PENN SERIES FUNDS INC, DEF 14A, 1997-09-15

PENN SERIES FUNDS INC
DEF 14A, 1997-09-15

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant /_/

Check the appropriate box:

/ / Preliminary Proxy Statement
/_/ Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

Penn Series Funds, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No Fee Required.
/ / Fee computed on table below per exchange Act Rules 14a-6(i)(4) and 0-11.

1) Title of each class of securities to which transaction applies:

_____________________________________________________________________________

2) Aggregate number of securities to which transaction applies:

_____________________________________________________________________________

3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*

_____________________________________________________________________________

4) Proposed maximum aggregate value of transaction:

_____________________________________________________________________________

5) Total fee paid:

_____________________________________________________________________________

*Set forth the amount on which the filing fee is calculated and state how it was
determined.

/_/ Fee paid previously with preliminary materials.

/_/ Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.

1) Amount previously paid: _________________________________________________

2) Form, Schedule or Registration Statement No.: ___________________________

3) Filing party: ___________________________________________________________

4) Date filed: _____________________________________________________________

<PAGE>

THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA 19172

Penn Mutual Variable Annuity Account III
Penn Mutual Variable Life Account I
------------------------------

To Our Contract Owners and Payees:

The enclosed Notice of Special Meeting of Shareholders of Penn Series
Funds, Inc. ("Company") and Proxy Statement concern proposals to be voted on by
the shareholders of the Value Equity, Small Capitalization Fund and Emerging
Growth Funds ("Funds").

On July 22, 1997, Oppenheimer Group, Inc. and PIMCO Advisors, L.P.
("PIMCO Advisors") entered into an Amended and Restated Merger Agreement
pursuant to which PIMCO Advisors and its affiliate, Thomson Advisory Group Inc.
and its successor, will acquire the one-third managing general partner interest
in Oppenheimer Capital, Oppenheimer Financial Corp.'s one percent general
partnership interest in OpCap Advisors and Oppenheimer Financial Corp.'s one
percent general partner interest in Oppenheimer Capital L.P. Subject to certain
conditions, it is anticipated that the transaction will be completed prior to
year end. If the transaction takes place as planned, it will result in a change
in control of OpCap Advisors, the investment adviser to the Value Equity and
Small Capitalization Funds.

On June 8, 1997, BankAmerica Corporation entered into an Agreement and
Plan of Merger with Robertson, Stephens & Company Group, L.L.C. and Robertson,
Stephens & Company, Inc., pursuant to which each of those entities would be
merged into a subsidiary of BankAmerica Corporation. Upon the consummation of
those mergers (expected to occur on or after September 30, 1997), BankAmerica
Corporation will become the owner of the entire beneficial interest of Robertson
Stephens Investment Management, Inc. Under the Merger Agreement, each of
Robertson, Stephens & Company Group, L.L.C. and Robertson Stephens & Company,
Inc. will be merged into a wholly owned subsidiary of BankAmerica Corporation,
and will cease to exist as a separate entity. If the transactions take place as
planned, it will result in a change of control of Robertson Stephens Investment
Management, Inc., the sub-adviser to the Emerging Growth Fund.

Following the mergers contemplated above, OpCap Advisors will continue
to provide investment advisory and management services to the Value Equity and
Small Capitalization Funds and Robert Stephens Investment Management, Inc. will
continue to provide sub-advisory services to the Emerging Growth Fund. The
primary purpose of the meeting is to permit variable contract owners and payees
participating in the investment performance of the Funds to consider a new
investment advisory agreement and a new sub-advisory agreement to take effect
following the mergers. The new investment advisory agreement will be identical
to the existing investment

<PAGE>

advisory agreements and the new sub-advisory agreement will be identical to the
existing sub-advisory agreement, except for the dates of execution and
effectiveness.

Shares of the Funds are held by The Penn Mutual Life Insurance Company
("Penn Mutual") and its subsidiary, The Penn Insurance and Annuity Company, in
separate accounts established to fund variable annuity contracts and variable
life insurance policies.

Shares of the Funds owned by Penn Mutual under variable annuity
contracts and variable life policies which it has issued are held in Penn Mutual
Variable Annuity Account III and Penn Mutual Variable Life Account I. As owners
or payees under the contracts and policies, you are entitled to instruct Penn
Mutual as to the voting of shares held in the separate accounts.

The proposals to be voted on at the meeting is described in the
accompanying Notice of Special Meeting and Proxy Statement of the Company. We
urge you to read the Proxy Statement carefully, and then exercise your right to
give voting instructions. Penn Mutual will vote, in accordance with your
instructions, the number of Fund shares held in the applicable separate account
or subaccount thereof which is related to your interest therein as of the close
of business on September 3, 1997.

Please complete, date and sign the enclosed voting instruction form(s)
and return the form(s) to us promptly in the enclosed postage paid envelope. In
order to be given effect, your voting instructions must be received not later
than October 8, 1997.

