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PBHG Insurance Series Fund, Inc.
--------------------------------
PBHG Growth II Portfolio
PBHG Technology & Communications Portfolio
PBHG Select 20 Portfolio
PBHG Large Cap Value Portfolio
PBHG Small Cap Value Portfolio
Semi-Annual Report
June 30, 1998
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PBHG Insurance Series Fund, Inc.
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PBHG Growth II Portfolio
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- PBHG Growth II Portfolio returned 10.14%
for the first half of 1998 compared with 11.87% for the Russell Mid-Cap Growth
Index. Most of the Portfolio's return was achieved during the first quarter.
During the second quarter, the Russell Mid-Cap Growth Index had a small negative
return while the Portfolio's results were up modestly as continued problems in
Asia raised investor concern and added to the market's volatility.
The technology, health care and consumer sectors performed strongly in the first
half of 1998 and made up nearly 60% of the Portfolio's holdings. Energy stocks
were weak due to lower oil and gas prices. Financials and service companies also
lagged the market. The top holdings of the Portfolio did especially well,
including J.D. Edwards, Ascend Communications and HBO & Company. America Online
and Uniphase also achieved large gains. Dura Pharmaceuticals, BJ Services and
ATMI all experienced lowered earnings expectations and as a result, their stocks
weakened during the first half.
The portfolio remains overweighted in service and technology stocks which
represent 22% and 33% of the total Portfolio, respectively. The service sector
includes solid waste management companies, information technology companies and
telecommunication service providers. The sector weightings mainly reflect our
growth company bias. Underweighted sectors include financials, basic industry
and capital goods stocks. The companies in the Portfolio, on average, continue
to grow earnings at rates above 50%.
It is important to point out that growth stocks -- small, mid and large cap --
outperformed their value counterparts year-to-date. While we are encouraged by
this recent reversal within the growth market, we continue to face a market that
favors large cap stocks over smaller stocks. This is occurring even though
earnings for mid-cap companies are accelerating, while earnings estimates for
large cap companies are decelerating. When the results for the second quarter of
1998 are available, we expect the small and mid-cap segments of the market will
post profit growth rates that surpass that of the large caps, making it the
fifth consecutive quarter of superior relative growth.
Sincerely,
/s/ Jeffrey A. Wrona
- -----------------------------
Jeffrey A. Wrona, CFA
Portfolio Manager
1
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PBHG Insurance Series Fund, Inc.
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PBHG Growth II Portfolio
- --------------------------------------------------------------------------------
TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1998(1)
- --------------------------------------------------------------------------------
Aggregate(2)
------------------------ Annualized
Six One Year Inception to
Months Return Date(3)
- --------------------------------------------------------------------------------
PBHG Growth II Portfolio 10.14% 13.30% 15.57%
Comparison of Change in the Value of a $10,000 Investment in the
PBHG Growth II Portfolio, versus the Russell Mid-Cap Growth Index,
the S&P 500 Index, and the Lipper Mid-Cap Funds Average
In the printed version there is a line graph with the following plot points
depicted.
PBHG Growth II Russell Mid-Cap S&P 500 Lipper Mid-Cap
Portfolio Growth Index(4) Index(5) Funds Average(6)
-------------- --------------- -------- ----------------
4/97 10,000 10,000 10,000 10,000
6/97 10,450 11,198 11,083 11,411
9/97 11,440 12,764 11,912 13,053
12/97 10,750 12,412 12,255 12,627
3/98 11,710 13,893 13,963 14,161
6/98 11,841 13,886 14,424 13,959
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Aggregate total returns have not been annualized.
(3) The PBHG Growth II Portfolio commenced operations on May 1, 1997.
(4) The Russell Mid-Cap Growth Index is an unmanaged index comprised of the 800
smallest securities in the Russell 1000 Index with a greater-than-average
growth orientation.
(5) The Standard & Poor's ("S&P") 500 Index is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic
economy. The Index is unmanaged and reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.
(6) The Lipper Mid-Cap Funds Average is an equally weighted benchmark composed
of mutual funds, each of which limits its investments, by prospectus or
portfolio practice, to companies with average market capitalizations and/or
revenues between $800 million and the average market capitalization of the
Wilshire 4500 Index. The performance figures are based on changes in net
assets value of the funds in the category with all capital gains
distributions and income dividends reinvested.
2
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PBHG Insurance Series Fund, Inc.
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PBHG Technology & Communications Portfolio
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- PBHG Technology & Communications
Portfolio finished the period ended June 30, 1998 with a return of 12.30%,
compared with the benchmark Pacific Stock Exchange High Technology Index (PSE)
return of 19.26%. The Portfolio lagged the benchmark largely due to its
continued focus on smaller capitalization stocks, whose returns again trailed
those of larger stocks. For example, the Russell 2000, an index of smaller
capitalization stocks returned 4.91% over the same period, versus a return of
17.74% for the S&P 500.
Technology rallied strongly to begin 1998 and the PSE appreciated 19.17% in the
first quarter of the year, as investors became more confident that International
Monetary Fund intervention would help put a quick end to the "Asian Flu" that
hurt stocks so badly during the fourth quarter of 1997. By March 31, the PSE had
surpassed its previous highs reached before the Asian Crisis. However,
technology stocks took a breather in the early part of April as investors
nervously awaited quarterly earnings reports. This wait was a particular "nail
biter" because the first quarter was the first one that was fully impacted by
the Asian Crisis, which occurred more than halfway through the fourth quarter of
1997.
The earnings numbers released in April, while certainly not outstanding, were
stronger than investors had expected and technology stocks rallied. Technology
stocks took another hit later in the month as investors began to fear that a
strong economy would force the Federal Reserve to raise interest rates. However,
late April and early May brought favorable economic data that showed the economy
might be slowing on its own and it was off to the races again. By mid-May,
investors were again focusing on the ongoing issues in Asia. Japan's inability
to implement decisive policy to address its staggering economy and large amounts
of bad bank debt, coupled with poor data regarding Japanese economic growth
helped send the Yen spiraling downward. Fears that the Japanese weakness would
worsen the Asian Crisis and anecdotal signs of a slowing in European demand sent
U.S. stocks downward during the latter part of May. U.S. intervention to
stabilize the Dollar/Yen exchange rate and Japanese promises of economic reform
helped turn the market around and the PSE rallied strongly as the first half
came to an end. Despite all of this volatility, the PSE finished the second
quarter virtually unchanged from its level at the end of the first quarter.
Small capitalization companies have now lagged the broader market for the better
part of two years. The poor relative performance of small cap growth stocks has
occurred despite the fact that smaller company earnings growth has remained
excellent, while earnings growth at larger companies has slowed considerably. As
disciplined, earnings focused investors we will continue to invest in the
highest quality growth names. Therefore, while we remain open to including
larger companies in the portfolio, we feel that the best earnings growth (and
the best values) remain in the small cap part of the market.
Companies and sectors with a large exposure to Asian markets continued to suffer
during the first half of 1998. Specifically, semiconductor equipment,
semiconductor manufacturers and many wireless communications equipment companies
continued to experience lower orders and lessened visibility. The Portfolio
continues to be underweighted in these sectors, but we will continue to look for
opportunities to add to our positions as fundamentals improve.
3
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PBHG Insurance Series Fund, Inc.
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PBHG Technology & Communications Portfolio
Several of our technology service companies performed well as they continued to
benefit from the trend towards corporate outsourcing of information technology
service, continued spending related to the Year 2000 problem and rapidly
increasing billing rates. Particularly notable performers in this area were
Diamond Technology Partners, Tier Technologies and ECSoft Group. Other notable
performers during the quarter included internet service provider, Mindspring and
Citrix Systems, a provider of client-server software.
Among the disappointments was Advanced Fibre Communications, which pre-announced
lower than expected earnings due to the loss of a major customer and wireless
radio manufacturer, Remec, which fell prey to weaker end demand in Asia.
Going forward, we will continue to watch the situation in Asia closely. We also
monitor the continued strength of the U.S. economy, which has created tighter
labor markets and a high level of consumer spending. We believe that the events
in Asia will help slow our own economy down in the second half, lessening the
need for higher interest rates. While the problems in Asia have forced us to
become more selective, we remain excited about the technology sector, which
continues to be one of the most rapidly growing sectors of the U.S. economy.
Sincerely,
/s/ Jeffrey A. Wrona /s/ Michael S. Hahn
- ------------------------------- -----------------------------
Jeffrey A. Wrona, CFA Michael S. Hahn, CFA
Portfolio Manager Portfolio Manager
4
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PBHG Insurance Series Fund, Inc.
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PBHG Technology & Communications Portfolio
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TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1998(1)
- --------------------------------------------------------------------------------
Aggregate(2)
------------------ Annualized
Six One Year Inception to
Months Return Date(3)
- --------------------------------------------------------------------------------
PBHG Technology & Communications Portfolio 12.30% 13.28% 14.32%
Comparison of Change in the Value of a $10,000 Investment in the PBHG
Technology & Communications Portfolio, versus the Pacific Stock Exchange High
Technology Index, and the Lipper Science & Technology Funds Average
In the printed version there is a line graph with the following plot points
depicted.
PBHG Tech. & Pacific Stock Exchange Lipper Science &
Comm. Portfolio High Technology Index(4) Technology Funds Average(5)
--------------- ------------------------ ---------------------------
4/97 10,000 10,000 10,000
6/97 10,320 11,288 11,449
9/97 12,289 13,456 13,648
12/97 10,409 11,639 11,822
3/98 11,590 13,870 13,835
6/98 11,690 13,880 14,295
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Aggregate total returns have not been annualized.
(3) The PBHG Technology & Communications Portfolio commenced operations on May
1, 1997.
(4) The Pacific Stock Exchange High Technology Index is a price-weighted index
of the top 100 U.S. technology stocks. The Index reflects the reinvestment
of income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
(5) The Lipper Science & Technology Funds Average is an equally weighted
benchmark composed of mutual funds, each of which normally invests more
than 65% of its equity portfolio in science and technology stocks. The
performance figures are based on changes in net assets value of the funds
in the category with all capital gains distributions and income dividends
reinvested.
5
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PBHG Insurance Series Fund, Inc.
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PBHG Select 20 Portfolio
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- PBHG Select 20 Portfolio reached the
midway point of the current fiscal year on June 30, 1998, showing a total return
of 31.11% since January 1, 1998. Over this same time period, the S&P 500 Index
and Russell Top 200 Growth Index produced total returns of 17.74% and 23.21%,
respectively. The Portfolio's outperformance relative to the S&P 500 was fairly
consistent over the period, besting the Index in 5 of the 6 months. The month of
May was the exception, where we underperformed the Index by roughly 50 basis
points, in the only negative return month so far this year in the Index or in
the Select 20 Portfolio. There were no negative fundamental developments
afflicting our holdings in May, but we did have two stocks, radio station
operator Chancellor Media and data storage systems vendor EMC Corp., that
declined in price over 10% for the month, which weighted down the overall
performance of the Portfolio.
A review of performance by industry sector shows that technology was by far our
biggest contributor, accounting for roughly 59% of the year-to-date return.
Within this group, the best individual performers were America Online (+132%),
Dell Computer (+121%), and Lucent Technologies (+108%). The second biggest
sector contribution came from the services sector, which accounted for about 18%
of the Portfolio's total return. In this sector, the best performers were
Worldcom (+60%) and Clear Channel Communications (+37%). We continue to maintain
large positions in each of these companies, as we believe they remain extremely
well positioned within their respective markets for continued superior growth.
Our only negative return sector over the period was energy. Fortunately, the
impact has been negligible, as we exited this sector completely in January and
have resisted the temptation to re-enter. By far our worst individual performer
in the period was Cendant Corp., which claimed to suddenly discover "accounting
irregularities" at a recently acquired business. Despite facing a 49% negative
hit by selling the stock around the time of the announcement, we felt this was
the most prudent course of action given the uncertain outcome of additional
independent audits of Cendant's accounting practices. The only holding still in
the Portfolio that produced a negative return over the six month period was
rehabilitation services provider HealthSouth (-4%). Here, we believe the share
price weakness did not reflect any deterioration in business fundamentals,
rather the stock suffered from professional arbitrage activity related to
HealthSouth's planned purchase of publicly-traded National Surgery Centers, the
largest independent operator of "stand-alone" outpatient surgery centers.
