<PAGE>
------------------------
OFFITBANK VIF - U.S. GOVERNMENT SECURITIES FUND
------------------------
ANNUAL REPORT
DECEMBER 31, 1998
THE
OFFITBANK
VARIABLE INSURANCE FUND, INC.
<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
STATEMENT OF OPERATIONS
VIF- U.S. GOVERNMENT SECURITIES FUND
FOR THE PERIOD
AUGUST 24, 1998 THROUGH
DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 213
Dividends 74
Total Income 287
EXPENSES:
Advisory 22
Transfer agent 1,500
Fund accounting 1,250
Professional 991
Miscellaneous 226
----------------------
Total expenses before 3,989
Less expenses waived/reimbursed (3,952)
----------------------
Net expenses 37
----------------------
NET INVESTMENT INCOME 250
REALIZED GAINS ON INVESTMENTS:
Net realized gains on investment 1,556
----------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,806
----------------------
----------------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements
<PAGE>
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
VIF- U.S. GOVERNMENT SECURITIES FUND
FOR THE PERIOD
AUGUST 24, 1998
THROUGH
DECEMBER 31, 1998*
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 250
Net realized gains on investment transactions 1,556
Net increase in net assets resulting from operations 1,806
-------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 149,895
Cost of shares redeemed (151,701)
Net decrease in net assets from capital (1,806)
-------------
Total increase in net assets 0
NET ASSETS:
Beginning of period 0
-------------
End of period $ 0
-------------
-------------
* Commencement of operations.
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE OFFITBANK INVESTMENT FUND, INC.
FINANCIAL HIGHLIGHTS
VIF- U.S. GOVERNMENT SECURITIES FUND
----------------------------------
FOR THE PERIOD
AUGUST 24, 1998 THROUGH
DECEMBER 31, 1998*
- ---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD $ 10.00
------------------
Net investment income -
Net realized gains 0.23
------------------
Total income from investment
operations 0.23
------------------
NET ASSET VALUE, END OF PERIOD $ 10.23
------------------
TOTAL RETURN (a) 2.30% (b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (in thousands) $0
Ratios to average net assets:
Expenses** 0.60% (c)
Net investment income 4.04% (c)
Portfolio turnover rate 107% (b)
---------------------------------------------------
* During 1998, the Fund's operations were limited to the period August
24, 1998, the date shares were first issued, and September 23, 1998,
the date on which the shares then outstanding were redeemed.
Subsequent to period end on March 31, 1999, shares were sold to the
public and the Fund recommenced operations.
** During the period, certain fees were voluntarily reduced and/ or
reimbursed. If such voluntary fee reductions and/ or reimbursements
had not occurred, the ratio would have been higher.
(a) Total return is based on the change in net asset value during the
period and assumes reinvestment of all dividends and distributions.
(b) Not annualized.
(c) Annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
The OFFITBANK Variable Insurance Fund, INC. (The "Company") was incorporated in
Maryland on July 1, 1994. The Company is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Company consists of ten
separately managed funds, of which six, OFFITBANK VIF-High Yield Fund, OFFITBANK
VIF-Emerging Markets Fund, DJG Value Equity Fund, OFFITBANK VIF-U.S. Small Cap
Fund, OFFITBANK VIF-Total Return Fund, and OFFITBANK VIF-U.S. Government
Securities Fund have commenced operations. These financial statements relate to
the OFFITBANK VIF-U.S. Government Securities Fund (the "Fund").
The Fund is offered to insurance companies as an investment medium for its
variable insurance products. During 1998, the Fund's operations were limited to
the period August 24, 1998, the date shares were first issued, and September 23,
1998, the date on which all shares then outstanding were redeemed. No statement
of assets and liabilities at December 31, 1998 is included as the Fund had no
assets, liabilities or shares outstanding at that date.
The VIF- U.S. Government Securities Fund operates as a non-diversified open-end
Management Investment Company. The Fund seeks to provide investors with a high
level of current income with capital appreciation as a second objective.
OFFITBANK serves as the investment adviser. PFPC Inc. ("PFPC"), an indirect
wholly owned subsidiary of PNC Bank Corp., provides administrative and fund
accounting services for the Fund. OFFIT Funds Distributor, Inc. (the
"Distributor"), serves as the distributor of the Fund's shares. PFPC also
provides transfer and dividend disbursing agent services for the Fund.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual results could differ from
those estimates.