Sincerely,

Richard F. Plush
Vice-President
September 15, 1997

<PAGE>

THE PENN INSURANCE AND ANNUITY COMPANY
PHILADELPHIA, PENNSYLVANIA 19172

PIA Variable Annuity Account I
------------------------------

To Our Contract Owners and Payees:

The enclosed Notice of Special Meeting of Shareholders of Penn Series
Funds, Inc. ("Company") and Proxy Statement concern a proposal to be voted on by
the shareholders of the Value Equity, Small Capitalization Funds and Emerging
Growth Funds ("Funds").

On June 8, 1997, BankAmerica Corporation entered into an Agreement and
Plan of Merger with Robertson, Stephens & Company Group, L.L.C. and Robertson,
Stephens & Company, Inc., pursuant to which each of those entities would be
merged into a subsidiary of BankAmerica Corporation. Upon the consummation of
those mergers (expected to occur on or after September 30, 1997), BankAmerica
Corporation will become the owner of the entire beneficial interest of Robertson
Stephens Investment Management, Inc. Under the Merger Agreement, each of
Robertson, Stephens & Company Group, L.L.C. and Robertson, Stephens & Company,
Inc. will be merged into a wholly owned subsidiary of BankAmerica Corporation,
and will cease to exist as a separate entity. If the transactions take place as
planned, it will result in a change of control of Robertson Stephens Investment
Management, Inc., the sub-adviser to the Emerging Growth Fund.

Following the mergers discussed above, OpCap Advisors will continue to
provide investment advisory and management services to the Value Equity and
Small Capitalization Funds and Robertson Stephens Investment Management, Inc.
will continue to provide sub-advisory services to the Emerging Growth Fund. The
primary purpose of the meeting is to permit variable contract owners and payees
participating in the investment performance of the Funds to consider a new
investment advisory agreement and a new sub-advisory agreement to take effect
following the acquisition. The new investment advisory agreement will be
identical to the

<PAGE>

existing investment advisory agreements and the new sub-advisory agreement will
be identical to the existing sub-advisory agreement, except for the dates of
execution and effectiveness.

Shares of the Funds are held by The Penn Mutual Life Insurance Company
and its subsidiary, The Penn Insurance and Annuity Company ("Penn Insurance"),
in separate accounts established to fund variable annuity contracts and variable
life insurance policies.

Shares of the Funds owned by Penn Insurance under variable annuity
contracts which it has issued are held in the PIA Variable Annuity Account I. As
owners or payees under the contracts and policies, you are entitled to instruct
Penn Insurance as to the voting of shares held in the separate account.

The proposal to be voted on at the meeting is described in the
accompanying Notice of Special Meeting and Proxy Statement of the Company. We
urge you to read the Proxy Statement carefully, and then exercise your right to
give voting instructions. Penn Insurance will vote, in accordance with your
instructions, the number of Fund shares held in the applicable separate account
or subaccount thereof which is related to your interest therein as of the close
of business on September 3, 1997.

Sincerely,

Richard F. Plush
Vice-President
September 15, 1997

<PAGE>

PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044

--------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

October 10, 1997

--------------

A Special Meeting of Shareholders ("Meeting") of Penn Series Funds,
Inc. ("Company") will be held at the offices of The Penn Mutual Life Insurance
Company on Friday, October 10, 1997, at 10:00 a.m. (Eastern time), in the Board
Room, Third Floor, at 600 Dresher Road, Horsham, Pennsylvania 19044, for the
following purposes:

1. To approve or disapprove a new investment advisory agreement
between the Company and OpCap Advisors with the respect to the
Value Equity Fund;

2. To approve or disapprove a new investment advisory agreement
between the Company and OpCap Advisors with the respect to the
Small Capitalization Fund;

3. To approve or disapprove a new investment sub-advisory
agreement between Independence Capital Management, Inc. and
Robertson Stephens Investment Management, Inc. with respect to
the Emerging Growth Fund;

4. To transact such other business as may properly come before
the Meeting.

Shareholders of the Value Equity Fund of the Company are entitled to
vote on Proposal 1. Shareholders of the Small Capitalization Fund of the Company
are entitled to vote on Proposal 2. Shareholders of the Emerging Growth Fund of
the Company are entitled to vote on Proposal 3.

Shareholders of record at the close of business on September 3, 1997
are entitled to notice of and to vote at this meeting or any adjournment
thereof.

By Order of the Board of Directors

C. Ronald Rubley
Secretary

September 15, 1997

<PAGE>

PROXY STATEMENT

PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044

--------------

SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 10, 1997

--------------

This proxy statement is furnished in connection with the solicitation
by the Board of Directors ("Board") of the Penn Series Funds, Inc. ("Company")
of voting instructions to be voted at a Special Meeting of Shareholders and all
adjournments thereof ("Meeting"), to be held at the offices of The Penn Mutual
Insurance Company, Board Room, Third Floor, 600 Dresher Road, Horsham,
Pennsylvania on Friday, October 10, 1997 at 10:00 a.m. (Eastern time). The
approximate mailing date of this proxy statement and the accompanying form of
voting instruction card is September 15, 1997.

