PBHG INSURANCE SERIES FUND INC, 497, 1998-05-01

PBHG INSURANCE SERIES FUND INC
497, 1998-05-01

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PBHG
Insurance
Series
Fund,
Inc.

PBHG Growth II Portfolio

PBHG Technology &
Communications Portfolio

Prospectus
May 1, 1998

<PAGE>

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO

PROSPECTUS DATED MAY 1, 1998

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

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

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

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

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

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

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1

EXPENSE SUMMARY............................................. 3

FINANCIAL HIGHLIGHTS........................................ 4

INVESTMENT OBJECTIVES AND POLICIES.......................... 5

GENERAL INVESTMENT POLICIES AND STRATEGIES.................. 6

RISK FACTORS................................................ 6

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

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

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

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

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

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

GLOSSARY OF PERMITTED INVESTMENTS........................... 14
</TABLE>

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

THE COMPANY

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

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

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

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

<PAGE>

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

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

WHO ARE THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS? DST Systems,
Inc. serves as the transfer agent and dividend disbursing agent of the Company.
PBHG Fund Services serves as shareholder servicing agent of the Company. UAM
Shareholder Service Center, Inc. ("UAM SSC"), an affiliate of the Adviser,
provides services to the Company pursuant to a sub-shareholder servicing
agreement between PBHG Fund Services and UAM SSC. See "The Transfer Agent and
Shareholder Servicing Agents."

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the
Company with distribution services. See "The Distributor."

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

2
<PAGE>
EXPENSE SUMMARY

The purpose of this section is to provide you with information about the
expenses of the Portfolios.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TECHNOLOGY &
GROWTH II COMMUNICATIONS
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None
- ----------------------------------------------------------------------------------------
Sales Load Imposed on Reinvested Dividends None None
- ----------------------------------------------------------------------------------------
Deferred Sales Load None None
- ----------------------------------------------------------------------------------------
Redemption Fees None None
- ----------------------------------------------------------------------------------------
Exchange Fees None None
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable expense reimbursements
or fee waivers)

<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TECHNOLOGY &
GROWTH II COMMUNICATIONS
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
Advisory Fees (after fee waiver) .00% .00%
- ----------------------------------------------------------------------------------------
12b-1 Fees None None
- ----------------------------------------------------------------------------------------
Other Expenses (after expense reimbursement) 1.20% 1.20%
- ----------------------------------------------------------------------------------------
Total Operating Expenses (after fee waiver/expense
reimbursement) 1.20% 1.20%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>

The Adviser has voluntarily agreed to waive or limit its Advisory Fees or
assume Other Expenses in an amount that operates to limit Total Operating
Expenses of the Portfolios to not more than 1.20% of the average daily net
assets of each Portfolio through December 31, 1998. Total Operating Expenses
include, but are not limited to, expenses such as investment advisory fees,
custodian fees, transfer agent fees, audit fees and legal fees. Such waiver of
Advisory Fees and possible assumption of Other Expenses by the Adviser is
subject to a possible reimbursement by the Portfolios in future years if such
reimbursement can be achieved within the foregoing annual expense limits. Such
fee waiver/expense reimbursement arrangements may be modified or terminated at
any time after December 31, 1998. Absent such fee waivers/expense
reimbursements, the Advisory Fees and Total Operating Expenses for the Growth II
and Technology & Communications Portfolios would be .85% and 4.38%; and .85% and
5.09%, respectively.

EXAMPLE

An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Growth II Portfolio.............................. $12.00 $38.00
Technology & Communications Portfolio............ $12.00 $38.00
</TABLE>

The example is based upon Total Operating Expenses for the Portfolios, as
set forth in the "Annual Operating Expenses" table above, and reflects the fee
waiver/expense reimbursement arrangement in effect. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. THE TABLE DOES NOT REFLECT ADDITIONAL CHARGES
AND EXPENSES WHICH ARE, OR MAY BE, IMPOSED UNDER THE VA CONTRACTS OR VLI
POLICIES. SUCH CHARGES AND EXPENSES ARE DESCRIBED IN THE PROSPECTUS OF THE
PARTICIPATING INSURANCE FUND SEPARATE ACCOUNT. The purpose of this table is to
assist the investor in understanding the various costs and expenses that may be
directly or indirectly borne by investors in the Portfolios. See "The Adviser,"
"The Sub-Adviser," and "The Administrator."

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following information for the fiscal year ended December 31, 1997, has
been audited by Coopers & Lybrand L.L.P., the Company's independent accountants.
The Company's audited financial statements are incorporated by reference into
the Company's Statement of Additional Information under "Financial Information."
The following table should be read in conjunction with the Company's financial
statements and notes thereto. Additional information about each Portfolio's
performance is contained in the Company's Annual Report, which may be obtained
(without charge) by calling 1-800-347-9256.

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE
BEGINNING INCOME GAINS OR LOSSES INVESTMENT CAPITAL END TOTAL
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN**
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Growth II Portfolio(1).... $10.00 -- $0.75 -- -- $10.75 7.50%
PBHG Technology &
Communications
Portfolio(1)................. $10.00 -- $0.41 -- -- $10.41 4.10%

NET
ASSETS
END
OF PERIOD
<S> <C>
- --------------------------------------------
PBHG Growth II Portfolio(1).... $10,235,860
PBHG Technology &
Communications
Portfolio(1)................. $ 9,117,272
</TABLE>

<TABLE>
<CAPTION>
RATIO
OF NET
RATIO INCOME
RATIO OF EXPENSES (LOSS)
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME (LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PBHG Growth II Portfolio(1)............ 1.20%* (0.11)%* 4.38%* (3.29)%* 44.57% $0.0386
PBHG Technology & Communications
Portfolio(1)......................... 1.20%* 0.37%* 5.09%* (3.52)%* 69.34% $0.0465
</TABLE>

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

The accompanying notes are an integral part of the financial statements.

4
<PAGE>
- ------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------

GROWTH II PORTFOLIO

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

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

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

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

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

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

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

5
<PAGE>
Normally, the Portfolio will purchase securities traded in the U.S. or Canada on
registered exchanges or in the over-the-counter market. The Portfolio may also
invest, in the aggregate, up to 10% of its net assets in restricted securities
and securities of foreign issuers traded outside the U.S. and Canada and, for
hedging purposes, may purchase and sell options on stocks or stock indices. The
Portfolio also may invest up to 15% of its net assets in illiquid securities.
See "Risk Factors" and "Glossary of Permitted Investments" in this Prospectus
for a fuller description of the Portfolio's permitted investments and their
risks.

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

INVESTMENT PROCESS

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

PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE POSITIONS

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

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

<PAGE>

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

OVER-THE-COUNTER MARKET

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

FOREIGN SECURITIES

Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and currencies.
Foreign issuers may also be subject to less government regulation than U.S.
companies. Moreover, the dividends and interest payable on foreign securities
may be subject to foreign withholding taxes, thus reducing the amount of net
income available for distribution to a Portfolio's shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar. Foreign securities held by a Portfolio may be traded, and net asset
value may be significantly affected, at times when investors have no access to
the Company.

INVESTMENTS IN TECHNOLOGY COMPANIES

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

FUTURES CONTRACTS

The primary risks associated with the use of futures contracts for hedging
purposes are: (i) imperfect correlations between the change in market value of
the securities held by a Portfolio and the prices of futures contracts purchased
or sold by a Portfolio; (ii) possible lack of a liquid secondary market for a
futures contract and the resulting inability to close a futures position, which
could have an adverse impact on a Portfolio's ability to execute futures and
options strategies; and (iii) the possible failure to correctly predict
movements in the direction of the market. Other risks of investing in futures
contracts include

7
<PAGE>
that the prices of futures contracts are volatile and are influenced by changes
in market and interest rates and that futures trading involves an extremely high
degree of leverage which may result in losses in excess of the amount invested
in the futures contract.

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

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

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

A Portfolio, as a fundamental policy, may not:

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

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

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

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

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

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

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

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

8
<PAGE>
VLI Policy owners would be permitted to continue to authorize investments in the
Portfolios.

