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PBHG Insurance Series Fund, Inc.
Semi-Annual Report June 30, 1999
o PBHG Large Cap Growth Portfolio
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
Dear Shareholder:
The PBHG Insurance Series Fund, Inc. -- PBHG Large Cap Growth Portfolio returned
7.12% for the six months ended June 30, 1999, while the benchmark S&P 500 Index
returned 12.38%.
Market and Performance Overview
The Fund slightly underperformed the benchmark in the first quarter of 1999.
Investors continued to favor large-cap growth stocks above all others in that
quarter, although daily volatility became more pervasive in all parts of the
equity market. This was evident in the monthly returns of the Portfolio, which
ranged from -5.5% to +6.4%. The Portfolio underperformed its benchmark during
April and May. In April, as the economic outlook for foreign economies improved,
the domestic equity market began to favor cyclical companies, such as those in
the basic materials, energy and transportation sectors. Typically, these are not
the sectors with the highest growth rates. Thus, we had little to no exposure to
them and our relative performance suffered. In May, some of the technology
stocks that had served the Portfolio well in the past, such as Cisco Systems,
faltered as worries about internet valuations led the stocks of many well-known
technology companies down. While the Portfolio rebounded in June to outpace the
S&P 500, the increase was insufficient to push the Portfolio ahead of the Index
for the first half of the year. Nevertheless, we were encouraged by the market's
movement back to high-growth stocks toward the end of the period.
Overall, during the first six months of the year, the technology sector led the
Portfolio's performance, just as it did in every quarter of 1998! In fact, most
of our top performers were from the technology sector. Some of these were direct
internet plays, while others could be considered indirect internet plays. We are
optimistic that this sector will continue to generate strong returns. The
end-markets for technology products, such as cellular phones, communications
equipment and internet access, should remain strong for the foreseeable future.
We recently added positions in several telecommunications companies because we
believe they may be less effected than some other technology companies by
potential Y2K order disruptions later in the year.
Our returns in the consumer sector, our second largest Portfolio weighting, also
exceeded the returns of the benchmark. The strong performance was broad-based,
coming from a diverse grouping of companies in the retail, consumer products and
apparel industries. The healthcare sector turned in disappointing returns for
the period. Renewed talks about Medicare reform and new legislation about
possible government price-regulation on prescription drugs hurt our holdings of
Omnicare and Health Management Associates, while Pfizer dropped on several
negative announcements. We have eliminated these positions from the Portfolio.
We saw very disappointing results in our financial sector holdings, primarily
due to a halving of the price of Newcourt Credit, a specialty finance company.
Investment Strategy
During the last six months, financial markets have spent a considerable amount
of time worrying about the economy -- not because of bad news, but because of
too much good news. Unemployment is low, productivity is high, inflation is
almost non-existent and growth continues. In May, financial markets finally got
some bad news -- a high inflation report and the Federal Reserve's announced
bias to tighten interest rates. By June, analysts were hard-pressed to find any
sign of inflation and the Fed surprised (and pleased) many by adopting a neutral
bias toward raising interest rates after a one-quarter percentage point
increase.
While a lot can happen in the second half of the year, the U.S. economy still
shows no willingness to halt its pattern of growth. At the end of last year, we
did not expect a major sustained downdraft in equity markets in the presence of
a low interest rate environment, a stable U.S. economy, and an accommodating
Federal Reserve. So far, that has been the case. If recent weeks are any
indication, we are facing a promising environment for an earnings-focused
investment strategy, such as ours. We also continue to believe that very high
growth rate companies are among the better opportunities in a highly valued
market.
On behalf of the Portfolio's management team, thank you for your confidence in
Pilgrim Baxter & Associates, Ltd. and in the PBHG Insurance Series Fund, Inc.