The primary purpose of the Meeting is to permit the Company's
shareholders to consider a New Advisory Agreement (as defined below) with
respect to the Value Equity and Small Capitalization Funds and a New
Sub-Advisory Agreement (as defined below) with respect to the Emerging Growth
Fund.

The New Advisory Agreement is to take effect following the consummation
of the transactions contemplated in an Amended and Restated Merger Agreement,
dated as of July 22, 1997 ("Oppenheimer Merger") between PIMCO Advisors L.P.
("PIMCO Advisors") and its affiliate, Thomson Advisory Group Inc. ("TAG"), and
Oppenheimer Group, Inc., and its subsidiary, Oppenheimer Financial Corp.
("Opfin"), which own a controlling interest in Oppenheimer Capital and its
subsidiary, OpCap Advisors ("OpCap" or "Adviser") and certain related parties.
Pursuant to the Oppenheimer Merger, PIMCO Advisors and its affiliates will
acquire a controlling interest in Oppenheimer Capital and the Adviser.

The New Sub-Advisory Agreement is to take effect following the
consummation of the transactions contemplated in an Agreement and Plan of
Merger, dated as of July 8, 1997 between BankAmerica Corporation ("BankAmerica")
and Robertson, Stephens & Company Group, L.L.C. ("RS Group") and Robertson,
Stephens & Company, Inc. ("RS Inc."), pursuant to which each of those entities
would be merged into a subsidiary of BankAmerica ("Robertson, Stephens Merger").
Following the Robertson, Stephens Merger, BankAmerica will become the owner of

<PAGE>

the entire beneficial interest in Robertson Stephens Investment Management, Inc.
("RSIM" or "Sub-Adviser").

The Oppenheimer Merger constitutes an assignment and termination of the
Current Advisory Agreements (as defined below) and the Robertson, Stephens
Merger constitutes an assignment and termination of the Current Sub-Advisory
Agreement (as defined below). Accordingly, to ensure continuity in the
management of the Value Equity, Small Capitalization, and Emerging Growth Funds
(each a "Fund"), shareholders of each Fund are being asked to vote on the
proposal that relates to their Fund. The proposals are as follows:

Proposal Fund
-------- ----
1 Approve New Advisory Agreement for Value Equity Fund.
2 Approve New Advisory Agreement for Small Capitalization Fund.
3 Approve New Sub-Advisory Agreement for Emerging Growth Fund.

The New Advisory Agreement is identical to each of the Current Advisory
Agreements, except for the dates of execution and effectiveness. The New
Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the dates of execution and effectiveness.

The Company will furnish, without charge, a copy of its most recent
Annual and Semi-Annual Reports to Shareholders upon request. Requests should be
directed to the Company at The Penn Mutual Life Insurance Company, Customer
Service Group, Independence Square, Philadelphia, PA 19172 or by calling
1-800-523-0650.

The record date for determining shareholders entitled to vote at the
Meeting is September 3, 1997. Shareholders of the Value Equity and Small
Capitalization Funds of the Company will be entitled to one vote per share with
respect to approval or disapproval of the New Advisory Agreement and
shareholders of the Emerging Growth Fund will be entitled to one vote per share
with respect to approval or disapproval of the New Sub-Advisory Agreement. At
the close of business on September 3, 1997, there were issued and outstanding
12,094,669.375 shares of the Value Equity Fund, 2,074,044.503 shares of the
Small Capitalization Fund, and 855,253.569 shares of the Emerging Growth Fund.

Shares of the Company are sold only to The Penn Mutual Life Insurance
Company ("Penn Mutual") and its subsidiary, The Penn Insurance and Annuity
Company ("Penn Insurance"). Penn Mutual and Penn Insurance hold shares of the
Funds in separate accounts pursuant to annuity contracts and life insurance
policies.

-2-

<PAGE>

As of September 3, 1997, the outstanding shares of each Fund owned by Penn
Mutual and Penn Insurance were as follows:

Total Number Percentage of
Title of Class of Shares Name of Beneficial Owner of Shares Outstanding Shares
- ------------------------ ------------------------ ------------ ------------------
<S> <C> <C> <C>
Value Equity Fund Penn Mutual 10,832,817.766 89.57%

Penn Insurance 1,261,851.609 10.43%

Small Capitalization Fund Penn Mutual 1,472,318.533 70.99%

Penn Insurance 601,725.90 29.01%

Emerging Growth Fund Penn Mutual 791,958.028 92.60%

Penn Insurance 63,295.541 7.40%
</TABLE>

Voting

With respect to each Fund, a "vote of the majority of the outstanding
voting securities" is required which is defined under the Investment Company Act
of 1940, as amended ("1940 Act") as the lesser of (i) 67% or more of the voting
shares of the Fund entitled to vote thereon present in person or by proxy at the
Meeting, if the holders of more than 50% of the outstanding voting shares of the
Fund entitled to vote thereon are present in person or represented by proxy, or
(ii) more than 50% of the outstanding voting securities of the Fund entitled to
vote thereon.