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

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

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

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

TAXES

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

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

The Clinton Administration's fiscal year 1999 budget proposal would treat a
redemption of shares of the Portfolios by VA Contracts and VLI Policies as a
taxable transaction, and it can be expected that similar proposals may be
introduced in Congress in the near future. The Company cannot predict what
proposals, if any, might be enacted or whether such proposals, if enacted, would
apply retroactively to shares of the Portfolios that are issued and outstanding
as of the date of enactment.

INTERNAL REVENUE SERVICE REQUIREMENTS

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

DIVIDENDS AND DISTRIBUTIONS

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

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

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

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<PAGE>
period is generated in each 30-day period over one year and is shown as a
percentage of the investment.

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

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

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

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

PERFORMANCE OF OTHER MUTUAL FUND MANAGED BY THE ADVISER

The Technology & Communications Portfolio has investment objectives, policies
and strategies that are substantially similar to those of the PBHG Technology &
Communications Fund, a corresponding series of The PBHG Funds, Inc., a mutual
fund company that is also managed by the Adviser. The performance of this
corresponding fund may be relevant to an investor in the Technology &
Communications Portfolio.

Investors should not consider the performance data of the PBHG Technology &
Communications Fund to be an indication of the future performance of the
Technology & Communications Portfolio. The performance data for the PBHG
Technology & Communications Fund reflects the deduction of the historical fees
and expenses paid by the PBHG Technology & Communications Fund, AND NOT THOSE TO
BE PAID BY THE PORTFOLIOS. The performance data for the Technology &
Communications Portfolio does not reflect the deduction of any insurance fees or
charges which are imposed by the Participating Company in connection with the
sale of VA Contracts and VLI Policies. (The PBHG Technology & Communications
Fund is not sold through VA Contracts and VLI Policies, so insurance fees or
charges do not apply.) Investors should refer to the separate account
prospectuses describing the VA Contracts and VLI Policies for information
pertaining to these insurance fees and charges. The insurance separate account
fees will reduce the return on the Technology & Communications Portfolio. In
addition, although the Technology & Communications Portfolio anticipates holding
similar securities as the PBHG Technology & Communications Fund, investment
results are expected to differ. In particular, differences in asset size and
cash flow resulting from purchases and redemptions of Portfolio shares may
result in different selection of securities, differences in the relative
weightings of securities, or differences in the price paid for particular
portfolio holdings. The performance data reflect the reinvestment of dividends
and distributions, and were calculated in the same manner that will be used by
the Technology & Communications Portfolio to calculate its own performance.

The Technology & Communications Portfolio has been in operation since May 1,
1997. The total return

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<PAGE>
for the Technology & Communications Portfolio from inception through March 31,
1998 was 15.90%. The PBHG Technology & Communications Fund has been in operation
since October 2, 1995. The total return for the PBHG Technology & Communications
Fund for the one year period ended March 31, 1998 was 38.29%, and the average
annual total return from inception through March 31, 1998 was 33.57%.

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

THE COMPANY

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

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

THE ADVISER

Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $14 billion in assets. In addition to advising
the Portfolios, the Adviser provides advisory services to other mutual funds and
to pension and profit-sharing plans, charitable institutions, corporations,
trusts and estates, and other investment companies. The principal business
address of the Adviser is 825 Duportail Road, Wayne, Pennsylvania 19087.

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

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

EXPENSE LIMITATION AGREEMENT

In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 1998 with the Company,
with respect to each Portfolio ("Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than 1.20% of the average daily net assets of the Growth
II and Technology & Communications Portfolios. Such waivers and assumption of
expenses by the Adviser may be discontinued at any time after such date.
Reimbursement by the Portfolios of the advisory fees waived or limited and other
expenses paid by the Adviser pursuant to the Expense Limitation Agreement may be
made at a later date when the Portfolios have reached a sufficient asset size to
permit reimbursement to be made without causing the total annual expense ratio
of each Portfolio to exceed the Total Operating Expense percentages described
above.

THE PORTFOLIO MANAGERS

The Growth II Portfolio is managed by Gary L. Pilgrim, CFA and Jeffrey Wrona.
Mr. Pilgrim has served as co-manager of the Portfolio since its inception. He
has served as the Chief Investment Officer of the Adviser since 1990 and is also
a Director of the

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<PAGE>
Adviser. Mr. Pilgrim currently also manages or co-manages several series of The
PBHG Funds, Inc., another mutual fund managed by the Adviser. Mr. Wrona has
co-managed the Growth II Portfolio since January 29, 1998. Mr. Wrona joined the
Adviser in 1997. Mr. Wrona was previously a Senior Portfolio Manager with Munder
Capital Management managing equity and balanced portfolios and specializing in a
Mid-Cap Growth mutual fund product. Mr. Wrona has been employed in the past by
Drexel Burnham Lambert and Ford Motor Company. Mr. Wrona holds a bachelor's
degree and an M.B.A. degree from the University of Michigan.

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

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

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 is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Company. The principal place of business of the
Administrator is 825 Duportail Road, Wayne, Pennsylvania 19087.

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Company's
distributor, assists the Administrator in providing administrative services to
the Company. For acting in this capacity, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily
net assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds, Inc.
calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of
the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billon.

THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS

DST Systems, Inc., P.O. Box 419534, Kansas City, Missouri 64141-6534 serves as
the transfer agent and dividend disbursing agent for the Company under a
transfer agency agreement with the Company. PBHG Fund Services serves as
shareholder servicing agent of the Company. UAM Shareholder Service Center, Inc.
("UAM SSC"), an affiliate of the Adviser, provides services to the Company
pursuant to a sub-shareholder servicing agreement between PBHG Fund Services and
UAM SSC.

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

THE DISTRIBUTOR

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

DIRECTORS OF THE COMPANY

The management and affairs of the Company are supervised by the Board of
Directors under the laws of the State of Maryland. The Directors have approved
agreements under which, as described above, certain companies provide essential
management services to the Company.

VOTING RIGHTS

12
<PAGE>
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Company. In the event that
such a meeting is requested, the Company will provide appropriate assistance and
information to the shareholders requesting the meeting. Under current law, a
Participating Insurance Company is required to request voting instructions from
VA Contract owners and VLI Policy owners and must vote all shares held in the
separate account in proportion to the voting instructions received. For a more
complete discussion of voting rights, refer to the Participating Insurance
Company separate account prospectus.

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

REPORTING

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

YEAR 2000 COMPLIANCE

There is general concern throughout the industry that a number of computer
systems and software packages in use today may not be able to recognize the Year
2000 or accurately process information after December 31, 1999. The Company is
actively working with the Adviser, the Sub-Adviser and the Company's other
service providers, including but not limited to, the Administrator,
Sub-Administrator, Distributor, Transfer Agent and Shareholder Servicing Agents
to identify potential problems and develop plans reasonably designed to address
these potential problems before the Year 2000. While there can be no absolute
assurance that all service providers will be fully Year 2000-compliant or that
non-compliant systems or software will have no impact at all, the Company
believes that these steps will be successful in identifying and minimizing any
negative impact associated with Year 2000 processing problems. Furthermore, the
Company does not currently anticipate that there will be any material cost to
the Company or any Portfolio as a result of this project.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company. Coopers
& Lybrand, L.L.P. serves as the independent accountants of the Company.

CUSTODIAN

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

MISCELLANEOUS

As of January 31, 1998, Life Insurance Co. of Virginia owned of record more than
25% of the shares of the Growth II Portfolio and may be deemed to be a
controlling person of such Portfolio. As of January 31, 1998, Fidelity
Investments Life Insurance Co. owned of record more than 25% of the shares of
the Technology & Communications Portfolio and may be deemed to be a controlling
person of such Portfolio. The Company believes that most of these shares are
held by the record owners for their fiduciary, agency or custodial clients.

13
<PAGE>
- ------------------------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- ------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

[LOGO]
PBHG Insurance Series Fund, Inc.

Investment Adviser: Distributor:
Pilgrim Baxter & Associates, Ltd. SEI Investments Distribution Co.

<PAGE>

[LOGO]
PBHG
Insurance
Series
Fund,
Inc.

PBHG Growth II Portfolio

PBHG Small Cap Value Portfolio

PBHG Large Cap Value Portfolio

PBHG Technology &
Communications Portfolio

PBHG Select 20 Portfolio

Prospectus
May 1, 1998

<PAGE>

PBHG INSURANCE SERIES FUND, INC.

