<PAGE>
As filed with the Securities and Exchange Commission on February 14, 1997
File No. 2-77284 (811-03459)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. ____ [_]
Post-Effective Amendment No. 44 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 24 [x]
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
- --------------------------------------------------------------------------------
600 Dresher Road
Horsham, Pennsylvania 19044
(Address of Principal Executive Offices)
Registrant's Telephone Number: 215-956-8000
- --------------------------------------------------------------------------------
L. STOCKTON ILLOWAY
President
Penn Series Funds, Inc.
Independence Square
Philadelphia, Pennsylvania 19172
(Name and Address of Agent for Service)
Copy to:
RICHARD W. GRANT
C. RONALD RUBLEY
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
---
on (date) pursuant to paragraph to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph a (1) of Rule 485
---
on (date) pursuant to paragraph (a) (1) of Rule 485
---
75 days after filing pursuant to paragraph to paragraph (a)(2) of Rule
--- 485
x on May 1, 1997 pursuant to paragraph (a)(2) of Rule 485
---
- --------------------------------------------------------------------------------
The Registrant has registered an indefinite number of shares of common stock
pursuant to Rule 24f-2 under the Investment Company Act of 1940. The Rule 24f-2
Notice for the fiscal year ended December 31, 1996 was filed on February
11, 1997.
<PAGE>
CROSS REFERENCE SHEET TO PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
Pursuant to Rule 495(a) under the Securities Act of 1933, the following table
indicates the location in the Prospectus and the Statement of Additional
Information of the information called for by the Items of Parts A and B of Form
N-1A.
<TABLE>
<CAPTION>
Heading in Prospectus or Statement of Additional
Item Number and Caption Prospectus Information
- ------------------------- ---------- -----------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Not Applicable
3. Condensed Financial Financial Highlights
Information
4. General Description of General Information;
Information; Investment Objectives
and Programs; Additional
Investment Information
Relating to the Funds
5. Management of the Fund Management of the Penn
Series Funds, Inc.
5A. Management Discussion Not Applicable
of Investment Performance
6. Capital Stock and Other General Information;
Securities Dividends, Distributions
and Taxes; Voting Rights
7. Purchase of Securities Sales and Redemption of
Being Offered Shares
8. Redemption or Repurchase Sale and Redemption of
Shares
9. Pending Legal Proceedings Not Applicable
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and Not Applicable
History
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Heading in Prospectus or Statement of Additional
Item Number and Caption Prospectus Information
- ------------------------- ---------- -----------------------
<S> <C> <C>
13. Investment Objectives
and Policies Investment Objectives;
Securities and
Investment Techniques;
Investment Restrictions
14. Management of the Fund Directors and Officers
15. Control Persons and General Information Ownership of Shares
Principal Holders of
Securities
16. Investment Advisory and Investment Advisers; Investment Advisory
Other Services Administrative and Services; Accounting
Corporate Services Services
Agent
17. Brokerage Allocation Portfolio Transactions
and Other Practices
18. Capital Stock and Other General Information;
Securities Dividends, Distributions
and Taxes; Voting Rights
19. Purchase, Redemption General Information Net Asset Value of
and Pricing of Securities Shares
Being Offered
20. Tax Status Dividends,
Distributions and
Taxes; Additional
Investment Information
Relating to the Fund
21. Underwriters Not Applicable
22. Calculations of Not Applicable
Performance Data
23. Financial Statements Financial Statements of
Penn Series
</TABLE>
<PAGE>
PROSPECTUS -- MAY 1, 1997
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
600 DRESHER ROAD, HORSHAM, PA 19044 . TELEPHONE (215) 956-8000
- --------------------------------------------------------------------------------
Penn Series Funds, Inc. ("Penn Series") is a diversified open-end management
investment company that currently offers nine different investment portfolios
or Funds. Each Fund is, for investment purposes, a separate investment fund,
and each is represented by a separate series or class of capital stock. The
Funds and their investment objectives are as follows.
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND:
seeks long-term growth of capital and increase of future
income by investing primarily in common stocks of well-
established growth companies;
- --------------------------------------------------------------------------------
VALUE EQUITY FUND: seeks to maximize total return (capital appreciation and
income) primarily by investing in equity securities of
companies believed to be undervalued considering such
factors as assets, earnings, growth potential and cash
flows;
- --------------------------------------------------------------------------------
SMALL CAPITALIZATION FUND:
seeks capital appreciation through investment in a
diversified portfolio of securities consisting primarily of
equity securities of companies with market capitalizations
of under $1 billion;
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND:
seeks capital appreciation by investing primarily in common
stocks of emerging growth companies with above-average
growth prospects;
- --------------------------------------------------------------------------------
FLEXIBLY MANAGED FUND:
seeks to maximize total return (capital appreciation and
income) by investing in common stocks, other equity
securities, corporate debt securities, and/or short-term
reserves, in proportions considered appropriate in light of
the availability of attractively valued individual
securities and current and expected economic and market
conditions;
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND:
seeks to maximize capital appreciation by investing in a
carefully selected diversified portfolio consisting
primarily of equity securities. The investments will
consist principally of equity securities of European and
Pacific Basin countries;
- --------------------------------------------------------------------------------
QUALITY BOND FUND: seeks the highest income over the long term consistent with
the preservation of principal by investing primarily in
marketable investment-grade debt securities;
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND:
seeks high current income by investing primarily in a
diversified portfolio of long term high-yield fixed income
securities in the medium to lower quality ranges; capital
appreciation is a secondary objective; SUCH SECURITIES,
WHICH ARE COMMONLY REFERRED TO AS "JUNK" BONDS, GENERALLY
INVOLVE GREATER RISKS OF LOSS OF INCOME AND PRINCIPAL THAN
HIGHER RATED SECURITIES;
- --------------------------------------------------------------------------------
MONEY MARKET FUND: seeks to preserve capital, maintain liquidity and achieve
the highest possible level of current income consistent
therewith, by investing in high quality money market
instruments; AN INVESTMENT IN THE FUND IS NEITHER INSURED
NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
Shares of Penn Series Funds, Inc. are sold only to The Penn Mutual Life
Insurance Company ("Penn Mutual") and its subsidiary, The Penn Insurance and
Annuity Company ("PIA"), for their separate and general accounts. The Funds are
underlying investment vehicles for variable annuity contracts and variable life
insurance policies.
This prospectus sets forth concisely the information a prospective purchaser
of a variable contract should know before directing Penn Mutual or PIA to
invest purchase payments or premiums in the Funds. It should be retained for
future reference.
A Statement of Additional Information about the Penn Series Funds, Inc.,
which is incorporated by reference in this prospectus, has been filed with the
Securities and Exchange Commission. It is available, at no charge, by writing
The Penn Mutual Life Insurance Company, Customer Service Group--H3F,
Independence Square, Philadelphia, PA 19172. Or, you can call toll free, 1-800-
548-1119. The date of the Statement of Additional Information is the same as
the date of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS CONTENTS
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
GENERAL INFORMATION......................................................... 3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS........................................................ 3
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PROGRAMS.......................................... 12
Growth Equity Fund........................................................ 12
Value Equity Fund......................................................... 13
Small Capitalization Fund................................................. 14
Emerging Growth Fund...................................................... 15
Flexibly Managed Fund..................................................... 15
International Equity Fund................................................. 16
Quality Bond Fund......................................................... 18
High Yield Bond Fund...................................................... 19
Money Market Fund......................................................... 22
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT INFORMATION RELATING TO THE FUNDS..................... 24
- --------------------------------------------------------------------------------
MANAGEMENT OF PENN SERIES FUNDS, INC........................................ 25
Directors and Officers.................................................... 25
Investment Advisers....................................................... 25
Administrative and Corporate Services Agent............................... 27
Expenses and Limitations Thereon.......................................... 27
Custodian, Accounting Services Agent and Transfer Agent................... 28
- --------------------------------------------------------------------------------
SALE AND REDEMPTION OF SHARES............................................... 28
- --------------------------------------------------------------------------------
NET ASSET VALUE OF SHARES................................................... 28
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................................... 29
- --------------------------------------------------------------------------------
VOTING RIGHTS............................................................... 29
- --------------------------------------------------------------------------------
RATINGS OF CORPORATE DEBT SECURITIES........................................ 30
Moody's Investors Service, Inc............................................ 30
Standard & Poor's Corporation............................................. 30
- --------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
Penn Series Funds, Inc. ("Penn Series") was organized as a Maryland corporation
in 1982. In 1983, Penn Mutual Equity Fund, Inc. merged into Penn Series and the
assets and liabilities of Penn Mutual Equity Fund, Inc. became the assets and
liabilities of what is now named the Growth Equity Fund of Penn Series.
Penn Series is registered under the Investment Company Act of 1940 ("1940
Act") as an open-end diversified management investment company, commonly known
as a "mutual fund."
Penn Series currently offers nine Funds and has a separate series or class of
capital stock for each Fund. Each share of capital stock issued with respect to
a Fund has a pro-rata interest in the assets of that Fund and has no interest
in any other Fund. Each Fund bears its own liabilities and also its
proportionate share of the general liabilities of Penn Series.
The Penn Series Funds and the investment advisers are as follows:
FUND
INVESTMENT ADVISER/ SUB-ADVISER
-----------------------------------------------------------------------------
Independence Capital Management, Inc.
Growth Equity Fund
OpCap Advisors
-----------------------------------------------------------------------------
OpCap Advisors
Value Equity Fund
Independence Capital Management, Inc. /
-----------------------------------------------------------------------------
Small Capitalization Fund
Robertson Stephens Investment
Management, Inc.
-----------------------------------------------------------------------------
T. Rowe Price Associates, Inc.
Emerging Growth Fund
Vontobel USA Inc.
-----------------------------------------------------------------------------
Independence Capital Management, Inc.
T. Rowe Price Associates, Inc.
-----------------------------------------------------------------------------
Independence Capital Management, Inc.
Flexibly Managed Fund
-----------------------------------------------------------------------------
The outstanding shares of each of the Funds of Penn Series are owned by The
Penn Mutual Life Insurance Company ("Penn Mutual") and its subsidiary, The Penn
Insurance and Annuity Company ("PIA"). Shares of Penn Series are currently sold
to separate accounts of Penn Mutual and PIA to fund variable annuity contracts
and variable life insurance contracts. It is possible that in the future it may
become disadvantageous for both variable annuity and variable life contract
separate accounts to invest in the same underlying mutual fund. Although
neither Penn Mutual, PIA nor Penn Series currently perceives or anticipates any
such disadvantage, the Board of Directors of Penn Series will monitor events to
determine whether any material conflict between variable annuity contract
owners and variable life contract owners arises. Material conflicts could
result from such things as: (1) changes in state insurance law; (2) changes in
federal income tax law; (3) changes in the investment management of any Fund of
Penn Series; or (4) differences between voting instructions given by variable
annuity contract owners and those given by variable life insurance policy
owners. In the event of a material, irreconcilable conflict, Penn Mutual or PIA
will take the steps necessary to protect its variable annuity and variable life
contract owners. Penn Mutual and PIA will be responsible for reporting any
potential or existing conflicts to the Board of Directors of Penn Series and
will remedy, at its cost, any material, irreconcilable conflict. This could
include discontinuance of investment in shares of Penn Series.
International Equity Fund
-----------------------------------------------------------------------------
Quality Bond Fund
-----------------------------------------------------------------------------
High Yield Bond Fund
-----------------------------------------------------------------------------
Money Market Fund
-----------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial data included in the tables set forth in the following pages
have been derived from the financial statements of Penn Series Funds, Inc.,
which have been audited by Coopers & Lybrand L.L.P., independent accountants,
whose report thereon appears in the Statement of Additional Information. The
financial data included in these tables should be read in conjunction with the
financial statements and the related notes included in the Statement of
Additional Information, which may be obtained upon request without charge.
Further information about the performance of the Funds is included in the
annual report to contract owners, which also may be obtained upon request
without charge.
3
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: GROWTH EQUITY FUND (A)
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of year........... $ 20.00 $ 18.30 $ 20.49 $ 18.82 $ 21.47 $ 16.35 $ 18.86 $ 15.78 $ 15.14 $ 17.81
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.11 0.09 0.13 0.06 0.16 0.23 0.41 0.35 0.35 0.28
Net realized and
unrealized gain (loss)
on investment transac-
tions.................. 3.85 4.75 (1.80) 2.28 1.12 5.45 (2.51) 4.60 1.57 0.80
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 3.96 4.84 (1.67) 2.34 1.28 5.68 (2.10) 4.95 1.92 1.08
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net
investment income...... (0.11) (0.09) (0.13) (0.06) (0.16) (0.23) (0.41) (0.35) (0.33) (0.63)
Distribution in excess
of net investment
income................. 0.00 (0.09) 0.00 0.00 0.00 0.00 0.00 (0.02) 0.00 0.00
Distribution from net
realized gain.......... (2.39) (3.05) (0.39) (0.61) (3.77) (0.33) 0.00 (1.50) (0.95) (3.12)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... (2.50) (3.14) (0.52) (0.67) (3.93) (0.56) (0.41) (1.87) (1.28) (3.75)
-------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 21.46 $ 20.00 $ 18.30 $ 20.49 $ 18.82 $ 21.47 $ 16.35 $ 18.86 $ 15.78 $ 15.14
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return............ 19.76% 26.45% (8.12%) 12.43% 5.96% 34.74% (11.13%) 31.37% 12.68% 6.06%
RATIOS/SUPPLEMENTAL DA-
TA:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(in thousands)......... $106,039 $95,593 $80,078 $83,938 $73,977 $59,670 $39,896 $39,541 $33,184 $31,375
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets..... 0.80% (b) 0.77% (b) 0.79% (b) 0.77% (b) 0.88% (b) 0.87% 0.91% 0.86% 0.77% 0.90%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets................. 0.48% (b) 0.43% (b) 0.70% (b) 0.30% (b) 0.81% (b) 1.28% 2.43% 1.66% 2.07% 1.91%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate. 177.1% 169.8% 156.2% 185.3% 120.7% 41.7% 34.0% 40.4% 27.3% 21.1%
======== ======= ======= ======= ======= ======= ======= ======= ======= =======
Average commission paid
(c).................... $ 0.0774
========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Penn Mutual Equity Fund Inc. prior to May 31, 1983. Growth Stock Fund
prior to November 1, 1992.
(b) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratio of expenses to average net assets would have been
.81%, .82%, .84%, .82% and .89%, and the ratio of the net investment in-
come to average net assets would have been .47%, .38%, .65%, .25% and
.80% for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(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.
4
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: VALUE EQUITY FUND (A)
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(B)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 16.28 $ 12.67 $ 12.68 $ 12.14 $ 11.89 $ 9.68 $ 11.18 $ 10.64 $ 8.77 $10.00 (c)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.22 0.25 0.20 0.17 0.45 0.47 0.59 0.51 0.34 0.49
Net realized and
unrealized gain (loss)
on investment
transactions........... 3.88 4.50 0.17 0.69 1.32 2.21 (1.50) 0.88 2.26 (1.17)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
Total from investment
operations............. 4.10 4.75 0.37 0.86 1.77 2.68 (0.91) 1.39 2.60 (0.68)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Dividend from net
investment income...... (0.22) (0.25) (0.20) (0.17) (0.45) (0.47) (0.59) (0.51) (0.33) (0.47)
Distribution from net
realized
gain................... (0.84) (0.89) (0.18) (0.15) (1.07) 0.00 0.00 (0.34) (0.40) (0.08)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
Total distributions..... (1.06) (1.14) (0.38) (0.32) (1.52) (0.47) (0.59) (0.85) (0.73) (0.55)
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end of
period................. $ 19.32 $ 16.28 $ 12.67 $ 12.68 $ 12.14 $ 11.89 $ 9.68 $ 11.18 $ 10.64 $ 8.77
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Total return............ 25.19% 37.48% 2.92% 7.08% 14.89% 27.69% (8.14%) 13.06% 29.65% (6.80%)
RATIOS/SUPPLEMENTAL DA-
TA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (in thousands).. $200,674 $127,260 $79,021 $69,980 $49,199 $33,610 $22,780 $24,385 $11,998 $4,683
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Ratio of expenses to
average net assets..... 0.78% 0.80% 0.82% 0.83% 0.88% (e) 0.88% 0.91% 0.89% 0.81% 0.84% (d)
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Ratio of net investment
income to average net
assets................. 1.38% 1.71% 1.59% 1.49% 3.87% (e) 4.44% 5.42% 5.38% 5.17% 4.91% (d)
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Portfolio turnover rate. 25.0% 34.3% 30.6% 17.2% 117.4% 32.4% 21.3% 26.9% 34.8% 82.4%
======== ======== ======= ======= ======= ======= ======= ======= ======= ======
Average commission rate
paid (f)............... $ 0.0588
========
</TABLE>
- -------------------------------------------------------------------------------
(a) Equity Income Fund prior to November 1, 1992.
(b) For the period March 2, 1987 (commencement of operations) through December
31, 1987.
(c) Initial capitalization.
(d) Annualized.
(e) Had fees not been waived by the investment adviser 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 .90% and 3.85% re-
spectively, for the year ended December 31, 1992.
(f) 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.
5
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: SMALL CAPITALIZATION FUND
The table below sets forth financial data for a share outstanding throughout
the period
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 (A)
- -------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period............ $ 10.96 $ 10.00
------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... 0.07 0.09
Net realized and unrealized gain (loss) on in-
vestment transactions.......................... 2.09 1.19
------------ -----------
Total from investment operations................ 2.16 1.28
------------ -----------
LESS DISTRIBUTIONS:
Dividend from net investment income............. (0.07) (0.09)
Distribution from capital gains................. (0.52) (0.23)
------------ -----------
Total distributions............................. (0.59) (0.32)
------------ -----------
Net asset value, end of period.................. $ 12.53 $ 10.96
============ ===========
Total return.................................... 19.76% 12.76%
RATIOS/SUPPLEMENTAL DATA:
- -------------------------------------------------------------------------------
Net assets, end of period (in thousands)........ $ 16,134 $ 4,828
============ ===========
Ratio of expenses to average net assets (c)..... 0.99% 1.00% (b)
============ ===========
Ratio of net investment income to average net
assets (c)..................................... 0.85% 1.53% (b)
============ ===========
Portfolio turnover rate......................... 39.2% 64.3%
============ ===========
Average commission rate paid (d)................ $ 0.0486
============
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from March 1, 1995 (commencement of operations through De-
cember 31, 1995.
(b) Annualized.
(c) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratio of expenses to average net assets would have been
1.06% and 1.29%, and the ratio of net investment income to average net as-
sets would have been .78% and 1.24% for the year ended December 31, 1996
and the period ended December 31, 1995.
(d) 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.
6
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: FLEXIBLY MANAGED FUND (A)
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 17.40 $ 15.19 $ 15.70 $ 14.31 $ 13.73 $ 12.30 $ 13.41 $ 12.65 $ 11.61 $ 13.45
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.65 0.53 0.43 0.34 0.58 0.52 0.54 0.57 0.48 0.54
Net realized and
unrealized gain (loss)
on investment
transactions........... 2.19 2.86 0.22 1.92 0.74 2.14 (0.65) 2.11 1.72 2.56
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 2.84 3.39 0.65 2.26 1.32 2.66 (0.11) 2.68 2.20 3.10
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net
investment income...... (0.65) (0.53) (0.43) (0.34) (0.58) (0.52) (0.54) (0.58) (0.48) (0.76)
Distribution in excess
of net investment
income................. (0.00) (0.01) (0.02) 0.00 0.00 0.00 (0.01) 0.00 0.00 (0.02)
Distribution from net
realized gain.......... (0.85) (0.64) (0.71) (0.53) (0.16) (0.71) (0.45) (1.34) (0.68) (4.16)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total distributions..... (1.50) (1.18) (1.16) (0.87) (0.74) (1.23) (1.00) (1.92) (1.16) (4.94)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 18.74 $ 17.40 $ 15.19 $ 15.70 $ 14.31 $ 13.73 $ 12.30 $ 13.41 $ 12.65 $ 11.61
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Total return............ 16.37% 22.28% 4.14% 15.79% 9.61% 21.63% (0.82%) 21.19% 18.95% 22.90%
RATIOS/SUPPLEMENTAL
DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(in thousands)......... $398,544 $266,556 $169,847 $113,492 $70,979 $47,141 $29,315 $27,439 $18,372 $10,332
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets..... 0.77% 0.79% 0.82% 0.85% 0.89% (b) 0.91% 0.90% 0.90% 0.86% 0.91%
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets................. 3.90% 3.45% 3.14% 2.62% 4.56% (b) 4.45% 4.11% 4.41% 4.38% 3.48%
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Portfolio turnover rate. 32.9% 37.2% 37.3% 42.6% 29.5% 53.6% 43.3% 74.9% 176.7% 183.6%
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
Average commission rate
paid (c)............... 0.0627
========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Capital Appreciation Fund prior to November 1, 1992.
(b) Had fees not been waived by the investment adviser and/or 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 .90% and 4.55% for
the year ended December 31, 1992, respectively.
(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.
7
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: INTERNATIONAL EQUITY FUND
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 14.47 $ 13.01 $ 13.94 $ 10.12 $ 10.00 (b)
-------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.63 0.13 0.09 0.03 0.03
Net realized and unrealized
gain (loss) on investments
and foreign currency
related items............. 1.81 1.67 (0.97) 3.83 0.17
-------- ------- ------- ------- -------
Total from investment
operations................ 2.44 1.80 (0.88) 3.86 0.20
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net
investment income......... (0.56) (0.12) (0.02) (0.01) (0.03)
Distribution in excess of
net investment income..... (0.74) (0.22) 0.00 0.00 (0.05)
Distribution from net
realized gain............. 0.00 0.00 (0.00) (0.03) 0.00
Distribution from return of
capital................... 0.00 0.00 (0.03) 0.00 0.00
-------- ------- ------- ------- -------
Total distributions........ (1.30) (0.34) (0.05) (0.04) (0.08)
-------- ------- ------- ------- -------
Net asset value, end of
period.................... $ 15.61 $ 14.47 $ 13.01 $ 13.94 $ 10.12
======== ======= ======= ======= =======
Total return............... 16.87% 13.80% (6.31%) 38.14% 2.00%
RATIOS/SUPPLEMENTAL DATA:
- --------------------------------------------------------------------------------
Net assets, end of period
(in thousands)............ $104,418 $69,531 $59,393 $40,798 $11,137
======== ======= ======= ======= =======
Ratio of expenses to
average net assets........ 1.17% 1.23% 1.22% 1.21% 1.54% (c)(d)
======== ======= ======= ======= =======
Ratio of net investment
income to average net
assets.................... 0.66% 0.91% 0.82% 0.63% 1.56% (c)(d)
======== ======= ======= ======= =======
Portfolio turnover rate.... 54.8% 62.5% 15.6% 11.1% 0.0%
======== ======= ======= ======= =======
Average Commission Paid
(e)....................... $ 0.0397
========
- --------------------------------------------------------------------------------
</TABLE>
(a) For the period from November 2, 1992 (commencement of operations) to De-
cember 31, 1992.
(b) Initial Capitalization.
(c) Annualized.
(d) Had fees not been waived by the investment adviser 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 1.90% annualized
and 1.20% annualized, respectively for the year ended December 31, 1992.
(e) 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.
8
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: QUALITY BOND FUND (A)
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(B)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period... $ 10.24 $ 9.04 $ 10.19 $ 10.03 $ 10.51 $ 9.73 $ 9.68 $ 9.22 $ 9.17 $ 10.00 (c)
------- ------- ------- ------- ------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.. 0.66 0.61 0.61 0.46 0.75 0.71 0.72 0.73 0.65 0.91
Net realized and
unrealized gain (loss)
on investment
transactions.......... (0.24) 1.21 (1.15) 0.71 (0.06) 0.81 0.05 0.46 0.04 (0.83)
------- ------- ------- ------- ------- ------- ------- ------- ------ -------
Total from investment
operations............ 0.42 1.82 (0.54) 1.17 0.69 1.52 0.77 1.19 0.69 0.08
------- ------- ------- ------- ------- ------- ------- ------- ------ -------
LESS DISTRIBUTIONS:
Dividend from net
investment income..... (0.66) (0.61) (0.61) (0.46) (0.75) (0.71) (0.72) (0.73) (0.64) (0.91)
Distribution from net
realized gain......... 0.00 0.00 0.00 (0.54) (0.42) (0.03) 0.00 0.00 0.00 0.00
Distribution in excess
of net realized gain.. 0.00 (0.01) 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------ -------
Total distributions.... 0.66 (0.62) (0.61) (1.01) (1.17) (0.74) (0.72) (0.73) (0.64) (0.91)
------- ------- ------- ------- ------- ------- ------- ------- ------ -------
Net asset value, end of
period................ $ 10.00 $ 10.24 $ 9.04 $ 10.19 $ 10.03 $ 10.51 $ 9.73 $ 9.68 $ 9.22 $ 9.17
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Total return........... 4.14% 20.14% (5.29%) 11.67% 6.57% 15.62% 7.95% 12.91% 7.57% 0.80%
RATIOS/SUPPLEMENTAL
DATA:
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (in thousands). $37,611 $38,048 $31,338 $33,027 $20,314 $21,153 $16,568 $11,809 $7,041 $ 4,673
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Ratio of expenses to
average net assets.... 0.77% (e) 0.73% (e) 0.78% (e) 0.79% (e) 0.84% (e) 0.83% 0.86% 0.82% (e) 0.73% 0.76% (d)
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Ratio of net investment
income to average net
assets................ 6.03% (e) 6.20% (e) 6.14% (e) 5.21% (e) 6.25% (e) 7.41% 7.76% 8.10% (e) 7.53% 6.89% (d)
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
Portfolio turnover
rate.................. 107.6% 449.2% 380.9% 389.4% 190.8% 44.1% 13.9% 75.4% 217.7% 170.7%
======= ======= ======= ======= ======= ======= ======= ======= ====== =======
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fixed Income Fund prior to November 1, 1992.
(b) For the period March 2, 1987 (commencement of operations) through December
31, 1987.
(c) Initial Capitalization.
(d) Annualized.
(e) Had fees not been waived by the investment advisor and administrator of
the Fund, the ratio of expenses to average net assets would have been
.78%, .78%, .83%, .84%, .87% and .83%, and the ratio of net investment in-
come to average net assets would have been 6.02%, 6.15%, 6.09%, 5.16%,
6.22% and 8.09%, for the years ended December 31, 1996, 1995, 1994, 1993,
1992 and 1989, respectively.
9
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: HIGH YIELD BOND FUND
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $ 8.44 $ 7.94 $ 9.55 $ 8.63 $ 8.23 $ 6.70 $ 8.63 $ 10.03 $ 9.45 $ 11.86
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... 0.70 0.80 0.90 0.77 0.87 0.93 1.15 1.33 1.10 1.62
Net realized and
unrealized gain (loss)
on investment
transactions........... 0.47 0.50 (1.60) 0.94 0.43 1.55 (1.93) (1.39) 0.58 (1.69)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............. 1.17 1.30 (0.70) 1.71 1.30 2.48 (0.78) (0.06) 1.68 (0.07)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net
investment income...... (0.70) (0.80) (0.90) (0.77) (0.87) (0.93) (1.15) (1.33) (1.09) (2.34)
Distribution from net
realized gain.......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Distribution in excess
of net investment
income................. 0.00 0.00 (0.01) (0.02) (0.03) (0.02) 0.00 (0.01) (0.01) 0.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions..... (0.70) (0.80) (0.91) (0.79) (0.90) (0.95) (1.15) (1.34) (1.10) (2.34)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year................... $ 8.91 $ 8.44 $ 7.94 $ 9.55 $ 8.63 $ 8.23 $ 6.70 $ 8.63 $ 10.03 $ 9.45
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return............ 13.87% 16.41% (7.33%) 19.81% 15.80% 37.01% (9.04%) (0.60%) 17.81% (0.58%)
RATIOS/SUPPLEMENTAL
DATA:
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year
(in thousands)......... $44,042 $36,442 $32,081 $35,305 $19,840 $15,304 $11,459 $15,571 $15,534 $10,246
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of expenses to
average net assets..... 0.84% 0.87% 0.86% 0.87% 0.88% (a) 0.90% (a) 0.90% (a) 0.89% (a) 0.89% 0.90% (a)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net investment
income to average net
assets................. 8.14% 9.20% 9.18% 9.21% 9.87% (a) 11.37% (a) 12.22% (a) 11.73% (a) 11.70% 10.16% (a)
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Portfolio turnover rate. 118.5% 84.3% 90.7% 118.7% 94.3% 83.7% 52.8% 62.3% 49.0% 251.6%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratios of expenses to average net assets would have been
.93%, .98%, 1.01%, .95% and .92%, and the ratios of net investment income
to average net assets would have been 9.82%, 11.29%, 12.11%, 11.67%, and
10.14%, respectively, for the years ended December 31, 1992, 1991, 1990,
1989 and 1987.
10
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS: MONEY MARKET FUND
The table below sets forth financial data for a share outstanding throughout
each year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income......... 0.0489 0.0538 0.0365 0.0250 0.0306 0.0536 0.0740 0.0855 0.0702
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations..... 0.0489 0.0538 0.0365 0.0250 0.0306 0.0536 0.0740 0.0855 0.0702
------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DIVIDENDS:
Dividends from
net investment
income......... (0.0489) (0.0538) (0.0365) (0.0250) (0.0306) (0.0536) (0.0740) (0.0855) (0.0702)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends. (0.0489) (0.0538) (0.0365) (0.0250) (0.0306) (0.0536) (0.0740) (0.0855) (0.0702)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of year.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return.... 5.00% 5.51% 3.71% 2.53% 3.08% 5.49% 7.65% 8.87% 7.40%
RATIOS/SUPPLEMENTAL
DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end
of year
(in thousands). 34,501% $24,726 $16,531 $13,005 $11,862 $12,811 $15,348 $11,351 $ 9,578
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of
expenses to
average net
assets......... 0.73% (a) 0.69% (a) 0.73% (a) 0.74% (a) 0.77% (a) 0.79% (a) 0.82% (a) 0.76% (a) .73%
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of net
investment
income to
average net
assets......... 4.88% (a) 5.37% (a) 3.74% (a) 2.51% (a) 3.07% (a) 5.47% (a) 7.40% (a) 8.53% (a) 7.02%
======= ======= ======= ======= ======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1987
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of
year........... $ 1.00
-----------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income......... 0.0605
-----------
Total from
investment
operations..... 0.0605
-----------
LESS DIVIDENDS:
Dividends from
net investment
income......... (0.0605)
-----------
Total dividends. (0.0605)
-----------
Net asset value,
end of year.... $ 1.00
===========
Total return.... 6.19%
RATIOS/SUPPLEMENTAL
DATA:
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end
of year
(in thousands). $ 5,681
===========
Ratio of
expenses to
average net
assets......... .80% (a)
===========
Ratio of net
investment
income to
average net
assets......... 5.98% (a)
===========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Had fees not been waived by the investment adviser and administrator of
the Fund, the ratios of expenses to average net assets would have been
.74%, .74%, .79%, .82%, .84%, .83%, .87%, .79% and .86%, and the ratios of
net investment income to average net assets would have been 4.87%, 5.32%,
3.68%, 2.43%, 3.00%, 5.43%, 7.35%, 8.50% and 5.92%, for the years ended
December 31, 1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989 and 1987, re-
spectively.
11
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND PROGRAMS
The investment objectives of the various Funds, and their policies and programs
for achieving those objectives, are described below. There can be no assurance,
of course, that the Funds will achieve their investment objectives. The
investment objectives of the Funds are fundamental, which means that they may
not be changed without the approval of the holders of a majority of the
outstanding shares of the affected Fund, or if it is less, 67% of the shares
represented at a meeting of shareholders at which the holders of 50% or more of
the shares are represented. Unless otherwise indicated, each Fund's practices,
policies and programs for achieving its objective are not fundamental.
Additional information regarding these investment practices and their
associated risks is contained in the Statement of Additional Information.
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Growth Equity Fund is
to achieve long-term growth of capital and increase of future income by
investing primarily in common stocks of well-established growth companies.
INVESTMENT PROGRAM. To achieve its objective, the Growth Equity Fund invests
primarily in the stocks of a diversified group of well-established companies
which are expected to demonstrate long-term earnings growth that is greater
than the projected growth rate for the economy as a whole. While current
dividend income is not a prerequisite in the selection of a growth company, the
companies in which the Fund invests will normally have a record of paying
dividends and are generally expected to increase the amounts of such dividends
in future years as earnings increase.
Ordinarily, the Fund's assets will be invested primarily in common stocks,
but the Fund may also invest in convertible securities, preferred stocks, and
securities of foreign issuers which hold the prospect of contributing to the
achievement of the Fund's objectives. The Fund's holdings are generally listed
on a national securities exchange. While the Fund may invest in unlisted
securities, such securities will usually have an established over-the-counter
market. In addition, the Fund may increase its reserves for temporary defensive
purposes or to enable it to take advantage of buying opportunities. The Fund's
reserves will be invested in money market instruments, such as U.S. Government
obligations, certificates of deposit, bankers' acceptances, commercial paper,
and short-term corporate debt securities or shares of investment companies that
invest in such instruments. The Fund may write covered call options and
purchase put options on its portfolio securities, purchase call or put options
on securities indices and invest in stock index futures contracts (and options
thereon) for hedging purposes.
As a matter of fundamental policy, the Fund will not purchase the securities
of any company if, as a result, more than 25% of its total assets would be
concentrated in any one industry.
FOREIGN SECURITIES. The Fund may invest up to 30% of its total assets in
securities principally traded in securities markets outside the United States.
The risks of investing in foreign securities are described below under
"International Equity Fund". Before investing in foreign securities, the risks
will be carefully considered by the adviser.
FOREIGN CURRENCY TRANSACTIONS. Since investments in foreign companies will
usually involve currencies of foreign countries, and since the Fund may
temporarily hold funds in bank deposits in foreign currencies during the
completion of investment programs, the value of the assets of the Fund as
measured in United States dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies. The Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to
purchase or sell foreign currencies. The Fund will generally not enter into a
forward contract with a term of greater than one year. Risks peculiar to
investments denominated in currencies of foreign countries are described below
under "International Equity Fund". For more information, see "Foreign Currency
Transactions" in the Statement of Additional Information.
PORTFOLIO TURNOVER. The Fund will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold without regard
to the length of time held. The Fund's portfolio turnover rates for 1996 and
1995 were 177.1%, and 169.8% respectively. A high rate of portfolio turnover
results in increased transaction costs to the Fund, including increased
brokerage expenses. For more information about brokerage expenses, see
"Portfolio Transactions" in the Statement of Additional Information.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Growth
Equity Fund will achieve its investment objective. Because of its investment
policy, the Growth Equity Fund may or may not be suitable or appropriate for
particular contract holders. The Fund is designed for long-term investors who
can accept the risks entailed in seeking long-term growth of capital and an
increase in future income through investment primarily in common stocks. By
investing primarily in well-established growth companies, the Fund seeks to
avoid some of the volatility associated with investment in less established
companies. The Fund's adviser believes that, over the long term, the earnings
of well-established growth companies will not be
12
<PAGE>
as adversely affected by unfavorable economic conditions as the earnings of
more cyclical companies. The value of the Fund's portfolio securities will
fluctuate based on market conditions, specific industry conditions, and the
condition of the individual issuers. Consistent with a long-term investment
approach, contract holders selecting the Fund should be prepared to withstand
periods of adverse market conditions and should not rely on an investment in
the Fund for their short-term financial needs.
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the Value Equity Fund is
to maximize total return (capital appreciation and income) primarily by
investing in equity securities of companies believed to be undervalued
considering such factors as assets, earnings, growth potential and cash flows.
INVESTMENT PROGRAM. To achieve its objective, the Fund will invest primarily
in equity securities that are believed to be undervalued in the marketplace in
relation to factors such as the companies' assets, earnings, potential for
dividend growth and cash flows. Equity securities include common and preferred
stocks and bonds, debentures and notes convertible into common stocks and
depository receipts for such securities. The Fund may write covered call
options and purchase put options on its portfolio securities, purchase call or
put options on securities indices and invest in stock index futures' contracts
(and options thereon) for hedging purposes.
As a matter of fundamental policy, the Fund will not purchase the securities
of any company if, as a result, more than 25% of the Fund's assets would be
concentrated in any one industry.
The Fund may also invest its assets in fixed income securities (corporate,
government, and municipal bonds of various maturities), preferred stock, and
warrants. The Fund will generally purchase debt securities that are considered
investment grade securities (e.g., AAA, AA, A, or BBB by S&P, or Aaa, Aa, A, or
Baa by Moody's), or, if not rated, are of equivalent investment quality as
determined by OpCap Advisors. Debt securities within the top credit categories
(e.g., AAA, AA, and A by S&P) comprise what are generally known as high-grade
bonds. Medium-grade bonds (e.g., BBB by S&P) are regarded as having an adequate
capacity to pay principal and interest, although adverse economic conditions or
changing circumstances are more likely to lead to a weakening of such capacity
than that for higher grade bonds. The Fund may also invest up to 5% of its
assets in noninvestment grade debt securities, which are also known as "junk
bonds". The Fund may, from time to time, invest in municipal bonds when the
expected total return from such bonds appears to exceed the total returns
obtainable from corporate or government bonds of similar credit quality. The
Fund's holdings are generally listed on a national securities exchange. While
the Fund may invest in unlisted securities, such securities will usually have
an established over-the-counter market.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated
securities of foreign issuers which hold the prospect of contributing to the
achievement of the Fund's objectives--limited to 15% of its assets. Nondollar-
denominated fixed income securities and equity securities issued by foreign
issuers will be limited to 5% and 10% of the Fund's assets, respectively. The
Fund may also enter into forward currency contracts. Risks peculiar to
investments in foreign securities and securities that are denominated in
foreign currencies are described below under "International Equity Fund".
CASH RESERVES. While the Fund will remain primarily invested in equity
securities, it may, for temporary defensive purposes, reduce its equity
holdings and invest in reserves without limitation. The reserve position of the
Fund will not be managed for purposes of anticipating short-term market
fluctuations. The Fund's reserves will be invested in high-grade money market
instruments, such as U.S. Government obligations, certificates of deposit,
bankers' acceptances, commercial paper, short-term corporate debt securities
and repurchase agreements, or shares of investment companies that invest in
such instruments.
REPURCHASE AGREEMENTS. As part of its reserve position, the Fund may enter
into repurchase agreements on the same terms as the Money Market Fund, except
that the underlying security may be within the three highest credit ratings
assigned by established rating services (Aaa, Aa or A by Moody's, or AAA, AA or
A by S&P), or, if not rated, of equivalent investment quality as determined by
the investment adviser.
PORTFOLIO TURNOVER. The Fund will not trade in securities for short-term
profits but, when circumstances warrant, securities may be sold without regard
to the length of time held. Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is not expected to exceed 100%. The Fund's
annual portfolio turnover rates for, 1996 and 1995 were 25.0%, and 34.3%
respectively.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Value Equity
Fund will achieve its investment objective. Because of its investment policy,
the Fund may or may not be suitable or appropriate for particular contract
holders. Investors should be aware that it may take considerable time for the
marketplace to recognize value. Also, it is always possible that anticipated
improvements in a company's performance may not occur.
13
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAPITALIZATION FUND
INVESTMENT OBJECTIVE. The investment objective of the Small Capitalization
Fund is to seek capital appreciation through investment in a diversified
portfolio consisting primarily of equity securities of companies with market
capitalization of under $1 billion.
INVESTMENT PROGRAM. To achieve its objective, the Small Capitalization Fund
attempts to identify securities of smaller-capitalization companies which are
underpriced. Smaller capitalization companies may often be under-priced for the
following reasons: (i) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly-traded companies, are
often less interested in such companies because in order to acquire an equity
position that is large enough to be meaningful to an institutional investor,
such an investor may be required to buy a large percentage of the company's
outstanding equity securities and (ii) such companies may not be regularly
researched by stock analysts, thereby resulting in greater discrepancies in
valuation. The Fund may also purchase securities in initial public offerings,
or shortly after such offerings have been completed, when the investment
adviser believes that such securities have greater-than-average market
appreciation potential. Under normal circumstances at least 65% of the Fund's
assets will be invested in equity securities. The majority of securities
purchased by the Fund will be traded on the New York Stock Exchange, the
American Stock Exchange or in the over-the-counter market.
Ordinarily, the Fund's assets will be primarily invested in equity
securities, but the Fund may also invest a portion of its assets in bonds,
convertible securities, preferred stocks and securities of foreign issuers
which hold the prospect of contributing to the achievement of the Fund's
objective. It is the present intention of the Fund to invest no more than 5% of
its assets in bonds rated below Baa by Moody's or BBB by S&P, commonly known as
"junk bonds". The Fund may write covered call options and purchase put options
on its portfolio securities, purchase put or call options on securities indices
and invest in stock index futures contracts (and options thereon) for hedging
or other non-speculative purposes.
FOREIGN SECURITIES. The Fund may acquire foreign equity and debt securities.
It is currently the Fund's intention to limit foreign equity securities to not
more than 15% of its assets, dollar denominated debt securities of foreign
issuers to not more than 15% of assets, and non-dollar denominated debt
securities of foreign issuers to not more than 5% of assets. The Fund may also
enter into forward currency contracts. The risks of investing in foreign
securities, including those denominated in foreign currencies, are described
below under "International Equity Fund".
CASH RESERVES. While the Fund will normally remain primarily invested in
equity securities, it may, for temporary defensive purposes, reduce its equity
holdings and invest in reserves without limitation. The reserve position of the
Fund will not be managed for purposes of anticipating short-term market
fluctuations. The Fund's reserves will be invested in high-grade money market
instruments, such as U.S. Government obligations, certificates of deposit,
bankers acceptances, short-term corporate debt securities and repurchase
agreements, or shares of investment companies that invest in such instruments.
REPURCHASE AGREEMENTS. As part of its reserve position, the Fund may enter
into repurchase agreements on the same terms as the Money Market Fund, except
that the underlying security may be within the three highest credit ratings
assigned by established rating services (Aaa, Aa or A by Moody's, or AAA, AA or
A by S&P), or, if not rated, of equivalent investment quality as determined by
the investment adviser.
PORTFOLIO TURNOVER. The Fund will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold without regard
to the length of time held. Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is anticipated that the Small Capitalization
Fund will have an annual turnover rate in excess of 100%. The Fund's annual
portfolio turnover rate for 1996 and 1995 was 39.2% and 64.3%, respectively. A
high rate of portfolio turnover results in increased transaction costs to the
Fund, including increased brokerage expenses. For more information about
brokerage expenses, see "Portfolio Transactions" in the Statement of Additional
Information.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Small
Capitalization Fund will achieve its investment objective. The Fund is expected
to have greater risk exposure and reward potential than a portfolio which
invests primarily in larger-capitalization companies. Smaller-capitalization
companies may have limited product lines, markets or financial resources or may
depend upon a limited management group. The trading volumes of securities of
smaller-capitalization companies are normally less than those of larger-
capitalization companies. This often translates into greater price swings, both
upward and downward. Since trading volumes are lower, new demand for the
securities of such companies could result in disproportionately large increases
in the price of such securities. The waiting period for the achievement of an
investor's objectives might be longer since these securities are not being
closely monitored by research analysts and, thus, it takes more time for
investors to become aware of fundamental changes or other factors which have
motivated the Fund's purchase. Smaller-capitalization companies often achieve
higher growth rates and experience higher failure rates than do larger-
capitalization companies.
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EMERGING GROWTH FUND
INVESTMENT OBJECTIVE. The investment objective of the Emerging Growth Fund is
capital appreciation.
INVESTMENT PROGRAM. To achieve its objective, the Fund will invest primarily
in equity securities (principally common stocks) of emerging growth companies.
Emerging growth companies are companies that have the potential, based upon
superior products or services, operating characteristics, and financial
capabilities, for more rapid growth than the overall economy. The Fund's
investments generally will be in securities of companies in industry segments
that are experiencing rapid growth, and in securities of companies with
proprietary advantages. The adviser will consider a number of factors in
evaluating potential investments, including, for example, the rate of earnings
growth, the quality of management, the extent of proprietary advantage, the
return on equity, and/or the financial condition of the company.
Although the Fund will ordinarily be invested in equity securities, the Fund
may invest in bonds, convertible securities, preferred stocks and securities of
foreign issuers which hold the prospect of contributing to the achievement of
the Fund's objective. The Fund may also invest in bonds rated below Baa by
Moody's or BBB by S&P (commonly referred to as "junk bonds"), but presently
does not expect such investments in any such bonds to exceed 5% of the Fund's
assets. The Fund may write covered call options and purchase put options on its
portfolio securities, purchase put and call options on securities indices and
invest in stock index futures contracts (and options thereon) for hedging and
other non-speculative purposes.
FOREIGN SECURITIES. The Fund may invest in foreign equity and debt
securities. The fund may also enter into forward currency contracts. The risks
of investing in foreign securities, including those denominated in foreign
currencies, are described below under "International Equity Fund."
CASH RESERVES. While the Fund will normally remain primarily invested in
equity securities, it may, for temporary defensive purposes, reduce its equity
holdings, and invest in reserves without limitation. The reserve position of
the Fund will not be managed for purposes of anticipating short-term market
fluctuations. The Fund's reserves will be invested in high-grade money market
instruments, such as U.S. Government obligations, certificates of deposit,
bankers acceptances, short-term corporate debt securities and repurchase
agreements, or shares of investment companies that invest in such instruments.
REPURCHASE AGREEMENTS. As part of its reserve position, the Fund may enter
into repurchase agreements on the same terms as the Money Market Fund, except
that the underlying security may be within the three highest credit ratings
assigned by established rating services (Aaa, Aa or A by Moody's, or AAA, AA or
A by S&P), or, if not rated, of equivalent investment quality as determined by
the investment adviser.
PORTFOLIO TURNOVER. The Fund will not trade in securities for short-term
profits, but, when circumstances warrant, securities may be sold without regard
to the length of time held. Although the Fund cannot accurately predict its
annual portfolio turnover rate, it is not expected under normal conditions to
exceed %. A high rate of portfolio turnover results in increased transaction
costs to the Fund, including increased brokerage expenses. For more information
about brokerage expenses, see "Portfolio Transactions" in the Statement of
Additional Information.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Emerging
Growth Fund will achieve its investment objective. The Fund is expected to have
greater risk exposure and reward potential than a portfolio which invests
primarily in larger-capitalization companies. The trading volumes of securities
of smaller-capitalization companies are normally less than those of larger-
capitalization companies. This often translates into greater price swings, both
upward and downward. Since trading volumes are lower, new demand for the
securities of such companies could result in disproportionately large increases
in the price of such securities. The waiting period for the achievement of an
investor's objectives might be longer since these securities are not being
closely monitored by research analysts and, thus, it takes more time for
investors to become aware of fundamental changes or other factors which have
motivated the Fund's purchase. Smaller-capitalization companies often achieve
higher growth rates and experience higher failure rates than do larger-
capitalization companies.
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FLEXIBLY MANAGED FUND
INVESTMENT OBJECTIVE. The investment objective of the Flexibly Managed Fund
is to maximize total return (capital appreciation and income) by investing in
common stocks, equity related securities, corporate debt securities and/or
short term reserves, in proportions considered appropriate in light of the
availability of attractively valued individual securities and current and
expected economic and market conditions.
INVESTMENT PROGRAM. To achieve its objective, the Fund may invest in the
common stocks of established companies that offer above-average prospects for
capital appreciation. Such companies usually can be placed in one of two
portfolio categories: (i) long-term "core" holdings, composed of companies
which are undervalued relative to their assets or growth potential, or
15
<PAGE>
are currently out of favor with investors; and (ii) "short-term" holdings,
which include companies whose stock price is expected to rise over the short
term but whose longer term prospects may or may not be attractive.
The Fund may also invest in the following securities:
. Equity-related securities, such as convertible securities (i.e., bonds
or preferred stock convertible into or exchangeable for common stock),
preferred stock, and warrants.
. Corporate debt securities within the four highest credit categories
assigned by established rating agencies, which include both high and
medium-quality investment grade bonds. The Fund may also invest in
non-investment grade corporate debt securities, which are also known
as "junk bonds," the purchase of which is limited to 5% of net assets.
The Fund's investment in all corporate debt securities will be limited
to 35% of net assets. Medium-quality investment grade bonds are
regarded as having an adequate capacity to pay principal and interest
although adverse economic conditions or changing circumstances are
more likely to lead to a weakening of such capacity than that for
higher grade bonds (see "Ratings of Corporate Debt Securities" on page
29 of the prospectus).
. Short-term reserves (i.e., money market instruments), which may be
used to reduce downside volatility during uncertain or declining
equity market conditions. The Fund's reserves will be invested in the
following high-grade money market instruments: U.S. Government
obligations, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate debt securities and repurchase agreements.
If the Fund's position in money market securities maturing in one year or
less equals 35% or more of the Fund's total assets, the Fund will normally have
25% or more of its assets concentrated in securities of the banking industry.
Investments in the banking industry may be affected by general economic
conditions as well as exposure to credit losses arising from possible financial
difficulties of borrowers. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. The adviser believes that any risk to the Fund which might result
from concentrating in the banking industry will be minimized by diversification
of the Fund's investments, the short maturity of money market instruments, and
the advisers' credit research.
The Fund may write covered call options, purchase put options on its
portfolio securities, purchase call or put options on securities and securities
indices and invest in stock index futures contracts (and options thereon) for
hedging purposes. The Fund may purchase securities, from time to time, on a
when-issued basis; the value of such securities may decline or increase prior
to settlement date.
FOREIGN SECURITIES. The Fund may invest up to 15% of its total assets in
securities principally traded in securities markets outside the United States.
Risks peculiar to investments in foreign securities and securities that are
denominated in foreign currencies are described below under "International
Equity Fund".
REPURCHASE AGREEMENTS. As part of its reserve position, the Fund may enter
into repurchase agreements on the same terms as the Money Market Fund, except
that the underlying security may be within the three highest credit categories
assigned by established rating services (Aaa, Aa or A by Moody's or AAA, AA or
A by S&P) or, if not rated, of equivalent investment quality as determined by
the Fund's investment adviser.
PORTFOLIO TURNOVER. The Fund may engage in short-term trading in seeking to
maximize capital appreciation. Changes in the investment portfolio will be made
whenever the adviser believes they are advisable, either as a result of a
security having reached its price objective, or for reasons not foreseen at the
time of the investment--without regard to the length of time the security has
been held by the Fund. As a result, short-term trading may cause portfolio
turnover to be higher than that of other funds with less aggressive trading
strategies, which may, in turn, increase the Fund's transaction costs. The
Fund's portfolio turnover, which will vary from year to year depending on
market conditions, may exceed 100% but, under normal circumstances, is not
expected to exceed 250%. A high rate of portfolio turnover results in increased
transaction costs to the Fund, including increased brokerage expenses. The
Fund's portfolio turnover rates for 1996 and 1995 were 32.9% and 37.2%,
respectively.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Flexibly
Managed Fund will achieve its investment objective. Because of its investment
policy, the Flexibly Managed Fund may or may not be suitable or appropriate for
particular contract holders. The value of the Fund's portfolio securities will
fluctuate based on market conditions, specific industry conditions, and the
condition of the individual issuers.
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INTERNATIONAL EQUITY FUND
INVESTMENT OBJECTIVE. The investment objective of the International Equity
Fund is to achieve maximum capital appreciation by investing in a diversified
portfolio consisting primarily of equity securities of companies principally in
Europe and Pacific Basin countries.
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INVESTMENT PROGRAM. To achieve its objective, the Fund will invest most of
its assets in equity securities (including stocks, warrants, convertible bonds,
and preferred stocks convertible into common stocks) of companies operating
principally in the countries in Europe and the Pacific Basin that are generally
considered to have developed markets. These include the United Kingdom,
Germany, France, the Netherlands, Switzerland, Norway, Spain, Japan, Hong Kong,
Australia and Singapore. A smaller proportion of the Fund's assets may be
invested in "developing countries" such as Taiwan, Malaysia, Indonesia, South
Africa and Mexico.
Under normal circumstances the Fund will have at least 65% of its assets
invested in European and Pacific Basin equity securities. The Fund intends to
diversify investment broadly among countries and to invest in the securities of
companies in not less than three different countries, in addition to the United
States.
The Fund attempts to invest in equity securities with a superior potential
for capital appreciation utilizing a series of macro and micro analyses. The
macro economic analysis will be based upon detailed research on the global
economic and on individual countries' projected economic data. This analysis
will guide the investment adviser's allocation of assets to particular
countries. The micro economic analysis will focus on quality of management and
the relationship of current prices to earnings growth or to undervalued assets.
Strong emphasis is put on cash flow rather than earnings as a more meaningful
way to evaluate companies in foreign countries where accounting standards are
less rigorously enforced than in the United States.
The Fund may not always purchase securities on the principal market. For
example, American Depository Receipts ("ADRs") may be purchased if trading
conditions make them more attractive than the underlying security. ADRs are
registered receipts typically issued in the U.S. by a bank or trust company
evidencing ownership of an underlying foreign security. The Fund may invest in
ADRs which are structured by a U.S. bank without the sponsorship of the
underlying foreign issuer. In addition to the risks of foreign investment
applicable to the underlying securities, such unsponsored ADRs may also be
subject to the risks that the foreign issuer may not be obligated to cooperate
with the U.S. bank, may not provide additional financial and other information
to the bank or the investor, or that such information in the U.S. market may
not be current. The International Equity Fund may likewise utilize European
Depository Receipts ("EDRs"), which are receipts typically issued in Europe by
a bank or trust company evidencing ownership of an underlying foreign security.
Unlike ADRs, EDRs are issued in bearer form. For purposes of determining the
country of origin, ADRs and EDRs will not be deemed to be domestic securities.
For temporary defensive purposes, the Fund may hold cash or debt obligations
denominated in U.S. dollars or foreign currencies. These debt obligations
include U.S. and foreign government securities and investment grade corporate
debt securities, or bank deposits of major international institutions. When the
adviser believes that investments should be deployed in a temporary defensive
posture because of economic or market conditions, the Fund may invest up to
100% of its assets in United States Government securities (such as bills,
notes, or bonds of the United States Government and its agencies) or other
forms of indebtedness such as bonds, certificates of deposit or repurchase
agreements.
The International Equity Fund may also acquire fixed income investments where
these fixed income securities are convertible into equity securities (and which
may therefore reflect appreciation in the underlying equity security), and
where anticipated interest rate movements, or factors affecting the degree of
risk inherent in a fixed income security, are expected to change significantly
so as to produce appreciation in the security consistent with the objective of
the Fund. Fixed income securities in which the Fund may invest will be rated at
the time of purchase Baa or higher by Moody's Investor Service, Inc., or BBB or
higher by Standard and Poor's Corporation or, if they are foreign securities
which are not subject to standard credit ratings, the fixed income securities
will be "investment grade" issues (in the judgment of the adviser) based on
available information.
The International Equity Fund has the right to invest in securities which may
be considered to be "thinly-traded" if they are deemed to offer the potential
for appreciation, but it does not presently intend to invest more than 5% of
its total assets in such securities. The trading volume of such securities is
generally lower and their prices may be more volatile as a result, and such
securities are less likely to be exchange-listed securities. The Fund may also
invest, subject to restrictions, in options (puts and calls) and restricted
securities.
FOREIGN CURRENCY TRANSACTIONS. The value of assets of the Fund as measured in
United States dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the Fund
may incur costs in connection with conversions between various securities.
Normally, exchange transactions will be conducted on a spot or cash basis at
the prevailing rate in the foreign exchange market. However, to balance
undesirable currency risk, the Fund may enter into forward contracts to
purchase or sell foreign currencies in anticipation of the currency
requirements, and to protect against possible adverse movements in foreign
exchange rates. Such contracts may reduce the risk of loss due to a decline in
the value of the currency which is sold, they also limit any possible gain
which might result should the value of the currency rise. Similarly, although
forward contracts will be used primarily to protect the Fund from adverse
currency movements, they also involve the risk that anticipated currency
movements will not be accurately predicted. Any transactions in foreign
currencies will be designed to protect the dollar value of the assets
composing, or selected to be acquired for, the
17
<PAGE>
investment portfolio of the Fund. The Fund will not speculate in foreign
currencies. For more information, see "Foreign Currency Transactions" in the
Statement of Additional Information.
The Fund may purchase and write call options on foreign currencies for the
purpose of protection against declines in the dollar value of foreign
securities. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event
of rate movements adverse to the Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs.
The Fund may enter into contracts for the purchase or sale for future
delivery of foreign currencies ("foreign currency futures"). This investment
technique will be used only to hedge against anticipated future changes in
exchange rates which otherwise might adversely affect the value of the Fund's
securities or adversely affect the prices of securities that the Fund intends
to purchase at a later date. The successful use of currency futures will
usually depend on the investment adviser's ability to forecast currency
exchange rate movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
PORTFOLIO TURNOVER. The Fund will not trade in securities for short-term
profits, but when circumstances warrant, securities may be sold without regard
to the length of time held. The Fund's portfolio turnover rates for 1996 and
1995 were 54.8% and 62.5%, respectively.
GENERAL RISK CONSIDERATIONS. Investments in foreign securities involve
sovereign risk in addition to the credit and market risks normally associated
with domestic securities. Such foreign investments may also be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of some foreign
companies are less liquid or more volatile than securities of U.S. companies,
the financial markets on which they are traded may be subject to less strict
governmental supervision, and foreign brokerage commissions and custodian fees
are generally higher than in the United States. Investments in foreign
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, imposition of withholding taxes on
dividend or interest payments, and currency blockage (which would prevent cash
from being brought back to the United States). A contract owner who selects
this Fund will incur the risks generally associated with investment in equity
securities and, in addition, the risk of losses attributable to changes in
currency exchange rates to the extent that those risks are not adequately
hedged by the investment adviser.
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QUALITY BOND FUND
INVESTMENT OBJECTIVE. The Quality Bond Fund seeks the highest income over the
long term that is consistent with the preservation of principal by investing
primarily in marketable investment-grade debt securities.
INVESTMENT PROGRAM. To achieve its objective, the Fund invests in a
diversified portfolio primarily consisting of long, intermediate, and short-
term marketable (i.e., securities for which market quotations are readily
available) debt securities. The proportion invested in each category can be
expected to vary depending upon the evaluation of market patterns and trends by
Independence Capital Management. Except as provided below, the Fund will only
purchase debt securities that are considered investment grade securities (e.g.,
AAA, AA, A, or BBB by S&P) by at least one of the established rating agencies
(S&P, Moody's, Duff & Phelps, Inc., Fitch Investors Service, Inc., or McCarthy,
Crisanti & Maffei, Inc.) or, if not rated, are of equivalent investment quality
as determined by Independence Capital Management. The Fund may also invest up
to 10% of its net assets in securities rated BB or B by S&P (or securities with
a comparable rating by another established rating agency), which are also known
as "junk bonds." In normal times, at least 80% of the Fund's total assets will
be invested in income producing securities. At least 75% of the value of the
Fund's total assets (not including cash) will be invested in one or more of the
following categories of investments: (i) Marketable Corporate Debt Securities;
(ii) U.S. Government Obligations; (iii) U.S. Government Agency Securities; (iv)
Bank Obligations; (v) Savings and Loan Obligations; (vi) Commercial Paper;
(vii) Collateralized Mortgage Obligations; (viii) Securities of Certain
Supranational Organizations; (ix) Repurchase Agreements involving these
securities; (x) Private Placements (restricted securities); (xi) Asset Backed
Securities; and (xii) Municipal Obligations. In addition, the Fund may, as part
of this minimum 75% of its assets, write covered call options and purchase put
options on its portfolio securities, purchase call or put options on securities
indices and invest in interest rate futures contracts (and options thereon) for
hedging purposes. Without regard to the above described quality of investments,
the Fund may invest up to 25% of the value of its total assets (not including
cash) in Convertible Securities, which can be converted into or which carry
warrants to purchase common stock or other equity interests, and Preferred and
Common Stocks. The Fund may from time to time purchase these securities on a
when-issued basis; the value of such income-producing securities may decline or
increase prior to settlement date.
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<PAGE>
The Fund will hold short-term cash reserves if management believes that it is
advisable for temporary defensive or emergency purposes. The Fund will usually
hold its cash reserves in short-term money market securities, such as
certificates of deposit, or in shares of investment companies that invest in
short term money market securities. As a matter of fundamental policy, the Fund
will, under certain conditions explained in the Statement of Additional
Information, invest up to 50% of its total assets in any one of the following
industries: gas utility, gas transmission utility, electric utility, telephone
utility, and petroleum. Investments in any of these industries may be affected
by environmental conditions, energy conservation programs, fuel shortages,
availability of capital to finance operations and construction programs, and
federal and state legislative and regulatory actions. Independence Capital
Management believes that any risk to the Fund which might result from
concentrating in any such industry will be minimized by diversification of the
Fund's investments.
Although investment in the Fund is not without risk, the Fund will seek to
reduce risk through diversification, credit analysis, and attention to current
developments and trends in both the economy and financial markets.
ASSET-BACKED SECURITIES. Asset-backed securities are securities which
represent a participation in, or are secured by and payable from, a stream of
payments generated by particular assets, most often a pool or pools of similar
assets (e.g., trade receivables). Asset-backed commercial paper, one type of
asset-backed security, is issued by a special purpose entity, organized solely
to issue the commercial paper and to purchase interests in the assets. The
credit quality of these securities depends primarily upon the quality of the
underlying assets and the level of credit support and/or enhancement provided.
MUNICIPAL OBLIGATIONS. The Fund may invest in Municipal Obligations that meet
the Fund's overall quality requirements. Although the Fund and contract owners
will not benefit from the exemption from federal income tax for the interest on
Municipal Obligations, the adviser believes that Municipal Obligations may
under certain market circumstances be desirable investments consistent with the
Fund's objective, particularly the preservation of principal.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements on the
same terms as the Money Market Fund, except that the underlying security may be
within the four highest credit categories assigned by established rating
agencies (Aaa, Aa, A, or Baa by Moody's or AAA, AA, A, or BBB by S&P) or, if
not rated, of equivalent investment quality as determined by the adviser.
FOREIGN SECURITIES. The Fund may invest in U.S. dollar-denominated foreign
securities. While investments in foreign securities are intended to reduce risk
by providing further diversification, risks peculiar to investments in foreign
securities are described above under "International Equity Fund".
PORTFOLIO TURNOVER. The Fund may sell any of its portfolio securities if it
believes that the security's market value will fall. The Fund may sell a
security and purchase another when it believes that there is a favorable spread
between the yields of such securities. Although the Fund cannot accurately
predict its portfolio turnover rate, it is not ordinarily expected to exceed
400%. A high rate of portfolio turnover results in increased transaction costs
to the Fund, including increased brokerage expenses. For more information about
brokerage expenses, see "Portfolio Transactions" in the Statement of Additional
Information. The Fund's annual portfolio turnover rates for 1996 and 1995 were
107.6% and 449.2%, respectively.
GENERAL RISK CONSIDERATIONS. There can be no assurance that the Quality Bond
Fund will achieve its investment objective. Because of its investment policy,
the Quality Bond Fund may or may not be suitable or appropriate for particular
contract holders. The Fund is not a money market fund and is not an appropriate
investment for those whose primary objective is principal stability. The value
of the portfolio securities of the Fund will fluctuate based upon market
conditions and interest rates. Although the Fund seeks to reduce risk by
investing in a diversified portfolio, such diversification does not eliminate
risk.
Yields on short, intermediate, and long-term fixed income securities are
dependent on a variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields. The market prices of debt securities usually vary, depending
upon available yields. An increase in interest rates will generally reduce the
value of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Fund to achieve
its investment objective is also dependent on the continuing ability of the
issuers of the debt securities in which the Fund invests to meet their
obligations for the payment of interest and principal when due.
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HIGH YIELD BOND FUND
INVESTMENT OBJECTIVE. The investment objective of the High Yield Bond Fund is
to realize high current income by investing primarily in a diversified
portfolio of long-term high-yield fixed income securities in the medium to
lower quality ranges; a secondary objective is capital appreciation.
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<PAGE>
INVESTMENT PROGRAM. The Fund will invest at least 80% of the value of its
total assets in high-yielding, income-producing debt securities and preferred
stocks (including convertible securities). The Fund seeks to invest its assets
in securities rated Ba or lower by Moody's, or BB or lower by S&P, or, if not
rated, of comparable investment quality as determined by Price Associates.
Because high yield bonds involve greater risks than higher quality bonds,
they are commonly known as "junk" bonds. The Fund may, from time to time,
purchase bonds that are in default, rated Ca by Moody's or CC by S&P, if, in
the opinion of Price Associates, there is potential for capital appreciation.
Such bonds are regarded, on balance, as predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal in accordance with
the terms of the obligation (see "Ratings of Corporate Debt Securities"). In
addition, the Fund may invest its portfolio in medium quality investment grade
securities (rated Baa by Moody's or BBB by S&P) which provide greater liquidity
than lower quality securities. Moreover, the Fund may, for temporary defensive
purposes under extraordinary economic or financial market conditions, invest in
higher quality securities.
Investments in the Fund's portfolio may include: (i) Corporate Debt
Securities; (ii) U.S. Government Obligations; (iii) U.S. Government Agency
Securities; (iv) Bank Obligations; (v) Savings and Loan Obligations; (vi)
Commercial Paper; (vii) Securities of Certain Supranational Organizations;
(viii) Repurchase Agreements involving these securities; (ix) Private
Placements (restricted securities); (x) Foreign Securities; (xi) Convertible
Securities--debt securities convertible into or exchangeable for equity
securities or debt securities that carry with them the right to acquire equity
securities, as evidenced by warrants attached to such securities or acquired as
part of units of the securities; (xii) Preferred Stocks--securities that
represent an ownership interest in a corporation and that give the owner a
prior claim over common stock on the company's earnings and assets; (xiii) Loan
Participation and Assignments; (xiv) Trade Claims and (xv) Zero Coupon and Pay-
in-Kind Bonds. The Fund may purchase securities, from time to time, on a when-
issued basis; the value of such securities may decline or increase prior to
settlement date.
RISKS OF HIGH YIELD INVESTING. There can be no assurance that the High Yield
Bond Fund will achieve its investment objective. The high yield securities in
which the Fund may invest are predominantly speculative as regards the issuer's
continuing ability to meet principal and interest payments. The value of the
lower quality securities in which the Fund may invest will be affected by the
creditworthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates.
Furthermore, the share price and yield of the Fund are expected to be more
volatile than the share price and yield of a fund investing in higher quality
securities, which react primarily to movements in the general level of interest
rates. Price Associates carefully considers these factors and the Fund attempts
to reduce risk by diversifying its portfolio, by analyzing the creditworthiness
of individual issuers, and by monitoring trends in the economy, financial
markets, and specific industries. Such efforts, however, will not eliminate
risk. High yield bonds may be more susceptible than investment grade bonds to
real or perceived adverse economic and competitive industry conditions. High
yield bond prices may decrease in response to a projected economic downturn
because the advent of a recession could lessen the ability of highly leveraged
issuers to make principal and interest payments on their debt securities.
Highly leveraged issuers also may find it difficult to obtain additional
financing during a period of rising interest rates. In addition, the secondary
trading market for lower quality bonds may be less active and less liquid than
the trading market for higher quality bonds. As such, the prices at which lower
quality bonds can be sold may be adversely affected and valuing such lower
quality bonds can be a difficult task. If market quotations are not available,
these securities will be valued by a method that, in the good faith belief of
the Fund's Board of Directors, accurately reflects fair value. The judgment of
the Penn Series Board of Directors plays a greater role in valuing high yield
securities than is the case with respect to securities for which more objective
market data are available.
20
<PAGE>
During 1996 the dollar weighted average ratings (computed monthly) of the
debt obligations held by the Fund (excluding equities and reserves), expressed
as a percentage of the Fund's total net investments, were as follows:
<TABLE>
<CAPTION>
STANDARD AND POOR'S RATINGS PERCENTAGE OF TOTAL NET INVESTMENTS
----------------------------------------------------------------------------
<S> <C>
AAA 0.0%
----------------------------------------------------------------------------
AA 5.4
----------------------------------------------------------------------------
A 0.0
----------------------------------------------------------------------------
BBB 0.0
----------------------------------------------------------------------------
BB 8.8
----------------------------------------------------------------------------
B 71.2
----------------------------------------------------------------------------
CCC 1.7
----------------------------------------------------------------------------
CC 0.0
----------------------------------------------------------------------------
C 0.0
----------------------------------------------------------------------------
D 0.0
----------------------------------------------------------------------------
Unrated* 7.1
----------------------------------------------------------------------------
</TABLE>
* Price Associates has advised that in its view the unrated debt
obligations were comparable in quality to debt obligations rated in the
S&P categories as follows: BBB: 0.0%; BB: 2.1%; B: 3.2%; CCC: 0.0%; CC:
0.0%; C: 0.5%; D: 0.0%; Unrated: 1.3%.
CREDIT ANALYSIS. Because investment in lower and medium quality fixed-income
securities involves greater investment risk, including the possibility of
default or bankruptcy, achievement of the Fund's investment objectives will be
more dependent on Price Associates' credit analysis than would be the case if
the Fund were investing in higher quality fixed-income securities. Although the
ratings of Moody's or S&P are used as preliminary indicators of investment
quality, a credit rating assigned by such a commercial rating service will not
measure the market risk of lower quality bonds and may not be a timely
reflection of the condition and economic viability of an individual issuer.
Price Associates therefore places primary significance on its own in-depth
credit analysis and security research. All of the Fund's investments will be
selected from an approved list of securities deemed appropriate for the Fund by
Price Associates, which maintains a credit rating system based upon comparative
credit analyses of issuers within the same industry and individual credit
analysis of each company. These analyses take into consideration such factors
as a corporation's present and potential liquidity, profitability, internal
capability to generate funds, and adequacy of capital. Although some issuers do
not seek to have their securities rated by Moody's or S&P, such unrated
securities will also be purchased by the Fund only after being subjected to
analysis by Price Associates. Unrated securities are not necessarily of lower
quality than rated securities, but the market for rated securities is usually
broader.
MATURITY. The maturity of debt securities may be considered long (10 plus
years), intermediate (1 to 10 years), or short-term (12 months or less). The
proportion invested by the Fund in each category can be expected to vary
depending upon the evaluation of market patterns and trends by Price
Associates. However, the Fund anticipates that, under normal circumstances, at
least 80% of its portfolio of fixed income securities will have maturities of
greater than 10 years.
YIELD AND PRICE. Lower to medium quality, long-term fixed-income securities
typically yield more than higher quality, long-term fixed-income securities.
Thus, the Fund's yield normally can be expected to be higher than that of a
fund investing in higher quality debt securities. The yields and prices of
lower quality fixed income securities may tend to fluctuate more than those for
higher rated securities. In the lower quality segments of the fixed income
markets, changes in perception of issuers' creditworthiness tend to occur more
frequently and in a more pronounced manner than do changes in higher quality
securities, which may result in greater price and yield volatility. For a given
period of time, the Fund may have a high yield but a negative total return.
OTHER INVESTMENTS. The Fund may invest up to 20% of its total assets in
dividend-paying common stocks (including up to 5% in warrants to purchase
common stocks) that are considered by Price Associates to be consistent with
the Fund's current income and capital appreciation investment objectives.
However, the Fund currently does not intend to purchase equity securities or
securities convertible to equity securities. In seeking higher income or a
reduction in principal volatility, the Fund may write covered call options and
purchase covered put options and spreads and purchase uncovered put options and
uncovered call options; and the Fund may invest in interest rate futures
contracts (and options thereon) for hedging purposes.
21
<PAGE>
CASH RESERVES. The Fund will hold short-term cash reserves (money market
instruments maturing in one year or less) as Price Associates believes is
advisable to maintain liquidity or for temporary defensive purposes.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements on the
same terms as the Money Market Fund, except that the underlying security may be
within the three highest credit categories assigned by established rating
agencies (Aaa, Aa or A by Moody's or AAA, AA or A by S&P) or, if not rated, of
equivalent investment quality as determined by Price Associates.
BANKING INDUSTRY. The Fund will, as a matter of fundamental policy, normally
concentrate 25% or more of its assets in the securities of the banking industry
when the Fund's position in issues maturing in one year or less equals 35% or
more of the Fund's total assets. Investments in the banking industry may be
affected by general economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers. In addition, the
profitability of the banking industry is largely dependent upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. Price Associates believes that any
risk to the Fund which might result from concentrating in the banking industry
will be minimized by diversification of the Fund's investments and Price
Associates' credit research.
FOREIGN SECURITIES. Subject to the Fund's quality and maturity standards, the
Fund may invest without limitation in the securities (payable in U.S. dollars)
of foreign issuers in developed countries and in the securities of foreign
branches of U.S. banks such as negotiable certificates of deposit
(Eurodollars). The Fund may also invest up to 20% of its total assets in non-
U.S. dollar-denominated fixed-income securities principally traded in financial
markets outside the United States. Such investments involve certain risks not
normally associated with domestic securities, as explained under "International
Equity Fund". The Fund may also enter into forward foreign currency exchange
contracts, which involve certain risks as explained under "International Equity
Fund".
ZERO COUPON BONDS AND PAY-IN-KIND BONDS. A zero coupon bond does not make
cash interest payments during the life of the bond. Instead, it is sold at a
deep discount to face value, and the interest consists of the gradual
appreciation in price as the bond approaches maturity. "Zeros" can be an
attractive financing method for issuers with near-term cash-flow problems or
seeking to preserve liquidity. Pay-in-kind (PIK) bonds pay interest in cash or
additional securities, at the issuer's option, for a specified period. Like
zeros, they may help a corporation economize on cash. PIK prices reflect the
market value of the underlying debt plus any accrued interest. Zeros and PIKs
can be higher- or lower-quality debt, and both are more volatile than coupon
bonds. There is no limit on the fund's investments in these securities. The
fund is required to distribute to shareholders income imputed to any zero or
PIK investments. Such distributions could reduce the fund's reserve position
and require the fund to sell securities and incur a gain or loss at a time it
may not otherwise want to in order to provide the cash necessary for these
distributions.