Shareholders of each of the Value Equity, Small Capitalization and
Emerging Growth Funds of the Company are entitled to vote on Proposals 1, 2 and
3, respectively. A Proposal shall be approved with respect to a Fund if approved
by the shareholders of that Fund, regardless of whether the shareholders of any
other Fund approve the proposal.

-3-

<PAGE>

Under current interpretation and administration of the 1940 Act, and
regulations thereunder, Penn Mutual and Penn Insurance are required to vote
their shares in accordance with instructions from their variable annuity
contract owners and variable life insurance policy owners. Instructions are
obtained by Penn Mutual and Penn Insurance by sending this proxy statement to
their contract owners and policy owners and soliciting instructions.

Shares held in registered separate accounts for which contract owners
and policy owners do not give instructions are voted for and against the
proposal in the same proportions as the shares voted pursuant to instructions.
In addition, any shares held by Penn Mutual or Penn Insurance in their general
accounts also will be voted for or against a proposal in the same proportion as
shares for which voting instructions have been received.

In the event that voting instructions are not received with respect to
50% or more of the shares held in the separate accounts, Penn Mutual and/or Penn
Insurance, at their discretion, may vote all Fund shares in such accounts for
one or more adjournments of the Meeting to permit further solicitation of
instructions.

Voting instructions given pursuant to this solicitation may be revoked
at any time prior to their exercise by filing with Penn Mutual or Penn
Insurance, as appropriate, a written notice of revocation prior to the Meeting,
by delivering a duly authorized voting instruction form bearing a later date, or
by attending the Meeting and voting in person.

The Board recommends that you cast your vote FOR approval of the New
Advisory Agreement with OpCap and FOR the approval of the New Sub-Advisory
Agreement with RSIM.

-4-

<PAGE>

PROPOSALS 1 AND 2: APPROVAL OF THE NEW ADVISORY AGREEMENT

Information Concerning the Adviser

OpCap 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. As of
June 30, 1997, Oppenheimer Capital had $57.0 billion in assets under management.
The principal business address of Oppenheimer Capital and OpCap is Oppenheimer
Tower, 200 Liberty Street, One World Financial Center, New York, New York 10281.

Listed below are the names, addresses, and principal occupations of the
principal executive officers of Oppenheimer Capital and OpCap:

<TABLE>
<S> <C>
Name and Address Principal Occupation
---------------- --------------------

Joseph La Motta Chairman Emeritus, Oppenheimer Capital;
Oppenheimer Tower Chairman, OpCap Advisors
200 Liberty Street
One World Financial Center
New York, New York 10281

George Long Chairman and President, Oppenheimer Capital.
Oppenheimer Tower
200 Liberty Street
One World Financial Center
New York, New York 10281

Bernard Garil President, OpCap Advisors.
Oppenheimer Tower
200 Liberty Street
One World Financial Center
New York, New York 10281
</TABLE>

Opfin, a holding company, is the remaining 1.0% general partner of
OpCap Advisors. Opfin also holds a one-third managing general partner 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
Opfin is the sole 1.0% general partner, owns the remaining two-thirds interest
in Oppenheimer Capital. Opfin is a wholly-owned subsidiary of Oppenheimer Group,
Inc., 71% of the common stock of which currently is owned by Oppenheimer & Co.,
L.P. The principal business address of Opfin, Oppenheimer Capital, L.P, and
Oppenheimer Group, Inc. is Oppenheimer Tower, 200 Liberty Street, One World
Financial Center, New York, New York 10281.

-5-

<PAGE>

Information Concerning PIMCO Advisors

PIMCO Advisors, with approximately $119 billion in assets under
management as of June 30, 1997, is one of the largest publicly traded money
management firms in the United States. PIMCO Advisors' address is 800 Newport
Center Drive, Suite 100, Newport Beach, California 92660.

PIMCO Partners, G.P. ("PIMCO GP") owns approximately 42.83% and 66.37%,
respectively (and will at the closing of the Oppenheimer Merger own a majority
of the voting stock of TAG which owns approximately 14.94% and 25.06%,
respectively), of the total outstanding Class A and Class B units of limited
partner interest ("Units") of PIMCO Advisors and is PIMCO Advisors' sole general
partner. PIMCO GP is a California general partnership with two general partners.
The first of these is Pacific Investment Management Company, a California
corporation, wholly owned by Pacific Financial Asset Management Company, a
direct subsidiary of Pacific Life Insurance Company ("Pacific Life").