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

PROSPECTUS DATED MAY 1, 1998

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

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

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1

EXPENSE SUMMARY............................................. 3

FINANCIAL HIGHLIGHTS........................................ 4

INVESTMENT OBJECTIVES AND POLICIES.......................... 5

GENERAL INVESTMENT POLICIES AND STRATEGIES.................. 8

RISK FACTORS................................................ 9

INVESTMENT LIMITATIONS...................................... 10

PURCHASES AND REDEMPTIONS................................... 11

NET ASSET VALUE............................................. 11

TAX STATUS, DIVIDENDS AND DISTRIBUTIONS..................... 11

PERFORMANCE ADVERTISING..................................... 12

GENERAL INFORMATION......................................... 13

GLOSSARY OF PERMITTED INVESTMENTS........................... 17
</TABLE>

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

THE COMPANY

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

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

1
<PAGE>
and requirements, greater securities market volatility, less liquidity, less
government supervision of securities markets, changes in taxes on income on
securities, and possible seizure, nationalization or expropriation of the
foreign issuer or foreign deposits. The Portfolios also may enter into futures
contracts, which are subject to special risks. When futures contracts are being
used for hedging purposes, such risks include the potential of imperfect
correlation between the change in the value of a futures contract purchased or
sold and the market value of the securities held by the Portfolios; the possible
failure to correctly predict movements in the direction of the market; and the
risk that the Portfolios may not be able to close out a particular futures
contract because of a lack of a liquid secondary market in such futures
contract. Other risks of investing in futures contracts include that the prices
of futures contracts are volatile and are influenced by changes in market and
interest rates and that futures trading involves an extremely high degree of
leverage which may result in losses in excess of the amount invested in the
futures contract. See "Investment Objectives and Policies," "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus and see "Risks of
Transactions in Futures Contracts and Options" in the Statement of Additional
Information.

WHO ARE THE ADVISER AND SUB-ADVISER? Pilgrim Baxter & Associates, Ltd.
serves as the investment adviser to each Portfolio. Pilgrim Baxter Value
Investors, Inc., a wholly-owned subsidiary of the Adviser, serves as the
investment sub-adviser to the Small Cap Value and Large Cap Value Portfolios.
See "Expense Summary," "The Adviser," and "The Sub-Adviser."

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the
Company with distribution services. See "The Distributor."

2
<PAGE>
EXPENSE SUMMARY

The purpose of this section is to provide you with information about the
expenses of the various Portfolios.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SMALL CAP LARGE CAP TECHNOLOGY &
GROWTH II VALUE VALUE COMMUNICATIONS SELECT 20
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None None None None
- ---------------------------------------------------------------------------------------------------------
Sales Load Imposed on Reinvested
Dividends None None None None None
- ---------------------------------------------------------------------------------------------------------
Deferred Sales Load None None None None None
- ---------------------------------------------------------------------------------------------------------
Redemption Fees None None None None None
- ---------------------------------------------------------------------------------------------------------
Exchange Fees None None None None None
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable expense reimbursements
or fee waivers)

<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SMALL CAP LARGE CAP TECHNOLOGY &
GROWTH II VALUE VALUE COMMUNICATIONS SELECT 20
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
Advisory Fees (after fee waiver) .00% .00% .00% .00% .00%
- ---------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None
- ---------------------------------------------------------------------------------------------------------
Other Expenses (after expense
reimbursement) 1.20% 1.20% 1.00% 1.20% 1.20%
- ---------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee
waiver/expense reimbursement) 1.20% 1.20% 1.00% 1.20% 1.20%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>

The Adviser has voluntarily agreed to waive or limit its Advisory Fees or
assume Other Expenses in an amount that operates to limit Total Operating
Expenses of the Portfolios to not more than 1.20% of the average daily net
assets of the Growth II, Small Cap Value, Technology & Communications and Select
20 Portfolios and to not more than 1.00% of the average daily net assets of the
Large Cap Value Portfolio, through December 31, 1998. Total Operating Expenses
include, but are not limited to, expenses such as investment advisory fees,
custodian fees, transfer agent fees, audit fees and legal fees. Such waiver of
Advisory Fees and possible assumption of Other Expenses by the Adviser is
subject to a possible reimbursement by the Portfolios in future years if such
reimbursement can be achieved within the foregoing annual expense limits. Such
fee waiver/expense reimbursement arrangements may be modified or terminated at
any time after December 31, 1998. Absent such fee waivers/expense
reimbursements, the Advisory Fees and Total Operating Expenses for the Growth
II, Small Cap Value, Large Cap Value, Technology & Communications and Select 20
Portfolios would be .85% and 4.38%; 1.00% and 3.63%; .65% and 8.04%; .85% and
5.09%; and .85% and 3.36%, respectively.

EXAMPLE

An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Growth II Portfolio.............................. $12.00 $38.00
Small Cap Value Portfolio........................ $12.00 $38.00
Large Cap Value Portfolio........................ $10.00 $32.00
Technology & Communications Portfolio............ $12.00 $38.00
Select 20 Portfolio.............................. $12.00 $38.00
</TABLE>

3
<PAGE>
FINANCIAL HIGHLIGHTS

The following information for the fiscal year ended December 31, 1997, has
been audited by Coopers & Lybrand L.L.P., the Company's independent accountants.
The Company's audited financial statements are incorporated by reference into
the Company's Statement of Additional Information under "Financial Information."
The following table should be read in conjunction with the Company's financial
statements and notes thereto. Additional information about each Company's
performance is contained in the Company's Annual Report, which may be obtained
(without charge) by calling 1-800-347-9256.

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE
BEGINNING INCOME GAINS OR LOSSES INVESTMENT CAPITAL END TOTAL
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN**
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Growth II Portfolio(1).... $10.00 -- $0.75 -- -- $10.75 7.50%
PBHG Large Cap Value
Portfolio(2)................. $10.00 $0.02 $0.41 -- -- $10.43 4.30%
PBHG Small Cap Value
Portfolio(2)................. $10.00 $0.01 $0.47 -- -- $10.48 4.80%
PBHG Technology &
Communications
Portfolio(1)................. $10.00 -- $0.41 -- -- $10.41 4.10%
PBHG Select 20 Portfolio(3).... $10.00 -- $0.03 -- -- $10.03 0.30%

NET
ASSETS
END
OF PERIOD
<S> <C>
- --------------------------------------------
PBHG Growth II Portfolio(1).... $10,235,860
PBHG Large Cap Value
Portfolio(2)................. $ 1,560,495
PBHG Small Cap Value
Portfolio(2)................. $ 9,321,462
PBHG Technology &
Communications
Portfolio(1)................. $ 9,117,272
PBHG Select 20 Portfolio(3).... $ 7,616,691
</TABLE>

<TABLE>
<CAPTION>
RATIO
OF NET
RATIO INCOME
RATIO OF EXPENSES (LOSS)
RATIO OF NET TO AVERAGE TO AVERAGE
OF EXPENSES INCOME (LOSS) NET ASSETS NET ASSETS PORTFOLIO AVERAGE
TO AVERAGE TO AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
NET ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
PBHG Growth II Portfolio(1)............ 1.20%* (0.11%)* 4.38%* (3.29)%* 44.57% $0.0386
PBHG Large Cap Value Portfolio(2)...... 1.00%* 1.91%* 8.04%* (5.13)%* 68.93% $0.0591
PBHG Small Cap Value Portfolio(2)...... 1.20%* 1.40%* 3.63%* (1.03)%* 41.14% $0.0569
PBHG Technology & Communications
Portfolio(1)......................... 1.20%* 0.37%* 5.09%* (3.52)%* 69.34% $0.0465
PBHG Select 20 Portfolio(3)............ 1.20%* 0.51%* 3.36%* (1.65)%* 18.53% $0.0561
</TABLE>

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

<TABLE>
<C> <S>
* 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 26, 1997. Amounts designated as "--" above are
either $0 or have been rounded to $0.
</TABLE>

The accompanying notes are an integral part of the financial statements.