PORTFOLIO VALUATIONS:
Debt securities held by the Fund generally are valued based on quoted bid
prices. Short-term debt investments having maturities of 60 days or less are
valued at amortized cost, which approximates market value, and, if applicable,
adjusted for foreign exchange translation. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under the direction of the Company's Board of Directors. Securities
may be valued by independent pricing services, approved by the Company's Board
of Directors, which use prices provided by market-makers or estimates of market
value obtained from yield data relating to instruments or securities with
similar characteristics.
SECURITIES TRANSACTIONS AND RELATED INCOME:
The Fund records security transactions on a trade date basis. Interest income,
including accretion of discount and amortization of premium, is accrued daily.
Dividend income is recognized on the ex-dividend date. Realized gains and
losses from security transactions are recorded on the identified cost basis.
EXPENSES:
The Company accounts separately for the assets, liabilities and operations of
each Fund. Direct expenses of the Fund are charged to that Fund, while general
Company expenses are allocated among the Company's respective portfolios based
on relative net assets.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from the Fund's net investment income, if any, are declared and paid
annually. Net realized gains on portfolio securities, if any, are distributed at
least annually by the Fund. However, to the extent net realized gains can be
offset by capital loss carryovers, such gains will not be distributed.
Distributions are recorded by the Fund on the ex dividend date.
The amount of distributions from net investment income and net realized gains
are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the composition of net assets based on their federal tax-basis treatment;
temporary differences do not require reclassification. Distributions which
exceed net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions in
excess of net investment income or distributions in excess of net realized
gains. To the extent they exceed net investment income and net realized capital
gains for tax purposes, they are reported as distributions of capital.
FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute timely all
of their net investment company taxable income and net capital gains to
shareholders. Therefore, no federal income tax provision is required.
REPURCHASE AGREEMENTS:
The Fund may purchase instruments from financial institutions, such as banks and
broker-dealers, subject to the seller's agreement to repurchase them at an
agreed upon time and price ("repurchase agreements"). The seller under a
repurchase agreement is required to maintain the value of the securities subject
to the agreement at not less than the repurchase price. Default by the seller
would, however, expose the Fund to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.
NOTE 3 -- AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES:
The Company has entered into an investment advisory agreement (the "Investment
Advisory Agreement") with OFFITBANK (the "Adviser"). Pursuant to the terms of
the Investment Advisory Agreement, the Adviser is entitled to a fee that is
calculated daily and paid monthly at the annual rate of 0.35% of the Fund's
average daily net assets. For the period ended December 31, 1998, the Adviser
earned and waived fees of $22 for the Fund.
PFPC provides the Company with administrative services pursuant to an
administration agreement (the "Administration Agreement"). The services under
the Administration Agreement are subject to the supervision of the Company's
Board of Directors and officers and include the day-to-day administration of
matters related to the corporate existence of the Company, maintenance of its
records, preparation of reports, supervision of the Company's arrangements with
its custodian and assistance in the preparation of the Company's registration
statements under federal and state laws. Pursuant to the Administration
Agreement, the Company pays PFPC a monthly fee for its services at an annual
rate of 0.125% of each Portfolio's first $300 million in average daily net
assets; 0.11% of each Portfolio's next $300 million in average daily net assets;
0.08% of each Portfolio's next $300 million in average daily net assets; 0.05%
of each Portfolio's next $300 million in average daily net assets; and 0.0275%
of each Portfolio's average daily net assets in excess of $1.2 billion. From
time to time, PFPC may waive all or a portion of its fees. For the period
August 24, 1998 through December 31, 1998, PFPC was entitled to and waived fees
of $7 for the Fund.
PFPC provides the Fund with fund accounting and related services pursuant to a
fund accounting agreement with the Company. For these services PFPC is
entitled a fee of $1,250 per month per Fund plus out of pocket expenses. From
time
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
to time, PFPC may waive all or a portion of its fees. For the period August 24,
1998 through December 31, 1998, the Fund earned and waived fees of $1,250.