As we enter the second half of 1998, we remain constructive on the large cap
portion of the equity market despite numerous influences, both positive and
negative. Among the negatives, valuations are at historical highs which
heightens short-term risk. In this regard, however, we take some comfort in a
very supportive interest rate environment and an economy that keeps humming
along. The other key potential negative is the ultimate influence on the U.S.
economy of the collapsed Asian economies. We have structured the Portfolio such
that our holdings have negligible financial exposure in the region and, in some
cases, may actually benefit from the availability of cheaper goods and/or labor.
On the positive side, investors continue to buy U.S. equity mutual funds and
foreign investors are shifting their capital increasingly to the U.S., as they
look for a safer haven following the damage incurred in many emerging markets.
This represents additional "buying power" that should help sustain stock
valuations. We also believe that a modest slowdown in U.S. economic growth
caused by the Asian situation would not necessarily be a bad thing for U.S.
investors.
6
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PBHG Insurance Series Fund, Inc.
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PBHG Select 20 Portfolio
Specifically, it should help keep interest rates and inflation in check, which
is not only positive for investors but also for those companies (like the ones
we strive to own) that are investing in their businesses in order to take
advantage of growth opportunities.
Crosscurrents like these are what keep "big picture" strategists employed.
Frankly, we don't envy them. We much prefer to spend our time seeking out and
investing in just a few high-quality, high-growth companies. And with supportive
shareholders like you, we will continue to do just that.
Sincerely,
/s/ James D. McCall
- -----------------------------
James D. McCall, CFA
Portfolio Manager
7
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PBHG Insurance Series Fund, Inc.
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PBHG Select 20 Portfolio
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1998(1)
- --------------------------------------------------------------------------------
Six Inception to
Months(2) Date(2,3)
- --------------------------------------------------------------------------------
PBHG Select 20 Portfolio 31.11% 31.50%
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Comparison of Change in the Value of a $10,000 Investment in the
PBHG Select 20 Portfolio, versus the Russell Top 200 Growth Index,
the S&P 500 Index, and the Lipper Growth Funds Average
In the printed version there is a line graph with the following plot points
depicted.
PBHG Select 20 Russell Top 200 Lipper Growth
Portfolio S&P 500 Index(4) Growth Index(5) Funds Average(6)
-------------- ---------------- --------------- ----------------
9/97 10,000 10,000 10,000 10,000
12/97 10,050 10,287 10,305 9,878
3/98 11,993 11,722 11,978 11,149
6/98 13,176 12,109 12,697 11,352
(1) Past performance of the period is not predictive of future performance. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Total return has not been annualized.
(3) The PBHG Select 20 Portfolio commenced operations on September 26, 1997.
(4) The Standard & Poor's ("S&P") 500 Index is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic
economy. The Index is unmanaged and reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.
(5) The Russell Top 200 Growth Index is an unmanaged index comprised of those
securities in the Russell Top 200 Index with a greater-than-average growth
orientation. The Index reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing.
(6) The Lipper Growth Funds Average is an equally weighted benchmark composed
of mutual funds, each of which normally invests in companies whose
long-term earnings are expected to grow significantly faster than the
earnings of the stocks represented in the major unmanaged stock indexes.
The performance figures are based on changes in net assets value of the
funds in the category with all capital gains distributions and income
dividends reinvested.
8
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Value Portfolio
Dear Shareholder:
The stock market rallied strongly again in the first half of 1998. The PBHG
Insurance Series Fund, Inc. -- PBHG Large Cap Value Portfolio returned 15.15%
versus a total return of 12.17% for the Russell 1000 Value Index and a total
return of 17.74% for the S&P 500. We are very satisfied with our start in 1998,
but would caution all investors that future stock market returns are unlikely to
be as robust as recent results.
Market Overview
The widely reported outbreak of "Asian Contagion" did not slow the U.S. economy
as expected in the first quarter of 1998. However, the domestic impact has been
notable in May and June. Many companies have preannounced disappointing profits
for the second quarter, and the present stock market has no patience for
negative surprises. While volatility is unsettling over the near-term,
exaggerated movements in stock prices typically create opportunities for
investors, and we are working hard to lay the foundation for solid results in
the months ahead. We would also note that the ongoing crisis in Asia and
resulting pressure on profits in the U.S. should encourage our Federal Reserve
to maintain an even-handed stance on monetary policy.
Our fundamental long-term view of the large cap value sector of the market is
positive. In the U.S., macroeconomic conditions are extremely favorable for
investors: Inflation is low, long-term interest rates are declining and the
Federal Budget is in balance for the first time in 20 years. The uncertain
outlook for profits will continue to produce occasional disappointments for
equity investors, but we continue to believe that the stocks of companies that
report good earnings will perform very well in this low interest rate
environment.
Investment Strategy
The major shift in our investment strategy has been a significant increase in
our commitment to financial stocks. The problematic earnings environment
developing for technology and industrial companies has caused our stock
selection to gravitate towards companies in other areas which are more likely to
report strong profit comparisons. Those companies are increasingly concentrated
in the financial sector. Recent investments in this area include PMI Group,
First Chicago NBD, Chase Manhattan, and North Fork Bancorp. These stocks offer
an attractive combination of below-average P/E multiples, good growth
characteristics and strong near-term business dynamics. We expect these holdings
to provide good returns in a benign interest rate environment, and will report
the results to you in our next shareholder letter.
In closing, we thank you for your confidence in Pilgrim Baxter Value Investors,
Inc. and in the PBHG Insurance Series Fund, Inc.
Sincerely,
/s/ Gary D. Haubold
- --------------------------
Gary D. Haubold, CFA
Portfolio Manager
9
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Value Portfolio
- --------------------------------------------------------------------------------
AGGREGATE TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1998(1)
- --------------------------------------------------------------------------------
Six Inception to
Months(2) Date(2,3)
- --------------------------------------------------------------------------------
PBHG Large Cap Value Portfolio 15.15% 20.10%
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the
PBHG Large Cap Value Portfolio, versus the Russell 1000 Value Index,
and the Lipper Growth & Income Funds Average
In the printed version there is a line graph with the following plot points
depicted.
PBHG Large Cap Value Russell 1000 Lipper Growth & Income
Portfolio Value Index(4) Funds Average(5)
-------------------- -------------- ----------------------
9/97 10,000 10,000 10,000
12/97 10,441 10,747 10,444
3/98 11,641 12,001 11,666
6/98 12,021 12,054 11,694
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Total return has not been annualized.
(3) The PBHG Large Cap Value Portfolio commenced operations on October 29, 1997.
(4) The Russell 1000 Value Index is an unmanaged index comprised of those
securities in the Russell 1000 Index with lower price-to-book ratios and
lower forecasted growth values. The Index reflects the reinvestment of
income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
(5) The Lipper Growth & Income Funds Average is an equally weighted benchmark
composed of mutual funds, each of which combines growth of earnings with an
income requirement for level and/or rising dividends. The performance
figures are based on changes in net assets value of the Funds in the
category with all capital gains distributions and income dividends
reinvested.
10
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PBHG Insurance Series Fund, Inc.
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PBHG Small Cap Value Portfolio
Dear Shareholder:
The stock market rallied strongly again in the first half of 1998. The PBHG
Insurance Series Fund, Inc. -- PBHG Small Cap Value Portfolio returned 9.92%
versus a total return of 4.91% for the Russell 2000 index. We are pleased to be
off to a good start in 1998, and are looking forward to serving you for the
remainder of the year.
Market Overview
The widely reported outbreak of "Asian Contagion" did not slow the U.S. economy
as expected in the first quarter of 1998. However, the domestic impact has been
notable in May and June. Many companies have preannounced disappointing profits
for the second quarter, and the uncertainty surrounding the earnings outlook
precipitated a sharp correction in the small cap segment of the stock market.
While volatility is unsettling over the near-term, exaggerated movements in
stock prices typically create opportunities for investors, and we are working
hard to lay the foundation for solid results in the months ahead. We would also
note that the ongoing crisis in Asia and resulting pressure on profits in the
U.S. should encourage our Federal Reserve to maintain an even-handed stance on
monetary policy.
Our fundamental long-term view of the small cap market remains favorable. In the
U.S., macroeconomic conditions are extremely favorable for investors: Inflation
is low, long-term interest rates are declining and the Federal Budget is in
balance for the first time in 20 years. The uncertain outlook for profits will
continue to produce occasional disappointments for equity investors, but we
continue to believe that the stocks of companies that report good earnings will
perform very well in this low interest rate environment. Furthermore, with the
continued underperformance of small cap stocks versus large stocks, the small
stock sector of the equity market offers an unusual abundance of investment
values. When investor sentiment eventually turns more positive towards small cap
stocks, your portfolio should be well-positioned to benefit.
Investment Strategy
The major shift in our investment strategy has been a significant increase in
our commitment to financial stocks. The problematic earnings environment
developing for technology and industrial companies has caused us to gravitate
towards companies in other areas which are more likely to report strong profit
comparisons. Those companies are increasingly concentrated in the financial
sector. Recent investments in this area include CMAC Investment Corp., Pacific
Bank, Raymond James Financial, UST Corp. and City National. These stocks have an
attractive combination of below-average P/E multiples, good growth
characteristics and strong near-term business dynamics. We expect these holdings
to provide good returns in a benign interest rate environment, and will report
the results to you in our next shareholder letter.
In closing, we thank you for your confidence in Pilgrim Baxter Value Investors,
Inc. and in the PBHG Insurance Series Fund, Inc.
Sincerely,
/s/ Gary D. Haubold
- ---------------------------------
Gary D. Haubold, CFA
Portfolio Manager
11
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PBHG Insurance Series Fund, Inc.
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PBHG Small Cap Value Portfolio
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AGGREGATE TOTAL RETURNS FOR THE PERIODS ENDED JUNE 30, 1998(1)
- --------------------------------------------------------------------------------
Six Inception to
Months(2) Date(2,3)
- --------------------------------------------------------------------------------
PBHG Small Cap Value Portfolio 9.92% 15.20%
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Comparison of Change in the Value of a $10,000 Investment in the
PBHG Small Cap Value Portfolio versus the Russell 2000 Index,
and the Lipper Small Cap Funds Average
In the printed version there is a line graph with the following plot points
depicted.
PBHG Small Lipper Small Cap
Cap Value Portfolio Russell 2000 Index(4) Funds Average(5)
------------------- --------------------- -----------------
9/97 10,000 10,000 10,000
12/97 10,427 10,109 9,940
3/98 11,889 11,125 11,032
6/98 11,462 10,605 10,579
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so an
investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Total return has not been annualized.
(3) The PBHG Small Cap Value Portfolio commenced operations on October 29, 1997.
(4) The Russell 2000 Index is an unmanaged index comprised of the 2,000 smallest
securities in the Russell 3000 Index. The Index reflects the reinvestment of
income dividends and capital gains distributions, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
(5) The Lipper Small Cap Funds Average is an equally weighted benchmark
composed of mutual funds, each of which limits its investments, by
prospectus or portfolio practice, to companies on the basis of the size of
the company. The performance figures are based on changes in net assets
value of the Funds in the Index with all capital gains distributions and
income dividends reinvested.
12
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PBHG Insurance Series Fund, Inc.