4
<PAGE>
- ------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------

GROWTH II PORTFOLIO

SMALL CAP VALUE PORTFOLIO

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

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

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

5
<PAGE>
companies will react positively to changing economic conditions or that such
companies have taken or are expected to take actions designed to improve their
financial fundamentals or to otherwise increase the market price of their
securities. The utilization of a valuation approach may result in investment
selections that may be out-of-favor or counter to those of other investors.
However, such an approach may also produce significant capital appreciation.

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

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

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

LARGE CAP VALUE PORTFOLIO

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

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

The equity securities in which the Portfolio invests normally will be traded in
the United States or Canada on a registered securities exchange or established
over-the-counter market. The Portfolio may invest up to 15% of its total assets
in securities of foreign issuers, including ADRs, and may also invest up to 15%
of its net assets in restricted or illiquid securities. The Portfolio may also
utilize futures contracts (i.e., purchase and sell futures contracts) to the
extent that (i) aggregate initial margin deposits to establish other than "bona
fide hedging" positions do not exceed 5% of the Portfolio's net assets and (ii)
the total market value of

6
<PAGE>
securities underlying all futures contracts does not exceed 50% of the value of
the Portfolio's total assets. The Portfolio may use high-quality money market
investments or short-term bonds to reduce downside volatility during uncertain
or declining market conditions. For temporary or defensive purposes, the
Portfolio may invest in money market securities or short-term bonds without
limitation. The Portfolio may purchase securities on a when-issued or delayed
delivery basis.

The use of a valuation approach may result in investment selections that may be
out-of-favor or counter to those of other investors. However, such an approach
may also produce significant capital appreciation. See "Risk Factors" and
"Glossary of Permitted Investments" in this Prospectus for a fuller description
of the Portfolio's permitted investments and their risks.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

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

SELECT 20 PORTFOLIO

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

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

7
<PAGE>
Portfolio may also invest up to 15% of its net assets in illiquid securities,
but will not invest more than 5% of its net assets in restricted securities that
the Adviser determines are illiquid based on guidelines approved by the Board of
Directors of the Company. See "Risk Factors" and "Glossary of Permitted
Investments" in this Prospectus for a fuller description of the Portfolio's
permitted investments and their risks.

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

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

The Adviser's investment process in managing the assets of the Growth II,
Technology & Communications and Select 20 Portfolios is both quantitative and
fundamental, and is focused on quality earnings growth. In seeking to identify
investment opportunities for the Portfolios, the Adviser begins by creating a
universe of rapidly growing companies with market capitalizations within the
parameters described for each Portfolio and that possess certain quality
characteristics. Using proprietary software and research models that incorporate
important attributes of successful growth, such as positive earnings surprises,
upward earnings estimate revisions, and accelerating sales and earnings growth,
the Adviser creates a universe of growing companies. Then, using fundamental
research, the Adviser evaluates each company's earnings quality and assesses the
sustainability of the company's current growth trends. Through this highly
disciplined process, the Adviser seeks to construct investment portfolios for
the Portfolios that possess strong growth characteristics. The Adviser tries to
keep each such Portfolio fully invested at all times. Because the universe of
companies will undoubtedly experience volatility in stock price, it is important
that shareholders in the Portfolios maintain a long-term investment perspective.
Of course, there can be no assurance that use of these techniques will be
successful, even over the long term.

INVESTMENT PROCESS: SMALL CAP VALUE AND LARGE CAP VALUE PORTFOLIOS

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

PORTFOLIO TURNOVER

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

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TEMPORARY DEFENSIVE POSITIONS

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

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

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

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

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

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asset value may be significantly affected, at times when investors have no
access to the Company.

INVESTMENTS IN TECHNOLOGY COMPANIES

FUTURES CONTRACTS

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

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

A Portfolio, as a fundamental policy, may not:

1. Except for the Select 20 Portfolio, purchase securities of any issuer (except
securities issued or guaranteed by the United States, its agencies or
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
the securities of such issuer. This restriction applies to 75% of each
Portfolio's total assets.

With respect to the Select 20 Portfolio only, purchase securities of any issuer
(except securities issued or guaranteed by the United States, its agencies and
instrumentalities and repurchase agreements involving such securities) if, as a
result, more than 5% of the total assets of the Portfolio would be invested in
securities of such issuer. This restriction applies to 50% of the Select 20
Portfolio's total assets.

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

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

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for investment purposes. All borrowings in excess of 5% of a Portfolio's total
assets will be repaid before making investments.

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

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

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

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

TAXES

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

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

The Clinton Administration's fiscal year 1999 budget proposal would treat a
redemption of shares of the

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<PAGE>

Portfolios by VA Contracts and VLI Policies as a taxable transaction, and it can
be expected that similar proposals may be introduced in Congress in the near
future. The Company cannot predict what proposals, if any, might be enacted or
whether such proposals, if enacted, would apply retroactively to shares of the
Portfolios that are issued and outstanding as of the date of enactment.

INTERNAL REVENUE SERVICE REQUIREMENTS

DIVIDENDS AND DISTRIBUTIONS

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

PERFORMANCE OF OTHER MUTUAL FUNDS MANAGED BY THE ADVISER

Each of the Small Cap Value, Large Cap Value, Technology & Communications, and
Select 20 Portfolios has investment objectives, policies and strategies that are
substantially similar to those of a corresponding series of The PBHG Funds, Inc.
(the

12
<PAGE>

"PBHG Funds"), a mutual fund company that is also managed by the Adviser. The
performance of these corresponding funds may be relevant to an investor in one
or more of the Portfolios. The sections that follow set forth the performance of
each Portfolio and its corresponding PBHG Fund.

Investors should not consider the performance data of the PBHG Funds to be an
indication of the future performance of the Portfolios. The performance data for
the PBHG Funds reflect the deduction of the historical fees and expenses paid by
the PBHG Funds, AND NOT THOSE TO BE PAID BY THE PORTFOLIOS. The performance data
for the Portfolios do not reflect the deduction of any insurance fees or charges
which are imposed by the Participating Company in connection with the sale of VA
Contracts and VLI Policies. (The PBHG Funds are not sold through VA Contracts
and VLI Policies, so insurance fees or charges do not apply.) Investors should
refer to the separate account prospectuses describing the VA Contracts and VLI
Policies for information pertaining to these insurance fees and charges. The
insurance separate account fees will reduce the return on the Portfolios. In
addition, although each Portfolio anticipates holding similar securities as its
corresponding PBHG Fund, investment results are expected to differ. In
particular, differences in asset size and cash flow resulting from purchases and
redemptions of Portfolio shares may result in different selection of securities,
differences in the relative weightings of securities, or differences in the
price paid for particular portfolio holdings. The performance data reflect the
reinvestment of dividends and distributions, and were calculated in the same
manner that will be used by the Portfolios to calculate their own performance.

SMALL CAP VALUE PORTFOLIO. The Small Cap Value Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Small Cap Value Fund, a series of The PBHG Funds, Inc. The Portfolio
has been in operation since October 29, 1997. The total return for the Portfolio
from inception through March 31, 1998 was 19.50%. The PBHG Small Cap Value Fund
has been in operation since May 1, 1997. The total return for the PBHG Small Cap
Value Fund from inception through March 31, 1998 was 62.27%.

LARGE CAP VALUE PORTFOLIO. The Large Cap Value Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Large Cap Value Fund, a series of The PBHG Funds, Inc. The Portfolio
has been in operation since October 29, 1997. The total return for the Portfolio
from inception through March 31, 1998 was 16.30%. The PBHG Large Cap Value Fund
has been in operation since January 2, 1997. The total return for the PBHG Large
Cap Value Fund for the one year period ended March 31, 1998 was 39.47%, and the
average annual total return from inception through March 31, 1998 was 31.74%.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO. The Technology & Communications
Portfolio has investment objectives, policies and strategies that are
substantially similar to those of the PBHG Technology & Communications Fund, a
series of The PBHG Funds, Inc. The Portfolio has been in operation since May 1,
1997. The total return for the Portfolio from inception through March 31, 1998
was 15.90%. The PBHG Technology & Communications Fund has been in operation
since October 2, 1995. The total return for the PBHG Technology & Communications
Fund for the one year period ended March 31, 1998 was 38.29%, and the average
annual total return from inception through March 31, 1998 was 33.57%.