LOAN PARTICIPATION AND ASSIGNMENTS. Large loans to corporations or
governments, including governments of less developed countries (LDCs), may be
shared or syndicated among several lenders, usually banks. The Fund could
participate in such syndicates, or could buy part of a loan, becoming a direct
lender. Participation and assignments involve special types of risk, including
those of being a lender, but are not necessarily more risky than junk bonds. As
an operating policy, the Fund may not invest more than 5% of total assets in
loan participation.
TRADE CLAIMS. This is an IOU arising from a business transaction, such as a
sale of goods, not from a loan. Such claims are typically bought at a discount
to their face value, with the size of the discount reflecting the probability
of repayment. They may be illiquid and very volatile in price. As an operating
policy, the Fund may not invest more than 5% of total assets in trade claims.
PORTFOLIO TURNOVER. Due to the nature of the Fund's investment program, the
portfolio turnover may exceed 100%. A high rate of portfolio turnover results
in increased transaction costs to the Fund, including increased brokerage
expenses. The Fund's portfolio turnover rates for 1996 and 1995 were 118.5% and
84.3%, respectively.
- --------------------------------------------------------------------------------
MONEY MARKET FUND
INVESTMENT OBJECTIVE. The investment objective of the Money Market Fund is to
preserve shareholder capital, maintain liquidity and achieve the highest
possible level of current income consistent therewith, by investing in high-
quality money market instruments.
INVESTMENT PROGRAM. To achieve its objective, the Fund invests in a
diversified portfolio of money market securities, limited to those described
below, which are rated within the two highest credit categories assigned by
nationally recognized statistical rating organizations, or, if not rated, are
of comparable investment quality as determined by Independence Capital
Management and approved by the Penn Series Board of Directors. Such securities
include: (i) U.S. Government Obligations; (ii) U.S. Government Agency
Securities; (iii) Bank Obligations; (iv) Commercial Paper; (v) Short-Term
Corporate Debt
22
<PAGE>
Securities; (vi) Canadian Government Securities, limited to 10% of the Fund's
assets; (vii) Savings and Loan Obligations; (viii) Securities of Certain
Supranational Organizations; (ix) Repurchase Agreements involving these
securities other than Foreign Securities; (x) Foreign Securities--U.S. dollar-
denominated money market securities issued by foreign issuers, foreign branches
of U.S. banks and U.S. branches of foreign banks; and (xi) Asset Backed
Securities. Certain of the securities may have adjustable rates of interest
with periodic demand features. The Fund may also invest in securities of
investment companies that invest in money market securities meeting the
foregoing criteria.
The Fund has a policy of seeking to maintain a stable net asset value of
$1.00 per share, but this is not guaranteed and the Fund's yield is not fixed.
PORTFOLIO QUALITY. The Fund will invest in U.S. dollar-denominated money
market instruments determined by Independence Capital Management, under
guidelines adopted by the Penn Series Board of Directors, to present minimum
credit risk. This determination will take into consideration such factors as
liquidity, profitability, ability to generate funds and capital adequacy. In
addition, the Fund will observe investment restrictions contained in Rule 2a-7
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940, including the following: (a) the Fund will not invest in a
money market instrument if, as a result, more than the greater of 1% of the
Fund's total assets or $1,000,000 would be invested in securities of that
issuer which are not rated in the highest rating category of nationally
recognized statistical rating organizations (or, if not rated, are not of
comparable quality); and (b) the Fund will not invest in a money market
instrument if, as a result, more than 5% of the Fund's total assets would be
invested in securities which are not rated in the highest rating category of
nationally recognized statistical rating organizations (or, if not rated, are
not of comparable quality).
FOREIGN SECURITIES. Subject to the Fund's quality and maturity standards, the
Fund may invest without limitation in U.S. dollar-denominated foreign
securities. While investments in foreign securities are intended to reduce risk
by providing further diversification, such investments involve certain risks
not normally associated with domestic securities, as explained under
"International Equity Fund".
ADJUSTABLE RATE SECURITIES. The Fund may invest in adjustable rate
securities. Adjustable rate securities have interest rates that are adjusted
periodically according to a set formula in order to minimize fluctuation in the
principal value of the investments. The maturity of such securities may be
shortened under certain special conditions. "Variable rate" securities are
domestic certificates of deposit which provide for the establishment of a new
interest rate on predetermined dates or whenever a specified interest rate
(such as the bank prime lending rate) changes. "Floating rate" securities are
corporate or bank holding company notes or Eurodollar certificates of deposit
with reset provisions similar to those for variable rate instruments.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities (see
description of asset-backed securities under "Quality Bond Fund" above).
MATURITY. The Fund purchases securities which mature in 397 days or less, and
the average maturity of all securities held by the Fund will generally not be
greater than 90 days.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements through
which investors (such as the Fund) purchase a security (known as the
"underlying security") from a well-established securities dealer or a bank that
is a member of the Federal Reserve System and on the approved list of the
Fund's investment adviser. Concurrently, the securities dealer or the bank
agrees to repurchase the underlying security at a future point at the same
price, plus specified interest. The underlying security, which is held as
collateral, will be marked to market on a daily basis. The Fund will only enter
into a repurchase agreement where the underlying security is in the highest
rating category of nationally recognized statistical rating organizations (or,
if not rated, is of comparable quality) and the repurchase agreement meets the
other quality and diversification standards of Rule 2a-7. Moreover, the Board
of Penn Series has adopted standards applicable to all the Funds regarding the
creditworthiness of parties with whom each Fund may enter into repurchase
agreements. These standards are designed to provide reasonable assurance that
such a party presents no serious risk of becoming involved in a bankruptcy
proceeding within the time frame contemplated by the repurchase agreement.
Repurchase agreements are generally for a short period of time, often less than
a week. In the event of a bankruptcy or default of certain sellers of
repurchase agreements, the Fund could experience costs and delays in
liquidating the underlying security, which is held as collateral, and the Fund
might incur a loss if the value of the collateral held declines during this
period.
GENERAL RISK CONSIDERATIONS. An investment in the Money Market Fund is
neither insured nor guaranteed by the U.S. Government and there can be no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share. While this Fund invests in high-grade money market
instruments, investment in the Fund is not without risk even if all portfolio
instruments are paid in full at maturity. An increase in interest rates could
reduce the value of the Fund's portfolio investments, and a decline in interest
rates could increase the value.
23
<PAGE>
- --------------------------------------------------------------------------------
ADDITIONAL INVESTMENT INFORMATION RELATING TO THE FUNDS
OPTIONS. Each Fund (other than the Money Market Fund) may write covered call
options and purchase put options on its portfolio securities and purchase call
or put options on securities indices. The aggregate market value of the
portfolio securities covering call or put options will not exceed 25% of a
Fund's net assets. Such options may be exchange-traded or dealer options. An
option gives the owner the right to buy or sell securities at a predetermined
exercise price for a given period of time. Although options will primarily be
used to minimize principal fluctuations, or to generate additional premium
income for the Funds, they do involve certain risks. Writing covered call
options involves the risk of not being able to effect closing transactions at a
favorable price or participate in the appreciation of the underlying securities
or index above the exercise price. Purchasing put or call options involves the
risk of losing the entire premium (purchase price of the option). In addition,
the High Yield Bond Fund may also engage in other options transactions within
the limits described in the Statement of Additional Information, which also
provides further details on the risks of options transactions.
FUTURES CONTRACTS. Each Fund (other than the Money Market Fund) may enter
into futures contracts and options thereon (interest rate futures contracts or
stock index futures contracts as applicable) as a hedge against or to minimize
adverse principal fluctuations, or as an efficient means of adjusting its
exposure to the market. The Funds will not use futures contracts for
speculation. Each Fund will limit its use of futures contracts so that: (1) no
more than 5% of the Fund's total assets will be committed to initial margin
deposits or premiums on options and (2) immediately after entering into such
contracts, no more than 30% of the Fund's total assets would be represented by
such contracts. The initial margin is the amount that must be deposited with
the futures commission merchant when a futures contract is entered into. The
value of a futures contract changes daily; and if it decreases, the Fund is
obligated to deposit additional amounts in order to maintain what is known as
"variation margin." Correspondingly, if the value of a futures contract
increases, the Fund may withdraw and use for other purposes a part of the
margin deposit. The premium on an option is equal to the difference between the
market value and the intrinsic value of the option.
These contracts entail certain risks, including but not limited to the
following: no assurance that futures contracts transactions can be offset at
favorable prices; possible reduction of the Fund's total return due to the use
of hedging; possible reduction in value of both the securities hedged and the
hedging instrument; possible lack of liquidity due to daily limits on price
fluctuation or other factors; imperfect correlation between price movements in
the contract and in the securities being hedged; and potential losses in excess
of the amount invested in the futures contracts themselves. Further details
concerning the Funds' use of futures contracts and the risks involved are
contained in the Statement of Additional Information.
INVESTMENT COMPANIES. Each Fund may invest in securities issued by other
investment companies which invest in short-term, high quality debt securities
and which determine their net asset value per share based on the amortized cost
or penny-rounding method of valuation. The International Equity Fund may invest
in securities of mutual funds that invest in foreign securities. Securities of
investment companies will be acquired by a Fund within the limits prescribed by
the 1940 Act. In addition to the advisory fees and other expenses a Fund bears
directly in connection with its own operations, as a shareholder of another
investment company, a Fund would bear its pro rata portion of the other
investment company's advisory fees and other expenses.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional
income, each Fund may, as a fundamental policy, lend securities with a value of
up to 30% of its total assets to unaffiliated broker-dealers or institutional
investors. Any such loan will be continuously secured by collateral at least
equal to the value of the security loaned. Although the risks of lending
portfolio securities are believed to be slight, as with other extensions of
secured credit, such lending could result in delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will only be made to
firms deemed to be of good standing and will not be made unless the
consideration to be earned from such loans would justify the risk.
INVESTMENT RESTRICTIONS APPLICABLE TO ALL THE FUNDS. As a matter of
fundamental policy, each Fund will not: (i) own more than 10% of the
outstanding voting securities of any company; (ii) purchase any security if it
would cause the Fund's holdings of that issuer (other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities) to
amount to more than 5% of the Fund's total assets, except that this restriction
applies to the Flexibly Managed, the Small Capitalization and the Emerging
Growth Funds only with respect to 75% of their respective total assets; (iii)
borrow money, except that the Funds may borrow from banks as a temporary
measure for extraordinary or emergency purposes, and then only in amounts not
exceeding 15% of each Fund's total assets valued at market or, with respect to
the Quality Bond Fund and the Money Market Fund, the lesser of 10% of its total
assets valued at cost or 5% of its total assets valued at market; the Funds
will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities; interest paid on any such borrowings will
reduce net investment income;
24
<PAGE>
(iv) in any manner transfer as collateral any securities owned by the Fund
except as may be necessary in connection with permissible borrowings; and (v)
purchase additional securities when money borrowed exceeds 5% of the Fund's
total assets.
In addition to the restrictions set forth above and those set forth in the
Statement of Additional Information, each Fund may be subject to investment
restrictions imposed under the insurance laws and regulations of Pennsylvania
and other states. These restrictions are non-fundamental and, in the event of
amendments to the applicable statutes or regulations, each Fund will comply,
without the approval of the shareholders, with the requirements as so modified.
Finally, Section 817(h) of the Internal Revenue Code requires that the assets
of each Fund be adequately diversified so that Penn Mutual or its affiliated
insurance companies, and not the variable contract owners, are considered the
owners for federal income tax purposes of the assets held in the separate
accounts. Each Fund ordinarily must satisfy the diversification requirements
within one year after contract owner funds are first allocated to the
particular Fund. In order to meet the diversification requirements of
regulations issued under Section 817(h), each Fund will meet the following
test: no more than 55% of the assets will be invested in any one investment; no
more than 70% of the assets will be invested in any two investments; no more
than 80% of the assets will be invested in any three investments; and no more
than 90% will be invested in any four investments. Each Fund must meet the
above diversification requirements within 30 days of the end of each calendar
quarter.
- --------------------------------------------------------------------------------
MANAGEMENT OF PENN SERIES FUNDS, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The affairs of Penn Series are managed under the direction of its Board of
Directors. The directors decide upon matters of general policy and review the
actions of Penn Series' investment advisers and its administrative and
corporate services agent, as set forth below. The Penn Series' officers conduct
and supervise the daily business operations of Penn Series.
- --------------------------------------------------------------------------------
INVESTMENT ADVISERS
PRICE ASSOCIATES. T. Rowe Price Associates, Inc., Baltimore Maryland, ("Price
Associates") is investment adviser for the Flexibly Managed and the High Yield
Bond Funds. Price Associates was incorporated in 1947 as successor to the
investment counseling firm founded by the late Mr. T. Rowe Price in 1937. Its
corporate home office is located at 100 East Pratt Street, Baltimore, Maryland
21202. Price Associates serves as investment adviser to a variety of individual
and institutional investors accounts, including other mutual funds. As of
December 31, 1996, Price Associates and its affiliates, managed more than $95
billion of assets.
Price Associates manages the investments of the Flexibly Managed Fund and the
High Yield Bond Fund. Each Fund pays Price Associates, on a monthly basis, an
advisory fee based on the average daily net assets of each Fund at the annual
rate of 0.50%.
Richard P. Howard, Vice President, T. Rowe Price Associates, Inc., is
primarily responsible for the day-to-day investment management of the
Flexibility Managed Fund. Mr. Howard has had that responsibility since 1989.
During the past five years, he has served as Vice President and a portfolio
manager of T. Rowe Price Associates, Inc.
Mark J. Vaselkiv, Vice President of T. Rowe Price Associates, Inc., is
primarily responsible for the day-to-day investment management of the High
Yield Bond Fund. Mr. Vaselkiv has had that responsibility since 1994. During
the past five years, he has been a Vice President and a portfolio manager of T.
Rowe Price Associates, Inc.
INDEPENDENCE CAPITAL MANAGEMENT. Independence Capital Management, Inc.
("Independence Capital Management") is investment adviser for the Growth
Equity, the Quality Bond, and the Money Market Funds. Independence Capital
Management is a wholly-owned subsidiary of The Penn Mutual Life Insurance
Company ("Penn Mutual"), a life insurance company that has been in the
insurance and investment business since the late 1800s. Penn Mutual and its
subsidiaries currently have assets under management of over $7 billion.
Independence Capital Management was organized in June 1989 and currently also
serves as investment adviser to corporate and pension fund accounts. Its
offices are located at 600 Dresher Road, Horsham, Pennsylvania 19044. As of
December 31, 1996, Independence Capital Management was responsible for the
management of over $360 million of investment assets.
Independence Capital Management manages the investments of the Growth Equity,
the Quality Bond and the Money Market Funds. Each Fund pays Independence
Capital Management, on a monthly basis, an advisory fee based on the average
daily net assets of each Fund at the following annual rates: Growth Equity
Fund, 0.50%; Quality Bond Fund, 0.45%; Money Market Fund, 0.40%. The fees will
be reduced by 0.05% for any of the Funds whose assets exceed $100 million.
25
<PAGE>
Richardson T. Merriman, Senior Vice President of Independence Capital
Management, manages the Growth Equity Fund since June 1995. Mr. Merriman is
also President of Pennsylvania Trust Company, a Penn Mutual subsidiary.
Peter M. Sherman, President and Portfolio Manager of Independence Capital
Management, Inc. since September 1995, is primarily responsible for the day-to-
day investment management of the Quality Bond and Money Market Funds. He served
as Senior Vice President, Independence Capital Management, prior to becoming
President. Mr. Sherman is Senior Vice President and Chief Investment Officer of
Penn Mutual; prior to May 1996, he was Vice President, Fixed Income Portfolio
Management, Penn Mutual.
Independence Capital Management is investment adviser and Robertson Stephens
Investment Management, Inc. ("Robertson Stephens") is sub-adviser for the
Emerging Growth Fund. With the establishment of Penn Series' newest Fund, the
advisory agreement between Penn Series and Independence Capital Management and
the sub-advisory agreement between Independence Capital Management and
Robertson Stephens were entered into on April 15, 1997.
Independence Capital Management is responsible for the investment management
of the Emerging Growth Fund. The Fund pays Independence Capital Management, on
a monthly basis, an advisory fee based on the average daily net assets of the
Fund. The advisory fee is paid at the following rates: (i) 0.80% of the first
$25,000,000 of average daily net assets of the Fund; (ii) 0.75% of the next
$25,000,000 of average daily net assets of the Fund; and (iii) 0.70% of average
daily net assets of the Fund in excess of $50,000,000.
Independence Capital Management selected Robertson Stephens as sub-adviser to
assist it in working to achieve the investment objectives of the Emerging
Growth Fund. Robertson Stephens will make the investment decisions for the Fund
and will be responsible for the day-to-day operation of the Fund. See below for
information regarding Robertson Stephens.
OPCAP. OpCap Advisors ("OpCap") is investment adviser for the Value Equity
Fund. OpCap Advisors is a general partnership of which Oppenheimer Capital
holds a 99% interest. Oppenheimer Capital is a registered investment adviser
with extensive experience in the management of mutual funds and institutional
accounts, and its employees perform all investment advisory services provided
to the Value Equity Fund by OpCap. Oppenheimer Financial Corp., a holding
company, holds a 33% interest in Oppenheimer Capital. Oppenheimer Capital,
L.P., a Delaware limited partnership whose units are traded on the New York
Stock Exchange and of which Oppenheimer Financial Corp. is the sole general
partner, owns the remaining 67% interest. Oppenheimer Capital has operated as
an investment advisor since 1968.
OpCap is located at One World Financial Center, New York, New York 10281. It
acts as investment adviser and subadviser to other mutual funds. As of December
31, 1996, OpCap managed assets of mutual funds with an aggregate value of more
than $10.4 billion.
Under the investment advisory agreements, OpCap manages the investments of
the Value Equity and the Small Capitalization Funds. The Value Equity Fund pays
OpCap, on a monthly basis, an advisory fee based on the average daily net
assets of the Fund, at the annual rate of 0.50%. The Small Capitalization Fund
pays OpCap, on a monthly basis, an advisory fee based on the average daily net
assets of the Fund, at the annual rate of 0.50%.
Eileen P. Rominger, Managing Director, Oppenheimer Capital, parent of OpCap
Advisors, is primarily responsible for the day-to-day investment management of
the Value Equity Fund. Ms. Rominger has had that responsibility since 1992.
During the past six years, she has been a Senior Vice President of Oppenheimer
Capital.
The Small Capitalization Fund is managed by Timothy McCormack, Timothy Curro
and Gavin Albert. Timothy McCormack has been a portfolio manager of the Fund
since March 1996. Timothy Curro and Gavin Albert became portfolio managers of
the Fund on January 1, 1997. Mr. Curro has been a Vice President of Oppenheimer
Capital since November 1996. Prior thereto, he was a general partner of Value
Holdings, L.P., an investment partnership, from May 1995 to November 1996, a
Vice President in the equity research department at UBS Securities Inc. from
June 1994 through May 1995 and from January 1991 through February 1993, and was
a partner with Omega Advisors, Inc. from March 1993 to March 1994. Mr. Albert,
Vice President of Oppenheimer Capital since December 1996, joined the firm in
September 1994 as a research analyst. Prior thereto he was a management
consultant for EDS Energy Management in 1994, attended the Vanderbilt
University Business School from September 1992 to May 1994 (with a Masters of
Business Administration degree in finance and management) and was a financial
analyst in the Corporate Finance department of Texaco, Inc. from 1990 to 1992.
Mr. McCormack, Vice President of Oppenheimer Capital, joined the firm in 1994.
From 1993 to 1994 he was a security analyst at U.S. Trust Company and prior
thereto he was a securities analyst at Gabelli & Company. He has a masters of
Business Administration degree from the Wharton School.
VONTOBEL. Vontobel USA, Inc. ("Vontobel") is investment adviser for the
International Equity Fund. Vontobel is a wholly owned subsidiary of Vontobel
Holding Ltd., one of the largest private banks and brokerage firms in
Switzerland. Its principal place of business is located at 450 Park Avenue, New
York, New York 10022. As of December 31, 1996, Vontobel
26
<PAGE>
managed assets of over $1.45 billion, a substantial part of which was invested
outside of the United States. The Vontobel group of companies has investments
in excess of $24 billion under management.
Under the investment advisory agreement, Vontobel manages the investments of
the International Equity Fund. The Fund pays Vontobel, on a monthly basis, an
advisory fee based on the average daily net assets of the Fund, at the annual
rate of 0.75%.
Fabrizio Pierallini, Vice President and Portfolio Manager, Vontobel USA Inc.,
is primarily responsible for the day-to-day investment management of the
International Equity Fund. Mr. Pierallini joined Vontobel in April 1994 with
responsibilities for managing international equities. Prior thereto, he served
as Associate Director/Portfolio Manager, Swiss Bank Corporation, New York, from
May 1991, and as Vice President and Portfolio Manager, SBC Portfolio
Management, Ltd. (an affiliate of Swiss Bank Corporation, Zurich), from
September 1988 to April 1991.
ROBERTSON STEPHENS. Robertson Stephens Investment Management, Inc.
("Robertson Stephens") is sub-adviser for the Emerging Growth Fund pursuant to
the sub-advisory agreement between Independence Capital Management and
Robertson Stephens (see above). Robertson Stephens commenced operations in
March 1986 and is an indirect wholly-owned subsidiary of Robertson, Stephens &
Company LLC. Robertson, Stephens & Company LLC is a distributor of mutual funds
and a major investment banking firm specializing in emerging growth companies
that has developed substantial investment research, underwriting, and venture
capital expertise. Since 1978, Robertson, Stephens & Company LLC has managed
underwritten public offerings for over $15.23 billion of securities of emerging
growth companies. Robertson Stephens & Company LLC, Robertson Stephens &
Company, Inc., and Sanford R. Robertson may be deemed to be control persons of
Robertson Stephens. The principal place of business of Robertson Stephens and
its affiliates is 555 California Street, San Francisco, California 94104.
Independence Capital Management pays Robertson Stephens, on a monthly basis,
a sub-advisory fee based on average daily net assets of the Fund. The sub-
advisory fee is paid at the following rates: (i) 0.70% of the first $25,000,000
of average daily net assets of the Fund; (ii) 0.65% of the next $25,000,000 of
average daily net assets of the Fund; and (iii) 0.60% of average daily net
assets of the Fund in excess of $50,000,000.
James Callinan, Managing Director of Robertson Stephens & Company Investment
Management, L.P. and Portfolio Manager of Robertson Stephens, is responsible
for managing the Emerging Growth Fund. Mr. Callinan has more than nine years of
investment research and management experience. From 1986 until June 1996, Mr.
Callinan was employed by Putnam Investments, where, beginning in June 1994, he
served as portfolio manager of the Putnam OTC Emerging Growth Fund. Mr.
Callinan received an A.B. in economics from Harvard College, and M.S. in
accounting from New York University, and an M.B.A. from Harvard Business
School, and is a Chartered Financial Analyst.
GENERAL INFORMATION. In allocating to brokers purchases and sales of
portfolio securities of the Growth Equity, Value Equity, Small Capitalization,
Emerging Growth, International Equity and Quality Bond Funds, the advisers are
required to seek best price and most favorable execution but may take into
consideration the sale of Fund shares. The advisers periodically make payments
to Penn Mutual to assist it in defraying costs incurred in providing
information about their services and performance.
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ADMINISTRATIVE AND CORPORATE SERVICES AGENT
The Penn Mutual Life Insurance Company ("Penn Mutual") is the administrative
and corporate services agent of Penn Series Funds, Inc. Penn Mutual is a
Pennsylvania mutual life insurance company chartered in 1847 and has been
engaged continuously in the life insurance business since that date. Its
corporate home office is located at Independence Square, Philadelphia,
Pennsylvania 19172.
Under an administrative and corporate services agreement between the Fund and
Penn Mutual, Penn Mutual administers Penn Series' corporate affairs, subject to
the supervision of the Board of Directors and, in connection therewith,
furnishes Penn Series with office facilities, prepares regulatory filings,
provides staff assistance to the Board, and provides those ordinary clerical
and bookkeeping services which are not provided by Penn Series' custodian,
transfer agent, accounting services agent or adviser. Each Fund pays Penn
Mutual an annual fee equal to 0.15% of the Fund's average daily net assets,
subject to the limitations on Fund expenses described below.
- --------------------------------------------------------------------------------
EXPENSES AND LIMITATIONS THEREON
Each Fund bears all expenses of its operations other than those incurred by
its investment adviser under its investment advisory agreement and those
incurred by Penn Mutual under its administrative and corporate services
agreement. In particular, each Fund pays: investment advisory fees;
administrator's fee; shareholder servicing fees and expenses; custodian and
27
<PAGE>
accounting fees and expenses; legal and auditing fees; expenses of printing and
mailing prospectuses and shareholder reports; registration fees and expenses;
proxy and annual meeting expenses; and directors' fees and expenses.
With respect to each Fund, the investment advisers and Penn Mutual have
agreed to waive fees or reimburse expenses to the extent the Fund's total
expense ratio (excluding interest, taxes, brokerage, other expenses which are
capitalized in accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and administrative
and corporate services fees) exceeds the expense limitation for the Fund. The
expense limitations for the Funds are as follows: Growth Equity Fund: 1.00%;
Value Equity Fund: 1.00%; Small Capitalization Fund: 1.00%; Emerging Growth
Fund: 1.15%; Flexibly Managed Fund: 1.00%; International Equity Fund: 1.50%;
Quality Bond Fund: 0.90%; High Yield Bond Fund: 0.90% and Money Market Fund:
0.80%. All waivers of fees or reimbursements of expenses with respect to the
Flexibly Managed Fund and the High Yield Bond Fund will be shared equally by
Price Associates and Penn Mutual, and all expenses with respect to the Emerging
Growth Fund will be shared equally by Robertson Stephens and Penn Mutual. For
all other Funds, the investment adviser will waive fees with regards to the
entirety of the first 0.10% of excess above the expense limitations; Penn
Mutual will waive fees or reimburse expenses for the entirety of any additional
excess above the first 0.10%.
For the year ended December 31, 1996, the annualized ratios of operating
expenses (after waivers) to the average net assets for each of the Funds were:
Growth Equity Fund: .80%; Value Equity Fund: .78%; Small Capitalization Fund:
.99%; Flexibly Managed Fund: .77%; International Equity Fund: 1.17%; Quality
Bond Fund: .77%; High Yield Bond Fund: .84%; Money Market Fund: .73%.
- --------------------------------------------------------------------------------
CUSTODIAN, ACCOUNTING SERVICES AGENT AND TRANSFER AGENT
PNC Bank, Broad & Chestnut Streets, Philadelphia, PA 19107, is custodian of
the assets of the Funds of Penn Series, and maintains certain records and books
in connection therewith. A subsidiary of PNC Bank, PFPC Inc., Wilmington,
Delaware 19809, is the accounting services agent and transfer agent for the
Funds of Penn Series.
As accounting services agent, PFPC Inc. provides accounting services to, and
keeps the accounts and records of, Penn Series. Under the accounting services
agreement, the accounting service fee is calculated daily based on a
predetermined percentage of daily net assets. For domestic portfolios (Growth
Equity, Value Equity, Small Capitalization, Flexibly Managed, Quality Bond,
High Yield Bond and Money Market), the percentages are as follows: .075% of the
first $100 million, .050% of the next $200 million, .030% of the next $300
million, and .020% of the remainder. For international portfolios
(International Equity), the percentages are as follows: .085% of the first $100
million, .060% of the next $300 million, .040% of the next $200 million, and
.030% of the remainder. Additionally, all non-money market funds are subject to
specified minimum annual fees.
- --------------------------------------------------------------------------------
SALE AND REDEMPTION OF SHARES
Shares of Penn Series are sold to Penn Mutual and its subsidiaries for their
general and separate accounts at net asset value of the shares next determined
after receipt of the purchase order. There is no sales charge or sales load on
purchase of those shares.
Shares of Penn Series are redeemed at their net asset value next determined
after receipt of a written request for redemption. There is no redemption
charge.
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NET ASSET VALUE OF SHARES
Net asset value per share of the Growth Equity, Value Equity, Small
Capitalization, Emerging Growth, Flexibly Managed, International Equity,
Quality Bond, and High Yield Bond Funds is determined as of the close of the
New York Stock Exchange, on each day the New York Stock Exchange is open for
trading. The net asset value per share of each Fund is determined by
subtracting that Fund's liabilities (including accrued expenses) from its total
assets (the value of the securities the Fund holds plus cash and other assets,
including income accrued but not yet received) and dividing the result by the
total number of shares outstanding.
Portfolio securities listed on a national securities exchange are valued at
the last quoted sales price on the exchange or, if there has been no sale on
that day, at the mean between the current closing bid and asked prices. All
other portfolio securities for which over-the-counter market quotations are
readily available are valued on the basis of the mean between the last current
bid and asked prices. When market quotations 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, or pursuant to delegated authority of,
the Board of Directors.
28
<PAGE>
Foreign portfolio securities generally are valued in accordance with the
above procedures, except as described below. Trading in foreign securities on
European and Far Eastern securities exchanges and over-the-counter markets is
normally completed well before the close of the business day in New York. In
addition, Far Eastern securities trading may not take place on all business
days in New York. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not business
days in New York and on which net asset value is not calculated.
Foreign portfolio securities, including ADRs and EDRs, which are traded on
stock exchanges, are valued at the last sale price, prior to the Fund valuation
time, on the exchange on which such securities are traded, unless the Fund is
aware of a material change in the value prior to the time the Fund values its
securities, or, lacking any sales, at the last available bid price. ADR's for
which such a value cannot be readily determined on any day will be valued at
the closing price of the underlying security adjusted for the exchange rate.
The Funds will make the effort to follow the above pricing procedures,
recognizing that due to differing hours, the calculation of net asset value may
not take place contemporaneously with the determination of the prices of
foreign portfolio securities used in such calculations. Events affecting the
values of foreign portfolio securities that occur between the time their prices
are determined and the close of the New York Stock Exchange will not be
reflected in the Fund calculation of net asset value unless the Board of
Directors deems that the particular event would materially affect the net asset
value, in which case an adjustment will be made. Assets or liabilities
initially expressed in terms of foreign currencies are translated prior to the
next determination of the net asset value of the Fund shares into U.S. dollars
at the prevailing market rates.
Net asset value per share of the Money Market Fund is determined, as of Noon,
Philadelphia time, on each day the New York Stock Exchange is open for trading.
The net asset value per share of the Money Market Fund is determined by
subtracting the Fund's liabilities from its total assets and dividing the
result by the total number of shares outstanding. Securities held by the Money
Market Fund are valued by the amortized cost method. This means that each
obligation will be valued initially at its purchase price and thereafter by
amortizing any discount or premium uniformly to maturity.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
Penn Series is qualified as a regulated investment company under Section 851 of
the Internal Revenue Code and distributes substantially all of its net
investment income and realized gains from securities transactions to
shareholders. For each taxable year in which it and each of its Funds so
qualify, Penn Series will not be subject to tax on net investment income and
realized gains from securities transactions distributed to shareholders.
Further, under current provisions of the Code, Penn Mutual and PIA do not
expect to incur federal income tax on earnings of their separate accounts
resulting from their shares of Penn Series to the extent that those earnings
are credited to variable contracts.
- --------------------------------------------------------------------------------
VOTING RIGHTS
The shares of the Funds have equal voting rights, except that certain issues
will be voted on separately by the shareholders of each Fund. Penn Mutual and
PIA own all the outstanding shares of Penn Series, either in their separate
accounts registered under the 1940 Act or in their unregistered separate
accounts or general accounts. Pursuant to the 1940 Act, however, Penn Mutual
and PIA will vote the shares held in registered separate accounts in accordance
with voting instructions received from variable contract owners or payees
having the right to give such instructions. Fund shares for which contract
owners or payees are entitled to give voting instructions, but as to which no
voting instructions are received, and shares owned by Penn Mutual and PIA in
their general and unregistered separate accounts, will be voted in proportion
to the shares for which voting instructions have been received. Under state
insurance law and federal regulations, there are certain circumstances under
which Penn Mutual and PIA may disregard such voting instructions. If voting
instructions are ever so ignored, contract owners will be advised of that
action in the next semiannual report.
Penn Series currently does not intend to hold annual meetings of shareholders
unless required to do so under applicable law. The law provides shareholders
with the right under certain circumstances to call a meeting of shareholders to
consider removal of one or more directors. As required by law, Penn Series will
assist in variable contract owner and payee communication on such matters.
29
<PAGE>
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RATINGS OF CORPORATE DEBT SECURITIES
The quality of a bond is measured by credit risk--the continuing ability of the
issuer to meet interest and principal payments. Issuers who are believed to be
good credit risks receive high quality ratings, and those believed to be poor
credit risks receive low quality ratings. As a result of the greater credit
risk involved, medium and low quality bonds typically offer a higher yield than
bonds of high quality.
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE, INC.
AAA Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge."
- --------------------------------------------------------------------------------
AA Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds.
- --------------------------------------------------------------------------------
A Bonds rated A possess many favorable investment attributes and are
generally considered as upper medium grade obligations.
- --------------------------------------------------------------------------------
BAA Bonds rated Baa are considered medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
- --------------------------------------------------------------------------------
BA Bonds rated Ba are judged to have speculative elements: their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterize bonds in this class.
- --------------------------------------------------------------------------------
B Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance
of other terms of the contract over any long period of time may be
small.
- --------------------------------------------------------------------------------
CAA Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
- --------------------------------------------------------------------------------
CA Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-
comings.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION
AAA This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal
and interest.
- --------------------------------------------------------------------------------
AA Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong.
- --------------------------------------------------------------------------------
A Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
- --------------------------------------------------------------------------------
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in the
A category.
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BB, B, CCC, CC
Bonds rated BB, B, CCC, and CC are regarded on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
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30
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION -- MAY 1, 1997
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
600 DRESHER ROAD, HORSHAM, PA 19044 . TELEPHONE (215) 956-8000
- --------------------------------------------------------------------------------
This statement is not a prospectus but should be read in conjunction with the
current prospectus of Penn Series Funds, Inc. ("Penn Series") dated May 1,
1997. To obtain the prospectus you may write to The Penn Mutual Life Insurance
Company ("Penn Mutual"), Customer Service Group--H3F, Independence Square,
Philadelphia, PA 19172. Or, you may call, toll free, 1-800-548-1119.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
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<S> <C>
INVESTMENT OBJECTIVES...................................................... B-2
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SECURITIES AND INVESTMENT TECHNIQUES....................................... B-3
Investments in Debt Securities........................................... B-3
Investments in Foreign Equity Securities................................. B-5
Investments in Smaller Companies......................................... B-5
Foreign Currency Transactions............................................ B-6
Repurchase Agreements.................................................... B-7
Lending of Portfolio Securities.......................................... B-7
Illiquid Securities...................................................... B-8
Warrants................................................................. B-8
When-Issued Securities................................................... B-8
The Quality Bond Fund's Policy Regarding Industry Concentration.......... B-9
Options.................................................................. B-9
Future Contracts......................................................... B-10
Loan Participations and Assignments...................................... B-10
Trade Claims............................................................. B-11
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INVESTMENT RESTRICTIONS.................................................... B-12
Growth Equity Fund....................................................... B-12
Value Equity Fund........................................................ B-13
Small Capitalization Fund................................................ B-14
Emerging Growth Fund..................................................... B-15
Flexibly Managed Fund.................................................... B-15
International Equity Fund................................................ B-16
Quality Bond Fund........................................................ B-17
High Yield Bond Fund..................................................... B-18
Money Market Fund........................................................ B-19
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GENERAL INFORMATION........................................................ B-21
Investment Advisory Services............................................. B-21
Administrative and Corporate Services.................................... B-22
Accounting Services...................................................... B-23
Limitation on Fund Expenses.............................................. B-23
Portfolio Transactions................................................... B-23
Directors and Officers................................................... B-26
Custodial Services....................................................... B-26
Independent Accountants.................................................. B-27
Legal Matters............................................................ B-27
Net Asset Value of Shares................................................ B-27
Ownership of Shares...................................................... B-28
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RATINGS OF COMMERCIAL PAPER................................................ B-28
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FINANCIAL STATEMENTS OF PENN SERIES........................................ B-29
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REPORT OF INDEPENDENT ACCOUNTANTS.......................................... B-30
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</TABLE>
B-1
<PAGE>
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INVESTMENT OBJECTIVES
Information in this Statement of Additional Information supplements the
discussion in the Penn Series Prospectus regarding investment objectives,
programs and restrictions of the nine Funds that comprise the Penn Series
Funds, Inc. Unless otherwise specified, the investment policies and
restrictions of the Funds are not fundamental policies. The operating policies
of each Fund are subject to change by the Board of Directors without
shareholder approval. Fundamental policies of each Fund may not be changed
without the approval of at least a majority of the outstanding shares of that
Fund or, if it is less, 67% of the shares represented at a meeting of
shareholders at which the holders of 50% or more of the shares are represented.
The investment objectives of the nine Funds are as follows. There is, of
course, no assurance that these objectives will be achieved.
- --------------------------------------------------------------------------------
GROWTH EQUITY seeks long-term growth of capital and increase of
FUND future income by investing primarily in common stocks
of well-established growth companies;
- --------------------------------------------------------------------------------
VALUE EQUITY FUND seeks to maximize total return (capital appreciation
and income) primarily by investing in equity
securities of companies believed to be undervalued
considering such factors as assets, earnings, growth
potential and cash flows;
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SMALL seeks capital appreciation through investment in a
CAPITALIZATION diversified portfolio of securities consisting
FUND primarily of equity securities of companies with
market capitalizations of under $1 billion;
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EMERGING GROWTH seeks capital appreciation by investing primarily in
FUND common stocks of emerging growth companies with above-
average growth prospects;
- --------------------------------------------------------------------------------
FLEXIBLY MANAGED seeks to maximize total return (capital appreciation
FUND and income) by investing in common stocks, other
equity securities, corporate debt securities, and/or
short-term reserves, in proportions considered
appropriate in light of the availability of
attractively valued individual securities and current
and expected economic and market conditions;
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INTERNATIONAL seeks to maximize capital appreciation by investing in
EQUITY FUND a carefully selected diversified portfolio consisting
primarily of equity securities. The investments will
consist principally of equity securities of European
and Pacific Basin countries.
- --------------------------------------------------------------------------------
QUALITY BOND FUND seeks the highest income over the long term consistent
with the preservation of principal by investing
primarily in marketable investment-grade debt
securities;
- --------------------------------------------------------------------------------
HIGH YIELD BOND seeks high current income by investing primarily in a
FUND diversified portfolio of long-term high-yield/high
risk fixed income securities in the medium to lower
quality ranges; capital appreciation is a secondary
objective; SUCH SECURITIES, WHICH ARE COMMONLY
REFERRED TO AS "JUNK" BONDS, GENERALLY INVOLVE GREATER
RISKS OF LOSS OF INCOME AND PRINCIPAL THAN HIGHER
RATED SECURITIES;
- --------------------------------------------------------------------------------
MONEY MARKET FUND seeks to preserve capital, maintain liquidity and
achieve the highest possible level of current income
consistent therewith, by investing in high quality
money market instruments; AN INVESTMENT IN THE FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
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B-2
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
INVESTMENTS IN DEBT SECURITIES
Debt securities in which one or more of the Funds may invest in include those
described below.
U.S. GOVERNMENT OBLIGATIONS. The Funds may invest in bills, notes, bonds, and
other debt securities issued by the U.S. Treasury. These are direct obligations
of the U.S. Government and differ mainly in the length of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES. The Funds may invest in debt securities
issued or guaranteed by U.S. Government sponsored enterprises, federal
agencies, and international institutions. These include securities issued by
the Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, and the Tennessee Valley Authority.
Some of these securities are supported by the full faith and credit of the U.S.
Treasury; others are supported by the right of the issuer to borrow from the
Treasury; and the remainder are supported only by the credit of the
instrumentality.
LONG-TERM, MEDIUM TO LOWER QUALITY CORPORATE DEBT SECURITIES. The High Yield
Bond Fund will invest in outstanding convertible and nonconvertible corporate
debt securities (e.g., bonds and debentures) that generally have maturities of
at least 10 years. This Fund will generally invest in long-term corporate
obligations which are rated BBB or lower by Standard & Poor's Corporation
("Standard & Poor's") or Baa or lower by Moody's Investors Service, Inc.
("Moody's"), or, if not rated, are of equivalent quality as determined by the
Fund's investment adviser. Other Funds may invest limited amounts in medium to
lower quality corporate debt securities in accordance with their stated
investment policies.
INVESTMENT GRADE CORPORATE DEBT SECURITIES. The Quality Bond Fund will invest
principally in corporate debt securities of various maturities that are
considered investment grade securities by at least one of the established
rating services (e.g., AAA, AA, A, or BBB by Standard & Poor's) or, if not
rated, are of equivalent quality as determined by the Fund's investment
adviser, Independence Capital Management, Inc.
BANK OBLIGATIONS. The Funds may invest in certificates of deposit, bankers'
acceptances, and other short-term debt obligations. Certificates of deposit are
short-term obligations of commercial banks. A bankers' acceptance is a time
draft drawn on a commercial bank by a borrower, usually in connection with
international commercial transactions.
No Fund will invest in any security issued by a commercial bank unless (i)
the bank has total assets of at least $1 billion, or the equivalent in other
currencies, or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank by any
one Income Fund is limited to $100,000 and the principal amount of such
investment is insured in full by the Federal Deposit Insurance Corporation,
(ii) in the case of a U.S. Bank, it is a member of the Federal Deposit
Insurance Corporation, and (iii) in the case of foreign banks, the security is,
in the opinion of the Fund's investment adviser, of an investment quality
comparable with other debt securities which may be purchased by the Fund. These
limitations do not prohibit investments in securities issued by foreign
branches of U.S. banks, provided such U.S. banks meet the foregoing
requirements.
COMMERCIAL PAPER. The Funds may invest in short-term promissory notes issued
by corporations primarily to finance short-term credit needs. The Money Market
Fund will only invest in commercial paper which is rated A-2 or better by
Standard & Poor's, Prime-2 or better by Moody's or, if not rated, is of
equivalent quality as determined by the investment adviser, and further will
invest only in instruments permitted under the SEC Rule 2a-7 which governs
money market fund investing.
CANADIAN GOVERNMENT SECURITIES. The Funds may invest in debt securities
issued or guaranteed by the Government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof. However, the Money Market
Fund will only purchase these securities if they are marketable and payable in
U.S. dollars. The Money Market Fund will not purchase any such security if, as
a result, more than 10% of the value of its total assets would be invested in
such securities.
SAVINGS AND LOAN OBLIGATIONS. The Quality Bond, High Yield Bond, and Money
Market Funds may invest in negotiable certificates of deposit and other debt
obligations of savings and loan associations. They will not invest in any
security issued by a savings and loan association unless: (i) the savings and
loan association has total assets of at least $1 billion, or, in the case of
savings and loan associations which do not have total assets of at least $1
billion, the aggregate investment made in any one savings and loan association
is limited to $100,000 and the principal amount of such investment is insured
in full by the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation; (ii) the savings and loan association issuing the
security is a member of the Federal Home Loan Bank System; and (iii) the
security is insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation.
No Fund will purchase any security of a small bank or savings and loan
association which is not readily marketable if, as a result, more than 10% of
the value of its total assets would be invested in such securities, other
illiquid securities, and securities
B-3
<PAGE>
without readily available market quotations, such as restricted securities and
repurchase agreements maturing in more than seven days.
MUNICIPAL OBLIGATIONS. The Quality Bond and Value Equity Funds may invest in
Municipal Obligations that meet the Fund's quality standards. The two principal
classifications of Municipal Obligations are "general obligation" securities
and "revenue" securities. General obligation securities are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue securities are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source such
as the user of the facility being financed. Revenue securities include private
activity bonds which are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations may include variable and floating rate instruments. If
such instruments are unrated, they will be determined by the adviser to be of
comparable quality at the time of the purchase to rated instruments purchasable
by a Fund.
To the extent a Fund's assets are to a significant extent invested in
Municipal Obligations that are payable from the revenues of similar projects,
the Fund will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects to a greater extent than it would
be if its assets were not so invested.
FOREIGN DEBT SECURITIES. Subject to the particular Fund's quality and
maturity standards, the Quality Bond, High Yield Bond and Money Market Funds
may invest without limitation in the debt securities (payable in U.S. dollars)
of foreign issuers in developed countries and in the securities of foreign
branches of U.S. banks such as negotiable certificates of deposit
(Eurodollars). The High Yield Bond Fund may also invest up to 20% of its assets
in non-U.S. dollar--denominated fixed-income securities principally traded in
financial markets outside the United States.
The International Equity Fund may invest in debt securities of foreign
issuers. The securities will be rated Baa or higher by Moody's Investor
Services, Inc. or BBB or higher by Standard and Poor's Corporation or, if they
have not been so rated, will be the equivalent of investment grade (Baa or BBB)
as determined by the adviser. The Value Equity Fund may also invest up to 15%
of its assets in U.S.-traded dollar denominated debt securities of foreign
issuers, and up to 5% of its assets in non-dollar denominated fixed income
securities issued by foreign issuers.
The Small Capitalization and Emerging Growth Funds may also invest up to 15%
of its assets in U.S.-traded dollar denominated debt securities of foreign
issuers, and up to 5% of its assets in non-dollar denominated fixed income
securities issued by foreign issuers.
For information on risks involved in investing in foreign securities, see
information on "INVESTMENT IN FOREIGN EQUITY SECURITIES" below.
PRIME MONEY MARKET SECURITIES DEFINED. Prime money market securities include:
U.S. Government obligations; U.S. Government agency securities; bank or savings
and loan association obligations issued by banks or savings and loan
associations whose debt securities or parent holding companies' debt securities
or affiliates' debt securities guaranteed by the parent holding company are
rated AAA or A-1 or better by Standard & Poor's, Aaa or Prime-1 by Moody's, or
AAA by Fitch; commercial paper rated A-1 or better by Standard & Poor's, Prime-
1 by Moody's, or, if not rated, issued by a corporation having an outstanding
debt issue rated AAA by Standard & Poor's, Moody's, or Fitch; short-term
corporate debt securities rated AAA by Standard & Poor's, Moody's, or Fitch;
Canadian Government securities issued by entities whose debt securities are
rated AAA by Standard & Poor's, Moody's, or Fitch; and repurchase agreements
where the underlying security qualifies as a prime money market security as
defined above.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Quality Bond Fund may invest in
collateralized mortgage obligations ("CMOs"). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
the Fund invests, the investment may be subject to a greater or lesser risk of
prepayment than other types of mortgage-related securities. CMOs may also be
less marketable than other securities.
ASSET-BACKED SECURITIES. The Quality Bond and Money Market Funds may invest a
portion of their assets in debt obligations known as "asset-backed securities."
The credit quality of most asset-backed securities depends primarily on the
credit quality of the assets underlying such securities, how well the entity
issuing the security is insulated from the credit risk of
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the originator or any other affiliated entities, and the amount and quality of
any credit support provided to the securities. The rate of principal payment on
asset-backed securities generally depends on the rate of principal payments
received on the underlying assets which in turn may be affected by a variety of
economic and other factors. As a result, the yield on any asset-backed security
is difficult to predict with precision and actual yield to maturity may be more
or less than the anticipated yield to maturity. Asset-backed securities may be
classified as "pass through certificates" or "collateralized obligations."
"Pass through certificates" are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets. Pass
through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because pass
through certificates represent an ownership interest in the underlying assets,
the holders thereof bear directly the risk of any defaults by the obligors on
the underlying assets not covered by any credit support.
Asset-backed securities issued in the form of debt instruments, also known as
collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or automobile
receivables. The assets collateralizing such asset-backed securities are
pledged to a trustee or custodian for the benefit of the holders thereof. Such
issuers generally hold no assets other than those underlying the asset-backed
securities and any credit support provided. As a result, although payments on
such asset-backed securities are obligations of the issuers, in the event of
defaults on the underlying assets not covered by any credit support, the
issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related asset-backed securities.
ZERO COUPON AND PAY-IN-KIND BONDS. The High Yield Bond Fund may invest in
zero coupon and pay-in-kind bonds. A zero coupon security has no cash coupon
payments. Instead, the issuer sells the security at a substantial discount from
its maturity value. The interest received by the investor from holding this
security to maturity is the difference between the maturity value and the
purchase price. The advantage to the investor is that reinvestment risk of the
income received during the life of the bond is eliminated. However, zero-coupon
bonds like other bonds retain interest rate and credit risk and usually display
more price volatility than those securities that pay a cash coupon.
Pay-in-Kind (PIK) Instruments are securities that pay interest in either cash
or additional securities, at the issuer's option, for a specified period.
PIK's, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. PIK bonds can be either senior or subordinated debt and
trade flat (i.e., without accrued interest). The price of PIK bonds is expected
to reflect the market value of the underlying debt plus an amount representing
accrued interest since the last payment. PIK's are usually less volatile than
zero coupon bonds, but more volatile than cash pay securities.
For federal income tax purposes, these types of bonds will require the
recognition of gross income each year even though no cash may be paid to the
Fund until the maturity or call date of the bond. The Fund will nonetheless be
required to distribute substantially all of this gross income each year to
comply with the Internal Revenue Code, and such distributions could reduce the
amount of cash available for investment by the Fund.
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INVESTMENTS IN FOREIGN EQUITY SECURITIES
The Growth Equity, Value Equity, Small Capitalization, Emerging Growth,
Flexibly Managed, and International Equity Funds may invest in the equity
securities of foreign issuers. The Growth Equity and Emerging Growth Funds
currently intend to limit any such investment to not more than 30% of their
respective assets, and the Value Equity, Small Capitalization and the Flexibly
Managed Funds currently intend to limit any such investment to not more than
15% of their respective assets. The International Equity Fund, under normal
circumstances, will have at least 65% of its assets in such investments.
Because these Funds may invest in foreign securities, selection of these Funds
involves risks that are different in some respects from an investment in a fund
which invests only in securities of U.S. domestic issuers. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may
not be subject to accounting, auditing, and financial reporting standards and
requirements comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than securities of U.S.
companies, and foreign brokerage commissions and custodian fees are generally
higher than in the United States. Investments in foreign securities may also be
subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, imposition of withholding taxes on dividend or
interest payments, and currency blockage (which would prevent cash from being
brought back to the United States).
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INVESTMENTS IN SMALLER COMPANIES
The Small Capitalization and Emerging Growth Funds may invest a substantial
portion of their assets in securities issued by smaller companies. Such
companies may offer greater opportunities for capital appreciation than larger
companies, but
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investments in such companies may involve certain special risks. Such companies
may have limited product lines, markets, or financial resources and may be
dependent on a limited management group. While the markets in securities of
such companies have grown rapidly in recent years, such securities may trade
less frequently and in smaller volume than more widely held securities. The
values of these securities may fluctuate more sharply than those of other
securities, and a Fund may experience some difficulty in establishing or
closing out positions in these securities at prevailing market prices. There
may be less publicly available information about the issuers of these
securities or less market interest in such securities than in the case of
larger companies, and it may take a longer period of time for the prices of
such securities to reflect the full value of their issuers' underlying earnings
potential or assets. Some securities of smaller issuers may be restricted as to
resale or may otherwise be highly illiquid. The ability of a Fund to dispose of
such securities may be greatly limited, and a Fund may have to continue to hold
such securities during periods when they would otherwise be sold.
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FOREIGN CURRENCY TRANSACTIONS
The Growth Equity, Value Equity, Small Capitalization, Emerging Growth,
International Equity and High Yield Bond Funds may enter into forward foreign
currency exchange contracts as described below. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly
between currency traders (usually large, commercial banks) and their customers.
A forward contract generally has no deposit requirement, and no commissions are
charged at any stage for trades.
These Funds may enter into forward foreign currency exchange contracts only
under two circumstances. First, when a Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, it may desire
to "lock in" the U.S. dollar price of the security. By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of foreign currency involved in the underlying security transactions, the Fund
will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased
or sold and the date on which payment is made or received. Second, when the
adviser to one of these Funds believes that the currency of a particular
foreign country may suffer a substantial decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars,
the amount of the foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible since the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. The International Equity
Fund may enter into a forward contract to buy or sell foreign currency (or
another currency which acts as a proxy for that currency) approximating the
value of some or all of the Fund's portfolio securities denominated in such
currency. In certain circumstances the adviser to the International Equity Fund
may commit substantial portion of the portfolio to the consummation of forward
contracts. The Growth Equity Fund, Value Equity, Small Capitalization Fund and
High Yield Bond Fund do not intend to enter into such forward contracts under
this second circumstance on a regular or continuous basis, and will not do so
if, as a result, the Fund will have more than 15% of the value of its total
assets committed to the consummation of such contracts. The Funds will also not
enter into such forward contracts or maintain a net exposure to such contracts
where the consummation of the contracts would obligate them to deliver an
amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency. Under normal
circumstances, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. A Fund's custodian bank will place cash or
liquid equity or debt securities in a separate account of the Fund in an amount
equal to the value of the Fund's total assets committed to the consummation of
forward foreign currency exchange contracts entered into under the second
circumstance, as set forth above. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the portfolio
security and make delivery of the foreign currency, or it may retain the
security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for a Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver
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and if a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of
the foreign currency received upon the sale of the portfolio security if its
market value exceeds the amount of foreign currency the Fund is obligated to
deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If a Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between a Fund's entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent that the price of the currency it has agreed
to purchase exceeds the price of the currency it has agreed to sell.
It also should be realized that this method of protecting the value of a
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which one can achieve at some future
point in time. Additionally, although such contracts tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time,
they tend to limit any potential gain which might result from the value of such
currency increase.
Although the International Equity Fund, Growth Equity Fund, Value Equity,
Small Capitalization Fund and High Yield Bond Fund value their assets daily in
terms of U.S. dollars, they do not intend to convert their holdings of foreign
currencies into U.S. dollars on a daily basis. They will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to a Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer.
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REPURCHASE AGREEMENTS
Each Fund, other than the Growth Equity Fund, may enter into repurchase
agreements through which an investor (such as a Fund) purchases a security
(known as the "underlying security") from a well-established securities dealer
or a bank that is a member of the Federal Reserve System. Concurrently, the
bank or securities dealer agrees to repurchase the underlying security at a
future point at the same price, plus specified interest. Repurchase agreements
are generally for a short period of time, often less than a week. A Fund will
not enter into a repurchase agreement with a maturity of more than seven
business days if, as a result, more than 10% of the value of its total assets
would then be invested in such repurchase agreements. The Quality Bond Fund
will only enter into a repurchase agreement where the underlying securities are
(excluding maturity limitations) rated within the four highest credit
categories assigned by established rating services (Aaa, Aa, A, or Baa by
Moody's or AAA, AA, A, or BBB by Standard & Poor's), or, if not rated, of
equivalent investment quality as determined by Independence Capital. With the
exception of the Money Market Fund, the underlying security must be rated
within the top three credit categories, or, if not rated, must be of equivalent
investment quality as determined by the investment adviser. In the case of the
Money Market Fund, the underlying security must be rated within the top credit
category or, if not rated, must be of comparable investment quality as
determined by the investment adviser and the repurchase agreement must meet the
other quality and diversification standards of Rule 2a-7 under the Investment
Company Act of 1940. In addition, each Fund will only enter into a repurchase
agreement where (i) the market value of the underlying security, including
interest accrued, will be at all times equal to or exceed the value of the
repurchase agreement, and (ii) payment for the underlying security is made only
upon physical delivery or evidence of book- entry transfer to the account of
the custodian or a bank acting as agent. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, a Fund could experience both
delays in liquidating the underlying security and losses, including: (a)
possible decline in the value of the underlying security during the period
while a Fund seeks to enforce its rights thereto; (b) possible subnormal levels
of income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
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LENDING OF PORTFOLIO SECURITIES
For the purpose of realizing additional income, each Fund may make secured
loans of portfolio securities amounting to not more than 30% of its total
assets. This policy is a fundamental policy for all the Funds. Securities loans
are made to unaffiliated broker-dealers or institutional investors pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent. The collateral
received will consist of government securities, letters of credit or such other
collateral as may be permitted under its investment program and by regulatory
agencies and approved by
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the Board of Directors. While the securities are being lent, the Fund will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. Each Fund has a right to call each loan
and obtain the securities on five business days' notice. No Fund will have the
right to vote securities while they are being lent, but it will call a loan in
anticipation of any important vote. The risks in lending portfolio securities,
as with other extensions of secured credit, consist of possible delay in
receiving additional collateral or in the recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially.
Loans will only be made to firms deemed by the adviser to be of good standing
and will not be made unless, in the judgment of the adviser, the consideration
to be earned from such loans would justify the risk.
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ILLIQUID SECURITIES
Each Fund, other than the Growth Equity and Money Market Funds, may invest up
to 10% of its net assets in illiquid securities. The Growth Equity Fund may
invest up to 5% of its total assets in illiquid securities. Illiquid securities
are those which may not be sold in the ordinary course of business within seven
days at approximately the value at which the Fund has them. Variable and
floating rate instruments that cannot be disposed of within seven days and
repurchase agreements with a maturity of greater than seven days are considered
illiquid. The Money Market Fund may invest up to 10% of its total assets in
only the following illiquid securities: repurchase agreements with a maturity
of greater than seven days, and illiquid obligations of small banks and savings
and loan associations.
The Funds may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. Any such security will not be
considered illiquid so long as it is determined by the adviser, acting under
guidelines approved and monitored by the Board of Directors, that an adequate
trading market exists for that security. In making that determination, the
adviser will consider, among other relevant factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades. A Fund's treatment of Rule
144A securities as liquid could have the effect of increasing the level of fund
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities. The adviser will continue to
monitor the liquidity of any Rule 144A security which has been determined to be
liquid and, if a security is no longer liquid because of changed conditions,
the holdings of illiquid securities will be reviewed to determine if any steps
are required to assure that the 10% test continues to be satisfied.
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WARRANTS
The Funds, other than the Growth Equity Fund, may invest in warrants;
however, not more than 5% of a Fund's assets (at the time of purchase) will be
invested in warrants other than warrants acquired in units or attached to other
securities. Of such 5% not more than 2% of such assets at the time of purchase
may be invested in warrants that are not listed on the New York or American
Stock Exchange. Warrants basically are options to purchase equity securities at
a specific price valid for a specific period of time. They do not represent
ownership of the securities, but only the right to buy them. They have no
voting rights, pay no dividends and have no rights with respect to the assets
of the corporation issuing them. Warrants differ from call options in that
warrants are issued by the issuer of the security which may be purchased on
their exercise, whereas call options may be written or issued by anyone. The
prices of warrants do not necessarily move parallel to the prices of the
underlying securities.
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WHEN-ISSUED SECURITIES
The Value Equity Fund, Small Capitalization Fund, Quality Bond Fund, Flexibly
Managed Fund and High Yield Bond Fund may from time to time purchase securities
on a "when-issued" basis. The price of such securities, which may be expressed
in yield terms, is fixed at the time the commitment to purchase is made, but
delivery and payment for the when-issued securities take place at a later date.
Normally, the settlement date occurs within one month of the purchase. During
the period between purchase and settlement, no payment is made by the Fund to
the issuer and no interest accrues to the Fund purchasing the when-issued
security. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Funds
intend to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the
particular Fund makes the commitment to purchase a security on a when-issued
basis, it will record the transaction and reflect the value of the security in
determining its net asset value. The advisers do not believe that the net asset
value or income of the Funds will be adversely affected by the respective
Fund's purchase of securities on a when-issued basis. The Funds will maintain
cash and marketable
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securities equal in value to commitments for when-issued securities. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
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THE QUALITY BOND FUND'S POLICY REGARDING INDUSTRY CONCENTRATION
When the market for corporate debt securities is dominated by issues in the
gas utility, gas transmission utility, electric utility, telephone utility, or
petroleum industries, the Quality Bond Fund will as a matter of fundamental
policy concentrate 25% or more, but not more than 50% of its assets, in any one
such industry, if the Fund has cash for such investment (i.e., will not sell
portfolio securities to raise cash) and, if in Independence Capital
Management's judgment, the return available and the marketability, quality, and
availability of the debt securities of such industry justifies such
concentration in light of the Fund's investment objective. Domination would
exist with respect to any one such industry, when, in the preceding 30-day
period, more than 25% of all new-issue corporate debt offering (within the four
highest grades of Moody's or S&P and with maturities of 10 years or less) of
$25,000,000 or more consisted of issues in such industry. Although the Fund
will normally purchase corporate debt securities in the secondary market as
opposed to new offerings, Independence Capital Management believes that the new
issue-based dominance standard, as defined above, is appropriate because it is
easily determined and represents an accurate correlation to the secondary
market. Investors should understand that concentration in any industry may
result in increased risk. Investments in any of these industries may be
affected by environmental conditions, energy conservation programs, fuel
shortages, difficulty in obtaining adequate return on capital in financing
operations and large construction programs, and the ability of the capital
markets to absorb debt issues. In addition, it is possible that the public
service commissions which have jurisdiction over these industries may not grant
future increases in rates sufficient to offset increases in operating expenses.
These industries also face numerous legislative and regulatory uncertainties at
both federal and state government levels. Independence Capital Management
believes that any risk to the Fund which might result from concentration in any
industry will be minimized by the Fund's practice of diversifying its
investments in other respects. The Quality Bond Fund's policy with respect to
industry concentration is a fundamental policy. See INVESTMENT RESTRICTIONS
below.
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OPTIONS
Each Fund, other than the Money Market Fund, may write covered calls and buy
put options on its portfolio securities and purchase call or put options on
securities indices. The High Yield Bond Fund may engage in other options
transactions described in INVESTMENT RESTRICTIONS below, including the purchase
of spread options, which give the owner the right to sell a security that it
owns at a fixed dollar spread or yield spread in relation to another security
that the owner does not own, but which is used as a benchmark.
Options trading is a highly specialized activity which entails greater than
ordinary investment risks. Options on particular securities may be more
volatile than the underlying securities, and therefore, on a percentage basis,
more risky than an investment in the underlying securities themselves.
A Fund will write call options only if they are "covered." This means that a
Fund will own the security or currency subject to the option or an option to
purchase the same underlying security or currency, having an exercise price
equal to or less than the exercise price of the "covered" option, or will
establish and maintain with its custodian for the term of the option, an
account consisting of cash, U.S. government securities or other liquid high-
grade debt obligations having a value equal to the fluctuating market value of
the optioned securities.
There are several risks associated with transactions in options on securities
and indices. For example, there are significant differences between the
securities and options markets that could result in an imperfect correlation
between these markets, causing a given transaction not to achieve its
objectives. In addition, a liquid secondary market for particular options,
whether traded over-the-counter or on a national securities exchange
("Exchange"), may be absent for reasons which include the following: there may
be insufficient trading interest in certain options; restrictions may be
imposed by an Exchange on opening transactions or closing transactions or both;
trading halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; unusual or
unforeseen circumstances may interrupt normal operations on an Exchange; the
facilities of an Exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or one or more Exchanges
could, for economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that Exchange (or in that
class or series of options) would cease to exist, although outstanding options
that had been issued by the Options Clearing Corporation as a result of trades
on that Exchange would continue to be exercisable in accordance with their
terms.
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FUTURE CONTRACTS
Each Fund, other than the Money Market Fund, may invest in futures contracts
and options thereon (interest rate futures contracts or stock index futures
contracts, as applicable), in accordance with each Fund's individual
restrictions on futures contracts set forth under INVESTMENT RESTRICTIONS
below. Such futures contracts would not be entered into for speculative
purposes, but to hedge risks associated with the Fund's securities investments
or to provide an efficient means of regulating its exposure to the market. To
enter into a futures contract, a Fund must make a deposit of initial margin
with its custodian in a segregated account in the name of its futures broker.
Initial margin on futures contracts is in the nature of a performance bond or
good faith deposit. Subsequent payments to or from the broker, called variation
margin, will be made on a daily basis as the price of the underlying index or
instrument fluctuates, making the long and short positions in the futures
contracts more or less valuable.
Successful use of futures by a Fund is subject, first, to the investment
adviser's ability to correctly predict movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit of the
increased value of its securities which it has hedged because it will have
approximately equal offsetting losses in its futures positions.
Even if the investment adviser has correctly predicted market movements, the
success of a futures position may be affected by imperfect correlations between
the price movements of the futures contract and the securities being hedged. A
Fund may purchase or sell futures contracts on any stock index or interest rate
index or instrument whose movements will, in the investment adviser's judgment,
have a significant correlation with movements in the prices of all or portions
of the Fund's portfolio securities. The correlation between price movements in
the futures contract and in the portfolio securities probably will not be
perfect, however, and may be affected by differences in historical volatility
or temporary price distortions in the futures markets. To attempt to compensate
for such differences, the Fund could purchase or sell futures contracts with a
greater or lesser value than the securities it wished to hedge or purchase.
Despite such efforts, the correlation between price movements in the futures
contract and the portfolio securities may be worse than anticipated, which
could cause the Fund to suffer losses even if the investment adviser had
correctly predicted the general movement of the market.
A Fund which engages in the purchase or sale of futures contracts may also
incur risks arising from illiquid markets. The ability of a Fund to close out a
futures position depends on the availability of a liquid market in the futures
contract, and such a market may not exist for a variety of reasons, including
daily limits on price movements in futures markets. In the event a Fund is
unable to close out a futures position because of illiquid markets, it would be
required to continue to make daily variation margin payments, and could suffer
losses due to market changes in the period before the futures position could be
closed out.
The trading of futures contracts is also subject to the risks of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
Options on futures contracts are subject to risks similar to those described
above, and also to a risk of loss due to an imperfect correlation between the
option and the underlying futures contract.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
The High Yield Bond Fund may invest in loan participations and assignments
(collectively "participations"). Such participations will typically be
participating interests in loans made by a syndicate of banks, represented by
an agent bank which has negotiated and structured the loan, to corporate
borrowers to finance internal growth, mergers, acquisitions, stock repurchases,
leveraged buyouts and other corporate activities. Such loans may also have been
made to governmental borrowers, especially governments of developing countries
(LDC debt). LDC debt will involve the risk that the governmental entity
responsible for the repayment of the debt may be unable or unwilling to do so
when due. The loans underlying such participations may be secured or unsecured,
and the Fund may invest in loans collateralized by mortgages on real property
or which have no collateral. The loan participations themselves may extend for
the entire term of the loan or may extend only for short "strips" that
correspond to a quarterly or monthly floating rate interest period on the
underlying loan. Thus, a term or revolving credit that extends for several
years may be subdivided into shorter periods.
The loan participations in which the High Yield Bond Fund will invest will
also vary in legal structure. Occasionally, lenders assign to another
institution both the lender's rights and obligations under a credit agreement.
Since this type of assignment relieves the original lender of its obligations,
it is called a novation. More typically, a lender assigns only its right to
receive payments of principal and interest under a promissory note, credit
agreement or similar document. A true assignment shifts to the assignee the
direct debtor-creditor relationship with the underlying borrower.
Alternatively, a lender may assign
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only part of its rights to receive payments pursuant to the underlying
instrument or loan agreement. Such partial assignments, which are more
accurately characterized as "participating interests," do not shift the debtor-
creditor relationship to the assignee, who must rely on the original lending
institution to collect sums due and to otherwise enforce its rights against the
agent bank which administers the loan or against the underlying borrower.
Because the High Yield Bond Fund is allowed to purchase debt securities,
including debt securities at private placement, the Fund will treat loan
participations as securities and not subject to its fundamental investment
restriction prohibiting the Fund from making loans.
There is not a recognizable, liquid public market for the loan
participations. Hence, the High Yield Bond Fund would consider loan
participations as illiquid securities and subject them to the Fund's
restriction on investing no more than 10% of assets in securities for which
there is no readily available market. The Fund would initially impose a limit
of no more than 5% of total assets in illiquid loan participations.
Where required by applicable SEC positions, the Fund will treat both the
corporate borrower and the bank selling the participation interest as an issuer
for purposes of its fundamental investment restriction which prohibits
investing more than 5% of Fund assets in the securities of a single issuer.
Various service fees received by the High Yield Bond Fund from loan
participations, may be treated as non-interest income depending on the nature
of the fee (commitment, takedown, commission, service or loan origination). To
the extent the service fees are not interest income, they will not qualify as
income under Section 851(b) of the Internal Revenue Code. Thus the sum of such
fees plus any other non-qualifying income earned by the Fund cannot exceed 10%
of total income.
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TRADE CLAIMS
The High Yield Bond may invest up to 5% of its total assets in trade claims.
Trade claims are non-securitized rights of payment arising from obligations
other than borrowed funds. Trade claims typically arise when, in the ordinary
course of business-, vendors and suppliers extend credit to a company by
offering payment terms. Generally, when a company files for bankruptcy
protection payments on these trade claims cease and the claims are subject to a
compromise along with the other debts of the company. Trade claims typically
are bought and sold at a discount reflecting the degree of uncertainty with
respect to the timing and extent of recovery. In addition to the risks
otherwise associated with low-quality obligations, trade claims have other
risks, including the possibility that the amount of the claim may be disputed
by the obligor.
Over the last few years a market for the trade claims of bankrupt companies
has developed. Many vendors are either unwilling or lack the resources to hold
their claim through the extended bankruptcy process with an uncertain outcome
and timing. Some vendors are also aggressive in establishing reserves against
these receivables, so that the sale of the claim at a discount may not result
in the recognition of a loss.
Trade claims can represent an attractive investment opportunity because these
claims typically are priced at a discount to comparable public securities. This
discount is a reflection of both a less liquid market, a smaller universe of
potential buyers and the risks peculiar to trade claim investing. It is not
unusual for trade claims to be priced at a discount to public securities that
have an equal or lower priority claim.
As noted above, investing in trade claims does carry some unique risks which
include:
ESTABLISHING THE AMOUNT OF THE CLAIM. Frequently, the supplier's estimate of
its receivable will differ from the customer's estimate of its payable.
Resolution of these differences can result in a reduction in the amount of the
claim. This risk can be reduced by only purchasing scheduled claims (claims
already listed as liabilities by the debtor) and seeking representations from
the seller.
DEFENSES TO CLAIMS. The debtor has a variety of defenses that can be asserted
under the bankruptcy code against any claim. Trade claims are subject to these
defenses, the most common of which for trade claims relates to preference
payments. (Preference payments are all payments made by the debtor during the
90 days prior to the filing. These payments are presumed to have benefitted the
receiving creditor at the expense of the other creditors. The receiving
creditor may be required to return the payment unless it can show the payments
were received in the ordinary course of business.) While none of these defenses
can result in any additional liability of the purchaser of the trade claim,
they can reduce or wipe out the entire purchased claim. This risk can be
reduced by seeking representations and indemnification from the seller.
DOCUMENTATION/INDEMNIFICATION. Each trade claim purchased requires
documentation that must be negotiated between the buyer and seller. This
documentation is extremely important since it can protect the purchaser from
losses such as those described above. Legal expenses in negotiating a purchase
agreement can be fairly high. Additionally, it is important to note that the
value of an indemnification depends on the seller's credit.
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<PAGE>
VOLATILE PRICING DUE TO ILLIQUID MARKET. There are only a handful of brokers
for trade claims and the quoted price of these claims can be volatile. All
trade claims would be considered illiquid investments.
NO CURRENT YIELD/ULTIMATE RECOVERY. Trade claims are almost never entitled to
earn interest. As a result, the return on such an investment is very sensitive
to the length of the bankruptcy, which is uncertain. Although not unique to
trade claims, it is worth noting that the ultimate recovery on the claim is
uncertain and there is no way to calculate a conventional yield to maturity on
this investment. Additionally, the exit for this investment is a plan of
reorganization which may include the distribution of new securities. These
securities may be as illiquid as the original trade claim investment.
TAX ISSUE. Although the issue is not free from doubt, it is likely that trade
claims would be treated as nonsecurities investments. As a result, any gains
would be considered "non-qualifying" under the Internal Revenue Code. The High
Yield Bond Fund may have up to 10% of its gross income (including capital
gains) derived from non-qualifying sources.
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INVESTMENT RESTRICTIONS
Except as otherwise specified, the investment restrictions described below have
been adopted as fundamental policies of the eight respective Funds. Fundamental
policies may not be changed without the approval of the lesser of (1) 67% of a
Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy or (2) more than 50% of
the Fund's outstanding shares. Operating policies are subject to change by Penn
Series' Board of Directors without shareholder approval. Any investment
restriction which involves a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrowings by, a Fund.
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GROWTH EQUITY FUND
Investment restrictions (1) through (14) and (20) through (22) described
below have been adopted by the Growth Equity Fund and are fundamental policies,
except as otherwise indicated. Restrictions (15) through (19) are operating
policies which are subject to change by the Board of Directors without
shareholder approval.
The Fund may not: (1) PERCENT LIMIT ON ASSETS INVESTED IN ANY ONE ISSUER.
Purchase any securities which would cause more than 5% of its total assets at
the time of such purchase to be invested in the securities of any issuer,
except for securities issued or guaranteed by the U.S. Government; (2) PERCENT
LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE. Purchase any securities which would
cause the Fund at the time of such purchase to own more than 10% of the
outstanding securities of any class of any issuer; (3) UNSEASONED ISSUERS.
Purchase the securities of any issuer engaged in continuous operation for less
than three years; (4) INDUSTRY CONCENTRATION. Purchase any securities which
would cause more than 25% of its total assets at the time of such purchase to
be concentrated in the securities of issuers engaged in any one industry; (5)
REAL ESTATE. Purchase or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of real
estate; (6) COMMODITIES. Purchase or sell commodities or commodity contracts;
except that it may enter into futures contracts subject to (22) below; (7)
INVESTMENT COMPANIES. Acquire the securities of any investment company, except
securities purchased in regular transactions in the open market or acquired
pursuant to a plan of merger or consolidation (to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder); (8) SHORT
SALES AND PURCHASES ON MARGIN. Effect short sales of securities or purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases of portfolio securities, and except for margin deposits
made in connection with futures contracts, subject to (22) below; (9) LOANS.
Make loans, except that it may (i) acquire publicly distributed bonds,
debentures, notes, and other debt securities, and (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets; (10)
BORROWING. Borrow money, except the Fund may borrow from banks as a temporary
measure for extraordinary or emergency purposes, and then only in amounts not
exceeding 15% of its total assets valued at market. The Fund will not borrow in
order to increase income (leveraging), but only to facilitate redemption
requests which might otherwise require untimely disposition of portfolio
securities. Interest paid on such borrowings will reduce net investment income.
