale or other disposition of stocks or securities held for less than three
months; (iii) at the close of each quarter of the Portfolio's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iv) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers which are engaged in the same, similar or
related trades or businesses if the Portfolio owns at least 20% of the voting
power of such issuers.

Notwithstanding the Distribution Requirement described above, which requires
only that a Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that calendar year, plus certain
other amounts.

14
<PAGE>
If a Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates on its net investment income and net capital
gain without any deductions for amounts distributed to shareholders. In such an
event, all distributions (including capital gains distributions) will be taxable
as ordinary dividends to the extent of that Portfolio's current and accumulated
earnings and profits and such distributions will generally be eligible for the
corporate dividends-received deduction.

SECTION 817 DIVERSIFICATION REQUIREMENTS

Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
VA Contracts and VLI Policies (that is, the assets of the Portfolios), which are
in addition to the diversification requirements imposed on the Portfolios by the
1940 Act and Subchapter M. Failure to satisfy those standards would result in
imposition of Federal income tax on a VA Contract or VLI Policy owner with
respect to the increase in the value of the VA Contract or VLI Policy. Section
817(h)(2) provides that a segregated asset account that funds contracts such as
the VA Contracts and VLI Policies is treated as meeting the diversification
standards if, as of the close of each calendar quarter, the assets in the
account meet the diversification requirements for a regulated investment company
and no more than 55% of those assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.

The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of such
value is represented by any four investments. For purposes of these Regulations
all securities of the same issuer are treated as a single investment, but each
United States government agency or instrumentality shall be treated as a
separate issuer.

Each Portfolio will be managed with the intention of complying with these
diversification requirements. It is possible that, in order to comply with these
requirements, less desirable investment decisions may be made which would affect
the investment performance of a Portfolio.

PORTFOLIO TRANSACTIONS

The Advisers are authorized to select brokers and dealers to effect securities
transactions for each Portfolio. The Advisers will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Advisers generally seek
reasonably competitive spreads or commissions, the Fund will not necessarily be
paying the lowest spread or commission available. The Advisers seek to select
brokers or dealers that offer the Portfolios best price and execution or other
services which are of benefit to the Portfolios. In the case of securities
traded in the over-the-counter market, the Advisers expect normally to seek to
select primary market makers.

The Advisers may, consistent with the interests of the Portfolios, select
brokers on the basis of the research services they provide to the Advisers. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by the Advisers will be in addition to and not in lieu of the services
required to be performed by the Advisers under the Advisory Agreement and
Sub-Advisory Agreement. If, in the judgment of the Advisers, the Portfolios or
other accounts managed by the Advisers will be benefitted by supplemental
research services, the Advisers are authorized to pay brokerage commissions to a
broker furnishing such services which are in excess of commissions which another
broker may have charged for effecting the same transaction. These research
services include advice, either directly or through publications or writings, as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities; furnishing of analyses and reports concerning issuers, securities
or industries; providing information on economic factors and trends; assisting
in determining portfolio strategy; providing computer software used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. The expenses of the Advisers will

15
<PAGE>
not necessarily be reduced as a result of the receipt of such supplemental
information, and such services may not be used exclusively, or at all, with
respect to each Portfolio or account generating the brokerage, and there can be
no guarantee that the Advisers will find all of such services of value in
advising the Portfolios.

It is expected the Portfolios may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for the
Portfolios on an exchange if a written contract is in effect between the
Distributor and the Portfolio expressly permitting the Distributor to receive
and retain such compensation. These rules further require that commissions paid
to the Distributor by the Portfolios for exchange transactions not exceed "usual
and customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." In addition, the Advisers may direct commission business to one or more
designated broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Portfolios' or the Fund's expenses.
Because shares of the Portfolios are not marketed through intermediary
broker-dealers, it is not the Portfolios' practice to allocate brokerage or
effect principal transactions with broker-dealers on the basis of sales of
shares that may be made through such firms. However, the Advisers may place
orders for the purchase or sale of portfolio securities with qualified
broker-dealers who refer clients to the Portfolios. The Directors, including
those who are not "interested persons" of the Fund, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the Board of Directors may determine, the Advisers may consider
sales of Fund shares or VA Contracts and VLI Policies as a factor in the
selection of dealers to execute portfolio transactions for the Fund.

The Directors have adopted a Code of Ethics governing personal trading by
persons who manage, of who have access to trading activity by, the Portfolio.
The Code of Ethics allows trades to be made in securities that may be held by
the Portfolio, however, it prohibits a person from taking advantage of Portfolio
trades or from acting on inside information.