SELECT 20 PORTFOLIO. The Select 20 Portfolio has investment objectives,
policies and strategies that are substantially similar to those of the PBHG
Large Cap 20 Fund, a series of The PBHG Funds, Inc. The Portfolio has been in
operation since September 26, 1997. The total return for the Portfolio from
inception through March 31, 1998 was 19.70%. The PBHG Large Cap 20 Fund has been
in operation since December 2, 1996. The total return for the PBHG Large Cap 20
Fund for the one year period ended March 31, 1998 was 72.76%, and the average
annual total return from inception through March 31, 1998 was 42.21%.

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

THE COMPANY

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

13
<PAGE>
services and registering the shares of the Portfolio under federal securities
laws, pricing and insurance expenses and pays additional expenses including
litigation and other extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.

THE ADVISER

Pilgrim Baxter & Associates, Ltd. is a professional investment management firm
and registered investment adviser that, along with its predecessors, has been in
business since 1982. The controlling shareholder of the Adviser is United Asset
Management Corporation ("UAM"), a New York Stock Exchange listed holding company
principally engaged, through affiliated firms, in providing institutional
investment management services and acquiring institutional investment management
firms. UAM's corporate headquarters are located at One International Place,
Boston, Massachusetts 02110. The Adviser currently has discretionary management
authority with respect to over $15 billion in assets. In addition to advising
the Portfolios, the Adviser provides advisory services to other mutual funds and
to pension and profit-sharing plans, charitable institutions, corporations,
trusts and estates, and other investment companies. The principal business
address of the Adviser is 825 Duportail Road, Wayne, Pennsylvania 19087.

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

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

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

Pilgrim Baxter Value Investors, Inc., 825 Duportail Road, Wayne, Pennsylvania
19087, is a registered investment adviser that was formed in 1940. The
Sub-Adviser is a wholly-owned subsidiary of the Adviser. The Sub-Adviser
currently has discretionary management authority with respect to over $4 billion
in assets. In addition to advising the Portfolios, the Sub-Adviser provides
advisory services to pension and profit-sharing plans, charitable institutions,
trusts, estates and other investment companies.

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

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

EXPENSE LIMITATION AGREEMENT

In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 1998 with the Company
with respect to each Portfolio (the "Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than 1.20% of the average daily net assets of the Growth
II, Small Cap Value, Technology & Communications and Select 20 Portfolios, and
1.00% of the average daily net assets of the Large Cap Value Portfolio. Such
waivers and assumption of expenses by the Adviser may be discontinued at any
time after such date. Reimbursement by the

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<PAGE>
Portfolios of the advisory fees waived or limited and other expenses paid by the
Adviser pursuant to the Expense Limitation Agreement may be made at a later date
when the Portfolios have reached a sufficient asset size to permit reimbursement
to be made without causing the total annual expense ratio of each Portfolio to
exceed the Total Operating Expense percentages described above.

THE PORTFOLIO MANAGERS

The Growth II Portfolio is managed by Gary L. Pilgrim, CFA, and Jeffrey Wrona.
Mr. Pilgrim has been co-manager of the Portfolio since its inception. He has
served as the Chief Investment Officer of the Adviser since 1990 and is also a
Director of the Adviser. Mr. Pilgrim currently also manages or co-manages
several series of The PBHG Funds, Inc., another mutual fund managed by the
Adviser. Mr. Wrona joined the Adviser in 1997. Mr. Wrona was previously a Senior
Portfolio Manager with Munder Capital Management managing equity and balanced
portfolios and specializing in a Mid-Cap Growth mutual fund product. Mr. Wrona
has been employed in the past by Drexel Burnham Lambert and Ford Motor Company.
Mr. Wrona holds a bachelor's degree and an M.B.A. degree from the University of
Michigan. The Large Cap Growth and Select 20 Portfolios are managed by James D.
McCall. Mr. McCall has been a portfolio manager with the Adviser since 1994.
Prior to joining the Adviser, Mr. McCall was a portfolio manager with First
Maryland Bank Corporation (May 1992 to November 1994) and a portfolio manager
with Provident Mutual Management, Inc. prior to that time. Mr. McCall manages
two series of The PBHG Funds, Inc. and has managed or co-managed such series
since their inception. Mr. McCall also manages the PBHG Large Cap 20 Fund and
has done so since its inception.

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

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

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

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Company with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Company. The principal place of business of the
Administrator is 825 Duportail Road, Wayne, Pennsylvania 19087.

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Company's
distributor, assists the Administrator in providing administrative services to
the Company. For acting in this capacity, the Administrator pays the
Sub-Administrator fees at an annual rate based on the combined average daily
net assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds, Inc.
calculated as follows: (1) 0.040% of the first $2.5 billion, plus (ii) 0.025% of
the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billion.

THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS

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shareholder servicing agreement between PBHG Fund Services and UAM SSC.

THE DISTRIBUTOR

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

DIRECTORS OF THE COMPANY

VOTING RIGHTS

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

CONFLICTS OF INTEREST

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

REPORTING

YEAR 2000 COMPLIANCE

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<PAGE>

providers will be fully Year 2000-compliant or that non-compliant systems or
software will have no impact at all, the Company believes that these steps will
be successful in identifying and minimizing any negative impact associated with
Year 2000 processing problems. Furthermore, the Company does not currently
anticipate that there will be any material cost to the Company or any PBHG
Portfolio as a result of this project.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company. Coopers
& Lybrand, L.L.P. serves as the independent accountants of the Company.

CUSTODIAN

MISCELLANEOUS

As of January 31, 1998, Life Insurance Co. of Virginia owned of record more than
25% of the shares of the Growth II Portfolio and Fidelity Investments Life
Insurance Co. owned of record more than 25% of the shares of each of the Small
Cap Value, Large Cap Value, Technology & Communications, and Select 20
Portfolios and such record owners may be deemed to control the Portfolios. The
Company believes that most of these shares are held by the record owners for
their fiduciary, agency or custodial clients.

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

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

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

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

ILLIQUID SECURITIES -- Securities that cannot be disposed of in the ordinary
course of business within

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seven days at approximately the price at which the Portfolio has valued the
security.

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

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

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

19
<PAGE>
record-keeping system in lieu of having to hold certificates or other evidences
of ownership of the underlying U.S. Treasury securities. When U.S. Treasury
obligations have been stripped of their unmatured interest coupons by the
holder, the stripped coupons are sold separately or grouped with other coupons
with like maturity dates and sold in such bundled form. The principal or corpus
is sold at a deep discount because the buyer receives only the right to receive
a future fixed payment on the security and does not receive any rights to
periodic interest (cash) payments. Purchasers of stripped obligations acquire,
in effect, discount obligations that are economically identical to the
securities that the Treasury sells itself. Other facilities are available to
facilitate the transfer of ownership of non-Treasury securities by accounting
separately for the beneficial ownership of particular interest coupon and corpus
payments on such securities through a book-entry record-keeping system.

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

<PAGE>

[LOGO]
PBHG Insurance Series Fund, Inc.

Investment Adviser: Distributor:
Pilgrim Baxter & Associates, Ltd. SEI Investments Distribution Co.

<PAGE>

[LOGO]
PBHG
Insurance
Series
Fund,
Inc.

PBHG Growth II Portfolio

PBHG Large Cap Growth Portfolio

Prospectus
May 1, 1998

<PAGE>

PBHG INSURANCE SERIES FUND, INC.

PBHG GROWTH II PORTFOLIO
PBHG LARGE CAP GROWTH PORTFOLIO

PROSPECTUS DATED MAY 1, 1998

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

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1

EXPENSE SUMMARY............................................. 3

FINANCIAL HIGHLIGHTS........................................ 4

INVESTMENT OBJECTIVES AND POLICIES.......................... 5

GENERAL INVESTMENT POLICIES AND STRATEGIES.................. 6

RISK FACTORS................................................ 6

INVESTMENT LIMITATIONS...................................... 7

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

NET ASSET VALUE............................................. 8

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

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

GENERAL INFORMATION......................................... 10

GLOSSARY OF PERMITTED INVESTMENTS........................... 14
</TABLE>

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

THE COMPANY

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

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

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

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

1
<PAGE>

WHO IS THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS? DST Systems,
Inc. serves as the transfer agent and dividend disbursing agent of the Company.
PBHG Fund Services serves as shareholder servicing agent of the Company. UAM
Shareholder Service Center, Inc. ("UAM SSC"), an affiliate of the Adviser,
provides services to the Company pursuant to a sub-shareholder servicing
agreement between PBHG Fund Services and UAM SSC. See "The Transfer Agent and
Shareholder Servicing Agents."

