<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
600 DRESHER ROAD, HORSHAM, PA 19044
- --------------------------------------------------------------------------------
SUPPLEMENT DATED NOVEMBER 21, 1997
TO PROSPECTUS DATED MAY 1, 1997
- --------------------------------------------------------------------------------
The Prospectus is being amended and supplemented to (i) reflect a change of
control of OpCap Advisors, the investment adviser to the Value Equity and Small
Capitalization Funds of the Penn Series Funds, Inc. (the "Company"); (ii)
reflect a change of control of Robertson Stephens Investment Management, Inc.,
the investment sub-adviser to the Emerging Growth Fund; and (iii) provide
updated unaudited financial highlights for each of the Funds.
--------------
On November 4, 1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered
investment adviser with $125 billion in assets under management, through
various subsidiaries, and its affiliates acquired control of Oppenheimer
Capital and its subsidiary OpCap Advisors, the investment adviser to the Value
Equity and Small Capitalization Funds of the Company and a new Investment
Advisory Agreement (on identical terms as the previous Investment Advisory
Agreements) between the Company and OpCap Advisors became effective. The new
Investment Advisory Agreement was approved by the shareholders of the Value
Equity and Small Capitalization Funds at a Special Meeting of Shareholders held
on October 10, 1997.
Pursuant to the above transaction, Value Advisors LLC, a limited liability
company and a wholly-owned subsidiary of PIMCO Advisors, holds a one-third
managing general partner interest in Oppenheimer Capital and a 1.0% general
partner interest in OpCap Advisors. Oppenheimer Capital L.P., a Delaware
limited partnership whose units are traded on the New York Stock Exchange, owns
the remaining two-thirds interest in Oppenheimer Capital. PIMCO Partners G.P.
("PIMCO GP"), general partner of PIMCO Advisors, holds the sole general partner
interest in Oppenheimer Capital, L.P.
PIMCO G.P. owns approximately 42.83% and 66.37% respectively of the total
outstanding Class A and Class B units of limited partnership interest ("Units")
of PIMCO Advisors and is PIMCO Advisors' sole general partner. PIMCO GP is a
California general partnership with two general partners. The first of these is
Pacific Investment Management Company, which is a California Corporation
wholly-owned by Pacific Financial Asset Management Company, a direct subsidiary
of Pacific Life Insurance Company ("Pacific Life").
PIMCO Partners L.L.C. ("PPLLC"), a California limited liability company, is
the second, and managing general partner of PIMCO GP. PPLLC's members are the
Managing Directors (the "PIMCO Managers") of Pacific Investment Management
Company, a subsidiary of PIMCO Advisors (the "PIMCO Subpartnership"). The PIMCO
Managers are: William H. Gross, Dean S. Meiling, James F. Muzzy, William F.
Podich, III, Frank B. Rabinovitch, Brent R. Harris, John L. Hague, William S.
Thompson Jr., William C. Powers, David H. Edington, Benjamin Trosky, William R.
Benz, II and Lee R. Thomas, III.
PIMCO Advisors is governed by an Operating Board and an Equity Board.
Governance matters are allocated generally to the Operating Board and the
Operating Board delegates to the Operating Committee the authority to manage
day-to-day operations of PIMCO Advisors. The Operating Board is composed of
twelve members, including the chief executive officer of the PIMCO
Subpartnership as Chairman and six PIMCO Managers designated by the PIMCO
Subpartnership.
The authority of PIMCO Advisors' Operating Board and Operating Committee to
take certain specified actions is subject to the approval of PIMCO Advisors'
Equity Board. Equity Board approval is required for certain major transactions
(e.g., issuance of additional PIMCO Advisors' Units and appointment of PIMCO
Advisors' chief executive officer). In addition, the Equity Board has
jurisdiction over matters such as actions which would have material effect upon
PIMCO Advisors' business taken as a whole and (after an appeal from an
Operating Board decision) matters likely to have a material adverse economic
effect on any subpartnership of PIMCO Advisors. The Equity Board is composed of
twelve members, including the chief executive officer of PIMCO Advisors, three
members designated by a subsidiary of Pacific Life, the chairman of the
Operating Board and two members designated by PPLLC.
Because of its power to appoint (directly or indirectly) seven of the twelve
members of the Operating Board as described above, the PIMCO Subpartnership may
be deemed to control PIMCO Advisors. Because of direct or indirect power to
appoint 25% of the members of the Equity Board, (1) Pacific Life and (ii) the
PIMCO Managers and/or the PIMCO Subpartnership may each be deemed, under
applicable provisions of the Investment Company Act, to control PIMCO Advisors.
Pacific Life, the PIMCO Subpartnership and the PIMCO Managers disclaim such
control.