DESCRIPTION OF SHARES

The Fund is authorized to issue 500,000,000 shares of each Portfolio and to
create additional portfolios of the Fund. Each share of a Portfolio represents
an equal proportionate interest in that Portfolio with each other share. Shares
are entitled upon liquidation to a pro rata share in the net assets of the
Portfolio available for distribution to shareholders. Shareholders have no
preemptive rights. All consideration received by the Fund for shares of any
Portfolio and all assets in which such consideration is invested would belong to
that Portfolio and would be subject to the liabilities related thereto.

INFORMATION ABOUT THE TECHNOLOGY & COMMUNICATIONS PORTFOLIO

The Technology & Communications Portfolio seeks opportunities in many explosive
growth fields.

COMPUTERS AND SOFTWARE

o The Adviser believes that the home personal computer market is currently
only 38% penetrated and could reach 50% penetration by the year 2000.

o At the end of 1993, there were 50 personal computers for every 100
U.S.workers, compared to only 22 per 100 workers in Europe, 17 per 100 in
Japan, and 1 per 100 in Asia Pacific -- so the Adviser believes that
worldwide market for personal computers could be significant.

o Software companies are currently averaging 30% -- 70% annual revenue
growth rates.

16
<PAGE>
COMMUNICATIONS

o The Adviser believes that the wireless equipment market could grow to $20
billion over the next four years -- 20-fold increase.

o 48% of all U.S. capital investment is in information technology, up from
35% in the early '90s and 25% in the early '80s.

o 60% of U.S. households are wired for cable -- triple the number ten years
ago.

SEMICONDUCTORS AND ELECTRONICS

o The Adviser believes semiconductor sales growth could go as high as 20%
per year from now until 2000.

o The Adviser believes the CD-ROM market could potentially deliver a 45%
compound annual growth between 1995 and 2000.

FINANCIAL STATEMENTS

A Statement of Assets and Liabilities of each of the Portfolios as of April 4,
1997, and the report of Coopers & Lybrand, L.L.P., Independent Accountants, with
respect thereto, is set forth below.

17
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
STATEMENTS OF ASSETS AND LIABILITIES

APRIL 4, 1997

<TABLE>
<CAPTION>
LARGE CAP SMALL CAP LARGE CAP TECHNOLOGY &
GROWTH II GROWTH VALUE VALUE COMMUNICATIONS SELECT 20
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- -------------- ---------

<S> <C> <C> <C> <C> <C> <C>
ASSETS:

Cash................................. $16,700 $16,700 $16,700 $16,700 $ 16,600 $16,600
Organizational Cost.................. $10,000 $10,000 $10,000 $10,000 $ 10,000 $10,000
------- ------- ------- ------- -------- -------

Total Assets....................... $26,700 $26,700 $26,700 $26,700 $ 26,600 $26,600
------- ------- ------- ------- -------- -------

LIABILITIES:

Accrued Expenses..................... $10,000 $10,000 $10,000 $10,000 $ 10,000 $10,000
------- ------- ------- ------- -------- -------

NET ASSETS:

Portfolio shares (authorized
500,000,000 shares -- $0.001 par
value) based on 1,670, 1,670 and
1,670 outstanding shares of common
stock.............................. $16,700 $16,700 $16,700 $16,700 $ 16,600 $16,600
------- ------- ------- ------- -------- -------
------- ------- ------- ------- -------- -------
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total Net Assets....................... $16,700 $16,700 $16,700 $16,700 $ 16,600 $16,600
</TABLE>

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

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE PER SHARE.............. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
</TABLE>

The accompanying notes are an integral part of the statements of assets and
liabilities.

18
<PAGE>
NOTES TO STATEMENTS OF ASSETS AND LIABILITIES

APRIL 4, 1997 PBHG INSURANCE SERIES FUND, INC.

(1) ORGANIZATION

The PBHG Insurance Series Fund, Inc. (the "Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company with six series: the PBHG
Growth II Portfolio (the "Growth II Portfolio"), PBHG Large Cap Growth Portfolio
(the "Large Cap Growth Portfolio"), PBHG Small Cap Value Portfolio (the "Small
Cap Value Portfolio"), PBHG Large Cap Value Portfolio (the "Large Cap Value
Portfolio"), PBHG Technology & Communications Portfolio (the "Technology &
Communications Portfolio") and PBHG Select 20 Portfolio (the "Select 20
Portfolio") (each a "Portfolio" and, collectively, the "Portfolios"). To date,
the Fund has had no transactions other than those relating to organization
matters and the issuance of shares of common stock to Pilgrim Baxter &
Associates, Ltd. (the "Adviser"). Each of the Portfolios has distinct investment
objectives and policies that are described in the prospectus.

(2) SIGNIFICANT ACCOUNTING POLICIES

Organizational Costs -- All organizational costs incurred with the start up of
the Portfolios will be amortized on a straight line basis over a period of sixty
months commencing with operations. 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.