Sincerely,
/s/ Gary L. Pilgrim
- -------------------------------
Gary L. Pilgrim, CFA
Lead Portfolio Manager
1
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
<TABLE>
- ---------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) AS OF JUNE 30, 1999
- ---------------------------------------------------------------------------------------------
<CAPTION>
Annualized
Inception to
6 Months(2) One Year Date(3)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PBHG Large Cap Growth Portfolio 7.12% 17.22% 26.14%
- ---------------------------------------------------------------------------------------------
</TABLE>
Comparison of the Change in the Value of a $10,000 Investment in the PBHG Large
Cap Growth Portfolio, the S&P 500 Index and the Lipper Growth Funds Average.
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicits the following plot points:
PBHG Large Cap S&P 500 Lipper Growth
Growth Portfolio Index(4) Funds Average(5)
4/97 10000 10000 10000
6/97 10780 11083 11153
9/97 11961 11912 12324
12/97 11821 12255 12173
3/98 13511 13963 13741
6/98 14112 14424 13991
9/98 12350 12992 12133
12/98 15440 15759 14882
3/99 16159 16544 15580
6/99 16539 17710 16682
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) The six month return has not been annualized.
(3) The PBHG Large Cap Growth Portfolio commenced operations on April 30, 1997.
(4) The Standard & Poor's ("S&P") 500 Index is a capitalization-weighted index
of 500 stocks designed to measure performance of the broad domestic economy.
The Index is unmanaged and reflects the reinvestment of income dividends and
capital gains distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. The Index is not intended to
imply the Portfolio's past or future performance.
(5) The Lipper Growth Funds Average is an equally weighted bench-mark composed
of mutual funds, each of which normally invests in companies whose long-term
earnings are expected to grow significantly faster than the earnings of the
stocks represented in the major unmanaged stock indexes. The performance
figures are based on changes in net asset value of the funds in the category
with all capital gains distributions and income dividends reinvested. The
Index is not intended to imply the Portfolio's past or future performance.
2
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
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<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 87.8%
CONSUMER CYCLICAL -- 25.9%
APPAREL MANUFACTURERS -- 1.0%
Jones Apparel Group* 4,200 $ 144
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144
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AUDIO/VIDEO PRODUCTS -- 1.9%
Gemstar International Group* 3,200 209
Polycom* 1,700 66
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275
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BROADCAST SERVICE/PROGRAMMING -- 3.9%
Clear Channel Communications* 6,683 461
Fox Entertainment Group, Cl A* 4,200 113
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574
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CRUISE LINES -- 1.2%
Carnival 3,800 184
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184
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MOTORCYCLE -- 1.5%
Harley-Davidson 4,200 228
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228
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RETAIL-APPAREL/SHOE -- 1.4%
Anntaylor Stores* 2,500 112
Gap 1,900 96
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208
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RETAIL-BEDDING -- 1.1%
Bed Bath & Beyond* 1,700 65
Linens 'N Things* 2,300 101
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166
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RETAIL-BUILDING PRODUCTS -- 2.0%
Home Depot 4,500 290
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290
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RETAIL-CONSUMER ELECTRONICS -- 0.4%
Best Buy* 800 54
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54
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RETAIL-DISCOUNT -- 4.0%
BJ's Wholesale Club* 2,500 75
Family Dollar Stores 8,500 204
Wal-Mart Stores 6,500 314
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593
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RETAIL-DRUG STORE -- 0.7%
CVS 2,100 107
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107
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RETAIL-JEWELRY -- 0.8%
Tiffany & Company 1,200 116
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116
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RETAIL-OFFICE SUPPLIES -- 2.4%
Staples* 11,250 348
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348