--------------
On October 1, 1997, BankAmerica Corporation ("BankAmerica") acquired
Robertson, Stephens & Company Group LLC ("RS Group") and Robertson Stephens &
Company, Inc. ("RS&Co."), the parent entities of Robertson Stephens Investment
Management, Inc. ("RSIM"), the investment sub-adviser to the Emerging Growth
Fund. Pursuant to this acquisition, RS Group and RS&Co. have been merged with
and into Robertson Stephens Investment Management Co., a wholly owned
subsidiary of BankAmerica. Accordingly, RSIM, now known as RS Investment
Management, Inc., is a wholly-owned, indirect subsidiary of BankAmerica.
BankAmerica is a global financial services company with approximately $250
billion in assets and an equity capital base of approximately $20 billion.
--------------
<PAGE>
The following paragraph and tables are added under the heading "Financial
Highlights" on page 3 of the Prospectus:
The following tables provide unaudited financial highlights for the Growth
Equity, Value Equity, Small Capitalization, Flexibly Managed, International,
Quality Bond, High Yield Bond, and Money Market Funds for the six month period
ended June 30, 1997. These unaudited financial highlights are part of the
unaudited financial statements which are included in the Semi-Annual reports
to variable insurance contract owners that invest in Penn Mutual Variable
Annuity Account III and Penn Mutual Variable Life Account I of The Penn Mutual
Life Insurance Company and PIA Variable Annuity Account I of The Penn
Insurance and Annuity Company and incorporated by reference in the Statement
of Additional Information. The following tables also provide unaudited
financial highlights for the Emerging Growth Fund for the period of May 1,
1997 (commencement of operations) through September 30, 1997. These unaudited
financial highlights are part of the Emerging Growth Fund's unaudited
financial statements which are contained in the Statement of Additional
Information.
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
The tables below set forth financial data for a share outstanding throughout
the period.
<TABLE>
<CAPTION>
GROWTH EQUITY HIGH YIELD BOND MONEY MARKET QUALITY BOND
FUND FUND FUND FUND
------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ... $ 21.46 $ 8.91 $ 1.00 $ 10.00
-------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .. 0.06 0.4 0.0246 0.31
Net realized and
unrealized gain (loss)
on investment
transactions .......... 3.36 0.29 0.00 (0.05)
-------- -------- ------- --------
Total from investment
operations ........... 3.42 0.69 0.0246 0.26
-------- -------- ------- --------
LESS DISTRIBUTIONS:
Dividend from net
investment income ..... 0.00 0.00 (0.0246) 0.00
Distribution from
capital gains ......... 0.00 0.00 0.00 0.00
-------- -------- ------- --------
Total distributions ... 0.00 0.00 (0.0246) 0.00
-------- -------- ------- --------
Net asset value, end of
period ................ $ 24.88 $ 9.60 $ 1.00 $ 10.26
======== ======== ======= ========
Total return .......... 15.94% 7.74% 2.48% 2.60%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands).. $123,798 $ 51,092 $38,637 $ 37,330
-------- -------- ------- --------
Ratio of expenses to
average net assets..... 0.76%(a) 0.80%(a) 0.71%(a) 0.74%(a)
-------- -------- ------- --------
Ratio of net investment
income to average net
assets ................ 0.48%(a) 8.98%(a) 4.98%(a) 6.22%(a)
-------- -------- ------- --------
Portfolio Turnover Rate
....................... 89.3% 64.0% -- 137.6%
-------- -------- ------- --------
Average commission rate
paid (b) .............. $ 0.0776 -- $ -- --
-------- -------- ------- --------
<CAPTION>
SMALL
VALUE EQUITY INTERNATIONAL CAPITALIZATION FLEXIBLY
FUND EQUITY FUND FUND MANAGED FUND
------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ... $ 19.32 $ 15.61 $ 12.53 $ 18.74
-------- -------- ------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .. 0.14 0.1 0 0.29
-------- -------- ------- --------
Net realized and
unrealized gain (loss)
on investment
transactions .......... 2.50 1.80 1.93 1.30
-------- -------- ------- --------
Total from investment
operations ........... 2.64 1.90 1.93 1.59
-------- -------- ------- --------
Less distributions:
Dividend from net
investment income ..... 0.00 0.00 0.00 0.00
Distribution from
capital gains ......... 0.00 0.00 0.00 0.00
-------- -------- ------- --------
Total distributions ... 0.00 0.00 0.00 0.00
-------- -------- ------- --------
Net asset value, end of
period ................ $ 21.96 $ 17.51 $ 14.46 $ 20.33
======== ======== ======= ========
Total return ........... 13.66% 12.17% 15.40% 8.48%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (in thousands).. $259,761 $127,946 $27,626 $469,395
-------- -------- ------- --------
Ratio of expenses to
average net assets..... 0.76%(a) 1.14%(a) 0.86%(a) 0.76%(a)
-------- -------- ------- --------
Ratio of net investment
income to average net
assets ................ 1.44%(a) 1.20%(a) 0.74%(a) 3.08%(a)
-------- -------- ------- --------
Portfolio Turnover Rate
....................... 4.7% 19.3% 54.6% 17.3%
-------- -------- ------- --------
Average commission rate
paid (b)............... 0.0598 0.0490 0.0556 0.0436
-------- -------- ------- --------
</TABLE>
- ---------------------
(a) Annualized.