The Fund may also enter into futures contracts as set forth in (22) below; (11)
UNDERWRITING. Act as an underwriter of securities, except insofar as it might
technically be deemed to be an underwriter for purposes of the Securities Act
of 1933 upon disposition of certain securities; (12) SECURITIES OF ADVISER.
Purchase or retain the securities of its investment adviser, or of any
corporation of which any officer, director, or member of the investment
committee of the investment adviser is a director; (13) ALLOCATION OF PRINCIPAL
BUSINESS TO OFFICERS AND DIRECTORS. Deal with any of its officers or directors,
or with any firm of which any of its officers or directors is a member, as
principal in the purchase or sale of portfolio securities; (14) ALLOCATION OF
BROKERAGE BUSINESS TO ADVISER. Pay commissions on portfolio transactions to its
investment adviser or to any officer or director of its investment adviser;
(15) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the purpose of
exercising management or control; (16) RESTRICTED AND ILLIQUID SECURITIES.
Purchase any securities which wold cause more
B-12
<PAGE>
than 5% of its total assets at the time of such purchase to be invested in
securities which may not be publicly sold without registration under the
Securities Act of 1933, or are otherwise illiquid or not readily marketable;
(17) PUTS, CALLS, ETC. Invest in puts, calls, straddles, spreads, or any
combination thereof, except that the Fund reserves the right to write covered
call options and purchase put and call options; (18) OIL AND GAS PROGRAMS.
Purchase participations or other direct interests in oil, gas, or other mineral
exploration or development programs; (19) OWNERSHIP OF PORTFOLIO SECURITIES BY
OFFICERS AND DIRECTORS. Purchase or retain the securities of any issuer if
those officers or directors of Penn Series, or of its investment adviser, who
each owns beneficially more than .5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such securities; (20)
MORTGAGING. Mortgage, pledge, or hypothecate or, in any other manner, transfer
as security for indebtedness any security owned by the Growth Equity Fund,
except (i) as may be necessary in connection with permissible borrowings, in
which event such mortgaging, pledging, or hypothecating may not exceed 15% of
the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market, and (ii) it may enter into futures contracts; (21)
SENIOR SECURITIES. Issue any class of securities senior to any other class of
securities; or (22) FUTURES CONTRACTS. Enter into a futures contract if, as a
result thereof, (i) the then current aggregate futures market prices of
securities required to be delivered under open futures contract sales plus the
then current aggregate purchase prices of securities required to be purchased
under open futures contract purchases would exceed 30% of the Fund's total
assets (taken at market value at the time of entering into the contract) or
(ii) more than 5% of the Fund's total assets (taken at market value at the time
of entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
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VALUE EQUITY FUND
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and (15)
are fundamental policies of the Value Equity Fund, except as otherwise
indicated. Restrictions (4), (6), (12) and (13) are operating policies and are
subject to change by the Board of Directors without shareholder approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS INVESTED IN ANY
ONE ISSUER. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (C) INDUSTRY CONCENTRATION. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; (D) UNSEASONED
ISSUERS. More than 5% of the value of the Value Equity Fund's total assets
would be invested in the securities of issuers which at the time of purchase
had been in operation for less than three years, including predecessors and
unconditional guarantors; (2) RESTRICTED OR NOT READILY MARKETABLE SECURITIES.
Purchase a security if, as a result, more than 10% of the Fund's total assets
would be invested in (a) securities with legal or contractual restrictions on
resale; (b) repurchase agreements maturing in more than seven (7) days; and (c)
other securities that are not readily marketable; (3) REAL ESTATE. Purchase or
sell real estate (although it may purchase money market securities secured by
real estate or interests therein, or issued by companies which invest in real
estate or interests therein); (4) INVESTMENT COMPANIES. Purchase securities of
open-end and closed-end investment companies, except to the extent permitted by
the Investment Company Act of 1940 and any rules adopted thereunder; (5)
COMMODITIES. Purchase or sell commodities or commodity contracts; except that
it may enter into futures contracts subject to (15) below; (6) OIL AND GAS
PROGRAMS. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (7) SHORT SALES AND
PURCHASES ON MARGIN. Effect short sales of securities or purchase securities on
margin, except for use of short-term credit necessary for clearance of
purchases of portfolio securities, except that it may make margin deposits in
connection with futures contracts, subject to (15) below; (8) LOANS. Make
loans, although the Fund may (i) purchase money market securities and enter
into repurchase agreements, and (ii) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed
30% of the value of the Fund's total assets; provided, however, that the Fund
may acquire publicly distributed bonds, debentures, notes and other debt
securities and may purchase debt securities at private placement within the
limits imposed on the acquisition of restricted securities; (9) BORROWING.
Borrow money, except from banks as a temporary measure for extraordinary or
emergency purposes, and then only in amounts not exceeding 15% of its total
assets valued at market. The Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities; interest paid on any such
borrowings will reduce net investment income; the Fund may also enter into
futures contracts as set forth in (15) below; (10) MORTGAGING. Mortgage,
pledge, or hypothecate or, in any other manner, transfer as security for
indebtedness any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued at
cost; provided, however, that as a
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<PAGE>
matter of operating policy, which may be changed without shareholder approval,
the Fund will limit any such mortgaging, pledging, or hypothecating to 10% of
its net assets, valued at market; and (ii) it may enter into futures contracts;
(11) UNDERWRITING. Underwrite securities issued by other persons except: (i) to
the extent that the Fund may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 in connection with he purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12) CONTROL OF PORTFOLIO COMPANIES. Invest in companies
for the purpose of exercising management or control; (13) OWNERSHIP OF
PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Purchase or retain the
securities of any issuer if, to the knowledge of the Fund's management or
investment adviser, those officers and directors of Penn Series, and of its
investment adviser, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; (14) SENIOR SECURITIES. Issue any class of securities senior to any
other class of securities; or (15) FUTURES CONTRACTS. Enter into a futures
contract if, as a result thereof, (i) the then current aggregate futures market
prices of securities required to be delivered under open futures contract sales
plus the then current aggregate purchase prices of securities required to be
purchased under open futures contract purchases would exceed 30% of the Fund's
total assets (taken at market value at the time of entering into the contract)
or (ii) more than 5% of the Fund's total assets (taken at market value at the
time of entering into the contract) would be committed to margin on such
futures contracts or to premiums on options thereon.
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SMALL CAPITALIZATION FUND
Investment restrictions (1) through (9) are fundamental policies of the Small
Capitalization Fund, except as otherwise indicated. Restrictions (10) through
(15) are non-fundamental operating policies and are subject to change by the
Board of Directors without shareholder approval.
The Fund may not: (1) DIVERSIFICATION. Make an investment unless, when
considering all its other investments, 75% of the value of the Fund's assets
would consist of cash, cash items, obligations of the U.S. Government, its
agencies or instrumentalities and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not more than 5%
of the value of the Fund's assets and to not more than 10% of the issuer's
outstanding voting securities held by Penn Series as a whole; (2) INDUSTRY
CONCENTRATION. Invest more than twenty-five percent or more of the value of the
Fund's total assets in the securities of issuers having their principal
business activities in the same industry; (3) REAL ESTATE. Invest in real
estate or interests in real estate, but may purchase readily marketable
securities of companies holding real estate or interests therein, and
securities which are secured by real estate or interests therein; (4)
COMMODITIES. Invest in physical commodities or physical commodity contracts,
but it may purchase and sell financial futures contracts and options thereon;
(5) PURCHASES ON MARGIN. Purchase securities on margin, except that it may make
margin deposits in connection with financial futures contracts or options; (6)
LOANS. Make loans, although the Fund may (i) purchase money market securities
and enter into repurchase agreements, and (ii) lend portfolio securities
provided that no such loan may be made if, as a result, the aggregate of such
loans would exceed 30% of the value of the Fund's total assets; provided,
however, that the Fund may acquire publicly distributed bonds, debentures,
notes and other debt securities and may purchase debt securities at private
placement within the limits imposed on the acquisition of restricted
securities; (7) BORROWING. Borrow money, except the Fund may borrow from banks
as a temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 15% of its total assets valued at market; the Fund
will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities; (8) UNDERWRITING. Underwrite securities
issued by other persons except: (i) to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act of 1933 in
connection with the purchase of government securities directly from the issuer
in accordance with the Fund's investment objectives, program, and restrictions;
and (ii) the later disposition of restricted securities acquired within the
limits imposed on the acquisition of restricted securities; (9) SENIOR
SECURITIES. Issue any class of securities senior to any other class of
securities. Entering into repurchase agreements, borrowing money in accordance
with restriction 7 above, or lending portfolio securities in accordance with
restriction 6 above, shall not be considered for purposes of the present
restriction a senior security; (10) CONTROL OF PORTFOLIO COMPANIES. Invest in
companies for the purpose of exercising management or control; (11) OWNERSHIP
OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
any officer or director of the Adviser, owns more than .5% of the outstanding
securities of such issuer, and such officers and directors who own more than
.5% own in the aggregate more than 5% of the such securities; (12) OIL AND GAS
PROGRAMS. Invest in oil, gas or mineral exploration or developmental programs,
except that it may invest in the securities of companies which operate, invest
in, or sponsor such programs; (13) RESTRICTED OR NOT READILY MARKETABLE
SECURITIES. Purchase a security if, as a result, more than 10% of the Fund's
total assets would be invested in illiquid securities; (14) SHORT SALES. Effect
short sales of securities, except short sales "against the box;"
(15) MORTGAGING. Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security
B-14
<PAGE>
owned by the Fund, except as may be necessary in connection with permissible
borrowings (including reverse repurchase agreements) financial options and
other hedging activities.
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EMERGING GROWTH FUND
Investment restrictions (1) through (9) are fundamental policies of the Small
Capitalization Fund, except as otherwise indicated. Restrictions (10) through
(15) are non-fundamental operating policies and are subject to change by the
Board of Directors without shareholder approval.
The Fund may not: (1) DIVERSIFICATION. Make an investment unless, when
considering all its other investments, 75% of the value of the Fund's assets
would consist of cash, cash items, obligations of the U.S. Government, its
agencies or instrumentalities and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not more than 5%
of the value of the Fund's assets and to not more than 10% of the issuer's
outstanding voting securities held by Penn Series as a whole; (2) INDUSTRY
CONCENTRATION. Invest more than twenty-five percent or more of the value of the
Fund's total assets in the securities of issuers having their principal
business activities in the same industry; (3) REAL ESTATE. Invest in real
estate or interests in real estate, but may purchase readily marketable
securities of companies holding real estate or interests therein, and
securities which are secured by real estate or interests therein; (4)
COMMODITIES. Invest in physical commodities or physical commodity contracts,
but it may purchase and sell financial futures contracts and options thereon;
(5) PURCHASES ON MARGIN. Purchase securities on margin, except that it may make
margin deposits in connection with financial futures contracts or options; (6)
LOANS. Make loans, although the Fund may (i) purchase money market securities
and enter into repurchase agreements, and (ii) lend portfolio securities
provided that no such loan may be made if, as a result, the aggregate of such
loans would exceed 30% of the value of the Fund's total assets; provided,
however, that the Fund may acquire publicly distributed bonds, debentures,
notes and other debt securities and may purchase debt securities at private
placement within the limits imposed on the acquisition of restricted
securities; (7) BORROWING. Borrow money, except the Fund may borrow from banks
as a temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 15% of its total assets valued at market; the Fund
will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities; (8) UNDERWRITING. Underwrite securities
issued by other persons except: (i) to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act of 1933 in
connection with the purchase of government securities directly from the issuer
in accordance with the Fund's investment objectives, program, and restrictions;
and (ii) the later disposition of restricted securities acquired within the
limits imposed on the acquisition of restricted securities; (9) SENIOR
SECURITIES. Issue any class of securities senior to any other class of
securities. Entering into repurchase agreements, borrowing money in accordance
with restriction 7 above, or lending portfolio securities in accordance with
restriction 6 above, shall not be considered for purposes of the present
restriction a senior security; (10) CONTROL OF PORTFOLIO COMPANIES. Invest in
companies for the purpose of exercising management or control; (11) OWNERSHIP
OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Invest in securities of any
issuer if, to the knowledge of the Fund, any officer or director of the Fund or
any officer or director of the Adviser, owns more than .5% of the outstanding
securities of such issuer, and such officers and directors who own more than
.5% own in the aggregate more than 5% of the such securities; (12) OIL AND GAS
PROGRAMS. Invest in oil, gas or mineral exploration or developmental programs,
except that it may invest in the securities of companies which operate, invest
in, or sponsor such programs; (13) RESTRICTED OR NOT READILY MARKETABLE
SECURITIES. Purchase a security if, as a result, more than 10% of the Fund's
total assets would be invested in illiquid securities; (14) SHORT SALES. Effect
short sales of securities, except short sales "against the box;"
(15) MORTGAGING. Mortgage, pledge, hypothecate or, in any other manner,
transfer as security for indebtedness any security owned by the Fund, except as
may be necessary in connection with permissible borrowings (including reverse
repurchase agreements) financial options and other hedging activities.
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FLEXIBLY MANAGED FUND
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and (15)
are fundamental policies of the Flexibly Managed Fund, except as otherwise
indicated. Restrictions (4), (6), (12) and (13) are operating policies and are
subject to change by the Board of Directors without shareholder approval.
The Flexibly Managed Fund may not: (1) purchase the securities of any issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS
INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's assets, invest
more than 5% of the value of the Fund's total assets in the securities of a
single issuer (including repurchase agreements with any one issuer); (B)
PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE. More than 10% of the
outstanding voting securities of any issuer would be held by the Fund; (C)
INDUSTRY CONCENTRATION. Twenty-five percent or more of the value of the Fund's
total assets would be invested in the securities of
B-15
<PAGE>
issuers having their principal business activities in the same industry;
provided, however, that the Fund will normally concentrate 25% or more of its
assets in the banking industry when the Fund's position in issues maturing in
one year or less equals 35% or more of the Fund's total assets; (D) UNSEASONED
ISSUERS. More than 5% of the value of the Fund's total assets would be invested
in the securities of issuers which at the time of purchase had been in
operation for less than three years, including predecessors and unconditional
guarantors; (2) RESTRICTED OR NOT READILY MARKETABLE SECURITIES. Purchase a
security if, as a result, more than 10% of the value of the Fund's total assets
would be invested in: (a) securities with legal or contractual restrictions on
resale; (b) repurchase agreements maturing in more than seven (7) days; and (c)
other securities that are not readily marketable; (3) REAL ESTATE. Purchase or
sell real estate (although it may purchase money market securities secured by
real estate or interests therein, or issued by companies which invest in real
estate or interests therein); (4) INVESTMENT COMPANIES. Purchase securities of
open-end and closed-end investment companies, except to the extent permitted by
the Investment Company Act of 1940 and any rules adopted thereunder; (5)
COMMODITIES. Purchase or sell commodities or commodity contracts; except that
it may enter into futures contracts, subject to (15) below; (6) OIL AND GAS
PROGRAMS. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (7) SHORT SALES AND
PURCHASES ON MARGIN. Effect short sales of securities or purchase securities on
margin, except for use of short-term credit necessary for clearance of
purchases of portfolio securities; except that it may make margin deposits in
connection with futures contracts, subject to (15) below; (8) LOANS. Make
loans, although the Fund may (i) purchase money market securities and enter
into repurchase agreements, and (ii) lend portfolio securities provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed
30% of the value of the Fund's total assets; provided, however, that the Fund
may acquire publicly distributed bonds, debentures, notes and other debt
securities and may purchase debt securities at private placement within the
limits imposed on the acquisition of restricted securities; (9) BORROWING.
Borrow money, except the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes, and then only in amounts not exceeding 15%
of its total assets valued at market; the Fund will not borrow in order to
increase income (leveraging), but only to facilitate redemption requests which
might otherwise require untimely disposition of portfolio securities. Interest
paid on any such borrowings will reduce net investment income. The Fund may
enter into futures contracts as set forth in (15) below; (10) MORTGAGING.
Mortgage, pledge, hypothecate or, in any other manner, transfer as security for
indebtedness any security owned by the Fund, except (i) as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued at
cost; provided, however, that as a matter of operating policy, which may be
changed without shareholder approval, the Fund will limit any such mortgaging,
pledging, or hypothecating to 10% of its net assets, valued at market, and (ii)
it may enter into futures contracts; (11) UNDERWRITING. Underwrite securities
issued by other persons, except: (i) to the extent that the Fund may be deemed
to be an underwriter within the meaning of the Securities Act of 1933 in
conection with the purchase of government securities directly from the issuer
in accordance with the Fund's investment objectives, program, and restrictions;
and (ii) the later disposition of restricted securities acquired within the
limits imposed on the acquisition of restricted securities; (12) CONTROL OF
PORTFOLIO COMPANIES. Invest in companies for the purpose of exercising
management or control; (13) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND
DIRECTORS. Purchase or retain the securities of any issuer if, to the knowledge
of the Fund's management or investment adviser, those officers and directors of
the Penn Series, and of its investment adviser, who each owns beneficially more
than .5% of the outstanding securities of such issuer, together own
beneficially more than 5% of such securities; (14) SENIOR SECURITIES. Issue any
class of securities senior to any other class of securities; or (15) FUTURES
CONTRACTS. Enter into a futures contract if, as a result thereof, (i) the then
current aggregate futures market prices of securities required to be delivered
under open futures contract sales plus the then current aggregate purchase
prices of securities required to be purchased under open futures contract
purchases would exceed 30% of the Fund's total assets (taken at market value at
the time of entering into the contract) or (ii) more than 5% of the Fund's
total assets (taken at market value at the time of entering into the contract)
would be committed to margin on such futures contracts or to premiums on
options thereon.
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
Investment restrictions (1), (2), (3), (5), (7) through (11), (14), and (15)
are fundamental policies of the International Equity Fund, except as otherwise
indicated. Restrictions (4), (6), (12) and (13) are operating policies and are
subject to change by the Board of Directors without shareholder approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS INVESTED IN ANY
ONE ISSUER. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (C) INDUSTRY CONCENTRATION. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business
B-16
<PAGE>
activities in the same industry; (D) UNSEASONED ISSUERS. More than 5% of the
value of the Fund's total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less than three years,
including predecessors and unconditional guarantors; (2) RESTRICTED OR NOT
READILY MARKETABLE SECURITIES. Purchase a security if, as a result, more than
10% of the Fund's total assets would be invested in (a) securities with legal
or contractual restrictions on resale; (b) repurchase agreements maturing in
more than seven (7) days; and (c) other securities that are not readily
marketable; (3) REAL ESTATE. Purchase or sell real estate (although it may
purchase money market securities secured by real estate or interests therein,
or issued by companies which invest in real estate or interests therein); (4)
INVESTMENT COMPANIES. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (5) COMMODITIES. Purchase or sell commodities
or commodity contracts; except that it may enter into futures contracts subject
to (15) below; (6) OIL AND GAS PROGRAMS. Purchase participations or other
direct interests in oil, gas, or other mineral exploration or development
programs; (7) SHORT SALES AND PURCHASES ON MARGIN. Effect short sales of
securities or purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio securities, except
that it may make margin deposits in connection with futures contracts, subject
to (15) below; (8) LOANS. Make loans, although the Fund may (i) purchase money
market securities and enter into repurchase agreements, and (ii) lend portfolio
securities provided that no such loan may be made if, as a result, the
aggregate of such loans would exceed 30% of the value of the Fund's total
assets; provided, however, that the Fund may acquire publicly distributed
bonds, debentures, notes and other debt securities and may purchase debt
securities at private placement within the limits imposed on the acquisition of
restricted securities; (9) BORROWING. Borrow money, except from banks as a
temporary measure for extraordinary or emergency purposes, and then only in
amounts not exceeding 15% of its total assets valued at market. The Fund will
not borrow in order to increase income (leveraging), but only to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities. Interest paid on any such borrowings will reduce net
investment income. The Fund may also enter into futures contracts as set forth
in (15) below; (10) MORTGAGING. Mortgage, pledge, or hypothecate or, in any
other manner, transfer as security for indebtedness any security owned by the
Fund, except (i) as may be necessary in connection with permissible borrowings,
in which event such mortgaging, pledging, or hypothecating may not exceed 15%
of the Fund's assets, valued at cost; provided, however, that as a matter of
operating policy, which may be changed without shareholder approval, the Fund
will limit any such mortgaging, pledging, or hypothecating to 10% of its net
assets, valued at market; and (ii) it may enter into futures contracts; (11)
UNDERWRITING. Underwrite securities issued by other persons except: (i) to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with he purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; and (ii) the later disposition of
restricted securities acquired within the limits imposed on the acquisition of
restricted securities; (12) CONTROL OF PORTFOLIO COMPANIES. Invest in companies
for the purpose of exercising management or control; (13) OWNERSHIP OF
PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Purchase or retain the
securities of any issuer if, to the knowledge of the Fund's management or
investment adviser, those officers and directors of Penn Series, and of its
investment adviser, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; (14) SENIOR SECURITIES. Issue any class of securities senior to any
other class of securities; or (15) FUTURES CONTRACTS. Enter into a futures
contract if, as a result thereof, (i) the then current aggregate futures market
prices of securities required to be delivered under open futures contract sales
plus the then current aggregate purchase prices of securities required to be
purchased under open futures contract purchases would exceed 30% of the Fund's
total assets (taken at market at the time of entering into the contract) or
(ii) more than 5% of the Fund's total assets (taken at market value at the time
of entering into the contract) would be committed to margin on such futures
contracts or to premiums on options thereon.
- --------------------------------------------------------------------------------
QUALITY BOND FUND
Investment restrictions (1), (2), (4) through (9), (14) and (15) have been
adopted by the Quality Bond Fund as fundamental policies, except as otherwise
indicated. Restrictions (3) and (10) through (13) are operating policies
subject to change by the Board of Directors without shareholder approval.
The Fund may not (1) purchase a security if, as a result: (A) PERCENT LIMIT
ON ASSETS INVESTED IN ANY ONE ISSUER. More than 5% of the value of the Fund's
total assets would be invested in the securities of a single issuer, except
securities issued or guaranteed by the U.S. Government, or any of its agencies
or instrumentalities; (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund, except securities issued or guaranteed by the U.S. Government or
any of its agencies or instrumentalities; (C) INDUSTRY CONCENTRATION. Twenty-
five percent or more of the value of the Fund's total assets would be invested
in the securities of issuers having their principal activities in the same
industry; provided, however, that the Fund will invest 25% or more of its
assets, but not more than 50%, in any one of the gas utility, gas transmission
utility, electric utility, telephone utility, and petroleum industries under
certain
B-17
<PAGE>
circumstances (see THE QUALITY BOND FUND'S POLICY REGARDING INDUSTRY
CONCENTRATION above), but this limitation does not apply to bank certificates
of deposit; (D) UNSEASONED ISSUERS. More than 5% of the value of the Fund's
total assets would be invested in the securities (taken at cost) of issuers
which at the time of purchase had been in operation less than three years (for
this purpose, the period of operation of any issuer shall include the period of
operation of any predecessor or unconditional guarantor of the issuer) and in
equity securities which are not readily marketable for reasons other than
restrictions against sale to the public without registration under the
Securities Act of 1933; (E) RESTRICTED SECURITIES. More than 10% of the value
of the total assets of the Fund would be invested in securities which are
subject to legal or contractual restrictions on resale; or (F) WARRANTS. More
than 2% of the value of the total assets of the Fund would be invested in
warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange, or more than 5% of the value of the total assets of the Fund
would be invested in warrants whether or not so listed, such warrants in each
case to be valued at the lesser of cost or market, but assigning no value to
warrants acquired by the Fund in units with or attached to debt securities; (2)
REAL ESTATE. Purchase or sell real estate (although it may purchase securities
of companies whose business involves the purchase or sale of real estate); (3)
INVESTMENT COMPANIES. Purchase securities of open-end and closed-end investment
companies, except to the extent permitted by the Investment Company Act of 1940
and any rules adopted thereunder; (4) COMMODITIES. Purchase or sell commodities
or commodity contracts, except that the Fund may enter into interest rate
futures contracts, subject to (15) below; (5) SHORT SALES AND PURCHASES ON
MARGIN. Purchase securities on margin or effect short sales of securities, but
the Fund may make margin deposits in connection with interest rate futures
transactions subject to (15) below; (6) LOANS. Make loans (although it may
acquire publicly-distributed bonds, debentures, notes, and other debt
securities, may enter into repurchase agreements, may lend portfolio
securities, and may purchase debt securities at private placement within the
limits imposed above on the acquisition of restricted securities); (7)
BORROWING. Borrow money, except the Fund may (i) borrow money for temporary
administrative purposes and then only in amounts not exceeding the lesser of
10% of its total assets valued at cost, or 5% of its total assets valued at
market and, in any event, only if immediately thereafter there is an asset
coverage of at least 300%, and (ii) enter into interest rate futures contracts;
(8) MORTGAGING. Mortgage, pledge, or hypothecate securities, except (i) in
connection with permissible borrowings where the market value of the securities
mortgaged, pledged, or hypothecated does not exceed 15% of the Fund's assets
taken at cost; provided, however, that as a matter of operating policy, the
Fund will limit any such mortgaging, pledging, or hypothecating to 10% of its
net assets, taken at market, in order to comply with certain state investment
restrictions, and (ii) interest rate futures contracts; (9) UNDERWRITING. Act
as an underwriter of securities, except insofar as it might be deemed to be
such for purposes of the Securities Act of 1933 upon the disposition of certain
portfolio securities acquired within the limitations of restriction (e) above;
(10) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Purchase or
retain securities of any issuer if, to the knowledge of the Fund's management
or investment adviser, those officers or directors of Penn Series, or of its
investment adviser, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; (11) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the
purpose of exercising management or control; (12) PUTS, CALLS, ETC. Invest in
puts, calls, straddles, spreads, or any combination thereof, except the Fun
reserves the right to write covered call options and purchase put and call
options; (13) OIL AND GAS PROGRAMS. Purchase participations or other direct
interests in oil, gas, or other mineral exploration or development programs;
(14) SENIOR SECURITIES. Issue any class of securities senior to any other class
of securities; or (15) FUTURES CONTRACTS. Enter into an interest rate futures
contract if, as a result thereof, (i) the then current aggregate futures market
prices of financial instruments required to be delivered under open futures
contract sales plus the then current aggregate purchase prices of financial
instruments required to be purchased under open futures contract purchases
would exceed 30% of the Fund's total assets (taken at market value at the time
of entering into the contract) or (ii) more than 5% of the Fund's total assets
(taken at market value at the time of entering into the contract) would be
committed to margin on such futures contracts or to premiums on options
thereon.
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
Investment restrictions (1) through (4), (6), (8) through (12), and (16)
through (17) have been adopted by the High Yield Bond Fund as fundamental
policies, except as otherwise indicated. Restrictions (5), (7), (13) through
(15), and (18) through (20) are operating policies subject to change by the
Board of Directors without shareholder approval.
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS INVESTED IN ANY
ONE ISSUER. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (C) INDUSTRY CONCENTRATION. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided,
however, that the Fund will normally concentrate 25% or more of its assets in
the
B-18
<PAGE>
securities of the banking industry when the Fund's position in issues maturing
in one year or less equals 35% or more of the Fund's total assets; (D)
UNSEASONED ISSUERS. More than 5% of the value of the Fund's total assets would
be invested in the securities of issuers which at the time of purchase had been
in operation for less than three years, including predecessors and
unconditional guarantors; (2) EQUITY SECURITIES. Invest more than 20% of the
Fund's total assets in common stocks (including up to 5% in warrants); (3)
RESTRICTED OR ILLIQUID SECURITIES. Invest more than 10% of the value of its
total assets in repurchase agreements maturing in more than seven days and
restricted securities, illiquid securities and securities without readily
available market quotations; (4) REAL ESTATE. Purchase or sell real estate
(although it may purchase money market securities secured by real estate or
interests therein, or issued by companies which invest in real estate or
interests therein); (5) INVESTMENT COMPANIES. Purchase securities of open-end
or closed-end investment companies except in compliance with the Investment
Company Act of 1940; (6) COMMODITIES. Purchase or sell commodities or commodity
contracts, except that it may enter into interest rate futures contracts,
subject to (17) below; (7) OIL AND GAS PROGRAMS. Purchase participations or
other direct interests in or enter into leases with respect to oil, gas, or
other mineral exploration or development programs; (8) PURCHASES ON MARGIN.
Purchase securities on margin, except for use of short-term credit necessary
for clearance of purchases of portfolio securities; except that it may make
margin deposits in connection with interest rate futures contracts, subject to
(17) below; (9) LOANS. Make loans, although the Fund may (i) purchase money
market securities and enter into repurchase agreements, and (ii) lend portfolio
securities provided that no such loan may be made if as a result the aggregate
of such loans would exceed 30% of the value of the Fund's total assets;
provided, however, that the Fund may acquire publicly-distributed bonds,
debentures, notes and other debt securities and may purchase debt securities at
private placement within the limits imposed on the acquisition of restricted
securities; (10) BORROWING. Borrow money, except the Fund may borrow from banks
as a temporary measure for extraordinary or emergency purposes, and then only
in amounts not exceeding 15% of its total assets valued at market; the Fund
will not borrow in order to increase income (leveraging), but only to
facilitate redemption requests which might otherwise require untimely
disposition of portfolio securities. Interest paid on any such borrowings will
reduce net investment income; the Fund may enter into interest rate futures
contracts as set forth in (17) below; (11) MORTGAGING. Mortgage, pledge,
hypothecate or, in any other manner, transfer as security for indebtedness any
security owned by the Fund, except (i) as may be necessary in connection with
permissible borrowings, in which event such mortgaging, pledging, or
hypothecating may not exceed 15% of the Fund's assets, valued at cost;
provided, however, that as a matter of operating policy, which may be changed
without shareholder approval, the Fund will limit any such mortgaging,
pledging, or hypothecating to 10% of its net assets, valued at market, and (ii)
it may enter into interest rate futures contracts; (12) UNDERWRITING.
Underwrite securities issued by other persons, except: (i) to the extent that
the Fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase of government securities
directly from the issuer in accordance with the Fund's investment objectives,
program, and restrictions; and (ii) the later disposition of restricted
securities acquired within the limits imposed on the acquisition of restricted
securities; (13) CONTROL OF PORTFOLIO COMPANIES. Invest in companies for the
purpose of exercising management or control; (14) OWNERSHIP OF PORTFOLIO
SECURITIES BY OFFICERS AND DIRECTORS. Purchase or retain the securities of any
issuer if, to the knowledge of the Fund's management or investment adviser,
those officers and directors of Penn Series, and of its investment manager, who
each owns beneficially more than .5% of the outstanding securities of such
issuer, together own beneficially more than 5% of such securities; (15) PUTS,
CALLS, ETC. Invest in puts, calls, straddles, spreads, or any combination
thereof, except to the extent permitted by the prospectus and Statement of
Additional Information; (16) SENIOR SECURITIES. Issue any class of securities
senior to any other class of securities; (17) FUTURES CONTRACTS. Enter into an
interest rate futures contract if, as a result thereof, (i) the then current
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales plus the then current aggregate
purchase prices of financial instruments required to be purchased under open
futures contract purchases would exceed 30% of the Fund's total assets (taken
at market value at the time of entering into the contract) or (ii) more than 5%
of the Fund's total assets (taken at market value at the time of entering into
the contract) would be committed to margin on such futures contracts or to
premiums on options thereon; (18) PURCHASES WHEN BORROWINGS OUTSTANDING.
Purchase additional securities when money borrowed exceeds 5% of the Fund's
total assets; (19) SHORT SALES. Effect short sales of securities; or (20)
WARRANTS. Invest in warrants if, as a result thereof, more than 2% of the value
of the total assets of the Fund would be invested in warrants which are not
listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the total assets
of the Fund would be invested in warrants whether or not so listed. For
purposes of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Fund in units or attached
to securities may be deemed to be without value.
- --------------------------------------------------------------------------------
MONEY MARKET FUND
Investment restrictions (1) through (4), (6), (8) through (12), and (16)
described below have been adopted by the Money Market Fund and are fundamental
policies, except as otherwise indicated. Restrictions (5), (7), and (13)
through (15) are operating policies subject to change by the Board of Directors
without shareholder approval.
B-19
<PAGE>
The Fund may not: (1) purchase the securities of any issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS INVESTED IN ANY
ONE ISSUER. More than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase agreements
with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE.
More than 10% of the outstanding voting securities of any issuer would be held
by the Fund; (C) INDUSTRY CONCENTRATION. Twenty-five percent or more of the
value of the Fund's total assets would be invested in the securities of issuers
having their principal business activities in the same industry; provided, that
this limitation does not apply to obligations issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities, or to certificates of
deposit, or bankers' acceptances; (D) UNSEASONED ISSUERS. More than 5% of the
value of the Fund's total assets would be invested in the securities of issuers
which at the time of purchase had been in operation for less than three years,
including predecessors and unconditional guarantors; (2) EQUITY SECURITIES.
Purchase any common stocks or other equity securities, or securities
convertible into equity securities; (3) RESTRICTED OR ILLIQUID SECURITIES.
Purchase restricted securities, illiquid securities, or securities without
readily available market quotations, or invest more than 10% of the value of
its total assets in repurchase agreements maturing in more than seven days and
in the obligations of small banks and savings and loan associations which do
not have readily available market quotations; (4) REAL ESTATE. Purchase or sell
real estate (although it may purchase money market securities secured by real
estate or interests therein, or issued by companies which invest in real estate
or interests therein); (5) INVESTMENT COMPANIES. Purchase securities of open-
end and closed-end investment companies, except to the extent permitted by the
Investment Company Act of 1940 and any rules adopted thereunder; (6)
COMMODITIES. Purchase or sell commodities or commodity contracts; (7) OIL AND
GAS PROGRAMS. Purchase participations or other direct interests in oil, gas, or
other mineral exploration or development programs; (8) PURCHASES ON MARGIN.
Purchase securities on margin, except for use of short-term credit necessary
for clearance of purchases of portfolio securities; (9) LOANS. Make loans,
although the Fund may (i) purchase money market securities and enter into
repurchase agreements, and (ii) lend portfolio securities provided that no such
loan may be made if, as a result, the aggregate of such loans would exceed 30%
of the value of the Fund's total assets; (10) BORROWING. Borrow money, except
that the Fund may borrow from banks as a temporary measure for extraordinary or
emergency purposes, and then only from banks in amounts not exceeding the
lesser of 10% of its total assets valued at cost or 5% of its total assets
valued at market. The Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption requests which might otherwise
require untimely disposition of portfolio securities. Interest paid on any such
borrowings will reduce net investment income; (11) MORTGAGING. Mortgage,
pledge, hypothecate or, in any other manner, transfer as security for
indebtedness any security owned by the Fund, except as may be necessary in
connection with permissible borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 15% of the Fund's assets, valued at
cost; provided, however, that as a matter of operating policy, which may be
changed without shareholder approval, the Fund will limit any such mortgaging,
pledging, or hypothecating to 10% of its net assets, valued at market; (12)
UNDERWRITING. Underwrite securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter within the meaning of
the Securities Act of 1933 in connection with the purchase of government
securities directly from the issuer in accordance with the Fund's investment
objectives, program, and restrictions; (13) CONTROL OF PORTFOLIO COMPANIES.
Invest in companies for the purpose of exercising management or control; (14)
OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS. Purchase or retain
the securities of any issuer if, to the knowledge of the Fund's management or
investment adviser, those officers and directors of Penn Series, and of its
investment adviser, who each owns beneficially more than .5% of the outstanding
securities of such issuer, together own beneficially more than 5% of such
securities; (15) PUTS, CALLS, ETC. Invest in puts, calls, straddles, spreads,
or any combination thereof; or (16) SENIOR SECURITIES. Issue any class of
securities senior to any other class of securities.
In addition to the foregoing, the Money Market Fund will restrict its
investments in accordance with the portfolio quality, diversification and
maturity standards contained in Rule 2a-7 under the Investment Company Act of
1940. See "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET FUND" in the
prospectus for certain of the restrictions contained in the Rule.
B-20
<PAGE>
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GENERAL INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
PRICE ASSOCIATES. On March 1, 1987, T. Rowe Price Associates ("Price
Associates") began serving as the investment adviser of Penn Series, Price
Associates provides the Flexibly Managed and High Yield Bond Funds with
discretionary investment services. Specifically, Price Associates is
responsible for supervising and directing the investments of the Flexibly
Managed and High Yield Bond Funds in accordance with each Fund's investment
objectives, programs, and restrictions as described in the Penn Series
prospectus and this Statement of Additional Information. Price Associates is
also responsible for effecting all security transactions on behalf of the
Flexibly Managed and High Yield Bond Funds, including the allocation of
portfolio brokerage and the negotiation of commissions, as well as the
selection of dealers with whom securities transactions are effected. Price
Associates provided these investment advisory services under the Original
Advisory Agreement.
The Flexibly Managed and High Yield Bond Funds each pay Price Associates, on
a monthly basis, an advisory fee based on the average daily net assets of each
Fund at the annual rate of 0.50%.
INDEPENDENCE CAPITAL MANAGEMENT. Independence Capital Management, Inc.
("Independence Capital Management") began serving as the investment adviser to
the Growth Equity, Quality Bond and Money Market Funds of Penn Series on
November 1, 1992. Independence Capital Management is responsible for
supervising and directing the investments of the Funds in accordance with each
Fund's investment objectives, programs, and restrictions as described in the
Penn Series prospectus and statement of additional information. Independence
Capital Management is also responsible for effecting all securities
transactions on behalf of the Growth Equity, Quality Bond and Money Market
Funds, including the allocation of portfolio brokerage and the negotiation of
commissions, as well as the selection of dealers with whom securities
transactions are effected.
The Growth Equity, Quality Bond and Money Market Funds each pay Independence
Capital Management, on a monthly basis, an advisory fee based on the average
daily net assets of each Fund at the following annual rates: Growth Equity
Fund, 0.50%; Quality Bond Fund, 0.45%; Money Market Fund, 0.40%. These rates
are reduced by 0.05% (five basis points) for the assets of each Fund over $100
million.
Independence Capital Management is also the investment adviser to Penn
Series' newest Fund, the Emerging Growth Fund. Independence Capital Management
has entered into an investment sub-advisory agreement with Robertson Stephens
Investment Management, Inc. ("Robertson Stephens"), under which Robertson
Stephens manages the investments of the Fund on a day-to-day basis.
Independence Capital Management will oversee and monitor Robertson Stephens and
will provide the Board of Directors with information and analyses on investment
decisions and results.
The Emerging Markets Fund pays Independence Capital Management, on a monthly
basis, an advisory fee based on the average daily net assets of the Fund. The
advisory fee is paid at the following rates: (i) 0.80% of the first $25,000,000
of average daily net assets of the Fund; (ii) 0.75% of the next $25,000,000 of
average daily net assets of the Fund; and (iii) 0.70% of average daily net
assets of the Fund in excess of $50,000,000.
OPCAP ADVISORS. OpCap Advisors ("OpCap Advisors") (formerly Quest for Value
Advisors), a general partnership of which Oppenheimer Capital, Inc. holds a 99%
interest, began serving as the investment adviser to the Value Equity Fund on
November 1, 1992 and investment adviser to the Small Capitalization Fund on
March 1, 1995. OpCap Advisors provides the Value Equity and Small
Capitalization Funds with discretionary investment services. OpCap Advisors is
responsible for supervising and directing the investments of the Funds in
accordance each Fund's investment objectives, programs, and restrictions as
described in the Penn Series prospectus and Statement of Additional
Information. OpCap Advisors is also responsible for effecting all securities
transactions on behalf of the Funds, including the allocation of portfolio
brokerage and the negotiation of commissions, as well as the selection of
dealers with whom securities transactions are effected.
The Value Equity and the Small Capitalization Funds pay OpCap Advisors, on a
monthly basis, advisory fees based on the average daily net assets of each Fund
at the annual rate of 0.50%.
VONTOBEL. Vontobel USA, Inc. ("Vontobel"), a wholly-owned subsidiary of
Vontobel Holding Ltd., began serving as the investment adviser to the
International Equity Fund on November 1, 1992. Vontobel provides the
International Equity Fund with discretionary investment services. Vontobel is
responsible for supervising and directing the investments of the International
Equity Fund in accordance with the Fund's investment objectives, programs, and
restrictions as described in the Penn Series prospectus and Statement of
Additional Information. Vontobel is also responsible for effecting all
securities transactions on behalf of the International Equity Fund, including
the allocation of portfolio brokerage and the negotiation of commissions, as
well as the selection of dealers with whom securities transactions are
effected.
The International Equity Fund pays Vontobel, on a monthly basis, an advisory
fee based on the average daily net assets of the Fund at the annual rate of
0.75%.
B-21
<PAGE>
ROBERTSON STEPHENS. Robertson Stephens Investment Management, Inc. is sub-
adviser to the Emerging Markets Fund under an investment sub-advisory agreement
entered into by Independence Capital Management and Robertson Stephens on April
15, 1997. Robertson Stephens is responsible for investing the assets of the
Emerging Markets Fund in accordance each Fund's investment objectives,
programs, and restrictions, as described in the Penn Series prospectus and
statement of additional information. Robertson Stephens is also responsible for
effecting all securities transactions on behalf of the Emerging Markets Fund,
including the allocation of portfolio brokerage and the negotiation of
commissions, as well as the selection of dealers with whom securities
transactions are effected.
Independence Capital Management pays Robertson Stephens, on a monthly basis,
a sub-advisory fee based on the average daily net assets of the Fund. The sub-
advisory fee is paid at the following rates: (i) 0.70% of the first $25,000,000
of average daily net assets of the Fund; (ii) 0.65% of the next $25,000,000 of
average daily net assets of the Fund; and (iii) 0.60% of average daily net
assets of the Fund in excess of $50,000,000.
For 1996, 1995, and 1994, the advisory fees paid by the Funds then in
existence were as follows:
<TABLE>
<CAPTION>
FUND 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $ 494,636 $ 400,482 $362,851
----------------------------------------------------------
Value Equity Fund 800,404 523,127 374,544
----------------------------------------------------------
Small Capitalization Fund 51,982 12,149 N/A
----------------------------------------------------------
Flexibly Managed Fund 1,645,769 1,090,740 708,525
----------------------------------------------------------
International Equity Fund 646,040 462,151 399,983
----------------------------------------------------------
Quality Bond Fund 175,993 138,201 129,372
----------------------------------------------------------
High Yield Bond Fund 196,230 170,581 177,564
----------------------------------------------------------
Money Market Fund 119,842 67,864 48,738
----------------------------------------------------------
</TABLE>
In 1996, the advisory fee allocated to the Small Capitalization Fund is after
voluntary fee Waivers of $7,964. In 1995, the advisory fees allocated to the
Growth Equity and Quality Bond Funds are after voluntary fee waivers of 44,498
and 17,275, respectively. In 1994, the advisory fees allocated to the Growth
Equity and Quality Bond Funds are after voluntary fee waivers of $40,332 and
$16,172, respectively. In 1995 and 1994, the advisory fees allocated to the
Money Market Fund are after expense waivers and voluntary fee waivers of
$9,700, and $8,795, respectively.
- --------------------------------------------------------------------------------
ADMINISTRATIVE AND CORPORATE SERVICES
On March 1, 1987, Penn Mutual began serving as the administrative and
corporate services agent for Penn Series, pursuant to the Original
Administrative and Corporate Services Agreement. On February 27, 1989, the
Board of Penn Series, including a majority of directors who were not interested
persons of Penn Series, approved the current Administrative and Corporate
Services Agreement with Penn Mutual. The current Agreement was approved by
shareholders in accordance with instructions from contract owners and payees at
their 1989 Annual Meeting on April 27, 1989, and on May 1, 1989, the Original
Administrative Services Agreement terminated and the current Agreement became
effective. The current Agreement, as amended and restated, was approved by the
shareholders on October 15, 1992. As administrative and corporate services
agent, Penn Mutual receives a fee equal to the annual rate of 0.15% of each
Fund's average daily net assets and provides a variety of services including:
(a) the maintenance of records pertaining to Penn Series' affairs, except those
that are required to be maintained by Penn Series' investment adviser,
accounting services agent, custodian, or transfer agent; (b) the preparation of
certain filings, reports and proxy statements required by the federal
securities laws; (c) the preparation of Penn Series' federal and state tax
returns and any other filings required for tax purposes other than those
required to be made by Penn Series' custodian, transfer agent, accounting
services agent, or investment adviser; (d) such services as Penn Series' Board
of Directors may require in connection with its oversight of Penn Series'
investment adviser, accounting services agent, custodian, or transfer agent,
including the periodic collection and presentation of data concerning the
investment performance of Penn Series' various investment portfolios; (e) the
organization of all meetings of Penn Series' Board of Directors; (f) the
organization of all meetings of Penn Series' shareholders; (g) the collection
and presentation of any financial or other data required by Penn Series' Board
of Directors, accountants, or counsel; and (h) the preparation and negotiation
of any amendments to, or substitutes for, the present agreements with Penn
Series' investment adviser, accounting services agent, custodian, or transfer
agent. Penn Mutual also bears certain expenses in connection with the services
it renders as administrative and corporate services agent, including all rent
and other expense involved in the provision of office space for Penn Series and
in connection with Penn Mutual's performance of its services as administrative
and corporate services agent.
B-22
<PAGE>
For 1996, 1995, and 1994 the administrative fees paid for each of the Funds
then in existence were as follows:
<TABLE>
<CAPTION>
FUND 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $149,014 $133,494 $120,951
------------------------------------------------------
Value Equity Fund 240,121 157,021 112,363
------------------------------------------------------
Small Capitalization Fund 15,135 3,644 N/A
------------------------------------------------------
Flexibly Managed Fund 493,731 327,756 212,558
------------------------------------------------------
International Equity Fund 129,460 92,430 79,997
------------------------------------------------------
Quality Bond Fund 58,663 51,238 48,515
------------------------------------------------------
High Yield Bond Fund 58,869 51,240 53,078
------------------------------------------------------
Money Market Fund 45,111 29,059 21,607
------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
ACCOUNTING SERVICES
On May 1, 1989, PFPC Inc. ("PFPC") began serving as the accounting services
agent for Penn Series. In that capacity, PFPC provides certain accounting and
related services to Penn Series, including: (a) the maintenance for each Fund
of a daily trial balance, general ledger, subsidiary records, capital stock
accounts (other than those maintained by the transfer agent for Penn Series),
investment ledger and all other books, accounts and other documents which Penn
Series is required to maintain and keep current pursuant to Rule 31a-1(a) and
(b) under the 1940 Act (other than those documents listed in subparagraph (4)
of Rule 31a-1(b)); (b) the daily valuation of the securities held by, and the
net asset value per share of, each Fund; (c) the preparation of such financial
information as may reasonably be necessary for reports to shareholders, the
Board of Directors and officers, the Securities and Exchange Commission and
other Federal and state regulatory agencies; and (d) the maintenance for each
Fund of all records that may reasonably be required in connection with the
audits of such Fund. The fee for the accounting services is based on a
predetermined percentage of daily average net assets of each fund.
For 1996, 1995, and 1994, the accounting fees paid for each of the Funds then
in existence were as follows:
<TABLE>
<CAPTION>
FUND 1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Growth Equity Fund $ 74,103 $ 67,062 $53,461
-----------------------------------------------------
Value Equity Fund 105,040 76,467 49,983
-----------------------------------------------------
Flexibly Managed Fund 182,975 133,697 87,573
-----------------------------------------------------
International Equity Fund 73,307 52,431 40,146
-----------------------------------------------------
Quality Bond Fund 29,335 27,616 23,829
-----------------------------------------------------
High Yield Bond Fund 29,453 27,418 24,571
-----------------------------------------------------
Small Capitalization Fund 27,268 8,559 N/A
-----------------------------------------------------
Money Market Fund 22,555 14,917 9,728
-----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
LIMITATION ON FUND EXPENSES
See "EXPENSES AND LIMITATIONS THEREON" in the Prospectus for information on
limitations on expenses of the Funds.
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Decisions with respect to the purchase and sale of portfolio securities on
behalf of each Fund that makes up Penn Series are made by the respective
investment adviser of that Fund. Each Fund's adviser is responsible for
implementing these decisions, including the negotiation of commissions and the
allocation of principal business and portfolio brokerage. Most purchases and
sales of portfolio debt securities are transacted with the issuer or with a
primary market maker acting as principal for the securities on a net basis,
with no brokerage commission being paid by a Fund. Transactions placed through
dealers serving as primary market makers reflect the spread between the bid and
the asked prices. Occasionally, a Fund may make purchases of underwritten debt
issues at prices which include underwriting fees.
In purchasing and selling portfolio securities, the policies of the
investment advisers are to seek quality execution at the most favorable prices
through responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. In selecting broker-dealers to execute a Fund's
portfolio transactions, the investment advisers will consider such factors
B-23
<PAGE>
as the price of the security, the rate of the commission, the size and
difficulty of the order, the reliability, integrity, financial condition,
general execution and operational capabilities of competing broker-dealers, and
the brokerage and research services they provide to the adviser or the Fund.
Any of the investment advisers may effect principal transactions on behalf of
a Fund with a broker-dealer who furnishes brokerage and/or research services,
designate any such broker-dealer to receive selling concessions, discounts or
other allowances, or otherwise deal with any such broker-dealer in connection
with the acquisition of securities in underwritings. Additionally, purchases
and sales of fixed income securities may be transacted with the issuer, the
issuer's underwriter, or with a primary market maker acting as principal or
agent. A Fund does not usually pay brokerage commissions for these purchases
and sales, although the price of the securities generally includes compensation
which is not disclosed separately. The prices the Fund pays to underwriters of
newly-issued securities usually include a commission paid by the issuer to the
underwriter. Transactions placed through dealers who are serving as primary
market makers reflect the spread between the bid and asked prices.
The investment advisers may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services are received primarily in the form of
written reports, telephone contacts, personal meetings with security analysts,
corporate and industry spokespersons, economists, academicians, and government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to each investment
adviser's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.
With regard to payment of brokerage commissions, the investment advisers to
the Flexibly Managed, High Yield, International Equity and Emerging Growth
Funds have adopted brokerage allocation policies embodying the concepts of
Section 28(e) of the Securities Exchange Act of 1934, which permit investment
advisers to cause a fund or portfolio to pay a commission in excess of the rate
another broker or dealer would have charged for the same transaction, if the
adviser determines in good faith that the commission paid is reasonable in
relation to the value of the brokerage and research services provided. The
determination to pay commissions may be made in terms of either the particular
transaction involved or the overall responsibilities of the adviser with
respect to the accounts over which it exercises investment discretion. In some
cases, research services are generated by third parties, but are provided to
the advisers by or through brokers and dealers. With respect to the Flexibly
Managed and High Yield Bond Funds, the adviser may receive research service in
connection with selling concessions and designations in fixed price offerings
in which the Fund participates.
In allocating to brokers purchase and sale orders for portfolio securities of
the Growth Equity, Value Equity, Small Capitalization, Emerging Growth,
International Equity and Quality Bond Funds, the investment advisers may take
into account the sale of Penn Mutual variable annuity contracts and variable
life insurance policies that invest in those Funds. Before brokerage business
may be directed on the basis of those sales, the investment adviser must be
satisfied that the quality of the transaction and commission payable are
comparable to what they would have been had other qualified brokers been
selected to execute the transaction.
In allocating brokerage for the Flexibly Managed Fund and the High Yield Bond
Fund, Price Associates annually assesses the contribution of the brokerage and
research services provided by broker-dealers, and allocates a portion of the
brokerage business of its clients on the basis of these assessments. In
addition, broker-dealers sometimes suggest a level of business they would like
to receive in return for the various brokerage and research services they
provide. Actual brokerage received by any firm may be less than the suggested
allocations, but can (and often does) exceed the suggestions because total
brokerage is allocated on the basis of all the considerations described above.
In no instance is a broker-dealer excluded from receiving business because it
has not been identified as providing research services. Price Associates cannot
readily determine the extent to which net prices or commission rates charged by
broker-dealers reflect the value of their research services. However, net
prices and commissions are periodically reviewed to determine whether they are
reasonable in relation to the services provided. In some instances, Price
Associates receives research services it might otherwise have had to perform
for itself. The research services provided by broker-dealers can be useful to
Price Associates in serving the Funds, as well as its other clients.
For the years ended 1996, 1995, and 1994, the total brokerage commissions
paid by the Growth Equity Fund, including the discounts received by securities
dealers in connection with underwritings, were $641,514, $522,493 and $526,265,
respectively. During 1996, the adviser directed transactions of $258,175,642
(with related commissions of $577,362) to brokers who provided research
services.
For the years ended 1996, 1995, and 1994, the total brokerage commissions
paid by the Value Equity Fund, including discounts received by securities
dealers in connection with underwritings, were $119,775, $98,671, and $76,523,
respectively. During 1996, the adviser directed transactions of $18,399,268
(with related commissions of $22,470) to brokers who provided research
services.
B-24
<PAGE>
For the years ended 1996, 1995, and 1994 the total brokerage commissions paid
by the Flexibly Managed Fund, including the discounts received by securities
dealers in connection with underwritings, were $323,511, $221,716, and
$186,948, respectively. During 1996, the adviser directed transactions of
$1,282,345,533, (with related commissions of $253,463) to brokers who provided
research services.
For 1996, 1995, and 1994, the total brokerage commissions paid by the
International Equity Fund including the discounts received by the securities
dealers in connection with underwritings, were $282,591, $280,461 and $110,471,
respectively. During 1996, the adviser directed transactions of $26,696,352
(with related commissions of $66,309) to brokers who provided research
services.
For 1996 and the period March 1, 1995 (commencement of operations) through
December 31, 1995, the total brokerage commissions paid by the Small
Capitalization Fund, including the discounts received by the Securities
division in connection with underwritings, were $28,271 and $14,492,
respectively. During 1996, the adviser directed transactions of $1,032,422
(with related commissions of $2,646) to brokers who provided research services.
For the years 1996, 1995, and 1994 the Quality Bond Fund engaged in portfolio
transactions involving broker-dealers totaling $838,148,194, $458,184,878, and
$304,773,718, respectively. For the years 1996, 1995, and 1994, the High Yield
Bond Fund engaged in portfolio transactions involving broker-dealers totaling
$263,291,031, $236,641,374, and $65,037,000, respectively, and the Money Market
Fund engaged in portfolio transactions involving broker-dealers totaling
$329,947,899, $138,010,705 and $105,398,321, respectively. The entire amounts
for each of these years represented principal transactions as to which the
Funds have no knowledge of the profits or losses realized by the respective
broker-dealers. Of all such portfolio transactions, none were placed with firms
which provided research, statistical, or other services to the Funds or its
adviser.
Some of the investment advisers' other clients have investment objectives and
programs similar to those of the Funds. An investment adviser may occasionally
make recommendations to other clients which result in their purchasing or
selling securities simultaneously with a Fund. As a result, the demand for
securities being purchased or the supply of securities being sold may increase,
and this could have an adverse effect on the price of those securities. It is
each of the investment advisers' policy not to favor one client over another in
making recommendations or in placing orders. If two or more of an investment
adviser's clients are purchasing a given security at the same time from the
same broker-dealer, the investment adviser will average the price of the
transactions and allocate the average among the clients participating in the
transaction. In addition, Price Associates has established a general investment
policy that it will ordinarily not make additional purchases of a common stock
for its clients (including the Penn Series) if, as a result of such purchases,
10% or more of the outstanding common stock of such company would be held by
its clients in the aggregate.
Price Associates may place orders for portfolio transactions with broker-
dealers through the same trading desk of T. Rowe Price used for portfolio
transactions in domestic securities. The trading desks access brokers and
dealers in various markets in which the Fund's foreign securities are located.
These brokers and dealers may include certain affiliates of Robert Fleming
Holdings Limited ("Robert Fleming Holdings"), and Jardine Fleming Group Limited
("JFG"), persons directly related to Price Associates. Robert Fleming Holdings,
through Copthall Overseas Limited, a wholly-owned subsidiary, owns 25% of the
common stock of Rowe Price-Fleming International, Inc. ("RPFI"), an investment
adviser registered under the Investment Advisers Act of 1940. Fifty percent of
the common stock of RPFI is owned by TRP Finance, Inc., a wholly-owned
subsidiary of Price Associates, and the remaining 25% is owned by Jardine
Fleming Holdings Limited, a subsidiary of JFG. JFG is 50% owned by RFH and 50%
owned by Jardine Matheson Holdings Limited. Orders for the Fund's portfolio
transactions placed with affiliates of RFH and JFG will result in commissions
being received by such affiliates.
Price Associates is authorized to utilize certain affiliates of RHL and JFG
in the capacity of a broker in connection with the execution of portfolio
transactions, provided that Price Associates believes that doing so will result
in an economic advantage (in the form of lower execution costs or otherwise)
being obtained for the Fund. Such affiliates include, but are not limited to,
Jardine Fleming Securities Limited ("JFS"), a wholly-owned subsidiary of JFG,
Robert Fleming & Co. Limited, Jardine Fleming Australia Securities Limited, and
Robert Fleming, Inc. (a New York brokerage firm). Other affiliates of RFN and
JFG may also be used. Although Price Associates does not believe that the
Fund's use of these brokers would be subject to Section 17(e) of the Investment
Company Act of 1940, it has agreed that the procedures set forth in Rule
17(a)(1) under that Act will be followed when using such brokers.
Price Associates placed no portfolio transactions with, and paid no brokerage
commissions to these broker-dealers during the past three years.
B-25
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
The directors and principal officers of Penn Series, their business addresses
and principal occupations during the past five years are set forth in the
following table.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS PENN SERIES DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <C> <S>
Eugene Bay Director Senior Pastor, Bryn Mawr Presbyterian
121 Fishers Road Church, Bryn Mawr, PA
Bryn Mawr, PA 19010
- -------------------------------------------------------------------------------
Director Retired: Vice President and Director,
James S. Greene International Raw Materials, Inc.,
1220 Round Hill Road Philadelphia, PA (commodities trading),
Bryn Mawr, PA 19010 prior to September 1990.
- -------------------------------------------------------------------------------
L. Stockton Illoway* President Senior Vice President, Marketing and
600 Dresher Road and Director Field Sales Support (since ),
Horsham, PA 19044 Senior Vice President, Pension and
Annuity (December 1993- ) Senior
Vice President, Individual Retirement
Investment Service (September 1993 to
December 1993), Regional Vice President
(prior thereto), The Penn Mutual Life
Insurance Company.
- -------------------------------------------------------------------------------
Richard J. Liburdi* Director Senior Vice President, Career Agency
600 Dresher Road System (since ), Senior Vice
Horsham, PA 19044 President, Insurance and Life Sales (
December 1990- ), Vice
President, Group Annuities (November
1988 to December 1990), Assistant Vice
President (prior thereto), The Penn
Mutual Life Insurance Company.
- -------------------------------------------------------------------------------
Director Retired; Adviser (since April 1988),
William H. Loesche, Jr. Director (prior thereto), Keystone
838 Black Rock Road Insurance Company and Keystone
Gladwyn, PA 19083 Automobile Club, Philadelphia, PA.
- -------------------------------------------------------------------------------
Director President, M. Donald Wright
Professional Corporation, Bryn Mawr, PA
(financial planning and consulting);
M. Donald Wright Director, Graduate School of Financial
100 Chetwynd Drive Services, The American College, since
Rosemont, PA 19010 April 1991.
- -------------------------------------------------------------------------------
Richard F. Plush Vice President Vice President, The Penn Mutual Life
600 Dresher Road Insurance Company.
Horsham, PA 19044
- -------------------------------------------------------------------------------
James B. McElwain Executive Assistant Vice President, Investment
600 Dresher Road Vice President Sales Operations (since ),
Horsham, PA 19044 Assistant Vice President, Retirement
and Investment Sales Operation, The
Penn Mutual Life Insurance Company,
(November 1991- ), National
Director of Marketing, Asset Management
Sales, The Metropolitan Life Insurance
Company, prior thereto.
- -------------------------------------------------------------------------------
Secretary Attorney, Morgan, Lewis & Bockius LLP,
Philadelphia, PA, since January 1996;
C. Ronald Rubley Associate General Counsel, The Penn
2000 One Logan Square Mutual Life Insurance Company, prior
Philadelphia, PA 19103 thereto.
- -------------------------------------------------------------------------------
Treasurer Director of Financial Planning and
Treasurer (since November 1995),
Director, Cost and Budget (November
Steven M. Herzberg 1991 to November 1995), Director,
600 Dresher Road Benefits Administrator (prior thereto).
Horsham, PA 19044 The Penn Mutual Life Insurance Company.
- -------------------------------------------------------------------------------
Controller Manager, Financial Reporting, The Penn
Mutual Life Insurance Company, since
June, 1992; Manager, Financial Services
Discipline (January 1992 to June 1992),
James D. Benson Supervisor and other positions (prior
600 Dresher Road thereto), Coopers & Lybrand,
Horsham, PA 19044 Philadelphia, PA.
- -------------------------------------------------------------------------------
</TABLE>
* Director is an "interested person" of Penn Series, as defined in the
Investment Company Act of 1940.
Directors and officers of Penn Series who are employed by Penn Mutual will
not receive any special compensation for serving in such capacities. Penn
Series has made no provision for the payment of retirement or pension benefits
to any director or officer. In 1996, Penn Series paid directors' fees in the
aggregate amount of $39,000 to directors who are not "interested persons" of
Penn Series.
The Board of Directors has an Executive Committee currently consisting of
Messrs. Greene, Illoway and Liburdi. Subject to limits under applicable law,
during intervals between meetings of the Board, the Committee may exercise the
powers of the Board.
- --------------------------------------------------------------------------------
CUSTODIAL SERVICES
PNC Bank, Broad & Chestnut Streets, Philadelphia, PA 19107 is custodian of
the assets of the Funds of Penn Series. The custodial services performed by PNC
Bank are those customarily performed for registered investment companies by
qualified financial institutions. Penn Series has authorized the Bank to
deposit certain portfolio securities in a central depository system as allowed
by federal law.
B-26
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. serve as the independent accountants of Penn Series
Funds, Inc. Their offices are located at 2400 Eleven Penn Center, Philadelphia,
PA 19103. Coopers & Lybrand L.L.P. are also the independent accountants of The
Penn Mutual Life Insurance Company.
- --------------------------------------------------------------------------------
LEGAL MATTERS
Morgan, Lewis & Bockius LLP of Philadelphia, Pennsylvania, has provided
advice on certain matters relative to the federal securities laws and the
offering of shares of Penn Series Funds, Inc.
- --------------------------------------------------------------------------------
NET ASSET VALUE OF SHARES
The following information supplements the information on net asset value of
shares set forth in the Prospectus.
The purchase and redemption price of each Fund's shares is equal to that
Fund's net asset value per share. Each Fund determines its net asset value per
share by subtracting the Fund's liabilities (including accrued expenses and
dividends payable) from its total assets (the market value of the securities
the Fund holds plus cash and other assets, including income accrued but not yet
received) and dividing the result by the total number of shares outstanding.
The net asset value per share of each Fund is calculated every day the New York
Stock Exchange ("Exchange") is open for trading. The Exchange is closed on the
following days: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Presidential Election Day, Thanksgiving Day, and
Christmas Day.
Debt securities held in the Funds may be valued on the basis of valuations
provided by a pricing service when such prices are believed to reflect the fair
value of such securities. Use of the pricing service may be determined without
exclusive reliance on quoted prices and may take into account appropriate
factors such as institution-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data.
The Money Market Fund uses the amortized cost method of valuation. Under the
amortized cost method of valuing portfolio securities, the security is valued
at cost on the date of purchase and thereafter a proportionate amortization of
any discount or premium until maturity of the security is assumed. The value of
the security for purposes of determining net asset value normally does not
change in response to fluctuating interest rates. While the amortized cost
method is believed to provide certainty in portfolio valuation, it may result
in periods during which values are higher or lower than the amount the Money
Market Fund would receive if the security was sold.
In accordance with Rule 2a-7 under the Investment Company Act of 1940, the
Penn Series Board of Directors has established procedures reasonably designed,
taking into account current conditions and the Money Market Fund's objectives,
to stabilize the net asset value per share of the Fund, as computed for
purposes of distribution and redemption, at $1.00. Penn Series will maintain a
dollar weighted average portfolio maturity in the Money Market Fund appropriate
to the objective of maintaining a stable net asset value per share, and to that
end the Fund will neither purchase any instrument with a remaining maturity of
more than 397 days nor maintain a dollar weighted average portfolio maturity
which exceeds 90 days. The Board of Directors will review, at such intervals as
it determines appropriate, the extent, if any, to which the net asset value per
share calculated by using available market quotations deviates from the $1.00
per share. In the event such deviation exceeds 1/2 of 1%, the Board will
promptly consider what action, if any, should be initiated. If the Board
believes that the extent of any deviation from the Money Market Fund's $1.00
amortized cost price per share may result in material dilution or other unfair
results to prospective or existing shareholders or contract holders, it has
agreed to take such steps as it considers appropriate to eliminate or reduce to
the extent reasonably practicable any such dilution or unfair results. These
steps may include redeeming shares in kind; selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten the average
portfolio maturity of the Money Market Fund; reducing or withholding dividends;
utilizing a net asset value per share as determined by using available market
quotations; or reducing the number of shares outstanding by requesting
shareholders to contribute to capital shares of the Money Market Fund.
B-27
<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP OF SHARES
The outstanding shares of each of the Funds of Penn Series are owned by The
Penn Mutual Life Insurance Company ("Penn Mutual") and its subsidiary, The Penn
Insurance and Annuity Company ("PIA") and are held in their Separate Accounts
pursuant to variable annuity contracts and variable life insurance policies.
A description of the shares is set forth in the Prospectus under the caption
General Information.
On January 31, 1997, the outstanding shares of Penn Series were owned as
follows:
<TABLE>
<CAPTION>
GROWTH VALUE FLEXIBLY QUALITY SMALL MONEY
EQUITY EQUITY MANAGED INTERNATIONAL BOND HIGH YIELD CAPITALIZATION MARKET
FUND FUND FUND EQUITY FUND FUND BOND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Outstanding Shares
Owned by Penn Mutual
and Held in Separate
Accounts Pursuant to
Variable Annuity
Contracts 93% 85% 82% 84% 83% 83% 62% 64%
- -----------------------------------------------------------------------------------------------------
Percentage of
Outstanding Shares
owned by PIA and held
in a Separate Account
Pursuant to Variable
Annuity Contracts 2% 8% 11% 7% 9% 9% 27% 18%
- -----------------------------------------------------------------------------------------------------
Percentage of
Outstanding Shares
owned by Penn Mutual
and held in a Separate
Account Pursuant to
Variable Life
Insurance Contracts 5% 7% 7% 9% 8% 8% 11% 18%
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
RATINGS OF COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC. The rating of Prime-1 is the highest
commercial paper rating assigned by Moody's. Among the factors considered by
Moody's in assigning ratings are the following: valuation of the management of
the issuer; economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas;
evaluation of the issuer's products in relation to competition and customer
acceptance; liquidity; amount and quality of long-term debt; trend of earnings
over a period of 10 years; financial strength of the parent company and the
relationships which exist with the issuer; and recognition by the management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. These factors are all
considered in determining whether the commercial paper is rated P1, P2, or P3.
STANDARD & POOR'S CORPORATION. Commercial paper rated A (highest quality) by
S&P has the following characteristics: liquidity ratios are adequate to meet
cash requirements; long-term senior debt is rated "A" or better, although in
some cases "BBB" credits may be allowed. The issuer has access to at least two
additional channels of borrowing. Basic earnings and cash flow have an upward
trend with allowance made for unusual circumstances. Typically, the issuer's
industry is well established and the issuer has a strong position within the
industry. The reliability and quality of management are unquestioned. The
relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A1, A2, or A3.
FITCH INVESTORS SERVICE, INC.: FITCH 1--HIGHEST GRADE. Commercial paper
assigned this rating is regarded as having the strongest degree of assurance
for timely payment. FITCH 2--VERY GOOD GRADE. Issues assigned this rating
reflect an assurance of timely payment only slightly less in degree than the
strongest issues.
B-28
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF PENN SERIES
The following pages include audited financial statements as of December 31,
1996 for the Growth Equity Fund, Value Equity Fund, Small Capitalization Fund,
Flexibly Managed Fund, International Equity Fund, Quality Bond Fund, High Yield
Bond Fund and Money Market Fund.
B-29
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF PENN SERIES FUNDS, INC.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Penn Series Funds, Inc. (comprising
respectively, the Money Market Fund, Quality Bond Fund, High Yield Bond Fund,
Growth Equity Fund, Value Equity Fund, Flexibly Managed Fund, International
Equity Fund, and Small Capitalization Fund) as of December 31, 1996, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years or periods in the period then
ended and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
respective portfolios of Penn Series Funds, Inc. as of December 31, 1996, and
the results of their operations for the year then ended, the changes in their
net assets for each of the two years or periods in the period then ended and
the financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 11, 1997
B-30
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1996
THE MONEY MARKET FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------- ------ -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (26.2%)
- ------------------------
BEVERAGES (2.9%)
Coca-Cola Co.
6.00%................... 01/03/97 A-1/P-1 $1,000 $ 999,667
-----------
FINANCIAL SERVICES (14.8%)
American Honda
5.65%................... 01/30/97 A-2/P-1 1,000 995,449
Countrywide Funding Corp.
5.97%................... 01/14/97 A-1/P-2 750 748,383
General Electric Capital
Corp. 5.32%............. 01/16/97 A-1/P-1 750 748,338
Merrill Lynch & Co., Inc.
5.44%................... 01/21/97 A-1/P-1 700 697,884
5.48%................... 01/08/97 A-1/P-1 300 299,680
5.95%................... 01/10/97 A-1/P-1 500 499,256
New York City
5.60%................... 04/01/97 NR 600 600,000
New York City General
Obligation 5.50%........ 01/07/97 NR 500 500,000
-----------
5,088,990
-----------
MISCELLANEOUS (4.4%)
Dekalb County for Emory
University 5.60%........ 02/18/97 NR 1,500 1,500,000
-----------
UTILITIES - GAS (4.1%)
San Diego Gas & Electric
Co. 5.58%............... 02/06/97 A-1/P-1 1,400 1,400,000
-----------
TOTAL COMMERCIAL PAPER
(Cost $8,988,657)................................ 8,988,657
-----------
CORPORATE BONDS (15.4%)
- -----------------------
American Home Products
6.875%.................. 04/15/97 A 855 857,922
BankAmerica Corp.
6.00%................... 07/15/97 A+ 100 100,095
Chrysler Financial Corp.
6.41%................... 07/28/97 A- 250 250,697
Ford Holdings Inc.
9.25%................... 07/15/97 A+ 370 376,656
Ford Motor Credit
7.875%.................. 01/15/97 A+ 240 240,163
General Motors Corp.
7.625%.................. 02/15/97 A- 1,000 1,002,072
General Motors Acceptance
Corp.
7.75%................... 04/15/97 A- 295 296,643
7.95%................... 04/30/97 A- 175 176,234
Manufacturer's Hanover
Corp. 8.125%............ 01/15/97 A 1,300 1,301,126
Merrill Lynch
7.25%................... 05/15/97 AA- 100 100,525
Philip Morris
9.75%................... 05/01/97 A 600 607,613
-----------
TOTAL CORPORATE BONDS
(Cost $5,309,746)................................ 5,309,746
-----------
VARIABLE RATE DEMAND NOTES (49.4%)+
- -----------------------------------
Alabama State Development
Authority 5.75%......... 01/07/97 A-1/P-1 550 550,000
Barton Healthcare
5.70%................... 01/07/97 A-1/P-1 465 465,000
Baylis Group Partnership
5.90%................... 01/01/97 A-1/P-1 700 700,000
Berks County Industrial
Development Authority
5.75%................... 01/07/97 A-1/P-1 545 545,000
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------- ------ -----------
<S> <C> <C> <C> <C>
Bloomfield, New Mexico 5.90%.............. 01/07/97 A-1/P-1 $ 600 $ 600,000
Columbia County Georgia Development
Authority 5.90%.......................... 01/07/97 A-1/P-1 470 470,000
Community Health Systems, Inc.
5.90%.................................... 01/07/97 A-1/P-1 400 400,000
5.95%.................................... 01/07/97 A-1/P-1 1,165 1,165,000
Dean Witter Discover 5.53%................ 01/07/97 A-1/P-1 1,200 1,199,782
Durham Risk Management Co.
5.96%.................................... 01/07/97 A-1+/P- 500 500,000
Fairview Hospital and Healthcare Services
5.90%.................................... 01/07/97 A-1+/P- 500 500,000
GMG Warehouse American National
5.70%.................................... 01/02/97 NR 1,050 1,050,000
Health Insurance Plan of Greater NY 5.80%. 01/07/97 A-1/P-1 1,000 1,000,000
Illinois Development Finance Authority
5.70%.................................... 01/07/97 A-1/P-1 600 600,000
Liliha Partners
6.15%.................................... 01/02/97 NR 1,100 1,100,000
Mississippi Business Finance Authority
5.75%.................................... 01/07/97 A-1/P-1 1,600 1,600,000
Montgomery County PA Industrial
Development Authority 5.75%.............. 01/07/97 A-1/P-1 805 805,000
New York, New York 5.50%.................. 01/07/97 A-1/P-1 1,000 1,000,000
Passaic County Utilities Authority Series
1996-A 6.25%............................. 09/03/97 SP1+ 650 650,000
Richmond County Georgia Industrial
Development Authority Monsato County
Project
6.01%.................................... 06/01/97 A-1/P-1 1,000 1,000,000
Saint Francis Health
6.05%.................................... 01/07/97 A-1/P-1 490 490,000
Sliver City, New Mexico 5.90%............. 01/07/97 A-1/P-1 600 600,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(Cost $16,989,782)................................................ 16,989,782
-----------
GOVERNMENT OBLIGATIONS (1.5%)+
- ------------------------------
Student Loan Marketing Association 5.39%
(Cost $499,852).......................... 01/07/97 A-1/P-1 500 499,852
-----------
MEDIUM TERM NOTES (6.1%)
- ------------------------
Ford Motor Credit
7.75%.................................... 04/29/97 A+ 1,000 1,006,894
Pacific Gas & Electric 5.00%.............. 10/07/97 A- 1,100 1,093,434
-----------
TOTAL MEDIUM TERM NOTES
(Cost $2,100,328)................................................. 2,100,328
-----------
</TABLE>
B-31
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
--------- -----------
<S> <C> <C>
SHORT TERM
INVESTMENTS
(1.4%)
- ------------
Janus Money
Market
Fund........ 309,438 $ 309,438
Temporary
Investment
Fund
Class B..... 171,848 171,848
-----------
TOTAL SHORT TERM
INVESTMENTS
(Cost $481,286)........ 481,286
-----------
TOTAL INVESTMENTS
(100.0%)
(Cost $34,369,651) (a). $34,369,651
-----------
</TABLE>
- -------
(a) Cost for Federal income tax purposes.