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PBHG Growth II Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 94.6%
CONSUMER -- 11.4%
ENTERTAINMENT/MOVIES -- 2.9%
Premier Parks* 7,400 $ 490
- ----------------------------------------------------------------------
490
- ----------------------------------------------------------------------
HOTELS/RESORTS -- 0.4%
Signature Resorts* 3,900 64
- ----------------------------------------------------------------------
64
- ----------------------------------------------------------------------
PACKAGED GOODS/COSMETICS -- 0.5%
Rexall Sundown* 2,400 85
- ----------------------------------------------------------------------
85
- ----------------------------------------------------------------------
RESTAURANTS -- 2.8%
Starbucks* 8,900 476
- ----------------------------------------------------------------------
476
- ----------------------------------------------------------------------
RETAIL-APPAREL -- 0.5%
Jones Apparel Group* 2,650 97
- ----------------------------------------------------------------------
97
- ----------------------------------------------------------------------
RETAIL-CATALOG -- 0.5%
CDW Computer Centers* 1,600 80
- ----------------------------------------------------------------------
80
- ----------------------------------------------------------------------
RETAIL-HOME FURNISHING -- 0.3%
Bed Bath & Beyond* 985 51
- ----------------------------------------------------------------------
51
- ----------------------------------------------------------------------
RETAIL-OFFICE PRODUCTS/SUPPLIES -- 0.4%
Staples* 2,741 79
- ----------------------------------------------------------------------
79
- ----------------------------------------------------------------------
RETAIL-SPECIALTY -- 1.7%
Borders Group* 4,120 153
General Nutrition Companies* 4,380 136
- ----------------------------------------------------------------------
289
- ----------------------------------------------------------------------
SHOE MANUFACTURING -- 0.3%
Wolverine World Wide 2,200 48
- ----------------------------------------------------------------------
48
- ----------------------------------------------------------------------
SPECIALTY FOOD/CANDY -- 1.1%
Suiza Foods* 3,100 185
- ----------------------------------------------------------------------
185
- ----------------------------------------------------------------------
TOTAL CONSUMER (COST $1,688) 1,944
- ----------------------------------------------------------------------
ENERGY -- 7.4%
CONTRACT DRILLING -- 1.2%
Diamond Offshore Drilling 3,600 144
Santa Fe International 2,070 63
- ----------------------------------------------------------------------
207
- ----------------------------------------------------------------------
DRILLING SERVICES & EQUIPMENT -- 3.9%
BJ Services* 14,000 407
Camco International 3,200 249
- ----------------------------------------------------------------------
656
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
ENVIRONMENTAL SERVICES -- 0.2%
Newpark Resources* 3,100 $ 34
- ----------------------------------------------------------------------
34
- ----------------------------------------------------------------------
MARINE CONSTRUCTION -- 0.8%
Global Industries Limited* 8,500 143
- ----------------------------------------------------------------------
143
- ----------------------------------------------------------------------
OIL/GAS PRODUCTION -- 1.3%
Burlington Resources 5,100 220
- ----------------------------------------------------------------------
220
- ----------------------------------------------------------------------
TOTAL ENERGY (COST $1,315) 1,260
- ----------------------------------------------------------------------
FINANCIAL -- 4.1%
CONSUMER FINANCE -- 2.6%
Firstplus Financial Group* 8,900 320
Newcourt Credit Group 2,500 123
- ----------------------------------------------------------------------
443
- ----------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES -- 1.1%
Amresco 6,300 183
- ----------------------------------------------------------------------
183
- ----------------------------------------------------------------------
INVESTMENT FIRMS -- 0.4%
Sirrom Capital 2,900 75
- ----------------------------------------------------------------------
75
- ----------------------------------------------------------------------
TOTAL FINANCIAL (COST $721) 701
- ----------------------------------------------------------------------
HEALTH -- 12.2%
ASSISTED LIVING -- 0.7%
Sunrise Assisted Living* 3,200 110
- ----------------------------------------------------------------------
110
- ----------------------------------------------------------------------
CONTRACT RESEARCH -- 2.8%
Quintiles Transnational* 9,554 470
- ----------------------------------------------------------------------
470
- ----------------------------------------------------------------------
DRUGS/PHARMACEUTICALS -- 0.4%
Medicis Pharmaceutical, Cl A* 2,000 73
- ----------------------------------------------------------------------
73
- ----------------------------------------------------------------------
INFORMATION SYSTEMS -- 2.8%
HBO & Company 13,720 484
- ----------------------------------------------------------------------
484
- ----------------------------------------------------------------------
MEDICAL DEVICES -- 2.1%
Arterial Vascular Engineering* 5,400 193
Steris* 2,600 165
- ----------------------------------------------------------------------
358
- ----------------------------------------------------------------------
MEDICAL EQUIPMENT -- 1.1%
Idexx Laboratories* 7,800 194
- ----------------------------------------------------------------------
194
- ----------------------------------------------------------------------
SPECIAL OUTPATIENT FACILITY -- 2.3%
Healthsouth* 5,565 149
Total Renal Care Holdings* 6,938 239
- ----------------------------------------------------------------------
388
- ----------------------------------------------------------------------
TOTAL HEALTH (COST $1,777) 2,077
- ----------------------------------------------------------------------
</TABLE>
13
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Growth II Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
INDUSTRIAL/GENERAL MANUFACTURING -- 4.1%
AUTO-RELATED -- 3.0%
Harley-Davidson 5,460 $ 212
Tower Automotive* 6,800 292
- ----------------------------------------------------------------------
504
- ----------------------------------------------------------------------
MACHINERY/EQUIPMENT -- 0.3%
Danka Business Systems PLC 3,900 46
- ----------------------------------------------------------------------
46
- ----------------------------------------------------------------------
MULTI-INDUSTRY -- 0.8%
Applied Power, Cl A 4,100 141
- ----------------------------------------------------------------------
141
- ----------------------------------------------------------------------
TOTAL INDUSTRIAL/GENERAL MANUFACTURING (COST $696) 691
- ----------------------------------------------------------------------
SERVICE -- 22.4%
COMMERCIAL SERVICES -- 2.3%
Central Parking 8,500 395
- ----------------------------------------------------------------------
395
- ----------------------------------------------------------------------
COMMUNICATIONS SERVICES -- 1.2%
Star Telecommunications* 4,800 107
Tel-Save Holdings* 6,100 90
- ----------------------------------------------------------------------
197
- ----------------------------------------------------------------------
EDUCATIONAL SERVICES -- 2.7%
Apollo Group, Cl A* 9,999 330
CBT Group PLC ADR* 2,500 134
- ----------------------------------------------------------------------
464
- ----------------------------------------------------------------------
EMPLOYMENT SERVICE - PROFESSIONAL -- 1.0%
Accustaff* 5,395 169
- ----------------------------------------------------------------------
169
- ----------------------------------------------------------------------
ENVIRONMENTAL -- 3.9%
Allied Waste Industries * 13,350 321
American Disposal Services* 4,800 225
Superior Services* 3,800 114
- ----------------------------------------------------------------------
660
- ----------------------------------------------------------------------
INFORMATION/COMPUTER SERVICES -- 1.1%
Gartner Group, Cl A* 5,425 190
- ----------------------------------------------------------------------
190
- ----------------------------------------------------------------------
MARKETING SERVICES -- 1.8%
Ha Lo Industries* 10,000 311
- ----------------------------------------------------------------------
311
- ----------------------------------------------------------------------
RADIO/TELEVISION -- 0.7%
Clear Channel Communications* 488 53
Jacor Communications* 1,200 71
- ----------------------------------------------------------------------
124
- ----------------------------------------------------------------------
REAL ESTATE SERVICES -- 1.2%
CB Richard Ellis Services* 2,000 67
Trammell Crow* 4,100 137
- ----------------------------------------------------------------------
204
- ----------------------------------------------------------------------
SYSTEMS INTEGRATOR -- 2.4%
Computer Horizons* 4,600 171
Keane* 4,200 235
- ----------------------------------------------------------------------
406
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
TELEMARKETING -- 1.6%
Snyder Communications* 6,000 $ 264
- ----------------------------------------------------------------------
264
- ----------------------------------------------------------------------
TRANSACTIONS PROCESSING -- 2.5%
Paychex 3,921 160
Saville Systems Ireland ADR* 5,400 271
- ----------------------------------------------------------------------
431
- ----------------------------------------------------------------------
TOTAL SERVICE (COST $3,489) 3,815
- ----------------------------------------------------------------------
TECHNOLOGY -- 33.0%
CABLES/FIBEROPTICS -- 0.4%
Kent Electronics* 3,900 71
- ----------------------------------------------------------------------
71
- ----------------------------------------------------------------------
CONTRACT MANUFACTURING -- 1.2%
Jabil Circuit* 1,800 60
Solectron* 3,570 150
- ----------------------------------------------------------------------
210
- ----------------------------------------------------------------------
DIGITAL VIDEO RELATED -- 0.1%
Avid Technology* 500 17
- ----------------------------------------------------------------------
17
- ----------------------------------------------------------------------
NETWORKING HARDWARE -- 7.0%
Ascend Communications* 9,800 487
Fore Systems* 11,300 299
Xylan* 13,500 402
- ----------------------------------------------------------------------
1,188
- ----------------------------------------------------------------------
NETWORKING SECURITY -- 0.4%
Checkpoint Software* 1,900 62
- ----------------------------------------------------------------------
62
- ----------------------------------------------------------------------
NETWORKING SOFTWARE -- 0.5%
Veritas Software* 2,000 83
- ----------------------------------------------------------------------
83
- ----------------------------------------------------------------------
PC-PERIPHERALS MANUFACTURING -- 0.5%
Lexmark International Group* 1,400 85
- ----------------------------------------------------------------------
85
- ----------------------------------------------------------------------
PRECISION INSTRUMENTS -- 0.8%
Waters* 2,400 141
- ----------------------------------------------------------------------
141
- ----------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 2.7%
Altera* 2,100 62
Analog Devices* 2,700 66
ATMI* 5,400 81
Linear Technology 970 59
Vitesse Semiconductor* 6,000 185
- ----------------------------------------------------------------------
453
- ----------------------------------------------------------------------
SEMI-CONDUCTOR PRODUCTION EQUIPMENT -- 0.9%
Etec Systems* 2,100 74
Novellus Systems* 2,300 82
- ----------------------------------------------------------------------
156
- ----------------------------------------------------------------------
</TABLE>
14
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Growth II Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
SOFTWARE-CLIENT/SERVER -- 4.0%
Citrix Systems* 3,300 $ 226
Compuware* 8,900 455
- ----------------------------------------------------------------------
681
- ----------------------------------------------------------------------
SOFTWARE-ENTERPRISE RESOURCE PLANNING -- 3.9%
Edwards J.D. & Company* 10,800 463
Peoplesoft* 4,314 203
- ----------------------------------------------------------------------
666
- ----------------------------------------------------------------------
SOFTWARE-INTERNET -- 1.0%
America Online* 1,640 174
- ----------------------------------------------------------------------
174
- ----------------------------------------------------------------------
SOFTWARE-SYSTEM/MAINFRAME -- 2.0%
BMC Software* 6,580 342
- ----------------------------------------------------------------------
342
- ----------------------------------------------------------------------
SOFTWARE FOR MANUFACTURING -- 2.0%
Celestica* 9,500 178
12 Technologies* 4,500 158
- ----------------------------------------------------------------------
336
- ----------------------------------------------------------------------
TELECOMMUNICATIONS COMPONENTS -- 0.9%
Uniphase* 2,480 156
- ----------------------------------------------------------------------
156
- ----------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 4.7%
Advanced Fibre Communications* 11,240 450
Tekelec* 5,700 255
