[LOGO]
PBHG Insurance Series Fund, Inc.
Annual Report December 31, 1999
o PBHG Large Cap Growth Portfolio
<PAGE>
LOGO 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
55.4% for the quarter ended December 31, 1999. This return compares favorably to
the returns for the quarter of the two most appropriate benchmarks, the S&P 500
Index at 14.9% and the Russell 1000 Growth Index at 25.1%. The outperformance
for the quarter was provided by a strong showing in December when the Portfolio
returned 26.8%, compared to 5.9% for the S&P 500 Index and 10.4% for the Russell
1000 Growth Index. For the full year 1999, the Portfolio returned 65.2%, versus
21.0% for the S&P 500 Index and 33.1% for the Russell 1000 Growth Index.
The technology sector again led the Portfolio's performance in the fourth
quarter, as it did in three of the four quarters of 1999. In fact, four out of
our top five performers for the full year were all from the technology sector.
For the year, the Portfolio's technology sector increased by 147.5%, which
contributed 49.7% to the Portfolio's overall return. Internet related software,
data networking and wireless telecommunications stocks were the driving forces
behind fourth quarter's incredible return. The Portfolio's two best performing
stocks for the quarter were Internet infrastructure and content provider
InfoSpace.com and wireless telecommunications maker QUALCOMM, Inc., which were
up 420% and 272%, respectively. Of course, the favorable returns experienced by
the technology sector in 1999 involved accepting the volatility and risk
inherent in that sector and we do not believe these returns can be consistently
achieved.
For the quarter ended December 31, 1999, the Portfolio's holdings were divided
among seven economic sectors: technology, 51.1%; consumer, 14.5%; industrial,
13.4%; healthcare, 8.9%; financial, 2.5%; service, 0.7%; and utilities, 1.3%. We
increased our technology weighting and created a position in the utilities
sector, while we lowered the Portfolio's exposure to the financial and services
sectors.
Clearly, investors favored large-cap growth and technology stocks in 1999.
Determining factors seemed to be sustainable, above-average growth rates in an
expanding economic environment, and trading liquidity that allowed investors to
react quickly if deemed necessary. In addition to the strong business
fundamentals evidenced by the companies in which we invested, we think these two
factors also contributed to the Portfolio's performance over the course of 1999.
The market is currently factoring in a 0.25% rate hike by the Federal Reserve
during their meeting in early February. More than likely, the Federal Reserve
will adopt a tightening bias towards future interest rate hikes. The Fed had
provided substantial liquidity in preparation for Y2K that now needs to be
removed. The labor market continues to remain very tight by historical standards
and compensation growth is showing signs of accelerating in response. On the
other hand, productivity growth could continue to move higher, which should take
some needed pressure off this tight labor situation. A rising interest rate
environment generally creates a stiff wind against equity market performance.
However, whatever the economic environment, we remain steadfast in our belief
that focusing on companies with strong revenue and earnings growth prospects
continues to be the most profitable long-term investment strategy.
Thank you for the confidence you've shown in Pilgrim Baxter & Associates, Ltd.
and in your continued investment in the PBHG Large Cap Growth Portfolio.
Sincerely,
/S/ Michael S. Sutton
- ---------------------------------
Michael S. Sutton, CFA
Portfolio Manager
1
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PBHG Insurance Series Fund, Inc.
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PBHG Large Cap Growth Portfolio
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(1) AS OF DECEMBER 31, 1999
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Annualized
One Year Inception to
Return Date(2)
- --------------------------------------------------------------------------------
PBHG Large Cap Growth Portfolio 65.22% 41.99%
- --------------------------------------------------------------------------------
Comparison of Change in the Value of a $10,000 Investment in the PBHG Large Cap
Growth Portfolio versus the Lipper Multi-Cap Growth Funds Average
and the S&P 500 Index
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
PBHG Lipper
Large Cap Multi-Cap Growth S&P 500
Growth Potfolio Funds Average(3) Index(4)
--------------- ---------------- -------
4/30/97 $10000 $10000 $10000
10500 10873 10608
6/30/97 10780 11262 11083
11790 12310 11965
11430 12023 11295
9/30/97 11960 12777 11914
11520 12206 11516
11420 12246 12049
12/31/97 11820 12339 12255
11730 12366 12391
12960 13412 13284
3/31/98 13510 14064 13964
13600 14238 14104
13140 13666 13862
6/30/98 14110 14433 14425
14020 14053 14272
11690 11587 12211
9/30/98 12530 12511 12993
12750 13191 14050
13540 14180 14901
12/31/98 15440 15855 15760
16070 16800 16419
15190 15911 15909
3/31/99 16160 16904 16545
16120 17294 17186
15460 16964 16780
6/30/99 16540 18165 17712
16010 17773 17159
16140 17759 17073
9/30/99 16420 17723 16605
17930 18925 17656
20120 20497 18015
12/31/99 25510 23765 19076
- ----------
(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 PBHG Large Cap Growth Portfolio commenced operations on April 30, 1997.