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the
Company with distribution services. See "The Distributor."

2
<PAGE>
EXPENSE SUMMARY

The purpose of this section is to provide you with information about the
expenses of the Portfolios.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LARGE CAP
GROWTH II GROWTH
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None
- ------------------------------------------------------------------------------------------
Sales Load Imposed on Reinvested Dividends None None
- ------------------------------------------------------------------------------------------
Deferred Sales Load None None
- ------------------------------------------------------------------------------------------
Redemption Fees None None
- ------------------------------------------------------------------------------------------
Exchange Fees None None
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable expense reimbursements
or fee waivers)

<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
LARGE CAP
GROWTH II GROWTH
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
Advisory Fees (after fee waiver) .00% .00%
- ------------------------------------------------------------------------------------------
12b-1 Fees None None
- ------------------------------------------------------------------------------------------
Other Expenses (after expense reimbursement) 1.20% 1.10%
- ------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waiver/expense
reimbursement) 1.20% 1.10%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>

The Adviser has voluntarily agreed to waive or limit its Advisory Fees or
assume Other Expenses in an amount that operates to limit Total Operating
Expenses of the Portfolios to not more than 1.20% of the average daily net
assets of the Growth II Portfolio and to not more than 1.10% of the average
daily net assets of the Large Cap Growth Portfolio through December 31, 1998.
Total Operating Expenses include, but are not limited to, expenses such as
investment advisory fees, custodian fees, transfer agent fees, audit fees and
legal fees. Such waiver of Advisory Fees and possible assumption of Other
Expenses by the Adviser is subject to a possible reimbursement by the Portfolios
in future years if such reimbursement can be achieved within the foregoing
annual expense limits. Such fee waiver/expense reimbursement arrangements may be
modified or terminated at any time after December 31, 1998. Absent such fee
waivers/expense reimbursements, the Advisory Fees and Total Operating Expenses
for the Growth II and Large Cap Growth Portfolios would be .85% and 4.38%; and
.75% and 5.21%, respectively.

EXAMPLE

An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Growth II Portfolio.............................. $12.00 $38.00
Large Cap Growth Portfolio....................... $11.00 $35.00
</TABLE>

3
<PAGE>
FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET NET
ASSET NET REALIZED AND DISTRIBUTIONS DISTRIBUTIONS ASSET
VALUE INVESTMENT UNREALIZED FROM NET FROM VALUE
BEGINNING INCOME GAINS OR LOSSES INVESTMENT CAPITAL END TOTAL
OF PERIOD (LOSS) ON SECURITIES INCOME GAINS OF PERIOD RETURN**
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
PBHG Growth II Portfolio(1).... $10.00 -- $0.75 -- -- $10.75 7.50%
PBHG Large Cap Growth
Portfolio(1)................. $10.00 -- $1.82 -- -- $11.82 18.20%

NET
ASSETS
END
OF PERIOD
<S> <C>
- --------------------------------------------
PBHG Growth II Portfolio(1).... $10,235,860
PBHG Large Cap Growth
Portfolio(1)................. $ 4,916,261
</TABLE>

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

<TABLE>
<C> <S>
* Annualized.
** Total returns have not been annualized.
(1) The PBHG Growth II and PBHG Large Cap Growth Portfolios
commenced operations on May 1, 1997.
</TABLE>

The accompanying notes are an integral part of the financial statements.

4
<PAGE>
- ------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------

GROWTH II PORTFOLIO

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

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

LARGE CAP GROWTH PORTFOLIO

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

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

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

<PAGE>

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

INVESTMENT PROCESS: GROWTH II AND LARGE CAP GROWTH PORTFOLIOS

PORTFOLIO TURNOVER

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

TEMPORARY DEFENSIVE POSITIONS

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

6
<PAGE>
the over-the-counter market, and might not be traded in volumes typical of
securities traded on a national securities exchange. Thus, the securities of
small and medium capitalization companies are likely to be less liquid, and
subject to more abrupt or erratic market movements, than securities of larger,
more established companies.

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
risks and considerations include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investment in foreign countries
and potential restrictions on the flow of international capital and currencies.
Foreign issuers may also be subject to less government regulation than U.S.
companies. Moreover, the dividends and interest payable on foreign securities
may be subject to foreign withholding taxes, thus reducing the net amount of
income available for distribution to a Portfolio's shareholders. Further,
foreign securities often trade with less frequency and volume than domestic
securities and, therefore, may exhibit greater price volatility. Changes in
foreign exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar. Foreign securities held by a Portfolio may be traded, and net asset
value may be significantly affected, at times when investors have no access to
the Company.

FUTURES CONTRACTS

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

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

A Portfolio, as a fundamental policy, may not:

7
<PAGE>
according to their services, for example, gas distribution, gas transmission,
electric and telephone will each be considered a separate industry, and (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry. For purposes of this
limitation, supranational organizations are deemed to be issuers conducting
their principal business activities in the same industry.

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

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

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

<PAGE>

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

TAXES

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

INTERNAL REVENUE SERVICE REQUIREMENTS

DIVIDENDS AND DISTRIBUTIONS

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

9
<PAGE>
in any of the capital markets. Each Portfolio may also quote financial and
business publications and periodicals as they relate to fund management,
investment philosophy, and investment techniques.

PERFORMANCE OF OTHER MUTUAL FUND MANAGED BY THE ADVISER

The Large Cap Growth Portfolio has investment objectives, policies and
strategies that are substantially similar to those of the PBHG Large Cap Growth
Fund, a corresponding series of The PBHG Funds, Inc., a mutual fund company that
is also managed by the Adviser. The performance of this corresponding fund may
be relevant to an investor in the Portfolio.

Investors should not consider the performance data of the PBHG Large Cap Growth
Fund to be an indication of the future performance of the Portfolios. The
performance data for the PBHG Large Cap Growth Fund reflects the deduction of
the historical fees and expenses paid by the PBHG Large Cap Growth Fund, and not
those to be paid by the Large Cap Growth Portfolio. The performance data for the
Large Cap Growth Portfolio does not reflect the deduction of any insurance fees
or charges which are imposed by the Participating Company in connection with the
sale of VA Contracts and VLI Policies. (The PBHG Large Cap Growth Fund is not
sold through VA Contracts and VLI Policies, so insurance fees or charges do not
apply.) Investors should refer to the separate account prospectuses describing
the VA Contracts and VLI Policies for information pertaining to these insurance
fees and charges. The insurance separate account fees will reduce the return on
the Large Cap Growth Portfolio. In addition, although the Portfolio anticipates
holding similar securities as the PBHG Large Cap Growth Fund, investment results
are expected to differ. In particular, differences in asset size and cash flow
resulting from purchases and redemptions of Large Cap Growth Portfolio shares
may result in different selection of securities, differences in the relative
weightings of securities, or differences in the price paid for particular
portfolio holdings. The performance data reflect the reinvestment of dividends
and distributions, and were calculated in the same manner that will be used by
the Large Cap Growth Portfolio to calculate its own performance.

The Large Cap Growth Portfolio has been in operation since May 1, 1997. The
total return for the Portfolio from inception through March 31, 1998 was 35.10%.
The PBHG Large Cap Growth Fund has been in operation since April 5, 1995. The
total return for the PBHG Large Cap Growth Fund for the one year period ended
March 31, 1998 was 60.80%, and the average annual total return from inception
through March 31, 1998 was 33.43%.

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

THE COMPANY

THE ADVISER

10
<PAGE>
to other mutual funds and to pension and profit-sharing plans, charitable
institutions, corporations, trusts and estates, and other investment companies.
The principal business address of the Adviser is 825 Duportail Road, Wayne,
Pennsylvania 19087.