World Access* 3,400 102
- ----------------------------------------------------------------------
807
- ----------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $4,712) 5,628
- ----------------------------------------------------------------------
Total Common Stock
(Cost $14,398) 16,116
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C> <C>
Face Market
Amount Value
Description (000) (000)
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.6%
Morgan Treasury
5.72%, dated 6/30/98, matures 7/1/98,
repurchase price $1,454,100 (collateralized by
U.S. Treasury Note: total market value
$1,490,219) (A) $1,454 $ 1,454
- ---------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,454) 1,454
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.2%
(COST $15,852) 17,570
- ---------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.2%)
Other Assets and Liabilities, Net (540)
- ---------------------------------------------------------------------
NET ASSETS
Paid-in-capital (authorized 500 million shares -
$0.001 par value) based on 1,437,871
outstanding shares of common stock 15,720
Undistributed net investment loss (40)
Accumulated net realized loss on investments (368)
Net unrealized appreciation on investments 1,718
- ---------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% 17,030
- ---------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 11.84
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
Cl -- Class
15
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 89.8%
HEALTH -- 2.1%
CONTRACT RESEARCH -- 2.1%
Parexel International* 11,300 $ 411
- ----------------------------------------------------------------------
411
- ----------------------------------------------------------------------
TOTAL HEALTH (COST $379) 411
- ----------------------------------------------------------------------
SERVICE -- 21.7%
COMMERCIAL SERVICES -- 1.1%
Getty Images* 5,100 113
VDI Media* 10,600 103
- ----------------------------------------------------------------------
216
- ----------------------------------------------------------------------
COMMUNICATION SERVICES -- 1.6%
Star Telecommunications* 4,900 110
Worldcom* 4,100 198
- ----------------------------------------------------------------------
308
- ----------------------------------------------------------------------
CONSULTING -- 0.6%
Hagler Bailly* 4,600 119
- ----------------------------------------------------------------------
119
- ----------------------------------------------------------------------
EDUCATIONAL SERVICES -- 0.5%
CBT Group PLC ADR* 1,900 102
- ----------------------------------------------------------------------
102
- ----------------------------------------------------------------------
INFORMATION/COMPUTER SERVICES -- 1.1%
Meta Group* 9,600 212
- ----------------------------------------------------------------------
212
- ----------------------------------------------------------------------
PRINTING SERVICES/FORMS -- 1.5%
Consolidated Graphics* 5,000 295
- ----------------------------------------------------------------------
295
- ----------------------------------------------------------------------
SYSTEMS INTEGRATOR -- 11.0%
Cambridge Technology Partners* 8,100 442
Computer Horizons* 8,000 297
Diamond Tech Partners, Cl A* 6,300 191
Ecsoft Group ADR* 3,400 110
Information Management Resources* 4,650 157
Intelligroup* 19,100 339
Keane* 3,500 196
Technology Solutions* 3,800 120
Tier Technologies* 15,300 273
- ----------------------------------------------------------------------
2,125
- ----------------------------------------------------------------------
TRANSACTIONS PROCESSING -- 4.3%
Concord EFS* 4,350 114
Saville Systems ADR* 14,200 712
- ----------------------------------------------------------------------
826
- ----------------------------------------------------------------------
TOTAL SERVICE (COST $3,616) 4,203
- ----------------------------------------------------------------------
TECHNOLOGY -- 66.1%
CABLE/FIBEROPTICS -- 0.6%
Cable Design Technologies* 1,000 21
Kent Electronics* 5,300 97
- ----------------------------------------------------------------------
118
- ----------------------------------------------------------------------
CLIENT/SERVER HELP DESK -- 0.8%
Pegasystems* 5,900 160
- ----------------------------------------------------------------------
160
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
CONTRACT MANUFACTURING -- 1.0%
Solectron* 4,400 $ 185
- ----------------------------------------------------------------------
185
- ----------------------------------------------------------------------
DATA COMMUNICATIONS -- 0.9%
DSET* 12,000 182
- ----------------------------------------------------------------------
182
- ----------------------------------------------------------------------
DATA STORAGE -- 4.7%
EMC* 12,100 542
Network Appliance* 9,700 378
- ----------------------------------------------------------------------
920
- ----------------------------------------------------------------------
DESIGN AUTOMATION SOFTWARE -- 0.9%
Cadence Design Systems* 5,500 172
- ----------------------------------------------------------------------
172
- ----------------------------------------------------------------------
EMBEDDED SOFTWARE -- 1.4%
Peerless Systems* 13,000 270
- ----------------------------------------------------------------------
270
- ----------------------------------------------------------------------
NETWORKING HARDWARE -- 12.1%
Ascend Communications* 19,400 961
Cisco Systems* 3,700 341
Fore Systems* 18,000 477
MMC Networks* 5,700 182
Xylan* 13,000 387
- ----------------------------------------------------------------------
2,348
- ----------------------------------------------------------------------
NETWORKING SOFTWARE -- 4.4%
Legato Systems* 10,700 417
Veritas Software* 10,600 439
- ----------------------------------------------------------------------
856
- ----------------------------------------------------------------------
PRECISION INSTRUMENTS -- 0.7%
REMEC* 12,500 142
- ----------------------------------------------------------------------
142
- ----------------------------------------------------------------------
SATELLITE/CABLE EQUIPMENT -- 1.3%
General Instrument* 8,900 242
- ----------------------------------------------------------------------
242
- ----------------------------------------------------------------------
SEMI-CONDUCTOR MANUFACTURING -- 5.2%
Altera* 1,200 35
Analog Devices* 3,000 74
Applied Micro Circuits* 7,900 204
ATMI* 11,800 177
Maxim Integrated Products* 5,200 165
Pericom Semiconductor* 7,100 49
Transwitch* 6,300 87
Vitesse Semiconductor* 7,200 222
- ----------------------------------------------------------------------
1,013
- ----------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 11.1%
Citrix Systems* 11,650 797
Compuware* 15,000 767
Documentum* 6,500 312
Smallworldwide PLC ADR* 9,400 274
- ----------------------------------------------------------------------
2,150
- ----------------------------------------------------------------------
SOFTWARE-DESKTOP -- 1.0%
Microsoft* 1,800 195
- ----------------------------------------------------------------------
195
- ----------------------------------------------------------------------
</TABLE>
16
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Technology & Communications Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONCLUDED
SOFTWARE-ENTERPRISE RESOURCE PLANNING -- 4.7%
Edwards J.D. & Company* 21,400 $ 919
- ----------------------------------------------------------------------
919
- ----------------------------------------------------------------------
SOFTWARE-OTHER -- 2.7%
JDA Software Group* 1,900 83
New Era of Networks* 6,000 183
Radiant Systems* 2,200 32
Software AG Systems* 8,000 234
- ----------------------------------------------------------------------
532
- ----------------------------------------------------------------------
SOFWARE-SYSTEM/MAINFRAME -- 1.1%
BMC Software* 4,100 213
- ----------------------------------------------------------------------
213
- ----------------------------------------------------------------------
SOFTWARE - INTERNET -- 3.1%
America Online* 2,100 223
Mindspring Enterprises* 3,600 370
- ----------------------------------------------------------------------
593
- ----------------------------------------------------------------------
SOFWARE FOR MANUFACTURING -- 1.1%
12 Technologies* 5,900 207
- ----------------------------------------------------------------------
207
- ----------------------------------------------------------------------
TELECOMMUNICATION COMPONENTS -- 1.6%
P-COM* 4,000 36
Powerwave Technologies* 11,700 196
Sawtek* 4,800 71
- ----------------------------------------------------------------------
303
- ----------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 5.6%
Advanced Fibre Communications* 7,900 316
Lucent Technologies 2,800 233
Tekelec* 11,800 528
- ----------------------------------------------------------------------
1,077
- ----------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $11,210) 12,797
- ----------------------------------------------------------------------
Total Common Stock
(Cost $15,205) 17,411
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Face Market
Amount Value
Description (000) (000)
- ----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 13.9%
Morgan Treasury
5.72%, dated 6/30/98, matures 7/1/98,
repurchase price $2,697,993 (collaterized by
U.S. Treasury Note: total market value
$2,765,009) (A) $2,698 $ 2,698
- ----------------------------------------------------------------------
Total Repurchase Agreement
(Cost $2,698) 2,698
- ----------------------------------------------------------------------
TOTAL INVESTMENTS -- 103.7%
(COST $17,903) 20,109
- ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (3.7%)
Other Assets and Liabilities, Net (715)
- ----------------------------------------------------------------------
NET ASSETS
Paid-in-capital (authorized 500 million shares -
$0.001 par value) based on 1,658,667
outstanding shares of common stock 17,855
Undistributed net investment loss (28)
Accumulated net realized loss on investments (639)
Net unrealized appreciation on investments 2,206
- ----------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% 19,394
- ----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 11.69
- ----------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
Cl -- Class
17
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Select 20 Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 81.7%
CONSUMER -- 3.0%
ENTERTAINMENT/MOVIES -- 3.0%
Carnival Corporation, Cl A 94,100 $ 3,729
- ----------------------------------------------------------------------
TOTAL CONSUMER (COST $3,212) 3,729
- ----------------------------------------------------------------------
FINANCIAL -- 3.0%
CONSUMER FINANCE -- 3.0%
Associates First Capital 49,300 3,790
- ----------------------------------------------------------------------
3,790
- ----------------------------------------------------------------------
TOTAL FINANCIAL (COST $3,738) 3,790
- ----------------------------------------------------------------------
HEALTH -- 15.7%
DRUGS/PHARMACEUTICALS -- 2.9%
Pfizer 32,600 3,543
- ----------------------------------------------------------------------
3,543
- ----------------------------------------------------------------------
INFORMATION SYSTEMS -- 4.9%
HBO & Company 171,000 6,028
- ----------------------------------------------------------------------
6,028
- ----------------------------------------------------------------------
MEDICAL DEVICES -- 4.0%
Guidant 69,800 4,978
- ----------------------------------------------------------------------
4,978
- ----------------------------------------------------------------------
SPECIAL OUTPATIENT FACILITY -- 3.9%
Healthsouth* 183,400 4,894
- ----------------------------------------------------------------------
4,894
- ----------------------------------------------------------------------
TOTAL HEALTH (COST $17,981) 19,443
- ----------------------------------------------------------------------
SERVICE -- 18.8%
COMMUNICATIONS SERVICES -- 4.8%
Worldcom* 122,700 5,943
- ----------------------------------------------------------------------
5,943
- ----------------------------------------------------------------------
ENVIRONMENTAL -- 4.8%
USA Waste Services* 121,600 6,004
- ----------------------------------------------------------------------
6,004
- ----------------------------------------------------------------------
RADIO/TELEVISION -- 9.2%
Chancellor Media* 107,500 5,338
Clear Channel Communications* 55,400 6,046
- ----------------------------------------------------------------------
11,384
- ----------------------------------------------------------------------
TOTAL SERVICE (COST $20,576) 23,331
- ----------------------------------------------------------------------
TECHNOLOGY -- 41.2%
COMPUTER-MANUFACTURING -- 3.7%
Dell Computer* 49,200 4,566
- ----------------------------------------------------------------------
4,566
- ----------------------------------------------------------------------
DATA STORAGE -- 4.7%
EMC* 130,500 5,848
- ----------------------------------------------------------------------
5,848
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Shares/
Face Market
Amount Value
Description (000) (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONCLUDED
NETWORKING HARDWARE -- 7.9%
Ascend Communications* 103,700 $ 5,140
Cisco Systems* 50,600 4,658
- ----------------------------------------------------------------------
9,798
- ----------------------------------------------------------------------
SOFTWARE-CLIENT/SERVER -- 5.1%
