[LOGO]
PBHG Insurance Series Fund, Inc.
Annual Report December 31, 1999
o PBHG Mid-Cap Value Portfolio
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PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
Dear Shareholder:
Pilgrim Baxter's value process looks beyond those companies whose sole attribute
is low valuation. Likewise, our value process excludes those companies that have
high valuations which have discounted perfect operational execution (there are
many of these out there and are not limited to a particular benchmark). With the
goal of outperforming the Portfolio's benchmark, the S&P MidCap 400 Index and
the S&P Barra Midcap Value Index over a three to five year market cycle, while
remaining competitive on a quarterly basis, we do invest in mid-cap companies
that we perceive to have value beyond that discounted in the current market
price.
Performance
The following table summarizes the PBHG Insurance Series Fund, Inc. - PBHG
Mid-Cap Value Portfolio's performance versus that of its benchmarks for the
fourth quarter and the year ended December 31, 1999.
--------------------------------------------------------------
Total Return
Period Ending
12/31/99
Q4:99 1999
--------------------------------------------------------------
PBHG Mid-Cap Value Portfolio 16.1% 25.7%
S&P MidCap 400 Index 17.2% 14.7%
S&P Barra Midcap Value Index 7.3% 2.3%
--------------------------------------------------------------
Market and Sector Impacts
During the fourth quarter, the market environment continued to narrow in focus
and, in our opinion, quality. Despite the market's limited focus, we continued
to follow a discipline of owning a diversified portfolio of those companies
possessing solid long-term growth prospects, improving business fundamentals and
reasonable valuations.
As it was for all of 1999, technology was "the place to be" during the fourth
quarter. As well, the sector was a major factor in our performance relative to
the S&P MidCap 400 and S&P Barra Midcap Value Indices. The technology sector
returned 39.7% for the Portfolio compared with the S&P MidCap 400's technology
sector return of 53.8% and the S&P Barra Midcap Value's technology sector return
of 41.0%. At year end, the Portfolio held 19.6% in the technology sector, while
the S&P MidCap 400 and the S&P Barra Midcap Value ended the year with 30.8% and
9.3% weightings in the technology sector, 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 those returns
can be consistently achieved. We also believe that the technology sector's
current valuations already reflect its great growth potential and superb
business dynamics. According to our discipline, this has led us to reduce the
Portfolio's technology weighting. This is all part of consistently applying our
process of investing in companies that provide an attractive combination of
long-term growth prospects, near-term business dynamics and reasonable
valuation.
The Portfolio ended the year with a 17.9% weighting in the financial
sector compared with 11.0% and 18.3% for the S&P MidCap 400 and S&P Barra Midcap
Value benchmarks. Decelerating growth and deteriorating business dynamics due to
rising interest rates continue to keep us away from the majority of the
financial stocks. However, our stock selection within the financial sector
contributed positively to the Portfolio's overall return. The financial sector
holdings of the Portfolio returned 4.7% during the fourth quarter while the S&P
MidCap 400 and S&P Barra Midcap Value financial sector holdings returned 1.8%
and 0.4%, respectively.
Relative to our benchmark, the Portfolio was over-weighted in the consumer
staples and energy sectors. Although the stocks in these sectors exhibited all
of the attributes we look for, the market continued to ignore quality companies
selling at a discount to their intrinsic value. Exposure to these sectors
detracted from fourth quarter perfor-
1
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mance; however, we are confident that we hold the right companies in these
sectors. Over time, we expect these stocks to outperform as market turbulence
and continued Fed rate hikes reduce some market excesses.
Looking Forward
For the equity markets in 2000, we believe that volatility will be the symptom
and that discipline should be the prescription. The market has, and will most
likely continue to, set new volatility records. More than ever, the hallmark of
successful investing will be discipline displayed in both up and down market
swings. Although we disagree that domestic markets are experiencing a
speculative "bubble", we do note that market pullbacks are normal in the course
of any bull market. Regardless of future market action, we continue to believe
our process will deliver incremental returns and risk diversification for our
investors.