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

EXPENSE LIMITATION AGREEMENT

In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 1998 with the Company,
with respect to each Portfolio ("Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than 1.20% of the average daily net assets of the Growth
II Portfolio and to not more than 1.10% of the average daily net assets of the
Large Cap Growth Portfolio. Such waivers and assumption of expenses by the
Adviser may be discontinued at any time after such date. Reimbursement by the
Portfolios of the advisory fees waived or limited and other expenses paid by the
Adviser pursuant to the Expense Limitation Agreement may be made at a later date
when the Portfolios have reached a sufficient asset size to permit reimbursement
to be made without causing the total annual expense ratio of each Portfolio to
exceed the Total Operating Expense percentages described above.

THE PORTFOLIO MANAGERS

The Growth II Portfolio is managed by Gary L. Pilgrim, CFA and Jeffrey Wrona.
Mr. Pilgrim has been co-manager of the Portfolio since its inception. He has
served as the Chief Investment Officer of the Adviser since 1990 and is also a
Director of the Adviser. Mr. Pilgrim currently also manages or co-manages
several series of The PBHG Funds, Inc., another mutual fund managed by the
Adviser. Mr. Wrona has co-managed the Growth II Portfolio since January 29,
1998. Mr. Wrona joined the Adviser in 1997. Mr. Wrona was previously a Senior
Portfolio Manager with Munder Capital Management managing equity and balanced
portfolios and specializing in a Mid-Cap Growth mutual fund product. Mr. Wrona
has been employed in the past by Drexel Burnham Lambert and Ford Motor Company.
Mr. Wrona holds a bachelor's degree and an M.B.A. degree from the University of
Michigan.

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

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Company's
distributor, assists the Administrator in providing administrative services to
the Company. For acting in this capacity, the Administrator pays the Sub-
Administrator fees at an annual rate based on the combined average daily net
assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds, Inc.
calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of
the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billion.

11
<PAGE>
THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS

THE DISTRIBUTOR

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

DIRECTORS OF THE COMPANY

VOTING RIGHTS

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

REPORTING

YEAR 2000 COMPLIANCE

12
<PAGE>
develop plans reasonably designed to address these potential problems before the
Year 2000. While there can be no absolute assurance that all service providers
will be fully Year 2000-compliant or that non-compliant systems or software will
have no impact at all, the Company believes that these steps will be successful
in identifying and minimizing any negative impact associated with Year 2000
processing problems. Furthermore, the Company does not currently anticipate that
there will be any material cost to the Company or any Portfolio as a result of
this project.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Company. Coopers
& Lybrand, L.L.P. serves as the independent accountants of the Company.

CUSTODIAN

MISCELLANEOUS

As of January 31, 1998, Life Insurance Co. of Virginia owned of record more than
25% of the shares of each of the Growth II Portfolio and Large Cap Growth
Portfolio and may be deemed to be a controlling person of each Portfolio. The
Company believes that most of these shares are held by the record owner for its
fiduciary, agency or custodial clients.

13
<PAGE>
- ------------------------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- ------------------------------------------------------

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

14
<PAGE>
from the date of the contract, agreed upon by the parties, at a price set at the
time of the contract. Under normal circumstances, consideration of the prospect
for changes in currency exchange rates will be incorporated into each
Portfolio's long-term investment strategies. However, the Adviser believes that
it is important to have the flexibility to enter into forward foreign currency
contracts when it determines that the best interests of a Portfolio will be
served.

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

15
<PAGE>
if the Portfolio realizes a loss on the sale of the collateral securities. The
Adviser will enter into repurchase agreements on behalf of a Portfolio only with
financial institutions deemed to present minimal risk of bankruptcy during the
term of the agreement based on guidelines established and periodically reviewed
by the Directors. Repurchase agreements are considered loans under the 1940 Act,
as well as for federal and state income tax purposes.

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

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

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

16
<PAGE>
WARRANTS -- Instruments giving holders the right, but not the obligation, to buy
shares of a company at a given price during a specified period.

<PAGE>

[LOGO]
PBHG Insurance Series Fund, Inc.

Investment Adviser: Distributor:
Pilgrim Baxter & Associates, Ltd. SEI Investments Distribution Co.

<PAGE>

[LOGO]
PBHG
Insurance
Series
Fund,
Inc.

PBHG Growth II Portfolio

PBHG Large Cap Growth Portfolio

PBHG Technology &
Communications Portfolio

Prospectus
May 1, 1998

<PAGE>

PBHG INSURANCE SERIES FUND, INC.

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

PROSPECTUS DATED MAY 1, 1998

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

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY..................................................... 1

EXPENSE SUMMARY............................................. 3

FINANCIAL HIGHLIGHTS........................................ 4

INVESTMENT OBJECTIVES AND POLICIES.......................... 5

GENERAL INVESTMENT POLICIES AND STRATEGIES.................. 6

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

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

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

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

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

PERFORMANCE ADVERTISING..................................... 10

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

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

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

THE COMPANY

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

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

1
<PAGE>
excess of the amount invested in the futures contract. See "Investment
Objectives and Policies", "Risk Factors" and "Glossary of Permitted Investments"
in this Prospectus and see "Risks of Transactions in Futures Contracts and
Options" in the Statement of Additional Information.

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

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

WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. provides the
Company with distribution services. See "The Distributor."

2
<PAGE>
EXPENSE SUMMARY

The purpose of this section is to provide you with information about the
expenses of the various Portfolios.

SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LARGE CAP TECHNOLOGY &
GROWTH II GROWTH COMMUNICATIONS
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------
Sales Load Imposed on Purchases None None None
- --------------------------------------------------------------------------------------------------
Sales Load Imposed on Reinvested Dividends None None None
- --------------------------------------------------------------------------------------------------
Deferred Sales Load None None None
- --------------------------------------------------------------------------------------------------
Redemption Fees None None None
- --------------------------------------------------------------------------------------------------
Exchange Fees None None None
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

ANNUAL OPERATING EXPENSES
(as a percentage of average net assets after applicable expense reimbursements
or fee waivers)

<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
LARGE CAP TECHNOLOGY &
GROWTH II GROWTH COMMUNICATIONS
PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------
Advisory Fees (after fee waiver) .00% .00% .00%
- --------------------------------------------------------------------------------------------------
12b-1 Fees None None None
- --------------------------------------------------------------------------------------------------
Other Expenses (after expense reimbursement) 1.20% 1.10% 1.20%
- --------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waiver/expense
reimbursement) 1.20% 1.10% 1.20%
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>

The Adviser has voluntarily agreed to waive or limit its Advisory Fees or
assume Other Expenses in an amount that operates to limit Total Operating
Expenses of the Portfolios to not more than 1.20% of the average daily net
assets of the Growth II and Technology & Communications Portfolios and to not
more than 1.10% of the average daily net assets of the Large Cap Growth
Portfolio, through December 31, 1998. Total Operating Expenses include, but are
not limited to, expenses such as investment advisory fees, custodian fees,
transfer agent fees, audit fees and legal fees. Such waiver of Advisory Fees and
possible assumption of Other Expenses by the Adviser is subject to a possible
reimbursement by the Portfolios in future years if such reimbursement can be
achieved within the foregoing annual expense limits. Such fee waiver/expense
reimbursement arrangements may be modified or terminated at any time after
December 31, 1998. Absent such fee waivers/expense reimbursements, the Advisory
Fees and Total Operating Expenses for the Growth II, Large Cap Growth, and
Technology & Communications Portfolios would be .85% and 4.38%; .75% and 5.21%;
and .85% and 5.09%, respectively.

EXAMPLE

An investor in a Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, and (2) redemption at the end of each
time period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Growth II Portfolio.............................. $12.00 $38.00
Large Cap Growth Portfolio....................... $11.00 $35.00
Technology & Communications Portfolio............ $12.00 $38.00
</TABLE>

3
<PAGE>
FINANCIAL HIGHLIGHTS

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

<TABLE>
<C> <S>
* Annualized.
** Total returns have not been annualized.
(1) The PBHG Growth II, PBHG Large Cap Growth, and PBHG
Technology & Communications Portfolios commenced operations
on May 1, 1997.
</TABLE>

The accompanying notes are an integral part of the financial statements.