+ The rate shown is the rate as of December 31, 1996, and the maturity shown
is the next interest readjustment date.
The Standard & Poor's Corporation, Moody's Investor Service, Fitch Investors
Service and Duff & Phelps Credit Rating Co. Ratings are the most recent
ratings available at December 31, 1996. These ratings have not been verified
by the Independent Accountants and, therefore, are not covered by the Report
of Independent Accountants. The information presented below is also
unaudited.
<TABLE>
<CAPTION>
PERCENTAGE OF
MATURITY ----------------------------------------------
SCHEDULE AMOUNT PAR (CUM)
-------- ----------- ------
<S> <C> <C> <C>
1 - 7 days $17,340,000 51.2% 51.2%
8 - 14 days 1,550,000 4.6% 55.8%
15 - 30 days 3,990,000 11.8% 67.6%
31 - 60 days 3,900,000 11.5% 79.1%
91 - 120 days 2,925,000 8.6% 87.7%
121 - 150 days 700,000 2.1% 89.8%
Over 150 days 3,470,000 10.2% 100.0%
----------- ------
$33,875,000 100.0%
=========== ======
</TABLE>
Average Weighted Maturity - 45 Days
The accompanying notes are an integral part of these financial statements.
B-32
<PAGE>
- --------------------------------------------------------------------------------
THE QUALITY BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (19.9%)
- -----------------------
AGRICULTURAL OPERATIONS (0.7%)
Cargill, Inc.
7.375%.................................... 10/01/25 AA- $ 250 $ 248,750
-----------
BEVERAGES (1.2%)
Coca-Cola Enterprises
6.95%..................................... 11/15/26 AA- 475 454,219
-----------
BROADCASTING (1.0%)
News America Holdings
8.50%..................................... 02/23/07 BBB 360 393,300
-----------
CANADIAN GOV'T AGENCY (4.5%)
Hydro Quebec
7.50%..................................... 04/01/16 A+ 400 404,500
8.05%..................................... 07/07/06 A+ 1,150 1,263,562
-----------
1,668,062
-----------
ELECTRIC POWER (2.0%)
Korea Electric Power
7.75%..................................... 04/01/13 AA- 500 510,000
Minnesota Power & Light First Mortgage
7.375%.................................... 03/01/97 BBB+ 250 250,625
-----------
760,625
-----------
FINANCE & CREDIT (0.7%)
American Express Credit Corp. Senior Note
7.75%..................................... 03/01/97 A+ 250 250,772
-----------
FINANCIAL (8.3%)
African Development Bank 6.875%............ 10/15/15 AA- 500 486,250
Associates Corp. N.A. Senior Note 7.75%.... 02/15/00 AA- 500 527,500
General Electric Capital Corp. 6.66%....... 05/01/00 AAA 1,000 1,003,750
8.125%.................................... 02/01/99 AAA 500 519,375
General Motors Acceptance Corp. Note 6.40%. 07/30/97 A- 300 301,386
Morgan Stanley Financial PLC
8.03%..................................... 02/28/07 A- 250 250,000
-----------
3,088,261
-----------
RAILROADS (0.7%)
Union Pacific Co.
8.35%..................................... 05/01/05 BBB 250 261,563
-----------
RETAIL (0.5%)
Penney (J.C.), Inc. Note
9.45%..................................... 07/15/00 A+ 175 190,969
-----------
SERVICES - EQUIPMENT RENTING & LEASING (0.3%)
Service Co. International 7.00%............ 06/01/02 BBB+ 100 100,750
-----------
TOTAL CORPORATE BONDS
(Cost $7,203,423)................................................. 7,417,271
-----------
U.S. TREASURY OBLIGATIONS (52.0%)
- ---------------------------------
U.S. Treasury Notes
5.875%.................................... 11/15/05 N/A 2,855 2,754,475
6.25%..................................... 05/31/00 N/A 500 502,395
6.50%..................................... 08/31/01 N/A 3,125 3,160,843
6.50%..................................... 05/15/05 N/A 750 755,205
6.75%..................................... 04/30/00 N/A 1,000 1,019,490
6.875%.................................... 05/15/06 N/A 1,500 1,546,275
7.75%..................................... 12/31/99 N/A 1,000 1,046,520
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
7.875%.................................... 11/15/99 N/A $ 750 $ 786,277
7.875%.................................... 11/15/04 N/A 3,500 3,821,650
-----------
15,393,130
-----------
U.S. Treasury Bonds
6.00%..................................... 02/15/26 N/A 350 318,766
7.25%..................................... 05/15/16 N/A 3,455 3,651,348
-----------
3,970,114
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $18,934,260)................................................ 19,363,244
-----------
AGENCY OBLIGATIONS (19.7%)
- --------------------------
Federal Home Loan Bank
5.55%..................................... 01/02/97 N/A 2,000 1,999,692
Federal National Mortgage Assoc. 6.45%..... 12/01/03 N/A 1,232 1,226,995
Federal National Mortgage Assoc. 6.50% due
11/01/25 to 12/01/25...................... N/A 1,853 1,769,194
Government National Mortgage Assoc. 8.00%
due 06/15/23 to 12/15/25.................. N/A 2,296 2,343,709
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $7,408,307)................................................. 7,339,590
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES (1.3%)
- --------------------------------------------
Sasco 96-CFL Class B 6.303%
(Cost $500,010) .......................... 02/25/28 AA 500 484,687
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
PREFERRED
STOCK (1.2%)
- -------------
Cleveland
Electric
Illuminating
9.125%
(Cost
$448,695)... 4,515 450,936
-----------
SHORT-TERM
INVESTMENTS
(5.9%)
- ------------
Janus Money
Market
Fund........ 1,814,596 1,814,596
Temporary
Investment
Fund
Class B .... 381,401 381,401
-----------
TOTAL SHORT TERM
INVESTMENTS
(Cost $2,195,997)...... 2,195,997
-----------
TOTAL INVESTMENTS
(100.0%)
(Cost $36,690,692) (a). $37,251,725
-----------
</TABLE>
- -------
(a) At December 31, 1996, the cost for Federal income tax purposes was
$36,702,958. The excess of value over tax cost was $648,154, and the excess
of tax cost over value was $99,387.
The Standard & Poors corporation ratings are the most recent rating
available at December 31, 1996. These ratings have not been verified by the
Independent Accountants and, therefore, are not covered by the Report of
Independent Accountants.
The accompanying notes are an integral part of these financial statements.
B-33
<PAGE>
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
COLLATERALIZED MORTGAGE SECURITIES (1.3%)
- -----------------------------------------
Airplanes Pass Through Trust 10.875%
(Cost $506,762)............................ 03/15/19 BB $ 500 $ 558,750
-----------
CORPORATE BONDS (87.1%)
- -----------------------
ADVERTISING (1.7%)
Outdoor Systems, Inc.
9.375%..................................... 10/15/06 B 500 515,000
Universal Outdoor, Inc.
9.75%...................................... 10/15/06 B 200 206,500
-----------
721,500
-----------
AEROSPACE & DEFENSE (5.8%)
BE Aerospace, Inc.
9.875%..................................... 02/01/06 B 425 446,250
Communication & Power Industries
12.00%..................................... 08/01/05 B 500 558,750
K & F Industries, Inc.
10.375%.................................... 09/01/04 B- 225 237,375
11.875%.................................... 12/01/03 B+ 550 592,625
Tracor, Inc.
10.875%.................................... 08/15/01 B 250 263,750
UNC, Inc.
11.00%..................................... 06/01/06 B 400 428,000
-----------
2,526,750
-----------
AUTOMOBILES & RELATED (2.5%)
Aetna Industries, Inc.
11.875%.................................... 10/01/06 B- 300 321,000
Hayes Wheels International, Inc.
11.00%..................................... 07/15/06 B 350 381,937
Speedy Muffler King, Inc.
10.875%.................................... 10/01/06 B+ 350 373,187
-----------
1,076,124
-----------
AUTOMOBILES - CARS (0.2%)
Venture Holdings Trust
9.75%...................................... 04/01/04 B 100 92,000
-----------
BEVERAGES (2.7%)
Dr. Pepper Bottling Holdings, Inc.
4.4178%++.................................. 02/15/03 CCC+ 700 658,000
Texas Bottling Group, Inc.
9.00%...................................... 11/15/03 B+ 500 506,250
-----------
1,164,250
-----------
BROADCASTING (2.5%)
Chancellor Broadcasting
9.375%..................................... 10/01/04 B- 500 505,000
Heritage Media Corp.
11.00%..................................... 10/01/02 B 550 587,125
-----------
1,092,125
-----------
BUILDING & REAL ESTATE (1.3%)
B.F. Saul Reit.
11.625%.................................... 04/01/02 B- 500 540,000
-----------
BUILDING PRODUCTS (3.0%)
Foamex L.P.
11.875%.................................... 10/01/04 B- 500 532,500
Maxxam Group, Inc.
11.25%..................................... 08/01/03 B- 500 510,000
Waxman Industries, Inc.
4.4071%++.................................. 06/01/04 CCC+ 325 238,062
-----------
1,280,562
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
CABLE OPERATORS (2.7%)
Diamond Cable Communication Co.
4.6957%++.................................. 12/15/05 B- $ 500 $ 360,000
Frontiervision
11.00%..................................... 10/15/06 B 300 300,750
Fundy Cable Ltd.
11.00%..................................... 11/15/05 BB 500 530,000
-----------
1,190,750
-----------
CONGLOMORATES (1.9%)
Alpine Group, Inc.
12.25%..................................... 07/15/03 B- 249 268,920
ICF Kaiser International, Inc.
13.00%..................................... 12/31/03 NR 175 172,375
Jordan Industries, Inc.
10.375%.................................... 08/01/03 B+ 400 394,000
-----------
835,295
-----------
CONTAINER (4.4%)
Plastic Containers, Inc.
10.00%..................................... 12/15/06 B+ 400 412,000
Portola Packaging, Inc.
10.75%..................................... 10/01/05 B 500 521,250
Silgan Corp.
11.75%..................................... 06/15/02 B- 500 532,500
U.S. Can Corp.
10.125%.................................... 10/15/06 B 400 420,500
-----------
1,886,250
-----------
ELECTRONIC COMPONENTS (0.7%)
Celestica International
10.50%..................................... 12/31/06 B 300 315,000
-----------
ENERGY SERVICES (5.9%)
Coda Energy, Inc.
10.50%..................................... 04/01/06 B 100 105,000
Dual Drilling Co.
9.875%..................................... 01/15/04 B- 500 540,000
Falcon Drilling Co.
8.875%..................................... 03/15/03 B+ 150 153,000
Flores & Rucks
9.75%...................................... 10/01/06 B- 275 291,500
Kelley Oil & Gas Corp.
10.375%.................................... 10/15/06 B- 175 182,438
Mesa Operating Co.
10.625%.................................... 07/01/06 B 150 162,750
Parker Drilling Corp.
9.75%...................................... 11/15/06 B+ 300 316,500
Petroleum Heat & Power, Inc.
12.25%..................................... 02/01/05 B+ 500 555,000
Plains Resources, Inc.
10.25%..................................... 03/15/06 B- 250 267,500
-----------
2,573,688
-----------
ENTERTAINMENT & LEISURE (2.6%)
Alliance Entertainment Corp.
11.25%..................................... 07/15/05 B- 250 180,000
Six Flags Theme Parks
2.4799%++.................................. 06/15/05 B 600 564,000
United Artists Theatre
9.30%...................................... 07/01/15 BB 397 369,929
-----------
1,113,929
-----------
</TABLE>
B-34
<PAGE>
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND, CONT'D
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
FINANCE (3.1%)
Aames Financial Corp.
9.125%.................................... 11/01/03 BB- $ 250 $ 254,375
First Nationwide
10.625%................................... 10/01/03 BB 500 540,000
Ocwen Financial Corp.
11.875%................................... 10/01/03 B+ 500 546,250
-----------
1,340,625
-----------
FOOD/TOBACCO (4.3%)
Consolidated Cigar Corp.
10.50%.................................... 03/01/03 B 750 783,750
Keebler Corp.
10.75%.................................... 07/01/06 NR 500 545,000
Mac Andrews & Forbes Co.
11.875%................................... 11/15/02 B 500 527,500
-----------
1,856,250
-----------
HEALTHCARE (3.0%)
Dade International, Inc.
11.125%................................... 05/01/06 NR 250 271,250
Imed Corp.
9.75%..................................... 12/01/06 B 500 508,750
Owens & Minor, Inc.
10.875%................................... 06/01/06 B+ 500 536,250
-----------
1,316,250
-----------
HOTELS & GAMING (5.2%)
@ Capital Gaming International, Inc.
45.6951%++................................ 02/01/01 NR 5 250
Courtyard by Marriott
10.75%.................................... 02/01/08 B- 350 370,125
Eldorado Resorts LLC
10.50%.................................... 08/15/06 B 250 264,063
HMC Acquisition Properties
9.00%..................................... 12/15/07 BB 400 406,000
Players International, Inc.
10.875%................................... 04/15/05 BB 250 247,500
President Riverboat Casinos, Inc.
13.00%.................................... 09/15/01 B 200 167,000
Rio Hotel & Casino, Inc.
10.625%................................... 07/15/05 B 250 266,875
Trump Atlantic City Assoc. Funding, Inc.
11.25%.................................... 05/01/06 BB- 535 529,650
-----------
2,251,463
-----------
MANUFACTURING (3.5%)
Hawk Corp.
10.25%.................................... 12/01/03 B+ 350 357,000
International Knife & Saw
11.375%................................... 11/15/06 B- 325 335,563
Mettler Toledo, Inc.
9.75%..................................... 10/01/06 B 300 315,000
Tokheim Corp.
11.50%.................................... 08/01/06 B 475 496,375
-----------
1,503,938
-----------
METALS & MINING (0.9%)
Haynes International, Inc.
11.625%................................... 09/01/04 B- 350 369,250
-----------
MISCELLANEOUS (0.6%)
Bankunited Capital Trust
10.25%.................................... 12/31/26 NR 250 250,000
-----------
MISCELLANEOUS - CONSUMER PRODUCTS (5.7%)
American Safety Razor Co.
9.875%.................................... 08/01/05 BB- 500 531,250
Doane Products Co.
10.625%................................... 03/01/06 B+ 500 532,500
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
Herff Jones, Inc.
11.00%..................................... 08/15/05 B $ 500 $ 537,500
PM Holdings Corp.
5.1115%++.................................. 09/01/05 B 150 100,500
Rayovac Corp.
10.25%..................................... 11/01/06 B- 500 512,500
Revlon Worldwide Corp.
11.5728%++................................. 03/15/98 B- 300 258,000
-----------
2,472,250
-----------
PAPER & PRODUCTS (4.0%)
Container Corp. Of America
11.25%..................................... 05/01/04 B+ 250 271,250
Gaylord Container
12.75%..................................... 05/15/05 B- 500 552,500
Repap Wisconsin, Inc.
9.875%..................................... 05/01/06 B 350 357,000
S.D. Warren Co.
12.00%..................................... 12/15/04 B+ 500 540,000
-----------
1,720,750
-----------
RETAIL (2.7%)
Barry's Jewelers, Inc.
11.00%..................................... 12/22/00 B 500 375,000
Loehmann's, Inc.
11.875%.................................... 05/15/03 B 350 377,125
Safelite Glass Corp.
9.875%..................................... 12/15/06 B 400 413,000
-----------
1,165,125
-----------
SAVINGS & LOAN ASSOCIATIONS (1.2%)
First Federal Financial Corp.
11.75%..................................... 10/01/04 B+ 500 540,000
-----------
SERVICE (3.3%)
Allied Waste North America
10.25%..................................... 12/01/06 B+ 325 341,250
Coinmach Corp.
11.75%..................................... 11/15/05 B+ 632 684,140
Intertek Finance
10.25%..................................... 11/01/06 B 395 410,800
-----------
1,436,190
-----------
SUPERMARKETS (1.8%)
Brunos, Inc.
10.50%..................................... 08/01/05 B- 250 265,000
Grand Union Co.
12.00%..................................... 09/01/04 B- 500 527,500
-----------
792,500
-----------
TELECOMMUNICATIONS (5.8%)
Brooks Fiber Properties
5.9169%++.................................. 03/01/06 NR 350 224,000
Colt Telecommunication Group
5.9094%++.................................. 12/15/06 NR 700 406,000
ICG Holdings, Inc.
5.2729%++.................................. 09/15/05 NR 150 105,750
Intermedia Communications of Florida
4.2945%++.................................. 06/15/06 B- 500 340,000
13.50%..................................... 06/01/05 B- 50 57,250
Nextel Communications
5.9476%++.................................. 08/15/04 CCC- 150 102,375
Omnipoint Corp.
11.625%.................................... 08/15/06 CCC+ 350 362,250
Pricellular Wire
10.75%..................................... 11/01/04 B 250 260,000
Pronet, Inc.
11.875%.................................... 06/15/05 CCC 100 94,000
RSL Communications Ltd.
12.25%..................................... 11/15/06 NR 200 202,000
Teleport Communications
4.3941%++.................................. 07/01/07 B 550 376,750
-----------
2,530,375
-----------
</TABLE>
B-35
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ --------- -----------
<S> <C> <C> <C> <C>
TEXTILES & APPAREL (3.6%)
Dan River, Inc.
10.125%................................ 12/15/03 B $ 500 $ 505,000
Pillowtex Corp.
10.00%................................. 11/15/06 B+ 375 386,250
# Plaid Clothing Group
11.00%................................. 08/01/03 D 375 24,375
Synthetic Industries
12.75%................................. 12/01/02 B- 600 661,500
-----------
1,577,125
-----------
TRANSPORTATION (0.5%)
Sea Containers Ltd.
12.50%................................. 12/01/04 BB- 215 236,500
-----------
TOTAL CORPORATE BONDS
(Cost $36,490,484)................................................ 37,766,814
-----------
COMMERCIAL PAPER (5.3%)
- -----------------------
Minnesota Mining & Mfg. Co.
5.50%.................................. 01/22/97 NR 207 206,336
Northern States Power Co.
6.00%.................................. 01/07/97 A+ 567 566,433
St. Paul Co.
6.50%.................................. 01/02/97 NR 1,515 1,514,726
-----------
TOTAL COMMERCIAL PAPER
(Cost $2,287,495)................................................. 2,287,495
</TABLE>
-----------
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
COMMON STOCK (3.4%)
- -------------------
+Berg Electronics Corp. ................................. 7,498 220,254
Borg-Warner Automotive, Inc. ........................... 6,100 234,850
+ Capital Gaming International, Inc. .................... 13,335 433
+ Dr. Pepper Bottling Holdings, Inc., Class A............ 57,800 751,400
+ Gaylord Containers Corp., Class A...................... 7,500 45,938
+ Loehmann's Holdings, Inc. ............................. 7,091 146,784
+ Loehmann's Holdings, Inc., Class B..................... 2,475 51,233
+ Protection One, Inc. .................................. 4,200 41,475
-----------
TOTAL COMMON STOCK
(Cost $548,043)................................................... 1,492,367
-----------
<CAPTION>
NUMBER OF
CONTRACTS
---------
<S> <C> <C>
OPTIONS (0.0%)
- --------------
Loehmann $24.913 Call Due August 27, 1997............... 96 (19,419)
Loehmann $22.752 Put Due August 27, 1997................ 96 16,262
-----------
TOTAL OPTIONS
(Cost $8)......................................................... (3,157)
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
PREFERRED STOCK (2.8%)
- ----------------------
Chevy Chase Pfd. Capital Corp. ............................ 5,185 $ 270,268
Criimi Mae, Inc. .......................................... 20,000 580,000
+ Kelley Oil & Gas Corp. ................................... 15,500 375,875
-----------
TOTAL PREFERRED STOCK
(Cost $1,059,263)................................................. 1,226,143
-----------
WARRANTS (0.1%)
- ---------------
@+ Capital Gaming International, Inc. ...................... 11,375 15
+ Intermedia Communication.................................. 50 1,750
@+ President Riverboat Casinos, Inc. ....................... 4,415 1,104
+ Wireless One, Inc. ....................................... 450 675
+ Wright Medical Technology, Inc. .......................... 2,676 34,794
-----------
TOTAL WARRANTS
(Cost $73,245).................................................... 38,338
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $40,965,300) (a)............................................ $43,366,750
-----------
</TABLE>
- -------
@ Restricted security.
+ Non-income producing.
++ Effective Yield.
# Securities in default.
(a) Also cost for Federal income tax. At December 31, 1996, the excess of
value over tax cost was $3,151,471, and the excess of tax cost over value
was $750,021.
The Standard & Poor's corporation ratings are the most recent ratings
available at December 31, 1996. These ratings have not been verified by the
Independent Accountants and, therefore, are not covered by the report of
Independent Accountants.
The accompanying notes are an integral part of these financial statements.
B-36
<PAGE>
- --------------------------------------------------------------------------------
THE GROWTH EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<S> <C> <C>
COMMON STOCK (97.0%)
- --------------------
AEROSPACE & DEFENSE (2.4%)
Boeing Co. ............................................... 11,000 $ 1,170,125
United Technologies Corp. ................................ 20,000 1,320,000
------------
2,490,125
------------
AUTOMOBILES - CARS (0.5%)
Chrysler Corp. ........................................... 15,000 495,000
------------
BEVERAGES - SOFT DRINKS (0.8%)
PepsiCo, Inc. ............................................ 30,000 877,500
------------
CHEMICALS (1.8%)
Du Pont (E.I.) de Nemours & Co. .......................... 10,000 943,750
Monsanto Co. ............................................. 25,000 971,875
------------
1,915,625
------------
COMMERCIAL SERVICES (0.2%)
Paychex, Inc. ............................................ 5,000 257,188
------------
COMPUTER SOFTWARE & SERVICES (9.1%)
+ BMC Software, Inc. ....................................... 10,000 415,625
+ Cambridge Technology Partners, Inc. ...................... 25,000 839,062
+ Cisco Systems, Inc. ...................................... 25,000 1,592,187
Computer Associates International, Inc. .................. 10,000 497,500
+ Microsoft Corp. .......................................... 25,000 2,067,188
+ Oracle Corp. ............................................. 25,000 1,042,188
+ Parametric Technology Corp. .............................. 20,000 1,028,750
+ Seagate Technology, Inc. ................................. 35,000 1,382,500
+ Tech Data Corp. .......................................... 30,000 821,250
------------
9,686,250
------------
COMPUTER SYSTEMS (4.4%)
+ Compaq Computer Corp. .................................... 25,000 1,856,250
+ Gateway 2000, Inc. ....................................... 12,000 642,750
Hewlett-Packard Co. ...................................... 15,000 753,750
+ Sun Microsystems, Inc. ................................... 25,000 642,188
+ 3Com Corp. ............................................... 10,000 733,125
------------
4,628,063
------------
CONGLOMERATES (2.1%)
General Electric Co. ..................................... 23,000 2,274,125
------------
COSMETICS (0.4%)
Gillette Co. ............................................. 5,000 388,750
------------
DIVERSIFIED OPERATIONS (0.7%)
Tyco International Limited................................ 15,000 793,125
------------
ELECTRONICS (3.3%)
+ Altera Corp. ............................................. 15,000 1,090,312
+ Rockwell International Corp. ............................. 25,000 1,521,875
+ SCI Systems, Inc. ........................................ 20,000 895,000
------------
3,507,187
------------
ELECTRONICS - SEMICONDUCTORS (5.6%)
+ Adaptec, Inc. ............................................ 35,000 1,402,187
+ Atmel Corp. .............................................. 25,000 831,250
Intel Corp. .............................................. 23,000 3,011,563
+ Maxim Integrated Products, Inc. .......................... 15,000 649,687
------------
5,894,687
------------
ENTERTAINMENT (1.6%)
The Walt Disney Co. ....................................... 25,000 1,740,625
------------
FINANCIAL SERVICES (15.0%)
American Express Co. ...................................... 35,000 1,977,500
BankAmerica Corp. ......................................... 10,000 997,500
Chase Manhattan Corp. ..................................... 15,000 1,338,750
Citicorp .................................................. 20,000 2,060,000
Federal Home Loan Mortgage Corp. .......................... 10,000 1,101,250
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<S> <C> <C>
Federal National Mortgage Assoc. ......................... 30,000 $ 1,117,500
First USA, Inc. .......................................... 40,000 1,385,000
Green Tree Financial Corp. ............................... 10,000 386,250
MBNA Corp. ............................................... 30,000 1,245,000
Money Store, Inc. ........................................ 50,000 1,387,500
SunAmerica, Inc. ......................................... 35,000 1,553,125
Wells Fargo & Co. ........................................ 5,000 1,348,750
------------
15,898,125
------------
FOOD - PROCESSING (1.2%)
ConAgra, Inc. ............................................ 25,000 1,243,750
------------
HEALTH CARE (0.6%)
+ Oxford Health Plans, Inc. ................................ 10,000 585,625
------------
HOSPITAL MANAGEMENT & SERVICES (0.5%)
+ HEALTHSOUTH Corp. ........................................ 15,000 579,375
------------
HOUSEHOLD PRODUCTS (1.7%)
Procter & Gamble Co. ..................................... 17,000 1,827,500
------------
INSURANCE (5.7%)
Allstate Corp. ........................................... 15,000 868,125
American International Group, Inc. ....................... 12,000 1,299,000
MGIC Investment Corp. .................................... 20,000 1,520,000
Travelers Group, Inc. .................................... 20,000 907,500
Travelers/Aetna Property Casualty Corp. .................. 40,000 1,415,000
------------
6,009,625
------------
MACHINERY - DIVERSIFIED (0.7%)
Caterpillar, Inc. ........................................ 10,000 752,500
------------
MANUFACTURING - DIVERSIFIED (1.8%)
AlliedSignal, Inc. ....................................... 16,000 1,072,000
Eastman Kodak Co. ........................................ 10,000 802,500
------------
1,874,500
------------
MEDICAL SUPPLIES (1.8%)
+ Boston Scientific Corp. .................................. 15,000 900,000
Medtronic, Inc. .......................................... 15,000 1,020,000
------------
1,920,000
------------
OIL/GAS (9.5%)
Baker Hughes, Inc. ....................................... 20,000 690,000
Burlington Resources, Inc. ............................... 25,000 1,259,375
Coastal Corp. ............................................ 10,000 488,750
+ ENSCO International, Inc. ................................ 15,000 727,500
+ Global Marine, Inc. ...................................... 50,000 1,031,250
Helmerich & Payne, Inc. .................................. 25,000 1,303,125
Parker & Parsley Petroleum Co. ........................... 15,000 551,250
+ Rowan Cos., Inc. ......................................... 25,000 565,625
Sonat, Inc. .............................................. 15,000 772,500
Williams Cos., Inc. ...................................... 15,000 562,500
Schlumberger Limited...................................... 6,000 599,250
Transocean Offshore, Inc. ................................ 24,000 1,503,000
------------
10,054,125
------------
PAPER & FOREST PRODUCTS (1.5%)
+ Fort Howard Corp. ........................................ 25,000 692,188
Kimberly-Clark Corp. ..................................... 10,000 952,500
------------
1,644,688
------------
PHARMACEUTICALS (10.2%)
Abbott Laboratories....................................... 18,000 913,500
American Home Products Corp. ............................. 15,000 879,375
+ Amgen, Inc. .............................................. 5,000 272,187
Cardinal Health, Inc. .................................... 18,000 1,048,500
Eli Lilly & Co. .......................................... 25,000 1,825,000
Johnson & Johnson......................................... 30,000 1,492,500
Merck & Co., Inc. ........................................ 27,000 2,139,750
</TABLE>
B-37
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<S> <C> <C>
Pfizer, Inc. ............................................. 20,000 $ 1,657,500
Schering-Plough Corp. .................................... 10,000 647,500
------------
10,875,812
------------
RESTAURANTS (0.7%)
+ Boston Chicken, Inc. ..................................... 20,000 717,500
------------
RETAIL (7.6%)
Dayton Hudson Corp. ...................................... 25,000 981,250
Home Depot, Inc. ......................................... 25,000 1,253,125
+ Price/Costco, Inc. ....................................... 50,000 1,259,375
Ross Stores, Inc. ........................................ 15,000 748,125
+ Safeway, Inc. ............................................ 40,000 1,710,000
+ Staples, Inc. ............................................ 20,000 361,250
TJX Companies, Inc. ...................................... 20,000 947,500
Walgreen Co. ............................................. 20,000 800,000
------------
8,060,625
------------
SHOES & APPAREL (1.1%)
Nike, Inc. ............................................... 20,000 1,195,000
------------
TELECOMMUNICATIONS (2.9%)
+ Andrew Corp. ............................................. 18,000 955,125
Lucent Technologies, Inc. ................................ 15,000 693,750
+ Tellabs, Inc. ............................................ 20,000 753,750
+ U.S. Robotics Corp. ...................................... 10,000 720,625
------------
3,123,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
TOBACCO (1.6%)
Philip Morris Cos., Inc. ............................. 15,000 $ 1,689,375
------------
TOTAL COMMON STOCK
(Cost $83,528,229).............................................. 102,999,625
------------
SHORT TERM INVESTMENTS (3.0%)
- -----------------------------
Temporary Cash Investment Fund, Inc. ................. 1,601,620 1,601,620
Temporary Investment Fund, Inc. ...................... 1,601,620 1,601,620
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $3,203,240)............................................... 3,203,240
------------
TOTAL INVESTMENTS (100.0%)
(Cost $86,731,469) (a).......................................... $106,202,865
------------
</TABLE>
- -------
+ Non-Income Producing.
(a) At December 31, 1996, the cost for Federal income tax purposes was
$86,923,583. The excess of value over tax cost was $20,129,838, and the
excess of tax cost over value was $850,556.
The accompanying notes are an integral part of these financial statements.
B-38
<PAGE>
- --------------------------------------------------------------------------------
THE VALUE EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (85.5%)
- --------------------
AEROSPACE & DEFENSE (4.6%)
Lockheed Martin Corp. ................................. 45,000 $ 4,117,500
McDonnell Douglas Corp. ............................... 81,000 5,184,000
------------
9,301,500
------------
AIRLINES (2.1%)
+ AMR Corp. ............................................ 48,000 4,230,000
------------
AUTOMOTIVE PARTS - EQUIPMENT (3.0%)
+ LucasVarity PLC ADR................................... 158,520 6,023,760
------------
BROADCASTING (1.0%)
+ TCI Satellite Entertainment Inc Class A............... 12,000 119,250
+ Tele-Communications Inc. ............................. 150,000 1,959,375
------------
2,078,625
------------
CHEMICALS (3.9%)
Du Pont (E.I.) de Nemours & Co. ....................... 30,000 2,831,250
Hercules, Inc. ........................................ 50,000 2,162,500
Monsanto Co. .......................................... 77,000 2,993,375
------------
7,987,125
------------
CONGLOMERATES (2.0%)
General Electric Co. .................................. 42,000 4,152,750
------------
COSMETICS (1.4%)
Avon Products, Inc. ................................... 50,000 2,856,250
------------
DIVERSIFIED (3.0%)
Canadian Pacific Limited............................... 110,000 2,915,000
Tenneco, Inc. ......................................... 70,000 3,158,750
------------
6,073,750
------------
ENTERTAINMENT & LEISURE (2.0%)
Carnival Corp. Class A................................. 125,000 4,125,000
------------
ELECTRONIC SEMICONDUCTORS (1.5%)
+ Adaptec, Inc. ........................................ 78,000 3,124,875
------------
ELECTRONICS (1.4%)
+ Arrow Electronics, Inc. .............................. 53,000 2,835,500
------------
FINANCIAL SERVICES (13.1%)
Citicorp............................................... 70,000 7,210,000
Countrywide Credit Industries, Inc. ................... 210,000 6,011,250
Federal Home Loan Mortgage Corp. ...................... 55,000 6,056,875
Wells Fargo & Co. ..................................... 27,333 7,373,077
------------
26,651,202
------------
HOSPITAL MANAGEMENT (3.8%)
Columbia/HCA Healthcare Corp. ......................... 82,500 3,361,875
+ OrNda HealthCorp...................................... 10,000 292,500
+ Tenet Healthcare Corp. ............................... 190,000 4,156,250
------------
7,810,625
------------
INSURANCE (22.4%)
Ace, Limited........................................... 171,000 10,281,375
AFLAC, Inc. ........................................... 105,375 4,504,781
American International Group, Inc. .................... 33,500 3,626,375
Everest Re Holdings, Inc. ............................. 135,000 3,881,250
Exel Limited........................................... 227,600 8,620,350
General Re Corp. ...................................... 25,000 3,943,750
Mid Ocean Limited...................................... 83,000 4,357,500
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Progressive Corp. ..................................... 55,000 $ 3,705,625
Transamerica Corp. .................................... 33,000 2,607,000
------------
45,528,006
------------
MACHINERY - DIVERSIFIED (3.1%)
Caterpillar, Inc. ..................................... 83,000 6,245,750
------------
MANUFACTURING (0.9%)
AlliedSignal, Inc. .................................... 27,000 1,809,000
------------
MEDICAL SUPPLIES (2.9%)
Becton, Dickinson & Co. ............................... 134,000 5,812,250
------------
METALS (0.7%)
Freeport-McMoRan Copper & Gold, Inc. Class B........... 47,016 1,404,603
------------
OIL/GAS (2.1%)
El Paso Natural Gas.................................... 6,510 328,755
+ Triton Energy Limited................................. 62,000 3,007,000
Union Pacific Resources Group, Inc. ................... 28,796 842,283
------------
4,178,038
------------
PAPER & PAPER PRODUCTS (0.4%)
Champion International Corp. .......................... 20,000 865,000
------------
RESTAURANTS (1.5%)
McDonald's Corp. ...................................... 67,000 3,031,750
------------
RETAIL (3.3%)
May Department Stores Co. ............................. 144,000 6,732,000
------------
TELECOMMUNICATIONS (1.4%)
Sprint Corp. .......................................... 72,250 2,880,969
------------
TEXTILES (0.8%)
Shaw Industries, Inc. ................................. 140,000 1,645,000
------------
TOYS (1.6%)
Mattel, Inc. .......................................... 114,531 3,178,235
------------
TRANSPORT SERVICES (1.6%)
CSX Corp. ............................................. 30,000 1,267,500
Union Pacific Corp. ................................... 34,000 2,044,250
------------
3,311,750
------------
TOTAL COMMON STOCK
(Cost $120,302,726).............................................. 173,873,313
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- ------
<S> <C> <C> <C>
COMMERCIAL
PAPER
(9.6%)
- ----------
IBM Credit
Corp.
5.35%.... 01/08/97 $6,104 6,097,650
John Deere
Credit
Co.
5.48%.... 01/29/97 5,000 4,978,689
JP Morgan,
Inc.
5.36%.... 01/10/97 6,156 6,147,751
Prudential
Funding
5.37%.... 01/08/97 2,308 2,305,590
------------
TOTAL COMMERCIAL PAPER
(Cost $19,529,680)........ 19,529,680
------------
</TABLE>
B-39
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
SHORT TERM
INVESTMENTS
(4.9%)
- ------------
Temporary Cash
Investment
Fund, Inc. .... 5,016,502 $ 5,016,502
Temporary In-
vestment Fund,
Inc. .......... 5,021,357 5,021,357
------------
TOTAL SHORT TERM
INVESTMENTS
(Cost $10,037,859)........ 10,037,859
------------
TOTAL INVESTMENTS (100.0%)
(Cost $149,870,265) (a)... $203,440,852
------------
</TABLE>
- -------
+ Non-income producing.
(a) Also cost for Federal income tax purposes. At December 31, 1996, the excess
of value over tax cost was $54,230,586, the excess of tax cost over value
was $659,999.
The accompanying notes are an integral part of these financial statements.
B-40
<PAGE>
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCK (48.7%)
- --------------------
BUILDING MATERIALS (0.8%)
Schuller Corp. ........................................ 290,000 $ 3,081,250
------------
CHEMICALS (1.0%)
English China Clays PLC................................ 20,000 65,945
Great Lakes Chemical Corp. ............................ 82,500 3,856,875
+ Millennium Chemicals, Inc. ........................... 10,000 177,500
------------
4,100,320
------------
COMPUTERS (0.6%)
International Business Machines Corp. ................. 15,000 2,265,000
------------
DIVERSIFIED OPERATIONS (2.3%)
+ Chris-Craft Industries, Inc. ......................... 115,000 4,815,625
Corning, Inc. ......................................... 90,000 4,162,500
------------
8,978,125
------------
ELECTRIC UTILITIES (6.4%)
Centerior Energy Corp. ................................ 1,550,000 16,662,500
Entergy Corp. ......................................... 70,000 1,942,500
Ohio Edison Co. ....................................... 45,000 1,023,750
Public Service Co. Of New Mexico....................... 39,000 765,375
Unicom Corp. .......................................... 190,000 5,153,750
------------
25,547,875
------------
FINANCIAL SERVICES (3.3%)
American Express Co. .................................. 60,000 3,390,000
Federal National Mortgage Assoc. ...................... 70,000 2,607,500
Fund American Enterprises, Inc. ....................... 24,000 2,298,000
Student Loan Marketing Assoc. ......................... 50,000 4,656,250
------------
12,951,750
------------
FOOD/PROCESSING (0.2%)
McCormick & Co., Inc. ................................. 35,000 824,687
------------
HOLDINGS COMPANY DIVERSIFIED (3.3%)
Hanson PLC ADR......................................... 235,000 1,586,250
Loews Corp. ........................................... 115,000 10,838,750
Lonrho PLC............................................. 252,000 537,392
------------
12,962,392
------------
INSURANCE (1.9%)
Alexander & Alexander Services, Inc. .................. 40,000 695,000
Harleysville Group, Inc. .............................. 45,000 1,361,250
Unitrin, Inc. ......................................... 52,000 2,912,000
Willis Corroon Group PLC ADR........................... 120,000 1,380,000
Zurich Reinsurance Centre Holdings, Inc. .............. 39,100 1,221,875
------------
7,570,125
------------
LEASING COMPANIES (1.3%)
PHH Corp. ............................................. 75,000 3,225,000
Ryder System, Inc. .................................... 70,000 1,968,750
------------
5,193,750
------------
METALS & STEEL (0.7%)
Allegheny Teledyne, Inc. .............................. 120,000 2,760,000
------------
MINING (2.9%)
+ Hecla Mining Co. ..................................... 55,000 309,375
Homestake Mining Co. .................................. 155,000 2,208,750
Newmont Mining Corp. .................................. 121,000 5,414,750
Prime Resources Group, Inc. ........................... 37,000 262,104
Santa Fe Pacific Gold Corp. ........................... 210,000 3,228,750
------------
11,423,729
------------
MULTIMEDIA (0.6%)
Meredith Corp. ........................................ 47,000 2,479,250
------------
OFFICE SUPPLIES (0.1%)
Cross (A.T.) Co., Class A.............................. 38,000 441,750
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
OIL/GAS (9.5%)
Amerada Hess Corp. ....................................... 160,000 $ 9,260,000
Atlantic Richfield Co. ................................... 35,000 4,637,500
Kerr-McGee Corp. ......................................... 14,000 1,008,000
Mitchell Energy & Development Corp.
Class B.................................................. 105,000 2,323,125
Murphy Oil Corp. ......................................... 126,000 7,008,750
+ Oryx Energy Co. ......................................... 55,000 1,361,250
Petro-Canada.............................................. 20,000 280,000
Sun Company, Inc. ........................................ 90,000 2,193,750
Texaco, Inc. ............................................. 65,000 6,378,125
Union Texas Petroleum Holdings, Inc. ..................... 142,000 3,177,250
------------
37,627,750
------------
PAPER & FOREST PRODUCTS (1.3%)
International Paper Co. .................................. 28,000 1,130,500
Weyehaeuser Co. .......................................... 85,000 4,026,875
------------
5,157,375
------------
PHARMACEUTICALS (3.7%)
+ Genentech, Inc. ......................................... 230,000 12,333,750
+ Novartis................................................. 1,067 1,221,853
Schering-Plough Corp. .................................... 20,000 1,295,000
------------
14,850,603
------------
PHOTO EQUIPMENT (0.9%)
Polaroid Corp............................................. 85,000 3,697,500
------------
PUBLISHING (5.2%)
New York Times Co., Class A............................... 285,000 10,830,000
Readers Digest Assoc., Inc., Class B...................... 50,300 1,823,375
Times Mirror Co., Class A................................. 23,500 1,169,125
Washington Post Co., Class B.............................. 21,000 7,037,625
------------
20,860,125
------------
RETAIL (1.2%)
+ Hills Stores Co. ........................................ 67,000 402,000
+ Petrie Stores Corp. ..................................... 995,000 2,674,063
+ Toys "R" Us, Inc. ....................................... 20,500 615,000
Wal-mart Stores, Inc. .................................... 45,000 1,029,375
------------
4,720,438
------------
TOBACCO (1.0%)
+ Imperial Tobacco Group PLC............................... 8,750 111,569
Philip Morris Companies, Inc. ............................ 35,000 3,941,875
------------
4,053,444
------------
TRANSPORTATION - MISCELLANEOUS (0.5%)
Overseas Shipholding Group, Inc. ......................... 110,000 1,870,000
------------
TOTAL COMMON STOCK
(Cost $149,523,684)............................................... 193,417,238
------------
PREFERRED STOCK (4.4%)
- ----------------------
Cleveland Electric Illum. Series L 7.00%.................. 34,550 2,815,825
Cleveland Electric Illum. Series R 8.80%.................. 2,550 2,542,044
Cleveland Electric Illum. Series S 9.00%.................. 3,000 3,020,640
Entergy Gulf States Utilities, Inc.
Series B 7.20%........................................... 15,853 776,797
International Paper Co., Convertible 5.25%................ 10,000 455,000
Kemper Co. Series E 5.75%................................. 100,000 5,200,000
Microsoft Corp. Series A 2.75%............................ 20,000 1,601,250
Niagara Mohawk Power Corp.
Series A 6.50%........................................... 24,000 426,000
Niagara Mohawk Power Corp.
Series B 7.50%........................................... 7,000 138,250
Niagara Mohawk Power Corp.
Series C 7.20%........................................... 29,500 560,500
------------
TOTAL PREFERRED STOCK
(Cost $15,900,525)................................................ 17,536,306
------------
</TABLE>
B-41
<PAGE>
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND, CONT'D
<TABLE>
<CAPTION>
NUMBER OF
CONTRACTS VALUE
--------- ------------
<S> <C> <C>
PUT OPTIONS (0.5%)
- ------------------
+ Allegheny Teledyne $20, January 18, 1997 45 $ 563
+Allegheny Teledyne $22.50,
January 18, 1997..................................... 75 2,813
+ Allegheny Teledyne $25, April 19, 1997................ 45 11,250
+ Amerada Hess $60, May 17, 1997........................ 100 40,625
+ Automatic Data $40, February 22, 1997................. 80 4,000
+ Automatic Data $45, February 22, 1997................. 230 61,812
+ Automatic Data $50, February 22, 1997................. 40 28,500
+ HFS $60, April 19, 1997............................... 100 65,625
+ HFS $60, July 19, 1997................................ 200 197,500
+ HFS $85, April 19, 1997............................... 100 253,750
+ Home Depot $60, May 17, 1997.......................... 100 100,000
+ IBM $110, January 18, 1997............................ 50 312
+ IBM $140, April 19, 1997.............................. 30 15,375
+ IBM $155, July 19, 1997............................... 50 68,125
+ IBM $160, July 19, 1997............................... 50 81,250
+ IBM $170, July 19, 1997............................... 50 115,000
+ Microsoft $85, July 19, 1997.......................... 100 81,250
+ Philip Morris $105, March 22, 1997.................... 32 7,200
+ Philip Morris $115, March 22, 1997.................... 55 28,875
+ Schering Plough $70, May 17, 1997..................... 100 107,500
+ Schering Plough $70, May 17, 1997..................... 100 65,000
+ Silicon Graphics $30, February 22, 1997............... 100 46,875
+ Texaco $95, April 19, 1997............................ 35 10,719
+ Times Mirror $50, March 22, 1997...................... 65 14,219
+ Toys "R' Us $35, January 18, 1997..................... 35 17,062
+ Toys "R' Us $35, March 22, 1997....................... 60 30,750
+ Toys "R' Us $40, June 21, 1997........................ 200 201,250
+ Wal-Mart $27.5, March 22, 1997........................ 260 118,625
+ Wal-Mart $30, March 22, 1997.......................... 190 135,375
------------
TOTAL PUT OPTIONS
(Cost $1,955,699)................................................ 1,911,200
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000)
-------- ------ -------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (4.5%)
- --------------------------------
U.S. Treasury Notes
5.50%................................... 02/28/99 N/A $10,000 9,915,600
5.75%................................... 10/31/97 N/A 2,500 2,503,525
6.125%.................................. 07/31/00 N/A 1,250 1,250,000
6.75%................................... 05/31/99 N/A 2,000 2,034,060
7.375%.................................. 11/15/97 N/A 2,000 2,028,740
------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $17,680,781)............................................... 17,731,925
------------
AGENCY OBLIGATIONS (1.8%)
- -------------------------
Tennessee Valley Authority 5.98%
(Cost $7,025,930)....................... 04/01/36 AAA 7,000 7,096,250
------------
MEDIUM TERM NOTE (0.4%)
- -----------------------
Federal National Mortgage Assoc. 5.37%
(Cost $1,576,000)...................... 02/07/01 NR 1,600 1,546,320
------------
COMMERCIAL PAPER (13.6%)
- ------------------------
Abbott Laboratories
6.00%................................... 01/07/97 A-1+ 10,000 9,990,000
Assett Securization Coop. 5.40%.......... 02/25/97 A-1+ 1,723 1,708,013
Corporate Asset Funding Co. 5.75%........ 01/27/97 AAA 2,600 2,589,203
Delaware Funding Corp.
5.55%................................... 01/15/97 A-1+ 1,100 1,097,626
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ ------------
<S> <C> <C> <C> <C>
Dillard Investment Co.
5.52%..................................... 01/10/97 A-1 $ 644 $ 643,111
6.75%..................................... 01/02/97 A-1 4,600 4,599,138
Dow Jones and Co., Inc.
5.32%..................................... 02/14/97 A-1+ 10,500 10,428,800
Heinz (H.J.) Co. 5.35%..................... 01/23/97 A-1 2,300 2,292,480
Island Finance - Puerto Rico 5.55%......... 02/07/97 A-1+ 8,796 8,745,826
Mobil Australia Finance
5.40%..................................... 01/02/97 A-1+ 7,000 6,998,950
Raytheon Co.
5.50%..................................... 01/13/97 A-2 5,056 5,046,730
------------
TOTAL COMMERCIAL PAPER
(Cost $54,143,576)................................................ 54,139,877
------------
CONVERTIBLE BONDS (26.0%)
- -------------------------
Alza Corp.
5.0261%++................................. 07/14/14 BBB- 4,500 1,861,875
Automatic Data Processing, Inc.
5.1212%++................................. 02/20/12 AA 30,250 17,254,902
Cellular Communications
6.7496%++................................. 07/27/99 BBB 5,950 4,968,250
CHUBB Capital Euro Bond 6.00%.............. 05/15/98 AA 2,400 2,965,824
Comcast Corp. 3.375%....................... 09/09/05 BB- 5,000 4,701,400
Cooper Industries, Inc.
7.05%..................................... 01/01/15 BBB+ 594 635,092
Ensearch Corp. 6.375%...................... 04/01/02 BBB- 3,800 3,743,000
Grand Metropolitan PLC Euro-Bond
6.50%..................................... 01/31/00 A+ 3,000 3,559,770
Grand Metropolitan
PLC 6.50%................................. 01/31/00 A+ 1,300 1,542,567
Home Depot, Inc.
3.25%..................................... 10/01/01 A+ 1,500 1,465,200
Homestake Mining Co.
5.50%..................................... 06/23/00 NR 4,900 4,740,750
Lonhro Finance Conv. Euro Bond 6.00%....... 02/27/04 BB 1,250 1,929,747
McKesson Corp.
4.50%..................................... 03/01/04 A- 1,500 1,315,125
Office Depot, Inc.
4.2615%++................................. 11/01/08 BB- 2,800 1,592,248
4.6260%++................................. 12/11/07 BB- 1,200 718,464
Outboard Marine Corp.
7.00%..................................... 07/01/02 B+ 1,850 1,817,625
Peninsular & Oriental
7.25%..................................... 05/19/03 NR 1,000 1,764,242
Potomac Electric Power Co. 5.00%........... 09/01/02 A- 2,100 1,953,000
Price Co. Subordinated Debenture 5.50%..... 02/28/12 BBB 1,200 1,260,000
Rouse Co. Euro Bond
5.75%..................................... 07/23/02 BBB- 6,700 7,227,625
Sandoz Capital
2.00%..................................... 10/06/02 AAA 7,000 7,525,000
Silicon Graphics
3.8396%++................................. 11/02/13 BB+ 4,500 2,385,000
Time Warner, Inc.
6.2910%++................................. 12/17/12 BBB- 14,000 5,326,440
Turner Broadcasting
7.1717%++................................. 02/13/07 BB+ 9,500 4,666,875
U.S. West, Inc.
7.1386%++................................. 06/25/11 BBB 16,000 5,833,600
UBS Finance 2.00%.......................... 12/15/00 AAA 300 279,750
</TABLE>
B-42
<PAGE>
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND, CONT'D
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- ------------
<S> <C> <C> <C> <C>
USF&G Corp.
4.3663%++................................ 03/03/09 BBB- $8,500 $ 5,724,920
WMX Technologies
2.00%.................................... 01/24/05 A 4,700 4,399,529
------------
TOTAL CONVERTIBLE BONDS
(Cost $96,966,537)........................................ 103,157,820
------------
<CAPTION>
SHARES
-------
<S> <C> <C>
SHORT TERM INVESTMENTS (0.1%)
- -----------------------------
Temporary Investment Fund, Inc.
(Cost $546,528).......................................... 546,528 546,528
------------
TOTAL INVESTMENTS (100.00%)
(Cost $345,319,260) (a)........................................... $397,083,464
============
</TABLE>
- -------
+ Non-income producing.
++ Effective Yield.
(a) At December 31, 1996, the cost for Federal income tax purposes was
$345,325,238. The excess of value over tax cost was $58,623,388, and the
excess of tax cost over value was $6,865,162.
The Standard & Poors corporation ratings are the most recent ratings
available at December 31, 1996. These ratings have not been verified by the
Independent Accountants and, therefore, are not covered by the Report of
Independent Accountants.
The accompanying notes are an integral part of these financial statements.
B-43
<PAGE>
- --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (88.6%)
- --------------------
AUSTRALIA (0.8%)
Broken Hill Proprietary Co.
Limited...................... 60,948 $ 868,816
------------
BELGIUM (0.7%)
+ Barco N.V.................... 4,500 778,778
------------
BRAZIL (0.5%)
Companhia Cervejaria Brahma
(ADR)........................ 47,000 513,851
------------
FINLAND (0.6%)
Cultor Oy, Series II.......... 12,000 619,473
------------
FRANCE (8.5%)
AXA SA........................ 22,500 1,433,315
Carrefour Supermarche SA...... 2,100 1,368,569
Compagnie de Suez SA.......... 18,000 766,519
+ Dassault Systemes SA......... 21,000 970,079
Grand Optical - Photoservice.. 3,750 608,797
LVMH (Moet-Hennessy Louis
Vuitton)..................... 4,100 1,146,825
Societe Bic SA................ 7,500 1,126,383
Total SA-B.................... 12,185 992,620
Valeo SA...................... 8,063 498,072
------------
8,911,179
------------
GERMANY (7.0%)
Adidas AG..................... 11,000 951,854
Allianz AG Holding............ 350 630,774
Bayer AG...................... 35,000 1,422,089
Bayerische Motoren Werke (BMW)
AG........................... 1,000 690,956
CKAG Colonia Konzern AG....... 4,400 367,287
+ Frensenius Medical Care AG
(ADR)........................ 7,000 181,563
+ Fresenius Medical Care AG
(ADR)........................ 17,000 478,125
Gehe AG....................... 10,800 694,587
SGL Carbon AG................. 9,700 1,224,964
VEBA AG....................... 14,000 806,116
------------
7,448,315
------------
HONG KONG (2.6%)
Cheung Kong Holdings Limited.. 120,000 1,066,649
Dah Sing Financial Group...... 195,800 794,896
Sun Hung Kai Properties
Limited...................... 70,000 857,521
------------
2,719,066
------------
IRELAND (3.7%)
Allied Irish Banks PLC........ 139,076 932,621
CRH PLC....................... 91,022 940,903
+ Elan Corp. PLC (ADR)......... 31,000 1,030,750
Greencore Group PLC........... 150,196 951,878
------------
3,856,152
------------
ITALY (0.5%)
Danieli & Co. ................ 132,000 550,000
------------
JAPAN (21.9%)
Bridgestone Corp. ............ 85,000 1,616,948
Canon, Inc. .................. 40,000 885,430
Eisai Co. Limited............. 80,000 1,577,173
Ezaki Glico Co. Limited....... 75,000 648,508
Fuji Photo Film Co. Limited... 40,000 1,321,228
Hitachi Maxell Limited........ 25,000 553,394
Ito-Yokado Co. Limited........ 12,000 522,957
JUSCO Co. Limited............. 48,000 1,631,128
Komatsu Limited............... 80,000 657,155
Kyocera Corp. ................ 11,000 686,727
Mitsubishi Electric Corp. .... 120,000 715,953
Mitsubishi Heavy Industries
Limited...................... 250,000 1,988,759
Mitsui & Co. Limited.......... 125,000 1,015,997
Murata Manufacturing Co.
Limited...................... 18,000 599,222
Nikko Securities Co. Limited.. 60,000 448,249
Nippon Steel Corp. ........... 320,000 946,304
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
NTT Data Corp. ....... 18,000 $ 527,626
Omron Corp. .......... 66,000 1,244,099
Rohm Co. Limited...... 17,000 1,117,164
SMC Corp. ............ 10,000 673,584
Taisho Pharmaceutical
Co. Limited.......... 69,000 1,628,794
Tokyo Broadcasting
System, Inc. ........ 30,000 459,144
Yamato Transport Co.
Limited.............. 80,000 830,091
Yasuda Fire & Marine
Insurance Co.
Limited.............. 145,000 754,777
------------
23,050,411
------------
MALAYSIA (2.3%)
Malayan Banking
Berhad............... 80,000 887,023
Sime Darby Berhad..... 132,000 520,097
Telekom Malaysia
Berhad............... 60,000 534,590
United Engineers
(Malaysia) Limited... 50,000 451,432
------------
2,393,142
------------
NETHERLANDS (6.4%)
Aegon N.V. (ADR)...... 9,813 620,672
Aegon N.V. ........... 10,137 647,080
Elsevier N.V. ........ 70,000 1,185,065
Hagemeyer N.V. ....... 15,000 1,201,009
Oce-Van Der Grinten
N.V. ................ 12,057 1,311,394
Vendex International
N.V. ................ 42,000 1,799,513
------------
6,764,733
------------
NORWAY (0.5%)
+ Smedvig - ASA (ADR)
B.................... 25,000 503,125
------------
PHILIPPINES (0.5%)
Manila Electric Co. B. 68,250 557,937
------------
SINGAPORE (1.9%)
City Developments
Limited.............. 66,000 594,595
Cycle & Carriage
Limited.............. 67,000 819,176
Keppel Corp. Limited.. 70,000 545,546
------------
1,959,317
------------
SPAIN (1.0%)
Banco Intercontinental
Espanol SA........... 2,600 404,342
Banco Popular Espanol
SA................... 3,500 689,509
------------
1,093,851
------------
SWEDEN (5.8%)
Assa Abloy AB B....... 60,000 1,095,422
Astra AB B............ 39,300 1,903,694
Autoliv AB............ 12,500 550,288
Hennes & Mauritz AB B. 4,000 555,956
Kinnevik AB B......... 24,000 664,321
OM Gruppen AB......... 17,000 513,111
Telefonaktiebolaget LM
Ericsson B........... 25,000 776,660
------------
6,059,452
------------
SWITZERLAND (6.2%)
Nestle SA............. 850 912,688
+ Pharma Vision 2000
AG................... 3,050 1,367,406
Roche Holding AG-
Genusshein........... 400 3,112,904
Union Bank of
Switzerland B........ 1,352 1,185,008
------------
6,578,006
------------
THAILAND (0.3%)
Bangkok Bank Public
Co. Limited
(Foreign)............ 30,000 290,002
------------
UNITED KINGDOM (16.9%)
British Petroleum Co.
PLC (ADR)............ 7,000 989,625
Dixons Group PLC...... 185,000 1,719,066
EMI Group PLC......... 32,000 756,398
General Accident PLC.. 136,534 1,792,561
GKN PLC............... 130,267 2,233,518
HSBC Holdings PLC..... 52,554 1,175,628
</TABLE>
B-44
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
Mirror Group PLC.......................................... 170,000 $ 627,505
Misys PLC................................................. 32,000 611,969
Powerscreen International PLC............................. 95,000 919,376
Provident Financial PLC................................... 91,739 789,607
Rentokil Initial PLC...................................... 82,000 616,594
Reuters Holdings PLC...................................... 80,000 1,029,769
Shell Transport & Trading Co. PLC......................... 92,000 1,593,950
Siebe PLC................................................. 93,643 1,735,496
Smiths Industries PLC..................................... 90,000 1,234,798
------------
17,825,860
------------
TOTAL COMMON STOCK
(Cost $76,803,475)................................ 93,341,466
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ---------- ------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (2.8%)
- ----------------------------------
U.S. Treasury Bills
4.87%................................. 03/06/97 N/A $ 1,000 991,026
4.89%................................. 03/06/97 N/A 1,000 991,026
4.96%................................. 03/27/97 N/A 1,000 988,223
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $2,971,036)................................................. 2,970,275
------------
<CAPTION>
SHARES
----------
<S> <C> <C>
WARRANTS (0.7%)
- ---------------
+ Bank Vision 01/15/97.................................. 15,000 28,021
+ Roche Holding 12/18/98................................ 110,000 706,867
------------
TOTAL WARRANTS
(Cost $1,040,021)................................................. 734,888
------------
SHORT - TERM INVESTMENTS (7.9%)
- -------------------------------
Temporary Cash Investment Fund, Inc.................... 4,123,862 4,123,862
Temporary Investment Fund, Inc......................... 4,123,206 4,123,206
------------
TOTAL SHORT - TERM INVESTMENTS
(Cost $8,247,068)................................................. 8,247,068
------------
TOTAL INVESTMENTS (100.0%)
(Cost $89,061,600) (a)............................................ $105,293,697
------------
</TABLE>
- -------
+ Non-income Producing.
(a) Also cost for Federal Income tax purposes. At December 31, 1996, the excess
of value over tax cost was $18,341,684 and the excess of tax cost over
value was $2,109,587.
ADR - American Depository Receipt
The accompanying notes are an integral part of these financial statements.
B-45
<PAGE>
- --------------------------------------------------------------------------------
THE SMALL CAP FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
COMMON STOCK (86.8%)
- --------------------
ADVERTISING (2.4%)
+ Katz Media Group, Inc. .... 33,500 $ 376,875
-----------
AUTOMOTIVE PARTS (2.7%)
Borg - Warner Automotive,
Inc. ...................... 8,400 323,400
+ Jason, Inc. ............... 16,800 109,200
-----------
432,600
-----------
BROADCASTING COMPANY (0.6%)
+ American Radio Systems
Corp. ..................... 3,700 100,825
-----------
BUILDING MATERIALS (3.2%)
Carlisle Companies, Inc. ... 2,100 127,050
+ Dal-Tile International,
Inc. ...................... 9,600 195,600
+ Falcon Building Products,
Inc. ...................... 13,100 193,225
-----------
515,875
-----------
CHEMICALS (1.4%)
+ McWhorter Technologies,
Inc. ...................... 6,000 137,250
+ Sybron Chemicals, Inc. .... 5,400 86,400
-----------
223,650
-----------
COMPUTER SERVICES & SOFTWARE
(7.0%)
+ BancTec, Inc. ............. 26,600 548,625
+ Exabyte Corp. ............. 14,700 197,531
+ Wang Laboratories, Inc. ... 18,200 370,825
-----------
1,116,981
-----------
ELECTRICAL EQUIPMENT (0.4%)
AVX Corp. .................. 2,700 58,050
-----------
ELECTRONICS (8.9%)
+ Arrow Electronics, Inc. ... 4,800 256,800
+ Channell Commercial Corp. . 5,400 68,175
EG&G, Inc. ................. 27,500 553,438
+ Oak Industries, Inc. ...... 13,860 318,780
+ Tracor Inc. ............... 10,500 224,438
-----------
1,421,631
-----------
ELECTRONICS - SEMICONDUCTORS
(4.1%)
+ Exar Corp. ................ 21,500 338,625
+ Marshall Industries........ 10,400 318,500
-----------
657,125
-----------
ENGINEERED INDUSTRIAL
PRODUCERS (1.4%)
Crane Co. .................. 7,800 226,200
-----------
FINANCIAL SERVICES (1.5%)
First Financial Caribbean
Corp. ..................... 3,200 90,000
First Financial Corp. ...... 6,125 150,063
-----------
240,063
-----------
FOODS (0.4%)
+ Sylvan, Inc. .............. 4,900 63,394
-----------
HOUSEHOLD PRODUCTS (1.7%)
Armor All Products Corp. ... 8,100 154,406
Libbey, Inc. ............... 4,200 117,075
-----------
271,481
-----------
INSURANCE (15.8%)
Ace, Limited................ 4,900 294,612
+ Capsure Holdings Corp. .... 19,300 219,537
+ Delphi Financial Group,
Inc. ...................... 11,400 336,300
E.W. Blanch Holdings, Inc. . 24,700 497,088
Everest Re Holdings, Inc. .. 6,400 184,000
+ Gryphon Holdings........... 8,400 118,650
Horace Mann Educators
Corp. ..................... 8,100 327,037
Protective Life Corp. ...... 3,500 139,563
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
United Wisconsin Services,
Inc. ......................... 9,200 $ 241,500
W.R. Berkley Corp. ............ 3,200 163,400
-----------
2,521,687
-----------
MACHINE TOOLS (0.5%)
Greenfield Industries, Inc. ... 2,600 79,462
-----------
MACHINERY (DIVERSIFIED) (3.9%)
+ Baldwin Technology Co., Inc. . 70,100 175,250
Briggs & Stratton Corp. ....... 2,400 105,600
United Dominion Industries,
Limited....................... 14,900 350,150
-----------
631,000
-----------
MANUFACTURED HOUSING (0.7%)
McGrath Rentcorp............... 4,500 114,188
-----------
MANUFACTURING (1.2%)
+ Alltrista Corp. .............. 7,600 192,850
-----------
MEDICAL - HOSPITAL MANAGEMENT &
SERVICES (5.4%)
+ Magellan Health Services,
Inc. ......................... 34,100 762,987
+ Summit Care Corp. ............ 6,300 101,194
-----------
864,181
-----------
MEDICAL SUPPLIES (4.4%)
Dentsply International, Inc. .. 1,200 57,075
+ SpaceLabs Medical, Inc. ...... 30,800 642,950
-----------
700,025
-----------
METAL FABRICATE/HARDWARE (1.1%)
Easco, Inc. ................... 24,400 181,475
-----------
OFFICE EQUIPMENT & SERVICES
(2.2%)
+ Nu-Kote Holdings, Inc. ....... 34,900 357,725
-----------
OIL/GAS (4.7%)
+ Belden & Blake Corp. ......... 2,400 61,500
+ Nuevo Energy Co. ............. 5,200 270,400
Petroleum Heat & Power Co.,
Inc. ......................... 15,000 93,750
St. Mary Land & Exploration
Co. .......................... 5,000 125,000
+ Seagull Energy Corp. ......... 3,696 81,312
+ Triton Energy Limited......... 2,300 111,550
-----------
743,512
-----------
PACKAGING & PAPER PRODUCTS
(2.9%)
+ Repap Enterprises, Inc........ 71,300 199,417
+ Shorewood Packaging Corp. .... 13,000 255,938
-----------
455,355
-----------
PUBLISHING (1.5%)
+ International Imaging
Materials, Inc. .............. 10,700 238,075
-----------
REAL ESTATE (1.9%)
Security Capital Industrial
Trust......................... 5,400 115,425
Security Capital Pacific Trust. 8,300 189,863
-----------
305,288
-----------
RETAIL (0.7%)
+ Maxim Group, Inc.............. 6,600 115,088
-----------
TELECOMMUNICATIONS (0.7%)
ECI Telecommunications Limited
Designs....................... 5,400 114,412
-----------
TEXTILES (1.7%)
+ WestPoint Stevens, Inc. ...... 8,900 264,774
-----------
TRANSPORTATION (1.8%)
Interpool, Inc. ............... 6,000 140,250
+ MTL, Inc. .................... 7,500 153,750
-----------
294,000
-----------
TOTAL COMMON STOCK
(Cost $12,581,075)............. 13,877,847
-----------
</TABLE>
B-46
<PAGE>
- --------------------------------------------------------------------------------
THE SMALL CAP FUND, CONT'D.
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- -------- -----------
<S> <C> <C> <C>
AGENCY
OBLIGATIONS
(9.8%)
- ------------
Federal Home
Loan Bank
5.21%. 02/14/97 $ 100 $ 99,353
Federal Home
Loan Mortgage
Corp.
5.23%. 01/02/97 100 99,985
5.31%. 01/23/97 200 199,351
Federal
National
Mortgage
Association
5.24%. 02/03/97 200 199,039
5.34%. 02/03/97 100 99,511
5.40%. 01/07/97 100 99,910
Tennessee
Valley
Authority
5.35%. 03/11/97 785 776,834
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $1,574,110)....... 1,573,983
-----------
<CAPTION>
SHARES
--------
<S> <C> <C>
SHORT-TERM
INVESTMENTS
(3.4%)
- ------------
Temporary
Investment
Fund Class B
(Cost
$544,376)..... 544,376 544,376
-----------
TOTAL
INVESTMENTS
(100.0%)
(Cost
$14,699,561)... $15,996,206
-----------
</TABLE>
- -------
+ Non-income producing.
(a) At December 31, 1996, the cost for Federal income tax purposes was
$14,700,712. The excess of value over tax cost was $1,733,527, and the
excess of tax cost over value was $438,033.
The accompanying notes are an integral part of these financial statements.
B-47
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH EQUITY
MARKET FUND BOND FUND BOND FUND FUND
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value
(1).................... $34,369,651 $37,251,725 $43,366,750 $106,202,865
Cash.................... 1,861 1,951 606 100,809
Interest, dividends and
reclaims receivable.... 298,287 407,510 847,536 81,388
Receivable for invest-
ment securities sold... -- -- -- 1,145,650
Receivable for capital
stock sold............. -- 11,290 60,344 43,251
Net unrealized
appreciation on forward
foreign currency
contracts & foreign
currency related items. -- -- -- --
Other assets............ 700 767 766 1,948
----------- ----------- ----------- ------------
Total Assets........... 34,670,499 37,673,243 44,276,002 107,575,911
----------- ----------- ----------- ------------
LIABILITIES:
Payable for investment
securities purchased... -- -- -- 1,408,940
Payable for capital
stock redeemed......... -- 19,980 186,054 15,107
Dividends payable....... 137,681 -- -- --
Payable to the invest-
ment advisor........... 13,590 18,613 18,442 45,187
Payable to The Penn Mu-
tual Life Insurance
Co. ................... 12,106 14,368 15,947 39,935
Other liabilities....... 6,503 8,941 14,000 27,282
----------- ----------- ----------- ------------
Total Liabilities...... 169,880 61,902 234,443 1,536,451
----------- ----------- ----------- ------------
NET ASSETS.............. $34,500,619 $37,611,341 $44,041,559 $106,039,460
----------- ----------- ----------- ------------
Shares of $.10 par value
capital stock issued
and outstanding........ 34,502,151 3,760,294 4,941,766 4,942,020
NET ASSET VALUE, OFFER-
ING AND REDEMPTION
PRICE PER SHARE........ $ 1.00 $ 10.00 $ 8.91 $ 21.46
NET ASSETS CONSIST OF:
Capital paid in........ $34,502,151 $37,930,673 $46,179,999 $ 86,760,178
Distribution in excess
of net investment in-
come.................. -- -- -- --
Accumulated net
realized gain (loss)
on investment
transactions and
foreign exchange...... (1,532) (880,365) (4,539,890) (192,114)
Net unrealized
appreciation in value
of investments,
futures contracts and
foreign currency
related items......... -- 561,033 2,401,450 19,471,396
----------- ----------- ----------- ------------
TOTAL NET ASSETS....... $34,500,619 $37,611,341 $44,041,559 $106,039,460
----------- ----------- ----------- ------------
(1) Investments at cost.. $34,369,651 $36,690,692 $40,965,300 $ 86,731,469
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
B-48
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL
VALUE EQUITY MANAGED INTERNATIONAL CAPITALIZATION
FUND FUND EQUITY FUND FUND
- ------------ ------------ ------------- --------------
<S> <C> <C> <C>
$203,440,852 $397,083,464 $105,293,697 $15,996,206
-- -- -- --
251,678 1,647,480 217,681 8,854
-- 124,071 680,985 179,651
267,888 1,274,375 261,515 --
-- 1,153 263,885 --
3,633 7,313 2,034 253
- ------------ ------------ ------------ -----------
203,964,051 400,137,856 106,719,797 16,184,964
- ------------ ------------ ------------ -----------
2,534,755 923,733 1,830,033 33,543
573,370 303,711 334,646 723
-- -- -- --
83,763 166,472 64,730 6,474
71,578 143,323 36,205 5,340
26,692 56,478 36,595 4,852
- ------------ ------------ ------------ -----------
3,290,158 1,593,717 2,302,209 50,932
- ------------ ------------ ------------ -----------
$200,673,893 $398,544,139 $104,417,588 $16,134,032
- ------------ ------------ ------------ -----------
10,387,893 21,265,896 6,688,564 1,287,316
$ 19.32 $ 18.74 $ 15.61 $ 12.53
$147,103,306 $346,784,760 $ 88,223,307 $14,838,538
-- -- (359,289) --
-- (5,978) 64,993 (1,151)
53,570,587 51,765,357 16,488,577 1,296,645
- ------------ ------------ ------------ -----------
$200,673,893 $398,544,139 $104,417,588 $16,134,032
- ------------ ------------ ------------ -----------
$149,870,265 $345,319,260 $ 89,061,600 $14,699,561
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
B-49
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH
MARKET FUND BOND FUND BOND FUND EQUITY FUND
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................... $ -- $ 51,203 $ 33,479 $ 1,069,865
Interest..................... 1,685,899 2,607,110 3,490,874 202,281
Foreign tax withheld......... -- -- -- (680)
---------- ---------- ---------- -----------
Total investment income..... 1,685,899 2,658,313 3,524,353 1,271,466
---------- ---------- ---------- -----------
EXPENSES:
Investment advisory fees..... 122,620 180,125 196,230 504,809
Administration fees.......... 45,111 58,663 58,869 149,014
Accounting fees.............. 22,555 29,335 29,453 74,103
Custodian fees and expenses.. 13,169 12,433 17,287 27,560
Other expenses............... 17,959 24,107 28,075 50,538
---------- ---------- ---------- -----------
Total expenses.............. 221,414 304,663 329,914 806,024
Less: Expense waivers....... (2,778) (4,132) -- (10,173)
---------- ---------- ---------- -----------
Net expenses................ 218,636 300,531 329,914 795,851
---------- ---------- ---------- -----------
NET INVESTMENT INCOME......... 1,467,263 2,357,782 3,194,439 475,615
---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on
investment transactions..... -- (117,033) (499,838) 10,366,718
Net realized foreign exchange
gain (loss)................. -- -- -- --
Change in net unrealized ap-
preciation (depreciation) of
investments and foreign cur-
rency related items......... -- (692,970) 2,501,662 7,073,178
---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS... 0 (810,003) 2,001,824 17,439,896
---------- ---------- ---------- -----------
NET INCREASE IN NET ASSETS RE-
SULTING FROM OPERATIONS...... $1,467,263 $1,547,779 $5,196,263 $17,915,511
---------- ---------- ---------- -----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
B-50
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL
VALUE MANAGED INTERNATIONAL CAPITALIZATION
EQUITY FUND FUND EQUITY FUND FUND
- ----------- -------- ------------- --------------
<S> <C> <C> <C>
$ 2,065,845 $ 7,484,229 $ 1,307,584 $ 113,544
1,385,703 7,932,728 378,764 75,838
-- (22,877) (107,833) (500)
- ----------- ----------- ----------- ----------
3,451,548 15,394,080 1,578,515 188,882
- ----------- ----------- ----------- ----------
800,404 1,645,769 647,302 51,982
240,121 493,731 129,460 15,135
105,040 182,975 73,307 27,268
28,904 76,836 109,665 7,655
67,052 144,318 52,418 7,371
- ----------- ----------- ----------- ----------
1,241,521 2,543,629 1,012,152 109,411
-- -- (1,262) (7,964)
- ----------- ----------- ----------- ----------
1,241,521 2,543,629 1,010,890 101,447
- ----------- ----------- ----------- ----------
2,210,027 12,850,451 567,625 87,435
- ----------- ----------- ----------- ----------
8,252,470 16,818,384 5,713,489 588,102
-- (2,411) 3,145,612 --
25,690,221 21,020,920 4,322,244 1,130,459
- ----------- ----------- ----------- ----------
33,942,691 37,836,893 13,181,345 1,718,561
- ----------- ----------- ----------- ----------
$36,152,718 $50,687,344 $13,748,970 $1,805,996
- ----------- ----------- ----------- ----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
B-51
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND QUALITY BOND FUND
-------------------------- ---------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/96 12/31/95
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS
Net investment income.. $ 1,467,263 $ 1,042,271 $ 2,357,782 $ 2,141,403
Net realized gain
(loss) on investment
transactions.......... -- (416) (117,033) 2,350,516
Net realized foreign
exchange loss......... -- -- -- --
Net change in
unrealized
appreciation
(depreciation) of
investments and
foreign currency
related items......... -- -- (692,970) 1,752,675
------------ ------------ ------------- ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS........... 1,467,263 1,041,855 1,547,779 6,244,594
------------ ------------ ------------- ------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income.. (1,467,263) (1,042,271) (2,342,476) (2,141,403)
Net realized capital
gains................. -- -- -- --
In excess of net in-
vestment income....... -- -- -- (28,700)
------------ ------------ ------------- ------------
TOTAL DISTRIBUTIONS... (1,467,263) (1,042,271) (2,342,476) (2,170,103)
------------ ------------ ------------- ------------
CAPITAL SHARE TRANSAC-
TIONS:
Net increase in net as-
sets from capital
share transactions.... 9,775,026 8,194,917 357,633 2,636,284
------------ ------------ ------------- ------------
TOTAL INCREASE (DE-
CREASE) IN NET AS-
SETS................. 9,775,026 8,194,501 (437,064) 6,710,775
Net Assets, beginning of
year................... 24,725,593 16,531,092 38,048,405 31,337,630
------------ ------------ ------------- ------------
NET ASSETS, END OF YEAR. $ 34,500,619 $ 24,725,593 $ 37,611,341 $ 38,048,405
------------ ------------ ------------- ------------
<CAPTION>
FLEXIBLY MANAGED FUND INTERNATIONAL EQUITY FUND
-------------------------- ---------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/96 12/31/95
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIOMS:
Net investment income.. $ 12,850,451 $ 7,533,134 $ 567,625 $ 559,922
Net realized gain
(loss) on investment
transactions.......... 16,818,384 9,328,518 5,713,489 (551,350)
Net realized foreign
exchange gain (loss).. (2,411) (3,841) 3,145,612 331,107
Net change in
unrealized apprecia-
tion of investments
and foreign currency
related items......... 21,020,920 25,862,516 4,322,244 7,975,550
------------ ------------ ------------- ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS........... 50,687,344 42,720,327 13,748,970 8,315,229
------------ ------------ ------------- ------------
DISTRIBUTIONS TO SHARE-
HOLDERS FROM:
Net investment income.. (12,850,451) (7,533,134) (567,625) (559,922)
Net realized capital
gains................. (16,768,765) (9,122,820) (4,589,862) --
In excess of net in-
vestment income....... (4,084) (189,189) (2,877,835) (1,014,490)
------------ ------------ ------------- ------------
TOTAL DISTRIBUTIONS... (29,623,300) (16,845,143) (8,035,322) (1,574,412)
------------ ------------ ------------- ------------
CAPITAL SHARE TRANSAC-
TIONS:
Net increase in net as-
sets from capital
share transactions.... 110,923,988 70,833,754 29,173,205 3,397,112
------------ ------------ ------------- ------------
TOTAL INCREASE IN NET
ASSETS............... 131,988,032 96,708,938 34,886,853 10,137,929
Net Assets, beginning of
period................. 266,556,107 169,847,169 69,530,735 59,392,806
------------ ------------ ------------- ------------
NET ASSETS, END OF PERI-
OD..................... $398,544,139 $266,556,107 $ 104,417,588 $ 69,530,735
------------ ------------ ------------- ------------
</TABLE>
- -----------------------
*For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
The accompanying notes are an integral part of these financial statements.