Sincerely,
/s/ Jermoe J. Heppelman
- ----------------------------------
Jerome J. Heppelmann, CFA
Portfolio Manager
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
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AVERAGE ANNUAL TOTAL RETURN(1) AS OF DECEMBER 31, 1999
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One Year Inception to
Return Date(2)
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PBHG Mid-Cap Value Portfolio 25.66% 35.90%
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Comparison of Change in the Value of a $10,000 Investment in the
PBHG Mid-Cap Value Portfolio versus the S&P MidCap 400 Index, Lipper
Mid-Cap Value Funds Average and the S&P Barra MidCap Value Index
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
Lipper S&P
Mid-Cap Mid-Cap
PBHG Mid-Cap S&P MidCap Funds Value
Value Portfolio 400 Index(3) Average Index(5)
11/30/98 $10,000 $10,000 $10,000 $10,000
12/31/98 11,100 11,208 10,470 10,446
1/31/99 11,300 10,772 10,235 9,900
2/28/99 10,640 10,208 9,732 9,427
3/31/99 11,180 10,493 9,941 9,605
4/30/99 11,420 11,321 10,774 10,534
5/31/99 12,010 11,370 10,953 10,706
6/30/99 12,840 11,979 11,339 11,039
7/31/99 12,650 11,724 11,083 10,892
8/31/99 12,190 11,322 10,631 10,479
9/30/99 12,017 10,972 10,334 9,963
10/31/99 12,110 11,532 10,451 10,163
11/30/99 12,556 12,137 10,696 10,367
12/31/99 13,948 12,858 11,344 10,688
(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 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 Value Funds Average represents the average performance of
all mutual funds classified by Lipper, Inc. in the Mid-Cap Value 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.
(5) The S&P Barra MidCap Value Index is an unmanaged capitalization-weighted
index that consists of those securities in the S&P MidCap 400 Index with lower
price-to-book ratios. The Index reflects the reinvestments 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.
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
SCHEDULE OF INVESTMENTS
As of December 31, 1999
<TABLE>
<CAPTION>
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<S> <C> <C>
Market
Description Shares Value
- ----------------------------------------------------------------------
COMMON STOCK -- 97.9%
BASIC MATERIALS -- 8.1%
CHEMICALS-SPECIALTY -- 3.2%
Cytec Industries* 500 11,562
C.K. Witco 800 $ 10,700
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22,262
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PAPER & RELATED PRODUCTS -- 4.1%
Mead 300 13,031
Temple-Inland 100 6,594
Willamette Industries 200 9,288
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28,913
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STEEL-PRODUCERS -- 0.8%
Nucor 100 5,481
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5,481
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TOTAL BASIC MATERIALS (COST $48,167) 56,656
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CONSUMER CYCLICAL -- 13.6%
APPAREL MANUFACTURERS -- 0.7%
Tommy Hilfiger* 200 4,662
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4,662
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AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 1.6%
Borg-Warner Automotive 200 8,100
Delphi Automotive Systems 200 3,150
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11,250
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BROADCAST SERVICE/PROGRAMMING -- 1.0%
Unitedglobal.com, Cl A* 100 7,062
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7,062
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HOTELS & MOTELS -- 0.7%
Starwood Hotels & Resorts 200 4,700
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4,700
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MULTIMEDIA -- 1.9%
Scripps (E.W.), Cl A 300 13,444
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13,444
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PUBLISHING-NEWSPAPERS -- 1.6%
Tribune 200 11,012
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11,012
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RADIO -- 1.4%
Cumulus Media, Cl A* 200 10,150
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10,150
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RETAIL-CONSUMER ELECTRONICS -- 1.9%
Circuit City Stores 300 13,519
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13,519
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RETAIL-JEWELRY -- 2.1%
Zales* 300 14,513
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14,513
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RETAIL-RESTAURANTS -- 0.7%
Brinker International* 200 4,800
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4,800
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TOTAL CONSUMER CYCLICAL (COST $87,530) 95,112
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</TABLE>
<TABLE>
<CAPTION>
Market
Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
CONSUMER NON-CYCLICAL -- 2.1%
CONSUMER PRODUCTS-MISCELLANEOUS -- 0.4%
Dial 100 $ 2,432
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2,432
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FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.7%
Aurora Foods* 1,300 12,106
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12,106
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TOTAL CONSUMER NON-CYCLICAL (COST $15,461) 14,538
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ENERGY -- 18.9%
OIL & GAS DRILLING -- 2.9%
Noble Drilling* 200 6,550
Transocean Sedco Forex 400 13,475
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20,025
- ----------------------------------------------------------------------
OIL COMPANIES-EXPLORATION & PRODUCTION -- 6.9%
Devon Energy 400 13,150