4
<PAGE>
- ------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------

GROWTH II PORTFOLIO

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

LARGE CAP GROWTH PORTFOLIO

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

TECHNOLOGY & COMMUNICATIONS PORTFOLIO

The Technology & Communications Portfolio, a diversified portfolio, seeks
long-term growth of capital. Current income is incidental to the Portfolio's

5
<PAGE>
objective. Under normal market conditions, the Portfolio will invest at least
65% of its total assets in common stocks of companies which rely extensively on
technology or communications in their product development or operations, or
which are expected to benefit from technological advances and improvements, and
that may be experiencing exceptional growth in sales and earnings driven by
technology-related or communication-related products and services.

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

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

PORTFOLIO TURNOVER

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

6
<PAGE>
each Portfolio's status as a "regulated investment company" ("RIC") under
Section 851 of the Internal Revenue Code of 1986, as amended ("Code").

TEMPORARY DEFENSIVE POSITIONS

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

SMALL AND MEDIUM CAPITALIZATION STOCKS

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

OVER-THE-COUNTER MARKET

FOREIGN SECURITIES

7
<PAGE>
INVESTMENTS IN TECHNOLOGY COMPANIES

FUTURES CONTRACTS

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

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

A Portfolio, as a fundamental policy, may not:

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

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

8
<PAGE>

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

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

TAXES

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

INTERNAL REVENUE SERVICE REQUIREMENTS

9
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

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

PERFORMANCE OF OTHER MUTUAL FUNDS MANAGED BY THE ADVISER

Each of the Large Cap Growth and Technology & Communications Portfolios has
investment objectives, policies and strategies that are substantially similar to
those of a corresponding series of The PBHG Funds, Inc. (the "PBHG Funds"), a
mutual fund company that is also managed by the Adviser. The performance of
these corresponding funds may be relevant to an investor in one or both of the
Portfolios. The sections that follow set forth the performance of each Portfolio
and its corresponding PBHG Fund.

10
<PAGE>
to these insurance fees and charges. The insurance separate account fees will
reduce the return on the Portfolios. In addition, although each Portfolio
anticipates holding similar securities as its corresponding PBHG Fund,
investment results are expected to differ. In particular, differences in asset
size and cash flow resulting from purchases and redemptions of Portfolio shares
may result in different selection of securities, differences in the relative
weightings of securities, or differences in the price paid for particular
portfolio holdings. The performance data reflect the reinvestment of dividends
and distributions, and were calculated in the same manner that will be used by
the Portfolios to calculate their own performance.

LARGE CAP GROWTH PORTFOLIO -- The Large Cap Growth Portfolio has investment
objectives, policies and strategies that are substantially similar to those of
the PBHG Large Cap Growth Fund, a series of the PBHG Funds, Inc. The Portfolio
has been in operation since May 1, 1997. The total return for the Portfolio from
inception through March 31, 1998 was 35.10%. The PBHG Large Cap Growth Fund has
been in operation since April 5, 1995. The total return for the PBHG Large Cap
Growth Fund for the one year period ended March 31, 1998 was 60.80%, and the
average annual total return from inception through March 31, 1998 was 33.43%.

TECHNOLOGY & COMMUNICATIONS PORTFOLIO -- The Technology & Communications
Portfolio has investment objectives, policies and strategies that are
substantially similar to those of the PBHG Technology & Communications Fund, a
series of The PBHG Funds, Inc. The Portfolio has been in operation since May 1,
1997. The total return for the Portfolio from inception through March 31, 1998
was 15.90%. The PBHG Technology & Communications Fund has been in operation
since October 2, 1995. The total return for the PBHG Technology & Communications
Fund for the one year period ended March 31, 1998 was 38.29%, and the average
annual total return from inception through March 31, 1998 was 33.57%.

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

THE COMPANY

THE ADVISER

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

11
<PAGE>
companies with similar investment objectives and policies.

EXPENSE LIMITATION AGREEMENT

In the interest of limiting expenses of the Portfolios, the Adviser has entered
into an expense limitation agreement through December 31, 1998 with the Company,
with respect to each Portfolio ("Expense Limitation Agreement"), pursuant to
which the Adviser has agreed to waive or limit its fees and to assume other
expenses of the Portfolios to the extent necessary to limit the total annual
operating expenses (expressed as a percentage of each Portfolio's average daily
net assets) to not more than 1.20% of the average daily net assets of the Growth
II and Technology & Communications Portfolios and to not more than 1.10% of the
average daily net assets of the Large Cap Growth Portfolio. Such waivers and
assumption of expenses by the Adviser may be discontinued at any time after such
date. Reimbursement by the Portfolios of the advisory fees waived or limited and
other expenses paid by the Adviser pursuant to the Expense Limitation Agreement
may be made at a later date when the Portfolios have reached a sufficient asset
size to permit reimbursement to be made without causing the total annual expense
ratio of each Portfolio to exceed the Total Operating Expense percentages
described above.

THE PORTFOLIO MANAGERS

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

THE ADMINISTRATOR AND THE SUB-ADMINISTRATOR

SEI Fund Resources (the "Sub-Administrator"), an indirect wholly-owned
subsidiary of SEI Investments Company ("SEI") and an affiliate of the Company's
distributor, assists the Administrator in providing administrative services to
the Company. For acting in this capacity, the Administrator pays the Sub-
Administrator fees at an annual rate based on the combined average daily net
assets of the Company, The PBHG Funds, Inc., and PBHG Advisor Funds, Inc.
calculated as follows: (i) 0.040% of the first $2.5 billion, plus (ii) 0.025% of
the next $7.5 billion, plus (iii) 0.020% of the excess over $10 billion.

THE TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS

12
<PAGE>
From time to time, the Company may pay amounts to third parties that provide
sub-transfer agency and other administrative services relating to the Company to
persons who beneficially own interests in the Company, such as participants in
Qualified Plans. These services may include, among other things, sub-accounting
services, answering inquiries relating to the Company, delivering, on behalf of
the Company, proxy statements, annual reports, updated Prospectuses, other
communications regarding the Company, and related services as the Company or the
beneficial owners may reasonably request.

THE DISTRIBUTOR

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

DIRECTORS OF THE FUND

VOTING RIGHTS

REPORTING

YEAR 2000 COMPLIANCE

13
<PAGE>
material cost to the Company or any Portfolio as a result of this project.

COUNSEL AND INDEPENDENT ACCOUNTANTS

Ballard Spahr Andrews & Ingersoll, LLP serves as counsel to the Fund. Coopers &
Lybrand, L.L.P. serves as the independent accountants of the Company.

CUSTODIAN

MISCELLANEOUS

As of January 31, 1998, Life Insurance Co. of Virginia owned of record more than
25% of the Growth II and Large Cap Growth Portfolios and may be deemed to be a
controlling person of such Portfolios. As of January 31, 1998, Fidelity
Investments Life Insurance Co. owned of record more than 25% of the shares of
the Technology & Communications Portfolio and may be deemed to be a controlling
person of such Portfolio. The Company believes that most of these shares are
held by the record owners for their fiduciary, agency or custodial clients.

14
<PAGE>
- ------------------------------------------------------
GLOSSARY OF PERMITTED INVESTMENTS
- ------------------------------------------------------

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

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

15
<PAGE>
foreign currency contracts when it determines that the best interests of a
Portfolio will be served.

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

16
<PAGE>
determines are not illiquid, based on guidelines and procedures developed and
established by the Board of Directors of the Company. The Board of Directors
will periodically review such procedures and guidelines and will monitor the
Adviser's implementation of such procedures and guidelines. Under these
procedures and guidelines, the Adviser will consider the frequency of trades and
quotes for the security, the number of dealers in, and potential purchasers for,
the securities, dealer undertakings to make a market in the security, and the
nature of the security and of the marketplace trades. The Company may purchase
restricted securities sold in reliance upon the exemption from registration
provided by Rule 144A under the 1933 Act. Restricted securities may be difficult
to value because market quotations may not be readily available. Because of the
restrictions on the resale of restricted securities, they may pose liquidity
problems for the Portfolios.

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

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

<PAGE>

PBHG Insurance Series Fund, Inc.

Investment Adviser: Distributor:
Pilgrim Baxter & Associates, Ltd. SEI Investments Distribution Co.