(3) The Lipper Multi-Cap Growth Funds Average represents the average performance
of all mutual funds classified by Lipper, Inc. in the Multi-Cap Growth category.
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.
(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.
2
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LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
STATEMENT OF NET ASSETS
As of December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- 92.4%
CONSUMER CYCLICAL -- 14.5%
AUDIO/VIDEO PRODUCTS -- 3.6%
Gemstar International* 9,600 $ 684
Polycom* 4,800 306
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990
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BROADCAST SERVICE/PROGRAMMING -- 1.9%
Clear Channel Communication* 5,683 507
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507
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CRUISE LINES -- 0.7%
Carnival 4,300 206
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206
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RADIO -- 0.7%
Hispanic Broadcasting* 2,000 184
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184
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RETAIL-BUILDING PRODUCTS -- 1.9%
Home Depot 7,650 525
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525
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RETAIL-DISCOUNT -- 2.3%
BJ's Wholesale Club* 3,400 124
Wal-Mart Stores 7,400 511
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635
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RETAIL-JEWELRY -- 1.0%
Tiffany & Company 3,000 268
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268
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RETAIL-REGIONAL DEPARTMENT STORES -- 0.8%
Kohl's* 3,000 217
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217
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TELEVISION -- 1.6%
Univision Communications, Cl A* 4,200 429
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429
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TOTAL CONSUMER CYCLICAL (COST $2,405) 3,961
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FINANCIAL -- 2.5%
DIVERSIFIED FINANCIAL SERVICES -- 0.8%
Citigroup 4,100 228
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228
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FINANCE-MORTGAGE LOAN/BANKER -- 0.5%
Federal Home Loan Mortgage 2,800 132
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132
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MULTI-LINE INSURANCE -- 1.2%
American International Group 3,025 327
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327
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TOTAL FINANCIAL (COST $629) 687
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</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
HEALTH CARE -- 8.9%
MEDICAL INFORMATION SYSTEMS -- 1.1%
IMS Health 10,700 $ 291
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291
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MEDICAL PRODUCTS -- 0.9%
Johnson & Johnson 2,700 251
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251
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MEDICAL-BIOMEDICAL/GENETIC -- 3.7%
Amgen* 6,500 390
Genentech* 4,600 619
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1,009
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MEDICAL-DRUGS -- 3.2%
Medimmune* 2,700 448
Schering-Plough 4,700 198
Shire Pharmaceuticals Group ADR* 8,237 240
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886
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TOTAL HEALTH CARE (COST $1,833) 2,437
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INDUSTRIAL -- 13.4%
DIVERSIFIED MANUFACTURING OPERATIONS -- 5.2%
Corning 4,100 529
General Electric 4,300 665
Tyco International Limited 5,700 221
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1,415
- ----------------------------------------------------------------------
ELECTRONIC COMPONENTS-MISCELLANEOUS -- 2.9%
DII Group* 1,700 120
Flextronics International* 7,000 322
Solectron* 3,700 352
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794
- ----------------------------------------------------------------------
ELECTRONIC MEASURING INSTRUMENTS -- 3.0%
Agilent Technologies* 10,600 819
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819
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INSTRUMENTS-SCIENTIFIC -- 2.3%
PE Corp-PE Biosystems Group 5,300 638
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638
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TOTAL INDUSTRIAL (COST $2,327) 3,666
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SERVICES -- 0.7%
ADVERTISING AGENCIES -- 0.7%
Omincom Group 1,900 190
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190
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TOTAL SERVICES (COST $190) 190
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TECHNOLOGY -- 51.1%
APPLICATIONS SOFTWARE -- 3.2%
Citrix Systems* 1,400 172
Siebel Systems* 6,900 580
Tenfold* 3,200 128
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880
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CIRCUITS -- 0.8%
Linear Technology 2,900 208
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208
- ----------------------------------------------------------------------
</TABLE>
3
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LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Market
Value
Description Shares (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
COMPUTER SOFTWARE -- 4.2%
Adobe Systems 2,300 $155
Microsoft* 5,600 654
Microstrategy* 1,600 336
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1,145
- ----------------------------------------------------------------------
COMPUTERS-MEMORY DEVICES -- 4.6%
EMC* 5,800 633
Veritas Software* 4,400 630
- ----------------------------------------------------------------------
1,263
- ----------------------------------------------------------------------
COMPUTERS-MICRO -- 1.6%
Sun Microsystems* 5,600 434
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434
- ----------------------------------------------------------------------
ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 8.3%
Applied Materials* 4,100 519
Broadcom, CI A* 1,000 272
Conexant Systems* 6,800 451
KLA-Tencor* 2,000 223
PMC-Sierra* 1,400 224
QLogic* 900 144
Texas Instruments 3,000 291
Xilinx* 3,000 136
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2,260
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ENTERPRISE SOFTWARE/SERVICE -- 1.5%
BEA Systems* 6,000 420
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420
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FIBER OPTICS -- 3.4%
JDS Uniphase* 4,200 678
Sycamore Networks* 800 246
- ----------------------------------------------------------------------
924
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INTERNET CONTENT -- 3.0%
Infospace.com* 3,800 813
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813