EOG Resources 800 14,050
Forest Oil* 300 3,956
Louis Dreyfus Natural Gas* 200 3,625
Noble Affiliates 100 2,144
Santa Fe Snyder* 1,400 11,200
- ----------------------------------------------------------------------
48,125
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OIL FIELD MACHINERY & EQUIPMENT -- 3.2%
Cooper Cameron* 300 14,681
Weatherford International* 200 7,988
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22,669
- ----------------------------------------------------------------------
OIL-FIELD SERVICES -- 2.9%
BJ Services* 300 12,543
Hanover Compressor* 200 7,550
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20,093
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PIPELINES -- 3.0%
Columbia Energy Group 200 12,650
Kinder Morgan 400 8,075
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20,725
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TOTAL ENERGY (COST $129,526) 131,637
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FINANCIAL -- 16.8%
COMMERCIAL BANKS-CENTRAL U.S. -- 0.9%
Marshall & Ilsley 100 6,281
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6,281
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COMMERCIAL BANKS-EASTERN U.S. -- 0.5%
Mercantile Bankshares 100 3,194
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3,194
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COMMERCIAL BANKS-SOUTHERN U.S. -- 1.1%
Southtrust 200 7,562
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7,562
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COMMERCIAL BANKS-WESTERN U.S. -- 1.7%
Zions Bancorporation 200 11,837
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11,837
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FINANCE-CREDIT CARD -- 2.6%
Providian Financial 200 18,212
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18,212
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</TABLE>
4
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
<TABLE>
<CAPTION>
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<S> <C> <C>
Market
Description Shares Value
- ----------------------------------------------------------------------
COMMON STOCK -- CONTINUED
FINANCE-INVEST BANKER/BROKER -- 1.7%
Paine Webber Group 300 $11,644
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11,644
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LIFE/HEALTH INSURANCE -- 3.1%
Jefferson Pilot 100 6,825
MONY Group 300 8,756
Protective Life 200 6,363
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21,944
- ----------------------------------------------------------------------
PROPERTY/CASUALTY INSURANCE -- 3.9%
Ace Limited 700 11,681
XL Capital, Cl A 300 15,563
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27,244
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REITS-OFFICE PROPERTY -- 0.5%
Crescent Real Estate Equities 200 3,675
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3,675
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S&L THRIFTS-CENTRAL US -- 0.8%
Charter One Financial 300 5,738
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5,738
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TOTAL FINANCIAL (COST $115,733) 117,331
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HEALTH CARE -- 7.0%
DISPOSABLE MEDICAL PRODUCTS -- 0.8%
Bard (C.R.) 100 5,300
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5,300
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MEDICAL-DRUGS -- 3.2%
Forest Laboratories* 100 6,144
Medimmune* 100 16,587
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22,731
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MEDICAL-GENERIC DRUGS -- 3.0%
Mylan Labs 400 10,075
Watson Pharmaceutical* 300 10,744
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20,819
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TOTAL HEALTH CARE (COST $35,433) 48,850
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INDUSTRIAL -- 4.0%
AEROSPACE/DEFENSE-EQUIPMENT -- 0.8%
General Dynamics 100 5,275
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5,275
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ELECTRIC PRODUCTS-MISCELLANEOUS -- 0.9%
C-Cube Microsystems* 100 6,225
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6,225
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ELECTRONIC COMPONENTS-MISCELLANEOUS -- 0.9%
Vishay Intertechnology* 200 6,325
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6,325
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NON-HAZARDOUS WASTE DISPOSAL -- 1.4%
Republic Services* 700 10,063
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10,063
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TOTAL INDUSTRIAL (COST $20,359) 27,888
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</TABLE>
<TABLE>
<CAPTION>
Market
Description Shares Value
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONTINUED
SERVICES -- 5.9%
COMMERCIAL SERVICES-FINANCE -- 1.9%
Block (H&R) 300 $ 13,125
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13,125
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COMPUTER SERVICES -- 4.0%
DST Systems* 100 7,632
McAfee.com* 100 4,500
Safeguard Scientifics* 100 16,206
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28,338
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TOTAL SERVICES (COST $25,112) 41,463
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TECHNOLOGY -- 13.6%
COMPUTER SOFTWARE -- 0.7%
Cadence Design Systems* 200 4,800
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4,800
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COMPUTERS-MEMORY DEVICES -- 2.0%
Seagate Technology* 300 13,969
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13,969
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ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 4.2%