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RETAIL-REGIONAL DEPARTMENT STORES -- 1.5%
Kohl's* 2,900 224
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224
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</TABLE>
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<TABLE>
<CAPTION>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
TELEVISION -- 2.1%
Univision Communications, Cl A* 4,700 $ 310
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310
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TOTAL CONSUMER CYCLICAL (COST $2,846) 3,821
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FINANCIAL -- 2.2%
DIVERSIFIED FINANCIAL SERVICES -- 1.7%
Associates First Capital, Cl A 5,600 248
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248
- ----------------------------------------------------------------------
FINANCE-INVESTMENT BANKER/BROKER -- 0.5%
Goldman Sachs Group* 1,100 79
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79
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TOTAL FINANCIAL (COST $247) 327
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HEALTH CARE -- 9.5%
MEDICAL INFORMATION SYSTEMS -- 1.6%
IMS Health 7,600 238
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238
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MEDICAL INSTRUMENTS -- 0.9%
Guidant 2,500 129
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129
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MEDICAL PRODUCTS -- 2.5%
Johnson & Johnson 2,700 265
Minimed* 1,300 100
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365
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MEDICAL-BIOMEDICAL/GENETIC -- 0.9%
IDEC Pharmaceuticals* 600 46
Immunex* 700 89
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135
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MEDICAL-DRUGS -- 1.8%
Forest Laboratories* 3,500 162
Medimmune* 1,600 108
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270
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MEDICAL-GENERIC DRUGS -- 0.9%
Watson Pharmaceuticals* 3,900 137
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137
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MEDICAL-WHOLESALE DRUG DISTRIBUTION -- 0.9%
Cardinal Health 2,100 135
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135
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TOTAL HEALTH CARE (COST $1,339) 1,409
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INDUSTRIAL -- 7.2%
BUILDING & CONSTRUCTION -- MISCELLANEOUS -- 1.0%
Dycom Industries* 2,500 140
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140
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DIVERSIFIED MANUFACTURING OPERATIONS -- 4.3%
Corning 2,500 175
Danaher 5,500 320
Tyco International Limited 1,500 142
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637
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ELECTRONIC COMPONENTS-MISCELLANEOUS -- 0.8%
Solectron* 1,800 120
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120
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INDUSTRIAL AUTOMATION/ROBOTICS -- 0.6%
Cognex* 2,801 88
- ----------------------------------------------------------------------
88
- ----------------------------------------------------------------------
</TABLE>
3
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
<TABLE>
<CAPTION>
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<S> <C> <C>
Market
Value
Description Shares (000)
- -----------------------------------------------------------------------
Common Stock -- Continued
INSTRUMENTS-CONTROLS -- 0.5%
Microchip Technology* 1,500 $ 71
- -----------------------------------------------------------------------
71
- -----------------------------------------------------------------------
TOTAL INDUSTRIAL (COST $859) 1,056
- -----------------------------------------------------------------------
SERVICES -- 8.6%
COMMERCIAL SERVICES -- 2.6%
Central Parking 1,600 55
Quanta Services* 1,300 57
Quintiles Transnational* 6,300 265
- -----------------------------------------------------------------------
377
- -----------------------------------------------------------------------
COMPUTER SERVICES -- 1.6%
Sapient* 2,600 147
Whittman-Hart* 2,800 89
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236
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CONSULTING SERVICES -- 0.6%
Metzler Group* 3,300 91
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91
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RENTAL AUTO/EQUIPMENT -- 0.9%
United Rentals* 4,400 130
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130
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SCHOOLS -- 0.8%