PIMCO Partners L.L.C. ("PPLLC"), a California limited liability
company, is the second, and managing, general partner of PIMCO GP. PPLLC's
members are the Managing Directors ("PIMCO Managers") of Pacific Investment
Management Company (a Delaware general partnership), a subsidiary of PIMCO
Advisors ("PIMCO Subpartnership"). The PIMCO Managers are: William H. Gross,
Dean S. Meiling, James F. Muzzy, William F. Podlich, III, Frank B. Rabinovitch,
Brent R. Harris, John L. Hague, William S. Thompson Jr., William C. Powers,
David H. Edington, Benjamin L. Trosky, William R. Benz, II and Lee R. Thomas,
III.

PIMCO Advisors is governed by an Operating Board and an Equity Board.
Governance matters are allocated generally to the Operating Board and the
Operating Board delegates to the Operating Committee the authority to manage
day-to-day operations of PIMCO Advisors. The Operating Board is composed of
twelve members, including the chief executive officer of the PIMCO
Subpartnership as Chairman and six PIMCO Managers designated by the PIMCO
Subpartnership.

The authority of PIMCO Advisors' Operating Board and Operating
Committee to take certain specified actions is subject to the approval of PIMCO
Advisors' Equity Board. Equity Board approval is required for certain major
transactions (e.g., issuance of additional PIMCO Advisors' Units and appointment
of PIMCO Advisors' chief executive officer). In addition, the Equity Board has
jurisdiction over matters such as actions which would have a material effect
upon PIMCO Advisors' business taken as a whole and (after an appeal from an
Operating Board decision) matters likely to have a material adverse economic
effect on any subpartnership of PIMCO Advisors. The Equity Board is composed of
twelve members, including the chief executive officer of PIMCO Advisors, three
members designated by a subsidiary of Pacific Life, the chairman of the
Operating Board and two members designated by PPLLC.

-6-

<PAGE>

Because of its power to appoint (directly or indirectly) seven of the
twelve members of the Operating Board as described above, the PIMCO
Subpartnership may be deemed to control PIMCO Advisors. Because of the direct or
indirect power to appoint 25% of the members of the Equity Board, (i) Pacific
Life and (ii) the PIMCO Managers and/or the PIMCO Subpartnership may each be
deemed, under applicable provisions of the 1940 Act to control PIMCO Advisors.
Pacific Life, PIMCO Subpartnership and the PIMCO Managers disclaim such control.

The Oppenheimer Merger

On July 22, 1997, PIMCO Advisors and TAG entered into an Amended and
Restated Merger Agreement with Oppenheimer Group, Inc. and certain related
parties which modified the merger agreement entered into by the parties on
February 13, 1997. Pursuant to the Amended and Restated Merger Agreement, PIMCO
Advisors and TAG (and its successor) will acquire, among other interests, the
one-third managing general partner interest in Oppenheimer Capital, its 1.0%
general partnership interest in OpCap Advisors, and its 1.0% general partner
interest in Oppenheimer Capital L.P. The aggregate purchase price is
approximately $262 million including convertible preferred stock of the
surviving corporation in the merger and assumption of certain indebtedness. The
amount preferred stock comprising the purchase price is subject to reduction in
certain circumstances. The obligations of the parties to consummate the
Oppenheimer Merger are subject to the satisfaction or waiver of certain
conditions prior to the effective date, including the consummation of the sale
by Oppenheimer Group, Inc and Oppenheimer Equities, Inc. of all of the stock of
Oppenheimer Holdings, Inc. and Oppenheimer & Co., Inc. ("Opco"), OpCap Advisors'
broker-dealer affiliate, to CIBC Wood Gundy Securities Corp. ("CIBC Sale"),
approval of the transaction by certain regulatory authorities and the consent of
certain clients. All of the issued and outstanding stock of Opco is owned by
Oppenheimer Holdings, Inc., which in turn is a wholly-owned subsidiary of
Oppenheimer Equities, Inc. Oppenheimer Equities, Inc. is a wholly-owned
subsidiary of Opfin, which in turn is a wholly-owned subsidiary of Oppenheimer
Group, Inc. The CIBC Sale will have no effect on the ownership of Oppenheimer
Group, Inc. and Opfin including its general partner interests in Oppenheimer
Capital and OpCap Advisors. Under the terms of the Amended and Restated Merger
Agreement, the Oppenheimer Merger can take place only if the CIBC Sale takes
place first. It is contemplated that the Oppenheimer Merger will be consummated
shortly after the CIBC Sale is concluded. As a result, there will only be a
change of control of Oppenheimer Capital and OpCap Advisors upon consummation of
the Oppenheimer Merger.

