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PBHG Insurance Series Fund, Inc.
Semi-Annual Report June 30, 1999
o PBHG Mid-Cap Value Portfolio
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
Dear Shareholder:
The stock market turned in a strong performance in the first half of 1999. The
PBHG Insurance Series Fund, Inc. -- PBHG Mid-Cap Value Portfolio returned 15.68%
versus a total return of 6.87% for the S&P MidCap 400 Index.
The first quarter of 1999 continued many of the trends that began in the fourth
quarter of 1998. Large cap stocks outpaced smaller caps again with the S&P 500
returning +4.98% for the quarter vs. the Russell 2000 return of (-5.43%) and the
S&P 400 return of (-6.39%). Additionally market leadership was again provided by
technology and internet companies. This was most pronounced in the small cap
area where the Russell 2000 Growth Index returned (-1.68%) for the quarter while
the Russell 2000 Value Index lost (-9.69%) of its value during the quarter. To
put the internet phenomena into perspective, Prudential Securities calculated
that internet companies represented 7.55% of the Russell 2000 as of May 31,
1999. This represented 52 internet companies which had an AVERAGE return in the
first 5 months of the year of 61%. Some people find it difficult to believe that
internet focused day traders are actually making money trading in and out of
securities all day. We actually find it difficult to imagine anyone not making
money on internet investing during this time-frame. Almost everything internet
related went up -- regardless of quality, business plan or profitability.
The second quarter offered value investors a little redemption for their
steadfast refusal to throw away all valuation parameters and invest in the "new
paradigm" defining Internet stocks. The quarter started out looking like more of
the same as Internet stocks continued to reach new highs, presumably based on
the positive quarter-end results that were expected to be announced in
mid-April. As these results came in, they were widely hailed as "meeting and
beating" expectations. Unfortunately, these expectations did not include
profitability for many of the highest fliers. Most Internet stocks promptly gave
back the 30-50% returns they had garnered in the first two weeks of the quarter
in the subsequent two weeks.
The positive results of this seemingly fruitless exercise were twofold. First,
the market learned that we could have an Internet valuation correction without
necessarily bringing down the broad market. The second outcome of the Internet
correction in late April was the increased interest in smaller stocks. Recent
history has led many investors to believe that bigger is better, at least in
terms of investing. The S&P 500 Index, our proxy for large-cap stocks has given
investors a positive return in 36 of the last 42 quarters dating back to January
of 1989. While some of this amazing performance can be explained by the economic
expansion and low inflation environment we are experiencing domestically, we are
starting to wonder how much of it is the result of the indexing craze and the
"chasing the returns" approach to investing practiced by many investors.
Although we are reluctant to "call the top" on the mega-cap stocks, we do feel
it is an especially good time to be investing in funds focusing on small- and
mid-cap value securities.
Following the Federal Reserve's decision to raise interest rates by a quarter
point and adopt a neutral stance regarding future action, the markets have shown
their approval and rallied to new highs. The low unemployment results continue
to confound the bears by neglecting to cause wage inflation. In fact, with the
exception of one month's (April) CPI number, inflation remains difficult to
detect. Mr. Greenspan credits the productivity in the economy, while others
credit low commodity prices. Regardless of the primary drivers of this steady
growth and low inflation environment, it is obvious that as long as it
continues, the Fed has little reason to raise rates soon. With this as our
backdrop, we expect the market to remain very volatile throughout the summer,
most likely overreacting to any piece of good or bad news.
Sincerely,
/s/ Jerome Heppelmann
- -------------------------
Jerome J. Heppelmann, CFA
Portfolio Manager
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PBHG Mid-Cap Value Portfolio
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AGGREGATE TOTAL RETURN(1)
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Inception to
6 Months(2) Date(2)
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PBHG Mid-Cap Value Portfolio 15.68% 28.40%
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Comparison of the Change in the Value of a $10,000 Investment in the
PBHG Mid-Cap Value Portfolio, the S&P MidCap 400 Index and the
Lipper Mid Cap Funds Average
[GRAPHIC]
In the printed version of the ducument, a line graph appears which depicts
the following plot points:
PBHG MidCap S&P MidCap Lipper Mid Cap
Value Portfolio 400 Index(3) Funds Average(4)
--------------- ------------ ----------------
11/30/98............... 10000 10000 10000
12/98.................. 11100 11205 10955
3/99................... 12011 11369 11600
6/99................... 12841 11978 12277
- ----------
(1) Performance is historical and not indicative of future results. The
investment return and principal value of an investment will fluctuate, so
an investor's shares, when redeemed, may be worth more or less than their
original cost.
(2) Total return has not been annualized. The PBHG Mid-Cap Value Portfolio
commenced operations on November 30, 1998.