B-52
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD BOND FUND GROWTH EQUITY FUND VALUE EQUITY FUND
- ---------------------------- -------------------------- --------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
- ------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$ 3,194,439 $ 3,148,730 $ 475,615 $ 382,247 $ 2,210,027 $ 1,794,849
(499,838) (1,070,877) 10,366,718 12,597,090 8,252,470 6,520,338
-- -- -- -- -- --
2,501,662 3,034,116 7,073,178 7,613,791 25,690,221 23,682,719
- ------------- ------------- ------------ ------------ ------------ ------------
5,196,263 5,111,969 17,915,511 20,593,128 36,152,718 31,997,906
- ------------- ------------- ------------ ------------ ------------ ------------
(3,194,439) (3,148,730) (475,615) (382,247) (2,210,027) (1,794,912)
-- -- (10,558,832) (12,597,090) (8,252,470) (6,520,338)
(25,808) (15,253) -- -- -- --
- ------------- ------------- ------------ ------------ ------------ ------------
(3,220,247) (3,163,983) (11,034,447) (12,979,337) (10,462,497) (8,315,250)
- ------------- ------------- ------------ ------------ ------------ ------------
5,623,807 2,412,668 3,565,102 7,901,598 47,723,822 24,556,320
- ------------- ------------- ------------ ------------ ------------ ------------
7,599,823 4,360,654 10,446,166 15,515,389 73,414,043 48,238,976
36,441,736 32,081,082 95,593,294 80,077,905 127,259,850 79,020,874
- ------------- ------------- ------------ ------------ ------------ ------------
$ 44,041,559 $ 36,441,736 $106,039,460 $ 95,593,294 $200,673,893 $127,259,850
- ------------- ------------- ------------ ------------ ------------ ------------
<CAPTION>
SMALL CAPITALIZATION FUND
- ----------------------------
YEAR PERIOD
ENDED ENDED
12/31/96 12/31/95*
- ------------- -------------
<S> <C>
$ 87,435 $ 37,156
588,102 116,284
-- --
1,130,459 166,186
- ------------- -------------
1,805,996 319,626
- ------------- -------------
(87,435) (37,156)
(607,875) (97,662)
-- --
- ------------- -------------
(695,310) (134,818)
- ------------- -------------
10,195,439 4,643,099
- ------------- -------------
11,306,125 4,827,907
4,827,907 0
- ------------- -------------
$ 16,134,032 $ 4,827,907
- ------------- -------------
</TABLE>
B-53
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
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. Shares of
Penn Series are offered only to Penn Mutual Life Insurance Company Group
Annuity, variable annuity and variable life separate accounts.
Penn Series is presently offering shares in its Money Market, Quality Bond,
High Yield Bond, Growth Equity, Value Equity, Flexibly Managed, International
Equity and Small Capitalization Funds (the Funds). It 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 in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
INVESTMENT VALUATION:
MONEY MARKET FUND - Investments in securities are valued under the amortized
cost method, which approximates current market value. Under this method,
securities are valued at cost on the date of purchase and thereafter a
proportionate amortization of any discount or premium until maturity is
assumed. Penn Series has agreed to maintain a dollar weighted average portfolio
maturity appropriate to the objective of maintaining a stable net asset value
per share. The Penn Series Board of Directors (The Board) has established
procedures reasonably designed to stabilize the net asset value per share for
purposes of sales and redemptions at $1.00. The Board performs regular review
and monitoring of the valuation in an attempt to avoid dilution or unfair
results to shareholders.
QUALITY BOND, HIGH YIELD BOND, GROWTH EQUITY, VALUE EQUITY, FLEXIBLY MANAGED,
INTERNATIONAL EQUITY AND SMALL CAPITALIZATION FUNDS - 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 quotations
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.
The high yield securities in which the High Yield Bond Fund may invest are
predominantly speculative as to the issuer's continuing ability to meet
principal and interest payments. The value of the lower quality securities in
which the High Yield Bond Fund may invest will be affected by the credit
worthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates. In
addition, the secondary trading market for lower quality bonds may be less
active and less liquid than the trading market for higher quality bonds.
FOREIGN CURRENCY TRANSLATION - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis: market value of investment securities and
assets and liabilities at the current rate of exchange; and purchase and sales
of investment securities and income and expenses at the relevant rates of
exchange prevailing on the respective dates of such transactions.
The Funds do 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 Quality Bond, High Yield Bond, Growth Equity, Value
Equity, Flexibly Managed, International Equity and Small Capitalization Funds
will be declared and paid annually. Dividends of net investment income of the
Money Market Fund are declared daily and paid monthly. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for paydowns of
mortgage-backed securities, accretion of market discount and foreign currency
transactions.
FEDERAL INCOME TAXES: It is the policy of each of the Funds 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 taxes.
B-54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2 - DERIVATIVE FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Funds 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 Funds have 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 transactions are considered.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
FUTURES CONTRACTS - Each of the Funds, other than Money Market, may enter
into financial futures contracts for the delayed delivery of securities,
currency or contracts based on financial indices on a future date. A 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. A 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, a Fund may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The Quality Bond Fund has entered into futures contracts during
the year ended December 31, 1996. There were no open futures contracts at
December 31, 1996.
OPTIONS - Each of the Funds, other than Money Market, may write covered
calls. 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. Additionally, each of the Funds may buy
put or call options for which premiums are paid whether or not the option is
exercised. If a put option is exercised, the premium increases the cost basis
of the securities purchased by a 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.
At December 31, 1996 the written option held by the High Yield Bond Fund was
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES # OF SHARES SUBJECT 12/31/96 VALUE STRIKE EXERCISE
SUBJECT TO OPTION TO CALL PER OPTION OF EACH OPTION PRICE PRICE
------------------ ------------------- -------------- ------- --------
<S> <C> <C> <C> <C>
Loehmann's Class B....... 100 $2.03 $24.813 $24.813
</TABLE>
FORWARD FOREIGN CURRENCY CONTRACTS - The Funds may enter into forward foreign
currency exchange contracts as a way of managing foreign exchange rate risk. A
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. A 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 that might
result should the value of the currency increase. In addition, the Funds could
be exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts. The Flexibly Managed and International Equity
funds have entered into forward foreign currency contracts for the year ended
December 31, 1996.
At December 31, 1996 there were no open contracts in the Flexibly Managed
Fund. Open forward foreign currency contracts held by the International Equity
Fund at December 31, 1996 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN FOREIGN
FORWARD CURRENCY SETTLEMENT CURRENCY CONTRACT CONTRACT EXCHANGE
CONTRACT DATE TO BE SOLD AMOUNT VALUE GAIN (LOSS)
---------------- ---------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark.... 03/12/97 15,000,000 $ 9,715,026 $ 9,800,655 $(85,629)
Swiss Franc............. 03/12/97 6,000,000 4,559,271 4,513,043 46,228
Japanese Yen............ 03/12/97 1,600,000,000 14,311,270 13,964,246 347,024
French Franc............ 03/12/97 17,000,000 3,250,478 3,294,216 (43,738)
----------- ----------- --------
$31,836,045 $31,572,160 $263,885
----------- ----------- --------
</TABLE>
B-55
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
3 - INVESTMENT ADVISORY AND OTHER CORPORATE SERVICES
INVESTMENT ADVISORY SERVICES
Under investment advisory agreements, the following advisors manage the
investments of their respective Fund and provide guidance on certain accounting
matters:
<TABLE>
<CAPTION>
ADVISOR PENN SERIES FUND
------- ----------------
<S> <C>
Independence Capital Management, Inc. Money Market Fund
(A wholly owned subsidiary of Penn Quality Bond Fund
Mutual) Growth Equity Fund
T. Rowe Price Associates Flexibly Managed Fund
High Yield Bond Fund
Vontobel USA, Inc. International Equity Fund
OpCap Advisors Value Equity Fund
Small Capitalization Fund
</TABLE>
Each of the Funds pays their respective advisors, on a monthly basis, an annual
advisory fee based on the average daily net assets of each Fund, at the
following rates pursuant to the investment advisory agreements: Money Market
Fund: 0.40% for first $100 million and 0.35% thereafter; Quality Bond Fund:
0.45% for first $100 million and 0.40% thereafter; Growth Equity Fund: 0.50%
for the first $100 million and 0.45% thereafter; Flexibly Managed Fund: 0.50%;
High Yield Bond Fund: 0.50%; International Equity Fund: 0.75%; Value Equity
Fund: 0.50%; Small Capitalization Fund: 0.50%.
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 Penn Series. Each of the Funds pays Penn Mutual, on a
quarterly basis, an annual fee equal to 0.15% of each of the Funds' average
daily net assets.
EXPENSES AND LIMITATIONS THEREON
The investment advisors 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 each Fund. The expense
limitations for the Funds are as follows: Money Market: 0.80%; Quality Bond:
0.90%; High Yield Bond: 0.90%; Growth Equity: 1.00%; Value Equity: 1.00%;
Flexibly Managed: 1.00%; International Equity: 1.50%; and Small Capitalization:
1.00%.
Fees were paid to non-affiliated Directors of Penn Series for the year ended
December 31, 1996. However, no person received compensation from Penn Series
who is an officer, director, or employee of Penn Series, the investment
advisors, administrator, accounting agent or any parent or subsidiary thereof.
- --------------------------------------------------------------------------------
4 - CAPITAL STOCK
At December 31, 1996, there were one billion shares of $.10 par value capital
stock authorized for Penn Series. The shares are divided into ten classes of
100 million shares of capital stock. Eight of the classes designated are Penn
Series Money Market Fund Common Stock, Penn Series Quality Bond Fund Common
Stock, Penn Series High Yield Bond Fund Common Stock, Penn Series Growth Equity
Fund Common Stock, Penn Series Value Equity Fund Common Stock, Penn Series
Flexibly Managed Fund Common Stock, Penn Series International Equity Fund
Common Stock and Penn Series Small Capitalization Fund Common Stock. Two of the
classes of common stock are presently designated Class H and I, and no shares
have been issued.
Transactions in capital stock of the Money Market Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold............. 44,071,472 $ 44,071,472 24,631,336 $ 24,631,336
Shares issued to
shareholders in
reinvestment of
Net investment income.. 1,440,949 1,440,949 1,003,043 1,003,043
Shares reacquired....... (35,737,395) (35,737,395) (17,439,462) (17,439,462)
----------- ------------ ----------- ------------
9,775,026 $ 9,775,026 8,194,917 $ 8,194,917
----------- ------------ ----------- ------------
</TABLE>
B-56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4 - CAPITAL STOCK, CONTINUED
Transactions in capital stock of the Quality Bond Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ -------- -----------
<S> <C> <C> <C> <C>
Shares sold................... 816,952 $ 8,374,183 503,916 $ 5,106,936
Shares issued to shareholders
in reinvestment of
Net investment income........ 234,248 2,342,476 211,924 2,170,103
Net realized gain from
investment transactions..... 0 0 0 0
Distribution in excess of net
investment income........... 0 0 0 0
Shares reacquired............. (1,006,891) (10,359,026) (465,354) (4,640,755)
---------- ------------ -------- -----------
44,309 $ 357,633 250,486 $ 2,636,284
---------- ------------ -------- -----------
</TABLE>
Transactions in capital stock of the High Yield Bond Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares sold..................... 1,055,047 $ 9,465,000 598,550 $ 5,210,863
Shares issued to shareholders in
reinvestment of
Net investment income.......... 361,419 3,220,247 374,880 3,163,983
Distribution in excess of net
investment income............. 0 0 0 0
Shares reacquired............... (792,896) (7,061,440) (695,380) (5,962,178)
--------- ----------- -------- -----------
623,570 $ 5,623,807 278,050 $ 2,412,668
--------- ----------- -------- -----------
</TABLE>
Transactions in capital stock of the Growth Equity Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares sold.................... 320,394 $ 7,089,450 255,618 $ 5,357,105
Shares issued to shareholders
in reinvestment of
Net investment income......... 22,163 475,615 19,112 382,248
Net realized gain from
investment transactions...... 492,024 10,558,832 629,855 12,597,090
Shares reacquired.............. (673,246) (14,558,795) (500,318) (10,434,845)
-------- ------------ -------- ------------
161,335 $ 3,565,102 404,267 $ 7,901,598
-------- ------------ -------- ------------
</TABLE>
Transactions in capital stock of the Value Equity Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold.................... 2,485,344 $45,626,673 1,658,765 $25,527,797
Shares issued to shareholders
in reinvestment of
Net investment income......... 114,391 2,210,027 110,253 1,794,912
Net realized gain from
investment transactions...... 427,146 8,252,470 400,512 6,520,338
Shares reacquired.............. (457,053) (8,365,348) (588,540) (9,286,727)
--------- ----------- --------- -----------
2,569,828 $47,723,822 1,580,990 $24,556,320
--------- ----------- --------- -----------
</TABLE>
B-57
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
4 - CAPITAL STOCK, CONTINUED
Transactions in capital stock of the Flexibly Managed Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.................. 5,176,205 $ 96,448,634 3,828,143 $ 65,639,740
Shares issued to shareholders
in reinvestment of
Net investment income....... 685,941 12,854,535 443,812 7,722,323
Net realized gain from
investment transactions.... 894,811 16,768,765 524,300 9,122,820
Shares reacquired............ (807,605) (15,147,946) (662,762) (11,651,129)
--------- ------------ --------- ------------
5,949,352 $110,923,988 4,133,493 $ 70,833,754
--------- ------------ --------- ------------
</TABLE>
Transactions in capital stock of the International Equity Fund were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Shares sold.................... 1,812,851 $28,060,006 980,799 $ 13,291,658
Shares issued to shareholders
in reinvestment of
Net investment income......... 220,720 3,445,460 108,805 1,574,412
Net realized gain from
investment transactions...... 294,034 4,589,862 0 0
Shares reacquired.............. (442,745) (6,922,123) (852,234) (11,468,958)
--------- ----------- -------- ------------
1,884,860 $29,173,205 237,370 $ 3,397,112
--------- ----------- -------- ------------
</TABLE>
Transactions in capital stock of the Small Capitalization Fund were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995*
---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Shares sold....................... 1,108,381 $13,236,881 433,221 $4,564,368
Shares issued to shareholders in
reinvestment of
Net investment income............ 6,978 87,435 3,390 37,156
Net realized gain from investment
transactions.................... 48,711 607,875 8,911 97,662
Shares reacquired................. (317,129) (3,736,752) (5,147) (56,087)
--------- ----------- ------- ----------
846,941 $10,195,439 440,375 $4,643,099
--------- ----------- ------- ----------
</TABLE>
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
- --------------------------------------------------------------------------------
5 - PURCHASES AND SALES OF INVESTMENTS
During the year ended December 31, 1996 the Funds made the following purchases
and sales of portfolios securities:
<TABLE>
<CAPTION>
QUALITY BOND FUND HIGH YIELD BOND FUND
------------------------- -----------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations.......... $ 34,262,555 $ 29,049,943 $ 0 $ 0
Other Long-Term Securities... 3,181,229 6,895,559 47,955,955 44,208,064
------------ ------------ ----------- -----------
Totals...................... $ 37,443,784 $ 35,945,502 $47,955,955 $44,208,064
------------ ------------ ----------- -----------
<CAPTION>
GROWTH EQUITY FUND VALUE EQUITY FUND
------------------------- -----------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations.......... $ 0 $ 0 $ 0 $ 0
Other Long-Term Securities... 168,864,328 174,984,842 66,097,926 33,433,136
------------ ------------ ----------- -----------
Totals...................... $168,864,328 $174,984,842 $66,097,926 $33,433,136
------------ ------------ ----------- -----------
</TABLE>
B-58
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5 - PURCHASES AND SALES OF INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
INTERNATIONAL
FLEXIBLY MANAGED FUND EQUITY FUND
------------------------ -------------------------
PURCHASES SALES PURCHASES SALES
------------ ----------- -------------------------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations......... $ 14,836,547 $ 0 $ 0 $ 0
Other Long-Term Securities.. 183,619,632 87,871,108 60,052,427 43,169,448
------------ ----------- ------------ ------------
Totals..................... $198,456,179 $87,871,108 $ 60,052,427 $ 43,169,448
------------ ----------- ------------ ------------
<CAPTION>
SMALL CAPITALIZATION FUND
-------------------------
PURCHASES SALES
-------------------------
<S> <C> <C>
Long Term U.S. Govt. and Agency Obligations.......... $ 0 $ 0
Other Long-Term Securities........................... 12,302,712 3,516,424
------------ ------------
Totals.............................................. $ 12,302,712 $ 3,516,424
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
6 - CAPITAL LOSS CARRYOVERS
Capital loss carryovers expire as follows:
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD
MARKET BOND BOND
FUND FUND FUND
------- --------- -----------
<S> <C> <C> <C>
1997........................................... $ 0 $ 0 $ 0
1998........................................... (872) 0 0
1999........................................... 0 0 (1,355,386)
2000........................................... (61) 0 0
2001........................................... (183) 0 0
2002........................................... 0 (778,292) (1,572,728)
2003........................................... (416) 0 (1,086,129)
2004........................................... 0 (89,807) (525,647)
------- --------- -----------
Total......................................... $(1,532) $(868,099) $(4,539,890)
------- --------- -----------
</TABLE>
B-59
<PAGE>
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
Report of Independent Accountants
Schedules of Investments - December 31, 1996
Statement of Assets and Liabilities - December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1995
Notes to Financial Statements
(b) Exhibits (numbers correspond to numbers in list of exhibits set forth in
Item 24(b) of Form N-1A)
1. Articles of Incorporation -Previously filed on April
26, 1983 as Exhibit 1 to Post-Effective Amendment No.
24 to this Registration Statement, and refiled herewith
via EDGAR.
2. By-Laws - Previously filed on August 27, 1992 as
Exhibit 2 to Post-Effective Amendment No. 37 to this
Registration Statement, and refiled herewith via EDGAR.
3. None.
4. None (outstanding shares of common stock are recorded
on the books and records of the Registrant -
Certificates of stock are not issued).
5. (a) Investment Advisory Agreement between the
Registrant and T. Rowe Price Associates, Inc. with
respect to the Flexibly Managed and High Yield
Bond Funds- Previously filed on March 10, 1989 as
Exhibit 5(a) to Post-Effective Amendment No.33 to
this Registration Statement, and refiled herewith
via EDGAR.
(b) Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. with respect to the Growth Equity, Quality
Bond and Money Market Funds- Previously filed on
August 27, 1992 as Exhibit 5(b) to Post-Effective
Amendment No. 37 to this
C-1
<PAGE>
Registration Statement,
and refiled herewith via EDGAR.
(c) Investment Advisory Agreement between the
Registrant and OpCap Advisors with respect to the
Value Equity Fund -Previously filed on August 27,
1992 as Exhibit 5(c) to Post-Effective Amendment
No. 37 to this Registration Statement, and refiled
herewith via EDGAR.
(d) Investment Advisory Agreement between the
Registrant and OpCap Advisors (formerly "Quest for
Value Advisors") with respect to the Small
Capitalization Fund -Previously filed on February
24, 1995 as Exhibit 5(d) to Post-Effective
Amendment No. 42 to this Registration Statement,
and refiled herewith via EDGAR.
(e) Investment Advisory Agreement between the
Registrant and Vontobel USA Inc.- Previously filed
on August 27, 1992 as Exhibit 5(e) to Post-
Effective Amendment No. 37 to this Registration
Statement, and refiled herewith via EDGAR.
(f) Proposed Investment Advisory Agreement between the
Registrant and Independence Capital Management,
Inc. with respect to the Emerging Growth Fund.
Filed herewith.
(g) Proposed Investment Sub-Advisory Agreement between
Independence Capital Management, Inc. and
Robertson Stephens Investment Management, Inc.
with respect to the Emerging Growth Fund. Filed
herewith.
6. None. Common stock of the Registrant is sold only to
The Penn Mutual Life Insurance Company and its
affiliated insurance companies for their general or
separate accounts.
7. None.
C-2
<PAGE>
8. (a) Amended and Restated Custodian Agreement between
the Registrant and Provident National Bank -
Previously filed on April 26, 1993 as Exhibit 8(a)
to Post-Effective Amendment No. 38 to this
Registration Statement, and refiled herewith via
EDGAR.
(b) Global Custody Agreement between Barclays Bank
PLC, Provident National Bank and the Registrant -
Previously filed on April 26, 1993 as Exhibit 8(b)
to Post-Effective Amendment No. 38 to this
Registration Statement, and refiled herewith via
EDGAR.
9. (a) Proposed Amended and Restated Administrative and
Corporate Services Agreement between the
Registrant and The Penn Mutual Life Insurance
Company, filed herewith.
(b) Accounting Services Agreement between the
Registrant and Provident Financial Processing
Corporation-Previously filed on March 10, 1990 as
Exhibit 9(b) to Post-Effective Amendment No. 33 to
this Registration Statement, and refiled herewith
via EDGAR.
(c) Agreement between the Registrant and Provident
Financial Processing Corporation on fees for
services under Accounting Services Agreement -
Previously filed on February 24, 1995 as Exhibit
9(c) to Post-Effective Amendment No. 43 to this
Registration Statement, and refiled herewith via
EDGAR.
10. Opinion and Consent of Morgan, Lewis & Bockius LLP-
Previously filed on April 29, 1996 as Exhibit (10) to
Post-Effective Amendment No. 43 to this Registration
Statement.
11. (a) Consent of Coopers & Lybrand L.L.P. Filed herewith.
(b) Powers of Attorney of Directors. Filed herewith.
12. None.
13. None.
14. None.
C-3
<PAGE>
15. None.
16. None.
17. Financial Data Schedules. Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
The Penn Mutual Life Insurance Company ("Penn Mutual") is the owner of
100% of the outstanding common stock of the Registrant. For further
information on the ownership of the outstanding common stock of the
Registrant, see "General Information" and "Voting Rights" in the
Prospectus and "Ownership of Shares" in the Statement of Additional
Information, which are incorporated hereunder by reference.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Penn Insurance and Annuity Company, a
Delaware corporation.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Capital Management., Inc., a
Pennsylvania corporation, and registered investment adviser.
Penn Mutual is the record and beneficiary owner of 100% of the
outstanding common stock of The Penn Janney fund, Inc. Penn Janney
Fund, Inc. is a Pennsylvania corporation and invests in new business.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of The Pennsylvania Trust Company, a
Pennsylvania corporation.
Penn Mutual is the record and beneficial owner of 100% of the
outstanding common stock of Independence Square Properties, Inc., a
holding corporation incorporated in Delaware.
Independence Square Properties, Inc. is the record and beneficial
owner of 100% of the outstanding common stock of the following
corporations: Penn Glenside Corp., Penn Wayne Corp., St. James Realty
Corp., Investors' Mortgage Corp. and Christie Street Properties, Inc.,
all Pennsylvania corporations; and Indepro Corp., Economic Resources
Associates, Inc. and WPI Investment Company, both Delaware
corporations.
C-4
<PAGE>
Indepro Corp. is the record and beneficial owner of 100% of the
outstanding common stock of Indepro Property Fund I Corp., Indepro
Property Fund II Corp., Commons One Corp. and West Hazleton, Inc., all
Delaware corporations.
Independence Square Properties, Inc. is the record and beneficial
owner of 100% of the outstanding common stock of Janney Montgomery
Scott Inc., a Delaware corporation, and Hornor, Townsend & Kent, Inc.,
a Pennsylvania corporation.
Janney Montgomery Scott Inc. is the record and beneficial owner of
100% of the outstanding common stock of the following corporations:
Addison Capital Management, Inc., a Pennsylvania corporation; JMS
Resources, Inc., a Pennsylvania corporation; and JMS Investor
Services, Inc., a Delaware corporation.
Penn Mutual and Janney Montgomery Scott Inc. each is the record and
beneficial owner of a subscription agreement for 50% of the common
stock of Penn Janney Advisory, Inc., a Pennsylvania corporation.
Item 26. Number of Holders of Securities
The Penn Mutual Life Insurance Company and its wholly owned
subsidiary, The Penn Insurance and Annuity Company, and their separate
accounts, are the sole record holders of the outstanding shares of the
Registrant.
Item 27. Indemnification
Article VII, Section (3) of the Articles of Incorporation of the
Registrant provides generally that directors and officers of the
Registrant shall be indemnified by the Registrant to the full extent
permitted by Maryland law and by the Investment Company Act of 1940,
now or hereinafter in force.
Article VI, Section (2) of the By-laws of the Registrant provides
generally that directors and officers of the Registrant shall be
indemnified to the full extent permissible under Maryland law now or
hereafter in force, except that such indemnity shall not protect
directors and officers against liability to the Registrant or any
shareholder to which such person would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence or reckless (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against
C-5
<PAGE>
public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
C-6
<PAGE>
Item 28. Business and Other Connections of Investment Advisers
T. Rowe Price Associates, Inc.
See Item 28 of Post-Effective Amendment No.11 to the Form N-1A
Registration Statement of T. Rowe Price Spectrum Funds, Inc. (File 33-
10992), filed December 16, 1996, which is incorporated herein by
reference.
Independence Capital Management, Inc.
Independence Capital Management, a wholly-owned subsidiary of The Penn
Mutual Life Insurance Company, is a Pennsylvania corporation which
provides investment advisory services. To the knowledge of the
Registrant none of the directors or executive officers of Independence
Capital Management is, or have been, at any time during the past two
years, engaged in any other business, profession, vocation, or
employment of a substantial nature, except that certain directors and
officers of Independence Capital Management also hold or have held
various positions with affiliates of Independence Capital Management,
including its parent, The Penn Mutual Life Insurance Company.
OpCap Advisors
See Form ADV Registration Statement of OpCap Advisors filed under the
Investment Advisers Act of 1940, as amended, on July 29, 1996
Schedules D and F (File No. 801-27180), for information on the
business, profession, vocation or employment of a substantial nature
in which each director or officer of OpCap Advisors, is or has been,
at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee.
Vontobel USA Inc.
See Form ADV Registration Statement of Vontobel USA Inc. filed under
the Investment Advisers Act of 1940, as amended, on December 18, 1996
Schedules D and F (File No. 801-21953), for information on the
business, profession, vocation or employment of a substantial nature
in which Vontobel USA Inc., and each director or officer of Vontobel
USA Inc., is or has been, at any time during the past two fiscal
years, engaged for his own account or in the capacity of director,
officer, employee, partner or trustee.
Item 29. Principal Underwriters
Not Applicable.
C-7
<PAGE>
Item 30. Location of Accounts and Records
Penn Series Funds, Inc.
600 Dresher Road
Horsham, PA 19044
PFPC Inc.
Bellevue Corporate Center
103 Bellevue Parkway
Wilmington, DE 19809
T. Rowe Price Associates, Inc.
100 E. Pratt Street
Baltimore, MD 21202
Independence Capital Management, Inc.
600 Dresher Road
Horsham, PA 19044
OpCap Advisors
Oppenheimer Capital
One World Financial Center
New York, NY 10281
Vontobel USA Inc.
450 Park Avenue
New York, NY 10022
Item 31. Management Services
Not applicable.
Item 32. Undertakings
The Registrant undertakes to furnish each person to whom a prospectus
is delivered a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it has
duly caused this Post-Effective Amendment to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Horsham, Commonwealth of Pennsylvania on the 12th day of February, 1997.
PENN SERIES FUNDS, INC.
By: /s/ L. Stockton Illoway
-------------------------------
L. Stockton Illoway, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to this Registration Statement of the Registrant has been signed below
by the following persons in the capacities indicated on the 12th day of
February, 1997.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ L. Stockton Illoway President (Principal Executive
- -------------------------- Officer) and Director
L. Stockton Illoway
/s/ Steven M. Herzberg Treasurer (Principal
- ------------------------- Financial Officer)
Steven M. Herzberg
/s/ James D. Benson Controller (Principal
- -------------------------- Accounting Officer)
James D. Benson
* Eugene Bay Director
* James S. Greene Director
* L. Stockton Illoway Director
* Richard J. Liburdi Director
* William H. Loesche, Jr. Director
* M. Donald Wright Director
* By: /s/ L. Stockton Illoway
--------------------------------
L. Stockton Illoway, Attorney-In-Fact
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
Ex-99.B(1) Articles of Incorporation -Previously filed on April 26, 1983 as
Exhibit 1 to Post-Effective Amendment No. 24 to this Registration
Statement, and refiled herewith via EDGAR.
Ex-99.B(2) By-Laws - Previously filed on August 27, 1992 as Exhibit 2 to Post-
Effective Amendment No. 37 to this Registration Statement, and
refiled herewith via EDGAR.
Ex-99.B(3) None.
Ex-99.B(4) None (outstanding shares of common stock are recorded on the books
and records of the Registrant - Certificates of stock are not
issued).
Ex-99.B(5)(a) Investment Advisory Agreement between the Registrant and T.
Rowe Price Associates, Inc. with respect to the Flexibly
Managed and High Yield Bond Funds - Previously filed on March
10, 1989 as Exhibit 5(a) to Post-Effective Amendment No.33 to
this Registration Statement, and refiled herewith via EDGAR.
Ex-99.B(5)(b) Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Growth Equity, Quality Bond and Money Market Funds- Previously
filed on August 27, 1992 as Exhibit 5(b) to Post-Effective
Amendment No. 37 to this Registration Statement, and refiled
herewith via EDGAR.
Ex-99.B(5)(c) Investment Advisory Agreement between the Registrant and OpCap
Advisors with respect to the Value Equity Fund - Previously filed on
August 27, 1992 as Exhibit 5(c) to Post-Effective
Amendment No. 37 to this Registration Statement, and
refiled herewith via EDGAR.
Ex-99.B(5)(d) Investment Advisory Agreement between the Registrant and OpCap
Advisors (formerly "Quest for Value Advisors") with respect to
the Small Capitalization Fund - Previously filed on February
24, 1995 as Exhibit 5(d) to Post-Effective Amendment No. 42 to
this Registration Statement, and refiled herewith via EDGAR.
Ex-99.B(5)(e)Investment Advisory Agreement between the Registrant and Vontobel
USA Inc. -Previously filed on August 27,1992 as Exhibit 5(e) to
Post-Effective
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<PAGE>
Amendment No. 37 to this Registration Statement,
and refiled herewith via EDGAR.
Ex-99.B(5)(f) Proposed Investment Advisory Agreement between the Registrant and
Independence Capital Management, Inc. with respect to the
Emerging Growth Fund. Filed herewith.
Ex-99.B(5)(g) Proposed Investment Sub-Advisory Agreement between
Independence Capital Management, Inc. and Robertson Stephens
Investment Management, Inc. with respect to the Emerging
Growth Fund. Filed herewith.
Ex-99.B(6) None. Common stock of the Registrant is sold only to The Penn
Mutual Life Insurance Company and its affiliated insurance
companies for their general or separate accounts.
Ex-99.B(7) None.
Ex-99.B(8)(a) Amended and Restated Custodian Agreement between the
Registrant and Provident National Bank - Previously filed on
April 26, 1993 as Exhibit 8(a) to Post-Effective Amendment No.
38 to this Registration Statement, and refiled herewith via
EDGAR.
Ex-99.B(8)(b) Global Custody Agreement between Barclays Bank PLC, Provident
National Bank and the Registrant - Previously filed on April
26, 1993 as Exhibit 8(b) to Post-Effective Amendment No. 38 to
this Registration Statement, and refiled herewith via EDGAR.
Ex-99.B(9)(a) Proposed Amended and Restated Administrative and Corporate
Services Agreement between the Registrant and The Penn Mutual
Life Insurance Company. Filed herewith.
Ex-99.B(9)(b) Accounting Services Agreement between the Registrant and
Provident Financial Processing Corporation - Previously filed
on March 10, 1990 as Exhibit 9(b) to Post-Effective Amendment
No. 33 to this Registration Statement, and refiled herewith
via EDGAR.
Ex-99.B(9)(c) Agreement between the Registrant and Provident Financial
Processing Corporation on fees for services under Accounting
Services Agreement-Previously filed on February 24, 1995 as
Exhibit 9(c) to Post-Effective Amendment No. 43 to this
Registration Statement, and refiled herewith via EDGAR.
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<PAGE>
Ex-99.B(10) Opinion and Consent of Morgan, Lewis & Bockius LLP- Previously
filed on April 29, 1996 as Exhibit (10) to Post-Effective Amendment
No. 43 to this Registration Statement.
Ex-99.B(11)(a)Consent of Coopers & Lybrand L.L.P. Filed herewith.
Ex-99.B(11)(b)Powers of Attorney of Directors. Filed herewith.
Ex-99.B(12) None.
Ex-99.B(13) None.
Ex-99.B(14) None.
Ex-99.B(15) None.
Ex-99.B(16) None.
Ex-99.B(27) Financial Data Schedules. Filed herewith.
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ARTICLES OF INCORPORATION
OF Exhibit 1
PENN SERIES FUNDS, INC.
* * * *
ARTICLE I
THE UNDERSIGNED, C. Ronald Rubley, whose post office address is
Independence Square, Philadelphia, Pennsylvania 19172, being at least eighteen
years of age, does hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of corporations
and with the intention of forming a corporation.
ARTICLE II
The name of the Corporation is:
PENN SERIES FUNDS, INC.
ARTICLE III
The purpose for which the Corporation is formed is to act as an open-
end diversified management investment company under the Investment Company Act
of 1940, as amended.
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and other
investments or to hold part or all of its assets in cash.
(2) To issue and sell shares of its capital stock in such amounts
and on such terms and conditions and for such purposes and for such amount or
kind of consideration as may now or hereafter be permitted by law.
<PAGE>
(3) To redeem, purchase or otherwise acquire, hold, dispose of,
resell, transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the Charter of the
Corporation.
(4) To enter into a written contract or contracts with any person or
persons providing for a delegation of the management of all or part of this
Corporation's securities portfolio(s) and also for the delegation of the
performance of various administrative or corporate functions, subject to the
direction of the Board of Directors. Any such contract or contracts may be made
with any person even though such person may be an officer, other employee,
director or stockholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
stockholder may be interested.
(5) To enter into a written contract or contracts appointing one or
more distributors or agents or both for the sale of the shares of the
Corporation on such terms and conditions as the Board of Directors of this
Corporation may deem reasonable and proper, and to allow such person or persons
a commission on the sale of such shares. Any such contract or contracts may be
made with any person even though such person may be an officer, other employee,
director or stockholder of this Corporation or a corporation, partnership, trust
or association in which any such officer, other employee, director or
stockholder may be interested.
(6) To enter into a written contract or contracts employing such
custodian or custodians for the safekeeping of the property of the Corporation
and of its shares, such dividend disbursing agent or agents, and such transfer
agent or agents and registrar or registrars for its shares, on such terms and
conditions as the Board of Directors of this Corporation may deem reasonable and
proper for the conduct of the affairs of the Corporation, and to pay the fees
and disbursements of such custodians, dividend disbursing agents, transfer
agents, and registrars out of the income and/or any other property of the
Corporation. Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation, the Board of Directors may
cause any or all of the property of the Corporation to be transferred to, or to
be acquired and held in the name of, a custodian so appointed or any nominee or
nominees of this Corporation or nominee or nominees of such custodian
satisfactory to the Board of Directors.
(7) To employ the same person, partnership (general or limited),
association, trust or corporation in any multiple capacity under Sections (4),
(5) and (6) of this Article, who may receive compensation from the Corporation
in as many capacities in which such person, partnership (general or limited),
association, trust or corporation shall serve the Corporation.
(8) To do any and all such further acts or things and to exercise
any and all such further powers or tights as may be necessary, incidental,
relative, conducive,
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<PAGE>
appropriate or desirable for the accomplishment, carrying out or attainment of
the purposes stated in Article III hereof.
The Corporation shall be authorized to exercise and enjoy all of the
powers, rights and privileges granted to, or conferred upon, corporations by the
General Laws of the State of Maryland now or hereafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of the Corporation in
the State of Maryland is c/o The Corporation Trust Incorporated, First Maryland
Building, 25 South Charles Street, Baltimore, Maryland 21201. The name of the
resident agent of the Corporation in this State is The Corporation Trust
Incorporated, a corporation of this State, and the post office address of the
resident agent is First Maryland Building, 25 South Charles Street, Baltimore,
Maryland 21201.
ARTICLE VI
(1) The total number of shares of capital stock which the
Corporation shall have authority to issue is One Billion (1,000,000,000) shares,
of the par value of Ten Cents ($.10) per share and of the aggregate par value of
One Hundred Million Dollars ($100,000,000). The shares shall be divided into
ten classes of Common Stock, each of which is to consist of One Hundred Million
(100,000,000) shares. These classes are hereby designated as Penn Series Money
Market Fund Common Stock and nine classes of Common Stock that are designated A,
B, C, D, E, F, G, H and I, respectively.
(2) Any fractional share shall carry proportionately all the rights
of a whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
(3) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the Charter and the By-laws of the
Corporation.
(4) Unless otherwise provided by the Board of Directors pursuant to
Section (7) of this Article VI, the stockholders of the Corporation shall be
entitled to one vote for each share of stock of the Corporation, irrespective of
the class, then standing in his name on the books of the Corporation and on any
matter submitted to a vote of stockholders, all shares of the Corporation then
issued and outstanding and entitled to vote shall be voted in the aggregate and
not by class except that: (i) when expressly required by law, shares shall be
voted by individual class and (ii) only shares of the respective classes
affected by a matter shall be entitled to vote on any such matter.
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<PAGE>
(5) Unless otherwise provided by the Board of Directors pursuant to
Section (7) of this Article VI or unless otherwise provided by these Articles of
Incorporation, each class of stock of the Corporation shall have the following
powers, preferences or other special rights, and the qualifications,
restrictions, and limitations thereof shall be as follows:
(i) the shares of each class shall have no preference,
preemptive, conversion, exchange or similar rights and shall be freely
transferable.
(ii) the Board of Directors may from time to time declare and
pay dividends or distributions, in stock or in cash, on any or all classes of
stock, the amount of such dividends and distributions and the payment thereof
shall be wholly in the discretion of the Board of Directors. Dividends or
distributions on shares of any class of stock shall be paid only out of the
earned surplus or other lawfully available assets belonging to such class.
(6) Prior to the issuance of any shares of a class, the Board of
Directors may by resolution change the designation of such class to a name other
than that set forth in Section (1) of this Article VI.
(7) The Board of Directors shall have authority by resolution to
reclassify any authorized but unissued shares of capital stock from time to time
by setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of the capital stock.
Subject to the provisions of Sections (8), (9), and (10) of this Article VI and
applicable law, the power of the Board of Directors to reclassify any of the
shares of capital stock shall include, without limitation, authority to
reclassify any such stock into a class or classes of capital stock and to divide
and classify shares of any class into one or more series of such class, by
determining, fixing or altering one or more of the following:
(i) The distinctive designation of such class or series; provided
that, unless otherwise prohibited by the terms of such class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any reclassification of unissued shares and
the number of shares of such class or series may be increased by the Board
of Directors in connection with any such reclassification, and any shares
of any class or series which have been redeemed, purchased or otherwise
acquired by the Corporation shall remain part of the authorized capital
stock and be subject to reclassification as provided herein.
(ii) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on shares
of such class or series.
(iii) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
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<PAGE>
(iv) The rights of the holders of shares of such class. or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation.
(v) Any other rights, restrictions, including restrictions on
transferability, and qualifications of shares of such class or series, not
inconsistent with law and the Charter of the Corporation.
(8) All consideration received by the Corporation for the issue or
sale of stock of any class, together with all income, earnings, profits and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall irrevocably belong to the
class of shares of stock with respect to which such assets, payments or funds
were received by the Corporation for all purposes, subject only to the rights of
creditors, and shall be so handled upon the books of account of the Corporation.
Such assets, income, earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and any assets
derived from any reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such class.
(9) In the event of the liquidation or dissolution of the
Corporation, shareholders of each class shall be entitled to receive, as a
class, out of the assets of the Corporation available for distribution to
shareholders, but other than general assets not belonging to any particular
class of stock, the assets belonging to such class; and the assets so
distributable to the stockholders of any class shall be distributed among such
stockholders in proportion to the number of shares of such class held by them
and recorded on the books of the Corporation. In the event that there are any
general assets not belonging to any particular class of stock and available for
distribution, such distribution shall be made to the holders of stock of all
classes in proportion to the asset value of the respective classes determined as
hereinafter provided.
(10) The assets belonging to any class of stock shall be charged
with the liabilities in respect to such class, and shall also be charged with
such class's share of the general liabilities of the Corporation, in proportion
to the asset value of the respective classes determined as hereinafter provided.
The determination of the Board of Directors shall be conclusive as to the amount
of such liabilities, including the amount of accrued expenses and reserves; as
to any allocation of the same to a given class; and as to whether the same, or
general assets of the Corporation, are allocable to one or more classes. The
liabilities so allocated to a class are herein referred to as "liabilities
belonging to" such class.
ARTICLE VII
(1) The number of directors of the Corporation shall be five (5),
which number may be increased or decreased pursuant to the By-laws of the
Corporation but shall never
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<PAGE>
be less than three (3). The names of the directors who shall act until the first
annual meeting of stockholders and until their successors are duly elected and
qualify are:
Edwin W. Crysler
Roseanna M. D'Alessandro
James D. Logan
Ralph F. Miller
John E. Spahr
(2) No holder of stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for any shares of the capital stock of
the Corporation or any other security of the Corporation which it may issue or
sell (whether out of the number of shares authorized by the Charter, or out of
any shares of the capital stock of the Corporation acquired by it after the
issue thereof, or otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
(3) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by the General Laws
of the State of Maryland and the Investment Company Act of 1940, now or
hereafter in force, including the advance of related expenses.
ARTICLE VIII
(1) To the extent the Corporation has funds or other property
legally available therefor, each holder of shares of capital stock of the
Corporation shall be entitled to require the Corporation to redeem all or any
part of the shares of capital stock of the Corporation standing in the name of
such holder on the books of the Corporation, and all shares of capital stock
issued by the Corporation shall be subject to redemption by the Corporation, at
the redemption price of such shares as in effect from time to time as may be
determined by the Board of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of Directors of the
Corporation to suspend the right of redemption of shares of capital stock of the
Corporation or postpone the date of payment of such redemption price in
accordance with provisions of applicable law. Without limiting the generality
of the foregoing, the Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares owned by any holder of
capital stock of the Corporation (i) if such redemption is, in the opinion of
the Board of Directors of the Corporation, desirable in order to prevent the
Corporation from being deemed a "personal holding company" within the meaning of
the Internal Revenue Code of 1954, as amended, (ii) if the value of such shares
in the account maintained by the Corporation or its transfer agent for any class
of stock is less than $1,000.00 (One Thousand Dollars); provided, however, that
each shareholder shall be notified that the value of his account is less than
$1,000.00 and allowed sixty days to make additional purchases of shares before
such redemption is processed by the Corporation, or (iii) if the net income for
dividend purposes with respect to any particular class of shares should be
negative or it should otherwise be appropriate
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<PAGE>
to carry out the Corporation's responsibilities under the Investment Company Act
of 1940, in each case subject to such further terms and conditions as the Board
of Directors of the Corporation may from time to time adopt. The redemption
price of shares of capital stock of the Corporation shall, except as otherwise
provided in this section, be the net asset value thereof as determined by the
Board of Directors of the Corporation from time to time in accordance with the
provisions of applicable law, less such redemption fee or other charge, if any,
as may be fixed by resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by the Corporation at such
time and in such manner as may be determined from time to time by the Board of
Directors of the Corporation unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist which make payment wholly in cash
unwise or undesirable; in such event the Corporation may make payment wholly or
partly in securities or other property included in the assets belonging or
allocable to the class of the shares redemption of which is being sought, the
value of which shall be determined as provided herein. When the net income for
dividend purposes with respect to any particular class of shares is negative or
whenever deemed appropriate by the Board of Directors in order to carry out the
Corporation's responsibilities under the Investment Company Act of 1940, the
Corporation may, without payment of monetary compensation but in consideration
of the interest of the Corporation and the shareholders in maintaining a
constant net asset value per share of such class, redeem pro rata from each
shareholder of record on such day, such number of full and fractional shares of
the Corporation's common stock of such class, as may be necessary to reduce the
aggregate number of outstanding shares in order to permit the net asset value
thereof to remain constant.
(2) Each holder of any class of stock of the Corporation, who
surrenders his certificate in good delivery form to the Corporation or, if the
shares in question are not represented by certificates, who delivers to the
Corporation a written request in good order signed by the stockholder, shall, to
the extent permitted by the By-Laws or by resolution of the Board of Directors,
be entitled to convert the shares in question on the basis hereinafter set
forth, into shares of stock of any other class of the Corporation. The
Corporation shall determine the net asset value, as provided herein, of the
shares to be converted and may deduct therefrom a conversion cost, in an amount
determined within the discretion of the Board of Directors. Within five (5)
business days after such surrender and payment of any conversion cost, the
Corporation shall issue to the shareholder such number of shares of stock of the
class desired as, taken at the net asset value thereof determined as provided
herein in the same manner and at the same time as that of the shares
surrendered, shall equal the net asset value of the shares surrendered, less any
conversion cost as aforesaid. Any amount representing a fraction of a share may
be paid in cash at the option of the Corporation. Any conversion cost may be
paid and/or assigned by the Corporation to the underwriter and/or to any other
agency, as it may elect.
ARTICLE IX
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practices by or pursuant to the
direction of the Board of
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<PAGE>
Directors, as to the amount of assets, obligations or liabilities of the
Corporation, as to the amount of net income of the Corporation from dividends
and interest for any period or amounts at any time legally available for the
payment of dividends, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purpose for creating reserves or as to
the use, alteration or cancellation of any reserves or charges (whether or not
any obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation or as to any other matters relating to the issuance, sale,
redemption or other acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors as to whether any transaction constitutes a
purchase of securities on "margin", a sale of securities "short", or an
underwriting of the sale of, or a participation in any underwriting or selling
group in connection with the public distribution of, any securities, shall be
final and conclusive, and shall be binding upon the Corporation and all holders
of its capital stock, past, present and future, and shares of the capital stock
of the Corporation are issued and sold on the condition and understanding,
evidenced by the purchase of shares of capital stock or acceptance of share
certificates, that any and all such determinations shall be binding as
aforesaid. No provision of the Charter of the Corporation shall be effective to
(i) require, a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder or (ii) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
ARTICLE X
The duration of the Corporation shall be perpetual.
ARTICLE XI
(1) The Corporation reserves the right from time to time to make any
amendments to its Charter which may now or hereafter be authorized by law,
including any amendments changing the terms or contract rights, as expressly set
forth in its Charter, of any of its outstanding stock by classification,
reclassification or otherwise, but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a majority of the
aggregate number of the votes entitled to be cast thereon by a vote at a
meeting.
(2) Notwithstanding any provision of the General Laws of the State
of Maryland requiring any action to be taken or authorized by the affirmative
vote of the holders of a designated proportion of the votes of all classes or of
any class of stock of the Corporation, such action shall be effective and valid
if taken or authorized by the affirmative vote of the
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<PAGE>
holders of a majority of the total number of shares outstanding and entitled to
vote thereon, except as otherwise provided herein.
(3) So long as permitted by Maryland law, the books of the
Corporation may be kept outside of the State of Maryland at such place or places
as may be designated from time to time by the Board of Directors or in the By-
Laws of the Corporation.
(4) In furtherance, and not in limitation, of the powers conferred
by the laws of the State of Maryland, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the By-Laws of the Corporation,
except where such power is reserved by the By-Laws to the stockholders, and
except as otherwise required by the Investment Company Act of 1940.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations the books
and accounts of the Corporation, or any of them other than the stock ledger,
shall be open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account or book or document of the Corporation,
except as conferred by law or authorized by resolution of the Board of Directors
or of the stockholders.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any class of
the Corporation, whether now or hereafter authorized, and securities convertible
into shares of its stock of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem advisable.
(iv) Without the assent or vote of the stockholders, to
authorize and issue obligations of the Corporation, secured and unsecured, as
the Board of Directors may determine, and to authorize and cause to be executed
mortgages and liens upon the property of the Corporation, real or personal.
(v) Notwithstanding anything in these Articles of
Incorporation to the contrary, to establish in its absolute discretion the basis
or method for determining the value of the assets belonging to any class, the
value of the liabilities belonging to any class, and the net asset value of each
share of any class of the Corporation for purposes of sales, redemptions,
repurchases of shares or otherwise.
(vi) To determine in accordance with generally accepted
accounting principles and practices what constitutes net profits, earnings,
surplus or net assets in excess of capital, and to determine what accounting
periods shall be used by the Corporation for any purpose, whether annual or any
other period, including daily; to set apart out of any funds of the Corporation
such reserves for such purposes as it shall determine and to abolish the same;
to
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<PAGE>
declare and pay any dividends and distributions in cash, securities or other
property from surplus or any funds legally available therefor, at such intervals
(which may be as frequently as daily) or on such other periodic basis, as it
shall determine; to declare such dividends or distributions by means of a
formula or other method of determination, at meetings held less frequently than
the frequency of the effectiveness of such declarations; to establish payment
dates for dividends or any other distributions on any basis, including dates
occurring less frequently than the effectiveness of declarations thereof; and to
provide for the payment of declared dividends on a date earlier or later than
the specified payment date in the case of stockholders of the Corporation
redeeming their entire ownership of shares of any class of the Corporation.
(vii) In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board of Directors is authorized
to exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of Maryland
law, this Charter and the By-Laws of the Corporation.
IN WITNESS WHEREOF, the undersigned incorporator of PENN SERIES FUNDS,
INC., hereby executes the foregoing Articles of Incorporation and acknowledges
the same to be his act and further acknowledges that, to the best of his
knowledge, the matters and facts set forth therein are true in all material
respects under the penalties of perjury.
Dated the day of April, 1982.
----------------------------
C. Ronald Rubley
WITNESS:
- ------------------------
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<PAGE>
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
I HEREBY CERTIFY THAT on the day of April, 1982, before me, a Notary
Public of the Commonwealth and County aforesaid, personally appeared C. Ronald
Rubley, who acknowledged the foregoing Articles of Incorporation to be his act.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
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<PAGE>
Exhibit (2)
PENN SERIES FUNDS, INC.
BY-LAWS
(As amended through August 25, 1992)
ARTICLE I
---------
STOCKHOLDERS
------------
SECTION 1. Annual Meeting. Annual meetings of the stockholders of
--------------
the Corporation shall be held at the registered office of the Corporation, or at
such other place within the United States as may be determined by the Board of
Directors and as shall be designated in the transaction of such other business
as may properly be brought before the meeting; provided, however, the
Corporation shall not be required to hold an annual meeting in any year in which
the election of directors is not required to be acted upon by stockholders under
the Investment Company Act of 1940. If an annual meeting is held, such meeting
shall be held during the month of April on such date and at such time as shall
be specified by the Board of Directors; provided, however, that if a meeting of
stockholders must be held to elect directors, and if no annual meeting has
theretofore been held in that year, such meeting shall be designated as the
annual meeting of stockholders for that year, even if not held in April.
SECTION 2. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purpose, unless otherwise prescribed by statute or by the
Charter, may be held at any place within the United States, and may be called at
any time by the Board of Directors or by the President, and shall be called by
the President or Secretary at the request in writing of a majority of the Board
of Directors or by the Secretary at the request in writing of stockholders
entitled to cast at least twenty-five (25) percent of the votes entitled to be
cast at such meeting. Such request shall state the purpose of purposes of the
proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the
------------------
purpose or purposes and of the time and place of every meeting of the
stockholders shall be given by the Secretary of the Corporation to each
stockholder of record entitled to vote at the meeting, by placing such notice in
the mail at least ten days, but not more than ninety (90) days, and in any event
within the period prescribed by law, prior to the date named for the meeting
addressed to each stockholder at his address appearing on the books of the
Corporation or supplied by him to the Corporation for the purpose of notice. The
notice of every meeting of stockholders may be accompanied by a form of proxy
approved by the Board of Directors in favor of such actions or persons as the
Board of Directors may select.
SECTION 4. Record Date. The Board of Directors may fix a date not
-----------
more than ninety (90) days preceding the date of any meeting of stockholders, or
the date fixed for the payment of any dividend, or the date of the allotment of
rights or the date when any change or conversion or exchange of shares shall go
into effect, as a record date for the determination of
<PAGE>
-2-
stockholders entitled to notice of, or to vote at, any such meeting or entitled
to receive payment of any dividend, or to receive such allotment of rights, or
to exercise such rights, as the case may be. In such case, only shareholders of
record at the close of business on the date so fixed shall be entitled to vote,
to receive notice, or receive rights, or to exercise rights, notwithstanding any
subsequent transfer on the books of the Corporation. The Board of Directors
shall not close the books of the Corporation against transfer of shares during
the whole or any part of such period. In the case of a meeting of stockholders,
the record date shall be fixed not less than ten (10) days prior to the date of
the meeting. In no case shall the record date be prior to the close of business
on the day the record date is fixed.
SECTION 5. Quorum. Except as otherwise provided by statute or by
------
the Charter, the presence in person or by proxy of stockholders of the
Corporation entitled to cast at least a majority of the votes to be cast shall
constitute a quorum at each meeting of the stockholders and all questions shall
be decided by majority vote of the shares so represented in person or by proxy
at the meeting and entitled to vote. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote and without notice
other than by announcement, may adjourn the meeting from time to time as
provided in Section 7 of this Article I until the quorum shall attend. The
stockholders present at any duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
SECTION 6. Organization. At every meeting of the stockholders,
------------
the Chairman of the Board, or in his absence, the President, or in his absence,
a Vice President, or in the absence of the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as chairman; and
the Secretary, or in his absence, a person appointed by the chairman, shall act
as Secretary.
SECTION 7. Adjournment. Any meeting of the stockholders may be
-----------
adjourned from time to time, without notice other than by announcement at the
meeting at which such adjournment is taken, and at any such adjourned meeting
any action may be taken that could have been taken at the meeting originally
called; provided that, the meeting may not be adjourned to a date more than 120
days after the original record date for the meeting, and if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
SECTION 1. Election of Powers. The number of directors shall be
------------------
fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three no
<PAGE>
-3-
more than fifteen. The business, affairs and property of the Corporation shall
be managed under the direction of the Board of Directors which may exercise all
such powers of the Corporation and do all such lawful acts and things as are not
by statute or by the Charter or by these By-laws required to be exercised or
done by the stockholders. The members of the Board of Directors shall be elected
by the stockholders as their annual meeting and each Director shall hold office
until the annual meeting next after his election and until his successor shall
be duly chosen and qualified, until he shall have resigned, or until he shall
have been removed as provided in Section II hereof.
SECTION 2. First Regular Meeting. After each meeting of the
---------------------
stockholders at which a Board of Directors shall have been elected, the Board of
Directors so elected shall meet as soon as practicable for the purpose of
organization and the transaction of other business, at such time and place as
may be designated by the President. No notice of such first meeting shall be
necessary if held immediately following the annual meeting of shareholders and
in the same place.
SECTION 3. Additional Regular Meetings. In addition to the first
---------------------------
regular meeting, regular meetings of the Board of Directors shall be held on
such dates as may be fixed, from time to time, by the Board of Directors.
SECTION 4. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by the President or by a majority of the
directors either in writing or by vote at a meeting.
SECTION 5. Place of Meetings. The Board of Directors may hold its
-----------------
regular and special meetings at such place or places within or without the State
of Maryland as it may from time to time determine.
SECTION 6. Notice of Meetings. Notice of the place, day and hour
------------------
of every regular and special meeting shall, at least one day before the meeting,
be either: (i) delivered personally to each director; (ii) mailed, telegraphed,
or cabled to each director at his or her address listed in the books of the
Corporation; (iii) sent by facsimile transmission to each director at his or her
facsimile number listed in the books of the Corporation; or (iv) communicated
personally to each director over the telephone. It shall not be requisite to the
validity of any meeting of the Board of Directors that notice thereof shall have
been given to any director who is present thereat, or, if absent, waives notice
thereof in writing filed with the records of the meeting either before or after
the holding thereof. No notice of any adjourned meeting of the Board of
Directors need be given.
SECTION 7. Quorum. One-third of the members of the Board of
------
Directors then in office, but in no case than two (2) directors, shall be
necessary to constitute a quorum for the
<PAGE>
-4-
transaction of business at every meeting of the Board of Directors and the
action of a majority of the directors present at a meeting at which a quorum is
present shall be the action of the Boards; but if at any meeting there be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time, but not for a period over thirty (30) days at any one time,
without notice other than by announcement at the meeting until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting may
be transacted which might have transacted at the meeting as originally notified.
SECTION 8. Chairman. The Board of Directors may at any time
--------
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as the Board shall from time to time prescribe, but who shall not by reason of
performing and executing these duties and powers, be deemed an officer or
employee of the Corporation.
SECTION 9. Organization. At every meeting of the Board of
------------
Directors, the Chairman of the Board, if one has been selected and is present,
and, if not, the President, or in the absence of the Chairman of the Board and
the President, a chairman chosen by a majority of the directors present shall
preside; and the Secretary, or in his absence, a person appointed by the
chairman, shall act as secretary.
SECTION 10. Vacancies. If any vacancies occur in the Board of
---------
Directors by reason of resignation, removal or otherwise (except by reason of
increase in the number of directors), the Directors then in office shall
continue to act, and such vacancies may be filled by a majority of the Directors
then in office, whether or not the Directors constitute a quorum under Section 7
of this Article; and if the authorized number of Directors is increased, such
vacancies may be filled by a majority of the entire Board of Directors; provided
that, immediately after filling such vacancy, at least two-thirds of the
Directors then holding office shall have been elected to such office by the
stockholders of the Corporation. In the event that at any time, other than the
time preceding the first meeting of stockholders, less than a majority of the
Directors of the Corporation holding office at that time were elected by the
stockholders, a meeting of the stockholders shall be held promptly, and in any
event within sixty (60) days, for the purpose of electing Directors to fill any
existing vacancies on the Board of Directors unless the Securities and Exchange
Commission shall by order extend such period. But in no even shall such period
be extended for more than an additional 60 days. Subject to Section 11 of this
Article, any Director chosen to fill a vacancy shall hold office until the next
annual meeting of stockholders and until his or her successor shall have been
duly elected and qualified.
SECTION 11. Removal. Any director may be removed from office, with
-------
or without cause, by the stockholders by written declaration or the affirmative
vote of a majority of all the votes entitled to be cast for the election of
directors, and another may be elected in place
<PAGE>
-5-
of the person so removed, to serve the remainder of his or her term. The
Secretary shall promptly call a meeting of stockholders for the purpose of
voting on the question of removal of a director when requested in writing to do
so by stockholders entitled to cast not less than the percent (10%) of the
votes.
SECTION 12. Committees. The Board of Directors may, by resolution
----------
passed by a majority of the entire Board, designate one or more committees of
the Board of Directors, each consisting of two or more directors. To the extent
provided in such resolution, and permitted by law, such committee or committees
shall have and may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required. The members of a committee present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in the
place of an absent member.
SECTION 13. Telephone Conference. Members of the Board of
--------------------
Directors or any committee thereof may participate in a meeting of the Board or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
SECTION 14. Compensation of Directors. Each director shall be
-------------------------
entitled to receive such compensation, if any, as may from time to time be fixed
by the Board of Directors, including a fee, if any is so fixed, for each meeting
of the board or any committee thereof, regular or special, attended by him.
Directors may also be reimbursed by the Corporation for all reasonable expenses
incurred in traveling to and from the place of each meeting of the Board of any
such committee.
ARTICLE III
-----------
OFFICERS
--------
SECTION 1. Number. The officers of the Corporation shall be a
------
President, a Secretary and a Treasurer, and may include one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other officers as the Board of Directors may from time to time
determine.
SECTION 2. Election and Term of Office. The officers of the
---------------------------
Corporation shall be elected by the Board of Directors and, subject to earlier
termination of office, each officer shall hold office for one year and until his
successor shall have been elected and qualified.
<PAGE>
-6-
SECTION 3. Resignations. Any officer may resign at any time by
------------
giving written notice to the Board of Directors or to the President, or the
Secretary of the Corporation. Any such resignation shall take effect to the date
of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4. Removal. Any officer elected by the Board of Directors
-------
may be removed at any time by the affirmative vote of a majority of the Board of
Directors, upon a finding that the best interests of the corporation will be
served by such removal.
SECTION 5. President. The President shall be the chief executive
---------
officer of the Corporation and shall have general supervision over the business
and operations of the Corporation, subject, however, to the control of the Board
of Directors. The President, or such person as the President shall designate,
shall sign, execute and acknowledge, in the instruments authorized by the Board
of Directors, except in the case where the signing and execution thereof shall
be delegated by the Board to some other officer or agent of the Corporation; and
the President shall perform such other duties as from time to time may be
assigned to the President by the Board.
SECTION 6. The Vice Presidents. In the absence or disability of
-------------------
the President or when so directed by the President, any Vice President
designated by the Board of Directors may perform all the duties of the
President, and , when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
--------
President shall act as a member of or as chairman of any special committee of
which the President is a member or chairman by designation of ex-officio, except
when designated by the Board. The Vice Presidents shall perform such other
duties as from time to time may be assigned to them respectfully by the Board or
the Presidents.
SECTION 7. The Secretary. The Secretary shall record all the
-------------
votes of the stockholders and of the directors and the minutes of the meetings
of the stockholders and of the Board of Directors in a book or books to be kept
for the purpose; the Secretary shall see that notices of meetings of the
stockholders and the Board are given and that all records and reports are
properly kept and filed by the Corporation as required by law; the Secretary
shall be the custodian of the seal of the Corporation; and, in general, the
Secretary shall perform all duties incident to the office of Secretary, and such
other duties as may from time to time be assigned to the Secretary by the Board
or the President.
SECTION 8. Assistant Secretaries. In the absence or disability of
---------------------
the Secretary or when so directed by the Secretary, any Assistant Secretary may
perform all the duties of the Secretary, and, when so acting, shall have all the
powers of, and be subject to all restrictions upon, the Secretary. The
Assistant Secretaries shall perform such other duties as from time to
<PAGE>
-7-
time may be assigned to them respectively by the Board of Directors, the
President, or the Secretary.
SECTION 9. The Treasurer. Subject to the provisions of any
-------------
contract which may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; the Treasurer shall have full authority to
receive and give receipts for all money due and payable to the Corporation, and
to endorse checks, drafts and warrants, in its name and on deposit all funds of
the Corporation, except such as may be required for current use, in such banks
or other places of deposit as the Board of Directors may from time to time
designate; and, in general, the Treasurer shall perform all duties incident to
the office of Treasurer and such other duties as may from time to time be
assigned to the Treasurer by the Board or the President.
SECTION 10. Assistant Treasurers. In the absence or disability of
--------------------
the Treasurer or when so directed by the Treasurer, any Assistant Treasurer may
perform all the duties of the Treasurer, and, when so acting, shall have all the
powers of and be subject to tall the restrictions upon, the Treasurer. The
Assistant Treasurer shall perform all such other duties as from time to time may
be assigned to them respectively by the Board of Directors, the President or the
Treasurer.
SECTION 11. Compensation of Officers and Others. The Compensation
-----------------------------------
of all officers shall be fixed from time to time by the Board of Directors, or
any committee or officer authorized by the Board so to do. No officer shall be
precluded from receiving such compensation by reason of the fact that he is also
a director of the Compensation.
ARTICLE IV
----------
STOCK
-----
SECTION 1. Certificates. Each stockholder shall be entitled upon
------------
written request to a stock certificate or certificates, certifying the number of
kind of whole shares owned by him, signed by the President or a Vice President
and the Treasurer or an Assistant Treasurer, which signatures may be either
manual or facsimile signatures, and sealed with the seal of the Corporation,
which seal may be either facsimile or any other form of seal. Stock
certificates shall be in such form, not inconsistent with law or with the
Charter as shall be approved by the Board of Directors.
SECTION 2. Transfer of Shares. Transfer of shares shall be made
------------------
on the books of the Corporation at the direction of the person as the holder
thereof on the Corporation's books or named in the certificate for shares (if
issued), or by such person's duly authorized attorney, and upon surrender of the
certificates for such shares (if issued) properly endorsed, together with
<PAGE>
-8-
a proper request for redemption, to the Corporation or its redemption agent,
with such evidence of the authenticity of such transfer, authorization and other
matters as the Corporation or its agents may reasonably require, and subject to
such other reasonable condition and requirements as may be required by the
Corporation or its agents, or, if the Board of Directors shall by resolution so
provide, transfer of shares may be made in any other manner provided by law.
SECTION 3. Transfer Agents and Registrars. The Corporation may
------------------------------
have one or more transfer agents and one or more registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificates of stock shall be valid until countersigned by a transfer agent, if
the Corporation shall have a registrar. The duties of transfer agent and
registrar may be combined.
SECTION 4. Mutilated, Lost or Destroyed Certificates. The Board
-----------------------------------------
of Directors, by standing resolution or by resolutions with respect to
particular cases, may authorize the issue of new stock certificates in lieu of
stock certificates lost, destroyed or mutilated, upon such terms and conditions
as the Board may direct. The Board may in its discretion refuse to issue such
new certificates, unless ordered to do so by a court of competent jurisdiction.
SECTION 5. Stock Ledgers. The Corporation shall not be required
-------------
to keep original or duplicate stock ledgers at its principal office in the City
of Baltimore, Maryland, but stock ledgers shall be kept at the respective
offices of the transfer agents of the Corporation's capital stock, or at such
other office of the Corporation as the Board of Directors may designate from
time to time.
ARTICLE V
---------
SEAL
----
The seal of the Corporation shall be in such form as the Board of
Directors shall prescribe.
ARTICLE VI
----------
SUNDRY PROVISIONS
-----------------
SECTION 1. Amendments.
----------
(a) By Stockholders. These By-laws may be amended or
---------------
repealed in the manner provided in Section 5 of Article I hereof at any annual
or special meeting of the stockholders.
(b) By Directors. These By-laws may be amended or
------------
repealed in the manner provided in Section 7 of Article II hereof at any regular
meeting of the Board of
<PAGE>
-9-
Directors, or at any special meeting thereof if notice of such amendment or
repeal by contained in the notice of such special meeting.
SECTION 2. Indemnification of Directors and Officers.
-----------------------------------------
(a) Indemnification. Any person who was or is a party
---------------
or is threatened to be made a defendant or respondent in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving while a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or employee benefit plan, shall be indemnified by the
Corporation against judgments, penalties, fines, settlements and reasonable
expenses (including attorney's fees) actually incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under the General Laws of the State of Maryland now or hereafter in force,
except that such indemnity shall not protect any such person against any
liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
(b) Advances. Any person claiming indemnification
--------
within the scope of this Section 2 shall be entitled to advances from the
Corporation for payment of the expenses of defending actions against such person
in the manner and to the full extent permissible under the General Laws of the
State of Maryland now or hereafter in force.
(c) Procedure. On the request of any person requesting
---------
indemnification or an advance under this Section 2, the Board of Directors shall
determine whether the standards required by this Section 2 have been met, or
such determination shall be made by independent legal counsel if the Board so
directs or if the Board is not empowered by statute to make such determination.
SECTION 3. Independent Accountant. In accordance with the
----------------------
Investment Company Act of 1940, the Corporation shall employ an independent
public accountant or firm of independent public accountants as its account to
examine the accounts of the Corporation and to sign and certify financial
statements of the Corporation. If the Board of Directors selects an accountant
other than the accountant whose selection was most recently ratified by the
stockholders; the Board will call a meeting of stockholders and submit the
selection of such accountant to the stockholders for ratification or rejection.
SECTION 4. Conflict. When a provision in these Bylaws is in
--------
conflict with any valid federal law, rule, regulation, or order, technical
compliance with the provision shall yield to the dictates of such law, rule,
regulation, or order.
<PAGE>
Exhibit (5)(a)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.,
and
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the first day of May, 1989, by
and between PENN SERIES FUNDS, INC. ("Penn Series") and T ROWE PRICE ASSOCIATES,
INC., ("Adviser"), both of which are corporations organized and existing under
*the laws of the State of Maryland.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund (a "Fund" or,
collectively, the "Funds") of securities and other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory
services, and certain accounting and related services, to Penn Series in the
manner and on the terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of each Fund of Penn
Series in accordance with the investment objectives, program and restrictions
applicable to such Fund as provided in Penn Series' prospectus and or as Penn
Series may impose with notice in writing to Adviser. No investment will be made
by Advisor for any Fund if that investment is in violation of the objectives,
program, restrictions or limitations of that Fund. Adviser shall not take
custody of any assets of Penn Series, but shall issue settlement instructions to
the custodian designated by Penn Series (the "Custodian"). Adviser shall obtain
and evaluate such information relating to the
<PAGE>
economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of each Fund of Penn Series in a manner consistent with the
investment objectives of that Fund. In furtherance of this duty, Adviser, as
agent and attorney-in-fact with respect to Penn Series, is authorized, in its
discretion and without prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select;
provided, however, that Adviser shall make no investment for any Fund that is in
violation of the objectives, program, restrictions or limitations of that Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the Accounting
Services Agreement. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to each Fund. Adviser shall provide reasonable guidance to Penn Series and its
Accounting Services Agent on registered investment company accounting and
bookkeeping, as requested by Penn Series or its Accounting Services Agent, to
ensure compliance with generally accepted accounting, tax and securities
practices and rules.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the annual
rates of each Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
Fund Annual rate
---- -----------
<S> <C>
Money Market Fund 0.40%
Fixed Income Fund 0.45%
High Yield Bond Fund 0.50%
Growth Stock Fund 0.50%
Equity Income Fund 0.50%
Aggressive Equity Fund 0.50%
</TABLE>
B. Method of Computation. The fee for each Fund shall be accrued for
each the sum of the daily fee accruals shall be paid monthly to
Adviser as of the
-2-
<PAGE>
first business next succeeding calendar month. The daily fee
accruals will be computed by multiplying the fraction of one over
the number of calendar days in the year by the annual rate
applicable to the Fund as set forth above, and multiplying this
product by the net assets of the Fund. A Fund's net assets, for
purposes of the calculations described above will be determined
in accordance with Penn Series' prospectus and statement of
additional information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.
C. Expense Limitation. With respect to each Fund of Penn Series, to
the extent that the Fund's which are total expenses for a fiscal year
(excluding interest, taxes, brokerage, other expense capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
administrative and corporate services fees before any adjustment
pursuant to this provision) exceed the expense limitation for the
Fund, one-half of such excess amount shall be a liability of Adviser
to Penn Series. The liability (if any) of Adviser to pay Penn Series
one-half of such excess amount shall be determined on a daily basis.