Apollo Group, Cl A* 4,400 117
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117
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TELEPHONE-LONG DISTANCE -- 2.1%
MCI Worldcom* 3,700 318
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318
- -----------------------------------------------------------------------
TOTAL SERVICES (COST $1,007) 1,269
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TECHNOLOGY -- 34.4%
APPLICATIONS SOFTWARE -- 1.3%
Siebel Systems* 2,800 186
- -----------------------------------------------------------------------
186
- -----------------------------------------------------------------------
COMPUTER SOFTWARE -- 3.5%
Compuware* 7,200 229
Microsoft* 3,200 289
- -----------------------------------------------------------------------
518
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COMPUTERS-INTEGRATED SYSTEMS -- 0.5%
Comverse Technology* 900 68
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68
- -----------------------------------------------------------------------
COMPUTERS-MEMORY DEVICES -- 2.6%
EMC* 4,300 237
Veritas Software* 1,500 142
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379
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COMPUTERS -- 2.3%
IBM 2,600 336
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336
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DATA PROCESSING/MANAGEMENT -- 0.5%
TSI International Software Limited* 2,900 82
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82
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</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
<S> <C> <C>
Shares/Face Market
Amount Value
Description (000) (000)
- -----------------------------------------------------------------------
COMMON STOCK -- CONCLUDED
ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 7.4%
Altera* 2,900 $ 107
Applied Micro Circuits* 500 41
KLA-Tencor* 1,400 91
Linear Technology 5,500 370
Motorola 1,300 123
Qlogic* 600 79
Texas Instruments 1,300 189
Vitesse Semiconductor* 300 20
Xilinx* 1,300 74
- -----------------------------------------------------------------------
1,094
- -----------------------------------------------------------------------
INTERNET -- 2.3%
America Online* 1,600 177
Mindspring Enterprises* 3,700 164
- -----------------------------------------------------------------------
341
- -----------------------------------------------------------------------
NETWORKING PRODUCTS -- 4.0%
Cisco Systems* 8,750 564
MMC Networks* 500 22
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586
- -----------------------------------------------------------------------
TELECOMMUNICATION EQUIPMENT -- 9.1%
Lucent Technologies 4,400 297
Nokia, Cl A 4,400 403
Nortel Networks 2,800 243
Qualcomm* 1,200 172
Tellabs* 3,500 236
- -----------------------------------------------------------------------
1,351
- -----------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 0.9%
Global Crossing Limited* 3,130 133
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133
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TOTAL TECHNOLOGY (COST $3,433) 5,074
- -----------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $9,731) 12,956
- -----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 12.5%
Morgan Agency
4.73%, dated 06/30/99, matures 07/01/99,
repurchase price $1,848,497
(collateralized by U.S. Government
Obligations: total market value
$1,934,027)(A) $1,848 1,848
- -----------------------------------------------------------------------
Total Repurchase Agreement (Cost $1,848) 1,848
- -----------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.3% (COST $11,579) 14,804
- -----------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES -- (0.3%)
Payable for securities purchased (820)
Other assets and liabilities 769
- -----------------------------------------------------------------------
TOTAL OTHER ASSETS AND LIABILITIES, NET (51)
- -----------------------------------------------------------------------
NET ASSETS
Paid-in-capital (authorized 500 million
shares -- $0.001 par value) based on
892,083 outstanding shares of common stock 11,239
Accumulated net investment loss (25)
Accumulated net realized gain on
investments 314
Net unrealized appreciation on investments 3,225
- -----------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% 14,753
- -----------------------------------------------------------------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE $ 16.54
- -----------------------------------------------------------------------
</TABLE>
*Non-Income Producing Security
(A) -- Tri-Party Repurchase Agreement
Cl -- Class
The accompanying notes are an integral part of the financial statements.