Federal Income Taxes -- Each Portfolio intends to qualify and elect to be
treated as a regulated investment company that is taxed under the rules of
Subchapter M of the Internal Revenue Code. As such, a Portfolio will not be
subject to federal income tax on its net ordinary income and net realized
capital gains to the extent that such income and gains are distributed to the
separate accounts of the Participating Insurance Companies and Qualified Plans
which hold its shares. Because shares of the Portfolios may be purchased only
through VA Contracts, VLI Policies and Qualified Plans, it is anticipated that
any income, dividends or capital gain distributions from the Portfolios are
taxable, if at all, to the Participating Insurance Companies and Qualified Plans
and will be exempt from current taxation of the VA Contract owner, or Qualified
Plan participant if left to accumulate within the VA Contract, VLI Policy or
Qualified Plan.

(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
entitled to a fee, which is calculated daily and paid monthly, at an annual rate
of 1.00% of the average daily net assets of the Small Cap Value Portfolio, 0.85%
of the average daily net assets of the Growth II, Technology & Communications
and Select 20 Portfolios, 0.75% of the average daily net assets of the Large Cap
Growth Portfolio, and 0.65% of the average daily net assets of the Large Cap
Value Portfolio.

Newbold's Asset Management, Inc. ("Newbold") serves as the sub-adviser to the
Small Cap Value and Large Cap Value Portfolios. For its services provided
pursuant to its Investment Sub-Advisory Agreement with the Adviser and the Fund,
Newbold receives a fee from the Adviser at an annual rate of 0.65% of the Small
Cap Value Portfolio's average daily net assets and 0.40% of the Large Cap Value
Portfolio's average daily net assets. Newbold receives no fees directly from the
Small Cap Value and Large Cap Value Portfolios.

In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement with the Fund (the "Expense Limitation
Agreement"), with respect to each Portfolio, pursuant to which the Adviser has
agreed to waive or limit its fees and to assume other expenses of the Portfolios
to the extent

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necessary to limit the total annual operating expenses (expressed as a
percentage of each Portfolio's average daily net assets) to not more than 1.20%
of the average daily net assets of the Growth II, Small Cap Value, Technology &
Communications and Select 20 Portfolios and to not more than 1.10% and 1.00% of
the average daily net assets of the Large Cap Growth and Large Cap Value
Portfolios, respectively, through December 31, 1997. Such waivers and assumption
of expenses by the Adviser may be discontinued at any time after such date.
Reimbursement by the Portfolios of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expense ratio
of each Portfolio to exceed the Total Operating Expense percentages described
above.

PBHG Fund Services (the "Administrator"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities. For these administrative services, the
Administrator is entitled to a fee, which is calculated daily and paid monthly,
at an annual rate of 0.15% of the average daily net assets of the Fund.

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Corporation (SEI) and an affiliate of the Fund's distributor,
assists the Administrator in providing administrative services to the Fund. For
acting in this capacity, the Administrator pays the Sub-Administrator a fee at
the annual rate of 0.025% of the average daily net assets of the Fund.

SEI Financial Services Company, a wholly-owned subsidiary of SEI, provides the
Fund with distribution services.

DST Systems, Inc. serves as the transfer agent, dividend disbursing agent and
shareholder servicing agent for the Fund under a transfer agent agreement with
the Fund. CoreStates Bank, N.A. serves as the custodian for the Fund.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder and Board of Directors
of PBHG Insurance Series Fund, Inc.:

We have audited the accompanying Statement of Assets and Liabilities of PBHG
Insurance Series Fund, Inc. (the "Fund"), comprised 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, as of April 4, 1997. This financial statement is the responsibility
of the Funds management. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of PBHG Insurance Series Fund,
Inc. as of April 4, 1997 in conformity with generally accepted accounting
principles.

/s/ COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 8, 1997

<PAGE>

[KATTEN MUCHIN & ZAVIS LETTERHEAD]
KATTEN MUCHIN & ZAVIS
1025 Thomas Jefferson Street, N.W.
East Lobby, Suite 700
Washington, D.C. 20007-5201

May 30, 1997

VIA EDGAR
- ---------

Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549

Re: PBHG Insurance Series Fund, Inc. ("Registrant")
File Nos. 333-19497 and 811-08009
-----------------------------------------------

Commissioners:

Submitted herewith for filing pursuant to Rule 497(c) under the Securities
Act of 1933, as amended, is a copy of the four forms of the definitive
Prospectuses and the one definitive Statement of Additional Information for the
Registrant.

Please contact me at (202) 625-3781 if you have any questions concerning
this filing.

Very truly yours,

/s/ Jane A. Kanter
-------------------

Jane A. Kanter

Enclosures

cc: John M. Zerr