Advanced Micro Devices* 300 8,681
Cypress Semiconductor* 400 12,950
Micron Technology 100 7,775
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29,406
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ENTERPRISE SOFTWARE/SERVICE -- 2.4%
Compuware* 300 11,175
Symantec* 100 5,863
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17,038
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NETWORK SOFTWARE -- 1.5%
Networks Associates* 400 10,675
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10,675
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SATELLITE TELECOMMUNICATIONS -- 1.4%
Loral Space & Communications* 400 9,725
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9,725
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TELECOMMUNICAITON EQUIPMENT -- 0.7%
COM21* 200 4,487
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4,487
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TELECOMMUNICATION SERVICES -- 0.7%
RCN* 100 4,850
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4,850
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TOTAL TECHNOLOGY (COST $80,503) 94,950
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TRANSPORTATION -- 1.5%
AIRLINES -- 0.5%
Alaska Airgroup* 100 3,513
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3,513
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TRANSPORTATION-TRUCK -- 1.0%
CNF Transportation 200 6,900
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6,900
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TOTAL TRANSPORTATION (COST $10,221) 10,413
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</TABLE>
5
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Shares/
Face Market
Description Amount Value
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- CONCLUDED
UTILITIES --6.4%
ELECTRIC-INTEGRATED -- 5.5%
Conectiv 200 $ 3,362
Constellation Energy Group 200 5,800
DQE 200 6,925
Duke Energy 100 5,012
Minnesota Power 1,000 16,938
- ----------------------------------------------------------------------
38,037
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GAS-DISTRIBUTION -- 0.9%
MCN Energy Group 100 2,375
UGI 200 4,088
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6,463
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TOTAL UTILITIES (COST $49,629) 44,500
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TOTAL COMMON STOCK (COST $617,674) 683,338
- ----------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.9%
Morgan Stanley
5.25%, dated 12/31/99, matures 01/03/00,
repurchase price $19,976 (collateralized
by U.S. Treasury Instruments: total market value
$20,562)(A) $19,968 19,968
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TOTAL REPURCHASE AGREEMENT (COST $19,968) 19,968
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TOTAL INVESTMENTS -- 100.8% (COST $637,642) $703,306
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</TABLE>
Percentages based on net assets of $697,762
* Non-income producing security
A -- Tri Party Repurchase Agreement
Cl -- Class
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 Mid-Cap Value Portfolio
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $637,642)..................... $703,306
Receivable for investment securities sold................. 49,686
Dividends and interest receivable......................... 420
Other assets.............................................. 88
--------
Total assets.............................................. 753,500
--------
LIABILITIES:
Payable for investment securities purchased............... 52,839
Accrued expenses.......................................... 2,899
--------
Total liabilities......................................... 55,738
--------
NET ASSETS:
Paid-in-capital (authorized 500 million shares -- $0.001
par value) based on 58,519 outstanding shares of common
stock................................................... 600,439
Undistributed net investment income....................... 877
Accumulated net realized gain on investments.............. 30,782
Net unrealized appreciation on investments................ 65,664
--------
Net Assets................................................ $697,762
========
Net Asset Value, Offering Price and Redemption Price Per
Share................................................... $ 11.92
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends................................................. $ 6,632
Interest.................................................. 1,451
--------
Total Investment Income................................. 8,083
--------
EXPENSES:
Investment Advisory Fees.................................. 5,102
Administrative Fees....................................... 900
Custodian Fees............................................ 7,661
Transfer Agent Fees....................................... 18,152
Printing Fees............................................. 2,962
Insurance and Other Fees.................................. 590
--------
Total Expenses.......................................... 35,367
--------
Waiver of Investment Advisory Fees........................ (5,102)
Waiver of Administrative Fees............................. (391)
Reimbursement of Other Expenses by Adviser................ (22,671)
--------
Net Expenses............................................ 7,203
--------
NET INVESTMENT INCOME....................................... 880
--------
Net Realized Gain from Security Transactions.............. 109,158
Net Change in Unrealized Appreciation on Investments...... 32,580
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. 141,738
--------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $142,618