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INTERNET SOFTWARE -- 3.9%
America Online* 5,800 438
Ariba* 2,000 355
Exodus Communications* 3,000 266
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1,059
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NETWORKING PRODUCTS -- 4.1%
Cisco Systems* 6,650 712
Juniper Networks* 1,200 408
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1,120
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</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C> <C>
Shares/
Face Market
Amount Value
Description (000) (000)
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
PRINTERS & RELATED PRODUCTS -- 1.6%
Lexmark International Group, Cl A* 4,800 $ 434
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434
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SATELLITE TELECOMMUNICATIONS -- 1.1%
Echostar Communications, Cl A* 3,200 312
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312
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TELECOMMUNICATION EQUIPMENT -- 9.8%
Comverse Technology* 1,800 261
Nokia ADR 3,200 608
Nortel Networks 7,000 707
QUALCOMM* 6,200 1,092
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2,668
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TOTAL TECHNOLOGY (COST $6,761) 13,940
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UTILITIES -- 1.3%
INDEPENDENT POWER PRODUCER -- 1.3%
Calpine* 5,400 346
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346
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TOTAL UTILITIES (COST $302) 346
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TOTAL COMMON STOCK (COST $14,447) 25,227
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REPURCHASE AGREEMENT -- 6.8%
Morgan Stanley
2.95%, dated 12/31/99, matures
01/03/00, repurchase price $1,868,787
(collateralized by U.S. Agency
Obligations: total market value
$1,918,057)(A) $1,868 1,868
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TOTAL REPURCHASE AGREEMENT
(COST $1,868) 1,868
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TOTAL INVESTMENTS -- 99.2%
(COST $16,315) 27,095
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OTHER ASSETS AND LIABILITIES -- 0.8%
Other Assets and Liabilities 200
- ----------------------------------------------------------------------
NET ASSETS
Paid-in capital (authorized 500 million
shares - $0.001 par value) based on
1,070,039 outstanding shares of common
stock 14,781
Accumulated net realized gain on
investments 1,734
Net unrealized appreciation on
investments 10,780
- ----------------------------------------------------------------------
TOTAL NET ASSETS -- 100.0% 27,295
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NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
SHARE $ 25.51
- ----------------------------------------------------------------------
</TABLE>
*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
<PAGE>
LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS (000)
For the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 25
Interest.................................................. 81
------
Total Investment Income................................. 106
------
EXPENSES:
Investment Advisory Fees.................................. 115
Administrative Fees....................................... 23
Custodian Fees............................................ 6
Professional Fees......................................... 3
Transfer Agent Fees....................................... 22
Printing Fees............................................. 4
Directors' Fees........................................... 2
Amortization of Deferred Organizational Costs............. 2
Insurance and Other Fees.................................. 2
------
Total Expenses.......................................... 179
------
Waiver of Investment Advisory Fees........................ (10)
------
Net Expenses............................................ 169
------
NET INVESTMENT LOSS......................................... (63)
------
Net Realized Gain from Security Transactions.............. 2,199
Net Change in Unrealized Appreciation on Investments...... 7,768
------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 9,967
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $9,904
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (000)
<TABLE>
<CAPTION>
01/01/99 01/01/98
TO TO
12/31/99 12/31/98
-------- --------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Loss....................................... $ (63) $ (15)
Net Realized Gain (Loss) from Security Transactions....... 2,199 (341)
Net Change in Unrealized Appreciation on Investments...... 7,768 2,780
------- -------
Net Increase in Net Assets Resulting from Operations...... 9,904 2,424
------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income..................................... -- --
Net Realized Gains from Security Transactions............. -- --
------- -------
Total Distributions....................................... -- --
------- -------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued............................................. 8,804 11,045
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... (4,011) (5,787)
------- -------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 4,793 5,258
------- -------
Total Increase in Net Assets............................ 14,697 7,682
------- -------
NET ASSETS:
Beginning of Period....................................... 12,598 4,916
------- -------
End of Period............................................. $27,295 $12,598
======= =======
(A) SHARES ISSUED AND REDEEMED:
Shares Issued............................................. 502 838
Shares Issued upon Reinvestment of Distributions.......... -- --
Shares Redeemed........................................... (248) (438)
------- -------
Net Increase in Shares Outstanding........................ 254 400
======= =======
</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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LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
For the period ended December 31:
For a Share Outstanding Throughout each Fiscal Year or period
<TABLE>
<CAPTION>
Net Net
Asset Realized and Distributions Distributions Asset
Value Net Unrealized from Net from Value
Beginning Investment Gains or Losses Investment Capital End Total
of Period income on Securities Income Gains of Period Return
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
1999........................ $15.44 $ (0.05) $10.12 -- -- $25.51 65.22%
1998........................ 11.82 (0.02) 3.64 -- -- 15.44 30.63%
1997(1)..................... 10.00 -- 1.82 -- -- 11.82 18.20%+
<CAPTION>
Ratio Ratio of
Net of Expenses Net Income
Assets Ratio Ratio of to Average to Average
End of Expenses Net Income 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........................ $27,295 1.10% (0.41)% 1.17% (0.48)% 157.04%
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.