(b) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged, as required by the SEC.
2
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: THE EMERGING GROWTH FUND
The table below sets forth financial data for a share outstanding throughout
the period
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1997*
(UNAUDITED)
-------------------
<S> <C>
Net asset value, beginning of period .................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) ............................ 0.00
Net realized and unrealized gain on investments and
foreign currency related transactions .................. 5.55
-------
Total from investment operations ....................... 5.55
-------
LESS DISTRIBUTIONS:
Dividend from net investment income ..................... --
Distribution in excess of net investment income ......... --
Distribution from capital gains ......................... --
Distribution from capital ............................... --
-------
Total distributions .................................... --
Net asset value, end of period .......................... $ 15.55
=======
Total return ........................................... 55.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $14,547
-------
Ratio of expenses to average net assets 1.15 %(a)(b)
-------
Ratio of net investment income to average net assets .... (0.61)%(a)(b)
-------
Portfolio turnover rate ................................. 139.0 %(a)
-------
Average commission rate paid (c) ........................ $0.0541
-------
</TABLE>
- ---------------------
(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratio of expenses to average net assets and the ratio of net
investment income to average net assets would have been 1.37% annualized
and (0.83)% annualized, respectively, for the period ended September 30,
1997.
(c) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged, as required by the SEC beginning after September 1, 1995.
*For the period from May 1, 1997 (commencement of operations) to September
30, 1997.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
3
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
600 DRESHER ROAD, HORSHAM, PA 19044
- --------------------------------------------------------------------------------
SUPPLEMENT DATED NOVEMBER 21, 1997
TO THE STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Statement of Additional Information dated May 1, 1997 is hereby amended
and supplemented by the following. The unaudited financial statements of the
Growth Equity, Value Equity, Small Capitalization, Emerging Growth, Flexibly
Managed, International, Quality Bond, High Yield Bond and Money Market Funds
for the periods ended June 30, 1997 included in the Semi-Annual reports to
variable insurance contract owners that invest in Penn Mutual Variable Annuity
Account III and Penn Mutual Variable Life Account I of The Penn Mutual Life
Insurance Company and PIA Variable Annuity Account I of The Penn Insurance and
Annuity Company are hereby incorporated herein by reference. A copy of the
applicable Semi-Annual Report must accompany this Statement of Additional
Information. The unaudited financial statements of the Emerging Growth Fund for
the period May 1, 1997 (commencement of operations) through September 30, 1997
are included herein.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE.
4
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- --------
<S> <C> <C> <C>
COMMON STOCK.................................. 98.6%
ADVERTISING .................................. 0.4%
Universal Outdoor Holdings, Inc.............. 1,400 $ 52,150
--------
AGRICULTURAL OPERATIONS ...................... 1.0%
Scheid Vineyards, Inc. 12,900 141,900
--------
AUDIO/ VIDEO PRODUCTS ........................ 0.6%
Gemstar International Group Ltd.............. 3,600 90,450
--------
BANK AND TRUST ............................... 0.3%
Redwood Trust, Inc. 1,600 48,300
--------
BANKING ...................................... 0.4%
MBNA Corp. 1,500 60,750
--------
BROADCASTING ................................. 0.8%
Emmis Broadcasting Corp...................... 1,700 80,963
VDI Media.................................... 3,000 38,625
--------
<CAPTION>
119,588
<S> <C> <C> <C>
--------
BUILDING MAINTANCE & SERVICES ................ 0.5%
Fairfield Communications Corp................ 1,900 71,369
--------
BUSINESS DATA PROCESSING ..................... 0.1%
Sybase, Inc.................................. 1,000 18,031
--------
BUSINESS SERVICES ............................ 4.1%
Accustaff, Inc............................... 4,000 126,000
Caribiner International, Inc................. 1,000 40,750
Corporatefamily Solutions, Inc............... 2,500 41,250
Hall Kinion & Associates, Inc................ 4,900 103,513
Romac International, Inc..................... 4,800 209,100
Sotheby Holdings, Inc........................ 3,100 62,969
--------
<CAPTION>
583,582
<S> <C> <C> <C>
--------
CABLE OPERATORS .............................. 0.8%
Univision Communications, Inc................ 2,000 108,500
--------
CARE FACILITY ................................ 0.5%
Sunrise Assisted Living...................... 1,900 68,519
--------
COMMERCIAL SERVICES .......................... 2.3%
Bridgestreet Accomodations................... 18,900 $217,350
Memberworks, Inc............................. 1,900 42,334
The Profit Recovery Group International,