PFPC also serves as transfer agent for the Fund and receives reimbursement of
certain expenses plus a fee for related services pursuant to a transfer agency
agreement with the Company. From time to time, PFPC may waive all or portion of
these fees. For the period August 24, 1998 through December 31, 1998, PFPC
earned fees of $1,500 and waived fees of $645 for the Fund.
The Company has entered into a distribution agreement (the "Distribution
Agreement") with the Distributor. Under the Distribution Agreement, the
Distributor, as agent of the Company, agrees to use its best efforts as sole
distributor of the Company's shares. The Distribution Agreement provides that
the Company will bear the costs of the registration of its shares with the
Commission and various states and the printing of its prospectuses, statements
of additional information and reports to shareholders. There is no fee payable
under the Distribution Agreement.
OFFITBANK has voluntarily agreed to limit the expense ratio for the Fund at
0.60%. In order to maintain this ratio, for the period ended December 31, 1998,
the Adviser has waived all or a portion of their advisory fee and has also
agreed to reimburse the Fund for expenses in the amount of $2,028.
NOTE 4 -- SECURITIES TRANSACTIONS
For the period ended December 31, 1998, the cost of purchases and the proceeds
from sales of the Fund portfolio securities (excluding short-term investments)
were as follows:
Corporate Bonds
Purchases Sales
--------- -------
VIF-U.S. Government Securities Fund $74,833 $76,350
NOTE 5 -- CAPITAL SHARE TRANSACTIONS
The Company's Articles of Incorporation permit the Company to issue nine billion
shares (par value $0.001). Transactions in shares of common stock for the
period ended December 31, 1998 were as follows:
VIF-U.S. GOVERNMENT
SECURITIES FUND
-----------------------------
PERIOD ENDED
DECEMBER 31, 1998
-----------------------------
SHARES AMOUNTS
---------- ---------------
Shares issued........ 14,826 $149,895
Shares redeemed...... (14,826) (151,701)
---------- ---------------
Net decrease 0 ($1,806)
---------- ---------------
---------- ---------------
NOTE 6 - SUBSEQUENT EVENT
On March 31, 1999, 1,000,000 shares of the Fund were sold to the public and the
Fund resumed operations.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
The OFFITBANK VIF-U.S. Government Securities Fund, Inc.
In our opinion, the accompanying statements of operations and of changes in net
assets and the financial highlights present fairly, in all materials respects,
the results of operations, the changes in net assets and the financial
highlights for the OFFITBANK VIF-U.S. Government Securities Fund (the "Fund")
for the period August 24, 1998 (commencement of operations) through December 31,
1998, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards, 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
April 26, 1999
<PAGE>
- --------------------------------------------------------------------------------
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Morris W. Offit
CHAIRMAN OF THE BOARD, PRESIDENT AND DIRECTOR
Edward J. Landau
DIRECTOR
The Very Reverend
James Parks Morton
DIRECTOR
Dr. Wallace Mathai-Davis
SECRETARY AND TREASURER
David C. Lebisky
ASSISTANT SECRETARY
Gary M. Gardner
ASSISTANT SECRETARY
Vincent M. Rella
ASSISTANT TREASURER
David D. Marky
ASSISTANT TREASURER
Stephen M. Wynne
ASSISTANT TREASURER
INVESTMENT ADVISOR
OFFITBANK
520 Madison Avenue
New York, New York, 10022-4213
DISTRIBUTOR
OFFIT Funds Distributor, Inc.
Four Falls Corporate Center, 6th Floor
West Conshochocken Pennsylvania 19428-2961
ADMINISTRATOR
PFPC Inc.
103 Bellevue Parkway
Wilmington, DE 19809
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
CUSTODIAN
The Bank of New York
90 Washington Street, 11th Floor
New York, New York 10286
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
<PAGE>
This report is submitted for the information of the shareholders of the Fund.
It is not authorized for distribution to prospective investors in the Fund
unless preceded or accompanied by an effective prospectus which includes
information regarding the Fund 's objectives and policies, charges, expenses and
other data. Please read the prospectus carefully before you invest or send
money.
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
400 BELLEVUE PARKWAY, SUITE 108
WILMINGTON, DE 19809
(800) 618-9510