Compuware* 123,600 6,319
- ----------------------------------------------------------------------
6,319
- ----------------------------------------------------------------------
SOFTWARE-DESKTOP -- 1.3%
Microsoft* 14,400 1,561
- ----------------------------------------------------------------------
1,561
- ----------------------------------------------------------------------
SOFTWARE-ENTERPRISE RESOURCE PLANNING -- 4.4%
Peoplesoft* 116,800 5,490
- ----------------------------------------------------------------------
5,490
- ----------------------------------------------------------------------
SOFTWARE-INTERNET -- 4.6%
America Online* 53,800 5,703
- ----------------------------------------------------------------------
5,703
- ----------------------------------------------------------------------
SOFTWARE-SYSTEM/MAINFRAME -- 4.7%
BMC Software* 113,600 5,900
- ----------------------------------------------------------------------
5,900
- ----------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 4.8%
Lucent Technologies 72,000 5,989
- ----------------------------------------------------------------------
5,989
- ----------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $41,665) 51,174
- ----------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $87,173) 101,467
- ----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 23.6%
Morgan Agency
5.72% dated 6/30/98, matures 7/1/98,
repurchase price $29,279,561 (collaterized
by U.S. Government Obligations: total market
value $29,888,537) (A) $ 29,275 29,275
- ----------------------------------------------------------------------
Total Repurchase Agreement
(Cost $29,275) 29,275
- ----------------------------------------------------------------------
TOTAL INVESTMENTS -- 105.3% (COST $116,448) 130,742
- ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (5.3%)
Other Assets and Liabilities, Net (6,521)
- ----------------------------------------------------------------------
NET ASSETS
Paid-in-capital (authorized 500 million
shares - $0.001 par value) based on
9,445,508 outstanding shares of common stock 110,909
Undistributed net investment income 7
Accumulated net realized loss on investments (989)
Net unrealized appreciation on investments 14,294
- ----------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% $124,221
- ----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER SHARE $ 13.15
- ----------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
Cl -- Class
18
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Large Cap Value Portfolio
SCHEDULE OF INVESTMENTS
As of June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 98.7%
BASIC MATERIALS -- 4.9%
CHEMICALS -- 1.6%
Solutia 4,000 $ 115
- ----------------------------------------------------------------------
115
- ----------------------------------------------------------------------
CHEMICALS - SPECIALTY -- 0.5%
Olin 900 37
- ----------------------------------------------------------------------
37
- ----------------------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.6%
Potlatch 2,800 118
- ----------------------------------------------------------------------
118
- ----------------------------------------------------------------------
STEEL -- 1.2%
USX-U.S. Steel Group 2,600 86
- ----------------------------------------------------------------------
86
- ----------------------------------------------------------------------
TOTAL BASIC MATERIALS (COST $376) 356
- ----------------------------------------------------------------------
CAPITAL GOODS -- 4.3%
AEROSPACE/DEFENSE -- 1.7%
General Dynamics 2,600 121
- ----------------------------------------------------------------------
121
- ----------------------------------------------------------------------
BUILDING SUPPLIES -- 1.4%
Masco 1,600 97
Owens Corning 200 8
- ----------------------------------------------------------------------
105
- ----------------------------------------------------------------------
OFFICE EQUIPMENT -- 1.2%
Lexmark International Group, Cl A* 100 6
Pitney Bowes 900 43
Xerox 400 41
- ----------------------------------------------------------------------
90
- ----------------------------------------------------------------------
TOTAL CAPITAL GOODS (COST $296) 316
- ----------------------------------------------------------------------
CONSUMER CYCLICAL -- 12.0%
APPAREL & TEXTILES -- 2.0%
Liz Claiborne 600 31
V F 2,200 113
- ----------------------------------------------------------------------
144
- ----------------------------------------------------------------------
AUTO/TRUCKS -- 1.0%
Chrysler 600 34
Ford Motor 700 41
- ----------------------------------------------------------------------
75
- ----------------------------------------------------------------------
FURNITURE & APPLIANCES -- 2.4%
Maytag 2,200 109
Whirlpool 1,000 69
- ----------------------------------------------------------------------
178
- ----------------------------------------------------------------------
PRINTING & PUBLISHING -- 0.5%
Belo (A.H.) Series A 800 19
Knight-Ridder 200 11
New York Times, Cl A 100 8
- ----------------------------------------------------------------------
38
- ----------------------------------------------------------------------
RESTAURANTS & LODGING -- 0.8%
Promus Hotel* 1,400 54
- ----------------------------------------------------------------------
54
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
RETAILING-GENERAL -- 3.5%
Federated Department Stores* 2,000 $ 108
Intimate Brands 2,000 55
May Department Stores 400 26
Payless Shoesource* 500 37
Sears Roebuck 400 24
- ----------------------------------------------------------------------
250
- ----------------------------------------------------------------------
WHOLESALERS -- 1.8%
K Mart* 2,100 40
Office Depot* 1,100 35
Wal-Mart Stores 900 55
- ----------------------------------------------------------------------
130
- ----------------------------------------------------------------------
TOTAL CONSUMER CYCLICAL (COST $822) 869
- ----------------------------------------------------------------------
CONSUMER STAPLES -- 10.0%
BEVERAGES
Pepsico 600 25
- ----------------------------------------------------------------------
25
- ----------------------------------------------------------------------
CONTAINERS -- 1.0%
Crown Cork and Seal 1,500 71
- ----------------------------------------------------------------------
71
- ----------------------------------------------------------------------
COSMETICS & TOILETRIES -- 1.9%
Dial 4,200 109
Procter and Gamble 300 27
- ----------------------------------------------------------------------
136
- ----------------------------------------------------------------------
FOOD PRODUCERS -- 5.5%
Heinz H J 1,300 73
Hershey Foods 1,000 69
Interstate Bakeries 1,300 43
Quaker Oats 2,200 121
Unilever NV 1,200 95
- ----------------------------------------------------------------------
401
- ----------------------------------------------------------------------
TOBACCO -- 1.3%
Gallaher Group PLC ADR 1,500 33
Philip Morris 1,600 63
- ----------------------------------------------------------------------
96
- ----------------------------------------------------------------------
TOTAL CONSUMER STAPLES (COST $706) 729
- ----------------------------------------------------------------------
ENERGY -- 2.8%
COAL & GAS PIPELINES -- 0.4%
Coastal 400 28
- ----------------------------------------------------------------------
28
- ----------------------------------------------------------------------
ENERGY SERVICES -- 0.3%
Santa Fe International 700 21
- ----------------------------------------------------------------------
21
- ----------------------------------------------------------------------
OIL & GAS EXPLORATION -- 2.1%
Exxon 1,600 114
Total S.A. ADR 600 39
- ----------------------------------------------------------------------
153
- ----------------------------------------------------------------------
TOTAL ENERGY (COST $204) 202
- ----------------------------------------------------------------------
</TABLE>
19
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Large Cap Value Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
FINANCIALS -- 25.6%
BANKS -- 13.8%
Amsouth Bancorp 2,900 $ 114
Bankers Trust 1,000 116
Chase Manhattan 800 60
Comerica 4,200 278
Crestar Financial 1,000 55
Dime Bancorp 2,800 84
Nationsbank 400 31
North Fork Bancorporation 3,100 76
Republic New York 1,800 113
Southtrust 1,700 74
- ----------------------------------------------------------------------
1,001
- ----------------------------------------------------------------------
FINANCIAL SERVICES -- 8.7%
Bear Stearns 2,400 136
Fannie Mae 2,200 134
Federal Home Loan Mortgage 1,000 47
Legg Mason 1,400 81
Lehman Brothers Holdings 600 46
Merrill Lynch 100 9
Morgan Stanley Dean Witter 100 9
Paine Webber Group 2,200 95
Travelers Group 1,200 73
- ----------------------------------------------------------------------
630
- ----------------------------------------------------------------------
INSURANCE -- 3.1%
Allstate 500 46
American General 500 35
Marsh and McLennan Companies 350 21
MBIA 200 15
MGIC Investment 1,500 86
Old Republic International 900 26
- ----------------------------------------------------------------------
229
- ----------------------------------------------------------------------
TOTAL FINANCIALS (COST $1,838) 1,860
- ----------------------------------------------------------------------
HEALTH CARE -- 10.2%
MEDICAL SERVICES -- 2.0%
Cognizant 300 19
Pacificare Health Systems* 200 18
Tenet Healthcare* 3,400 106
- ----------------------------------------------------------------------
143
- ----------------------------------------------------------------------
MEDICAL SUPPLIES -- 1.6%
Arterial Vascular Engineering* 500 18
Guidant 1,400 100
- ----------------------------------------------------------------------
118
- ----------------------------------------------------------------------
PHARMACEUTICALS -- 6.6%
Abbott Laboratories 1,200 49
Allergan 2,300 107
Baxter International 800 43
Bristol Myers Squibb 150 17
Mylan Laboratories 700 21
Schering-Plough 2,200 201
Warner-Lambert 600 42
- ----------------------------------------------------------------------
480
- ----------------------------------------------------------------------
TOTAL HEALTH CARE (COST $719) 741
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
SERVICES/DIVERSIFIED -- 4.5%
BUSINESS SERVICES -- 1.3%
Accustaff* 1,300 $ 40
Omnicom Group 1,100 55
- ----------------------------------------------------------------------
95
- ----------------------------------------------------------------------
CONGLOMERATES -- 3.2%
General Electric 2,000 182
Minnesota Mining and Manufacturing 200 16
Tyco International Limited 500 32
- ----------------------------------------------------------------------
230
- ----------------------------------------------------------------------
TOTAL SERVICES/DIVERSIFIED (COST $306) 325
- ----------------------------------------------------------------------
TECHNOLOGY -- 15.5%
COMPUTER & RELATED -- 1.5%
Dell Computer* 400 37
Storage Technology* 1,600 70
- ----------------------------------------------------------------------
107
- ----------------------------------------------------------------------
ELECTRONICS & SEMI-CONDUCTORS -- 3.1%
Linear Technology 1,700 102
Micron Technology 2,500 62
Solectron* 400 17
Synopsys* 1,000 46
- ----------------------------------------------------------------------
227
- ----------------------------------------------------------------------
SOFTWARE & SERVICES -- 3.4%
Adobe Systems 1,000 42
Microsoft* 700 76
Oracle* 5,300 130
- ----------------------------------------------------------------------
248
- ----------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 7.5%
Ameritech 3,300 148
AT&T 1,100 63
US West 6,000 282
Worldcom* 1,000 49
- ----------------------------------------------------------------------
542
- ----------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $1,129) 1,124
- ----------------------------------------------------------------------
TRANSPORTATION -- 2.4%
AIRLINES -- 2.4%
Northwest Airlines* 800 31
Southwest Airlines 4,900 145
- ----------------------------------------------------------------------
176
- ----------------------------------------------------------------------
TOTAL TRANSPORTATION (COST $182) 176
- ----------------------------------------------------------------------
</TABLE>
20
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Large Cap Value Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
<S> <C> <C>
Shares/
Face Market
Amount Value
Description (000) (000)
- ---------------------------------------------------------------------
COMMON STOCK -- CONTINUED
UTILITIES/INCOME -- 6.5%
ELECTRIC POWER -- 6.2%
Central and South West 3,400 $ 91
Firstenergy 1,000 31
Florida Progress 3,100 127
Minnesota Power 1,400 56
Southern 2,900 80
Wisconsin Energy 2,200 67
- ---------------------------------------------------------------------
452
- ---------------------------------------------------------------------
NATURAL GAS -- 0.3%
Consolidated Natural Gas 400 24
- ---------------------------------------------------------------------
24
- ---------------------------------------------------------------------
TOTAL UTILITIES/INCOME (COST $477) 476
- ---------------------------------------------------------------------
Total Common Stock
(Cost $7,054) 7,174
- ---------------------------------------------------------------------
REPURCHASE AGREEMENT -- 8.4%
Morgan Treasury
5.72% dated 6/30/98, matures 7/1/98, repurchase
price $612,467 (collaterized by U.S. Treasury