Inc......................................... 4,500 81,844
--------
<CAPTION>
341,528
<S> <C> <C> <C>
--------
COMMUNICATIONS ............................... 1.1%
Ciena Corp................................... 1,000 49,531
Spectrian Corp............................... 1,700 108,694
--------
<CAPTION>
158,225
<S> <C> <C> <C>
--------
COMPUTERS .................................... 3.9%
Box Hill Systems Corp........................ 5,700 99,750
Great Plains Software, Inc................... 400 11,150
Individual, Inc.............................. 2,000 12,031
Information Management Associates, Inc....... 3,800 47,025
Intelligroup, Inc............................ 12,500 267,969
New Horizons Worldwide,...................... 1,000 12,875
Peerless Systems Corp........................ 1,800 25,088
Radiant Systems, Inc......................... 4,100 86,100
--------
<CAPTION>
561,988
<S> <C> <C> <C>
--------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- ---------
<S> <C> <C> <C>
COMPUTER SERVICES & SOFTWARE ................ 18.5%
Advantage Learning Systems, Inc............. 3,200 80,800
Applix, Inc................................. 1,200 10,800
Arbor Software Corp......................... 1,300 60,206
Aris Corp................................... 4,000 85,000
ASI Solutions, Inc.......................... 4,200 39,375
Aspect Development, Inc..................... 4,000 164,250
Check Point Software Technologies Ltd....... 2,900 90,081
Ciber, Inc.................................. 400 18,900
Computer Learning Centers, Inc.............. 1,800 70,200
Compuware Corp.............................. 2,000 120,750
Crystal Systems Solutions................... 1,200 32,400
Cybermedia, Inc............................. 1,000 26,719
Datastream Systems, Inc..................... 2,200 82,294
E*trade Group, Inc.......................... 4,600 215,913
Ecsoft Group PLC (ADR)...................... 13,400 230,313
Egghead, Inc................................ 10,000 90,313
Information Management Resources............ 1,500 42,188
Intersolv, Inc.............................. 4,000 61,875
J. D. Edwards & Co.......................... 3,800 127,775
JDA Software Group, Inc..................... 800 29,150
Keane, Inc.................................. 2,800 88,900
Legato Systems, Inc......................... 1,300 46,069
Mastech Corp................................ 1,100 37,675
Medic Computer Systems...................... 1,000 34,188
Metro Information Services, Inc............. 1,400 30,013
Mindspring Enterprises, Inc................. 1,200 25,725
Neomedia Technonogies, Inc.................. 2,500 25,625
Network Solutions, Inc...................... 700 15,050
New Era of Networks......................... 5,200 72,150
Pervasive Software, Inc..................... 8,200 93,275
Platinum Technology, Inc.................... 1,000 21,594
Rational Software Corp...................... 1,000 15,969
Saville Systems Ireland PLC (ADR)........... 1,000 70,438
Simulated Sciences, Inc..................... 1,700 33,628
Smallworldwide PLC (ADR).................... 3,600 76,500
The Vantive Corp............................ 3,300 79,406
Transactions Systems Architects, Inc........ 3,200 130,000
TSI International Software Ltd.............. 1,600 21,350
Viasoft, Inc................................ 800 39,600
Vocaltec Communications Ltd................. 1,000 24,000
---------
2,660,457
---------
CONSTRUCTION ................................ 0.8%
Hospitality Worldwide Services.............. 9,200 120,750
CONSULTING SERVICES ......................... 1.9%
Hagler Bailly, Inc.......................... 2,700 69,188
Maximus, Inc................................ 6,900 199,669
---------
268,857
---------
DATA PROCESSING ............................. 0.3%
American Management Systems, Inc............ 2,000 38,125
DISTRIBUTION SERVICES ....................... 0.7%
Intelligent Electronics, Inc................ 4,200 21,263
Microage, Inc............................... 2,800 81,200
---------
102,463
---------
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- -------
<S> <C> <C> <C>
DRUGS ......................................... 2.5%
Applied Analytical Industries, Inc.+.......... 300 $ 6,038
Boron, Lepore & Associates.................... 4,900 114,231
Jones Medical Industries, Inc................. 2,000 63,125
Kendle International, Inc..................... 9,900 185,006
-------
<CAPTION>
368,400
<S> <C> <C> <C>
-------
EDUCATION ..................................... 2.1%
Abacus Direct Corp............................ 3,100 98,813
Education Management Corp..................... 1,200 31,500
Edutrek International, Inc.................... 1,400 37,100
Sylvan Learning Systems, Inc.................. 3,000 131,813
-------
<CAPTION>
299,226
<S> <C> <C> <C>
-------
ELECTRONICS ................................... 2.7%
Cellstar Corp................................. 5,200 242,125
Cyberoptics Corp.............................. 1,500 50,766
Intest Corp................................... 5,500 92,813
-------
<CAPTION>
385,704
<S> <C> <C> <C>
-------
ELECTRONIC COMPONENTS ......................... 4.6%
Aavid Thermal Technologies.................... 500 $14,875
Alpha Industries, Inc......................... 2,100 38,850
Etec Systems, Inc............................. 1,000 56,875
Flextronics International Ltd................. 2,000 95,125
KLA-Tencor Corp............................... 1,700 114,803