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
01/01/99 11/30/98
TO TO
12/31/99 12/31/98(1)
-------- ------------
<S> <C> <C>
INVESTMENT ACTIVITIES:
Net Investment Income..................................... $ 880 $ 112
Net Realized Gain from Security Transactions.............. 109,158 21,848
Net Change in Unrealized Appreciation on Investments...... 32,580 33,084
-------- --------
Net Increase in Net Assets Resulting from Operations.... 142,618 55,044
-------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income..................................... (115) --
Net Realized Gains from Security Transactions............. (100,224) --
-------- --------
Total Distributions..................................... (100,339) --
-------- --------
CAPITAL SHARE TRANSACTIONS (A):
Shares Issued............................................. -- 500,100
Shares Issued upon Reinvestment of Distributions.......... 100,339 --
Shares Redeemed........................................... -- --
-------- --------
Increase in Net Assets Derived from Capital Share
Transactions............................................ 100,339 500,100
-------- --------
Total Increase in Net Assets............................ 142,618 555,144
-------- --------
NET ASSETS:
Beginning of Period....................................... 555,144 --
-------- --------
End of Period............................................. $697,762 $555,144
======== ========
(A) SHARES ISSUED AND REDEEMED:
Shares Issued............................................. -- 50,010
Shares Issued upon Reinvestment of Distributions.......... 8,509 --
Shares Redeemed........................................... -- --
-------- --------
Net Increase in Shares Outstanding........................ 8,509 50,010
======== ========
</TABLE>
(1) The PBHG Mid-Cap Value Portfolio commenced operations on November 30, 1998.
The accompanying notes are an integral part of the financial statements.
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
FINANCIAL HIGHLIGHTS
For the year or 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....................... $11.10 $0.02 $2.75 -- $(1.95) $11.92 25.66%
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....................... $697,762 1.20% 0.15% 5.89% (4.54)% 906.69%
1998(1).................... 555,144 1.20%* 0.26%* 4.13%* (2.67)%* 72.32%+
</TABLE>
* Annualized.
+ Total return and portfolio turnover have 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.
10
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[LOGO] PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1999
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 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 Large Cap Growth Portfolio, the Technology &
Communications Portfolio, the Small Cap Value Portfolio, the Large Cap Value
Portfolio, or the Select 20 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, 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 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. As of December 31, 1999,
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 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 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, which commenced operations on November 30, 1998 and are being
amortized on a straight line basis over a period of sixty months from the
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.
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
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PBHG Mid-Cap Value Portfolio
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
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 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 December 31, 1999, the amount of advisory fee waiver and reimbursement
of third party expenses by the Adviser subject to possible reimbursement was
$29,060.
Pilgrim Baxter Value Investors, Inc., a wholly-owned subsidiary of the Adviser,
serves as the sub-adviser 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 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 Adviser 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 $15 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
$3,325 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 $5,215,012 and $5,219,469, 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 $86,451 and $20,787, 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.
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 at any time during the year ended December 31, 1999.
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDER
OF THE PBHG INSURANCE SERIES FUND, INC.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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 PBHG Mid-Cap Value 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, and the changes in its net assets and the 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 presentation. We believe that
our audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 4, 2000
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PBHG Insurance Series Fund, Inc.
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PBHG Mid-Cap 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) (C) (D)
NET ORDINARY
CAPITAL GAINS INCOME TOTAL
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS QUALIFYING
FUND (TAX BASIS) (TAX BASIS) (TAX BASIS) DIVIDENDS(1)
- ---- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Mid-Cap Value Portfolio....................... 0% 100% 100% 3%
</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.
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PBHG Insurance Series Fund, Inc.
Investment Adviser
Pilgrim Baxter & Associates, Ltd.
Distributor
SEI Investments Distribution, Co.
Oaks, PA