(3) The S&P MidCap 400 Index is an unmanaged capitalization-weighted index that
measures the performance of the mid-range sector of the U.S. stock market.
The Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index is not intended to imply the
Portfolio's past or future performance.
(4) The Lipper Mid Cap Funds Average is an equally weighted benchmark composed
of mutual funds, each of which by prospectus or portfolio practice invests
primarily in companies with market capitalizations less than $5 billion at
the time of purchase. 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 Mid-Cap Value Portfolio
STATEMENT OF NET ASSETS
As of June 30, 1999 (unaudited)
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Market
Description Shares Value
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COMMON STOCK -- 98.9%
BASIC MATERIALS -- 4.0%
PAPER & RELATED PRODUCTS -- 4.0%
Louisiana Pacific 200 $ 4,750
Temple-Inland 100 6,825
Willamette Industries 300 13,819
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25,394
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TOTAL BASIC MATERIALS (COST $24,499) 25,394
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CONSUMER CYCLICAL -- 16.6%
APPAREL MANUFACTURERS -- 2.3%
Tommy Hilfiger* 200 14,700
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14,700
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APPLIANCES -- 1.1%
Whirlpool 100 7,400
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7,400
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CASINO HOTELS -- 1.0%
Harrah's Entertainment* 300 6,600
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6,600
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MULTIMEDIA -- 5.2%
Scripps E.W., Cl A 700 33,294
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33,294
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RETAIL-JEWELRY -- 0.6%
Zale* 100 4,000
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4,000
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RETAIL-OFFICE SUPPLIES -- 1.3%
OfficeMax* 700 8,400
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8,400
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RETAIL-RESTAURANTS -- 5.1%
Tricon Global Restaurants* 600 32,475
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32,475
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TOTAL CONSUMER CYCLICAL (COST $101,459) 106,869
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CONSUMER NON-CYCLICAL -- 12.3%
COSMETICS & TOILETRIES -- 0.4%
Alberto-Culver, Cl B 100 2,663
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2,663
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FOOD-MISCELLANEOUS/DIVERSIFIED -- 6.3%
Kellogg 1,100 36,300
Nabisco Group Holdings 200 3,912
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40,212
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FOOD-RETAIL -- 1.5%
Safeway* 200 9,900
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9,900
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SOAP & CLEANING PREPARATION -- 4.1%
Church & Dwight 600 26,100
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26,100
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TOTAL CONSUMER NON-CYCLICAL (COST $78,868) 78,875
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FINANCIAL -- 23.2%
COMMERCIAL BANKS-CENTRAL US -- 1.5%
Cullen-Frost Bankers 200 5,512
Old Kent Financial 105 4,397
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9,909
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Market
Description Shares Value
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COMMON STOCK -- CONTINUED
COMMERCIAL BANKS-SOUTHERN US -- 3.2%
Amsouth Bancorporation 900 $ 20,869
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20,869
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COMMERCIAL BANKS-WESTERN US -- 2.3%
Bancwest 400 14,850
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14,850
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FINANCE-CREDIT CARD -- 2.9%
Providian Financial 200 18,700
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18,700
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FINANCIAL-INVESTMENT BANKER/BROKER -- 1.5%
PaineWebber Group 200 9,350
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9,350
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LIFE/HEALTH INSURANCE -- 9.7%
AFLAC 400 19,150
Jefferson-Pilot 400 26,475
Protective Life 500 16,500
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62,125
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S&L/THRIFTS-EASTERN US -- 2.1%
Astoria Financial 300 13,181
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13,181
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TOTAL FINANCIAL (COST $147,765) 148,984
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HEALTH CARE -- 11.3%
DISPOSABLE MEDICAL PRODUCTS -- 5.2%
Bard C.R. 700 33,468
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33,468
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HEALTH CARE COST CONTAINMENT -- 2.5%
McKesson HBOC 500 16,063
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16,063
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MEDICAL-WHOLESALE DRUG DISTRIBUTION -- 3.6%
Amerisource Health, Cl A 900 22,950
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22,950
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TOTAL HEALTH CARE (COST $73,448) 72,481
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INDUSTRIAL -- 14.1%
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 2.0%
NCI Building Systems* 600 12,825
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12,825
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DIVERSIFIED MANUFACTURING OPERATIONS -- 8.0%
FMC 400 27,325
Tenneco 1,000 23,875
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51,200
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ELECTRIC PRODUCTS-MISCELLANEOUS -- 1.0%
C-Cube Microsystems* 200 6,338
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6,338
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ELECTRONIC COMPONENTS-MISCELLANEOUS -- 1.5%
SCI Systems* 200 9,500
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9,500
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ELECTRONIC MEASURING INSTRUMENTS -- 1.6%
Vishay Intertechnology* 500 10,500
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10,500
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TOTAL INDUSTRIAL (COST $96,424) 90,363
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TECHNOLOGY -- 11.2%
COMPUTERS-INTEGRATED SYSTEMS -- 5.4%
Mentor Graphics* 1,700 21,780
Saville Systems ADR* 900 13,050
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34,830
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PBHG Mid-Cap Value Portfolio
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Market
Description Shares Value
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COMMON STOCK -- CONTINUED
DATA PROCESSING/MANAGEMENT -- 1.0%