Upon consummation of the Oppenheimer Merger, Oppenheimer Capital and
OpCap Advisors will be controlled by PIMCO Advisors. PIMCO Advisors has advised
Oppenheimer Group, Inc. that it anticipates that the senior portfolio management
team of Oppenheimer Capital will continue in their present capacities; that the
eligibility of OpCap Advisors to serve as an investment adviser will not be
affected by the Oppenheimer Merger; and that Oppenheimer Capital and OpCap
Advisors will be able to continue to provide advisory and management

-7-

<PAGE>

services with no material changes in operating conditions. PIMCO has further
advised Oppenheimer Group, Inc. that it currently anticipates that the
Oppenheimer Merger will not affect the ability of Oppenheimer Capital and OpCap
Advisors to fulfill their obligations under their investment advisory
agreements.

The Advisory Agreements

In anticipation of the Oppenheimer Merger, a majority of the Directors
of the Company, including a majority of the Directors who are not (i) parties to
the New Advisory Agreement (defined below) or (ii) interested persons of any
such party, approved a new investment advisory agreement between the
Company and OpCap ("New Advisory Agreement"). The form of the New Advisory
Agreement is identical to the Current Advisory Agreements (defined below) except
for the dates of execution and effectiveness.

The following summary of the Current Advisory Agreements and the New
Advisory Agreement is qualified by reference to Annex A.

The Current Advisory Agreements

Currently, there are two identical investment advisory agreements
between the Company and OpCap Advisors - one for the Value Equity Fund,
dated November 1, 1992, and one for the Small Capitalization Fund, dated March
1, 1995 ("Current Advisory Agreements"). At a meeting of the Board of Directors
held on February 4, 1997, a majority of the Directors who were not "interested
persons," as defined in the 1940 Act ("Independent Directors") approved the
Current Advisory Agreements. The 1992 agreement was approved by shareholders of
the Value Equity Fund on October 15, 1992. The 1995 agreement was approved by
the sole shareholder of the Small Capitalization Fund on March 1, 1995.

The Current Advisory Agreements provide that OpCap, as investment
adviser, shall supervise and direct the investments of the Funds in accordance
with their investment objectives including the selection of securities for the
Company to purchase, sell, convert or lend, and the selection of brokers through
whom the Funds' portfolio transactions are executed.

Under the Current Advisory Agreements, OpCap shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company,
except for a loss resulting from willful misfeasance, bad faith, negligence, or
misconduct in the performance of its duties. OpCap shall not be liable for any
loss incurred by an act or omission of a custodian, broker, dealer, underwriter,
or issuer selected by OpCap with reasonable care.

The Current Advisory Agreements require OpCap to render periodic
reports as the Company may request or deem helpful and cooperate with the
Company's independent public accountant. The Current Advisory Agreements may be
terminated, without penalty, upon 60 days' prior written notice from the Company
to OpCap, or upon 90 days' prior written notice

-8-

<PAGE>

from OpCap to the Company; provided that in the case of termination by the
Company, such action shall have been authorized by (1) a resolution of a
majority of its directors who are not interested persons of any party to the
agreement; or (2) a vote of the majority of the outstanding voting securities of
the applicable Fund.

Under the Current Advisory Agreements, the Company pays OpCap as
compensation for services, an annual fee of 0.50% of each Fund's average daily
net assets. In the fiscal year ended December 31, 1996, the Company paid OpCap
advisory fees of $800,404 for services provided to the Value Equity Fund. During
this same period, the Company paid OpCap advisory fees of $51,982 for services
provided to the Small Capitalization Fund after a waiver of $7,964.00, resulting
in a net advisory fee, after fee waivers, of 0.44%.

The net assets, advisory fees, and net advisory fees after fee waivers
and/or reimbursements for other funds advised by OpCap are set forth in Appendix
A hereto.

The New Advisory Agreement

The Board approved the New Advisory Agreement on April 2, 1997, the
form of which is attached as Annex A. The New Advisory Agreement is for both the
Value Equity and Small Capitalization Funds. The form of the New Advisory
Agreement is identical to each of the Current Advisory Agreements, except for
the dates of execution and effectiveness.

The investment advisory fee as a percentage of net assets payable by
each Fund will be the same under the New Advisory Agreement. If the investment
advisory fee under the New Advisory Agreement had been in effect for the
Company's most recently completed fiscal year, advisory fees paid to OpCap would
have been identical to those paid under the Current Advisory Agreements.

The Board held a meeting on April 2, 1997, at which meeting, the
Directors, including the Independent Directors, unanimously approved the New
Advisory Agreement for the Company and recommended the New Advisory Agreement
for approval by the shareholders of the Funds. The New Advisory Agreement would
take effect upon the later of (i) the obtaining approval or (ii) the closing of
the Oppenheimer Merger. The New Advisory Agreement will continue in effect for
as long as such continuance be approved at least annually in accordance with the
1940 Act.

In evaluating the New Advisory Agreement, the Board took into account
that the Funds' Current Advisory Agreements, including their terms relating to
services to be provided thereunder by the Adviser and the fees and expenses
payable by the Company, are identical, except for the dates of execution and
effectiveness. The Board also reviewed the performance of OpCap in managing the
Value Equity and Small Capitalization Funds.