4
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
STATEMENT OF OPERATIONS (000)
For the six month period ended June 30, 1999 (unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 11
Interest.................................................. 37
----
Total Investment Income................................. 48
----
EXPENSES:
Investment Advisory Fees.................................. 50
Administrative Fees....................................... 10
Custodian Fees............................................ 2
Professional Fees......................................... 1
Transfer Agent Fees....................................... 13
Printing Fees............................................. 2
Directors' Fees........................................... 1
Amortization of Deferred Organizational Costs............. 1
----
Total Expenses.......................................... 80
----
Waiver of Investment Advisory Fees........................ (7)
----
Net Expenses............................................ 73
----
NET INVESTMENT LOSS......................................... (25)
----
Net Realized Gain from Security Transactions.............. 716
Net Change in Unrealized Appreciation on Investments...... 213
----
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 929
----
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $904
====
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
STATEMENT OF CHANGES IN NET ASSETS (000)
For the six month period ended June 30, 1999 (unaudited) and the period ended
December 31, 1998
<TABLE>
<CAPTION>
01/01/99 01/01/98
TO TO
06/30/99 12/31/98
-------- --------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Loss....................................... (25) (15)
Net Realized Gain (Loss) from Security Transactions....... 716 (341)
Net Change in Unrealized Appreciation on Investments...... 213 2,780
------- -------
Net Increase in Net Assets Resulting from Operations...... 904 2,424
------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income..................................... -- --
Net Realized Gains from Security Transactions............. -- --
------- -------
Total Distributions....................................... -- --
------- -------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued............................................. 4,233 11,045
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... (2,982) (5,787)
------- -------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 1,251 5,258
------- -------
Total Increase in Net Assets............................ 2,155 7,682
------- -------
NET ASSETS:
Beginning of Period....................................... 12,598 4,916
------- -------
End of Period............................................. 14,753 12,598
======= =======
(A) SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 267 838
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... (191) (438)
------- -------
Net Increase in Shares Outstanding........................ 76 400
======= =======
</TABLE>
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
6
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
FINANCIAL HIGHLIGHTS
For the six month period ended June 30, 1999 (unaudited)
For a Share Outstanding Throughout each Fiscal Year or 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>
1999**........................ $15.44 $ (0.03) $1.13 -- -- $16.54 7.12%+
1998.......................... 11.82 (0.02) 3.64 -- -- 15.44 30.63%
1997(1)....................... 10.00 -- 1.82 -- -- 11.82 18.20%+
</TABLE>
<TABLE>
<CAPTION>
Ratio of
Ratio Net Income
Net Ratio of of Expenses (Loss)
Assets Ratio Net Income to Average to Average
End of Expenses (Loss) Net Assets Net Assets Portfolio
of Period to Average to Average (Excluding (Excluding Turnover
(000) Net Assets Net Assets Waivers) Waivers) Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999**........................ $14,753 1.10%* (0.38)%* 1.21%* (0.49)%* 68.97%
1998.......................... 12,598 1.10% (0.19)% 1.53% (0.62)% 41.51%
1997(1)....................... 4,916 1.10%* 0.00%* 5.21%* (4.11)%* 37.42%
</TABLE>
* Annualized.
** For the six month period ended June 30, 1999.
+ Total return has not been annualized.
(1) The PBHG Large Cap Growth Portfolio commenced operations on April 30, 1997.
Amounts designated as "--" are either $0 or have been rounded to $0.
The accompanying notes are an integral part of the financial statements.
7
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1999 (unaudited)
1. ORGANIZATION
The PBHG Large Cap Growth Portfolio (the "Portfolio") is a series of the PBHG
Insurance Series Fund, Inc. (the "Fund"), a Maryland corporation. The Fund is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund consists of the Portfolio and six
others: the PBHG Growth II Portfolio (the "Growth II Portfolio"), the PBHG
Technology & Communications Portfolio (the "Technology & Communications
Portfolio"), the PBHG Small Cap Value Portfolio (the "Small Cap Value
Portfolio"), the PBHG Large Cap Value Portfolio (the "Large Cap Value
Portfolio"), the PBHG Select 20 Portfolio (the "Select 20 Portfolio") and the
PBHG Mid-Cap Value Portfolio (the "Mid-Cap Value Portfolio") (collectively, the
"Portfolios"). Each Portfolio of the Fund is classified as a diversified
management investment company, with the exception of the Select 20 Portfolio,
which is classified as a non-diversified management investment company. The
financial statements presented herein do not include the Growth II Portfolio,
the Technology & Communications Portfolio, the Small Cap Value Portfolio, the
Large Cap Value Portfolio, the Select 20 Portfolio, or the Mid-Cap Value
Portfolio which are presented separately. The Portfolio's prospectus provides a
description of the Portfolio's investment objectives, policies and strategies.