American Management Systems 200 $ 6,413
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6,413
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NETWORKING PRODUCTS -- 0.8%
3Com* 200 5,338
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5,338
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TELECOMMUNICATION EQUIPMENT -- 4.0%
General Instrument* 600 25,500
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25,500
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TOTAL TECHNOLOGY (COST $68,661) 72,081
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TRANSPORTATION -- 2.5%
TRANSPORTATION-AIR FREIGHT -- 2.5%
FDX* 300 16,275
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16,275
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TOTAL TRANSPORTATION (COST $15,345) 16,275
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UTILITIES -- 3.7%
ELECTRIC-INTEGRATED -- 3.7%
Minnesota Power & Light 1,200 23,850
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23,850
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TOTAL UTILITIES (COST $24,822) 23,850
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TOTAL COMMON STOCK (COST $631,291) 635,172
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Face Market
Description Amount Value
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COMMON STOCK -- CONCLUDED
REPURCHASE AGREEMENT -- 5.4%
Morgan Treasury
4.50%, dated 06/30/99, matures 07/01/99,
repurchase price $34,492 (collateralized
by U.S. Government Obligations: total market
value $35,353)(A) $34,488 $ 34,488
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TOTAL REPURCHASE AGREEMENT (COST $34,488) 34,488
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TOTAL INVESTMENTS -- 104.3% (COST $665,779) 669,660
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OTHER ASSETS AND LIABILITIES -- (4.3%)
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Other Assets and Liabilities, Net (27,341)
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NET ASSETS
Paid-in-Capital (authorized 500 million shares
-- $0.001 par value) based on 50,010
outstanding shares of common stock 500,100
Accumulated net investment income 1,058
Accumulated net realized gain on investments 137,280
Net unrealized appreciation on investments 3.881
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TOTAL NET ASSETS -- 100.0% 642,319
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NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER SHARE $ 12.84
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* Non-Income Producing Security
(A) -- Tri-Party Repurchase Agreement
ADR -- American Depository Receipt
Cl -- Class
The accompanying notes are an integral part of the financial statements.
4
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PBHG Mid-Cap Value Portfolio
STATEMENT OF OPERATIONS
For the six month period ended June 30, 1999 (unaudited)
INVESTMENT INCOME:
Dividends................................................. $ 3,719
Interest.................................................. 640
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Total Investment Income................................. 4,359
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EXPENSES:
Investment Advisory Fees.................................. 2,417
Administrative Fees....................................... 427
Custodian Fees............................................ 2,938
Professional Fees......................................... 291
Transfer Agent Fees....................................... 11,876
Printing Fees............................................. 931
Directors' Fees........................................... 199
Insurance and Other Fees.................................. 202
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Total Expenses.......................................... 19,281
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Waiver of Investment Advisory Fees........................ (2,417)
Reimbursement of Other Expenses by Adviser................ (13,451)
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Net Expenses............................................ 3,413
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NET INVESTMENT INCOME....................................... 946
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Net Realized Gain from Security Transactions.............. 115,432
Net Change in Unrealized Depreciation on Investments...... (29,203)
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NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 86,229
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INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $87,175
=======
The accompanying notes are an integral part of the financial statements.
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PBHG Mid-Cap Value Portfolio
STATEMENT OF CHANGES IN NET ASSETS
For the six month period ended June 30, 1999 (unaudited) and the period ended
December 31, 1998
<TABLE>
<CAPTION>
01/01/99 11/30/98
to to
06/30/99 12/31/98(1)
-------- -----------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income..................................... 946 112
Net Realized Gain from Security Transactions.............. 115,432 21,848
Net Change in Unrealized Appreciation (Depreciation) on
Investments............................................. (29,203) 33,084
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Net Increase in Net Assets Resulting from Operations.... 87,175 55,044
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DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income..................................... -- --
Net Realized Gains from Security Transactions............. -- --
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Total Distributions..................................... -- --
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CAPITAL SHARE TRANSACTIONS (A):
Shares Issued............................................. -- 500,100
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... -- --
------- -------
Increase in Net Assets Derived from Capital Share
Transactions............................................ -- 500,100
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Total Increase in Net Assets............................ 87,175 555,144
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NET ASSETS:
Beginning of Period....................................... 555,144 --
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End of Period............................................. 642,319 555,144
======= =======
(A) SHARES ISSUED AND REDEEMED:
Shares Issued............................................. -- 50,010
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... -- --
------- -------
Net Increase in Shares Outstanding........................ -- 50,010
======= =======
</TABLE>
(1) The PBHG Mid-Cap Value Portfolio commenced operations on November 30, 1998.