+ Total return and portfolio turnover have 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
<PAGE>
LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1999
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 and
the Technology & Communications Portfolio, which are classified as
non-diversified management investment companies. 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 whose
financial statements 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 December 31, 1999, 87% and 12%, respectively 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 close of trading on the primary exchange. 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,
undistributed 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, 1999, primarily attributable
to certain net operating losses, which for tax purposes, have been used to
offset net short-term capital gains, have been reclassified to the accumulated
net realized gain:
<TABLE>
<S> <C>
Large Cap Growth Portfolio $62,701
</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") requires 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 from commencement of operations. 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, if any, 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.
8
<PAGE>
LOGO PBHG Insurance Series Fund, Inc.
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PBHG LARGE CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 December 31, 1999,
the amount of advisory fee waiver and reimbursement of third party expenses by
the Adviser subject to possible reimbursement was $45,732.
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 Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Company are parties to a distribution agreement (the
"Distribution Agreement") dated April 1, 1997, pursuant to which the Distributor
serves as principal underwriter for the Company. The Distributor receives no
compensation for serving in such capacity.
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, and (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 $823 for the year ended December 31, 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 year ended December 31, 1999 PBHG Fund Services was paid
$8,400 by the Portfolio for shareholder 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 year ended December 31,
1999, amounted to $25,897,966 and $22,137,093, respectively.
The aggregate gross unrealized appreciation and depreciation of securities held
by the Portfolio for federal income tax purposes at December 31, 1999, amounted
to $10,905,168 and $124,328, respectively. The total cost of securities and the
net realized gains or losses on securities sold for Federal income tax purposes
at December 31, 1999 was not materially different from amounts reported for
financial reporting purposes. During 1999 the portfolio utilized a capital loss
carryforward, in the amount of $401,498. As of December 31, 1999, there were no
temporary or permanent differences.
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 certain funds in the
PBHG Fund Family. Borrowings from the line of credit will bear interest at the
Federal Funds Rate plus 0.50%. The PBHG Fund Family pays an annual commitment
fee of .08% of the outstanding committed amount. Each Portfolio is allocated a
portion of this fee based on its net assets relative to the net assets of the
PBHG Fund Family. The Portfolio had no outstanding borrowing at December 31,
1999, or any time during the year ended December 31, 1999.
9
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF THE PBHG INSURANCE SERIES FUND, INC.:
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the PBHG Large Cap Growth Portfolio (one of the portfolios constituting the PBHG
Insurance Series Fund, Inc., hereafter referred to as the "Fund") at December
31, 1999, the results of its operations for the year then ended, changes in its
net assets for each of the two years in the period then ended and its financial
highlights for each of the periods indicated, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2000
10
<PAGE>
LOGO PBHG Insurance Series Fund, Inc.
-------------------------------------------------------------------------
PBHG LARGE CAP GROWTH PORTFOLIO
NOTICE TO SHAREHOLDERS (unaudited)
For shareholders that do not have a December 31, 1999 taxable year end, this
notice is for informational purposes only.
For shareholders with a December 31, 1999 taxable year end, please consult your
tax adviser as to the pertinence of this notice.
For the fiscal year ended December 31, 1999, the Portfolio is designating net
capital gains and qualifying dividends with regard to distributions paid during
the year as follows:
<TABLE>
<CAPTION>
(A) (B) (D)
NET ORDINARY (C)
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1)
- ---- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Large Cap Growth Portfolio.................................. 0% 0% 0% 0%
</TABLE>
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
* Items (A) and (B) are based on a percentage of the Portfolio's distributions.
** Item (D) is based on a percentage of ordinary income distributions of the
Portfolio.
The Portfolio does not qualify in California, Connecticut, or New York to pass
through exempt interest dividends from U.S. government obligations.
11
<PAGE>
PBHG Insurance Series Fund, Inc.
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
SEI Investments Distribution, Co.
Oaks, PA