Note: total market value $627,680) (A) $ 612 612
- ---------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $612) 612
- ---------------------------------------------------------------------
TOTAL INVESTMENTS -- 107.1%
(Cost $7,666) 7,786
- ---------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
Cl -- Class
21
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Small Cap Value Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 100.8%
BASIC MATERIALS -- 1.8%
CHEMICALS -- 0.3%
Solutia 3,500 $ 100
- ----------------------------------------------------------------------
100
- ----------------------------------------------------------------------
CHEMICALS-SPECIALTY -- 1.4%
Crompton & Knowles 17,800 448
Dexter 1,400 45
- ----------------------------------------------------------------------
493
- ----------------------------------------------------------------------
METALS AND MINING -- 0.1%
Homestake Mining Company 5,100 53
- ----------------------------------------------------------------------
53
- ----------------------------------------------------------------------
TOTAL BASIC MATERIALS (COST $687) 646
- ----------------------------------------------------------------------
CAPITAL GOODS -- 13.3%
AEROSPACE/DEFENSE -- 3.9%
Cordant Technologies 6,000 277
Decrane Aircraft Holdings* 34,000 591
Gulfstream Aerospace* 8,300 386
Hawk* 3,200 56
Kroll-O'Gara Company* 4,400 94
- ----------------------------------------------------------------------
1,404
- ----------------------------------------------------------------------
BUILDING SUPPLIES -- 1.6%
Dal-Tile International* 20,800 204
Medusa 2,900 182
Texas Industries 4,000 212
- ----------------------------------------------------------------------
598
- ----------------------------------------------------------------------
ENVIRONMENTAL -- 0.1%
Barringer Technologies* 1,500 14
Newpark Resources* 1,500 17
- ----------------------------------------------------------------------
31
- ----------------------------------------------------------------------
MACHINERY -- 6.7%
Agco 2,600 53
Astec Industries* 300 10
Commonwealth Industries 8,700 87
Denison International PLC ADR* 2,000 40
Essex International* 14,100 333
GEHL* 2,600 53
Graco 3,400 119
Greenbrier Companies 14,600 252
NN Ball and Roller 33,800 403
Tokheim* 7,900 162
Tower Automotive* 4,900 210
Watts Industries, Cl A 15,900 332
Wolverine Tube* 9,400 357
Zebra Technologies, Cl A* 400 17
- ----------------------------------------------------------------------
2,428
- ----------------------------------------------------------------------
OFFICE EQUIPMENT -- 1.0%
Interface, Cl A 17,400 351
- ----------------------------------------------------------------------
351
- ----------------------------------------------------------------------
TOTAL CAPITAL GOODS (COST $5,025) 4,812
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
CONSUMER CYCLICAL -- 25.0%
APPAREL & TEXTILES -- 4.9%
Burlington Industries* 36,700 $ 516
Dan River* 7,000 119
Guilford Mills 15,700 314
I.C. Isaacs & Company* 7,700 27
Nautica Enterprises* 4,000 107
The North Face* 5,000 120
Timberland, Cl A* 8,100 583
- ----------------------------------------------------------------------
1,786
- ----------------------------------------------------------------------
AUTO/TRUCK PARTS -- 3.4%
Delco Remy International* 19,500 251
Meritor Automotive 26,400 634
Sauer* 9,200 129
Stoneridge* 11,400 208
- ----------------------------------------------------------------------
1,222
- ----------------------------------------------------------------------
BROADCASTING & RECREATION -- 0.7%
Broderbund Software* 11,900 271
- ----------------------------------------------------------------------
271
- ----------------------------------------------------------------------
FURNITURE & APPLIANCES -- 4.4%
Department 56* 14,100 500
Dorel Industries, Cl B* 20,000 643
Mohawk Industries* 12,100 383
Shaw Industries 4,400 78
- ----------------------------------------------------------------------
1,604
- ----------------------------------------------------------------------
HOMEBUILDING -- 1.8%
Crossman Communities* 11,000 334
Fleetwood Enterprises 3,200 128
Hovnanian Enterprises* 3,000 31
MDC Holdings 8,400 166
- ----------------------------------------------------------------------
659
- ----------------------------------------------------------------------
RESTAURANTS & LODGING -- 4.0%
Brinker International* 29,000 558
Foodmaker* 29,500 498
Prime Hospitality* 400 7
Rare Hospitality International* 26,000 382
- ----------------------------------------------------------------------
1,445
- ----------------------------------------------------------------------
RETAILING-GENERAL -- 1.2%
Neiman-Marcus Group 7,400 322
Shoe Carnival* 7,000 97
- ----------------------------------------------------------------------
419
- ----------------------------------------------------------------------
WHOLESALERS -- 4.6%
BJ's Wholesale Club* 16,600 675
Finlay Enterprises* 17,800 429
Hancock Fabrics 3,900 49
Marinemax* 11,000 136
Pier 1 Imports 15,700 375
- ----------------------------------------------------------------------
1,664
- ----------------------------------------------------------------------
TOTAL CONSUMER CYCLICAL (COST $9,383) 9,070
- ----------------------------------------------------------------------
CONSUMER STAPLES -- 4.6%
BEVERAGES -- 0.1%
Canandaigua Brands, Cl A* 1,200 59
- ----------------------------------------------------------------------
59
- ----------------------------------------------------------------------
</TABLE>
22
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Small Cap Value Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
CONTAINERS -- 1.2%
Aptargroup 1,600 $ 100
Ball 4,600 184
Ivex Packaging* 6,000 140
- ----------------------------------------------------------------------
424
- ----------------------------------------------------------------------
FOOD PRODUCERS -- 3.3%
Earthgrains Company 3,600 201
Interstate Bakeries 7,500 249
Ralcorp Holdings* 25,100 474
Smithfield Foods* 8,600 262
- ----------------------------------------------------------------------
1,186
- ----------------------------------------------------------------------
TOBACCO -- 0.0%
Standard Commercial 100 1
- ----------------------------------------------------------------------
1
- ----------------------------------------------------------------------
TOTAL CONSUMER STAPLES (COST $1,637) 1,670
- ----------------------------------------------------------------------
ENERGY -- 1.5%
ENERGY SERVICES -- 1.5%
Cliffs Drilling 5,800 190
Horizon Offshore 23,300 229
National-Oilwell 4,900 131
- ----------------------------------------------------------------------
550
- ----------------------------------------------------------------------
TOTAL ENERGY (COST $618) 550
- ----------------------------------------------------------------------
FINANCIALS -- 17.9%
BANKS -- 7.4%
Bank of Rhode Island* 4,800 75
Centura Banks 2,400 150
City National 9,900 366
Colonial Bancgroup 400 13
Commercial Bank of New York 6,600 175
D & N Financial 3,500 94
Dime Bancorp 6,200 186
GBC Bancorp 7,200 191
MAF Bancorp 5,600 204
Mercantile Bankshares 3,000 104
North Fork Bancorporation 15,300 374
Pacific Bank 9,500 523
Webster Financial 6,800 226
- ----------------------------------------------------------------------
2,681
- ----------------------------------------------------------------------
FINANCIAL SERVICES -- 8.4%
ARM Financial Group 12,900 285
Everen Capital 17,000 476
Freedom Securities* 12,500 227
GATX 5,800 254
Indigo Aviation ADR* 11,200 122
Legg Mason 19,100 1,099
Morgan Keegan 4,000 104
Raymond James Financial 9,000 269
Waddell & Reed Financial, Cl A* 7,800 187
- ----------------------------------------------------------------------
3,023
- ----------------------------------------------------------------------
INSURANCE -- 2.1%
Annuity & Life* 8,200 182
CMAC Investment 5,600 344
Excel Legacy* 2,300 10
Protective Life 6,400 235
- ----------------------------------------------------------------------
771
- ----------------------------------------------------------------------
TOTAL FINANCIALS (COST $6,268) 6,475
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
HEALTH CARE -- 5.5%
MEDICAL SERVICES -- 1.1%
Manor Care 3,400 $ 131
Owens & Minor Holding Company 9,700 97
Prime Medical Services* 4,000 38
PSS World Medical* 8,500 124
Transition Systems* 2,700 29
- ----------------------------------------------------------------------
419
- ----------------------------------------------------------------------
MEDICAL SUPPLIES -- 3.1%
ADAC Laboratories 13,000 292
Conmed* 4,000 92
Exogen* 10,000 29
Hologic* 14,200 258
Maxxim Medical* 6,200 180
Ocular Sciences* 8,000 260
- ----------------------------------------------------------------------
1,111
- ----------------------------------------------------------------------
PHARMACEUTICALS -- 1.3%
Alpharma, Cl A 5,700 125
Medimmune* 900 56
Roberts Pharmaceutical* 12,600 290
- ----------------------------------------------------------------------
471
- ----------------------------------------------------------------------
TOTAL HEALTH CARE (COST $2,078) 2,001
- ----------------------------------------------------------------------
SERVICES/DIVERSIFIED -- 7.1%
BUSINESS SERVICES -- 6.0%
ACNielson* 15,600 393
Best Software* 2,700 57
Credit Management Solutions* 4,500 28
Daisytek International* 8,500 216
G&K Services 300 13
Interim Services* 11,400 366
Personnel Group of America* 7,000 140
Sunsource 9,000 196
Valassis Communications* 11,400 440
Vestcom International* 8,200 76
VIAD 9,100 253
- ----------------------------------------------------------------------
2,178
- ----------------------------------------------------------------------
CONGLOMERATES -- 1.0%
Pentair 3,500 149
Tredegar Industries 2,400 204
- ----------------------------------------------------------------------
353
- ----------------------------------------------------------------------
CONSUMER SERVICES -- 0.1%
Veterinary Centers of America* 1,300 24
- ----------------------------------------------------------------------
24
- ----------------------------------------------------------------------
TOTAL SERVICES/DIVERSIFIED (COST $2,553) 2,555
- ----------------------------------------------------------------------
TECHNOLOGY -- 13.1%
COMMUNICATION EQUIPMENT -- 2.6%
Black Box* 4,900 163
Comverse Technology* 9,000 467
Digital Microwave* 9,200 67
Mosaix* 5,000 49
P-Com* 6,900 63
Xylan* 4,100 122
- ----------------------------------------------------------------------
931
- ----------------------------------------------------------------------
</TABLE>
23
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Small Cap Value Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
COMPUTER & RELATED -- 2.4%
Ciprico* 12,300 $ 124
Diamond Multimedia Systems* 18,500 127
Exabyte* 10,000 83
Hypercom* 5,800 62
Jetfax* 16,500 78
Scansource* 4,800 92
Sequent Computer Systems* 6,800 82
Telxon 4,200 136
Vanstar* 6,800 99
- ----------------------------------------------------------------------
883
- ----------------------------------------------------------------------
ELECTRONICS & SEMI-CONDUCTORS -- 2.3%
Aehr Test Systems* 800 5
Artesyn Technologies* 5,000 80
C-Cube Microsystems* 8,200 152
Cirrus Logic* 29,100 324
DSP Communications* 10,500 144
General Semiconductor* 9,900 98
Smart Modular Technologies* 1,100 16
- ----------------------------------------------------------------------
819
- ----------------------------------------------------------------------
SOFTWARE & SERVICES -- 5.8%
American Management Systems 11,300 338
Business Objects SA ADR* 13,100 221
Datastream Systems* 9,600 183
Dataworks* 9,700 129
Hyperion Software* 2,100 60
Information Advantage* 25,000 159
Learning Company* 7,200 213
Platinum Technology* 9,700 277
Sterling Software* 8,000 237
Symantec* 5,500 144
USCS International* 7,700 159
- ----------------------------------------------------------------------
2,120
- ----------------------------------------------------------------------
TOTAL TECHNOLOGY (COST $5,165) 4,753
- ----------------------------------------------------------------------
TRANSPORTATION -- 4.3%
AIRLINES -- 3.5%
Comair Holdings 3,900 120
Midway Airlines* 33,100 633
Midwest Express Holdings* 4,800 174
Skywest 12,500 350
- ----------------------------------------------------------------------
1,277
- ----------------------------------------------------------------------
TRUCKING & SHIPPING -- 0.8%
Jevic Transportation 7,000 80
M.S. Carriers 7,700 209
- ----------------------------------------------------------------------
289
- ----------------------------------------------------------------------
TOTAL TRANSPORTATION (COST $1,419) 1,566
- ----------------------------------------------------------------------
UTILITIES/INCOME -- 6.7%
ELECTRIC POWER -- 1.6%
Conectiv, Cl A 562 21
Eastern Utilities Association 11,100 291
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Shares/
Face Market
Amount Value
Description (000) (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
Minnesota Power 6,300 $ 250
United Illuminating 400 20
- ----------------------------------------------------------------------
582
- ----------------------------------------------------------------------
NATURAL GAS -- 0.1%
Indiana Energy 1,500 45
- ----------------------------------------------------------------------
45
- ----------------------------------------------------------------------
REITS -- 5.0%
Arden Realty Group 3,300 85
Berkshire Realty 28,100 329
Brandywine Realty Trust 7,700 172
Camden Property Trust 2,800 83
Cornerstone Properties 7,900 139
Developers Diversified Realty 3,600 142