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 Mid-Cap Value Portfolio
FINANCIAL HIGHLIGHTS
For the six month period ended June 30, 1999 (unaudited)
For a Share Outstanding Throughout each period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset
Value Net Unrealized from Net from Value
Beginning Investment Gains or Losses Investment Capital End Total
of Period Income on Securities Income Gains of Period Return
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999**..................... $11.10 $0.02 $1.72 -- -- $12.84 15.68%+
1998(1).................... 10.00 -- 1.10 -- -- 11.10 11.00%+
<CAPTION>
Ratio Ratio of
of Expenses Net Income
Net Ratio Ratio of to Average to Average
Assets of Expenses Net Income Net Assets Net Assets Portfolio
End to Average to Average (Excluding (Excluding Turnover
of Period Net Assets Net Assets Waivers) Waivers) Rate
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999**..................... $642,319 1.20%* 0.33%* 6.78%* (5.25)%* 684.22%
1998(1).................... 555,144 1.20%* 0.26%* 4.13%* (2.67)%* 72.32%
</TABLE>
* Annualized.
** For the six month period ended June 30, 1999.
+ Total return has not been annualized.
(1) The PBHG Mid-Cap Value Portfolio commenced operations on November 30, 1998.
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 Mid-Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS
As of June 30, 1999 (unaudited)
1. ORGANIZATION
The PBHG Mid-Cap Value 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 Large
Cap Growth Portfolio (the "Large Cap Growth Portfolio") the PBHG Technology &
Communications Portfolio (the "Technology & Communications Portfolio"), the PBHG
Small Cap Value Portfolio (the "Small Cap Value Portfolio"), the PBHG Large Cap
Value Portfolio (the "Large Cap Value Portfolio"), and the PBHG Select 20
Portfolio (the "Select 20 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 Large Cap Growth
Portfolio, the Technology & Communications Portfolio, the Small Cap Value
Portfolio, the Large Cap Value Portfolio, or the Select 20 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,
100% of the outstanding shares of the Portfolio were held by Pilgrim Baxter &
Associates, Ltd. (the "Adviser").
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. As of December 31, 1998, there were no
temporary or permanent differences.
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 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 the Portfolio may be delayed or limited.
OTHER -- Expenses that are directly related to one of the Portfolios are charged
directly to that Portfolio. Other operating expenses are prorated to the
Portfolios on the basis of relative net assets.
All organizational costs incurred in connection with the start up of the Fund
have been equally allocated to each Portfolio, except the Mid-Cap Value
Portfolio, and are being amortized on a straight line basis over a period of
sixty months. In the event that any of the initial shares of each Portfolio are
redeemed by any holder thereof during the period that each Portfolio is
amortizing its organizational costs, the redemption proceeds payable to the
holder thereof will be reduced by the unamortized organizational costs in the
same ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
3. INVESTMENT ADVISORY FEES, ADMINISTRATIVE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund and the Adviser are parties to an Investment Advisory Agreement (the
"Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser is
paid a monthly fee at an annual rate of 0.85% of the average daily net assets of
the Portfolio. In the interest of limiting expenses of the Portfolio, the
Adviser has entered
8
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PBHG Mid-Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 1.20%. Reimbursement
by the Portfolio of the advisory fees waived or limited and other expenses paid
by the Adviser pursuant to the Expense Limitation Agreement during any of the
two previous fiscal years may be made at a later date when the Portfolio has
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual expense ratio of the Portfolio to exceed 1.20%.
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 1.20%, 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 $17,155.
Pilgrim Baxter Value Investors, Inc., a wholly-owned subsidiary of the Adviser,
serves as the sub-advisor to the Portfolio. For its services provided pursuant
to its Investment Sub-Advisory Agreement with the Adviser and the Fund, Pilgrim
Baxter Value Investors receives a fee from the Adviser at an annual rate of
0.40% of the average daily net assets of the Portfolio. Pilgrim Baxter Value
Investors, Inc. receives no fees directly from the Portfolio.
PBHG Fund Services (the "Administrator"), a wholly-owned subsidiary of the
Adviser, provides the Fund with administrative services, including regulatory
reporting and all necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator receives a fee, which is
calculated daily and paid monthly, at an annual rate of 0.15% of the average
daily net assets of 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 $7 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 $3,325 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 $3,803,141 and $3,800,233 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
$20,522 and $16,641, 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.
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 period ended June 30, 1999.
9
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[LOGO]
PBHG Insurance Series Fund, Inc.
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
SEI Investments Distribution, Co.