If, at the end of each month, there is any liability of Adviser to pay
Penn Series such excess amount, the advisory fee shall be reduced by
such liability. If, at the end of each month, there is no liability of
Adviser to pay Penn Series such excess amount and if payments of the
advisory fee at the end of prior months during the fiscal year have
been reduced in excess of that required to maintain expenses within
the expense limitation, such excess reduction shall be recaptured by
Adviser and shall be payable by Penn Series to Adviser along with the
advisory fee payable to Adviser for that month. If, at the end of the
fiscal year, there is any remaining liability of Adviser to pay Penn
Series such excess amount (which has not been paid through reduction
of the advisory fee), Adviser shall remit to Penn Series an amount
sufficient to pay such remaining liability. The expense limitations of
the Penn Series Funds, as a percentage of the Fund's average daily net
assets, are as follows:
<TABLE>
<CAPTION>
Fund Expense Limitation
---- ------------------
<S> <C>
Money Market Fund 0.80%
Fixed Income Fund 0.90%
High Yield Bond Fund 0.90%
Growth Stock Fund 1.00%
Equity Income Fund 1.00%
Aggressive Equity Fund 1.00%
</TABLE>
4. Brokerage. Adviser, in carrying out its duties under this Agreement,
may cause Penn Series to pay a broker-dealer which furnishes brokerage or
research services (as such services
-3-
<PAGE>
are defined under Section 28(e) of the Securities Exchange Act of 1934, as
amended (the "34 Act")) a higher commission than that which might be charged by
another broker-dealer which does not furnish brokerage or research services or
which furnishes brokerage or research services deemed to be of lesser value, if
such commission is deemed reasonable in relation to the brokerage and research
services provided by the broker-dealer, viewed in terms of either that
particular transaction or the overall responsibilities of Adviser with respect
to the accounts as to which it exercises investment discretion (as such term is
defined under Section 3(a)(35) of the '34 Act). Adviser shall regularly advise
Penn Series' board of directors as to all payments of commissions and as to its
brokerage policies and practices and shall follow such instructions with respect
thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser, and
any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful. Adviser and its affiliates shall cooperate with Penn Series'
independent public accountants and take all reasonable action in the performance
of services and obligations under this Agreement to assure that the information
needed by such accountants is
-4-
<PAGE>
made available to them for the expression of their opinion without any
qualification as to the scope of their examination, including, but not limited
to, their opinion included in Penn Series' annual report under the Act and
annual amendment to Penn Series' registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement. Any printed matter, or
other material prepared for distribution to the stockholders of Penn Series or
the public, which refers in any way to Adviser or any affiliated corporation of
Adviser other than merely to identify Adviser as the investment adviser or
manager for Penn ,-Series or any of its Funds or to identify Adviser or an
affiliated corporation as agent of Penn Series or any of its Funds, shall be
furnished to Adviser at least 14 days prior to use thereof. Penn Series shall
not use such material if Adviser shall object thereto in writing within 7 days
after its receipt by Adviser. In the event of termination of this Agreement,
Penn Series shall, on written request of Adviser, forthwith delete any reference
to Adviser or any affiliated corporation of Adviser from any materials prepared
on behalf of Penn Series.
11. Ownership of Records. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and that are
maintained and kept current by Adviser or any affiliated corporation of Adviser
on behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser itself or through an affiliated corporation for the periods
prescribed in Rule 3la-2 under the Act, where applicable, or in such other
applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by representatives of Penn Series at reasonable times,
and, in the event of termination of this Agreement, will be promptly delivered
to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to any particular Fund, or until Adviser shall otherwise consent, Adviser
shall be the only investment adviser to that Fund. It is understood that
Adviser may give advice and take action for its other clients which may differ
from advice given, or the timing or nature of action taken, for any Penn Series'
Fund. Adviser is not obligated to initiate transactions for a Fund in any
security which Adviser, its principals, affiliates or employees may purchase or
sell for its or their own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn
-5-
<PAGE>
Series, except after prior notification to and approval in writing by Penn
Series, which approval shall not be reasonably withheld and may not be withheld
where Adviser or any affiliate may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in the
Penn Series Funds.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series or its own legal counsel in respect of any matter
arising in connection with this Agreement, and Adviser shall not be liable for
any action taken or omitted by it or by any affiliate in good faith in
accordance with such instructions or with the advice or opinion of Penn Series'
legal counsel. Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Adviser to be genuine and to have been signed by the proper person
or persons and shall not be held to have notice of any change of authority of
any officer or agent of Penn Series, until receipt of written notice thereof
from Penn Series.
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such error, mistake or loss resulting from
willful misfeasance, bad faith, negligence or misconduct in the performance of
its, his or her duties on behalf of Penn Series or constituting or resulting
from a failure to comply with any term of this Agreement. Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian or of any broker, dealer, underwriter or issuer selected by Adviser
with reasonable care.
18. Obligations of Penn Series. It is expressly agreed that the
obligations of Penn Series hereunder shall not be binding upon any of its
directors, shareholders, nominees, officers, agents or employees, personally.
The execution and delivery of this Agreement have been
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<PAGE>
authorized by the board of directors and shareholders of Penn Series and signed
by an authorized officer of Penn Series, acting as such, and shall bind Penn
Series.
19. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
accounting or related service described in this Agreement, upon instructions
reasonably believed by Adviser or any affiliated corporation to have been
executed by an individual who has been identified in writing by Penn Series as a
duly authorized officer of Penn Series- or (ii) any action by Adviser or any
affiliated corporation, with respect to any accounting or related service
described in this Agreement, upon information provided by Penn Series in form
and under policies agreed to by Adviser and Penn Series. Adviser riot be
entitled to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Adviser or its affiliates, agents or
contractors: or constituting a failure by Adviser or any affiliate comply with
any term of this Agreement. Prior to the confession of any claim against
Adviser which may be subject to this indemnification, Adviser shall give Penn
Series reasonable opportunity to defend against said claim in its own name or in
the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel. incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliates failure to
comply with any term of this Agreement or which arise out of the willful
misfeasance, bad faith, negligence or misconduct of Adviser, its affiliates,
their agents or contractors. Penn Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of Penn Series or its agents or contractors or constituting a
failure by Penn Series to comply with any term of this Agreement; provided, that
such negligence or misconduct is not attributable to Adviser or any person that
is an affiliate of Adviser or an affiliate of an affiliate of Adviser Prior to
confessing any claim against it which may be subject to this indemnification,
Penn Series shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Penn Series. For purposes of this
Section 20 and of Section 19 hereof, no broker or dealer shall be deemed to be
acting as agent or contractor of Penn Series, Advise, or any affiliate of
Adviser, in effecting or executing any portfolio transaction for a Fund.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
22. Dual Interests. It is understood that some person or persons may be
directors, officers, or shareholders of both Penn Series and Adviser (including
its affiliates), and that the existence of any such dual interest shall not
affect the validity hereof or of any transactions hereunder except as otherwise
provided by a specific provision of applicable law.
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<PAGE>
23. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect through February 28, 1990. Thereafter, this
Agreement shall continue in effect from year to year with respect to any given
Fund, subject to the termination provisions and all other terms and conditions
hereof, so long as such continuation shall be specifically approved at least
annually (a) by either the board of directors of Penn Series, or by a vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund; (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such approval,
of a majority of the directors of Penn Series who are not parties to this
Agreement or interested persons of any such party; and (c) Adviser shall not
have notified Penn Series, in writing, at least 90 days prior to February 28,
1990 or prior to February 28 of any year thereafter, that it does not desire
such continuation. Adviser shall furnish to Penn Series, promptly upon its
request, such information as may reasonably be necessary to evaluate the terms
of this Agreement with respect to each Fund or any extension, renewal or
amendment hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended assigned as to any particular Fund without the affirmative vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund, and, without affecting any claim for
damages or other right that Penn Series may have as a result thereof, this
Agreement shall automatically and immediately terminate as to any Fund in the
event of its assignment with respect to that Fund.
25. Termination of Agreement. This Agreement may be terminated as to any
Fund by Penn Series or by Adviser. without the payment of any penalty. upon 60
days' prior notice in writing from Penn Series to Adviser or upon 90 days' prior
notice in writing from Adviser to Penn Series, provided, that in the case of
termination by Penn Series, such action shall have been authorized by resolution
of a majority of its directors who are not parties to this Agreement or
interested persons of any such party, or by vote of a major the outstanding
voting securities of the series of shares of Penn Series representing interests
in that Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
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<PAGE>
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of
the outstanding voting securities," "interested person," assignment,"
and "affiliated person"as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it is
agreed that for this purpose the address of Penn Series is 600 Dresher
Road, Horsham, PA 19044, Attention: Joseph E. Vardaro, President, and
that of Adviser is 100 East Pratt Street, Baltimore, Maryland 21202,
Attention: Henry H. Hopkins, Esq.
E. State Law. The Agreement shall be construed and enforced in
accordance with a by the laws of the State of Maryland except where
such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ By:/s/ Joseph E. Vardaro
- -------------------------- ----------------------------------
Secretary Joseph E. Vardaro
President
Attest: T. ROWE PRICE ASSOCIATES, INC.
/s/ By:/s/ James S. Riepe
- -------------------------- ----------------------------------
Secretary James S. Riepe
Vice President
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<PAGE>
Exhibit (5)(b)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the first day of November, 1992
by and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized
and existing under the laws of the State of Maryland, and INDEPENDENCE CAPITAL
MANAGEMENT, INC. ("Adviser"), a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund of securities and other
assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory
services, and certain accounting and related services, to Penn Series in the
manner and on the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Growth Equity Fund
(formerly the "Growth Stock Fund"), the Quality Bond Fund (formerly the "Fixed
Income Fund"), and the Money Market Fund of Penn Series (collectively, "the
Funds") in accordance with the investment objectives, program and restrictions
applicable to each such Fund as provided in Penn Series' prospectus and
statement of additional information, as amended from time to time, and such
other limitations as may be imposed by law or as Penn Series may impose with
notice in writing to Adviser. No investment will be made by Adviser for any of
the Funds if that investment is in violation of the objectives, program,
restrictions or limitations of that Fund. Adviser shall not take custody of any
assets of Penn Series, but shall issue settlement instructions to the custodian
designated by Penn Series (the "Custodian"). Adviser shall obtain and evaluate
such information relating to the economy, industries, businesses, securities
markets and securities as it may deem necessary or useful in the discharge of
its obligations hereunder and shall formulate and implement a continuing
<PAGE>
program for the management of the assets and resources of the Funds in a manner
consistent with the investment objectives of that Fund. In furtherance of this
duty, Adviser, as agent and attorney-in-fact with respect to Penn Series, is
authorized, in its discretion and without prior consultation with Penn Series,
to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select,
in conformance with the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for any of the Funds
that is in violation of the objectives, program, restrictions or limitations of
that Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement. As requested from time to time, Adviser shall
provide Penn Series and its Accounting Services Agent with such information as
may be reasonably necessary to properly account for financial transactions with
respect to each of the Funds.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the
annual rates of each Fund's average daily net assets as follows:
2
<PAGE>
Annual Rate for
Average Daily Net Annual Rate for
Assets Up to and Average Daily Net
Including One- Assets Over One-
Hundred Million Hundred Million
Dollars Dollars
Fund ($100,000,000) ($100,000,000)
- ---- ------------------ ------------------
Growth Equity Fund 0.50% 0.45%
(Formerly the
"Growth Stock Fund")
Quality Bond Fund 0.45% 0.40%
(Formerly the
"Fixed Income Fund")
Money Market Fund 0.40% 0.35%
B. Method of computation. The fee for each of the Funds shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid monthly to
Adviser as of the first business day of the next succeeding calendar month. The
daily fee accruals will be computed by multiplying the fraction of one over the
number of calendar days in the year by the annual rate applicable to the Fund as
set forth above, and multiplying this product by the net assets of the Fund. The
Fund's net assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' prospectus and statement of
additional information as of the close of business on the most recent previous
business day on which Penn Series was open for business.
C. Expense Limitation. With respect to each of the Funds, to the extent that
the Fund's total expenses for a fiscal year (excluding interest, taxes,
brokerage, other expenses which are capitalized in accordance with generally
accepted accounting principles, and extraordinary expenses, but including
investment advisory and administrative and corporate services fees before any
adjustment pursuant to this provision) exceed the expense limitation for that
Fund in an amount up to and including .10% of the average daily net assets of
the Fund, such excess amount shall be a liability of Adviser to Penn Series. The
liability (if any) of Adviser to pay Penn Series such excess amount shall be
determined on a daily
3
<PAGE>
basis. If, at the end of each month, there is any liability of Adviser to
pay Penn Series such excess amount, the advisory fee shall be reduced by
such liability. If, at the end of each month, there is no liability of
Adviser to pay Penn Series such excess amount and if payments of the
advisory fee at the end of prior months during the fiscal year have been
reduced in excess of that required to maintain expenses within the
expense limitation, such excess reduction shall be recaptured by Adviser
and shall be payable by Penn Series to Adviser along with the advisory
fee payable to Adviser for that month. The expense limitations of the
Funds, as a percentage of the Fund's average daily net assets, are as
follows :
Fund Expense Limitation
---- ------------------
Growth Equity Fund 1.00%
(Formerly the
"Fixed Income
Fund")
Quality Bond Fund 0.90%
(Formerly the
"Fixed Income Fund")
Money Market Fund 0.80%
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for any of the Funds, Adviser will use its best efforts to seek the
best price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker provided to Penn Series or the
Adviser. In addition, for the Growth Fund (formerly the "Growth Stock Fund") and
the Quality Bond Fund (formerly the "Fixed Income Fund"), Adviser is authorized
to take into account the sale of variable contracts which are invested in Penn
Series shares in allocating to brokers or dealers purchase and sale orders for
portfolio securities, provided that Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Adviser shall regularly advise Penn Series' board of directors
as to all payments of commissions add as to its brokerage policies and practices
and shall follow such instructions with respect thereto as may be given by Penn
Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
4
<PAGE>
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser,
and any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall cooperate
with Penn Series' independent public accountants and take all reasonable action
in the performance of services and obligations under this Agreement to assure
that the information needed by such accountants is made available to them for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to
5
<PAGE>
discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Adviser or any affiliated corporation of
Adviser on behalf of Penn Series are the property of Penn Series. Such records
will be preserved by Adviser itself or through an affiliated corporation for the
periods prescribed in Rule 3la-2 under the Act, where applicable, or in such
other applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by representatives of Penn Series at reasonable times,
and, in the event of termination of this Agreement, will be promptly delivered
to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit
the freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities, but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to any particular Fund, or until Adviser shall otherwise consent, Adviser
shall be the only investment adviser to that Fund. It is understood that Adviser
may give advice and take action for its other clients which may from advice
given, or the timing or nature of action taken, for any of the Funds. Adviser is
not obligated to initiate transactions for a Fund in any security which Adviser,
its principals, affiliates or employees may purchase or sell for its or their
own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to confidential
all records and other information relating to Penn Series, except after prior
notification to and approval in writing by Penn Series, approval shall not be
unreasonably withheld and may not be withheld where Adviser or any affiliate may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series
as the Board of Directors of Penn Series shall deem appropriate, Adviser shall
vote proxies solicited by or with respect to the issuers of securities held in
the Funds.
15. Instructions, opinion of Counsel and Signatures. At any time
6
<PAGE>
Adviser may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in connection
with this Agreement, and Adviser shall not be liable for any action taken or
omitted by it or by any affiliate in good faith in accordance with such
instructions or with the advice or opinion of Penn Series' legal counsel.
Adviser and its affiliates shall be protected in acting upon any instruction,
advice, or opinion provided by Penn Series or its legal counsel and upon any
other paper or document delivered by Penn Series or its legal counsel believed
by Adviser to be genuine and to have been signed by the proper person or persons
and shall not be held to have notice of any change of authority of any officer
or agent of Penn Series, until receipt of written notice thereof from Penn
Series.
16. Compliance with Governmental Rules and Regulations. Except as
such responsibility may be placed upon Adviser or any affiliate expressly by, or
by fair implication of, the terms of this Agreement, and except for the accuracy
of information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its
affiliates, their officers, directors, employees or agents, or any person
performing executive, administrative, trading, or other functions for Penn
Series (at the direction or request of Adviser), or Adviser or its affiliates in
connection with the discharge of obligations undertaken or reasonably assumed
with respect to this Agreement, shall be liable for any error of judgment or
mistake of law or for any loss suffered by Penn Series in connection with the
matters to which this Agreement relates, except for such error, mistake or loss
resulting from willful misfeasance, bad faith, negligence or misconduct in the
performance of its, his or her duties on behalf of Penn Series or constituting
or resulting from a failure to comply with any term of this Agreement. Adviser
shall not be responsible for any loss incurred by reason of any act or omission
of the Custodian or of any broker, dealer, underwriter or issuer selected by
Adviser with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed
that the obligations of Penn Series and Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have been
authorized by the board of directors and shareholders of Penn Series and signed
by an authorized officer of Penn Series, acting as such, and shall bind Penn
Series.
7
<PAGE>
19. Indemnification by Penn Series. Penn Series will indemnify and
hold Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Adviser resulting from: (i)
any action or omitting to act by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Adviser or any affiliated corporation to have been executed by an
individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series; or (ii) any action by Adviser or any
affiliated corporation, with respect to any service described in this Agreement,
upon information provided by Penn Series in form and under policies agreed to by
Adviser and Penn Series. Adviser shall not be entitled to such indemnification
in respect of actions or omissions constituting negligence or willful misconduct
of Adviser or its affiliates, agents or contractors, or constituting a failure
by Adviser or any affiliate to comply with any term of this Agreement. Prior to
the confession of any claim against Adviser which may be subject to this
indemnification, Adviser shall give Penn Series reasonable opportunity to defend
against said claim in its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold
harmless Penn Series from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Penn Series resulting from
any claim, demand, action or suit arising out of Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or its agents or contractors or
constituting a failure by Penn Series to comply with any term of this Agreement;
provided, that such negligence or misconduct is not attributable to Adviser or
any person that is an affiliate of Adviser or an affiliate of an affiliate of
Adviser. Prior to confessing any claim against it which may be subject to this
indemnification, Penn Series shall give Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Penn Series. For purposes
of this Section 20 and of Section 19 hereof, no broker or dealer shall be deemed
to be acting as agent or contractor of Penn Series, Adviser or any affiliate of
Adviser, in effecting or executing any portfolio transaction for a Fund.
21. Further Assurances. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
22. Dual Interests. It is understood that some person or persons may
be, or from time to time become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence of
any such dual
8
<PAGE>
interest shall not affect the validity hereof or of any transactions hereunder
except as otherwise provided by a specific provision of applicable law.
23. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect through October 31, 1993. Thereafter, this
Agreement shall continue in effect from year to year with respect to any given
Fund, subject to the termination provisions and all other terms and conditions
hereof, so long as such continuation shall be specifically approved at least
annually (a) by either the board of directors of Penn Series, or by a vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund; (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such approval,
of a majority of the directors of Penn Series who are not parties to this
Agreement or interested persons of any such party; and (c) Adviser shall not
have notified Penn Series, in writing, at least 90 days prior to October 31,
1993 or prior to October 31 of any year thereafter, that it does not desire such
continuation. Adviser shall furnish to Penn Series, promptly upon its request,
such information as may reasonably be necessary to evaluate the terms of this
Agreement with respect to each Fund or any extension, renewal or amendment
hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned as to any particular Fund without the affirmative vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in that Fund, and, without affecting any claim for
damages or other right that Penn Series may have as a result thereof, this
Agreement shall automatically and immediately terminate as to any Fund in the
event of its assignment with respect to that Fund.
25. Termination of Agreement. This Agreement may be terminated as to
any Fund by Penn Series or by Adviser, without the payment of any penalty, upon
60 days' prior notice in writing from Penn Series to Adviser, or upon 90 days'
prior notice in writing from Adviser to Penn Series; provided, that in the case
of termination by Penn Series, such action shall have been authorized by
resolution of a majority of its directors who are not parties to this Agreement
or interested persons of any such party, or by vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in that Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or
9
<PAGE>
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles
of Incorporation or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of
the affairs of Penn Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or,
in the absence of any controlling decision of any such court, by
rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the
terms "vote of a majority of the outstanding voting securities,"
"interested person," "assignment," and "affiliated person," as
used herein, shall have the meanings assigned to them by Section
2(a) of the Act. In addition, where the effect of a requirement
of the Act reflected in any provision of this Agreement is
relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the
effect of regulation or order.
D. Notice. Notice under the Agreement shall be in addressed and
delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice,
it is agreed that for this purpose the address of Penn Series is
600 Dresher Road, Horsham PA 19044, Attention: C. Ronald Rubley,
Associate General Counsel, and that of Adviser is 600 Dresher
Road, Horsham, PA 19044, Attention: Kenneth J. Kempf, President.
10
<PAGE>
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Ronald Rubley By: /s/ Kenneth J. Kempf
- ----------------------------- ------------------------------
Secretary Kenneth J. Kempf
President
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
/s/ C. Ronald Rubley By: /s/ Kenneth J. Kempf
- ----------------------------- ------------------------------
Assistant Secretary Kenneth J. Kempf
President
11
<PAGE>
Exhibit (5)(c)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
QUEST FOR VALUE ADVISORS
INVESTMENT ADVISORY AGREEMENT, made as of the first day of November, 1992,
by and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized
and existing under the laws of the State of Maryland, and QUEST FOR VALUE
ADVISORS ("Adviser"), a general partnership organized and existing under the
laws of the State of Delaware.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund of securities and other
assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory services
to Penn Series in the manner and on the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Value Equity Fund
(formerly the "Equity Income Fund") of Penn Series ("the Fund") in accordance
with the investment objectives, program and restrictions applicable to the Fund
as provided in Penn Series' prospectus and statement of additional information,
as amended from time to time, and such other limitations as may be imposed by
law or as Penn Series may impose with notice in writing to Adviser. No
investment will be made by Adviser for the Fund if that investment is in
violation of the objectives, program, restrictions or limitations of the Fund.
Adviser shall not take custody of any assets of Penn Series, but shall issue
settlement instructions to the custodian designated by Penn Series (the
"Custodian"). Adviser shall obtain and evaluate such information relating to
the economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the assets
and resources of the Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Adviser, as agent and attorney-in-
<PAGE>
fact with respect to Penn Series, is authorized, in its discretion and without
prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select, in
conformance with the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for the Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the Accounting
Services Agreement. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the
annual rate of .50% of the Fund's average daily net assets.
B. Method of computation. The fee for the Fund shall be accrued for
each calendar day and the sum of the daily fee accruals shall be
paid monthly to Adviser as of the first business day of the next
succeeding calendar month. The daily fee accruals will be computed
by multiplying the fraction of one over the number of calendar
days in the year by the annual rate applicable to the Fund as set
forth above, and multiplying this product by the net assets of the
Fund. The Fund's net assets, for purposes of the calculations
described above, will be determined in accordance with Penn
Series' prospectus and statement of additional information as of
the close of business on the most recent previous business day on
which Penn Series was open for business.
C. Expense Limitation. The expense limitation of the Fund, as a
percentage of the Fund's average net assets, is 1.00%. To the
extent that the Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, other expenses which are capitalized
in accordance with generally accepted accounting principles, and
extraordinary expenses, but including
-2-
<PAGE>
investment advisory and services fees before any adjustment
pursuant to this provision) exceed the expense limitation for the
Fund in an amount up to and including .10% of the average daily
net assets of the Fund, such excess amount shall be a liability of
Adviser to Penn Series. The liability (if any) of Adviser to pay
Penn Series such excess amount shall be determined on a daily
basis. If, at the end of each month, there is any liability of
Adviser to pay Penn Series such excess amount, the advisory fee
shall be reduced by such liability. If, at the end of each month
there is no liability of Adviser to pay Penn Series such excess
amount and if payments of the advisory fee at the end of prior
months during the fiscal year have been reduced in excess of that
required to maintain expenses within the expense limitation, such
excess reduction shall be recaptured by Adviser and shall be
payable by Penn Series to Adviser along with the advisory fee
payable to Adviser for that month.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Adviser. In addition, Adviser is authorized to take into account the sale of
variable contracts which are invested in Penn Series shares in allocating to
brokers or dealers purchase and sale orders for portfolio securities, provided
that Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Adviser shall
regularly advise Penn Series' board of directors as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office
-3-
<PAGE>
services as it, or any affiliated corporation of Adviser, requires in the
performance of services under this Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser, and
any affiliated corporation of Adviser performing services for Penn described in
this Agreement, shall furnish to or place at the disposal of Penn Series, such
information, reports, evaluations, analyses and opinions as Penn Series may, at
any time or from time to time, reasonably request or as Adviser may deem
helpful, to reasonably ensure compliance with applicable laws and regulations or
for any other purpose. Adviser and its affiliates shall cooperate with Penn
Series' independent public accountants and take all reasonable action in the
performance of services and obligations under this Agreement to assure that the
information needed by such accountants is made available to them for the
expression of their opinion without any qualification as to the scope of their
examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and that are
maintained and kept current by Adviser or any affiliated corporation of Adviser
on behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser itself or through an affiliated corporation for the periods
prescribed in Rule 3la-2 under the Act, where applicable, or in such other
applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by representatives of Penn Series at reasonable times,
and, in the event of termination of this Agreement, will be promptly delivered
to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to
-4-
<PAGE>
other investment companies, to act as investment adviser or investment counselor
to other persons, firms or corporations, or to engage in other business
activities, but so long as this Agreement or any extension, renewal or amendment
hereof shall remain in effect as to the Fund, or until Adviser shall otherwise
consent, Adviser shall be the only investment adviser to the Fund. It is
understood that Adviser may give advice and take action for its other clients
which may differ from advice given, or the timing or nature of action taken, for
the Fund. Adviser is not obligated to initiate transactions for the Fund in any
security which Adviser, its principals, affiliates or employees may purchase or
sell for its or their own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be reasonably withheld and may not be withheld where Adviser
or any affiliate may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser vote
proxies solicited by or with respect to the issuers of securities held in the
Fund.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series, in respect of any matter arising in connection with
this Agreement, and Adviser shall not be liable for any action taken or omitted
by it or by any affiliate in good faith in accordance with such instructions or
with the advice or opinion of Penn Series' legal Adviser and its affiliates
shall be protected in acting upon any instruction, advice, or opinion provided
by Penn Series or its legal counsel and upon any other paper or document
delivered by Penn Series or its legal counsel believed by Adviser to be genuine
and to have been signed by the proper person or persons and shall not be held to
have notice of any change of authority of any officer or agent of Penn Series,
until receipt of written notice thereof from Penn Series.
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or
-5-
<PAGE>
other functions for Penn Series (at the direction or request of Adviser), or
Adviser or its affiliates in connection with the discharge of obligations
undertaken or reasonably assumed with respect to this Agreement, shall be liable
for any error of judgment or mistake of law or for any loss suffered by Penn
Series in connection with the matters to which this Agreement relates, except
for such error, mistake or loss resulting from willful misfeasance, bad faith,
negligence or misconduct in the performance of its, his or her duties on behalf
of Penn Series or constituting or resulting from a failure to comply with any
term of this Agreement. Adviser shall not be responsible for any loss incurred
by reason of any act or omission of the Custodian or of any broker, dealer,
underwriter or issuer selected by Adviser with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized
by the board of directors and shareholders of Penn Series and signed by an
authorized officer of Penn Series, acting as such, and shall bind Penn Series.
19. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the confession of
any claim against Adviser which may be subject to this indemnification, Adviser
shall give Penn Series reasonable opportunity to defend against said claim in
its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliate's failure to
comply with any term of this Agreement or which arise out of the willful
misfeasance, bad faith, negligence or misconduct of Adviser, its affiliates,
their agents or contractors. Penn Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of Penn Series or its agents or contractors or constituting a
failure by Penn Series to comply with any term of this Agreement; provided, that
such negligence or misconduct is not attributable to Adviser or any person that
is an affiliate of Adviser or an affiliate of An affiliate of Adviser. Prior to
confessing any claim against it which may be subject to this indemnification,
Penn Series shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Penn Series. For purposes of this
-6-
<PAGE>
Section 20 and of Section 19 hereof, no broker or dealer shall be deemed to be
acting as agent or contractor of Penn Series, Adviser or any affiliate of
Adviser, in effecting or executing any portfolio transaction for the Fund.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
22. Dual Interests. It is understood that some person or persons may be,
or from time to time become, directors, officers, or shareholders of both Penn
Series and Adviser (including its affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
23. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect through October 31, 1993. Thereafter, this
Agreement shall continue in effect from year to year with respect to the Fund,
subject to the termination provisions and all other terms and conditions hereof,
so long as such continuation shall be specifically approved at least annually
(a) by either the board of directors of Penn Series, or by a vote of a majority
of the outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund; (b) in either event by the vote, cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the directors of Penn Series who are not parties to this Agreement
or interested persons of any such party; and (c) Adviser shall not have notified
Penn Series, in writing, at least 90 days prior to October 31, 1993 or prior to
October 31 of any year thereafter, that it does not desire such continuation.
Adviser shall furnish to Penn Series, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement with respect to the Fund or any extension, renewal or amendment
hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund, and, without affecting any claim for damages
or other right that Penn Series may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its assignment.
25. Change in Partners of Adviser. Adviser will notify Penn Series of any
change in the membership of Adviser's partnership within a reasonable time after
such change.
26. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser, without the payment of any penalty, upon 60 days' prior
notice in writing from Penn Series to Adviser, or upon 90 days' prior notice in
writing from Adviser to Penn Series; provided, that in the case of termination
by Penn Series, such action shall have been authorized by resolution of a
majority of its directors who are not interested persons of any party to this
-7-
<PAGE>
Agreement, or by vote of a majority of the outstanding voting securities of the
series of shares of Penn Series representing interests in the Fund.
27. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of
the outstanding voting securities," "interested person," "assignment,"
and "affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it is
agreed that for this purpose the address of Penn Series is 600 Dresher
Road, Horsham, PA 19044, Attention: Kenneth J. Kempf, President, and
that of Adviser is One World Financial Center, New York, New York
10281, Attention: Thomas Duggan, General Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Ronald Rubley By: /s/ Kenneth J. Krampf
- --------------------- --------------------------------
Secretary Kenneth J. Krampf
President
Attest: QUEST FOR VALUE ADVISOR
/s/ Thomas E. Duggan By: /s/
- --------------------- --------------------------------
Secretary
-9-
<PAGE>
Exhibit (5)(d)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
QUEST FOR, VALUE ADVISORS
Relating to
PENN SERIES SMALL CAPITALIZATION FUND
INVESTMENT ADVISORY AGREEMENT, made as of the first day of March, 1995, by
and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized and
existing under the laws of the State of Maryland, and QUEST FOR VALUE ADVISORS
("Adviser"), a general partnership organized and existing under the laws of the
State of Delaware.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund of securities and other
assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory services
to Penn Series in the manner and on the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of the premises and the hereinafter set
forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall super-vise and direct the investments of the Small
Capitalization Fund of Penn Series ("the Fund") in accordance with the
investment objectives, program and restrictions applicable to the Fund as
provided in Penn Series' prospectus and statement of additional information, as
amended from time to time, and such other limitations as may be imposed by law
or as Penn Series may impose with notice in writing to Adviser. No investment
will be made by Adviser for the Fund if that
<PAGE>
investment is in violation of the objectives, program, restrictions or
limitations of the Fund. Adviser shall not take custody of any assets of Penn
Series, but shall issue settlement instructions to the custodian designated by
Penn Series (the "Custodian"). Adviser shall obtain and evaluate such
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner consistent
with the investment objectives of the Fund. In furtherance of this duty,
Adviser, as agent and attorney-in-fact with respect to Penn Series, is
authorized, in its discretion and without prior consultation with Penn Series,
to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the execution
of transactions in securities with or through such brokers, dealers,
underwriters or issuers as Adviser may select, in conformance with
the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for the Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the Accounting
Services Agreement. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the annual
rate of .50% of the Fund's average daily net assets.
B. Method of computation. The fee for the Fund shall be accrued
for each calendar day and the sum of the daily fee accruals shall be
paid monthly to Adviser as of the first business day of the next
succeeding calendar month. The daily fee will be computed by
multiplying the fraction of one over the number of calendar days in
the year by the annual rate applicable to the Fund as set forth
above, and multiplying this product by the net assets of the Fund.
The Fund's net assets, for purposes of the calculations described
above, will be determined in accordance with Penn Series' prospectus
and statement of additional information as of the close of business
on the most recent previous business day on which Penn Series was
open for business.
-2-
<PAGE>
C. Expense Limitation. The expense limitation of the Fund, as a
percentage of the Fund's average net assets, is 1.00%. To the extent
that the Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and extraordinary
expenses, but including investment advisory and administrative and
corporate services fees before any adjustment pursuant to this
provision) exceed the expense limitation for the Fund in an amount up
to and including .10% of the average daily net assets oil the Fund,
such excess amount shall be a liability of Adviser to Penn Series.
The liability (if any) of Adviser to pay Penn Series such excess
amount shall be determined on a daily basis. If, at the end of each
month, there is any liability of Adviser to pay Penn Series such
excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month there is no liability of Adviser to pay
Penn Series such excess amount and if payments of the advisory fee at
the end of prior months during the fiscal year have been reduced in
excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Adviser and
shall be payable by Penn Series to Adviser along with the advisory
fee payable to Adviser for that month.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Adviser. In addition, Adviser is authorized to take into account the sale of
variable contracts which are invested in Penn Series shares in allocating to
brokers or dealers purchase and sale orders for portfolio securities, provided
that Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Adviser shall
regularly advise Penn Series' board of directors as to all payments of
commissions and as to its brokerage policies and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
-3-
<PAGE>
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser, and
any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall cooperate
with Penn Series' independent public accountants and take all reasonable action
in the performance of services and obligations under this Agreement to assure
that the information needed by such accountants is made available to them for
the expression of their opinion without any qualification as to the scope of
their examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business affairs of Penn Series,
as Adviser may, at any time or from time to reasonably require in order to
discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and that are
maintained and kept current by Adviser or any affiliated corporation of Adviser
on behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser itself or through an affiliated corporation for the
periods prescribed in Rule 3la-2 under the Act, where applicable, or in such
other applicable rules that may be adopted from time to time under the Act.
Such records may be inspected by representatives of Penn Series at reasonable
times, and, in the event of termination of this Agreement, will be promptly
delivered to Penn Series.
-4-
<PAGE>
12. Services to other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities, but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to the Fund, or until Adviser shall otherwise consent, Adviser shall be the
only investment adviser to the Fund. It is understood that Adviser may give
advice and take action for its other clients which may differ from advice given,
or the timing or nature of action taken, for the Fund. Adviser is not obligated
to initiate transactions for the Fund in any security which Adviser, its
principals, affiliates or employees may purchase or sell for its or their own
accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be unreasonably withheld and may not be withheld where
Adviser or any affiliate may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in the
Fund.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series, in respect of any matter arising in connection with
this Agreement, and Adviser shall not be liable for any action taken or omitted
by it or by any affiliate in good faith in accordance with such instructions or
with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and shall not be
held to have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series.
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
-5-
<PAGE>
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such error, mistake or loss resulting from
willful misfeasance, bad faith, negligence or misconduct in the performance of
its, his or her duties on behalf of Penn Series or constituting or resulting
from a failure to comply with any term of this Agreement. Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian or of any broker, dealer, underwriter or issuer selected by Adviser
with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized
by the board of directors of Penn Series and signed by an authorized officer of
Penn Series, acting as such, and shall bind Penn Series.
19. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the confession of
any claim against Adviser which may be subject to this indemnification, Adviser
shall give Penn Series reasonable opportunity to defend against said claim in
its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliate's failure to
comply with any term of this Agreement or which arise out of the willful
misfeasance, bad faith, negligence or misconduct of Adviser, its affiliates,
their agents or contractors. Penn Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of Penn Series or its agents or contractors or constituting a
failure by Penn Series to comply with any term of this Agreement; provided, that
such negligence or misconduct is not attributable to Adviser or any person that
is an affiliate of Adviser or an affiliate of an affiliate of Adviser. Prior to
confessing any claim against it which
-6-
<PAGE>
may be subject to this indemnification, Penn Series shall give Adviser
reasonable opportunity to defend against said claim in its own name or in the
name of Penn Series. For purposes of this Section 20 and of Section 19 hereof,
no broker or dealer shall be deemed to be acting as agent or contractor of Penn
Series, Adviser or any affiliate of Adviser, in effecting or executing any
portfolio transaction for the Fund.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
22. Dual Interests. It is understood that some person or persons may be,
or from time to time become, directors, officers, or shareholders of both Penn
Series and Adviser (including its affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
23. Term of Agreement. The term of this Agreement shall begin date first
above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect through February 28, 1997. Thereafter, this
Agreement shall continue in effect from year to year with respect to the Fund,
subject to the termination provisions and all other terms and conditions hereof,
so long as (1) such continuation shall be specifically approved at least
annually (a) by either the board of directors of Penn Series, or by a vote of a
majority of the outstanding voting securities of the series of shares of Penn
Series representing interests in the Fund and (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such approval,
of a majority of the directors of Penn are not parties to this Agreement or
interested persons of any such (2) Adviser shall not have notified Penn Series,
in writing, at least 90 days prior to March 1, 1997 or prior to March 1 of any
year thereafter, that it does not desire such continuation. Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
the Fund or any extension, renewal or amendment hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund, and, without affecting any claim for damages
or other right that Penn Series may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its assignment.
25. Change in Partners of Adviser. Adviser will notify Penn Series of
any change in the membership of Adviser's partnership within a reasonable time
after such change.
26. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser, without the payment of any penalty, upon 60 days' prior
notice in writing from Penn Series to Adviser, or upon 90 days' prior notice in
writing from Adviser to Penn Series; provided, that in the case of termination
by Penn Series, such action shall have been authorized by resolution of a
majority of its directors who are not interested persons of any party to this
Agreement, or by
-7-
<PAGE>
vote of a majority of the outstanding voting securities of the series of shares
of Penn Series representing interests in the Fund.
27. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or derived from a
term or provision of the Act shall be resolved l)-y reference to such
term or provision of the Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission validly issued pursuant to the
Act. Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and
"affiliated person," as used herein, shall have the meanings assigned
to them by Section 2(a) of the Act. In addition, where the effect of
a requirement of the Act reflected in any provision of this Agreement
is relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such party
may designate for the receipt of such notices. Until further notice,
it is agreed that for this purpose the address of Penn Series is 600
Dresher Road, Horsham, PA 19044, Attention: William V. Ferdinand,
President, and that of Adviser is One World Financial Center, New
York, New York 10281, Attention: Thomas Duggan, General Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Ronald Rubley By: /s/ William V. Ferdinand
- ------------------------- -------------------------
Secretary William V. Ferdinand
President
Attest: QUEST FOR VALUE ADVISORS
/s/ By: /s/
- ------------------------- -------------------------
Secretary
-9-
<PAGE>
Exhibit (5)(e)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
VONTOBEL USA, INC.
INVESTMENT ADVISORY AGREEMENT, made as of the first day of November, 1992,
by and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized
and existing under the laws of the State of Maryland, and VONTOBEL USA, INC.
("Adviser"), a corporation organized and existing under the laws of the State of
New York.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the federal Investment Company Act of 1940, as amended
(the "Act"); and
WHEREAS, Penn Series is authorized to issue shares in separate series with
each series representing interests in a separate fund of securities and other
assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory
services, and certain accounting and related services as provided Sections 2 and
9, to Penn Series in the manner and on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Penn Series
International Equity Fund ("the Fund") in accordance with the investment
objectives, program and restrictions applicable to the Fund as provided in Penn
Series' prospectus and statement of additional information, as amended from time
to time, and such other limitations as may be imposed by law or as Penn Series
may impose with notice in writing to Adviser. No investment will be made by
Adviser for the Fund if that investment is in violation of the objectives,
program, restrictions or limitations of the Fund. Adviser shall not take custody
of any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Adviser shall obtain and
evaluate such information relating to the economy, industries, businesses,
securities markets and securities as it may deem necessary or useful in the
discharge of its obligations hereunder and
<PAGE>
shall formulate and implement a continuing program for the management of the
assets and resources of the Fund in a manner consistent with the investment
objectives of the Fund. In furtherance of this duty, Adviser, as agent and
attorney-in-fact with respect to Penn Series, is authorized, in its discretion
and without prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, derivative securities, commodities, foreign
exchange contracts, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Adviser may select,
in conformance with the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for the Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the Accounting
Services Agreement. As requested from time to time, Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
3. Fees.
A. Fee Rate. For all of the services rendered to Penn Series
hereunder, Adviser shall be paid a fee by Penn Series, at the
annual rate of 0.75% of the Fund's average daily net assets.
B. Method of computation. The fee for the Fund shall be accrued for
each calendar day and the sum of the daily fee accruals shall be
paid monthly to Adviser by check within five business days of
the end of the calendar month. The daily fee accruals will be
computed by multiplying the fraction of one over the number of
calendar days in the year by the annual rate applicable to the
Fund as set forth above, and multiplying this product by the net
assets of the Fund. The Fund's net assets, for purposes of the
calculations described above, will be determined in accordance
with Penn Series' prospectus and statement of additional
information as of the close of business on the most recent
previous business day on which Penn Series was open for
business.
C. Expense Limitation. The expense limitation of the Fund, as a
percentage of the Fund's average net assets, is 1.50%. To the
extent that the Fund's total expenses for a fiscal year
(excluding interest, taxes, brokerage, other
2
<PAGE>
expenses which are capitalized in accordance with generally
accepted accounting principles, and extraordinary expenses, but
including investment advisory and administrative and corporate
services fees before any adjustment pursuant to this provision)
exceed the expense limitation for the Fund in an amount up to
and including .10% of the average daily net assets of the Fund,
such excess amount shall be a liability of Adviser to Penn
Series. The liability (if any) of Adviser to pay Penn Series
such excess amount shall be determined on a daily basis. If, at
the end of each month, there is any liability of Adviser to pay
Penn Series such excess amount, the advisory fee shall be
reduced by such liability. If, at the end of each month, there
is no liability of Adviser to pay Penn Series such excess amount
and if payments of the advisory fee at the end of prior months
during the fiscal year have been reduced in excess of that
required to maintain expenses within the expense limitation,
such excess reduction shall be recaptured by Adviser and shall
be payable by Penn Series to Adviser along with the advisory fee
payable to Adviser for that month. In no circumstance shall the
liability of Adviser under this Section 3C exceed the total
amount of the investment advisory fees payable to it hereunder
in any given fiscal year.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Adviser. In addition, Adviser is authorized to take into account the sale of
variable contracts which are invested in Penn Series shares in allocating to
brokers or dealers purchase and sale orders for portfolio securities, provided
that Adviser believes that the quality of the transaction and commission are
comparable to what they would be with other qualified firms. Adviser shall
regularly advise Penn Series' board of directors as to all payments of
commissions and as to its brokerage and practices and shall follow such
instructions with respect thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise avail
itself of the services or facilities of other persons or organizations for the
purpose of providing itself or Penn Series, as appropriate, with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Adviser may deem
necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series, or in the discharge of, Adviser's
overall responsibilities with respect to the other accounts which it serves as
3
<PAGE>
investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are officers
or employees of Adviser to serve (if duly elected or appointed) as officers,
directors, members of any committee of directors, members of any advisory board,
or members of any other committee of Penn Series, without remuneration or other
cost to Penn Series. Adviser shall pay all salaries, expenses, and fees of
officers and/or directors of Penn Series who are affiliated with Adviser.
9. Reports to Penn Series and Cooperation with Accountants. Adviser, and
any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinion as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws
regulations or for any other purpose. Adviser and its affiliates shall
cooperate with Penn Series' independent public accountants and take all
reasonable action in the performance of services and obligations under this
Agreement to assure that the information needed by such accountants is made
available to them for the expression of their opinion without any qualification
as to the scope of their examination, including, but not limited to, their
opinion included in Penn Series' annual report under the Act and annual
amendment to Penn Series' registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and that are
maintained and kept current by Adviser or any affiliated corporation of Adviser
on behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser itself or through an affiliated corporation for the periods
prescribed in Rule 3la-2 under the Act, where applicable, or in such other
applicable rules that may be adopted from time to time under the Act. Such
records may be inspected by
4
<PAGE>
representatives of Penn Series at reasonable times, and, in the event of
termination of this Agreement, will be promptly delivered to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities, but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to the Fund, or until Adviser shall otherwise consent, Adviser shall be the
only investment adviser to the Fund. It is understood that Adviser may give
advice and take action for its other clients which may differ from advice given,
or the timing or nature of action taken, for the Fund. Adviser is not obligated
to initiate transactions for the Fund in any security which Adviser, its
principals, affiliates or employees may purchase or sell for its or their own
accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be unreasonably withheld and may not be withheld where
Adviser or any affiliate may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series as the
Board of Directors of Penn Series shall deem appropriate, Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in the
Fund.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser may
apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series, in respect of any matter arising in connection with
this Agreement, and Adviser shall not be liable for any action taken or omitted
by it or by any affiliate in good faith in accordance with such instructions or
with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and shall not be
held to have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series.
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable
5
<PAGE>
requirements of the Act, the Securities Exchange Act of 1934, the Securities Act
of 1933, and any other laws, rules and regulations of governmental authorities
having jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such error, mistake or loss resulting from
willful misfeasance, bad faith, negligence or misconduct in the performance of
its, his or her duties on behalf of Penn Series or constituting or resulting
from a failure to comply with any term of this Agreement. Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian, Transfer Agent, Accounting Services Agent, or other third party with
which the Fund has a contractual arrangement, or of any broker, dealer,
underwriter or issuer selected by Adviser with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized
by the board of directors and shareholders of Penn Series and signed by an
authorized officer of Penn Series, acting as such, and shall bind Penn Series.
19. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any-term of this Agreement. Prior to the confession of
any claim against Adviser which Adviser shall give Penn Series may be subject to
this indemnification, name or in the reasonable opportunity to defend against
said claim in its Own name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliate's failure to
comply with any term of this Agreement or which arise out of the
6
<PAGE>
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled to
such indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or its agents or contractors or
constituting a failure by Penn Series to comply with any term of this Agreement;
provided, that such negligence or misconduct is not attributable to Adviser or
any person that is an affiliate of Adviser or an affiliate of an affiliate of
Adviser. Prior to confessing any claim against it which may be subject to this
indemnification, Penn Series shall give Adviser reasonable opportunity to defend
against said claim in its own name or in the name of Penn Series. For purposes
of this Section 20 and of Section 19 hereof, no broker or dealer, or any third
party with which the Fund has a contractual arrangement and with which Adviser
is obligated to cooperate under the terms of this Agreement, shall be deemed to
be acting as agent or contractor of Penn Series, Adviser or any affiliate of
Adviser, in effecting or executing any portfolio transaction for the Fund.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate purposes
hereof.
22. Dual Interests. It is understood that some person or persons may be,
or from time to time may become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence of
any such dual interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by a specific provision of
applicable law.
23. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect through October 31, 1993. Thereafter, this
Agreement shall continue in effect from year to year, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either the
board of directors of Penn Series, or by a vote of a majority of the outstanding
voting securities of the series of shares of Penn Series representing interests
in the Fund; (b) in either event by the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of the directors of
Penn Series who are not parties to this Agreement or interested persons of any
such party; and (c) Adviser shall not have notified Penn Series, in writing, at
least 90 days prior to October 31, 1993 or prior to October 31 of any year
thereafter, that it does not desire such continuation. Adviser shall furnish to
Penn Series, promptly upon its request, such information as may reasonably be
necessary to evaluate the terms of this Agreement or any extension, renewal or
amendment hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund, and, without affecting any claim for damages
or other right that Penn Series may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its assignment.
7
<PAGE>
25. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser, without the payment of any penalty, upon 60 days' prior
notice in writing from Penn Series to Adviser, or upon 90 days' prior notice in
writing from Adviser to Penn Series; provided, that in the case of termination
by Penn Series, such action shall have been authorized by resolution of a
majority of its directors who are not interested persons of any party to this
Agreement, or by vote of a majority of the outstanding voting securities of the
series of shares of Penn Series representing interests in the Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of provision of this
Agreement having a counterpart in or derived from a term or provision
of the Act shall be resolved by reference to such term or provision of
the Act and to interpretations thereof, if any, by the United States
courts or, in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange
Commission validly issued pursuant to the Act. Specifically, the terms
"vote of a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein, shall
have the meanings assigned to them by Section 2(a) of the Act. In
addition, where the effect of a requirement of the Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or
order of the Securities and Exchange Commission, whether of special or
of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it is
agreed that for this purpose the address of Penn Series is 600 Dresher
Road, Horsham, PA 19044, Attention: Kenneth J. Kempf, President, and
that of Adviser is 550 Park Avenue, 22nd Floor, New York, New York
10022, Attention: Edward F, O'Toole, Vice President and Compliance
Officer.
E. State Law. The Agreement shall be construed and enforced in
8
<PAGE>
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Ronald Rubley By:/s/ Kenneth J. Kempf
- ----------------------------- ------------------------------------
Secretary Kenneth J. Kempf
President
Attest: VONTOBEL USA, INC.
/s/ By:/s/ Heinrich Schlegel
- ----------------------------- ------------------------------------
Secretary Heinrich Schlegel
Chief Executive Officer
By:/s/ Edward F. O'Toole
------------------------------------
Edward F. O'Toole
Vice President & Compliance Officer
9
<PAGE>
Exhibit (5)(f)
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Relating to
PENN SERIES EMERGING GROWTH FUND
INVESTMENT ADVISORY AGREEMENT, made as of April 15, 1997 by and between
PENN SERIES FUNDS, INC. ("Penn Series"), a corporation organized and existing
under the laws of the State of Maryland, and INDEPENDENCE CAPITAL MANAGEMENT,
INC. ("Adviser"), a corporation organized and and existing under the laws of the
State of Pennsylvania.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the Investment Company Act of 1940, as amended (the
"Act") and is authorized to issue shares in separate series with each series
representing interests in a separate fund of securities and other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory services
to Penn Series in the manner and on the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Emerging Growth
Fund of Penn Series ("the Fund"), in accordance with the investment objectives,
program and restrictions applicable to the Fund as provided in Penn Series'
Prospectus and Statement of Additional Information, as amended from time to
time, and such other limitations as may be imposed by law or as Penn Series may
impose with notice in writing to Adviser. No investment will be made by Adviser
for the Fund if
<PAGE>
that investment is in violation of the objectives, program, restrictions or
limitations of the Fund. Adviser shall not take custody of any assets of Penn
Series, but shall issue settlement instructions to the custodian designated by
Penn Series (the "Custodian"). Adviser shall obtain and evaluate such
information relating to the economy, industries, businesses, securities markets
and securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner consistent
with the investment objectives of the Fund. In furtherance of this duty,
Adviser, as agent and attorney-in-fact with respect to Penn Series, is
authorized, in its discretion and without prior consultation with Penn Series,
to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any stocks,
bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the execution
of transactions in securities with or through such brokers, dealers,
underwriters or issuers as Adviser may select, in conformance with the
provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for the Fund that is in
violation of the objectives, program, restrictions or limitations of the Fund.
2. Accounting and Related Services. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the Accounting
Services Agreement entered into by Penn Series and the Accounting Services
Agreement. As requested from time to time, Adviser shall provide Penn Series
and its Accounting Services Agent with such information as may be reasonably
necessary to properly account for financial transactions with respect to the
Fund.
3. Fee.
A. Payment of Fee. For the services Adviser renders to Penn Series
under this Agreement, Penn Series will pay Adviser a fee based on
average daily net assets of the Fund.
B. Fee Rate. The fee shall be paid at the following rates:
(i) Eighty basis points (0.80%) of the first $25,000,000 of average
daily net assets of the Fund;
(ii) Seventy-five basis points (0.75%) of the next $25,000,000 of
average daily net assets of the Fund; and
-2-
<PAGE>
(iii) Seventy basis points (0.70%) of of average daily net assets of
the Fund in excess of $50,000,000.
B. Method of computation. The fee for the Fund shall be accrued for
each calendar day and the sum of the daily fee accruals shall be paid
monthly to Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and multiplying
this product by the net assets of the Fund. The Fund's net assets, for
purposes of the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of Additional
Information as of the close of business on the most recent previous
business day on which Penn Series was open for business.
C. Expense Limitation. The expense limitation of the Fund, as a
percentage of the Funds average daily net assets, is 1.15%. To the
extent that the Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
administrative and corporate service fees before any adjustment
pursuant to this provision) exceed the expense limitation for the
Fund, one-half of such excess amount shall be a liability of Adviser
to Penn Series. The liability (if any) of Adviser to pay Penn Series
one-half of such excess amount shall be determined on a daily basis.
If, at the end of each month, there is any liability of Adviser to pay
Penn Series such excess amount, the advisory fee shall be reduced by
such liability. If, at the end of each month, there is no liability of
Adviser to pay Penn Series such excess amount and if payments of the
advisory fee at the end of prior months during the fiscal year have
been reduced in excess of that required to maintain expenses within
the expense limitation, such excess reduction shall be recaptured by
Adviser and shall be payable by Penn Series to Adviser along with the
advisory fee payable to Adviser for that month. If, at the end of the
fiscal year, there is any remaining liability of Adviser to pay Penn
Series such excess amount (which has not been paid through reduction
of the advisory fee), Adviser shall remit to Penn Series an amount
sufficient to pay such remaining liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the security,
the skill, financial condition and execution capability of the broker or dealer,
and the reasonableness of the commission, if any. Where best price and most
favorable execution will not be compromised, Adviser may take into account the
research and related services that the broker has provided to
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<PAGE>
Penn Series or the Adviser. It is understood that the Adviser will not be deemed
to have acted unlawfully or to have breached a fiduciary duty to the Fund or be
in breach of any obligation owing to the Fund under this Agreement, or
otherwise, by reason of its having directed a securities transaction on behalf
of the Fund to a broker-dealer in compliance with the provisions of Section
28(e) of the Securities Exchange Act of 1934 or as described from time to time
in the Penn Series' Prospectus and Statement of Additional Information. In
addition, Adviser is authorized to take into account the sale of variable
contracts which are invested in Penn Series shares in allocating to brokers or
dealers purchase and sale orders for portfolio securities, provided that Adviser
believes that the quality of the transaction and commission are comparable to
what they would be with other qualified firms. Adviser shall regularly advise
Penn Series' Board of Directors as to all payments of commissions and as to its
brokerage policies and practices and shall follow such instructions with respect
thereto as may be,,given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated in Section 4 of this Agreement) employ, retain or otherwise avail
itself of a subadviser to assist it in performing its duties and meeting its
responsibilities under this Agreement, and may delegate to such subadviser
duties assumed by the Adviser under this Agreement. In addition, Adviser may (at
its cost, except as contemplated in Section 4 of this Agreement) employ, retain
or otherwise avail itself of the services or facilities of other persons or
organizations for the purpose of providing itself or Penn Series, as
appropriate, with such statistical and other factual information, such advice
regarding economic factors and trends, such advice as to occasional transactions
in specific securities or such other information, advice or assistance as
Adviser may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to Penn Series, or in the discharge
of Adviser's overall responsibilities with respect to the other accounts which
it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
-4-
<PAGE>
9. Reports to Penn Series and Cooperation with Accountants. Adviser, and
any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of Penn
Series, such information, reports, evaluations, analyses and opinions as Penn
Series may, at any time or from time to time, reasonably request or as Adviser
may deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Adviser and its affiliates shall
cooperate with Penn Series' independent public accountants and take all
reasonable action in the performance of services and obligations under this
Agreement to assure that the information needed by such accountants is made
available to them for the expression of their opinion without any qualification
as to the scope of their examination, including, but not limited to, their
opinion included in Penn Series' annual report under the Act and annual
amendment to Penn Series' registration statement under the Act.
10. Reports to Adviser. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy statements,
reports, and other information relating to the business and affairs of Penn
Series, as Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
11. Ownership of Records. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and that are
maintained and kept current by Adviser or any affiliated corporation of Adviser
on behalf of Penn Series are the property of Penn Series. Such records will be
preserved by Adviser itself or through an affiliated corporation for the periods
prescribed in Rule 3la-2 under the Act, where applicable, or in such other
applicable rules that may be adopted time under the Act. Such records may be
inspected by representatives of Penn Series at reasonable times, and, in the
event of termination of this Agreement, will be promptly delivered to Penn
Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood that
Adviser may give advice and take action for its other clients which may differ
from advice given, or the timing or nature of action taken, for the Fund.
Adviser is not obligated to initiate transactions for the Fund in any security
which Adviser, its principals, affiliates or employees may purchase or sell for
its or their own accounts or for other clients.
13. Confidential Relationship. Information furnished by one party to
another, including a party's respective agents and employees, is confidential
and shall not be disclosed to third parties unless required by law. Adviser, on
behalf of itself and its affiliates and representatives, agrees to keep
confidential all records and other information relating to Penn Series, except
after prior notification to and approval in writing by Penn Series, which
approval shall not be unreasonably withheld, and may not be withheld where
Adviser or any affiliate may
-5-
<PAGE>
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by Penn Series.
14. Proxies. Subject to such direction and oversight by Penn Series
as the Board of Directors of Penn Series shall deem appropriate, Adviser shall
vote proxies solicited by or with respect to the issuers of securities held in
the Fund.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series, in respect of any matter arising in connection with
this Agreement, and Adviser shall not be liable for any action taken or omitted
by it or by any affiliate in good faith in accordance with such instructions or
with the advice or opinion of Penn Series' legal counsel. Adviser and its
affiliates shall be protected in acting upon any instruction, advice, or opinion
provided by Penn Series or its legal counsel and upon any other paper or
document delivered by Penn Series or its legal counsel believed by Adviser to be
genuine and to have been signed by the proper person or persons and shall not be
held to have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series.
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such error, mistake or loss resulting from
willful misfeasance, bad faith, negligence or misconduct in the performance of
its, his or her duties on behalf of Penn Series or constituting or resulting
from a failure to comply with any term of this Agreement. Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian or of any broker, dealer, underwriter or issuer selected by Adviser
with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn. Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized by
the Board of Directors of Penn Series and signed by an authorized officer of
Penn Series, acting as such, and shall bind Penn Series.
-6-
<PAGE>
19. Indemnification by Penn Series. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Adviser resulting from: (i) any action
or omitting to act by Adviser or any affiliated corporation, with respect to any
service described in this Agreement, upon instructions reasonably believed by
Adviser or any affiliated corporation to have been executed by an individual who
has been identified in writing by Penn Series as a duly authorized officer of
Penn Series; or (ii) any action by Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon information provided by
Penn Series in form and under policies agreed to by Adviser and Penn Series.
Adviser shall not be entitled to such indemnification in respect of actions or
omissions constituting negligence or willful misconduct of Adviser or its
affiliates, agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the confession of
any claim against Adviser which may be subject to this indemnification, Adviser
shall give Penn Series reasonable opportunity to defend against said claim in
its own name or in the name of Adviser.
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliate's failure to
comply with any term of this Agreement or which arise out of the willful
misfeasance, bad faith, negligence or misconduct of Adviser, its affiliates,
their agents or contractors. Penn Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of Penn Series or its agents or contractors or constituting a
failure by Penn Series to comply with any term of this Agreement; provided, that
such negligence or misconduct is not attributable to Adviser or any person that
is an affiliate of Adviser or an affiliate of an affiliate of Adviser. Prior to
confessing any claim against it which may be subject to this indemnification,
Penn Series shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Penn Series. For purposes of this
Section 20 and of Section 19 hereof, no broker or dealer shall be deemed to be
acting as agent or contractor of Adviser or any affiliate of Adviser, in
effecting or executing any portfolio transaction for the Fund.
21. Further Assurances. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
22. Dual Interests. It is understood that some person or persons may be,
or from time to time become, directors, officers, or shareholders of both Penn
Series and Adviser (including its affiliates), and that the existence of any
such dual interest shall not affect the validity hereof or of any transactions
hereunder except as otherwise provided by a specific provision of applicable
law.
23. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to the Fund, subject to the termination provisions and all
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<PAGE>
other terms and conditions hereof, so long as such continuation shall be
specifically approved at least annually (a) by either the board of directors of
Penn Series, or by a vote of a majority of the outstanding voting securities of
the series of shares of Penn Series representing interests in the Fund and (b)
in either event by the vote, cast in person at a meeting called for the purpose
of voting on such approval, of a majority of the directors of Penn Series who
are not parties to this Agreement or interested persons of any such party.
Adviser shall furnish to Penn Series, promptly upon its request, such
information as may reasonably be necessary to evaluate the terms of this
Agreement with respect to the Fund or any extension, renewal or amendment
hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund, and, without affecting any claim for damages
or other right that Penn Series may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its assignment.
25. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser, without the payment of any penalty, upon 60 days' prior
notice in writing from Penn Series to Adviser, or upon 90 days' prior notice in
writing from Adviser to Penn Series; provided, that in the case of termination
by Penn Series, such action shall have been authorized by resolution of a
majority of its directors who are not interested persons of any party to this
Agreement, or by vote of a majority of the outstanding voting securities of the
series of shares of Penn Series representing interests in the Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be reference to such
term or provision of the Act and to interpretations thereof, if any,
by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission validly issued pursuant to the Act.
Specifically, the terms "vote of a majority of the outstanding voting
securities," "interested person," "assignment," and "affiliated
person," as used herein, shall have the meanings
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assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices, Until further notice, it is
agreed that for this purpose the address of Penn Series is Penn Series
Funds, Inc., 600 Dresser Road, Horsham, PA 19044, Attention:
President, and that of Adviser is Independence Capital Management,
Inc., 600 Dresser Road, Horsham, PA 19044, Attention: President.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first above written.
Attest: PENN SERIES FUNDS, INC.
/s/ C. Ronald Rubley By: /s/ L. Stockton Illoway
- ----------------------------- ----------------------------
Secretary L. Stockton Illoway
President
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
/s/ C. Ronald Rubley By: /s/ Peter M. Sherman
- ----------------------------- ----------------------------
Secretary Peter M. Sherman
President
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<PAGE>
Exhibit (5)(g)
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
ROBERTSON STEPHENS INVESTMENT MANAGEMENT, INC.
Relating to
PENN SERIES EMERGING GROWTH FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of April 15, 1997 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and ROBERTSON STEPHENS
INVESTMENT MANAGEMENT, INC. ("Sub-Adviser"), a corporation organized and
existing under the laws of the State of California.
WITNESSETH:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end management
investment company registered as such under the Investment Company Act of 1940,
as amended (the "Act"), and is authorized to issue shares in separate series
with each series representing interests in a separate fund of securities and
other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Sub-Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser renders investment advisory services to Penn Series
pursuant to an investment advisory agreement entered into by Penn Series and
Adviser;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Emerging Growth Fund of Penn Series ("the Fund"), in accordance with the
investment objectives, program and restrictions applicable to the Fund as
provided in Penn Series' Prospectus and Statement of Additional Information, as
amended from time to time, and such other limitations as may be imposed by law
or as Penn Series may impose with notice in writing to Sub-Adviser. No
investment will be made by Sub-Adviser for the Fund if that investment is in
violation of the objectives, program, restrictions or limitations of the Fund.
Sub-Adviser shall not take custody of any assets of Penn Series, but shall issue
settlement: instructions to the custodian designated by Penn Series (the
"Custodian"). Sub-Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of the Fund in a manner consistent with the investment
objectives of the Fund. In furtherance of this duty, Sub-Adviser, as agent and
attorney-in-fact with respect to Adviser and Penn Series, is authorized, in its
discretion and without prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may select,
in conformance with the provisions of Paragraph 4 herein;
provided, however, that Sub-Adviser shall make no investment for the Fund that
is in violation of the objectives, program, restrictions or limitations of the
Fund.
2. Accounting and Related Services. Sub-Adviser agrees to cooperate
with the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the Accounting
Services Agent. As requested from time to time, Sub-Adviser shall provide Penn
Series and its Accounting Services Agent with such information as may be
reasonably necessary to properly account for financial transactions with respect
to the Fund.
3. Fee.
A. Payment of Fee. For the services Sub-Adviser renders to Penn
Series under this this Agreement, Adviser will pay Sub-Adviser a fee
based on the average daily net assets of the Fund.
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<PAGE>
B. Fee Rate. The fee shall be paid at the following rates:
(i) Seventy basis points (0.70%) of the first $25,000,000 of average
daily net assets of the Fund;
(ii) Sixty-five basis points (0.65%) of the next $25,000,000 of
average daily net assets of the Fund; and
(iii) Sixty basis points (0.60%) of of average daily net assets of
the Fund in excess of $50,000,000.
C. Method of computation. The fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid
monthly to Sub-Adviser as of the first business day of the next
succeeding calendar month. The daily fee will be computed by
multiplying the fraction of one over the number of calendar days in
the year by the annual rate applicable to the Fund as set forth above,
and multiplying this product by the net assets of the Fund. The Fund's
net assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement of
Additional Information as of the close of business on the most recent
previous business day on which Penn Series was open for business.
D. Expense Limitation. The expense limitation of the Fund, as a
percentage of the Funds average daily net assets, is 1.15%. To the
extent that the Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
administrative and corporate service fees before any adjustment
pursuant to this provision) exceed the expense limitation for the
Fund, one-half of such excess amount shall be a liability of Sub-
Adviser to Adviser. The liability (if any) of Sub-Adviser to pay
Adviser one-half of such excess amount shall be determined on a daily
basis. If, at the end of each month, there is any liability of Sub-
Adviser to pay Adviser such excess amount, the fee shall be reduced by
such liability. If, at the end of each month, there is no liability of
Sub-Adviser to pay Adviser such excess amount and if payments of the
fee at the end of prior months during the fiscal year have been
reduced in excess of that required in this subsection, such excess
reduction shall be recaptured by Sub-Adviser and shall be payable by
Adviser to Sub-Adviser along with the fee payable to Sub-Adviser for
that month. If, at the end of the fiscal year, there is any remaining
liability of Sub-Adviser to pay Adviser such excess amount (which has
not been paid through reduction of the fee), Sub-Adviser shall remit
to Adviser an amount sufficient to pay such remaining liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the best
price and the most favorable
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<PAGE>
execution of its orders. In assessing the best price and the most favorable
execution for any transaction, Sub-Adviser shall consider the breadth of the
market in the security, the price of the security, the skill, financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any. Where best price and most favorable
execution will not be compromised, Sub-Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to have
acted unlawfully or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934 or as described from time to time in the Penn
Series' Prospectus and Statement of Additional Information. In addition, Sub-
Adviser is authorized to take into account the sale of variable contracts which
are invested in Penn Series shares in allocating to brokers or dealers purchase
and sale orders for portfolio securities, provided that Sub-Adviser believes
that the quality of the transaction and commission are comparable to what they
would be with other qualified firms. Sub-Adviser shall regularly advise Penn
Series' Board of Directors as to all payments of commissions and as to its
brokerage policies and practices and shall follow such instructions with respect
thereto as may be given by Penn Series' board.
5. Use of the Services of Others. Sub-Adviser may (at its cost except
as contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or organizations for
the purpose of providing Penn Series Adviser or itself, as appropriate, with
such statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as Sub-Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to Penn Series and Adviser, or in the discharge
of Sub-Adviser's overall responsibilities with respect to the other accounts
which it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Sub-Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by Sub-
Adviser or any affiliate in performance of this Agreement are the property of
Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for Adviser
and Penn Series described in this Agreement, shall furnish to or place at the
disposal of Penn Series and Adviser, such information, reports, evaluations,
analyses and opinions as Penn Series Adviser may, at any
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<PAGE>
time or from time to time, reasonably request or as Sub-Adviser may deem
helpful, to reasonably ensure compliance with applicable laws and regulations or
for any other purpose. Sub-Adviser and its affiliates shall cooperate with Penn
Series' independent public accountants and take all reasonable action in the
performance of services and obligations under this Agreement to assure that the
information needed by such accountants is made available to them for the
expression of their opinion without any qualification as to the scope of their
examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish
or otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as Sub-
Adviser may, at any time or from time to time, reasonably require in order to
discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
and Adviser at reasonable times, and, in the event of termination of this
Agreement, will be promptly delivered to Adviser and Penn Series.
11. Services to Other Clients. Nothing herein contained shall limit
the freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment Sub-Adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood that
Sub-Adviser may give advice and take action for its other clients which may
differ from advice given, or the timing or nature of action taken, for the Fund.
Sub-Adviser is not obligated to initiate transactions for the Fund in any
security which Sub-Adviser, its principals, affiliates or employees may purchase
or sell for its or their own accounts or for other clients.
12. Confidential Relationship. Information furnished by Penn Series
or by one party to another, including Penn Series' or a party's respective
agents and employees, is confidential and shall not be disclosed to third
parties unless required by law. Sub-Adviser, on behalf of itself and its
affiliates and representatives, agrees to keep confidential all records and
other information relating to Adviser or Penn Series (as the case may be),
except after prior notification to and approval in writing by Adviser or Penn
Series (as the case may be), which approval shall not be unreasonably withheld,
and may not be withheld, where Sub-Adviser or any affiliate may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge
-5-
<PAGE>
such information by duly constituted authorities, or when so requested by
Adviser and Penn Series.
13. Proxies. Subject to such direction and oversight by Penn Series
as the Board of Directors of Penn Series shall deem appropriate, Sub-Adviser
shall vote proxies solicited by or with respect to the issuers of securities
held in the Fund.
14. Instructions, Opinion of Counsel and Signatures. At any time
Sub-Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Sub-Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal counsel and
upon any other paper or document delivered by Penn Series or its legal counsel
believed by Sub-Adviser to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any change of
authority of any officer or agent of Penn Series, until receipt of written
notice thereof from Penn Series. Sub-Adviser shall inform Adviser of all
applications to Penn Series for instructions and all consultations with legal
counsel for Penn Series at the time of such application or consultation.
15. Compliance with Governmental Rules and Regulations. Except as
such responsibility may be placed upon Sub-Adviser or any affiliate expressly
by, or by fair implication of, the terms of this Agreement, and except for the
accuracy of information furnished to Penn Series by Sub-Adviser or any
affiliate, Sub-Adviser does not assume responsibility for the preparation,
contents and distribution of the prospectuses for Penn Series, for complying
with all applicable requirements of the Act, the Securities Exchange Act of
1934, the Securities Act of 1933, and any other laws, rules and regulations of
governmental authorities having jurisdiction over Penn Series.
16. Limitation of Liability. Neither Sub-Adviser nor any of its
affiliates, their officers, directors, employees or agents, or any person
performing executive, administrative, trading, or other functions for Penn
Series (at the direction or request of Sub-Adviser), or Sub-Adviser or its
affiliates in connection with the discharge of obligations undertaken or
reasonably assumed with respect to this Agreement, shall be liable for any error
of judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for such
error, mistake or loss resulting from willful misfeasance, bad faith, negligence
or misconduct in the performance of its, his or her duties on behalf of Penn
Series or constituting or resulting from a failure to comply with any term of
this Agreement. Sub-Adviser shall not be responsible for any loss incurred by
reason of any act or omission of the Custodian or of any broker, dealer,
underwriter or issuer selected by Sub-Adviser with reasonable care.
17. Obligations of Adviser and Sub-Adviser. It is expressly agreed
that the obligations of Adviser and Sub-Adviser hereunder shall not be binding
upon any of their directors,
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<PAGE>
shareholders, nominees, officers, agents or employees, personally. The
execution and delivery of this Agreement have been authorized in accordance with
the governing documents of each party and in accordance with applicable law, and
shall be signed by an authorized officer of each party, acting as such, and
shall be binding on each party.
18. Indemnification by Adviser. Adviser will indemnify and hold Sub-
Adviser harmless from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Sub-Adviser resulting from: (i) any
action or omitting to act by Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement, upon instructions reasonably
believed by Sub-Adviser or any affiliated corporation to have been executed by
an individual who has been identified in writing by Penn Series as a duly
authorized officer of Penn Series or Adviser; or (ii) any action by Sub-Adviser
or any affiliated corporation, with respect to any service described in this
Agreement upon information provided by Penn Series or Adviser in form and under
policies agreed to by Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall
not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Sub-Adviser or its affiliates,
agents or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any claim
against Adviser which may be subject to this indemnification, Sub-Adviser shall
give Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Sub-Adviser.
19. Indemnification by Sub-Adviser. Sub-Adviser will indemnify and
hold harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series and
Adviser resulting from any claim, demand, action or suit arising out of Sub-
Adviser's or any affiliate's failure to comply with any term of this Agreement
or which arise out of the willful misfeasance, bad faith, negligence or
misconduct of Sub-Adviser, its affiliates, their agents or contractors. Adviser
shall not be entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Penn Series or Adviser, or
their agents or contractors or constituting a failure by Adviser to comply with
any term of this Agreement; provided, that such negligence or misconduct is not
attributable to Sub-Adviser or any person that is an affiliate of Sub-Adviser or
an affiliate of an affiliate of Sub-Adviser. Prior to confessing any claim
against it which may be subject to this indemnification, Adviser shall give Sub-
Adviser reasonable opportunity to defend against said claim in its own name or
in the name of Adviser. For purposes of this Section 19 and of Section 18
hereof, no broker or dealer shall be deemed to be acting as agent or contractor
of Sub-Adviser or any affiliate of Sub-Adviser, in effecting or executing any
portfolio transaction for the Fund.
20. Further Assurances. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
21. Term of Agreement. The term of this Agreement shall begin on the
date first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in
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<PAGE>
effect from year to year with respect to the Fund, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either the
board of directors of Penn Series, or by a vote of a majority of the outstanding
voting securities of the series of shares of Penn Series representing interests
in the Fund and (b) in either event by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
directors of Penn Series who are not parties to this Agreement or interested
persons of any such party. Sub-Adviser shall furnish to Penn Series, promptly
upon its request, such information as may reasonably be necessary to evaluate
the terms of this Agreement with respect to the Fund or any extension, renewal
or amendment hereof.
22. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the consent of Adviser, and without the affirmative
vote of a majority of the outstanding voting securities of the series of shares
of Penn Series representing interests in the Fund, and, without affecting any
claim for damages or other right that Penn Series or Adviser may have as a
result thereof, this Agreement shall automatically and immediately terminate in
the event of its assignment.
23. Termination of Agreement. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, without payment of any penalty, upon 60
days' prior notice in writing from Penn Series to Sub-Adviser, or upon 90 days'
prior notice in writing from Sub-Adviser to Penn Series; provided, that in the
case of termination by Adviser or Penn Series, such action shall have been
authorized by resolution of a majority of its directors who are not interested
persons of any party to this Agreement, or by vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund.
24. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their
construction or effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles
of Incorporation or By-Laws, or any applicable statutory or
regulatory requirement to which it is subject or by which it is
bound, or to relieve or deprive the board of directors of Penn
Series of its responsibility for and control of the conduct of
the affairs of Penn Series.
C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be reference to
such term or provision of the Act and to interpretations thereof,
if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act.
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<PAGE>
Specifically, the terms "vote of a majority of the outstanding
voting securities," "interested person," "assignment," and
"affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where
the effect of a requirement of the Act reflected in any provision
of this Agreement is relaxed by a rule, regulation or order of
the Securities and Exchange Commission, whether of special or of
general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such
party may designate for the receipt of such notices, Until
further notice, it is agreed that for this purpose the address of
Adviser is Independence Capital Management, Inc., 600 Dresser
Road, Horsham, PA 19044, Attention: President, and that of Sub-
Adviser is Robertson Stephens Investment Management, Inc., 555
California Street, San Francisco, CA 94104, Attention: President.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Pennsylvania except
where such state laws have been preempted by Federal
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Attest: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
/s/ C. Ronald Rubley By: /s/ Peter M. Sherman
- --------------------------- -------------------------------
Secretary Peter M. Sherman
President
Attest: ROBERTSON STEPHENS
INVESTMENT MANAGEMENT, INC.
By:
- --------------------------- -------------------------------
Secretary
-------------------------------
(Print Name)
-------------------------------
(Title)
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<PAGE>
EXHIBIT (8)(a)
AMENDED AND RESTATED CUSTODIAN AGREEMENT
----------------------------------------
THIS AGREEMENT is made as of October 28, 1992 by and between PENN
SERIES FUNDS, INC., a Maryland corporation ("Penn Series"), and PROVIDENT
NATIONAL BANK, a national banking association ("Provident").
W I T N E S S E T H :
WHEREAS, Penn Series is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act") and issues various classes of shares of Common Stock
$.10 par value ("Shares");
WHEREAS, Penn Series desires to retain Provident to serve as the
custodian of the portfolios cash and other property of all of the investment
portfolios of Penn Series (collectively, the "Portfolios"), listed on Appendix A
attached hereto, and Provident is willing to so serve as custodian; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. For the period and on the terms set forth in this
-----------
Agreement, Penn Series hereby appoints Provident to act as custodian of the
portfolio securities, cash and other property belonging to the Portfolios, and
as a "third party expert" as hereinafter defined in connection with foreign
subcustodians recommended by Provident who have entered into an agreement with
Penn Series and Provident. Provident accepts such appointments and agrees to
furnish the services herein set forth in return for the compensation as provided
in Paragraph 21 of
<PAGE>
this Agreement. As used herein, "third party expert," a term used in Investment
----------
Company Institute (SEC No-Act.) (pub. avail. Nov. 4, 1987), shall mean a party
- -----------------
providing the custodial and other services set forth in this Agreement.
Provident agrees to comply with all relevant provisions of the 1940 Act and
applicable rules and regulations thereunder. Penn Series may from time to time
issue separate series, classes or classify and reclassify shares of such series
or class. Provident shall identify to each such series or class property
belonging to such series or class and in such reports, confirmations and notices
to Penn Series called for under this Agreement shall identify the series or
class to which such report, confirmation or notice pertains.
2. Delivery of Documents. Penn Series has furnished Provident with
---------------------
copies properly certified or authenticated of each of the following:
(a) Resolutions of the Board of Directors of Penn Series
authorizing the appointment of Provident as custodian of the portfolio
securities, cash and other property belonging to Penn Series and approving this
Agreement;
(b) Appendix B identifying and containing the signatures of the
officers of Penn Series and/or other persons authorized to issue Oral
Instructions and to sign Written Instructions, as hereinafter defined, on behalf
of Penn Series;
(c) Articles of Incorporation of Penn Series filed with the
Department of Assessments and Taxation of the State of Maryland on April 22,
1982 and all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein called the
"Charter");
2
<PAGE>
(d) The By-Laws of Penn Series and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(e) The Investment Advisory Agreements between the investment
advisers to the Portfolios (each an "Advisor") and Penn Series (each an
"Advisory Agreement");
(f) The Amended and Restated Administrative and Corporate Services
Agreement between Penn Series and The Penn Mutual Life Insurance Company dated
as of November 1, 1992 (the "Administration and Corporate Services Agreement");
(g) The Transfer Agency Agreement between Provident Financial
Processing Corporation (the "Transfer Agent") and the Fund dated as of May 31,
1983, as amended June 10, 1988 (the "Transfer Agency Agreement");
(h) The Accounting Services Agreement between the Transfer Agent
and Penn Series dated as of May 1, 1989 (the "Accounting Services Agreement");
(i) The Notification of Registration filed by Penn Series pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed with
the Securities and Exchange Commission ("SEC") on November 6, 1969;
(j) The Fund's most recent Post-Effective Amendment to the Form N-
lA Registration Statement filed by Penn Series under the Securities Act of 1933,
as amended ("the 1933 Act") (File No. 2-35305) and under the 1940 Act as filed
with the SEC on March 10, 1989 and all amendments thereto;
3
<PAGE>
(k) The most recent prospectus or prospectuses of Penn Series
relating to Shares (such prospectus or prospectuses, as presently in effect and
all amendments and supplements thereto are herein called the "Prospectus"); and
(l) A copy of either (i) a filed notice of eligibility to claim
the exclusion from the definition of "commodity pool operator" contained in
Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is provided in
Rule 4.5 under the CEA, together with all supplements as are required by the
Commodity Futures Trading Commission ("CFTC"), or (ii) a letter which has been
granted Penn Series by the CFTC which states that Penn Series will not be
treated as a "pool" as defined in section 4.10(d) of the CFTC's General
Regulations, or (iii) a letter which has been granted Penn Series by the CFTC
which states that the CFTC will not take any enforcement action if Penn Series
does not register as a "commodity pool operator."
Penn Series will furnish Provident from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
3. Definitions.
-----------
(a) "Authorized Person". As used in this Agreement, the term
-------------------
"Authorized Person" means any of the officers of Penn Series and any other
person, whether or not any such person is an officer or employee of Penn Series,
duly authorized by the Board of Directors of Penn Series to give Oral and
Written Instructions on behalf of Penn Series and listed on the Certificate
annexed hereto as Appendix B or any amendment thereto as may be received by
Provident from time to time.
(b) "Book-Entry System". As used in this Agreement, the term
-------------------
"Book-Entry System" means the Federal Reserve Treasury book-entry system for
United States and
4
<PAGE>
federal agency securities, its successor or successors and its nominee or
nominees, and any book-entry system maintained by a clearing agency registered
with the SEC under Section 17A of the Securities Exchange Act of 1934 (the
111934 Act").
(c) "Oral Instructions". As used in this Agreement, the term
-------------------
"Oral Instructions" means oral instructions actually received by Provident from
an Authorized Person or from a person reasonably believed by Provident to be an
Authorized Person. Penn Series agrees to deliver to Provident Written
Instructions confirming Oral Instructions.
(d) "Property". The term "Property", as used in this Agreement,
----------
means:
(i) any and all securities and other property which Penn
Series may from time to time deposit, or cause to be deposited, with Provident
or which Provident may from time to time hold for Penn Series;
(ii) all income in respect of any of such securities or
other property;
(iii) all proceeds of the sale of any of such securities or
other property; and
(iv) all proceeds of the sale of securities issued by Penn
Series, which are received by Provident from time to time from or on behalf of
Penn-Series.
(e) "Written Instructions". As used in this Agreement, the term
----------------------
"Written Instructions" means written instructions delivered by hand, mail,
tested telegram, cable, telex or facsimile sending device, and received by
Provident and signed by an Authorized Person.
5
<PAGE>
4. Delivery and Registration of the Property. Penn Series will
-----------------------------------------
deliver or cause to be delivered to Provident all securities and all moneys
owned by it or any Portfolio, including cash received for the issuance of its
Shares, at any time during the period of this Agreement. Provident will not be
responsible for such securities and such moneys until actually received by it.
All securities delivered to Provident (other than in bearer form) shall be
registered in the name of Penn Series on behalf of a Portfolio or shall be
properly endorsed and in form for transfer satisfactory to Provident.
Securities shall only be registered in the name of Penn Series on behalf of a
Portfolio, the name of Provident or of a nominee of Provident or in the name of
a sub-custodian or a nominee of any such sub-custodian appointed pursuant to
Paragraph 6 hereof.
5. Receipt and Disbursement of Money.
---------------------------------
(a) Provident shall open and maintain a separate custodial account
or accounts in the name of each Portfolio, subject only to draft or order by
Provident acting pursuant to the terms of this Agreement, and shall hold in such
account or .accounts, subject to the provisions hereof, all cash received by it
from or for the account of each Portfolio (other than cash maintained by a
Portfolio in a bank account established and used in accordance with Rule 17f-3
under the 1940 Act). Provident shall make payments of cash to, or for the
account of, a Portfolio from such cash only (i) for the purchase of securities
for a Portfolio as provided in Paragraph 13 hereof; (ii) upon receipt of Written
Instructions, for the payment of interest, dividends, taxes, administration,
accounting, distribution, advisory or management fees or expenses which are to
be borne by Penn Series or a Portfolio under the terms of this Agreement, an
Advisory Agreement, the Administrative and Corporate Services Agreement, the
Accounting Services Agreement, and the Transfer Agency Agreement; (iii) upon
receipt of Written
6
<PAGE>
Instructions, for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by a Portfolio and held by or to
be delivered to Provident; (iv) to a sub-custodian pursuant to Paragraph 6
hereof; (v) for the redemption of Shares; (vi) for payment of the amount of
dividends received in respect of securities sold short; or (vii) upon receipt of
Written Instructions, for other proper purposes. No payment pursuant to
(i) above shall be made unless Provident has received a copy of the broker's or
dealer's confirmation or the payee's invoice, as appropriate.
(b) Provident is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the accounts of the Portfolios.
6. Receipt of Securities.
---------------------
(a) Except as provided by Paragraph 7 hereof, Provident shall hold
and physically segregate in a separate account, identifiable at all times from
those of any other persons, firms, or corporations, all securities and non-cash
property received by it for the account of each Portfolio. All such securities
and non-cash property are to be held or disposed of by Provident for each
Portfolio pursuant to the terms of this Agreement. In the absence of Written
Instructions accompanied by a certified resolution of the Board of Directors of
Penn Series authorizing the transaction, Provident shall have no power or
authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose
of any such securities and investments except in accordance with the express
terms provided for in this Agreement. In no case may any director, officer,
employee or agent of Penn Series withdraw any securities. In connection with its
duties under this Paragraph 6, Provident may, at its own expense, enter into
sub-custodian agreements
7
<PAGE>
with other banks or trust companies for the receipt of certain securities and
cash to be held by Provident for the account of a Portfolio pursuant to this
Agreement; provided that each such bank or trust company has an aggregate
capital, surplus and undivided profits, as shown by its last published report,
of not less than one million dollars ($1,000,000.) for a Provident subsidiary or
affiliate,.or of not less than twenty million dollars ($20,000,000) if such bank
or trust company is not a Provident subsidiary or affiliate and that in either
case such bank or trust company agrees with Provident to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder. Provident shall remain responsible for the performance of all of
its duties under this Agreement with respect to assets of each Portfolio held
under any sub-custodian agreement entered into by Provident and shall hold each
Portfolio harmless from the acts and omissions, under the standards of care
provided for herein, of any bank or trust company (except a foreign sub-
custodian) that it might choose pursuant to this Paragraph 6.
(b) Where securities are transferred to an account of a Portfolio
established pursuant to Paragraph 7 hereof, Provident shall also by book-entry
or otherwise identify as belonging to a Portfolio the quantity of securities in
a fungible bulk of securities registered in the name of Provident (or its
nominee) or shown in Provident's account on the books of the Book-Entry System.
At least monthly and from time to time, Provident shall furnish Penn Series with
a detailed statement of the Property held for each Portfolio under this
Agreement.
7. Use of Book-Entry System. Provident may (a) deposit in the Book-
------------------------
Entry System all securities belonging to a Portfolio which are eligible for
deposit therein and (b) utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and
8
<PAGE>
sales of securities the Portfolios, and deliveries and returns of securities
loaned, subject to repurchase agreements or used as collateral in connection
with borrowings, in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations and subject to the
following provisions:
(a) Securities and any cash of any Portfolio deposited in the Book-
Entry System will at all times be segregated from any assets and cash controlled
by Provident in other than a fiduciary or custodian capacity but may be
commingled with other assets held in such fiduciary capacities. Provident and
its sub-custodian, if any, will pay out money only upon receipt of securities
and will deliver securities only upon the receipt of money. With respect to
securities of a Portfolio which are maintained in the Book-Entry System, the
records of the Custodian shall identify by book-entry those securities belonging
to such Portfolio. The Custodian shall furnish each Portfolio with
confirmations (in the form of a written advice or notice) of transfers to or
from the account of that Portfolio and shall furnish to each Portfolio copies of
daily transaction sheets reflecting each day's transactions in the Book-Entry
System for the account of that Portfolio.
(b) All books and records maintained by Provident which relate to
Provident's participation in the Book-Entry .System will. at all times during
Provident's regular business hours be open to the inspection of duly authorized
employees or agents of Penn Series, and to the duly authorized employees of any
governmental authority having supervisory jurisdiction over Penn Series,
including but not limited to insurance or banking `regulatory authorities, and
Penn Series will be furnished with all information in respect of the services
rendered to it as it may require.
9
<PAGE>
(c) Provident will provide Penn Series with copies of any report
obtained by Provident on the system of internal accounting control of the Book-
Entry System promptly after receipt of such a report by Provident. Provident
will also provide Penn Series with such reports on its own system of internal
control as Penn series may reasonably request from time to time.
(d) Provident will not be responsible for losses from the acts and
omissions of any entity within the Book-Entry System or any depository which is
a registered clearing agency,, unless such losses are due to the negligence of
Provident.
(e) Commencing on the date hereof and hereafter on an annual basis,
the custodian shall not deposit securities in the Book-Entry System in the
absence of receipt of a certificate of the Secretary or an Assistant Secretary
that the Board of Directors of Penn Series has approved the use of the Book-
Entry System and receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Directors of Penn Series has reviewed the
use of the Book-Entry System, as required in each case by Rule 17f-4 under the
1940 Act.
(f) Anything to the contrary in this Agreement notwithstanding,
Provident shall be liable to Penn Series for any loss or expense (including
reasonable attorneys' fees), or damage to any Portfolio resulting from use of
the Book-Entry System by reason of negligence of Provident or any of its agents
or any of their employees or agents or from failure of Provident or any such
agent to enforce effectively such rights as it may have against the Book-Entry
System. At the election of Penn Series, it shall be entitled to be subrogated
to the rights of Provident with respect to any claim against the Book-Entry
System or any other person which
10
<PAGE>
Provident may have a right against as a consequence of such loss, expense or
damage, if and to the extent any Portfolio has not been made whole for any such
loss, expense, or damage.
8. Instructions Consistent with Charter, etc.
------------------------------------------
(a) Unless otherwise provided in this Agreement, Provident shall act
only upon Oral and Written Instructions. Although Provident may know of the
provisions of the Charter and By-Laws of Penn Series, Provident may assume that
any Oral or Written Instructions received hereunder are not in any way
inconsistent with any provisions of such Charter or By-Laws or any vote,
resolution or proceeding of the Shareholders, or of the Board of Directors, or
of any committee thereof,
(b) Provident shall be entitled to rely upon any Oral Instructions and
any Written Instructions actually received by Provident pursuant to this
Agreement. Penn Series agrees to forward to Provident Written Instructions
confirming Oral Instructions in such manner that the Written Instructions are
received by Provident by the close of business of the same day that such Oral
Instructions are given to Provident. Penn Series agrees that the fact that such
confirming Written Instructions are not received by Provident shall in no way
affect the validity of the transactions or enforceability of the transactions
authorized by Penn Series by giving Oral Instructions. Penn Series agrees that
Provident shall incur no liability to Penn series in acting upon Oral
Instructions given to Provident hereunder concerning such transactions provided
Provident reasonably and in good faith believes, in accordance with the
standards of care set forth in Section 22, the instructions to be properly
authorized and executed.
9. Transactions Not Requiring Instructions. In the absence of
---------------------------------------
contrary Written Instructions, Provident is authorized to take the following
actions:
11
<PAGE>
(a) Collection of Income and other Payments. Provident shall:
---------------------------------------
(i) collect and receive for the account of each Portfolio, all
income and other payments and distributions, including (without limitation)
stock dividends, rights, bond coupons, option premiums and similar items,
included or to be included in the Property, and promptly advise Penn Series of
such receipt and shall credit such income, as collected, to the custodian
accounts of each Portfolio;
(ii) endorse and deposit for collection, in the name of Penn
Series, checks, drafts, or other orders for the payment of money on the same day
as received;
(iii) receive and hold for the account of each Portfolio all
securities received as a distribution on its portfolio securities as a result of
a stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights or similar
securities issued with respect to any portfolio securities belonging to
Portfolio held by Provident hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or retired, or otherwise
become payable on the date such securities become payable; and
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other payments and
the endorsement for collection of checks, drafts, and other negotiable
instruments as described in Paragraph 23 of this Agreement.
12
<PAGE>
(b) Document Forwarding. Provident shall deliver or cause to be
-------------------
delivered to Penn Series all proxies, proxy statements, authorizations, notices
and stockholder reports which Provident may receive with respect to Property of
any Portfolio. In the event that such Property is registered in the name of the
custodian or its nominee, such proxies or authorizations when so delivered to
Penn Series shall have been duly executed in blank by the custodian or its
nominee, as the case may be.
(c) Miscellaneous Transactions. Provident is authorized to deliver or
--------------------------
cause to be delivered Property against payment or other consideration or written
receipt therefor in the following cases:
(i) for examination by a broker selling for the account of a
Portfolio in accordance with street delivery custom;
(ii) for the exchange of interim receipts or temporary securities
for definitive securities; and
(iii) for transfer of securities into the name of a Portfolio or
Provident or nominee of either, or for exchange of securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest
rate, maturity date and call provisions, if any; provided that, in any such
case, the new securities are to be delivered to Provident.
(d) Monitoring of Foreign Sub-Custodian. Provident shall:
-----------------------------------
(i) obtain and transmit to Penn Series the reports of any
foreign sub-custodian referenced in Section 16 of this Agreement or Rule 17f-5;
13
<PAGE>
(ii) monitor the level of service being provided to Penn Series
by any foreign sub-custodian for the purpose of assisting the Board of Directors
of Penn Series in its on-going and annual evaluation of such foreign
subcustodian and the evaluation of foreign custodial arrangements required under
Rule 17f-5.
(iii) obtain from the foreign sub-custodian and transmit to Penn
Series any other information reasonably required by the Board of Directors of
Penn Series pursuant to Rule 17f-5; and
(iv) facilitate communication between the foreign sub-custodian
and Penn Series by transmitting information provided by either party to the
other, as requested by either of such parties.
10. Transactions Requiring Instructions. Upon receipt of Oral or Written
-----------------------------------
Instructions and not otherwise, Provident, directly or through the use of the
Book-Entry System, shall:
(a) execute and deliver to such persons as may be designated in such
Oral or Written Instructions, consents and any other instruments whereby the
authority of a Portfolio as owner of any securities may be exercised, except for
such proxies, authorizations and instruments delivered to Penn Series pursuant
to Paragraph 9(b) hereof;
(b) deliver any securities held for a Portfolio against receipt of
other securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
14
<PAGE>
(c) deliver any securities held for a Portfolio to any protective
committee, reorganization committee or other person in connection with the
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) make such transfers or exchanges of the assets of a Portfolio
and take such other steps as shall be stated in said oral or Written
Instructions to be for the purpose of effectuating any duly authorized plan of
liquidation, reorganization, merger, consolidation or recapitalization of Penn
Series;
(e) release securities belonging to a Portfolio to any bank or trust
company for the purpose of pledge or hypothecation to secure any loan incurred
by Penn series; provided, however, that securities shall be released only upon
payment to Provident of the monies borrowed, except that in cases where
additional collateral is required to secure a borrowing already made, subject to
proper prior authorization, further securities may be released for that purpose;
and repay such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
(f) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on behalf of that
Portfolio, but only on receipt of payment therefor; and pay out moneys of that
Portfolio in connection with such repurchase agreements, but only upon the
delivery of the securities; and
15
<PAGE>
(g) otherwise transfer, exchange or deliver securities in
accordance with oral or Written Instructions.
11. Segregated Accounts.
-------------------
(a) Provident shall upon receipt of Written or Oral
Instructions establish and maintain a segregated account or accounts on its
records for and on behalf of each Portfolio, into which account or accounts may
be transferred cash and/or securities, including securities in the Book-Entry
System (i) for the purposes of compliance by Penn Series with the procedures
required by a securities or option exchange, providing such procedures comply
with the 1940 Act and Release No. 10666 or any subsequent release or releases of
the SEC relating to the maintenance of segregated accounts by registered
investment companies, and (ii) for other proper corporate purposes, but only, in
the case of clause (ii), upon receipt of Written Instructions.
(b) Provident may enter into separate custodial agreements
with various futures commission merchants ("FCMs") that Penn Series uses (each
an "FCM Agreement"), pursuant to which margin deposits of Penn Series in any
transactions involving futures contracts and options on futures contracts will
be held by Provident in accounts (each an "FCM Account") subject to the
disposition by the FCM involved in such contracts in accordance with the
customer contract between FCM and Penn Series ("FCM Contract"), SEC rules
governing such segregated accounts, CFTC rules and the rules of the applicable
commodities exchange. Such FCM Agreements shall only be entered into upon
receipt of Written Instructions from Penn Series which state that (i) a customer
agreement between the FCM and Penn Series has been entered into; and (ii) Penn
Series is in compliance with all the rules and regulations of the
16
<PAGE>
CFTC. Transfers of initial margin shall be made into an FCM Account only upon
Written Instructions; transfers of premium and variation margin may be made into
an FCM Account pursuant to Oral Instructions. Transfers of funds from an FCM
Account to the FCM for which Provident holds such an account may only occur upon
certification by the FCM to Provident that pursuant to the FCM Agreement and the
FCM Contract, all conditions precedent to its right to give Provident such
instruction have been satisfied.
12. Dividends and Distributions. Penn Series shall furnish Provident
---------------------------
with appropriate evidence of action by the Board of Directors of Penn Series
declaring and authorizing the payment of any dividends and distributions. Upon
receipt by Provident of Written Instructions with respect to dividends and
distributions declared by the Board of Directors of Penn Series and payable to
Shareholders who have elected in the proper manner to receive their
distributions or dividends in cash, and in conformance with procedures mutually
agreed upon by Provident, Penn Series, and the Transfer Agent, Provident shall
pay to the Fund's Transfer Agent, as agent for the Shareholders, an amount equal
to the amount indicated in said Written Instructions as payable by Penn Series
to such Shareholders for distribution in cash by the Transfer Agent to such
Shareholders. In lieu of paying the Transfer Agent cash dividends and
distributions, Provident may arrange for the direct payment of cash dividends
and distributions to Shareholders by Provident in accordance with such
procedures and controls as are mutually agreed upon from time to time by and
among Penn Series, Provident and the Transfer Agent.
13. Purchases of Securities. Promptly after each decision to
-----------------------
purchase securities by an Advisor, Penn Series, through such Advisor, shall
deliver to Provident Oral Instructions specifying with respect to each such
purchase: (a) the name of the issuer and the title
17
<PAGE>
of the securities, (b) the number of shares or the principal amount purchased
and accrued interest, if any, (c) the date of purchase and settlement, (d) the
purchase price per unit, (e) the total amount payable upon such purchase,
(f) the name of the person from whom or the broker through whom the purchase was
made, and (g) the Portfolio for which the purchase was made. Provident shall
upon receipt of securities purchased by or for any Portfolio pay out of the
moneys held for the account of such Portfolio the total amount payable to the
person from whom or the broker through whom the purchase was made, provided that
the same conforms to the total amount payable as set forth in such Oral
Instructions.
14. Sales of Securities. Promptly after each decision to sell
-------------------
securities by an Advisor or exercise of an option written by a Portfolio, Penn
Series, through the Advisor, shall deliver to Provident Oral Instructions,
specifying with respect to each such sale: (a) the name of the issuer and the
title of the security, (b) the number of shares or principal amount sold, and
accrued interest, if any, (c) the date of sale, (d) the sale p rice per unit,
(e) the total amount payable to Penn Series upon such sale, (f) the name of the
broker through whom or the person to whom the sale was made, and (g) the
Portfolio for which the sale was made. Provident shall deliver the securities
upon receipt of the total amount payable to the Portfolio on such sale, provided
that the same conforms to the total amount payable as set forth in such Oral
Instructions. Subject to the foregoing, Provident may accept payment in such
form as shall be satisfactory to it, and may deliver securities and arrange for
payment in accordance with the customs prevailing among dealers in securities.
15. Records. The books and records pertaining to Penn Series which
-------
are in the possession of Provident shall be the property of Penn Series. Such
books and records shall be
18
<PAGE>
prepared and maintained as required by the 1940 Act and rules and regulations
thereunder and other applicable securities laws and regulations. Authorized
representatives of Penn Series, and the duly authorized employees of any
governmental authority having supervisory jurisdiction over Penn Series,
including but not limited to insurance or banking regulatory authorities, shall
have access to such books and records, and, to the extent practicable and in
accordance with demand by such authorities, to the work papers underlying such
books and records, at all times during Provident's normal business hours. Upon
the reasonable request of Penn Series, copies of any such books and records
shall be provided by Provident to Penn Series or the authorized representative
of Penn Series at the expense of Penn Series.
16. Reports.
-------
(a) Provident shall furnish Penn Series the following
reports:
(1) such periodic and special reports as Penn Series
may reasonably request;
(2) a monthly statement summarizing all transactions
and entries for the account of each Portfolio, listing the portfolio
securities belonging to each Portfolio with the adjusted average cost
of each issue and the market value at the end of such month, and
stating the cash account of each Portfolio including disbursements;
(3) the reports to be furnished to Penn Series
pursuant to Rule 17f-4; and
(4) the monthly and annual reports of the foreign
sub-custodian or any reports required under Rule 17f-5; and
19
<PAGE>
(5) such other information as may be agreed upon
from time to time between Penn Series and Provident.
(b) Provident shall transmit promptly to Penn Series any
proxy statement, proxy materials, notice of a call or conversion or similar
communications received by it as Custodian of the Property.
(c) Provident shall furnish the Insurance Commissioner of
the State of California with any information or reports in connection with the
services provided in this Agreement which the Insurance Commissioner may request
in order to ascertain whether the operations of Penn Series are being conducted
in a manner consistent with the Insurance Code and Regulations of the State of
California, and any other applicable law or regulations.
17. Cooperation with Accountants. Provident shall cooperate with the
----------------------------
independent public accountants of Penn Series and shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required from time to time by Penn
Series.
18. Confidentiality. Provident agrees on behalf of itself and its
---------------
employees to treat confidentially all records and other information relative to
Penn Series and its prior, present, or potential Shareholders, except, after
prior notification to Penn Series, which notification need not be given where
Provident may be exposed to civil or criminal contempt proceedings for failure
to divulge such information to the appropriate state or federal regulatory or
judicial authorities, or when so requested, by Penn Series.
20
<PAGE>
19. Right to Receive Advice.
-----------------------
(a) Advice of Fund. If Provident shall be in doubt as to any
--------------
action to be taken or omitted by it, it may request, and shall receive, from
Penn Series directions or advice, including Oral or Written Instructions where
appropriate.
(b) Advice of Counsel. If Provident shall be in doubt as to
-----------------
any question of law involved in any action to be taken or omitted by Provident,
it may request advice at its own cost from such counsel as agreed upon by the
parties to this Agreement.
(c) Conflicting Advice. In case of conflict between
------------------
directions, advice or Oral or Written Instructions received by Provident
pursuant to subparagraph (a) of this paragraph and advice received by Provident
pursuant to subparagraph (b) of this paragraph, Provident shall be entitled to
rely on and follow the advice received pursuant to the latter provision alone.
(d) Protection of Provident. Provident shall be protected in
-----------------------
any action or inaction which it takes in reliance on any directions, advice or
Oral or Written Instructions received pursuant to subparagraphs (a) or (b) of
this paragraph which Provident, after receipt of any such directions, advice or
Oral or Written Instructions, in good faith believes to be consistent with such
directions, advice or Oral or Written Instructions, as the case may be. However,
nothing in this paragraph shall be construed as imposing upon Provident any
obligation (i) to seek such directions, advice or Oral or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral or Written
Instructions when received, unless, under the terms of another provision of this
Agreement, the same is a condition to Provident's properly taking or omitting to
take such action. Nothing in this subsection shall excuse Provident when an
action or
21
<PAGE>
omission on the part of Provident constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard by Provident of any duties or obligations
under this Agreement.
20. Compensation. As compensation for the services rendered by
------------
Provident during the term of this Agreement, Penn Series will. pay to Provident
monthly fees that shall be agreed upon from time to time in writing by Provident
and Penn Series.
21. Indemnification. (a) Penn Series, on behalf of the Portfolios as
---------------
owners of the Property, agrees to indemnify and hold harmless Provident and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, the CEA, and any state and foreign securities and blue sky
laws, all as or to be amended from time to time) and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly (i) from the fact that securities included in the Property are
registered in the name of any such nominee or (ii) without limiting the
generality of the foregoing clause (i) from any action or thing which Provident
takes or does or omits to take or do (A) at the request or on the direction of
or in reliance on the advice of Penn Series or (B) upon Oral or Written
Instructions, provided, however, in all cases neither Provident nor any of its
nominees shall be indemnified against any liability to Penn Series or to its
Shareholders (or any expenses incident to such liability) arising out of
Provident's or such nominee's own negligent breach of its duties or
responsibilities under this Agreement, or from its willful misconduct. In the
event of any advance of cash for any purpose made by Provident resulting from
oral or Written Instructions of Penn series, or in the event that Provident or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement, except such as may
22
<PAGE>
arise from its or its nominee's own negligent action, negligent failure to act
or willful misconduct, any Property at any time held for the account of the
Portfolios shall be security therefor.
(b) If in any case Penn Series is asked to indemnify or hold
Provident harmless, Penn Series shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and Provident shall use
all reasonable care to identify and notify Penn Series promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against Penn Series. Penn Series shall have the option
to defend Provident against any claim which may be the subject of
indemnification, and in the event that Penn Series so elects, it shall notify
Provident, and thereupon Penn Series shall take over complete defense of the
claim and Provident shall in such situation initiate no further legal or other
expenses for which it shall seek indemnification under this Section. Provident
shall in no case confess any claim or make any compromise in any case in which
Penn Series will be asked to indemnify Provident except with Penn Series' prior
written consent. Nothing in here shall be construed to limit any right or cause
of action on the part of Provident under this Agreement which is independent of
any right or cause of action on the part of Penn Series.
(c) Provident agrees to indemnify and hold harmless Penn Series and
its nominees from all charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, and any state and blue sky laws, all as or to be amended from
time to time), including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly from any action or thing which Provident takes or
does or omits to take or do arising out of Provident's or such nominee's own
negligent breach of its duties or responsibilities under this `Agreement, or
from its willful misconduct.
23
<PAGE>
(d) If in any case Provident is asked to indemnify or hold Penn
Series harmless, Provident shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and Penn Series shall use all
reasonable care to identify and notify Provident promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against Provident. Provident shall have the option to
defend Penn Series against any claim which may be the subject of
indemnification, and in the event that Provident so elects, it shall notify Penn
Series, and thereupon Provident shall take over complete defense of the claim
and Penn Series shall in such situation initiate no further legal or other
expenses for which it shall seek indemnification under this Section. Penn Series
shall in no case confess any claim or make any compromise in any case in which
Provident will be asked to indemnify Penn Series except with Provident's prior
written consent. Nothing herein shall be construed to limit any right or cause
of action on the part of Penn Series under this Agreement which is independent
of any right or cause of action on the part of Provident.
22. Responsibility of Provident. Provident shall be under no duty to
---------------------------
take any action on behalf of Penn Series except as specifically set forth herein
or as may be specifically agreed to by Provident in writing. In the performance
of its duties hereunder, Provident shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within reasonable
limits to insure the accuracy and completeness of all services performed under
this Agreement. Provident shall be responsible for its own negligent failure to
perform its duties under this Agreement. Without limiting the generality of the
foregoing or of any other provision of this Agreement, Provident in connection
with its duties under this Agreement shall not be under any duty or obligation
to inquire into and shall not be liable for or in respect of (a) the validity or
24
<PAGE>
invalidity or authority or lack thereof of any oral or Written Instruction,
notice or other instrument which conforms to the applicable requirements of this
Agreement, if any, and which Provident reasonably believes to be genuine;
(b) the validity or invalidity of the issuance of any securities included or to
be included in the Property, the legality or illegality of the purchase of such
securities, or the propriety or impropriety of the amount paid therefor; (c) the
legality or illegality of the sale (or exchange) of any Property or the
propriety or impropriety of the amount for which such Property is sold (or
exchanged). Provident shall not be under any duty or obligation to ascertain
whether any Property at any time delivered to or held by Provident may properly
be held by or for a Portfolio or Penn Series. Provident will not be responsible
for losses resulting from circumstances beyond Provident's reasonable ..control.
In the event of a loss, damage or injury to Penn Series securities which had
been received by Provident and were in the possession of Provident, its sub-
custodian or agent immediately prior to such loss, Provident will, upon the
request of Penn Series, either replace such securities with other securities of
like kind and quality, or, if acceptable to Penn Series, remit to Penn Series on
behalf of the affected Portfolio cash equal to the fair market value of the
securities as of the date when the loss was discovered. Provident shall have no
liability to Penn Series or any Portfolio for any losses or damages the nature
of which is or was remote, unforeseen, unforeseeable and beyond the scope of
reasonable anticipation at the time this Agreement was executed.
23. Collections. Provident shall collect on a timely basis all
-----------
income and other payments with respect to registered securities held hereunder
to which Penn Series shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of payment by
25
<PAGE>
the issuer, such securities are held by Provident or its agent, and shall credit
such Income or other Portfolios' custodian account. With respect to securities
of foreign issue, failure or delay in effecting collections shall be the
responsibility of Provident to the extent that such failure or delay is due to
Provident's own negligence or misconduct.
Provident shall also receive and collect all stock dividends, rights
and other items of like nature as and when they become due or payable. Income
due Penn Series on securities loaned by Penn Series shall be the responsibility
of Penn series. Provident shall have no duty or responsibility in connection
therewith other than to provide Penn Series with such information or data as may
be necessary to assist Penn Series in arranging for the timely delivery to
Provident of the income to which Penn Series is entitled.
In any case in which Provident does not receive any payment due Penn
Series within a reasonable time after Provident has made proper demands for the
same, it shall so notify Penn Series in writing, including copies of all demand
letters, any written responses thereto, and memoranda of all oral responses
thereto and to telephonic demands, and await instructions from Penn Series.
Provident shall not be obliged to take legal action for collection unless and
until reasonably indemnified to its satisfaction.
24. Duration and Termination. This Agreement shall continue until
------------------------
termination by Penn Series or by Provident on one hundred and eighty (180) days
written notice. Upon any termination of this Agreement, pending appointment of
a successor to Provident or vote of the Shareholders of Penn Series to dissolve
or to function without a custodian of its cash, securities or other property,
Provident shall not deliver cash, securities or other property of Penn Series to
Penn Series, but may deliver them to a bank or trust company of Penn Series own
selection,
26
<PAGE>
which bank or trust company shall meet the requirements of Section 17(f) of the
1940 Act. Anything to the contrary notwithstanding, Penn Series may immediately
terminate this Agreement in the event of the appointment of a conservator or
receiver for Provident by the Comptroller of the Currency or upon the happening
of a like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction or, subject to and in accordance with the 1940 Act, if
Provident fails to perform in accordance with this Agreement. Upon any
termination of this Agreement, all books and records of Penn Series, as property
of Penn Series, shall be returned to Penn Series free of any claim or retention
of rights by Provident.
25. Notices. All notices and other communications, including Written
-------
Instructions (collectively referred to as "Notice" or "Notices" in this
paragraph), hereunder shall be in writing or by confirming telegram, cable,
telex or facsimile sending device. Notices shall be addressed (a) if to
Provident at Provident's address, 200 Stevens Drive, Lester, Pennsylvania 19113,
marked for the attention of the Custodian Services Department (or its
successor); (b) if to Penn Series, at the address of Penn Series; or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice or other communication. If the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, more than 100 miles. apart, the Notice may be sent by first-class mail,
in which case it shall be deemed to have been given five days after it is sent,
or if sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately, and, if the location of the
sender of a Notice and the address of the addressee thereof are, at the time of
sending, not more than 100 miles apart, the Notice may be sent by first-class
mail, in which case it shall be deemed to have been given three days after it is
sent, or if sent by messenger, it shall be
27
<PAGE>
deemed to have been given on the day it is delivered, or if sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to have
been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
26. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.
27. Amendments. This Agreement or any part hereof may be changed or
----------
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
28. Delegation. On thirty (30) days prior written notice to Penn
----------
Series, Provident may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of Provident National Bank or PNC
Financial Corp, provided that (i) the delegate agrees with Provident to comply
with all relevant provisions of the 1940 Act; (ii) Provident and such delegate
shall promptly provide such information as Penn Series may request, and respond
to such questions as Penn Series may ask, relative to the delegation, including
(without limitation) the capabilities of the delegate; and (iii) Provident shall
remain responsible for the performance of the delegate and of all such delegated
duties of Provident under this Agreement and hold Penn Series harmless from such
delegates acts and omissions, under the standards of care provided for herein.
No other assignment is permitted without the Fund's prior written consent.
28
<PAGE>
29. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
30. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided that the
parties hereto may embody in one or more separate documents their agreement, if
any, with respect to delegated and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in Pennsylvania
and governed by Pennsylvania law. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
above written.
PENN SERIES FUNDS, INC.
By /s/ Kenneth J. Kempf
---------------------------------
Kenneth J. Kempf, President
PROVIDENT NATIONAL BANK
By /s/
---------------------------------
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
above written.
PENN SERIES FUNDS, INC.
By /s/
---------------------------------
PROVIDENT NATIONAL BANK
By /s/
---------------------------------
31
<PAGE>
APPENDIX A
PORTFOLIOS
----------
Penn Series Growth Equity Fund
Penn Series Value Equity Fund
Penn Series Flexibility Managed Fund
Penn Series International Equity Fund
Penn Series Quality Bond Fund
Penn Series High Yield Bond Fund
Penn Series Money Market Fund
<PAGE>
AMENDED AND RESTATED CUSTODIAN AGREEMENT
BETWEEN PENN SERIES FUNDS, INC. AND PROVIDENT NATIONAL BANK
DATED AS OF OCTOBER 28, 1992
Appendix B
----------
Authorized Persons*
-------------------
Name Signature
- ---- ---------
KENNETH J. KEMPF /s/ Kenneth J. Kempf
- ----------------------- -----------------------
KEVIN F. SWEENEY /s/ Kevin F. Sweeney
- ----------------------- -----------------------
JAMES D. BENSON /s/ James D. Benson
- ----------------------- -----------------------
GERALD J. BRITT /s/ Gerald J. Britt
- ----------------------- -----------------------
LYNNE M. CANNON /s/ Lynne M. Cannon
- ----------------------- -----------------------
MARY BETH CHELOHA /s/ Mary Beth Cheloha
- ----------------------- -----------------------
RACHEL D. MCGOWAN /s/ Rachel D. McGowan
- ----------------------- -----------------------
DEBRA L. MCGLINSEY /s/ Debra L. McGlinsey
- ----------------------- -----------------------
RICHARDSON T. MERRIMAN /s/ Richardson T. Merriman
- ----------------------- -----------------------
- --------------------------------------------------------------------------------
*As provided in the Penn Series Board Resolutions dated November 1, 1992, a copy
of which is attached to Appendix B.
<PAGE>
AMENDED AND RESTATED CUSTODIAN AGREEMENT
BETWEEN PENN SERIES FUNDS, INC. AND PROVIDENT NATIONAL BANK
DATED AS OF OCTOBER 28, 1992
Appendix B
----------
Authorized Persons*
-------------------
Name Signature
- ---- ---------
ARMSTEAD N. CLARK, III /s/ Armstead N. Clark, III
- ----------------------- -----------------------
JULIA A. DEBONIS /s/ Julia A. Debonis
- ----------------------- -----------------------
EDWARD L. FARROW /s/ Edward L. Farrow
- ----------------------- -----------------------
BRIAN M. GRANT /s/ Brian M. Grant
- ----------------------- -----------------------
JAMES A. J. REVELS /s/ James A. J. Revels
- ----------------------- -----------------------
STEVEN W. VANDIVER /s/ Steven W. Vandiver
- ----------------------- -----------------------
NORMAN D. VANHORN /s/ Norman D. Vanhorn
- ----------------------- -----------------------
STEPHEN M. WYNNE /s/ Stephen M. Wynne
- ----------------------- -----------------------
- --------------------------------------------------------------------------------
*As provided in the Penn Series Board Resolutions dated November 1, 1992, a copy
of which is attached to Appendix B.
<PAGE>
AMENDED AND RESTATED CUSTODIAN AGREEMENT
BETWEEN PENN SERIES FUNDS, INC. AND PROVIDENT NATIONAL BANK
DATED AS OF OCTOBER 28, 1992
Appendix B
----------
Authorized Persons*
-------------------
Name Signature
- ---- ---------
DAWN M. CHERMAK /s/ Dawn M. Chermak
- ----------------------- -----------------------
EDWARD F. O'TOOLE /s/ Edward F. O'Toole
- ----------------------- -----------------------
FELIX ROVELLI /s/ Felix Rovelli
- ----------------------- -----------------------
JOSEPHINE SERRA /s/ Josephine Serra
- ---------------------- -----------------------
- --------------------------------------------------------------------------------
*As provided in the Penn Series Board Resolutions dated November 1, 1992, a copy
of which is attached to Appendix B.
<PAGE>
AMENDED AND RESTATED CUSTODIAN AGREEMENT
BETWEEN PENN SERIES FUNDS, INC. AND PROVIDENT NATIONAL BANK
DATED AS OF OCTOBER 28, 1992
Appendix B
----------
Authorized Persons*
-------------------
Name Signature
- ---- ---------
CATHERINE H. BRAY /s/ Catherine H. Bray
- ----------------------- -----------------------
BRENDA L. CARTER /s/ Brenda L. Carter
- ----------------------- -----------------------
CYNTHIA M. CESENARO /s/ Cynthia M. Cesenaro
- ----------------------- -----------------------
RICHARD P. HOWARD /s/ Richard P. Howard
- ----------------------- -----------------------
- --------------------------------------------------------------------------------
*As provided in the Penn Series Board Resolutions dated November 1, 1992, a copy
of which is attached to Appendix B.
<PAGE>
AMENDED AND RESTATED CUSTODIAN AGREEMENT
BETWEEN PENN SERIES FUNDS, INC. AND PROVIDENT NATIONAL BANK
DATED AS OF OCTOBER 28, 1992
Appendix B
----------
Authorized Persons*
-------------------
Name Signature
- ---- ---------
ROSEMARIE BARRETT /s/ Rosemarie Barret
- ----------------------- -----------------------
AVIVA S. PINTO /s/ Aviva S. Pinto
- ----------------------- -----------------------
EILEEN ROMINGER /s/ Eileen Rominger
- ----------------------- -----------------------
- --------------------------------------------------------------------------------
*As provided in the Penn Series Board Resolutions dated November 1, 1992, a copy
of which is attached to Appendix B.
<PAGE>
Provident National Bank Institutional Custody Services
Airport Business Center 215-521-7876
200 Stevens Drive, Suite 440
Lester, PA 19113
- --------------------------------------------------------------------------------
PROVIDENT NATIONAL BANK
November 4, 1992
Mr. Kevin Sweeney
Penn Series Funds, Inc.
600 Dresher Road
Horsham, Pennsylvania 19044
SUBJECT: PENN SERIES FUNDS, INC.
CUSTODIAN FEES
Dear Mr. Sweeney:
This letter constitutes our agreement with respect to compensation to be
paid to Provident National Bank ("Provident") under the terms of an Amended and
Restated Custodian Agreement dated as of October 28, 1992, between you (the
"Company") and Provident in respect of the Penn Series International Equity Fund
(the "Fund"). Pursuant to Paragraph 20 of that agreement, and in consideration
of the services to be provided to you, you will pay Provident the following:
DOMESTIC PORTFOLIO HOLDINGS
---------------------------
1. An annual custody fee for the Fund shall be -015% for the first $100
million of average gross assets and -010% on the average gross assets which
exceed $100 million; exclusive of out-of-pocket expenses and transaction
charges. Custody fees shall be calculated daily and paid monthly.
2. The sweep services fee shall be .25% of assets (daily net excess cash
balances) swept into a fund approved of by you.
3. A transaction charge of $24.00 for each purchase or sale of a physical
security or delivery of a physical security upon its maturity date or delivery
of a physical security for reissuance; $10.00 for each purchase, sale or
maturity of a Federal book-entry security; $10.00 for each purchase, sale or
maturity or other book entry transaction for a DTC eligible security; $15-00 for
each purchase. sale or maturity or other transaction for a GNMA security; $30-00
for
<PAGE>
each purchase, sale, exercise or expiration of an option contract position
(round trip); $50.00 for each sale, purchase or closing of a futures contract
position (round trip); $15.00 for each repurchase trade collateral tranche
received from an institution other than Provident (round trip); and $7.50 for
each repurchase trade collateral tranche received from Provident.
4. Currency movements to third parties: $50.00 per movement.
5. The above fees are all-inclusive with the exception of the usual out
of pocket expenses such as stamp duties, script charges, registration fees and
special taxes. Out-of-pocket expenses are inherent to international trading and
will vary according to your trading practices.
The fee for the period from the day of the year this Agreement is entered
into until the end of that year shall be prorated according to the proportion
which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you intend to be
legally bound thereby, please execute a copy of this letter and return it to us.
Very truly yours,
PROVIDENT NATIONAL BANK
By: /s/ John T. Foster
-------------------------
John T. Foster
Vice President
Accepted:
PENN SERIES FUNDS, INC.
By: /s/
-------------------------------
Date:
-----------------------------
<PAGE>
6. With respect to the Fund's daily net overdrawn cash balances, a
monthly charge shall be assessed based on the average federal funds rate for
that month.
7. Provident's out-of-pocket expenses including, but not limited to,
postage, telephone, telex, interest claim fees, federal express charges, Federal
Reserve and wire fees, transfer fees, registration fees and the incremental cost
of providing foreign custody services.
GLOBAL PORTFOLIO HOLDINGS
-------------------------
1. Asset based fees are based on the market value of the global custody
relationship and are per annum fees. Portfolio servicing includes account
administration, income collection, tax reclamation and corporate actions.
(Per Thousand)
Euro CDs....................................................... $.15
Eurobonds (Cedel).............................................. $.20
Country Band A................................................. $.55
Country Band B................................................. $.70
Country Band C................................................. $.80
Country Band D................................................ $1.00
Country Band E................................................ $1.20
Country Band F................................................ $2.50
2. Transactions Fees refer to principal transactions, which result in the
increment or decrement of an asset position, such as securities purchases and
sales, free receipts and deliveries of securities maturities, subscription to
new shares. opening and closing of futures contracts, etc.
Euro CDs...................................................... $45.00
Eurobonds (Cedel)............................................. $35.00
Country Band A................................................ $30.00
Country Band B................................................ $40.00
Country Band C................................................ $60.00
Country Band D................................................ $80.00
Country Band E................................................ $95.00
Country Band F............................................... $180.00
The Countries in each band are as follows:
Band A: Canada, Japan, United Kingdom
Band B: Germany. Netherlands
Band C: Australia, France, Ireland, New Zealand
Band D: Austria, Belgium, Channel Islands, Hong Kong, Luxembourg
Band E: Denmark, Finland, Italy, Malaysia, Mexico, Norway,
Singapore, South Africa, Spain, Sweden, Switzerland
Band F: Greece, Indonesia, Philippines, Portugal, Thailand, Turkey
<PAGE>
October 1, 1994
PENN SERIES FUND, INC.
Re: Custodian Fees
--------------
Dear Sir/Madam:
This letter constitutes our agreement with respect to compensation to
be paid to PNC Bank, National Association under the terms of an Amended and
Restated Custodian Agreement dated October 28, 1992 between you (the "Fund") and
Provident National Bank, r-ow PNC Bank, National Association ("PNC Bank") .
Pursuant to Paragraph 20 of that agreement, and in consideration of the services
to b provided to you, you will pay PNC Bank the following:
1. An annual custody fee of .020% for the first $100 million of
average gross assets and .010% of the average gross assets in excess of $100
million; exclusive of out-of-pocket expenses and transaction charges. Custody
fees shall be calculated daily and paid monthly.
2. A transaction charge of $25.00 for each purchase or Sale of a
physical security or delivery of a physical security upon its maturity date or
delivery of a physical security for reissuance; $10.00 for each purchase, sale,
free receive or free deliver, or maturity of a federal book-entry security, DTC
eligible security or other book-entry transaction, or of a direct commercial
par-er issue; $15.00 for each purchase, sale, free receive or free deliver, or
maturity of or other book-entry transaction for a GNMA security; $30.00 for each
purchase, sale, exercise or expiration of an option contract position (round
trip) ; $50.00 for each sale, purchase, exercise or expiration of a futures
contract position (round trip) ; $7.50 for each repurchase trade collateral
tranche with PNC Bank (round trip) ; and $15. 00 for each repurchase trade
collateral tranche received from an institution other than PNC Bank (round
trip).
3. With respect to the per portfolio daily net overdrawn cash
balances, a monthly charge shall be assessed based on 100% of the average
federal funds rate for that month.
4. PNC Bank's out-of-pocket expenses including, but not limited to,
postage, telephone, telex, overnight express charges, foreign sub-custody fees,
Federal Reserve wire fees, confirmation fees and pricing services.
5. Upon-the Fund's written instruction, PNC Bank will sweep any net
excess cash balances daily into an investment vehicle designated in writing by
the Fund and agreed to by PNC Bank and will credit the Fund with such sweep
earnings on a monthly basis. PNC Bank will be paid .25% of assets swept.
<PAGE>
The fee for the period from the day of the year this Agreement is
entered into until the end of that year shall be prorated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/
--------------------------------
Title:
Accepted:
PENN SERIES FUND, INC.
By: /s/
------------------------------
Title:
<PAGE>
Exhibit (8)(b)
EXECUTION COPY
--------------
GLOBAL CUSTODY AGREEMENT dated as of October 28, 1992 between Barclays Bank
PLC, a company organized and existing under the laws of England and Wales,
(hereinafter called "Barclays") and Provident National Bank (hereinafter called
the "Custodian"), and the investment companies which are signatories hereto.
WHEREAS, the Custodian acts as a custodian of the property of certain of
its customers (the "Customers"), including without limitation certain investment
companies registered under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the agreements between each Customer and the Custodian (the
"Custodian Agreements") provide that the Custodian may from time to time employ
as its agent one or more subcustodians, all in compliance with Section 17(f) of
the Act and Rule 17 f-5 thereunder; and
WHEREAS, the Custodian and each Customer a party hereto wish to employ
Barclays as such intermediary custodian and expert third party for the Customers
and appoint Barclays as the agent of the Custodian and its Customers and
Barclays is willing to act as such subcustodian, expert third party and agent;
NOW, THEREFORE, in consideration of the mutual promises herein made, the
Custodian and Barclays agree as follows:
1. Custody and Cash Accounts. (a) Upon satisfaction of the condition
-------------------------
specified in paragraph (b) below, Barclays agrees to establish and maintain (i)
separate custody accounts for the benefit of the Custodian, acting as custodian
for each Customer (each a "Custody Account"), for any and all stocks, shares,
bonds, debentures, notes, mortgages or other obligations for payment of money
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
(hereinafter called "Securities") and all other assets (except cash) from time
to time received by Barclays or its Subcustodians (as defined in Section 3
hereof) on behalf of a Customer of the Custodian, and (ii) separate deposit
accounts for the benefit of the Custodian, acting as custodians for each
Customer (each a "Cash Account"; the Custody Account(s) and the Cash Account(s),
collectively referred to herein as the "Accounts") for any and all cash in any
currency received by Barclays or its Subcustodians on behalf of a Customer of
the Custodian, which cash shall not be subject to withdrawal by draft or check
except upon Instructions (as defined in Section 8 hereof) from the Custodian or
as provided in Sections 7 and 16 hereof.
(b) The obligation of Barclays to establish and maintain any account
is subject to the condition precedent that it shall have received an agreement
setting forth the fees
<PAGE>
payable to Barclays in respect of its services hereunder.
2. Maintenance of Securities and Assets Abroad. (a) Securities and other
-------------------------------------------
assets in each Custody Account shall be held in such country or other
jurisdiction as shall be the one in which the principal trading market for such
Securities is located or the country or jurisdiction in which such Securities
may be presented for payment or are acquired for a Custody Account. Cash
credited to any Cash Account shall be denominated in the legal currency for the
payment of public or private debts for the country or jurisdiction where such
Cash Account is located.
(b) Barclays is authorized to enter into separate transfer or foreign
exchange arrangements with Custodian, from time to time, in order to facilitate
the transfer of cash to or from any Cash Account.
3. Foreign Subcustodians and Depositories. Barclays may act under this
--------------------------------------
Agreement through the subcustodians listed in Schedule A hereto, with each of
whom Barclays has entered into subcustodial agreements ("Subcustodians"). The
Custodian authorizes Barclays to hold cash and Securities in accounts which
Barclays has established with its branches and the Subcustodians. Barclays and
the Subcustodians are authorized to hold Securities with securities depository
facilities with whom they participate. Barclays reserves the right to add new,
or to replace or remove, Subcustodians. The Custodian will be given reasonable
prior notice by Barclays of any amendment to Schedule A.
4. Use of Subcustodian. With respect to Securities, other assets and
-------------------
cash of any Customer which are maintained by Barclays in the custody of any
Subcustodian of Barclays pursuant to Section 3 hereof (such Securities, other
assets and cash hereinafter referred to as "Assets"):
(a) Barclays will identify on its books as belonging to the
Custodian, as custodian for such Customer, any Assets held by such Subcustodian.
(b) Each Subcustodian will hold Assets together with assets belonging
to other customers of Barclays in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of
Barclays; in the event that a Subcustodian permits any of the Securities placed
in its care to be held in a foreign securities depository, such Subcustodian
will be required by its agreement with Barclays to identify on its books such
Assets as being held for the account of Barclays as agent for the Custodian.
Each Subcustodian will hold Securities in a separate custody account for each
Customer and cash in a general account established with Barclays.
(c) Any Assets in the Custody Account or a Cash Account held by such
Subcustodian will be subject only to the instructions of Barclays, and any
Securities held in a securities depository for the account of a Subcustodian
will be subject only to the instructions
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<PAGE>
of such Subcustodian.
(d) Each Foreign Sub-Custody Agreement shall provide, through
Barclays, that the Assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of such Subcustodian or its
creditors except a claim for payment for their safe custody or administration
and that beneficial ownership of the Assets will be freely transferable without
payment of money or value other than for safe custody or administration.
(e) Barclays shall allow independent public accountants of each
Customer such reasonable access to the records of Barclays relating to the
Assets of such Customer held in the Custody Accounts or Cash Accounts as is
required by such accountants in connection with their examination of the books
and records pertaining to the affairs of such Customer. Barclays shall, subject
to restrictions under applicable law, also obtain from any Subcustodian with
which Barclays maintains the custody of any Assets in the Custody Accounts or
Cash Accounts an undertaking to permit independent public accountants of such
Customer such reasonable access to the records of such Subcustodian as may be
required in connection with their examination of the books and records
pertaining to the affairs of such Customer.
(f) Barclays will supply to the Custodian from time to time as
mutually agreed upon a statement with respect to any Assets in the Custody
Accounts and Cash Accounts held by a Subcustodian, including an identification
of the entity having possession of such Assets, and Barclays will send to the
Custodian an advice or notification of any transfers of Assets to or from any
Custody Account or Cash Account, indicating as to the Assets acquired for the
Custodian the identity of the entity having physical possession of such Assets.
Unless the Custodian sends Barclays an exception or objection to any statement
within sixty days of receipt (such objection or exception to be subsequently
confirmed in writing), the Custodian shall be deemed to have approved such
statement. In such event, or where the Custodian has otherwise approved any such
statement, Barclays shall, to the extent permitted by law, be released, relieved
and discharged with respect to all matters set forth in such statement or
reasonably implied therefrom as though it had been settled by decree of a court
of competent jurisdiction in an action where the Custodian and all persons
having or claiming an interest in the Custodian or the Accounts were parties.
5. Cash Account Transactions. (a) Subject to Sections 7 and 8, Barclays
--------------------------
shall make, or cause its Subcustodians to make, payments of cash credited to a
Cash Account only:
(i) in connection with the purchase of Assets for a Customer, which
purchase (A) shall, unless Instructions are received to the contrary, be made
in accordance with the customary or established securities trading and
processing practices and procedures in the jurisdiction or market in which
such purchase is to take place, including, without limitation, payments of
cash in connection with such purchase to the seller, the dealer or their
agents against a receipt indicating, or the expectation of, future delivery of
such
-3-
<PAGE>
Security, and (B) shall be made at prices set forth in Instructions from
Authorized Persons (as defined in Section 10 hereof);
(ii) when required in connection with the conversion, exchange or
surrender of Assets held in a Custody Account;
(iii) for any other proper corporate purpose of a Customer; or
(iv) upon the termination of this Agreement as hereinafter set forth.
All payments of cash for a purpose permitted by subsection (i) (ii) or (iii) of
this Section 5 will be made, except as provided in Sections 7 and 8 hereof, only
upon receipt by Barclays of Instructions from Authorized Persons which shall
specify the purpose for which the payment is to be made and all other
information required by Barclays. Any payment pursuant to subsection (iv) above
will be made in accordance with Section 16 hereof.
(b) In the event that any payment made under this Section 5 exceeds
the funds available in the applicable Cash Account, Barclays may, in its
discretion, advance the Custodian an amount equal to such excess and such
advance shall be deemed a loan from Barclays to the Custodian, payable on demand
and bearing interest at the rate of interest customarily charged by Barclays on
similar loans.
6. Custody Account Transactions. Subject to Sections 7 and 8, Assets of
----------------------------
any Customer in a Custody Account will be transferred, exchanged or delivered by
Barclays or its Subcustodians only:
(a) upon sale of such Assets for the account of such Customer, which sale
(i) shall, unless Instructions are received to the contrary, be made in
accordance with the customary or established securities trading and processing
practices and procedures in the jurisdiction or market in which such sale is
to take place, including, without limitation, delivery of a Security in
connection with such sale to the buyer, the dealer or their agents against a
receipt indicating, or the expectation of, future payment for such Security
and (ii) shall be at prices set forth in Instructions from Authorized Persons;
(b) to a depository agent in connection with tender or other similar
offers for Securities of such Customer;
(c) to the issuer of securities or its when such Securities are called,
redeemed or otherwise become payable; provided that, in any case, the cash or
other consideration is to be delivered to Barclays or its Subcustodian;
(d) to the issuer of Securities, or its agent, for transfer into the name
of any nominee of Barclays or any of its Subcustodians; or for exchange for a
different number
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<PAGE>
of bonds, certificates or other evidences of securities representing the same
aggregate face amount or number of shares or units; provided that, in any such
case, the new Securities are to be delivered to Barclays or its Subcustodian;
(e) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of Securities
or pursuant to provisions for conversion of such Securities, or pursuant to
any deposit agreement; provided that in any such case, the new Securities or
cash, if any, are to be delivered to Barclays or its Subcustodian;
(f) in the case of warrants, rights or similar securities, the surrender
thereof in connection with exercise of such warrants, rights or similar
securities, or the surrender of interim receipts or temporary Securities for
definitive Securities, provided that, in any such case, the new Securities and
cash, if any, are to be delivered to Barclays or its Subcustodian;
(g) for any other proper corporate purposes of such Customer; and
(h) upon the termination of this Agreement as hereinafter set forth;
All transfers, exchanges or deliveries of Assets in a Custody Account for a
purpose permitted by either subsection (a), (b), (c), (d), (e), (f) or (g) of
this Section 6 will be made, except as provided in Section 7 hereof, only upon
receipt by Barclays of Instructions from Authorized Persons which shall specify
the purpose of the transfer, exchange or delivery to be made and all other
information required by Barclays. Any transfer or delivery pursuant to
subsection (h) of this Section 6 will be made in accordance with Section 16
hereof.
7. Accounting Procedures. (a) Barclays may, in its sole discretion,
---------------------
credit or debit any of the Cash Accounts on the contractual settlement date in
amounts equal to the sale proceeds or purchase price relating to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Cash Account on the date cash is actually received by
Barclays and reconciled to the Cash Account.
(b) Barclays will provisionally credit, or will cause provisional
credits to be made to, each relevant Cash Account with Subject Income (as
defined in the second following sentence) on or before specific crediting dates
as established by Barclays from time to time for such Subject Income ("Crediting
Dates"). Schedule B attached hereto sets forth the Crediting Dates as of the
date hereof. For purposes hereof, "Subject Income" with respect to a Customer
shall mean interest on, or dividends with respect to, Securities actually known
by Barclays to be part of such Customer's portfolio credited to the relevant
Customer Custody Account and with respect to which the issuer thereof has
declared or scheduled an interest or dividend payment date. In no event shall
Subject Income include any income not referred to above, including market claims
and non-cash distributions or entitlements, such as stock
-5-
<PAGE>
dividends.
(c) Subject to the immediately following sentence, Barclays may
reverse credits or debits made to any Account in its sole discretion if the
related transaction fails to settle within a reasonable period, determined by
Barclays in its discretion, after the contractual settlement date for the
related transaction. If Barclays credits any Cash Account on a payable date, or
at any time prior to actual collection and reconciliation to such Cash Account,
with interest, dividends, redemptions or any other amount, including, without
limitation, any provisional credit under Section 7(b) hereof, the Custodian will
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If the Custodian does not promptly return
any amount upon such notification, Barclays shall be entitled, upon oral or
written notification to the Custodian, to reverse such credit by debiting the
relevant Cash Account for the amount previously credited. Barclays or its
Subcustodian shall have no duty or obligation to institute legal proceedings,
file a claim or a proof of claim in any insolvency proceeding or take any other
action with respect to the collection of such amount, but may act for the
Custodian upon instructions after consultation with the Custodian.
(d) If any Securities delivered pursuant to Section 7 are returned by
the recipient thereof, Barclay, may reverse the credits and debits of the
particular transaction at any time.
8. Actions of Barclays. Until Barclays receives Instructions from
--------------------
Authorized Persons to the contrary, Barclays will, or will instruct its
Subcustodian to:
(a) promptly collect all income and other payments known by Barclays or
its Subcustodian to be payable with respect to Securities held hereunder and
credit such income, as collected, to the applicable Cash Account. Barclays or
its Subcustodian shall do all things necessary and proper in connection with
such prompt collections and, without limiting the foregoing, Barclays or its
Subcustodian will:
(i) present for payment all coupons and other income items known by
Barclays or its Subcustodian as requiring presentation;
(ii) present for payment all Securities, known to Barclays or its
Subcustodian which have matured or have been called, redeemed, retired or
otherwise become payable; and
(iii) endorse and deposit for collection, in the name of the
Custodian, checks, drafts or other negotiable instruments;
(b) in respect of Securities in a Custody Account, execute in the name of
the Custodian such ownership and other certificates as may be required to
obtain payments in
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<PAGE>
respect thereof;
(c) exchange interim receipts or temporary Securities in a Custody Account
for definitive Securities;
(d) where any Securities held in any securities depository are called for a
partial redemption by the issuer of such Securities, allot in Barclays' or
such Subcustodian's sole discretion the called portion to the respective
holders in any manner deemed to be fair and equitable in Barclays' or such
Subcustodian's judgment; and
(e) subject to the prior receipt of all documentation required by
Applicable law, pay or cause to be paid any and all taxes and levies in the
nature of taxes imposed on the Assets in the Custody or Cash Accounts by any
governmental authority and shall use reasonable efforts where appropriate to
promptly enable the Custodian or a Customer to reclaim any foreign withholding
tax relating to any such Assets.
9. Settlement Procedures; Instructions.
-----------------------------------
(a) Promptly after the acceptance of an offer to purchase Securities
by a Customer for which such Customer intends Barclays, directly or through any
foreign custodian or depository, to act as custodian, the Custodian shall
deliver to Barclays Instructions specifying, inter alia and as necessary, with
respect to each such purchase: (a) the name of the issuer and the title of the
Securities, including CUSIP number or other similar securities identification
number, if any, (b) the number of shares or the principal amount purchased and
accrued interest, if any, (c) to the extent known, the date payment is due and
the date delivery is to be made, (d) the purchase price per unit, (e) the total
amount payable upon such purchase, (f) the name of the person from whom or the
broker through whom the purchase was made, and (g) the foreign subcustodian or
depository where such Securities are to be delivered and held, and whether the
total amount payable will be paid from the Cash Account maintained in the
country or jurisdiction where such subcustodian or depository is located.
Subject to Section 5, Barclays directly or through the applicable foreign
subcustodian or depository shall receive Securities purchased by a Customer from
the person through or from whom the same were purchased, and shall pay, out of
the monies credited to the applicable Cash Account, the total amount payable
upon such purchase, provided that the same conforms to the total amount payable
shown on the Instructions with respect to such purchase. on the scheduled date
for payment for any Security to be purchased for deposit in a Custody Account,
the Custodian shall have caused there to be deposited in the Cash Account
located in the country or jurisdiction where such purchase is to take place,
amounts sufficient, and in such denominations, to enable Barclays or the foreign
subcustodian to pay for such Security.
(b) Promptly after the acceptance of an offer to sell any Securities
by a Customer, the Custodian shall deliver to Barclays Instructions specifying,
inter alia and as necessary, with respect to such sale: (a) the name of the
issuer and the title of the Security,
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<PAGE>
including CUSIP number or other similar securities identification number, if
any, (b) the number of shares or principal amount sold, and accrued interest, if
any, (c) to the extent known, the date payment is to be received and the date
delivery of the Security is to be made, (d) the sale price per unit, (e) the
total amount payable upon such sale, (f) the name of the broker through whom or
the person to whom the sale was made and to whom the Security is to be
delivered, and (g) the foreign subcustodian or depositary from which such
Securities are to be delivered. Subject to Section 6, Barclays shall directly
or through the applicable foreign subcustodian or depository deliver the
Securities sold to the broker or other person named in such Instructions upon
receipt by Barclays or a foreign subcustodian of the total amount payable to
such Customer upon such sale provided that the same conforms to the total amount
payable to the Customer as set forth in the Instructions with respect to such
sale. Unless Barclays shall be in receipt of Instructions to the contrary,
amounts received from the sale of any Security shall be deposited in the Cash
Account located in the country or jurisdiction where such sale shall have
occurred, in the denomination in which payment was made, and, subject to the
provisions of Section 5, shall be held in such Cash Account until Instructions
are received from the Custodian.
(c) As used in this Agreement, the term "Instructions" means
instructions of the Custodian to Barclays containing all information required by
Barclays received via telephone, telex, TWX, facsimile transmission, bank wire
or other teleprocess or electronic instruction systems acceptable to Barclays
which Barclays believes in good faith to have been given by Authorized Persons
or which are transmitted with proper testing or authentication pursuant to terms
and conditions which Barclays may specify.
(d) Any Instructions delivered to Barclays by telephone or facsimile
transmission shall promptly thereafter be confirmed in writing by an Authorized
Person (which confirmation shall bear the original or facsimile signature of
such Authorized person). However, Barclays may rely upon instructions by
telephone or facsimile transmission in the event of failure of an Authorized
Person to send such confirmation in writing. Barclays may rely upon telephone
instructions in the event of the failure of such confirmation to conform to the
telephone instructions received if such telephone instructions are acted upon
prior to receipt of such confirmation. Unless otherwise expressly provided, all
Instructions shall continue in full force and effect until canceled or
superseded. If Barclays requires test arrangements, authentication methods or
other security devices to be used with respect to Instructions, any Instructions
given by the Custodian thereafter shall be given and processed in accordance
with such terms and conditions for the use of such arrangements, methods or
devices as Barclays may put into effect and modify from time to time. The
Custodian shall safeguard any testkeys, identifications, codes or other security
devices which Barclays shall make available to it. Barclays and the Custodian
may electronically record any Instructions given by telephone, and any other
telephone discussions, with respect to a Custody Account or a Cash Account.
(e) If the Custodian elects, Barclays shall provide the Custodian with
such instructions and passwords as may be necessary in order for the Custodian
to have dial up access or other means of access to Barclays telecommunications
system for securities in custody
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<PAGE>
accounts. The Custodian understands information provided to it through such
system shall be limited to information relating to the Custody Accounts and the
Cash Accounts. If the Custodian elects to utilize such system, the Custodian
agrees to assume full responsibility for the consequence of any misuse or
unauthorized use by the Custodian of any terminal device or the instructions or
passwords mentioned above.
10. Authorized Persons. As used in this Agreement, the term "Authorized
------------------
Persons" means such officials or such agents of the Custodian as have been
designated in writing to Barclays to act on behalf of the Custodian in the
performance of any acts which Authorized Persons may do under this Agreement.
Such persons shall continue to be Authorized Persons until such time as Barclays
receives Instructions from Authorized Persons that any such official or agent is
no longer an Authorized Person.
11. Nominees. Securities in a Custody Account which are ordinarily held in
--------
registered form may be registered in the nominee name of Barclays, any
Subcustodian or securities depository. The Custodian agrees to hold any such
nominee harmless from any liability as a holder of record of such Securities.
Barclays may cause any such Securities to cease to be registered in the name of
any such nominee and to be registered in the name of another nominee provided
such nominee is either a Subcustodian or a securities depository.
12. Standard of Care.
----------------
(a) Barclays shall be responsible for the performance only of such
duties-as are specifically forth herein or contained in Instructions given to by
Authorized Persons which are not contrary to the provisions of this Agreement.
Barclays will use reasonable care with respect to the safekeeping of the Assets
in the Custody Accounts and Cash Accounts and in the performance of its
functions and duties under this Agreement. Barclays shall be liable to the
Custodian for any loss which shall occur as the direct and foreseeable result of
the failure of a Subcustodian to exercise reasonable care with respect to the
safekeeping of Assets or in the performance of its functions or duties in
connection herewith to the same extent that such Subcustodian would be liable to
the Custodian under applicable law if such Subcustodian and the Custodian had
directly entered into a custodial agreement governed by the law of the country
of such Subcustodian. In the event of any loss to the Custodian by reason of the
failure of Barclays or its Subcustodian to utilize reasonable care, Barclays
shall be liable to the Custodian to the extent of the Custodian's direct and
foreseeable damages, to be determined (in the case of a loss of property) based
on the market value in U.S. dollars of the property which is the subject of the
loss at the date on which actual notice of such loss is received by Barclays,
and without reference to any special conditions or circumstances. Barclays shall
be held to the exercise of reasonable care in carrying out this Agreement but
shall be indemnified by, and shall be without liability to, the Custodian for
any action taken or omitted by Barclays in good faith without negligence in
accordance with the terms of this Agreement. Barclays shall be entitled to rely,
and may act, on advice of counsel (who may be counsel for the Custodian) on all
matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Barclays will be
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<PAGE>
subject to the reasonableness standard articulated above.
(b) Except as otherwise specifically agreed to herein, Barclays
shall have no liability for any loss occasioned by any mistakes contained in, or
errors in the transmission of, any Instruction, or by delay in the actual
receipt of any Instruction or any notice to Barclays or by or to its
Subcustodian of any payment, redemption or other transaction regarding
Securities in the Custody Accounts in respect of which Barclays has agreed to
take action as provided in Section 8 hereof. Barclays shall not be liable for
any action taken in good faith upon Instructions or in reliance upon the
designation of "Authorized Persons" referred to in Section 10 hereof and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Barclays shall not be liable for any loss or damage
resulting from or caused by nationalization, expropriation, currency or other
regulatory restrictions, labor unrest, acts of war, civil war or terrorism,
insurrection, revolution, military or usurped powers, nuclear fusion, fission or
radiation, earthquake, storm or other disturbance of nature or acts of God.
(c) Without limiting the generality of the foregoing, neither
Barclays nor any Subcustodian shall be under any duty or obligation to inquire
into, or be liable for:
(i) the validity of the issue of any Securities purchased by
or for any Customer, the legality of the purchase thereof, or the propriety of
the amount paid therefor; or
(ii) the legality of the sale of any Securities by or for any
Customer, or the propriety of the amount for which the same are sold; or
(iii) any default in the payment of principal or income of any
security other than as provided in Section 7 of this Agreement; or
(iv) the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made pursuant to this
Agreement; or
(v) the existence or content of any trade confirmations
received from brokers; the Custodian or its Authorized Persons issuing
Instructions shall bear any responsibility to review such confirmations against
Instructions issued to and statements issued by Barclays.
(d) Neither Barclays nor any Subcustodian shall be liable for, or
considered to be the custodian of, any money represented by any check, draft, or
other instrument for the payment of money received by it on behalf of any
Customer, until Barclays or such Subcustodian actually receives such money.
(e) Neither Barclays nor any Subcustodian shall be under any duty
or
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<PAGE>
obligation to take action to effect collection of any amount, if the Securities
upon which such amount is payable are in default, or if payment is refused after
due demand or presentation, unless and until (i) it shall be directed to take
such action by Instructions, and (ii) it shall be assured to its satisfaction of
reimbursement of its costs and expenses by the Custodian in connection with any
such action.
(f) Neither Barclays nor any Subcustodian shall be under any duty
or obligation to ascertain whether any Securities at any time delivered to or
held by it in any Custody Account are such as may properly be held by a
Customer.
(g) It is understood and agreed that Barclays is not under any duty
to maintain any insurance for the benefit of any Customer or the Custodian or to
supervise the investment of, or to advise or make any recommendation to any
Customer or the Custodian with respect to the sale or other disposition of any
Securities at any time held hereunder or to advise or recommend the purchase of
any Securities at any time.