Excel Realty Trust 1,500 43
Highwoods Properties 16,200 523
Pennsylvania Real Estate Investment Trust 5,000 111
Sun Communities 1,200 40
Weingarten Realty Investors 3,300 138
- ----------------------------------------------------------------------
1,805
- ----------------------------------------------------------------------
TOTAL UTILITIES/INCOME (COST $2,494) 2,432
- ----------------------------------------------------------------------
Total Common Stock
(Cost $37,327) 36,530
- ----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 4.6%
Morgan Treasury
5.72% dated 6/30/98, matures 7/1/98,
repurchase price $1,682,309 (collaterized by
U.S. Treasury Note: total market value
$1,724,097)(A) $ 1,682 1,682
- ----------------------------------------------------------------------
Total Repurchase Agreement
(Cost $1,682) 1,682
- ----------------------------------------------------------------------
TOTAL INVESTMENTS -- 105.4%
(COST $39,009) 38,212
- ----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (5.4%)
Other Assets and Liabilities, Net (1,977)
- ----------------------------------------------------------------------
NET ASSETS
Paid-in-capital (authorized 500 million shares
- $0.001 par value) based on 3,146,244
outstanding shares of common stock 34,809
Undistributed net investment income 5
Accumulated realized gain on investments 2,218
Net unrealized depreciation on investments (797)
- ----------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% 36,235
- ----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $ 11.52
- ----------------------------------------------------------------------
</TABLE>
* Non-income producing security
(A) -- Tri-party repurchase agreement
ADR -- American Depository Receipt
Cl -- Class
24
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
PBHG Large Cap Value Portfolio
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (000) (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $7,054)....................... $7,174
Repurchase Agreement, at value (Cost $612)................ 612
Receivable for investments sold........................... 736
Organizational costs...................................... 10
Dividends and interest receivable......................... 12
------
Total assets.............................................. 8,544
------
LIABILITIES:
Payable for Investment securities purchased............... 1,213
Payable for fund shares redeemed.......................... 52
Accrued Expenses.......................................... 9
------
Total liabilities......................................... 1,274
------
NET ASSETS:
Paid-in-capital (authorized 500 million shares -- $0.001
par value) based on 605,341 outstanding shares of common
stock................................................... 6,683
Accumulated net investment income......................... 22
Accumulated net realized gain on investments.............. 445
Net unrealized appreciation on investments................ 120
------
Net Assets................................................ $7,270
------
------
Net Asset Value, Offering Price and Redemption Price Per
Share................................................... $12.01
------
------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (000)
For the six months ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PBHG PBHG PBHG
PBHG TECHNOLOGY & PBHG LARGE CAP SMALL CAP
GROWTH II COMMUNICATIONS SELECT 20 VALUE VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 6 $ -- $ 18 $ 32 $ 103
Interest............................................... 37 52 279 10 48
------ ------ ------- ---- ------
Total Investment Income.............................. 43 52 297 42 151
------ ------ ------- ---- ------
EXPENSES:
Investment Advisory Fees............................... 59 59 208 15 128
Administrative Fees.................................... 10 10 37 4 19
Custodian Fees......................................... 5 7 4 6 6
Professional Fees...................................... 8 7 18 2 12
Transfer Agent Fees.................................... 12 12 13 12 12
Printing Fees.......................................... 5 4 12 1 5
Directors' Fees........................................ 4 4 10 1 6
Amortization of Deferred Organizational Costs.......... 1 1 1 1 1
Insurance and Other Expenses........................... 1 1 4 -- 1
------ ------ ------- ---- ------
Total Expenses....................................... 105 105 307 42 190
------ ------ ------- ---- ------
Waiver of Investment Advisory Fees..................... (22) (22) (14) (15) (36)
Reimbursement of Other Expenses by Advisor............. -- -- -- (4) --
------ ------ ------- ---- ------
NET INVESTMENT INCOME (LOSS)............................. (40) (31) 4 19 (3)
------ ------ ------- ---- ------
Net Realized Gain (Loss) from Security Transactions.... (81) (554) (933) 458 2,177
Net Change in Unrealized Appreciation (Depreciation) on
Investments.......................................... 1,465 2,226 14,094 71 (981)
------ ------ ------- ---- ------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.......... 1,384 1,672 13,161 529 1,196
------ ------ ------- ---- ------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $1,344 $1,641 $13,165 $548 $1,193
------ ------ ------- ---- ------
------ ------ ------- ---- ------
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (000)
For the six month period ended June 30, 1998 (Unaudited) and the period ended
December 31, 1997
<TABLE>
<CAPTION>
PBHG
PBHG TECHNOLOGY & PBHG
GROWTH II COMMUNICATIONS SELECT 20
PORTFOLIO (1) PORTFOLIO (1) PORTFOLIO (3)
------------------- ------------------- -------------------
01/01/98 05/01/97 01/01/98 05/01/97 01/01/98 09/28/97
TO TO TO TO TO TO
06/30/98 12/31/97 06/30/98 12/31/97 06/30/98 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income (Loss)..................... $ (40) $ (3) $ (31) $ 3 $ 4 $ 3
Net Realized Gain (Loss) from Security
Transactions................................... (81) (287) (554) (85) (933) (55)
Net Change in Unrealized Appreciation
(Depreciation) on Investments.................. 1,465 253 2,226 (20) 14,094 200
------- ------- ------- ------ -------- ------
Net Increase (Decrease) in Net Assets Resulting
from Operations.............................. 1,344 (37) 1,641 (102) 13,165 148
------- ------- ------- ------ -------- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income............................ -- -- -- -- -- --
Net Realized Gains from Security Transactions.... -- -- -- -- -- --
------- ------- ------- ------ -------- ------
Total Distributions............................ -- -- -- -- -- --
------- ------- ------- ------ -------- ------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued.................................... 9,090 11,463 13,468 9,461 110,092 7,464
Shares Issued upon Reinvestment of
Distributions.................................. -- -- -- -- -- --
Shares Redeemed.................................. (3,640) (1,207) (4,832) (259) (6,653) (12)
------- ------- ------- ------ -------- ------
Increase in Net Assets Derived from Capital Share
Transactions................................... 5,450 10,256 8,636 9,202 103,439 7,452
------- ------- ------- ------ -------- ------
Total Increase in Net Assets................... 6,794 10,219 10,277 9,100 116,604 7,600
------- ------- ------- ------ -------- ------
NET ASSETS:
Beginning of Period.............................. 10,236 17 9,117 17 7,617 17
------- ------- ------- ------ -------- ------
End of Period.................................... $17,030 $10,236 $19,394 $9,117 $124,221 $7,617
------- ------- ------- ------ -------- ------
------- ------- ------- ------ -------- ------
(A): SHARES ISSUED AND REDEEMED
Shares Issued.................................... 811 1,062 1,237 896 9,246 759
Shares Issued upon Reinvestment of
Distributions.................................. -- -- -- -- -- --
Shares Redeemed.................................. (325) (112) (454) (22) (560) (1)
------- ------- ------- ------ -------- ------
Net Increase in Shares Outstanding............... 486 950 783 874 8,686 758
------- ------- ------- ------ -------- ------
------- ------- ------- ------ -------- ------
<CAPTION>
PBHG PBHG
LARGE CAP VALUE SMALL CAP VALUE
PORTFOLIO (2) PORTFOLIO (2)
------------------- -------------------
01/01/98 10/29/97 01/01/98 10/29/97
TO TO TO TO
06/30/98 12/31/97 06/30/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income (Loss)..................... $ 19 $ 3 $ (3) $ 8
Net Realized Gain (Loss) from Security
Transactions................................... 458 (13) 2,177 42
Net Change in Unrealized Appreciation
(Depreciation) on Investments.................. 71 49 (981) 183
------ ------ ------- ------
Net Increase (Decrease) in Net Assets Resulting
from Operations.............................. 548 39 1,193 233
------ ------ ------- ------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income............................ -- -- -- --
Net Realized Gains from Security Transactions.... -- -- -- --
------ ------ ------- ------
Total Distributions............................ -- -- -- --
------ ------ ------- ------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued.................................... 7,082 1,583 31,916 9,215
Shares Issued upon Reinvestment of
Distributions.................................. -- -- -- --
Shares Redeemed.................................. (1,920) (79) (6,195) (144)
------ ------ ------- ------
Increase in Net Assets Derived from Capital Share
Transactions................................... 5,162 1,504 25,721 9,071
------ ------ ------- ------
Total Increase in Net Assets................... 5,710 1,543 26,914 9,304
------ ------ ------- ------
NET ASSETS:
Beginning of Period.............................. 1,560 17 9,321 17
------ ------ ------- ------
End of Period.................................... $7,270 $1,560 $36,235 $9,321
------ ------ ------- ------
------ ------ ------- ------
(A): SHARES ISSUED AND REDEEMED
Shares Issued.................................... 620 156 2,788 902
Shares Issued upon Reinvestment of
Distributions.................................. -- -- -- --
Shares Redeemed.................................. (164) (8) (531) (14)
------ ------ ------- ------
Net Increase in Shares Outstanding............... 456 148 2,257 888
------ ------ ------- ------
------ ------ ------- ------
</TABLE>
(1) The PBHG Growth II, and Technology & Communications Portfolios commenced on
May 1, 1997.
(2) The PBHG Large Cap Value and PBHG Small Cap Value Portfolios commenced
operations on October 29, 1997.
(3) The PBHG Select 20 Portfolio commenced operations on September 28, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For the period ended June 30, 1998 (Unaudited)
For a Share Outstanding Throughout each Fiscal Year or period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset
Value Net Unrealized from Net from Value
Beginning Investment Gains or Losses Investment Capital End Total
of Period Income (Loss) on Securities Income Gains of Period Return**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------
PBHG Growth II Portfolio
- ------------------------
1998.................. $10.75 $(0.03) $1.12 -- -- $11.84 10.14%
1997(1)............... $10.00 -- 0.75 -- -- 10.75 7.50%
- ------------------------------------------
PBHG Technology & Communications Portfolio
- ------------------------------------------
1998.................. $10.41 $(0.02) $1.30 -- -- $11.69 12.30%
1997(1)............... $10.00 -- 0.41 -- -- 10.41 4.10%
- ------------------------
PBHG Select 20 Portfolio
- ------------------------
1998.................. $10.03 $ -- $3.12 -- -- $13.15 31.11%
1997(3)............... $10.00 -- 0.03 -- -- 10.03 0.30%
- ------------------------------
PBHG Large Cap Value Portfolio
- ------------------------------
1998.................. $10.43 $ 0.02 $1.56 -- -- $12.01 15.15%
1997(2)............... $10.00 0.02 0.41 -- -- 10.43 4.30%
- ------------------------------
PBHG Small Cap Value Portfolio
- ------------------------------
1998.................. $10.48 $(0.01) $1.05 -- -- $ 11.52 9.92%
1997(2)............... $10.00 0.01 0.47 -- -- 10.48 4.80%
<CAPTION>
Ratio Ratio of Net
Net of Expenses Income (Loss)
Assets Ratio Ratio of Net to Average to Average
End of Expenses Income (Loss) Net Assets Net Assets Portfolio
of Period to Average to Average (Excluding (Excluding Turnover
(000) Net Assets Net Assets Waivers) Waivers) Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------
PBHG Growth II Portfolio
- ------------------------
1998.................. $ 17,030 1.20%* (0.58)%* 1.52%* (0.90)%* 74.09%
1997(1)............... 10,236 1.20%* (0.11)%* 4.38%* (3.29)%* 44.57%
- ------------------------------------------
PBHG Technology & Communications Portfolio
- ------------------------------------------
1998.................. $ 19,394 1.20%* (0.45)%* 1.52%* (0.77)%* 121.70%
1997(1)............... 9,117 1.20%* 0.37%* 5.09%* (3.52)%* 69.34%
- ------------------------
PBHG Select 20 Portfolio
- ------------------------
1998.................. $124,221 1.20%* 0.02%* 1.26%* (0.04)%* 30.07%
1997(3)............... 7,617 1.20%* 0.51%* 3.36%* (1.65)%* 18.53%
- ------------------------------
PBHG Large Cap Value Portfolio
- ------------------------------
1998.................. $ 7,270 1.00%* 0.81%* 1.84%* (0.03)%* 418.30%
1997(2)............... 1,560 1.00%* 1.91%* 8.04%* (5.13)%* 68.93%
- ------------------------------
PBHG Small Cap Value Portfolio
- ------------------------------
1998.................. $ 36,235 1.20%* (0.02)%* 1.48%* (0.30)%* 144.74%
1997(2)............... 9,321 1.20%* 1.40%* 3.63%* (1.03)%* 41.14%
</TABLE>
* Annualized.