Novellus System, Inc.......................... 1,000 125,875
Qlogic Corp................................... 1,000 41,813
Semtech Corp.................................. 2,400 165,900
-------
<CAPTION>
654,116
<S> <C> <C> <C>
-------
ELECTRONICS-DEFENSE ........................... 0.1%
Nichols Research Corp......................... 400 9,850
ELECTRICAL EQUIPMENT .......................... 0.3%
Intergrated Process Equipment Corp............ 1,000 36,813
ELECTRONICS-SEMICONDUCTORS .................... 1.0%
Photronics, Inc............................... 2,400 145,275
FINANCIAL SERVICES............................. 2.8%
Comdicso, Inc. ............................... 1,000 32,563
Financial Federal Corp........................ 7,650 135,788
Resource Bancshares Mortgage Group............ 2,800 36,488
Sirrom Capital Corp........................... 2,200 114,538
The Money Store Inc........................... 2,900 82,288
-------
<CAPTION>
401,665
<S> <C> <C> <C>
-------
HEALTHCARE .................................... 4.0%
Castle Dental Centers, Inc.................... 7,700 106,838
McKesson Corp................................. 800 81,550
Renal Care Group, Inc......................... 1,200 43,050
Resmed, Inc................................... 500 12,875
Steiner Leisure Ltd........................... 1,000 37,000
Vision Twenty-One, Inc........................ 11,200 153,300
Vista Medical Technologies, Inc............... 9,800 145,163
-------
<CAPTION>
579,776
<S> <C> <C> <C>
-------
HELP SUPPORT SERVICES ......................... 0.2%
SCB Computer Technology 1,500 31,875
HOTELS ........................................ 3.9%
Execustay Corp................................ 9,400 110,450
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- -------
<S> <C> <C> <C>
Four Seasons Hotels, Inc...................... 1,500 61,500
Intrawest Corp................................ 2,000 37,125
Pegusus Systems, Inc.......................... 1,800 32,681
Signature Resorts, Inc........................ 1,000 47,438
Suburban Lodges of America.................... 1,300 34,206
Trendwest Resorts, Inc........................ 9,800 230,300
-------
<CAPTION>
553,700
<S> <C> <C> <C>
-------
HUMAN RESOURCES ............................... 2.7%
Lamalie Associates, Inc....................... 600 $12,825
RCM Technologies.............................. 6,600 106,219
Staffmark, Inc................................ 6,800 260,950
-------
<CAPTION>
379,994
<S> <C> <C> <C>
-------
INSURANCE ..................................... 2.1%
Arm Financial Group, Inc...................... 2,700 64,294
Liberty Financial Co.......................... 1,900 99,750
Southern Pacific Funding...................... 3,400 47,813
Sunamerica, Inc............................... 2,250 88,172
-------
<CAPTION>
300,029
<S> <C> <C> <C>
-------
INVESTMENT .................................... 0.9%
T. Rowe Price Associates, Inc................. 2,000 134,250
MANUFACTURING.................................. 1.0%
CN Biosciences, Inc........................... 400 9,350
General Scanning, Inc......................... 1,000 34,813
Topro, Inc.................................... 1,000 5,734
Trikon Technologies, Inc...................... 900 7,734
Wesley Jessen Visioncare...................... 3,000 85,875
-------
<CAPTION>
143,506
<S> <C> <C> <C>
-------
MEDICAL ....................................... 3.7%
Bioreliance Corp.............................. 5,300 139,788
Coventry Corp................................. 5,200 85,638
Cytyc Corp.................................... 2,200 54,863
Ocular Sciences, Inc.......................... 7,800 179,400
Seamed Corp................................... 1,200 22,200
Spine-Tech, Inc............................... 1,000 37,688
-------
519,577
-------
MEDICAL SERVICES............................... 1.4%
Covance, Inc. ................................ 900 19,463
Lincare Holdings, Inc......................... 1,600 80,550
Medical Manager Corp.......................... 1,100 23,066
Universal Health Services, Inc.-- B........... 1,700 73,525
-------
<CAPTION>
196,604
<S> <C> <C> <C>
-------
MEDICAL INFORMATION SYSTEMS ................... 0.8%
HBO & Co...................................... 3,000 113,063
-------
OFFICE EQUIPMENT & SUPPLIES ................... 1.0%
Granite Financial, Inc........................ 12,200 143,350
-------
OIL & GAS ..................................... 0.1%
Cal Dive International Inc.................... 400 15,000
-------
PERSONAL SERVICES ............................. 0.4%
Interim Services, Inc......................... 2,000 56,250
-------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- --------
<S> <C> <C> <C>
PHARMACEUTICALS .............................. 1.8%
Medicis Pharmaceutical Corp.................. 2,300 $104,794
Paraxel International Corp................... 2,500 97,813
Vertex Pharmaceuticals, Inc.................. 1,600 60,450
--------
<CAPTION>
263,057
<S> <C> <C> <C>
--------
REAL ESTATE .................................. 2.2%
Asset Investors Corp......................... 1,000 4,313
CBCommercial Real Esate Services............. 4,800 155,400
Lasalle Partners, Inc........................ 4,400 154,000
--------
<CAPTION>
313,713
<S> <C> <C> <C>
--------
RECREATIONAL ................................. 1.0%
Silverleaf Resorts, Inc...................... 6,100 139,538
RESORTS/THEME PARKS........................... 0.1%