-9-

<PAGE>

The Board considered the terms of the Oppenheimer Merger Agreement and
the possible effects of the Oppenheimer Merger upon the organization of OpCap to
provide advisory services to the Company. In this regard, the Board reviewed (i)
PIMCO Advisors' investment philosophy; (ii) PIMCO Advisors' plans for an
autonomous structure under which OpCap would continue to operate as a separate
business unit; and (iii) PIMCO Advisors' strategy in encouraging key OpCap
personnel to remain with the adviser.

After consideration of the above factors and such other factors as the
Board deemed relevant, the Directors, including the Independent Directors,
unanimously (i) approved the New Advisory Agreement; and (ii) voted to recommend
the approval of the New Advisory Agreement to shareholders of the Value Equity
and Small Capitalization Funds.

In the event that the shareholders of a Fund do not approve the New
Advisory Agreement, the applicable Current Advisory Agreement will remain in
effect with respect to that Fund and the Board will take such action as it deems
in the interest of the Fund and its shareholders, which may include proposing
that shareholders approve an agreement in lieu of such New Advisory Agreement.
If the Oppenheimer Merger is not consummated, OpCap would continue to serve as
investment adviser to the Funds pursuant to the terms of the Current Advisory
Agreements.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE NEW ADVISORY AGREEMENT

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<PAGE>

PROPOSAL 3: APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT

Information Concerning the Sub-Adviser

RSIM serves as sub-advisor to the Emerging Growth Fund pursuant to a
sub-advisory agreement with Independence Capital Management, Inc. ("ICM") dated
April 15, 1997 ("Current Sub-Advisory Agreement"). RSIM is indirectly owned by
RS Group and RS Inc. with RS Group holding a controlling interest.1/ RS Group is
also the majority owner of Robertson, Stephens & Company LLC (RS&Co.), a
distributor of mutual funds and a major investment bank which has managed over
$15.23 billion in public offerings of emerging growth companies since 1978.
Sanford R. Robertson and Paul H. Stephens may be deemed to control RSIM due to
their percentage ownership interests in RS Group and RS Inc.2/ The principal
business address of RSIM, RS Group, RS Inc. and RS&Co. is 555 California Street,
San Francisco, California 94104. Mr. G. Randall Hecht is the sole director and
officer of RSIM. Mr. Hecht's principal business address is 555 California
Street, San Francisco, California 94104.

Information Concerning the Adviser

ICM, located at 600 Dresher Road, Horsham Pa., 19044 serves as
investment adviser to the Emerging Growth Fund. ICM is a wholly owned subsidiary
of Penn Mutual. The Fund's investment advisory agreement with ICM is unaffected
by the Robertson, Stephens Merger.

Information Concerning BankAmerica

BankAmerica is a bank holding company that was incorporated on October
7, 1968 under the laws of the State of Delaware, and is registered under the
Bank Holding Company Act of 1956, as amended. Through its network of
subsidiaries, BankAmerica provides banking and other financial services
throughout the United States and in selected international markets to consumers
and business customers, including corporations, governments and other
institutions. As a global financial intermediary, BankAmerica provides
capital-raising services, trade finance, cash management, investment banking,
capital markets and credit products, and financial advisory services to large
public- and private-sector institutions that are part of the global economy. At
December 31, 1996, BankAmerica Corporation, together with its subsidiaries, was
one of the three largest bank holding companies in the United States, with total
assets of $250.8 billion.

- --------
1/ RSIM is a wholly owned subsidiary of RS Regulated I, L.L.C. ("RSRI").
RS Group owns 99% of RSRI with RS Inc. owning the remaining 1%. The
principal business address of RSRI is 555 California Street, San
Francisco, California 94104.

2/ Mr. Robertson owns approximately 15% of the outstanding voting
securities of each of RS Group and RS Inc. Mr. Stephens owns
approximately 12% of such securities.

-11-

<PAGE>

Bank of America National Trust and Savings Association ("Bank") is the
largest subsidiary of BankAmerica Corporation. The Bank, which was organized in
1904, provides commercial banking and trust business through an extensive system
of branches across the western United States. The Bank's principal banking
affiliates operate branches in eleven U.S. states as well as corporate banking
offices in major U.S. cities and branches, corporate offices, and representative
offices in 37 other countries and territories. The Bank and its affiliates act
as investment advisers to assets of over $50 billion, including over $14 billion
in mutual funds.

The Robertson, Stephens Merger

On June 8, 1997, BankAmerica entered into an Agreement and Plan of
Merger with RS Group and RS Inc., pursuant to which each of those entities would
be merged into a subsidiary of BankAmerica. Upon the consummation of those
mergers (expected to occur on or about September 30, 1997), BankAmerica will
become the owner of the entire beneficial interest RSIM. Under the Merger
Agreement, each of RS Group and RS Inc. will be merged into a wholly owned
subsidiary of BankAmerica, and will exist only as an operating unit of
BankAmerica ("Robertson, Stephens").