The assets of the Portfolio are segregated, and a shareholder's interest is
limited to the Portfolio in which shares are held. The Fund is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of life insurance companies. At
June 30, 1999, 89% and 11% of the outstanding shares of the Portfolio were held
by the separate accounts of two participating Insurance Companies, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Portfolio.
SECURITY VALUATION -- Investment securities of the Portfolio that are listed on
a securities exchange, and for which market quotations are readily available,
are valued at the last quoted sales price at the close of trading on the primary
exchange (currently 4:00 p.m., Eastern time). If there is no such reported sale,
these securities and unlisted securities for which market quotations are not
readily available, are valued at the most recent bid price.
SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Dividend income and distributions to shareholders are recognized on the
ex-dividend date; interest income is recognized on the accrual basis. Costs used
in determining realized capital gains and losses on the sale of investment
securities are those of the specific securities sold adjusted for the accretion
and amortization of acquisition discounts and premiums during the respective
holding periods.
DIVIDENDS -- Dividends from net investment income are declared annually, if
available. Distributions of net realized capital gains are generally made to
shareholders annually, if available. Dividends from net investment income and
distributions from net realized capital gains are determined in accordance with
U.S. Federal income tax regulations, which may differ from those amounts
determined under generally accepted accounting principles. These book/tax
differences are either temporary or permanent in nature. To the extent these
differences are permanent, they are charged or credited to paid-in-capital, net
investment income or accumulated net realized gain, as appropriate, in the
period that the differences arise. Accordingly, the following permanent
differences as of December 31, 1998, primarily attributable to certain net
operating losses, which for tax purposes, are not available to offset future
income or have been used to offset net short-term capital gains, have been
reclassified to the following account:
<TABLE>
<CAPTION>
Paid-In-Capital
---------------
<S> <C>
Large Cap Growth Portfolio $15,417
</TABLE>
These reclassifications have no effect on net assets or net asset value per
share.
FEDERAL INCOME TAXES -- It is the Portfolio's intention to continue to qualify
as a regulated investment company for Federal income tax purposes and to
distribute all of its taxable income and net capital gains. Accordingly, no
provision has been made for Federal income taxes.
NET ASSET VALUE PER SHARE -- The net asset value per share is calculated each
business day by dividing the total value of the Portfolio's assets, less
liabilities, by the number of shares outstanding.
REPURCHASE AGREEMENTS -- Securities pledged as collateral for repurchase
agreements are held by a third party custodian bank until the respective
agreements mature. Provisions of the repurchase agreements and procedures
adopted by the Fund and followed by Pilgrim Baxter & Associates, Ltd. (the
"Adviser") ensure that the market value of the collateral including accrued
interest thereon, is sufficient in the event of default by the counterparty. If
the counterparty defaults and the value of the collateral declines, or if the
counterparty enters into insolvency proceedings, realization of the collateral
by a Portfolio may be delayed or limited.
OTHER -- Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets.
All organizational costs incurred in connection with the start up of the Fund
have been equally allocated to each Portfolio, except the Mid-Cap Value
Portfolio, and are being amortized on a straight line basis over a period of
sixty months. In the event that any of the initial shares of each Portfolio are
redeemed by any holder thereof during the period that each Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of
8
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
paid a monthly fee at an annual rate of 0.75% of the average daily net assets of
the Portfolio. In the interest of limiting expenses of the Portfolio, the
Adviser has entered into an expense limitation agreement with the Fund ("Expense
Limitation Agreement"). With respect to the Portfolio, the Adviser has agreed to
waive or limit its fees and to assume other expenses of the Portfolio to the
extent necessary to limit the total annual operating expenses (expressed as a
percentage of the Portfolio's average daily net assets) to 1.10%. Reimbursement
by the Portfolio of the advisory fees waived or limited and other expenses paid
by the Adviser pursuant to the Expense Limitation Agreement during any of the
two previous fiscal years may be made at a later date when the Portfolio has
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual expense ratio of the Portfolio to exceed 1.10%.