** Total returns have not been annualized.
(1) The PBHG Growth II and PBHG Technology & Communications Portfolios commenced
operations on May 1, 1997.
(2) The PBHG Large Cap Value and PBHG Small Cap Value Portfolios commenced
operations on October 29, 1997.
(3) The PBHG Select 20 Portfolio commenced operations on September 28, 1997.
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1998
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 an open-end
management investment company. The Fund consists of seven Portfolios: the PBHG
Growth II Portfolio (the "Growth II Portfolio"), the PBHG Large Cap Growth
Portfolio (the "Large Cap Growth Portfolio"), the PBHG Technology &
Communications Portfolio (the "Technology & Communications Portfolio"), the PBHG
Small Cap Value Portfolio (the "Small Cap Value Portfolio"), the PBHG Large Cap
Value Portfolio (the "Large Cap Value Portfolio"), the PBHG Select 20 Portfolio
(the "Select 20 Portfolio") and the PBHG Mid-Cap Value Portfolio (the "Mid-Cap
Value Portfolio") (each a "Portfolio" and, collectively, the "Portfolios"). Each
Portfolio is classified as a diversified management investment company, with the
exception of the Select 20 Portfolio which is classified as a nondiversified
management investment company. The financial statements presented herein do not
include the Large Cap Growth Portfolio, which is presented separately, or the
Mid-Cap Value Portfolio, which has not yet commenced operations. Each
Portfolio's prospectus provides a description of the Portfolio's investment
objectives, policies and strategies. The assets of each Portfolio are
segregated, and a shareholder's interest is limited to the Portfolio in which
shares are held. The Fund is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of life insurance companies. At June 30, 1998, the following
percentage of outstanding shares of the portfolios were held by the separate
accounts of the number of participating Insurance Companies listed below:
<TABLE>
<CAPTION>
Percentage of Number of
Portfolio Outstanding Shares Insurance Companies
- --------------------------- ------------------ -------------------
<S> <C> <C>
Growth II Portfolio 59%, 29% 2
Large Cap Value Portfolio 87%, 13% 2
Small Cap Value Portfolio 93% 1
Technology & Communications
Portfolio 82% 1
Select 20 Portfolio 92% 1
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolios.
SECURITY VALUATION -- Investment securities of the Portfolios that are listed on
a securities exchange, and for which market quotations are readily available,
are valued at the last quoted sales price on each business day. If there is no
such reported sale, these securities and unlisted securities for which market
quotations are not readily available, are valued at the last bid price.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during the respective
holding periods.
DIVIDENDS -- Dividends from net investment income of each Portfolio are declared
annually, if available. Distributions of net realized capital gains, of each
Portfolio, are generally made to shareholders annually, if available. Dividends
from net investment income and distributions from net realized capital gains are
determined in accordance with U.S. Federal income tax regulations, which may
differ from those amounts determined under generally accepted accounting
principles. These book/tax differences are either temporary or permanent in
nature. To the extent these differences are permanent, they are charged or
credited to paid-in-capital, net investment income or accumulated net realized
gain, as appropriate, in the period that the differences arise. This
reclassification has no effect on net assets or net asset value per share.
FEDERAL INCOME TAXES -- It is each Portfolio's intention to qualify or continue
to qualify as a regulated investment company for Federal income tax purposes and
to distribute all of its taxable income and net capital gains. Accordingly, no
provision has been made for Federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of the Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by the custodian bank until the respective agreements
mature. Provisions of the repurchase agreements and procedures adopted by
Pilgrim Baxter & Associates, Ltd. (the "Adviser") ensure that the market value
of the collateral including accrued interest thereon, is sufficient in the event
of default by the counterparty. If the counterparty defaults and the value of
the collateral declines, or if the counterparty enters into insolvency
proceedings, realization of the collateral by a Portfolio may be delayed or
limited.
OTHER -- Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets.
All organizational costs incurred in connection with the start up of the Fund
have been equally allocated to each Portfolio, except the Mid-Cap Value
Portfolio and are being amortized on a straight line basis over a period of
sixty months. In the event that any of the initial shares of each Portfolio are
redeemed by any holder thereof during the period that each Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
29
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES
AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
paid a monthly fee at an annual rate of 0.85% of the average daily net assets of
the Growth II, Technology & Communications and Select 20 Portfolios' average
daily net assets, 1.00% of the Small Cap Value Portfolio's average daily net
assets, and 0.65% of the Large Cap Value Portfolio's average daily net assets.
In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement with the Fund ("Expense Limitation
Agreement"). The Adviser has agreed to waive or limit its fees and to assume
other expenses of each Portfolio to the extent necessary to limit the total
annual operating expenses (expressed as a percentage of the Portfolio's average
daily net assets) to 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, respectively. Reimbursement by the Portfolio of the advisory fees
waived or limited and other expenses paid by the Adviser pursuant to the Expense
Limitation Agreement during any of the two previous fiscal years may be made at
a later date when the Portfolio has reached a sufficient asset size to permit
reimbursement to be made without causing the total annual expense ratio of each
Portfolio to exceed the total operating expense percentages described above.
Consequently, no reimbursement by the Portfolio will be made unless: (i) a
Portfolio's net assets exceed $75 million; (ii) a Portfolio's total annual
expense ratio is less than that listed above, and (iii) the payment of such
reimbursement is approved by the Board of Directors on a quarterly basis. At
June 30, 1998, the amount of advisory fee waiver and reimbursement of third
party expenses by the Adviser subject to possible reimbursement were as follows:
<TABLE>
<S> <C>
Growth II Portfolio $106,550
Large Cap Value Portfolio $ 29,913
Small Cap Value Portfolio $ 49,670
Technology & Communications
Portfolio $ 53,510
Select 20 Portfolio $ 27,776
</TABLE>
Pilgrim Baxter Value Investors, Inc. (formerly Newbold's Assets Management,
Inc.), a wholly-owned subsidiary of the Adviser serves as the sub-advisor to the
Large Cap Value Portfolio and the Small Cap Value Portfolio. For its services
provided pursuant to its Investment Sub-Advisory Agreement with the Adviser and
the Fund, Pilgrim Baxter Value Investors receives a fee from the Adviser at an
annual rate of 0.40%, and 0.65%, respectively, of the average daily net assets
of the Large Cap Value Portfolio and the Small Cap Value Portfolio. Pilgrim
Baxter Value Investors, Inc. receives no fees directly from the Large Cap Value
Portfolio or the Small Cap Value Portfolio.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of each Portfolio.
SEI Investments Management Corporation, a wholly-owned subsidiary of SEI
Investments Company, is the owner of all beneficial interest in SEI Investments
Mutual Funds Services (the "Sub-Administrator"). The Sub-Administrator is an
affiliate of the Fund's distributor and assists the Administrator in providing
administrative services to the Fund. For acting in this capacity, the
Administrator pays the Sub-Administrator a fee at the annual rate of 0.07% of
the average daily net assets of each Portfolio with respect to the first $2.5
billion of the total average daily net assets of (i) the Fund, and (ii) The PBHG
Funds, Inc., another family of funds managed by the Adviser, and a fee at the
annual rate of 0.025% of the average daily net assets of each Portfolio with
respect to the total daily net assets of (i) the Fund and (ii) The PBHG Funds,
Inc. in excess of $2.5 billion. Effective May 1, 1998 the Administrator will pay
the Sub-Administrator a fee equal to the greater of $35,000 per Portfolio and
$5,000 per additional class of shares or at the annual rate of 0.040% of the
first $2.5 billion of the average daily net assets of (i) the Fund, (ii) PBHG
Funds, Inc., and (iii) PBHG Advisor Funds, Inc., other fund families managed by
the Adviser (collectively known as the "PBHG Fund Family"), 0.025% of the next
$7.5 billion of the average daily net assets of each portfolio in the PBHG Fund
Family, and 0.020% of the average daily net assets of each portfolio in the PBHG
Fund Family in excess of $10 billion.
DST Systems, Inc. serves as the transfer agent and dividend disbursing agent of
the Fund. First Union Bank, N.A. serves as the custodian for the Fund.
Effective January 2, 1998 the Fund entered into a shareholder servicing
agreement with PBHG Fund Services to provide shareholder support and other
shareholder account-related services. PBHG Fund Services has, in turn,
contracted with UAM Shareholder Service Center, Inc. to assist in the provision
of these services.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor received no
compensation from the Fund.
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments, for each Portfolio for the six months ended June
30, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
(000) (000)
--------- ------
<S> <C> <C>
Growth II Portfolio 15,165 9,556
Large Cap Value Portfolio 23,494 18,264
Small Cap Value Portfolio 62,196 34,594
Technology & Communications Portfolio 23,694 14,916
Select 20 Portfolio 95,152 12,894
</TABLE>
30
<PAGE>
PBHG Insurance Series Fund, Inc.
[LOGO] -------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
At June 30, 1998 the total cost of securities and the net realized gains or
losses on securities sold for Federal income tax purposes was not materially
different from amounts reported for financial reporting purposes. The aggregate
gross unrealized appreciation and depreciation of securities held by each
Portfolio at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Net
Unrealized
Unrealized Unrealized Appreciation/
Appreciation Depreciation (Depreciation)
(000) (000) (000)
------------ ------------ --------------
<S> <C> <C> <C>
Growth II Portfolio 2,397 (679) 1,718
Large Cap Value Portfolio 291 (171) 120
Small Cap Value Portfolio 1,779 (2,576) (797)
Technology &
Communications Portfolio 2,674 (468) 2,206
Select 20 Portfolio 14,822 (528) 14,294
</TABLE>
The following Portfolios had capital loss carryforwards at December 31, 1997,
that can be used to offset future capital gains:
<TABLE>
<CAPTION>
Capital Loss Carryforward
Expires 12/31/2005
-----------------------------
<S> <C>
Growth II Portfolio 267,017
Large Cap Value Portfolio 12,083
Technology & Communications
Portfolio 21,241
Select 20 Portfolio 55,142
</TABLE>
5. LINE OF CREDIT
Each Portfolio may borrow, an amount up to its prospectus defined limitations,
from a committed line of credit available to (i) the Fund, (ii) The PBHG Funds,
Inc. and (iii) PBHG Advisor Funds, Inc. The line of credit will bear interest at
the Federal Funds Rate plus 0.40%. No Portfolio had an outstanding borrowing at
June 30, 1998, or at any time during the six months ended June 30, 1998.
31
<PAGE>
[LOGO]
PBHG Insurance Series Fund, Inc.
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
SEIInvestments Distribution, Co.