Vistana, Inc................................. 100 2,175
RESTAURANTS .................................. 1.7%
CKE Restaurants, Inc......................... 3,500 147,000
NPC International, Inc....................... 2,600 32,988
Star Buffet.................................. 4,000 63,250
--------
<CAPTION>
243,238
<S> <C> <C> <C>
--------
RETAIL MERCHANDISING ......................... 0.3%
Dress Barn, Inc.............................. 900 21,684
Pacific Sunwear of California................ 600 24,638
--------
<CAPTION>
46,322
<S> <C> <C> <C>
--------
RETAIL STORES-DEPARTMENT ..................... 2.5%
Claire's Stores, Inc......................... 4,900 109,638
Coldwater Creek, Inc......................... 1,100 31,350
Concepts Direct, Inc......................... 1,800 35,213
Delia's, Inc................................. 2,400 54,450
Gadzooks..................................... 2,400 50,550
K&G Mens Ctr................................. 1,500 29,250
Piercing Pagoda, Inc......................... 1,600 50,200
--------
<CAPTION>
360,651
<S> <C> <C> <C>
--------
SHOES ........................................ 0.2%
Vans, Inc.................................... 1,800 28,856
SEMICONDUCTORS ............................... 1.6%
Galileo Technology Ltd....................... 500 16,594
Micrel, Inc.................................. 1,000 42,313
Vitesse Semiconductor Corp................... 3,300 163,556
--------
<CAPTION>
222,463
<S> <C> <C> <C>
--------
TELECOMMUNICATIONS ........................... 6.5%
Ace*Comm Corp................................ 900 19,519
Advanced Fibre Communication................. 1,200 49,163
Brightpoint, Inc............................. 3,700 171,356
LCC International, Inc....................... 1,700 36,869
Midcom Communications, Inc................... 3,000 $ 20,625
Natural Microsystems Corp.................... 1,700 64,388
Nextlink Communications...................... 9,600 231,600
P-Com, Inc................................... 2,000 47,875
Pairgain Tech................................ 3,800 108,181
Premisys Communications, Inc................. 2,000 50,938
Tekelec...................................... 3,000 102,188
Uniphase Corp................................ 500 39,781
--------
<CAPTION>
942,483
<S> <C> <C> <C>
--------
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF NUMBER
PORTFOLIO OF SHARES VALUE
------------- --------- -----------
<S> <C> <C> <C>
TEXTILE-APPAREL .............................. 1.4%
Novel Demim Holdings Ltd..................... 7,400 198,875
-----------
TOBACCO ...................................... 1.3%
800-Jr Cigar, Inc............................ 5,400 189,000
-----------
TRANSPORTATION-MISCELLANEOUS ................. 0.7%
Travel Services International, Inc........... 4,800 99,000
-----------
TOTAL COMMON STOCK
(Cost $12,214,053)............................. 14,132,926
-----------
PREFERRED STOCK .............................. 1.4%
Trans World Airlines......................... 8,000 203,000
-----------
TOTAL INVESTMENTS............................. 100.0% $14,335,926
===========
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES (IN 000'S) (UNAUDITED)
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value ................................................ $14,336
Cash ................................................................ 0
Interest, dividends and reclaims receivable ......................... 4
Receivable for investment securities sold ........................... 1,616
Receivable for capital stock sold ................................... 38
Net unrealized appreciation on forward foreign currency contracts ... --
Other assets ........................................................ --
-------
Total Assets ....................................................... 15,994
-------
LIABILITIES:
Cash overdraft ...................................................... 148
Payable for investment securities purchased ......................... 1,257
Payable for capital stock redeemed .................................. 30
Dividends payable ................................................... 0
Payable to the investment advisor ................................... 7
Payable to The Penn Mutual Life Insurance Co. ....................... 0
Net unrealized appreciation on forward foreign currency contracts ... 0
Other liabilities ................................................... 5
-------
Total Liabilities .................................................. 1,447
-------
NET ASSETS ........................................................... $14,547
=======
Shares of $.10 par value capital stock issued and outstanding ........ 935
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE ............. $ 15.55
NET ASSETS CONSIST OF:
Capital paid in ..................................................... $10,976
Undistributed net investment income ................................. (21)
Accumulated net realized gain (loss) on investment transactions and
foreign exchange ................................................... 1,663
Net unrealized appreciation (depreciation) in value of investments,
futures contracts and foreign currency related items ............... 1,929
-------
TOTAL NET ASSETS ................................................... $14,547
=======
(1) Investments at cost .............................................. $12,407