Consequently, no reimbursement by the Portfolio will be made unless: (i) the
Portfolio's net assets exceed $75 million; (ii) the Portfolio's total annual
expense ratio is less than 1.10%, and (iii) the payment of such reimbursement is
approved by the Board of Directors on a quarterly basis. At June 30, 1999, the
amount of advisory fee waiver and reimbursement of third party expenses by the
Adviser subject to possible reimbursement was $95,446.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of the Portfolio.
SEI Investments Management Corporation, a wholly-owned subsidiary of SEI
Investments Company, is the owner of all beneficial interest in SEI Investments
Mutual Funds Services (the "Sub-Administrator"). The Sub-Administrator is an
affiliate of the Fund's distributor and assists the Administrator in providing
administrative services to the Fund. For acting in this capacity, the
Administrator pays the Sub-Administrator a fee equal to the greater of $35,000
per Portfolio and $5,000 per additional class of shares or at the annual rate of
0.040% with respect to the first $2.5 billion of the average daily net assets of
(i) the Fund, (ii) The PBHG Funds, Inc., another fund family managed by the
Adviser (collectively known as the "PBHG Fund Family"), 0.025% of the next $7.5
billion of the average daily net assets of each Portfolio in the PBHG Fund
Family, and 0.020% of the average daily net assets of each Portfolio in the PBHG
Fund Family in excess of $10 billion.
The Fund has entered into an agreement with SEI Investments to manage the
investments of repurchase agreements for the Fund. For its services the
Liquidity Desk received $406 for the six months ended June 30, 1999.
DST Systems, Inc. serves as the transfer agent and dividend disbursing agent of
the Fund. First Union National Bank, serves as the custodian for the Fund.
Effective January 2, 1998, the Fund entered into a shareholder servicing
agreement with PBHG Fund Services to provide shareholder support and other
shareholder account-related services. PBHG Fund Services has, in turn,
contracted with UAM Shareholder Service Center, Inc. ("UAMSSC") to assist in the
provision of these services. UAMSSC receives no fees directly from the
Portfolio. For the six month period ended June 30, 1999 PBHG Fund Services was
paid $4,200 by the Portfolio for transfer agent services.
Certain officers and directors of the Fund who are or were officers of the
Adviser, Administrator, Sub-Administrator and the Distributor received no
compensation from the Fund for such services.
4. INVESTMENT TRANSACTIONS
The cost of securities purchased and the proceeds from securities sold, other
than short-term investments, for the Portfolio for the six month period ended
June 30, 1999, amounted to $8,740,941 and $8,212,555, respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolio for federal income tax purposes at June 30, 1999, amounted to
$3,297,521 and $72,327 respectively. The total cost of securities and the net
realized gains or losses on securities sold for Federal income tax purposes at
June 30, 1999 was not materially different from amounts reported for financial
reporting purposes. At December 31, 1998 the Portfolio had a $401,498 capital
loss carryforward, $60,546 and $340,952 expiring in December 2005 and December
2006, respectively, which can be used to offset future capital gains.
5. LINE OF CREDIT
The Portfolio may borrow, an amount up to its prospectus defined limitations,
from a $250,000,000 committed line of credit available to (i) the Fund, (ii) The
PBHG Funds, Inc. Borrowings from the line of credit will bear interest at the
Federal Funds Rate plus 0.50%. The Portfolio had no outstanding borrowing at
June 30, 1999, or at any time during the six month period ended June 30, 1999.
9
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[LOGO]
PBHGInsurance Series Fund, Inc.
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
SEIInvestments Distribution, Co.