(h) The Custodian will indemnify Barclays for any direct and
foreseeable damages to Barclays with respect to the performance of Barclays,
obligations under this Agreement (including, but not limited to, Barclays, legal
fees and expenses and any other legal fees and expenses for which Barclays is
liable, and any loss or liability in connection with a claim settled by
Barclays, which agreement is accepted by the Custodian) unless such direct and
foreseeable damages arises from any failure by Barclays or any Subcustodian to
exercise reasonable care with respect to any assets in any Custody or Cash
Account or from any negligence, fraud, bad faith, willful misconduct or reckless
disregard of duties on the part of Barclays or any Subcustodian which maintains
any Securities.
13. Proxies; Corporate Action. Unless Instructions to the contrary are
-------------------------
received, Barclays or its Subcustodian shall forward to the Custodian only such
communications from issuers relating to the Securities in a Custody Account as
call for voting or the exercise of rights or other specific action (including
material relative to legal proceedings intended to be transmitted to security
holders) to the extent sufficient copies are received by Barclays or its
Subcustodian in time for forwarding to the Custodian. Barclays or its
Subcustodian will cause its nominee to execute and deliver to the Custodian
proxies relating to Securities in a Custody Account registered in the name of
such nominee, but without indicating the manner in which such proxies are to be
voted. Proxies relating to bearer Securities will be delivered in accordance
with written Instructions.
14. Fees and Expenses. The Custodian agrees to pay to Barclays from
-----------------
time to time such compensation for its services pursuant to this Agreement and
such out-of-pocket or incidental expenses as may be mutually agreed upon in
writing from time to time. The Custodian hereby agrees to hold Barclays harmless
from any liability or loss resulting from any taxes or other governmental
charges, and any expenses related thereto, which may be imposed or assessed with
respect to any Custody Account. The Custodian agrees to pay for and hold
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<PAGE>
Barclays harmless from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and any related expenses
with respect to income from or Assets in the Accounts and Barclays is authorized
to charge any account of the Custodian for such items.
15. Effectiveness. This Agreement shall be effective on the date first
-------------
noted above.
16. Termination. This Agreement or the accounts of any Customer may be
-----------
terminated by the Custodian or Barclays by 90 days, written notice to the other,
sent by registered mail, provided that such notice from the Custodian shall
specify the names of the persons to whom Barclays shall deliver the Securities
in the applicable Custody Accounts and to whom the cash in the applicable Cash
Accounts shall be paid. If notice of termination is given by Barclays, the
Custodian shall, within 60 days following the giving of such notice, specify in
writing the names of the persons to whom Barclays shall deliver the Securities
in the applicable Custody Accounts and to whom the cash in the applicable Cash
Accounts shall be paid. In either case Barclays will deliver such Securities and
cash to the person so specified. If within 60 days following the giving of a
notice of termination by Barclays, the Custodian has not specified in writing
the names of the persons to whom Barclays shall deliver the Securities in the
applicable Custody Accounts and to whom the cash in the applicable Cash Accounts
shall be paid, Barclays, at its election, may deliver such Securities and pay
such cash to a bank or trust company doing business in the State of New York to
be held and disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold such Securities and cash until such
information is delivered in writing to Barclays. The obligations of the parties
hereto regarding the use of reasonable care, indemnities and payment of fees and
expenses shall survive the termination of this Agreement.,
17. Notices. Any notice or other communication including Instructions
-------
from the Custodian to Barclays is to be delivered or mailed, postage prepaid to
the office of Barclays at 75 Wall Street, New York, New York 10265, Attention:
Global Custody Group, Telephone: (212) 412-4000, Telecopier: (212) 797-3024 or
such other address as may hereafter be given to the Custodian in accordance with
the notice provisions hereunder. Any notice from Barclays to any Customer or the
Custodian is to be delivered or mailed postage prepaid to the office of the
Custodian as set forth below, or such other address as may hereafter be given to
Barclays in accordance with the notice provisions hereunder.
18. Governing Law, Successors and Assigns and Third Party
-----------------------------------------------------
Beneficiaries. This Agreement shall be governed by the law of the State of New
- -------------
York and shall not be assignable by either party, but shall bind the successors
(including, without limitation, by merger) and assigns of the Custodian and
Barclays.
19. Headings. The headings of the paragraphs hereof are included for
--------
convenience of reference only and do not form a part of this Agreement.
-12-
<PAGE>
20. Riders. Rider A to this Agreement is incorporated herein to the
------
extent Assets governed hereby are subject to the Employee Retirement Income
Security Act of 1974 as amended. Rider B to this Agreement is incorporated
herein to the extent Assets governed hereby are subject to the Investment
Company Act of 1940, as amended.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf by its duly authorized officer as of the date
first above written.
Attest: PROVIDENT NATIONAL BANK
/s/
- -------------------------- By:
------------------------------
Title: Vice President
-------------------------
Address: 200 Stevens Drive
Lester, PA 19113
Asset: BARCLAYS BANK PLC
/s/
- -------------------------- By: /s/
------------------------------
Authorized Officer
-13-
<PAGE>
Rider A
--------
Required Revisions for Pension Funds
------------------------------------
Section 1. Custody and Cash Accounts.
Add the following language to the end of Section 1:
(c) The Custodian represents that the Assets being placed in
Barclays' custody are subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). It is understood that in connection therewith
Barclays is a service provider and not a fiduciary of the plan and trust to
which the assets are related. Barclays shall not be considered a party to the
underlying plan and trust, and the Custodian hereby assumes all responsibility
to assure that Instructions issued under this Agreement are in compliance with
such plan and trust and all applicable requirements under ERISA.
(d) This Agreement will be interpreted so as to be in compliance
with the Department of Labor Regulations Section 2550.404b-1 concerning the
maintenance of indicia of ownership of plan assets outside of the jurisdiction
of the district courts of the United States.
Section 2. Maintenance of Securities and Assets Abroad.
Add the following paragraph at the end of Subsection 2(b):
Instructions to execute foreign exchange transactions with
Barclays, its subsidiaries, Subcustodians will include (1) the time period in
which the transaction must be completed; (2) the location or the Subcustodian
with whom the contract is to be executed and (3) such additional information and
guidelines as may be deemed necessary; and, if the instruction is a standing
instruction, a provision allowing such instruction to be overridden by specific
contrary instructions.
Section 3. Foreign Subcustodians and Depositories.
Add the following language to the end of Section 3:
As used in this Agreement, the term Subcustodian and the term
securities depositories include a branch of Barclays, a branch of a qualified
U.S. bank, an eligible foreign custodian, or an eligible foreign securities
depository, where such terms shall mean:
(a) "qualified U.S. bank" shall mean a U.S. bank as described in
paragraph (a)2(ii)(A)(1) of the Department of Labor Regulations Section
2550.404b-1;
-14-
<PAGE>
(b) "eligible foreign custodian" shall mean a banking institution
incorporated or organized under the laws of a country other than the United
States which is supervised or regulated by that country's government or an
agency thereof or other regulatory authority in the foreign jurisdiction
having authority over banks; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or organized under
the laws of a country other than the United States, which is supervised or
regulated by that country's government or an agency thereof or other
regulatory authority in the foreign jurisdiction having authority over such
depositories or clearing agencies and which is described in paragraph
(c)(2) of the Department of Labor Regulations Section 2550.404b-1.
Section 5. Cash Account Transactions.
Subsection (b) is amended to read as follows:
(b) in the event that any payment made under this Section 5
exceeds the funds available in the Cash Account, such discretionary
advance shall be deemed a service provided by Barclays under this
Agreement for which it is entitled to recover its reasonable costs and
expenses as may be determined by Barclays in good faith.
Section 10. Authorized Persons.
Add the following paragraph at the end of Section 10:
The Custodian represents that: (i) Instructions will only be issued
by or for a fiduciary pursuant to Department of Labor Regulations Section 404b-
1(a)(2)(i), and (ii) if instructions are to be issued by an investment manager,
such entity will meet the requirements of Section 3(38) of ERISA and will have
been designated by the Custodian or the Customer to manage assets held in the
Accounts ("Investment Manager"). An Investment Manager may designate certain of
its employees to act as Authorized Persons under this Agreement.
-15-
<PAGE>
Rider B
-------
Required Revision for Mutual Funds
----------------------------------
Section 1. Custody and Cash Accounts.
Add the following language to the end of Section 1:
(c) The Custodian represents that the Assets being placed in
Barclays, custody are subject to the Investment Company Act of 1940 (the "Act"),
as the same may be amended from time to time.
(d) Barclays shall be responsible for assuring that it and each
Subcustodian is an eligible foreign custodian, qualified U.S. Bank or overseas
branch of a qualified U.S. Bank in accordance with the definitions thereof set
forth herein.
(e) Except to the extent that Barclays has specifically agreed to
comply with a condition of a rule, regulation or interpretation promulgated by
or under the authority of the Securities Exchange Commission (the "SEC") or an
exemptive order applicable to accounts of this nature issued to Barclays, one or
more of the other parties hereto shall be responsible to assure that the
maintenance of assets under this Agreement complies with such rules,
regulations, interpretations or exemptive order promulgated by or under the
authority of the SEC.
(f) As used in this Agreement, as applied to any assets or
property of an investment company having multiple portfolios or series, the term
"Customer" shall mean each of such Customer's individual investment portfolios
or series.
Section 3. Foreign Subcustodians and Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in
this Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as
defined in Rule 17f-5 under the Act;
(b) "eligible foreign custodian" shall mean (i) a banking
institution or trust company incorporated or organized under the laws of
a country other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders,
equity in excess of $200 million in U.S. currency (or foreign
-16-
<PAGE>
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders equity in excess of $100 million
in U.S. currency (or a foreign currency equivalent thereof), (iii) a
banking institution or trust company incorporated or organized under the
laws of a country other than the United States or a majority owned direct
or indirect subsidiary of a qualified U.S. bank or bank holding company
that is incorporated or organized under the laws of a country other than
the United States which has such qualifications, in addition to those set
forth in clause (i) or (ii) above, as shall be specified in Instructions
and approved by Barclays, or (iv) any other entity that shall have been
so qualified by exemptive order, rule or other appropriate action of the
SEC; and
(c) "eligible foreign securities depository" shall mean a
securities depository or clearing agency, incorporated or organized under
the laws of a country other than the United States, which operates (i)
the central system for handling securities or equivalent book-entries in
that county or (ii) a transnational system for the central handling of
securities or equivalent book-entries.
The Custodian represents that the Board of each Customer has
approved each of the Subcustodians listed in Schedule A to this Agreement and
the terms of each subcustody agreement between Barclays and each Subcustodian,
and further represents that each Board has determined that the use of each
Subcustodian and the terms of each subcustody agreement are consistent with the
best interests of the Customer's fund(s) and its (their) shareholders, in each
case, to the extent required by the Act. Barclays will supply the Custodian with
any amendment to Schedule A for approval and will supply the Custodian and, at
the Custodian's request, each Customer's Board of Directors, with information
reasonably necessary to determine such new Subcustodian's eligibility under Rule
17f-5, including a copy of the proposed agreement with such Subcustodian. Each
Customer has supplied or will supply the Custodian with certified copies of its
Board resolutions, with respect to the foregoing, prior to placing Assets of
such Customer with any Subcustodian so approved. If Barclays intends to remove
any Subcustodian previously approved, it shall so notify the Custodian and shall
move the Securities and other assets to another Subcustodian previously approved
or to a new Subcustodian, subject to the requirements set forth in this
paragraph. Barclays shall take steps as may be required to remove any
Subcustodian which has ceased to meet the requirements of Rule 17f-5.
Barclays hereby warrants to the Customers and the Custodian that
in its opinion, after due inquiry, the established procedures to be followed by
each of its branches, each branch of a qualified U.S. bank, each eligible
foreign custodian and each eligible foreign securities depository holding
Securities pursuant to this Agreement afford protection for such Securities not
materially different than that provided with respect to similar securities held
by Barclays (and its securities depositories) in the United States.
The Custodian acknowledges that Barclays, in accordance with
orders of the
-17-
<PAGE>
Commission (Investment Company Act Release No. IC-16536 August 24, 1988 and No.
IC-17268 December 19, 1989), shall be permitted to delegate to its subsidiaries
located in Australia, Canada, France, Japan, Spain and Switzerland, such of
Barclays, duties and obligations as is necessary to permit any such subsidiary
to hold Securities and cash in custody in the country or countries in which it
operates; provided, however, Barclays shall continue to be liable for any loss
due to such delegation except such loss as may result from political risk or any
other risk of loss (excluding bankruptcy or insolvency of the subsidiary) for
which neither Barclays nor the subsidiary would otherwise be liable.
Section 9. Settlement Procedures; Instructions.
Add the following language to the end of Section 9:
(f) Account transactions made pursuant to Section 5 and 6 of this
Agreement may be made only for the purposes listed below. Instructions must
specify the purpose for which any transaction is to be made and the Custodian
shall be solely responsible to assure that instructions are in accord with any
limitations or restrictions applicable to the Customer by law or as may be set
forth in its prospectus.
(i) In connection with the purchase or sale of Securities
at prices as confirmed by Instructions.
(ii) When Securities are called, redeemed or retired, or
otherwise become payable.
(iii) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant to any plan or
merger, consolidation, reorganization, recapitalization or readjustment.
(iv) Upon conversion of Securities pursuant to their terms
into other securities.
(v) Upon exercise of subscription, purchase or other
similar rights represented by Securities.
(vi) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses.
(vii) In connection with any borrowings by the Customer
requiring a pledge of Securities, but only against receipt of amounts
borrowed.
(viii) In connection with any loans, but only against receipt
of adequate collateral as specified in Instructions which shall reflect
any restrictions applicable to the
-18-
<PAGE>
Customer.
(ix) For the purpose of redeeming shares of the capital stock
of the Customer and the delivery to, or the crediting to the account of
Barclays, its Subcustodian or the Customer's transfer agent, such shares
to be purchased or redeemed.
(x) For the purpose of redeeming in kind shares of the
Customer against delivery of the shares to be redeemed to Barclays, its
Subcustodian or the Customer's transfer agent.
(xi) For delivery in accordance with the provisions of any
agreement among the Customer, Barclays and a broker-dealer registered
under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of the National Association of Securities Dealers, Inc., relating
to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(xii) For release of Securities to designated brokers under
covered call options, provided, however, that such Securities shall be
released only upon payment to Barclays of monies for the premium due and a
receipt for the Securities which are to be held in escrow. Upon exercise
of the option, or at expiration, Barclays will receive the Securities
previously deposited from brokers. Barclays will act strictly in
accordance with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make
proper request for such return.
(xiii) For spot or forward foreign exchange transactions to
facilitate security trading, receipt of income from Securities or related
transactions.
(xiv) For other proper purposes as may be specified in
Instructions, which shall include a statement that the purpose is a proper
purpose under the instruments governing the Customer.
(xv) Upon the termination of this Agreement as set forth in
Section 16.
Section 12. Standard of Care.
Section 12 (a) is hereby amended by deleting paragraph (a) thereof in
its entirety and substituting therefore the following:
(a) Barclays shall be responsible for the performance only of
such duties as are specifically set forth herein or contained in
Instructions given to Barclays by
-19-
<PAGE>
Authorized Persons which are not contrary to the provisions of this
Agreement. Barclays will use reasonable care with respect to the safekeeping
of the Assets in the Custody Accounts and Cash Accounts and in the
performance of its functions and duties under this Agreement. Barclays shall
be liable to, and indemnify and hold harmless, the Custodian and the
Customer, for any loss which shall occur as the direct and foreseeable result
of the failure of a Subcustodian to exercise reasonable care with respect to
the safekeeping of Assets or in the performance of its functions or duties in
connection herewith to the same extent that such Subcustodian would be liable
to the Custodian and the Customer, as under applicable law if such
Subcustodian and the Custodian and the Customer had directly entered into a
custodial agreement governed by the law of the country of such Subcustodian.
In the event of any loss to the Custodian or the Customer by reason of the
failure of Barclays or its Subcustodian to utilize reasonable care, Barclays
shall be liable to, and indemnify and hold harmless, the Custodian and the
Customer to the extent of such party's direct and foreseeable damages, to be
determined (in the case of a loss of property) based on the market value in
U.S. dollars of the property which is the subject of the loss at the date on
which actual notice of such loss is received by Barclays, and without
reference to any special conditions or circumstances. Barclays shall be held
to the exercise of reasonable care in carrying out this Agreement but shall
be indemnified by, and shall be without liability to, the Custodian and the
Customer for any action taken or omitted by Barclays in good faith without
negligence in accordance with this Agreement. Barclays shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the
Custodian) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Barclays will be subject
to the reasonableness standard articulated above.
Section 21. Reports.
In addition to the reports specified in Section 4(f) of this Agreement,
which Barclays shall provide at least monthly to the Custodian, and at the
Custodian's request, to the Board of Directors of each Customer, Barclays shall
provide to the Custodian and to the Board of Directors of each Customer on an
annual basis a report confirming that it and each of the Subcustodians is an
eligible foreign custodian, a qualified U.S. Bank or branch of a qualified U.S.
Bank, as defined herein. Barclays shall also provide such information regarding
the Securities and other assets, any Subcustodian, any foreign country or itself
as may be reasonably requested from time to time by the Custodian.
Section 22. Corporate Action.
Whenever Barclays or a Subcustodial-an receives information concerning the
Securities which requires discretionary action by the beneficial owner of the
Securities (other than a proxy), such as subscription rights, bonus issues,
stock repurchase plans and rights offerings, or legal notice or other material
intended to be transmitted to securities holders ("Corporate Actions"), Barclays
will promptly give the Custodian notice of such Corporate
-20-
<PAGE>
Actions to the extent that Barclays has actual knowledge of a Corporate Action.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, Barclays will endeavor to obtain Instructions, but if
Instructions are not received in time for Barclays to take timely action, or
actual notice of such Corporate Action was received too late to seek
Instructions, Barclays is authorized to sell such rights entitlement or
fractional interest and to credit the applicable Cash Account with the proceeds
and to take any other action it deems, in good faith, to be appropriate in which
case, provided it has met the standard of care in this Agreement, it shall be
held harmless by the Customers for any such action.
-21-
<PAGE>
Signatures.
Add the following after the signature lines:
The provisions of Section 3 hereof
are hereby acknowledged by:
BARCLAYS BANK OF CANADA
By: /s/
------------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A. (FRANCE)
By: /s/
------------------------------------
Authorized Attorney-in-Fact
BARCLAYS TRUST AND BANKING
COMPANY (JAPAN) LIMITED
By: /s/
------------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A.E. (SPAIN)
By: /s/
------------------------------------
Authorized Attorney-in-Fact
BARCLAYS BANK S.A. (SWITZERLAND)
By: /s/
------------------------------------
Authorized Attorney-in-Fact-
BARCLAYS BANK AUSTRALIA LIMITED
By: /s/
------------------------------------
Authorized Attorney-in-Fact
-22-
<PAGE>
The following investment companies hereby agree and become parities to the
provision of the Global Custody Agreement of which this Rider B is a part.
Barclays and the Custodian undertake to discharge their respective obligations
set forth in the Global Custody Agreement and herein to the undersigned
investment companies which shall each be a "Customer" under this Agreement.
PENN SERIES FUNDS, INC.
By: /s/
------------------------------------
Title: Treasurer
---------------------------------
Dated as of: October 28, 1992
-23-
<PAGE>
Continuation of Investment Company Signatures
to
Rider B of
Global Custody Agreement
between Barclays Bank PLC
Provident National Bank
and
Investment Companies signing
this Rider B
[Name of Fund]
By: /s/
----------------------
Title:
-------------------
Dated:
-------------------
-24-
<PAGE>
Schedule "A"
BARCLAYS GLOBAL CUSTODY NETWORK
Branches and Subsidiaries
United Kingdom Barclays Bank PLC, London
Australia Barclays Bank Australia, Ltd., Sydney
Canada Barclays Bank of Canada, Toronto
Channel Islands Barclays Bank PLC, Jersey
France Barclays Bank SA, Paris
Germany Merck Finck & Co., Munich*
Greece Barclays Bank PLC, Athens
Hong Kong Barclays Bank PLC, Hong Kong
Ireland Barclays Bank PLC, Dublin
Italy Barclays Bank PLC, Milan
Japan Barclays Trust and Banking (Japan) Ltd.,
Tokyo
Korea Barclays Bank PLC, Seoul
Netherlands Barclays Bank PLC, Amsterdam
New Zealand Barclays New Zealand Custodian Services
Ltd., Wellington
Portugal Barclays Bank PLC, Lisbon
Singapore Barclays Bank PLC, Singapore
Spain Barclays Bank SAE, Madrid
Switzerland Barclays Bank SA, Geneva
United States Barclays Bank PLC, New York
cont.-
-25-
<PAGE>
BARCLAYS GLOBAL CUSTODY NETWORK (cont.)
Correspondents
Argentina Citibank NA, Buenos Aires*
Austria Creditanstalt Bankverein, Vienna
Belgium Banque Brussels Lambert, Brussels
Brazil Citibank NA, Sao Paolo*
Chile Citibank NA, Santiago*
Colombia Citibank NA, Bogota*
Denmark Den Danske Bank, Copenhagen
Finland Union Bank of Finland, Helsinki
Indonesia Standard Chartered Bank*; Bank Negara Indonesia
1946, Jakarta
Luxembourg Banque Internationale a Luxembourg SA,
Luxembourg*
Malaysia United Malayan Banking Corp. Berhad,
Kuala Lumpur
Mexico Banco Nacional de Mexico, Mexico City
Norway Christiania Bank, Oslo
Philippines The Philippines National Bank, Manila
South Africa The First National Bank of Southern
Johannesburg
Sri Lanka Hong Kong & Shanghai Bank, Sri Lanka*
Sweden Svenska Handelsbanken, Stockholm
Thailand Bangkok Investment Company, Ltd.; Bangkok
Bank, Ltd., Bangkok
Turkey Yapi Ve Kredi Bankasi AS, Istanbul
Transnational CEDEL, Luxembourg; Euroclear, Brussels
Uruguay Citibank NA, Montevideo*
Venezuela Citibank NA, Caracas*
Notes:
* Not eligible for safekeeping of Mutual Fund assets.
Revised August, 1992
-26-
<PAGE>
FOREIGN DEPOSITORIES
--------------------
Country Custodian
- ------- ---------
Austria Wertpapiersammelbank (W S B), a division of OeKB
(Oesterreichische Kontrollbank)
Belgium C.I.K. (Casse Interprofessionelle de Depots et de Virements de
Titres S.A.)
Canada CDS (The Canadian Depository for Securities Limited)
Denmark Vaerdipapircentralen (VP)
France SICOVAM (Societe lnterprofessionelle pourla Conservation des
Valeurs Mobilieres)
Germany Frankfurter Kassenverein
Greece Apothetirio Tition A.E.
Hong Kong CCASS (The Central Clearing and Settlement System)
Italy Monte Titoli, S.P.A.
Japan JASDEC (Japan Securities Depository Company)
Luxembourg CEDEL (Centrale de Livraison de Valeures Mobilieres, S.A.)
Mexico S.D. INDEVAL, S.A.
The Netherlands NECIGEF (Netherlands Clearing Institute for Giro Securities
Deliveries)
Nor-way VPS (Verdipapirsentralen)
Singapore CDP (The Central Depository Pte. Ltd.)
Sweden Vardepapperscentralen VPC AB (VPC)
Switzerland SEGA (Schweizerische Effekten-Giro S.A.)
Transnational CEDEL
United States DTC (Depository Trust Company)
-27-
<PAGE>
Schedule "B"
CONTRACTUAL INCOME SCHEDULE
1) Income is paid on payable date for each country listed below.
2) Income is credited as collected for all other countries.
3) Income is paid in local currency. Add two days for execution of foreign
exchange to repatriate to U.S. Dollars.
Country/Market
--------------
Australia
Austria
Belgium
Canada
Denmark
Finland
France
Germany
Hong Kong
Ireland
Japan
Malaysia
Netherlands
New Zealand
Norway
Portugal
Singapore
South Africa
Spain
Sweden
Switzerland
Thailand
United Kingdom
US
Cedel/Euroclear
October 22, 1992
-28-
<PAGE>
Exhibit (9)(a)
ADMINISTRATIVE AND CORPORATE SERVICES AGREEMENT
AGREEMENT, made and entered into as of April 15, 1997, by and between PENN
SERIES FUNDS, INC., a Maryland corporation ("Penn Series"), and THE PENN
MUTUAL LIFE INSURANCE COMPANY, a Pennsylvania mutual life insurance company
("Penn Mutual").
WITNESSETH:
WHEREAS, Penn Series is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), offering multiple series (or classes) of capital stock and each
series (or class) representing interests in a separate fund or portfolios of
investments ("Fund or Funds"); and
WHEREAS, Penn Mutual currently serves as Administrative and Corporate
Services Agent for Penn Series and in such capacity provides administrative and
corporate services to Penn Series; and
WHEREAS Penn Series and Penn Mutual desire Penn Mutual to continue
providing administrative services to its existing Funds and to provide
administrative services to the new Penn Series Emerging Growth Fund; and
WHEREAS, Penn Series and Penn Mutual desire to amend and restate their
existing Administrative and Corporate Services Agreement, dated as of May 1,
1989 and amended as of November 1, 1992 and March 1, 1995;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Penn Series hereby appoints Penn Mutual its Administrative and
Corporate Services Agent to administer its corporate affairs, subject to the
overall supervision of the Board of Directors of Penn Series, for the period and
on the terms set forth in this Agreement. Penn Mutual accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Paragraph 7 of this Agreement.
2. Penn Mutual will administer all aspects of Penn Series' operations
other than those administered by Penn Series' Investment Advisers pursuant to
the Investment Advisory Agreements, Penn Series' Accounting Services Agent
pursuant to the Accounting Services Agreement, Penn Series' Custodian under the
Custodian Agreement and Penn Series' Transfer Agent under the Transfer Agency
Agreement. In performing its duties as Administrative and Corporate Services
Agent, Penn Mutual will act in conformity with the Articles of Incorporation,
By-Laws, and 1940 Act registration statement of Penn Series and with the
instructions and directions of the Board of Directors of Penn Series and will
conform to and comply with the requirements of the 1940 Act and all other
applicable Federal or state laws and regulations.
<PAGE>
3. The services which Penn Mutual shall provide as Administrative and
Corporate Services Agent include but are not limited to:
(a) the maintenance of all books and records pertaining to Penn
Series' affairs, except those that are required to be maintained by Penn
Series' Investment Advisers, Accounting Services Agent, Custodian, or
Transfer Agent;
(b) the preparation of such annual, semi-annual or other reports or
proxy statements as Penn Series may be required to file with the Securities
and Exchange Commission or to distribute to its shareholders;
(c) the preparation of any registration statements or amendments to
registration statements which Penn Series may be required or may desire to
file with the Securities and Exchange Commission;
(d) the preparation of such filings as may be required for compliance
with the securities laws of any state or other jurisdiction;
(e) the preparation of such applications or requests as Penn Series
may desire to make to the Securities and Exchange Commission or its staff
for exemption from, or interpretation of any provision of the 1940 Act or
any other applicable Federal securities statute;
(f) the preparation of Penn Series' Federal and state tax returns and
any other filings required for tax purposes other than those required to be
made by Penn Series' Custodian, Transfer Agent, Accounting Services Agent,
or Investment Advisers;
(g) such services as Penn Series' Board of Directors may require in
connection with its oversight of Penn Series' Investment Advisers,
Accounting Services Agent, Custodian, or Transfer Agent, including the
periodic collection and presentation of data concerning the investment
performance of Penn Series' various investment portfolios;
(h) the organization of all meetings of Penn Series' Board of
Directors;
(i) the organization of all meetings of Penn Series' shareholders;
(j) the collection and presentation of any financial or other data
required by Penn Series' Board of Directors, accountants, or counsel;
(k) the preparation and negotiation of any amendments to, or
substitutes for, the present agreements with Penn Series' Investment
Advisers, Accounting Services Agent, Custodian, or Transfer Agent; and
-2-
<PAGE>
(l) such other services as the Penn Series' Board of Directors may
reasonably request.
4. Penn Mutual shall permit any of its directors, officers, or employees
who may be elected as directors or officers of Penn Series to serve in the
capacities in which they are elected. Any of the services to be furnished by
Penn Series under this Agreement may be furnished through the medium of such
directors, officers, or employees of Penn Mutual.
5. Penn Mutual shall bear all of the following expenses in connection
with the services to be rendered under this Agreement.
(a) all rent and other expense involved in the provision of office
space for Penn Series and for Penn Mutual in connection with its
performance of services under this Agreement;
(b) the salaries and expenses of all personnel of Penn Series and
Penn Mutual incurred in connection with the provision of administrative
services to Penn Series, except the fees and expenses of directors of Penn
Series who are not interested persons (as defined in the 1940 Act) of Penn
Series or affiliated persons (as defined in the 1940 Act) of Penn Mutual or
of Penn Series' Investment Advisers; and
(c) all expenses incurred by Penn Mutual or Penn Series in connection
with administering the ordinary course of Penn Series' business, other than
those excluded pursuant to Paragraph 6 below.
6. Nothing in this Agreement shall require Penn Mutual to bear, or to
reimburse Penn Series for,
(a) the costs of printing and mailing the items referred to in
Paragraph 3(b) above, or any prospectuses included in registration
statements referred to in Paragraph 3(c) or required by law, regulation or
regulatory authorities;
(b) compensation of member of Penn Series' Board of Directors who are
not interested persons (as defined in the 1940 Act) of Penn Series or
affiliated persons (as defined in the 1940 Act) of Penn Mutual or of Penn
Series' Investment Advisers;
(c) registration, filing, or other fees imposed by the Securities and
Exchange Commission or other regulatory authorities;
(d) the charges and expenses of Penn Series' Investment Advisers,
Accounting Services Agent, Custodian, and Transfer Agent;
(e) the fees and expenses of legal counsel and independent
accountants for
-3-
<PAGE>
Penn Series;
(f) brokers' commissions and any issue or transfer taxes chargeable
to Penn Series in connection with its securities transactions;
(g) taxes and corporate fees payable by Penn Series to Federal, state
or other governmental entities;
(h) the fees of any trade association of which Penn Series may be a
member; and
(i) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of Penn Series' business.
7. Penn Series shall pay Penn Mutual as full compensation to services
rendered and all facilities furnished hereunder a fee computed at the annual
rate of 0.15% of the average daily net assets of Penn Series. Such fee shall be
payable at such intervals not more frequently than monthly and not less
frequently than quarterly as the officers of Penn Series may from time to time
determine and specify in writing to Penn Mutual. Such fee shall be calculated on
the basis of the average of all valuations of the net assets of Penn Series made
as of the close of business on each valuation day during the period for which
such fee is paid and be prorated among the several investment portfolios (or
Funds) in proportion to the average total net assets of each such portfolio (or
Fund) during the period.
8. With respect to each of the Growth Equity, Value Equity, Small
Capitalization, International Equity, Quality Bond and Money Market Funds of
Penn Series, to the extent that the Fund's total expenses for a fiscal year
(excluding interest, taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and extraordinary
expenses, but including investment advisory and administrative and corporate
services fees before any adjustment pursuant to this provision) exceed the
expense limitation for the Fund by more than 0.10% of the average daily net
assets of the Fund, such excess amount shall be a liability of Penn Mutual to
Penn Series. The liability (if any) of Penn Mutual to pay Penn Series such
excess amounts shall be determined on a daily basis. With respect to each of the
Emerging Growth, Flexibly Managed and High Yield Bond Funds, to the extent that
the Fund's total expenses for a fiscal year exceed the expense limitation for
the Fund, one-half of such excess amount shall be a liability of Penn Mutual to
Penn Series. The liability (if any) of Penn Mutual to pay Penn Series one-half
of such excess amounts shall be determined on a daily basis. With respect to
each Fund of Penn Series, if, at the end of each fee payment period, there is
any liability of Penn Mutual to pay Penn Series any such excess amount, the
administrative services fee shall be reduced by such liability. If, at the end
of each fee payment period, there is no liability of Penn Mutual to pay Penn
Series any such excess amount, and if payments of the administrative services
fee at the end of prior fee payment periods during the fiscal year have been
reduced in excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Penn Mutual and shall
be payable by Penn Series to Penn Mutual along with the
-4-
<PAGE>
administrative services fee payable to Penn Mutual for that period. If, at the
end of the fiscal year, there is any remaining liability of Penn Mutual to pay
Penn Series any such excess amounts (which have not been paid through reduction
of the administrative services fee), Penn Mutual shall remit to Penn Series an
amount sufficient to pay such remaining liability. The expense limitations of
the Penn Series Funds, as a percentage of the Fund's average daily net assets,
are as follows:
<TABLE>
<CAPTION>
Fund Expense Limitation
---- ------------------
<S> <C>
Growth Equity Fund 1.00%
Value Equity Income Fund 1.00%
Small Capitalization Fund 1.00%
Emerging Growth Fund 1.15%
Flexibly Managed Equity Fund 1.00%
International Equity Fund 1.50%
Quality Bond Fund 0.90%
High Yield Bond Fund 0.90%
Money Market Fund 0.80%
</TABLE>
9. Penn Mutual assumes no responsibility under this Agreement other than
to render the services called for hereunder, and specifically assumes no
responsibilities for investment advice or the investment or reinvestment of Penn
Series' assets.
10. Neither Penn Mutual nor any of its trustees, officers or employees,
nor any persons performing executive, administrative or other functions shall be
liable for any error of judgment or mistake of law or for any loss suffered by
Penn Series in connection with the matters to which this Agreement relates,
except for loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its or his or her duties on behalf of Penn
Mutual or from reckless disregard by Penn Mutual or any such person of Penn
Mutual's duties under this Agreement.
11. This Agreement shall continue in effect with respect to a given Fund
for a period more than two years from the date of its execution only so long as
such continuation is specifically approved at least annually by either the Board
of Directors of Penn Series or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) representing interests in that Fund,
provided that in either event such continuation shall also be approved by the
vote of a majority of the directors who are not interested persons of Penn
Series, as defined in the 1940 Act, cast by them in person at a meeting called
for the purpose of voting on such approval; provided, however, that:
(a) this Agreement may at any time be terminated by Penn Series with
respect to any Fund, without the payment of any penalty, on 60 days' notice
to Penn Mutual either by vote of the Board of Directors of Penn Series or
by vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) representing interests in that Fund;
-5-
<PAGE>
(b) this Agreement may be terminated by Penn Mutual at any time,
without the payment of any penalty, on 90 days' written notice to Penn
Series; and
(c) this Agreement shall immediately terminate in event of its
assignment as defined in the 1940 Act.
12. The services of Penn Mutual to Penn Series provided under this
Agreement are not to be deemed to be exclusive and Penn Mutual shall be free to
provide similar services to others. Nothing in this Agreement shall limit or
restrict the right of any trustee, officer or employee of Penn Mutual who may
also be a director, officer or employee of Penn Series to engage in any other
business or to devote his or her other time and attention in part to the
management or other aspects of any business, whether of a similar or a
dissimilar nature.
13. It is understood that directors, officers, agents and stockholders of
Penn Series are or may be interested in Penn Mutual as trustees, officers, or
otherwise; that trustees, officers, agents and policyholders of Penn Mutual are
or may be interested in Penn Series as directors, officers, stockholders or
otherwise; and that Penn Mutual may be interested in Penn Series as a
shareholder or otherwise. The existence of any such dual interest shall not
affect the validity hereof or of and transactions hereunder.
14. This Agreement may be amended by mutual written consent.
15. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid: (a) to Penn Mutual at 600 Dresher Road, Horsham PA 19044,
Attention: President; or (b) to Penn Series at 600 Dresher Road, Horsham, PA
19044, Attention: President.
16. This Agreement contains the entire agreement between the parties
hereto and supersedes all prior agreements, understandings and arrangements with
respect to the subject matter hereof.
17. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PENN SERIES FUNDS, INC.
By: /s/ James B. McElwain
---------------------
James B. McElwain
Executive Vice President
THE PENN MUTUAL LIFE INSURANCE COMPANY
By: /s/ L. Stockton Illoway
-----------------------
L. Stockton Illoway
Senior Vice President,
Marketing and Field Sales Support
-7-
<PAGE>
Exhibit (9)(b)
May 15, 1994
James D. Benson, Controller
Penn Series Funds, Inc.
600 Dresher Road
Horsham, PA 19044
Re: Accounting Services Fees
------------------------
Dear Mr. Benson:
This letter constitutes our agreement with respect to compensation to
be paid to PFPC Inc. ("PFPC") under the terns of an Accounting Services
Agreement dated May 1, 1989 between Penn Series Funds, Inc. (you or "Penn
Series") and PFPC. Pursuant to paragraph 11 of that Agreement, and in
consideration of the services to be provided to Penn Series, Penn Series, which
consists of 7 portfolios, will pay PFPC an annual accounting fee, to be
calculated daily and paid monthly. You will also reimburse PFPC for its
out-of-pocket expenses incurred on behalf of Penn Series, including, but not
limited to: postage, telephone, charges, storage, Federal express, and outside
pricing service charges.
The annual accounting fee for each domestic portfolio shall be an asset
based fee of .075% of the first $100 million of average net assets; .050% of the
next $200 million of average net assets; .030% of the next $300 million of
average net assets; and .020% of the average net assets in excess of $600
million; exclusive of out-of-pocket expenses. The annual accounting fee for each
international portfolio shall be an asset based fee of .085% of the first $100
of average net assets; .060% of the next $300 million of average net assets;
.040% of the next $200 million of average net assets; and .030% of the average
net assets in excess of $600 million; exclusive of out-of-pocket expense.
The minimum annual fee shall be $27,500 for each domestic nonmoney
market portfolio; $0 for each money market portfolio; and $48,000 for each
international portfolio.
For each additional portfolio, PFPC will waive its minimum fee for the
first two months of each portfolios operations; thereafter, PFPC's minimum fee
shall be charged in increments of 10% per month. Thus, each portfolio shall pay
PFPC 10% of the minimum fee during the third month of its operations, 20% during
the fourth month, 30% during the fifth month etc. During the twelfth month and
thereafter, each portfolio shall pay 100% of the minimum fee.
The fee for the period from the day of the year this agreement is
entered into until the end of that year shall be pro-rated according to the
proportion which such period bears to the full annual period.
<PAGE>
If the foregoing accurately sets forth our agreement, and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PFPC INC.
By: /s/ Executive Vice President
Title: Executive Vice President
Accepted: PENN SERIES FUNDS, INC.
By: /s/ James D. Benson Date:
Title: Controller -----------------
<PAGE>
Exhibit (9)(c)
ACCOUNTING SERVICES AGREEMENT
-----------------------------
THIS AGREEMENT is made as of the first day of May, 1989, by and between
PENN SERIES FUNDS, INC. ("Penn Series") a Maryland corporation, and PROVIDENT
FINANCIAL PROCESSING CORPORATION ("PFPC"), a Delaware corporation which is an
indirect wholly-owned subsidiary of PNC Financial Corp.
W I T N E S S E T H :
WHEREAS, Penn Series, is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), series fund and advised by the Advisor; and
WHEREAS, the Penn Series wishes to retain PFPC to provide certain
accounting services for each of the series of Penn Series, and PFPC is willing
to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed parties hereto as follows:
1. Appointment. Penn Series hereby appoints PFPC to provide certain
-----------
accounting services to each of the series of Penn Series for the period and on
the terms set forth in this Agreement. PFPC accepts such appointment and agrees
to furnish the services herein set forth in return for the compensation as
provided in Paragraph 12 of this Agreement. PFPC agrees to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder. Penn Series may from time to time issue additional series or classes
or classify and
<PAGE>
reclassify shares of such series or class. PFPC shall identify to each such
series or class property belonging to such series or class and in such reports,
confirmations and notices to Penn Series called for under this Agreement shall
identify the series or class to which such report, confirmation or notice
pertains.
2. Delivery of Documents. Penn Series has furnished PFPC with copies
---------------------
properly certified or authenticated of each of the following:
(a) Resolutions of Penn Series' Board of Directors authorizing
the appointment of PFPC to provide certain accounting services to Penn Series;
(b) Appendix A identifying and containing the signatures of
Penn Series' officers and other persons authorized to issue Oral Instructions
and to sign Written Instructions, as hereinafter defined, on behalf of Penn
Series';
(c) Penn Series' Articles of Incorporation filed with the
Maryland Department of Assessments and Taxation on April 22, 1982 and all
amendments thereto (such Articles of Incorporation, as presently in effect and
as they shall from time to time be amended, are herein called the "Charter");
(d) Penn Series' By-Laws and all amendments thereto (such By-
Laws, as presently in effect and as they shall from time to time be amended, are
herein called "By-Laws");
(e) The Investment Advisory Agreement between Penn Series and T.
Rowe Price dated May 1, 1989, (the "Advisory Agreement");
(f) The Administrative and Corporate Services Agreement between
Penn Series and The Penn Mutual Life Insurance Company dated as of May 1, 1989
(the "Corporate Services Agreement);
-2-
<PAGE>
(g) Penn Series' Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed with
the Securities and Exchange Commission ("SEC") on November 7, 1969;
(h) Penn Series' most recent Registration Statement on Form
N-lA under the Securities Act of 1933 ("the 1933 Act") (File No. 2-35305) and
under the 1940 Act, as filed with the SEC relating to shares (hereinafter
"Shares") of the Fund's Common Stock, $0.10 par value, and all amendments
thereto; and
(i) Penn Series' most recent prospectus or prospectuses
relating to Shares (such prospectus, or prospectuses, and all amendments and
supplements thereto are herein called the "Prospectus").
Penn Series will furnish PFPC from time to time with copies,
properly certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
3. Definitions.
-----------
(a) "Authorized Person". As used in this Agreement, the term
-----------------
"Authorized Person" means any officer of Penn Series and any other person,
whether or not any such person is an officer or employee of Penn Series, duly
authorized by the Board of Directors of Penn Series to give Oral and Written
Instructions on behalf of Penn Series and listed on Appendix A listing persons
duly authorized to give Oral and Written Instructions on behalf of Penn Series
as may be received by PFPC from time to time.
(b) "Oral Instructions". As used in this Agreement, the term "Oral
-----------------
Instructions" means oral instructions actually received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person. Penn Series agrees to
-3-
<PAGE>
deliver to PFPC, at the time and in the manner specified in Paragraph 4 (b) of
this Agreement, Written Instructions confirming Oral Instructions.
(c) "Written Instructions". As used in this Agreement, the term
--------------------
"Written Instructions" means written instructions in readable form delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device, and
received by PFPC, signed by two Authorized Persons.
4. Instructions Consistent with Charter, etc.
-----------------------------------------
(a) Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral and Written Instructions. Although PFPC may know of the
provisions of the Charter and By-Laws of Penn Series, PFPC may assume that any
Oral or Written Instructions received hereunder are not in any way inconsistent
with any provisions of such Charter or By-Laws or any vote, resolution or
proceeding of the Shareholders, or of the Board of Directors or of any committee
thereof.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
any Written Instructions actually received by PFPC pursuant to this Agreement.
Penn Series agrees to forward to PFPC or cause to be forwarded to PFPC, Written
Instructions confirming Oral Instructions in such manner that the Written
Instructions are received by PFPC, whether by hand delivery, telex, facsimile
sending device or otherwise, by no later than the close of business of the
business day next following the day that such Oral Instructions are given to
PFPC. PFPC agrees to notify immediately Penn Series in the event that Written
Instructions actually received by PFPC pursuant to this Paragraph 4 do not
confirm the Oral Instructions given PFPC. Penn Series agrees that the fact that
confirming Written Instructions are not received by PFPC shall in no way affect
the
-4-
<PAGE>
validity of the transactions or enforceability of the transactions authorized by
Oral Instructions. Penn Series agrees that PFPC shall incur no liability to Penn
Series in acting upon Oral Instructions given to PFPC hereunder concerning such
transactions, provided such instructions reasonably appear to have been received
from an Authorized Person.
5. Services on a Continuing Basis.
------------------------------
(a) PFPC will perform the following accounting functions, on a
daily basis:
(1) Journalize Penn Series' investment, capital share and
income and expense activities, and maintain a daily trial balance, general
ledger and subsidiary records of Penn Series;
(2) Verify investment buy/sell trade tickets when received
from the Advisor and transmit trades to the Penn Series' custodian for proper
settlement;
(3) Maintain individual ledgers for investment securities,
including amortized bond and foreign dollar denominated costs as directed by the
Advisor;
(4) Maintain historical tax lots for each security, including
amortized bond and foreign dollar denominated costs as directed by the Advisor;
(5) Reconcile cash and investment balances of the Penn Series
Funds with the custodian, and provide the Advisor with the beginning cash
balance available for investment purposes;
(6) Update the cash availability throughout the day as
required by the Advisor;
(7) Post to and prepare Penn Series' Statement of Assets and
Liabilities and the Statement of Operations;
-5-
<PAGE>
(8) Calculate various contractual expenses (e.g., advisory,
----
administrative and custody fees);
(9) Monitor the expense accruals and notify Penn Series
management of any proposed adjustments.
(10) Control all disbursements from Penn Series' and authorize
such disbursements upon Written Instructions;
(11) Calculate capital gains and losses and foreign exchange
gains and losses;
(12) Determine Penn Series' net income;
(13) Determine Penn Series' dividend distributions;
(14) Obtain security market quotes and foreign exchange
selling rates from services approved by the Advisor, or if such quotes are
unavailable, then obtain such prices from the Advisor, and in either case
calculate market value of the Penn Series Funds investments;
(15) Transmit or mail a copy of the weekly or, where
appropriate daily, portfolio valuation to Penn Series and Advisor;
(16) Compute on a daily basis the net asset value of the Penn
Series Funds for purposes of the sale and redemption of Fund shares;
(17) Compute the Penn Series Funds yields, total return,
expense ratios, portfolio turnover rate and, where appropriate, portfolio
weighted average maturity; and
(18) For the money-market portfolio of the Fund, compute the
daily dividend amounts required to comply with the prospectus of the Fund, the
1940 Act and the Internal Revenue Code of 1986, as amended (the "I.R.C.").
-6-
<PAGE>
(b) In addition to the accounting services described in the
foregoing Paragraph 5 (a) , PFPC will:
(1) Prepare monthly financial statements, which will
include the following items (the form and content of such statements shall be in
accordance with generally accepted accounting principles or such procedures as
requested by the Penn Series):
Schedule of Investments
Statement of Assets and Liabilities Statement of Operations
Statement of Changes in Net Assets
Cash Statement
Schedule of Capital Gains and Losses
Supplementary Financial Data
Supplemental Notes to Financial Statements
Securities Transactions (Purchases, Sales and Maturities)
(2) Prepare quarterly broker security transactions summaries in
accordance with SEC requirements;
(3) Supply various Fund statistical data and summary financial
information as requested on an ongoing basis
(4) Assist in the preparation of support schedules necessary
for completion of Federal and state tax returns;
(5) Assist in the preparation of the Penn Series' Semi-Annual
Reports with the SEC on Form N-SAR;
-7-
<PAGE>
(6) Assist in the preparation of Penn Series' annual, semi-
annual, and quarterly Shareholder reports;
(7) Assist with the preparation of registration statements on
Form N-lA and other filings relating to the registration of Shares;
(8) Assist in monitoring Penn Series' compliance with certain
requirements of the 1940 Act and the Prospectus as agreed upon in writing
between the Advisor and PFPC; and
(9) Monitor-on a monthly basis Penn Series' status as a
regulated investment company under Sub-chapter of the I.R.C.
6. Records. PFPC shall keep the following records:
-------
(a) all books and records with respect to Penn Series' books of
account;
(b) records of Penn Series' securities transactions.
(c) all books, records and other documents that Penn Series is
required to maintain and keep current pursuant to Rule 3la-l(a) and (b)
promulgated under the 1940 Act and from time to time amended, other than those
documents listed in sub-paragraph (4) of Rule 3la- l(b).
The books and records pertaining to Penn Series which are in the
possession of PFPC, including magnetic tapes and written procedures to the
extent they are readily accessible to PFPC and exclude proprietary information
of third parties, but specifically excluding computer programs which are
proprietary information of PFPC or third parties, shall be the property of Penn
Series. Such books and records shall be prepared and maintained as required by
the 1940 Act and
-8-
<PAGE>
other applicable securities laws and rules and regulations. Penn Series, or Penn
Series' authorized representatives, shall have access to such books and records
at all times during PFPC's normal business hours. Upon the reasonable request of
Penn Series, copies of any such books and records shall be provided by PFPC to
Penn Series or Penn Series' authorized representative at the Fund's expense.
7. Liaison With Accountants. As requested by Penn Series, PFPC shall
------------------------
act as liaison with Penn Series' independent public accountants and shall
provide account analyses, fiscal year summaries, and other audit related
schedules. PFPC shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion, as such
may be required by Penn Series from time to time.
8. Confidentiality. PFPC agrees on behalf of itself and its employees
---------------
to treat confidentially all records and other information relative to Penn
Series and its prior, present or potential Shareholders and relative to the
Advisor and its prior, present or potential customers, except, after prior
notification to and approval in writing by Penn Series, which approval shall not
be unreasonably withheld and may not be withheld where PFPC may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by Penn Series.
9. Right to Receive Advice.
-----------------------
(a) Advice of Penn Series. If PFPC shall be in doubt as to any
---------------------
action to be taken or omitted by it, it may request, and shall receive, from
Penn Series directions or advice, including Oral or Written Instructions where
appropriate.
-9-
<PAGE>
(b) Protection of PFPC. PFPC shall be protected in any action
------------------
or inaction which it takes in reliance on any directions, advice or Oral or
Written Instructions received pursuant to subsection (a) of this Paragraph 9
which PFPC, after receipt of any such directions, advice or Oral or written
Instructions, in good faith believes to. be consistent with such directions,
advice or Oral or Written Instructions, as the case may be. However, nothing in
this paragraph shall be construed as imposing upon PFPC any obligation (i) to
seek such directions, advice or oral or Written Instructions, or (ii) to act in
accordance with such directions, advice or oral or Written Instructions when
received, unless, under the terms of another provision of this Agreement, the
same is a condition to PFPC's properly taking or omitting to take such action.
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or
misconduct in the performance by PFPC of its duties under this Agreement.
10. Compliance with Governmental Rules and Regulations. PFPC undertakes
--------------------------------------------------
to comply with all applicable requirements of the 1933 Act, the 1934 Act, and
the 1940 Act, or any laws, rules and regulations of governmental authorities
having jurisdiction, with respect to the duties to be performed by PFPC
hereunder.
11. Compensation. As compensation for the services rendered by PFPC
------------
during the term-of this Agreement, Penn Series will pay to PFPC an annual fee
calculated and payable monthly, as may be agreed to in writing from time to time
by Penn Series and PFPC. The fee may be revised from time to time as mutually
agreed upon by the parties.
12. Indemnification. Penn Series agrees to indemnify and hold harmless
---------------
PFPC and its nominees from all taxes, charges, expenses, assessments, claims and
liabilities (including, without
-10-
<PAGE>
limitation, liabilities arising under the 1933 Act, the Securities Exchange Act
of 1934, the 1940 Act, the CEA, and any state and foreign securities and blue
sky laws, all as or to be amended from time to time) and expenses, including
(without limitation) attorneys' fees and disbursements, arising directly or
indirectly from any action or thing which PFPC takes or does or omits to take or
do (i) at the request or on the direction of or in reliance on the advice of
Penn Series or (ii) upon oral or Written Instructions, provided, that neither
PFPC nor any of its nominees shall be indemnified against any liability to Penn
Series (or any expenses incident to such liability) arising out of PFPC's own
willful misfeasance, bad faith, negligence or misconduct in the performance of
its duties and obligations under this Agreement.
13. Responsibility of PFPC. PFPC shall be under no duty to take any
----------------------
action on behalf of Penn Series except as specifically set forth herein or as
may be specifically agreed to by PFPC in writing. In the performance of its
duties hereunder, PFPC shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits in
performing services provided for under this Agreement, but PFPC shall not be
liable for any act or omission which does not constitute willful misfeasance,
bad faith or negligence on the part of PFPC or misconduct by PFPC in the
performance of its duties under this Agreement. Without limiting the generality
of the foregoing or of any other provision of this Agreement, PFPC in connection
with its duties under this Agreement shall not be under any duty or obligation
to inquire into and shall not be liable for or in respect of (a) subject to
Paragraph 4(b) hereof, the validity or invalidity or authority or lack thereof
of any Oral or Written Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, and which PFPC reasonably
believes to be genuine; or (b) delays or errors or loss of data occurring by
reason of
-11-
<PAGE>
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood or catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
14. Duration and Termination. This Agreement shall continue until
------------------------
termination by Penn Series or PFPC on 90 days' written notice.
15. Notices. All notices and other communications, including Written
-------
Instructions (collectively referred to as "Notice" or "Notices" in this
Paragraph), hereunder shal1 be in writing or by confirming telegram, cable,
telex or sending device. Notices shall be addressed (a) if to PFPC, to the
attention of Vincent J. Ciavardini, Executive Vice President, Provident
Financial Processing Corporation, Bedford Building, 3531 Silverside Road,
Wilmington, Delaware 19810; (b) if to Penn Series, to the attention of Joseph E.
Vardaro, President; Penn Series Funds, Inc., 600 Dresher Road, Horsham, PA 19044
(c) if to neither of the foregoing, at such other address as shall have been
notified to the sender of any such Notice or other communication. If the
location of the sender of a Notice and the address of the addressee thereof are,
at the time of sending, more than 100 miles apart, the Notice may be mailed, in
which case it shall be deemed to have been given three days after it is sent, or
if sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately, and, if the location of the
sender of a notice and the address of the addressee thereof are, at the time of
sending, not more than 100 miles apart, the Notice may be sent by first-class
mail, in which case it shall be deemed to have been given two days after it is
sent, or if sent by messenger, it shall be deemed to have been given on the day
it is delivered, or if sent by confirming telegram, cable, telex and facsimile
sending device
-12-
<PAGE>
it shall be deemed to have been given immediately. All postage, cable, telex, or
facsimile sending device charges arising from the sending of a Notice hereunder
shall be paid the sender.
16. Further Actions Each party agrees such further acts and execute
---------------
such further documents as are necessary to effectuate the purposes hereof.
17. Amendments. This Agreement or any part hereof may be changed or
----------
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
18. Delegation. On thirty (30) day's prior written notice to the
----------
Advisor, PFPC may assign its rights and delegate its duties hereunder to any
wholly-owned direct or indirect subsidiary of Provident National Bank or PNC
Financial Corp, provided that (i) the delegate agrees with PFPC to comply with
all relevant provisions of the 1940 Act; and (ii) PFPC and such delegate shall
promptly provide such information as Penn Series may request, and respond to
such questions as Penn Series may ask, relative to the delegation, including
(without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties thereto, and supersedes all prior agreements
and understandings, relating to the subject matter hereof, provided that the
parties hereto may embody in one or more separate documents their agreement, if
any, with respect to delegated and/or Oral Instructions. The captions in this
Agreement are included for convenience of reference only and in no way define or
-13-
<PAGE>
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
and shall inure to the benefit of the parties hereto and their respective
successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
[SEAL] PENN SERIES FUNDS, INC.
Attest: /s/ C. Ronald Rubley By: /s/
------------------------ -------------------------------
SECRETARY PRESIDENT
[SEAL] PROVIDENT FINANCIAL
PROCESSING CORPORATION
Attest: /s/ By: /s/
------------------------ -------------------------------
-14-
<PAGE>
INDEX
<TABLE>
<CAPTION>
Paragraph Page
- --------- ----
<S> <C>
1. Appointment..................................................... 5
2. Delivery of Documents........................................... 5
3. Definitions..................................................... 7
4. Instructions Consistent with Charter, etc....................... 7
5. Services on a Continuing Basis.................................. 8
6. Records........................................................ 12
7. Liaison With Accountants....................................... 12
8. Confidentiality................................................ 13
9. Right to Receive Advice........................................ 13
10. Compliance with Governmental Rules and Regulations............. 14
11. Compensation................................................... 14
12. Indemnification................................................ 14
13. Responsibility of PFPC......................................... 15
14. Duration and Termination....................................... 15
15. Notices........................................................ 15
16. Further Actions................................................ 16
17. Amendments..................................................... 16
18. Delegation..................................................... 16
19. Counterparts................................................... 17
20. Miscellaneous.................................................. 17
</TABLE>
<PAGE>
May 1, 1989
Penn Series Funds, Inc.
600 Dresher Road
Horsham, PA 19044
RE: Accounting Services Fees
------------------------
Gentlemen:
This letter constitutes our agreement with respect to compensation to
be paid to Provident Financial Processing Corporation ("PFPC") under the terms
of an Accounting Services Agreement dated May 1, 1989 between you ("Penn
Series") and PFPC. Pursuant to Paragraph 11 of that Agreement, and in
consideration of the services to be provided to you, the Penn Series Funds,
Inc., of which there are 6 portfolios, will pay PFPC an annual accounting fee to
be calculated daily and paid monthly. You will also reimburse PFPC for its
out-of-pocket expenses incurred on behalf of Penn Series, including, but not
limited to, postage, telephone, telex, Federal Express and outside pricing
service charges.
The total annual accounting fee shall be $165,000, exclusive of
out-of-pocket expenses. The fee for the period from the day of the year this
agreement is entered into until the end of that year shall be pro-rated
according to the proportion which period bears to the full annual period.
If the foregoing accurately sets forth our agreement, and you intend to
be legally bound thereby, please execute a copy of this letter and return it to
us.
Very truly yours,
PROVIDENT FINANCIAL PROCESSING
By: /s/
---------------------------------
Accepted: PENN SERIES FUNDS, INC.
By: /s/ Date:
--------------------- --------------------
<PAGE>
Appendix A
Authorized Persons
------------------
Accounting Services Agreement
-----------------------------
Penn Series Funds, Inc. - Provident Financial Processing Corporation
--------------------------------------------------------------------
As Secretary of Penn Series Funds, Inc., I certify that the persons named below
presently hold the offices of Penn Series Funds, Inc. indicated, that the
signatures of such persons set forth are genuine and that such persons are
authorized to give oral and written instructions under the Accounting Services
Agreement between Penn Series Fund, Inc. and Provident Financial Processing
Corporation.
Joseph E. Vardaro President
Thomas H. Goddard Vice President
Kenneth J. Kempf Vice President
George J. Limbach Asst. Vice President
C. Ronald Rubley Secretary
H. Bart Stucky Treasurer
James A. Clary Controller
Dominic J. Piunti Assistant Controller
/s/ C. Ronald Rubley
------------------------------
C. Ronald Rubley
Secretary
------------------------------
Date
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Post-Effective Amendment No. 44 to this
Registration Statement under the Securities Act of 1933 on Form N-1A (File No.
2-77284) of our report dated February 11, 1997 on our audit of the financial
statements and financial highlights of Penn Series Funds, Inc. We also consent
to the reference to our Firm under the caption "Financial Highlights" in the
Prospectus and under the caption "Independent Accountants" in the Statement of
Additional Information.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 13, 1997
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
Eugene Bay, whose signature appears below, does hereby constitute and
appoint L. Stockton Illoway and Richard J. Liburdi, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ Eugene Bay
--------------
Eugene Bay
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
James S. Greene, whose signature appears below, does hereby constitute and
appoint L. Stockton Illoway and Richard J. Liburdi, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ James S. Greene
-------------------
James S. Greene
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
William H. Loesche, Jr., whose signature appears below, does hereby
constitute and appoint L. Stockton Illoway and Richard J. Liburdi, and each of
them severally, his true and lawful attorneys and agents, with power of
substitution and resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorney and agents, and each of
them, may deem necessary or advisable or which may be required to enable Penn
Series Funds, Inc. (the "Company") to comply with the Investment Company Act of
1940 and the Securities Act of 1933, as amended, and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Company's Registration
Statement on Form N-1A pursuant to such Acts, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director and/or officer
of the Company such Registration Statement and any and all amendments and
supplements to such Registration Statement filed with the Securities and
Exchange Commission under said Acts, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorneys and agents, and each of them, shall do or cause to be done by
virtue hereof.
Date: February 4, 1997 /s/ William H. Loesche, Jr.
---------------------------
William H. Loesche, Jr.
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
M. Donald Wright, whose signature appears below, does hereby constitute and
appoint L. Stockton Illoway and Richard J. Liburdi, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ M. Donald Wright
--------------------
M. Donald Wright
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
Steven M. Herzberg, whose signature appears below, does hereby constitute
and appoint L. Stockton Illoway and Richard J. Liburdi, and each of them
severally, his true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ Steven M. Herzberg
----------------------
Steven M. Herzberg
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
James D. Benson, whose signature appears below, does hereby constitute and
appoint L. Stockton Illoway and Richard J. Liburdi, and each of them severally,
his true and lawful attorneys and agents, with power of substitution and
resubstitution, to do any and all acts and things and to execute and and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and / or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ James D. Benson
-------------------
James D. Benson
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
Richard J. Liburdi, whose signature appears below, does hereby constitute
and appoint L. Stockton Illoway and Richard J. Liburdi, and each of them
severally, his true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ Richard J. Liburdi
----------------------
Richard J. Liburdi
<PAGE>
Exhibit (11)(b)
PENN SERIES FUNDS, INC.
Power of Attorney
-----------------
L. Stockton Illoway, whose signature appears below, does hereby constitute
and appoint L. Stockton Illoway and Richard J. Liburdi, and each of them
severally, his true and lawful attorneys and agents, with power of substitution
and resubstitution, to do any and all acts and things and to execute any and all
instruments which said attorney and agents, and each of them, may deem necessary
or advisable or which may be required to enable Penn Series Funds, Inc. (the
"Company") to comply with the Investment Company Act of 1940 and the Securities
Act of 1933, as amended, and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
filing and effectiveness of the Company's Registration Statement on Form N-1A
pursuant to such Acts, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director and/or officer of the Company such
Registration Statement and any and all amendments and supplements to such
Registration Statement filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
Date: February 4, 1997 /s/ L. Stockton Illoway
-----------------------
L. Stockton Illoway
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> FLEXIBLY MANAGED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 345,319,260
<INVESTMENTS-AT-VALUE> 397,083,464
<RECEIVABLES> 3,045,926
<ASSETS-OTHER> 7,313
<OTHER-ITEMS-ASSETS> 1,153
<TOTAL-ASSETS> 400,137,856
<PAYABLE-FOR-SECURITIES> 923,733
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 669,984
<TOTAL-LIABILITIES> 1,593,717
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 346,784,760
<SHARES-COMMON-STOCK> 21,265,896
<SHARES-COMMON-PRIOR> 15,316,544
<ACCUMULATED-NII-CURRENT> 12,850,451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,978)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,765,357
<NET-ASSETS> 398,544,139
<DIVIDEND-INCOME> 7,461,352
<INTEREST-INCOME> 7,932,728
<OTHER-INCOME> 0
<EXPENSES-NET> 2,543,629
<NET-INVESTMENT-INCOME> 12,850,451
<REALIZED-GAINS-CURRENT> 16,815,973
<APPREC-INCREASE-CURRENT> 21,020,920
<NET-CHANGE-FROM-OPS> 50,687,344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12,850,451
<DISTRIBUTIONS-OF-GAINS> 16,768,765
<DISTRIBUTIONS-OTHER> 4,084
<NUMBER-OF-SHARES-SOLD> 96,448,634
<NUMBER-OF-SHARES-REDEEMED> 15,147,946
<SHARES-REINVESTED> 29,623,300
<NET-CHANGE-IN-ASSETS> 131,988,032
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,645,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,543,629
<AVERAGE-NET-ASSETS> 329,153,889
<PER-SHARE-NAV-BEGIN> 17.40
<PER-SHARE-NII> 0.65
<PER-SHARE-GAIN-APPREC> 2.19
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.85
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.74
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> GROWTH EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 86,731,469
<INVESTMENTS-AT-VALUE> 106,202,865
<RECEIVABLES> 1,270,289
<ASSETS-OTHER> 1,948
<OTHER-ITEMS-ASSETS> 100,809
<TOTAL-ASSETS> 107,575,911
<PAYABLE-FOR-SECURITIES> 1,408,940
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127,511
<TOTAL-LIABILITIES> 1,536,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,760,178
<SHARES-COMMON-STOCK> 4,942,020
<SHARES-COMMON-PRIOR> 4,780,685
<ACCUMULATED-NII-CURRENT> 475,615
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (192,114)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,471,396
<NET-ASSETS> 106,039,460
<DIVIDEND-INCOME> 1,069,185
<INTEREST-INCOME> 202,281
<OTHER-INCOME> 0
<EXPENSES-NET> 795,851
<NET-INVESTMENT-INCOME> 475,615
<REALIZED-GAINS-CURRENT> 10,366,718
<APPREC-INCREASE-CURRENT> 7,073,178
<NET-CHANGE-FROM-OPS> 17,915,511
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 475,615
<DISTRIBUTIONS-OF-GAINS> 10,558,832
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,089,450
<NUMBER-OF-SHARES-REDEEMED> 14,558,795
<SHARES-REINVESTED> 11,034,447
<NET-CHANGE-IN-ASSETS> 10,446,166
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 504,809
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 806,024
<AVERAGE-NET-ASSETS> 99,342,749
<PER-SHARE-NAV-BEGIN> 20.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 3.85
<PER-SHARE-DIVIDEND> 0.11
<PER-SHARE-DISTRIBUTIONS> 2.39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.46
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> HIGH YIELD BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 40,965,300
<INVESTMENTS-AT-VALUE> 43,366,750
<RECEIVABLES> 907,880
<ASSETS-OTHER> 766
<OTHER-ITEMS-ASSETS> 606
<TOTAL-ASSETS> 44,276,002
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234,443
<TOTAL-LIABILITIES> 234,443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,179,999
<SHARES-COMMON-STOCK> 4,941,766
<SHARES-COMMON-PRIOR> 4,318,196
<ACCUMULATED-NII-CURRENT> 3,194,439
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,539,890)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,401,450
<NET-ASSETS> 44,041,559
<DIVIDEND-INCOME> 33,479
<INTEREST-INCOME> 3,490,874
<OTHER-INCOME> 0
<EXPENSES-NET> 329,914
<NET-INVESTMENT-INCOME> 3,194,439
<REALIZED-GAINS-CURRENT> (499,838)
<APPREC-INCREASE-CURRENT> 2,501,662
<NET-CHANGE-FROM-OPS> 5,196,263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,194,439
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 25,808
<NUMBER-OF-SHARES-SOLD> 9,465,000
<NUMBER-OF-SHARES-REDEEMED> 7,061,440
<SHARES-REINVESTED> 3,220,247
<NET-CHANGE-IN-ASSETS> 7,599,823
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,014,244)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196,230
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 329,914
<AVERAGE-NET-ASSETS> 39,245,943
<PER-SHARE-NAV-BEGIN> 8.44
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> 0.47
<PER-SHARE-DIVIDEND> 0.70
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.91
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 89,061,600
<INVESTMENTS-AT-VALUE> 105,293,697
<RECEIVABLES> 1,160,181
<ASSETS-OTHER> 2,034
<OTHER-ITEMS-ASSETS> 263,885
<TOTAL-ASSETS> 106,719,797
<PAYABLE-FOR-SECURITIES> 1,830,033
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 472,176
<TOTAL-LIABILITIES> 2,302,209
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,223,307
<SHARES-COMMON-STOCK> 6,688,564
<SHARES-COMMON-PRIOR> 4,803,704
<ACCUMULATED-NII-CURRENT> 567,625
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (198,893)
<OVERDISTRIBUTION-GAINS> (95,403)
<ACCUM-APPREC-OR-DEPREC> 16,488,577
<NET-ASSETS> 104,417,588
<DIVIDEND-INCOME> 1,199,751
<INTEREST-INCOME> 378,764
<OTHER-INCOME> 0
<EXPENSES-NET> 1,010,890
<NET-INVESTMENT-INCOME> 567,625
<REALIZED-GAINS-CURRENT> 8,859,101
<APPREC-INCREASE-CURRENT> 4,322,244
<NET-CHANGE-FROM-OPS> 13,748,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 567,625
<DISTRIBUTIONS-OF-GAINS> 4,589,862
<DISTRIBUTIONS-OTHER> 2,877,835
<NUMBER-OF-SHARES-SOLD> 28,060,006
<NUMBER-OF-SHARES-REDEEMED> 6,922,123
<SHARES-REINVESTED> 8,035,322
<NET-CHANGE-IN-ASSETS> 34,886,853
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,058,634)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 627,066
<GROSS-ADVISORY-FEES> 647,302
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,012,152
<AVERAGE-NET-ASSETS> 86,306,884
<PER-SHARE-NAV-BEGIN> 14.47
<PER-SHARE-NII> 0.75
<PER-SHARE-GAIN-APPREC> 1.69
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.74
<PER-SHARE-NAV-END> 15.61
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 34,369,651
<INVESTMENTS-AT-VALUE> 34,369,651
<RECEIVABLES> 298,287
<ASSETS-OTHER> 700
<OTHER-ITEMS-ASSETS> 1,861
<TOTAL-ASSETS> 34,670,499
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169,880
<TOTAL-LIABILITIES> 169,880
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,502,151
<SHARES-COMMON-STOCK> 34,502,151
<SHARES-COMMON-PRIOR> 24,727,125
<ACCUMULATED-NII-CURRENT> 1,467,263
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,532)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,500,619
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,685,899
<OTHER-INCOME> 0
<EXPENSES-NET> 218,636
<NET-INVESTMENT-INCOME> 1,467,263
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,467,263
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,467,263
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 44,071,472
<NUMBER-OF-SHARES-REDEEMED> 35,737,395
<SHARES-REINVESTED> 1,440,949
<NET-CHANGE-IN-ASSETS> 9,775,026
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,532)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 122,620
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 221,414
<AVERAGE-NET-ASSETS> 30,073,696
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> QUALITY BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 36,690,692
<INVESTMENTS-AT-VALUE> 37,251,725
<RECEIVABLES> 418,800
<ASSETS-OTHER> 767
<OTHER-ITEMS-ASSETS> 1,951
<TOTAL-ASSETS> 37,673,243
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,902
<TOTAL-LIABILITIES> 61,902
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,930,673
<SHARES-COMMON-STOCK> 3,760,294
<SHARES-COMMON-PRIOR> 3,715,985
<ACCUMULATED-NII-CURRENT> 2,357,782
<OVERDISTRIBUTION-NII> (15,306)
<ACCUMULATED-NET-GAINS> (895,671)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 561,033
<NET-ASSETS> 37,611,341
<DIVIDEND-INCOME> 51,203
<INTEREST-INCOME> 2,607,110
<OTHER-INCOME> 0
<EXPENSES-NET> 300,531
<NET-INVESTMENT-INCOME> 2,357,782
<REALIZED-GAINS-CURRENT> (117,033)
<APPREC-INCREASE-CURRENT> (692,970)
<NET-CHANGE-FROM-OPS> 1,547,779
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,342,476
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,374,183
<NUMBER-OF-SHARES-REDEEMED> 10,359,026
<SHARES-REINVESTED> 2,342,476
<NET-CHANGE-IN-ASSETS> (437,064)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (778,638)
<OVERDISTRIB-NII-PRIOR> 28,700
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 180,125
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 304,663
<AVERAGE-NET-ASSETS> 39,108,692
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> (0.24)
<PER-SHARE-DIVIDEND> 0.66
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> SMALL CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 14,699,561
<INVESTMENTS-AT-VALUE> 15,996,206
<RECEIVABLES> 188,505
<ASSETS-OTHER> 253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,184,964
<PAYABLE-FOR-SECURITIES> 33,543
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,389
<TOTAL-LIABILITIES> 50,932
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,838,538
<SHARES-COMMON-STOCK> 1,287,316
<SHARES-COMMON-PRIOR> 440,375
<ACCUMULATED-NII-CURRENT> 87,435
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,151)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,296,645
<NET-ASSETS> 16,134,032
<DIVIDEND-INCOME> 113,044
<INTEREST-INCOME> 75,838
<OTHER-INCOME> 0
<EXPENSES-NET> 101,447
<NET-INVESTMENT-INCOME> 87,435
<REALIZED-GAINS-CURRENT> 588,102
<APPREC-INCREASE-CURRENT> 1,130,459
<NET-CHANGE-FROM-OPS> 1,805,996
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 87,435
<DISTRIBUTIONS-OF-GAINS> 607,875
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,236,881
<NUMBER-OF-SHARES-REDEEMED> 3,736,752
<SHARES-REINVESTED> 695,310
<NET-CHANGE-IN-ASSETS> 11,306,125
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 18,622
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 109,411
<AVERAGE-NET-ASSETS> 10,291,299
<PER-SHARE-NAV-BEGIN> 10.96
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 2.09
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0.52
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> VALUE EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 149,870,265
<INVESTMENTS-AT-VALUE> 203,440,852
<RECEIVABLES> 519,566
<ASSETS-OTHER> 3,633
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 203,964,051
<PAYABLE-FOR-SECURITIES> 2,534,755
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 755,403
<TOTAL-LIABILITIES> 3,290,158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 147,103,306
<SHARES-COMMON-STOCK> 10,387,893
<SHARES-COMMON-PRIOR> 7,818,065
<ACCUMULATED-NII-CURRENT> 2,210,027
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 53,570,587
<NET-ASSETS> 200,673,893
<DIVIDEND-INCOME> 2,065,845
<INTEREST-INCOME> 1,385,703
<OTHER-INCOME> 0
<EXPENSES-NET> 1,241,521
<NET-INVESTMENT-INCOME> 2,210,027
<REALIZED-GAINS-CURRENT> 8,252,470
<APPREC-INCREASE-CURRENT> 25,690,221
<NET-CHANGE-FROM-OPS> 36,152,718
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,210,027
<DISTRIBUTIONS-OF-GAINS> 8,252,470
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 45,626,673
<NUMBER-OF-SHARES-REDEEMED> 8,365,348
<SHARES-REINVESTED> 10,462,497
<NET-CHANGE-IN-ASSETS> 73,414,043
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 63
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 800,404
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,241,521
<AVERAGE-NET-ASSETS> 160,080,821
<PER-SHARE-NAV-BEGIN> 16.28
<PER-SHARE-NII> 0.22
<PER-SHARE-GAIN-APPREC> 3.88
<PER-SHARE-DIVIDEND> 0.22
<PER-SHARE-DISTRIBUTIONS> 0.84
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.32
<EXPENSE-RATIO> 0.78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