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD MAY 1, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER 30,
1997
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends ............................................................ $ 12
Interest ............................................................. 7
Foreign tax withheld ................................................. 0
------
Total investment income ............................................. 19
------
EXPENSES:
Investment advisory fees ............................................. 28
Administration fees .................................................. 5
Accounting fees ...................................................... 3
Custodian fees and expenses .......................................... 9
Other expenses ....................................................... 2
------
Total expenses ...................................................... 47
Less: Expense waivers ............................................... (7)
------
NET EXPENSES .......................................................... 40
------
Net investment income (loss) .......................................... (21)
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investment transactions ......................... 1,663
Net realized foreign exchange gain ................................... 0
Change in net unrealized appreciation of investments, futures
contracts and foreign currency related items ........................ 1,929
------
Net realized and unrealized gain on investments ...................... 3,592
------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $3,571
======
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE PERIOD MAY 1, 1997 (COMMENCEMENT OF OPERATIONS) THROUGH SEPTEMBER 30,
1997
- --------------------------------------------------------------------------------
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment loss................................................... $ (21)
Net realized gain on investment transactions.......................... 1,663
Net change in unrealized appreciation of investments and foreign
currency related items............................................... 1,929
-------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ 3,571
-------
CAPITAL SHARE TRANSACTIONS
Net increase in net assets from capital share transactions ........... 10,796
-------
NET ASSETS, END OF PERIOD ............................................. $14,547
=======
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS - SEPTEMBER 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
1 -- SIGNIFICANT ACCOUNTING POLICIES
Penn Series Funds, Inc. (Penn Series) was incorporated in Maryland on April
22, 1982. Penn Series is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company.
Penn Series commenced offering shares of the Emerging Growth Fund (the Fund)
on May 1, 1997. Penn Series currently offers shares in a total of nine funds,
and is authorized under its Articles of Incorporation to issue a separate class
of shares in each of two additional funds. Each Fund would have its own
investment objective and policy.
The following is a summary of significant accounting policies followed by
Penn Series in the preparation of its financial statements. The preparation of
financial statements requires the use of management's estimates.
INVESTMENT VALUATION:
EMERGING GROWTH FUND -- Portfolio securities listed on a national securities
exchange are valued at the last sale price on the securities exchange or
securities market on which such securities primarily are traded or, if there
has been no sale on that day, at the mean between the current closing bid and
asked prices. All other securities for which over-the-counter market quotations
are readily available will be valued on the basis of the mean between the last
current bid and asked prices. When market quotation are not readily available,
or when restricted or other assets are being valued, the securities or assets
will be valued at fair value as determined by The Board.
FOREIGN CURRENCY TRANSLATION -- The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis: market value of investment securities, assets
and liabilities at the current rate of exchange, purchases and sales of
investment securities, income and expenses at the relevant rates of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of realized and unrealized gains and
losses on investments in equity securities which are due to changes in the
foreign exchange rate from that which is due to changes in market prices of
equity securities.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the level of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
Security Transactions And Investment Income: Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is accrued as earned. The cost of investment
securities sold is determined by using the specific identification method for
both financial reporting and income tax purposes.
Dividends To Shareholders: Dividends of investment income and realized
capital gains of the Fund will be declared and paid annually. Income
distributions and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles.
Federal Income Taxes: It is the policy of the Fund to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including realized
gains, to its shareholders. Therefore, no provision is made for federal income
or excise taxes.
2 -- DERIVATIVE FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Fund may trade financial instruments with off-balance sheet risk in the
normal course of investing activities and to assist in managing exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Fund has in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transaction are considered.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
FUTURES CONTRACTS -- The Fund, may enter into financial futures contracts for
the delayed delivery of securities, currency or contracts based on financial
indices on a future date. The Fund is required to deposit either in cash or
securities an amount equal to a certain percentage of the contract amount.
Subsequent payments are made or received by a Fund each day, dependent on daily
fluctuations in the value of the underlying security, and are recorded for
financial statement purposes as unrealized gains or losses by a Fund. The
Fund's investment in financial futures contracts is designed only to hedge
against anticipated future changes in interest or exchange rates. Should
interest or exchange rates move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
11
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
2 - DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
WRITTEN OPTIONS -- The Fund, may write covered calls. Additionally, the Fund
may buy put or call options for which premiums are paid whether or not the
option is exercised. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which are
exercised or are closed are offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option is
exercised the premium increases the cost basis of the securities purchased by
the Fund. As writer of an option, the Fund may have no control over whether the
underlying securities may be sold (call) and, as a result, bears the market
risk of an unfavorable change in the price of the securities underlying the
written option.
FORWARD FOREIGN CURRENCY CONTRACTS -- The Fund may enter into forward foreign
currency exchange contracts as a way of managing foreign exchange rate risk.
The Fund may enter into these contracts to fix the U.S. dollar value of a
security that it has agreed to buy or sell for the period between the date the
trade was entered into and the date the security is delivered and paid for. The
Fund may also use these contracts to hedge the U.S. dollar value of securities
it already owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by the Fund as
an unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain the might
result should the value of the currency increase. In addition, the Fund could
be exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts.
3 -- INVESTMENT ADVISORY AND OTHER CORPORATE SERVICES
ADMINISTRATIVE AND CORPORATE SERVICES
Under an administrative and corporate services agreement, The Penn Mutual
Life Insurance Company ("Penn Mutual") serves as administrative and corporate
services agent for the Fund. The Fund pays Penn Mutual, on a quarterly basis,
an annual fee equal to 0.15% of each of the Fund's average daily net assets.
INVESTMENT ADVISORY SERVICES
Under the investment advisory agreement, the following adviser manages the
investments of the Fund and provide guidance on certain accounting matters:
<TABLE>
<CAPTION>
ADVISER PENN SERIES FUND
------- ----------------
<S> <C>
Independence Capital Management, Emerging Growth Fund
Inc.
(A wholly owned subsidiary of Penn
Mutual)
</TABLE>
The Fund pays the adviser, on a monthly basis, an annual advisory fee based
on the average daily net assets, at the following rate pursuant to the
investment advisory agreement: 0.80%. Independence Capital Management, Inc.
currently serves as the investment adviser and RS Investment Management, Inc.
acts as sub-adviser to assist in working to achieve the investment objectives
of the Fund.
EXPENSES AND LIMITATIONS THEREON
The Fund bears all expenses of its operations other than those incurred by
the investment advisers under their respective investment advisory agreements
and those incurred by Penn Mutual under its administrative and corporate
services agreement. The investment adviser and Penn Mutual have each
voluntarily agreed to waive fees or reimburse expenses to the extent each of
the Fund's expense ratio (excluding interest, taxes, brokerage, other
capitalized expenses, but including investment advisory and administrative and
corporate services fees) exceeds the applicable expense limitations for the
Fund. The expense limitation for the Fund is 1.15%.
Fees were paid to non-affiliated Directors of Penn Series for the five months
ended September 30,1997. However, no person received compensation from Penn
Series who is an officer, director, or employee of Penn Series, the investment
adviser, administrator, accounting agent or any parent or subsidiary thereof.
12
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.--EMERGING GROWTH FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
- --------------------------------------------------------------------------------
4 -- CAPITAL STOCK
Transactions in capital stock of the Emerging Growth Fund were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30 1997
------------------------
SHARES AMOUNT
----------- -----------
<S> <C> <C>
Shares sold........................................... 974,229 $11,516,046
Shares issued to shareholders in reinvestment of
Net investment income................................ 0 0
Net realized gain from investment transactions....... 0 0
Shares reacquired..................................... (38,860) (539,673)
----------- -----------
935,369 $10,976,373
=========== ===========
5 -- PURCHASES AND SALES OF INVESTMENTS
<CAPTION>
EMERGING GROWTH FUND
------------------------
PURCHASES SALES
----------- -----------
<S> <C> <C>
Long Term U.S. Govt. and Agency Obligations........... $ 0 $ 0
Other Long-Term Securities............................ 23,355,856 13,559,145
----------- -----------
Totals............................................... $23,355,856 $13,559,145
=========== ===========
</TABLE>
13