BankAmerica will pay a total amount of consideration of up to $540
million. Of that amount $245 million will be paid to the members of RS Group and
the stockholders of RS Inc. upon consummation of the Robertson, Stephens Merger;
$225 million will be paid to them in additional installments during each of the
next three years if they remain employed by Robertson, Stephens. The remaining
$70 million will be paid into a "retention pool" for the benefit of certain key
Robertson, Stephens employees, who will receive payments out of the pool in
installments during the four-year period following the Robertson, Stephens
Merger if they remain employed by Robertson, Stephens.

RSIM has informed the Fund that the consideration for the Merger is
being paid in installments principally in order to provide an incentive to
Robertson, Stephens employees, including key investment professionals at RSIM to
continue their association with Robertson, Stephens. Any person whose employment
with Robertson, Stephens is terminated before he or she receives all of the
consideration under the Merger Agreement or payments from the retention pool to
which he or she is entitled (unless that person's employment is terminated by
Robertson, Stephens without cause or unless that person leaves for "good
reason," as defined in his or her employment contract) will forfeit any such
amount not yet paid at the time of the termination.

The Sub-Advisory Agreement

In anticipation of the Robertson, Stephens Merger, a majority of the
Directors of the Company, including a majority of the Directors who are not
(i) parties to the New Sub-Advisory Agreement (defined below) or (ii) interested
persons of any such party, approved a new sub-advisory agreement between the ICM
and RSIM ("New Sub-Advisory Agreement"). The form of the New Sub-Advisory
Agreement is identical to the Current Sub-Advisory Agreement

-12-

<PAGE>

except for the dates of execution and effectiveness. The holders of the
majority of the outstanding voting securities (within the meaning of the 1940
Act) of the Emerging Growth Fund are being asked to approve the New Sub-Advisory
Agreement.

The following summary of the Current Sub-Advisory Agreement and the New
Sub-Advisory Agreement is qualified by reference to Annex B.

The Current Sub-Advisory Agreement

The Current Sub-Advisory Agreement was last approved by the sole
shareholder of the Fund on May 1, 1997. At a meeting of the Board of Directors
held on February 4, 1997, a majority of the Independent Directors approved the
Current Sub-Advisory Agreement.

The Current Sub-Advisory Agreement provides that RSIM, as sub-adviser,
shall supervise and direct the investments of the Fund in accordance with its
investment objective including the selection of securities for the Company to
purchase, sell, convert or lend, and the selection of brokers through whom the
Fund's portfolio transactions are executed.

Under the Current Sub-Advisory Agreement, RSIM shall not be liable for
any error of judgment or mistake of law or any loss suffered by the Company,
except for a loss resulting from willful misfeasance, bad faith, negligence, or
willful misconduct in the performance of its duties. RSIM shall not be liable
for any loss incurred by an act or omission of a custodian, broker, dealer,
underwriter, or issuer selected by RSIM with reasonable care. In addition, the
Current Sub-Advisory Agreement provides indemnification to both ICM and RSIM for
losses arising under the agreement under certain conditions.

The Current Sub-Advisory Agreement requires RSIM to render periodic
reports as the Company or ICM may request and cooperate with the Company's
independent public accountants. The Current Sub-Advisory Agreement may be
terminated by ICM, the Company or RSIM upon 60 days' prior notice in writing
from the Company to RSIM, or upon 90 days' prior notice in writing from RSIM to
the Company, provided that in the case of termination by ICM or the Company,
such action shall have been authorized by (1) a majority of the directors who
are not interested persons of any party to the agreement; or by (2) a vote of
the majority of the outstanding voting securities of the Fund.

Under the Current Sub-Advisory Agreement, ICM pays RSIM as compensation
for services, an annual fee of 0.70% of the first $25,000,000 of average daily
net assets of the Fund, 0.65% of the next $25,000,000 of average daily net
assets of the Fund, and 0.60% of average daily net assets of the Fund in excess
of $50,000,000. As the Fund commenced operations on May 1, 1997, RSIM did not
receive any compensation from the Fund for the fiscal year ended December 31,
1996. To the extent that the Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, and certain other expenses) exceeds 1.15% of the
Fund's daily net

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<PAGE>

assets, RSIM is liable for the first 0.10% of the excess with the Advisor liable
for all amounts in excess of 1.25%.

Currently, RSIM provides investment advisory services to one other fund
with an investment objective similar to the Fund. The name, net assets, and
contractual advisory fee for this fund are listed below:

Approximate Net
Assets As Of
Fund (6/30/97) Advisory Fee Rate
- --------------------------------------- --------------- -----------------
Robertson Stephens Investment Trust
Emerging Growth Fund $222,198,131 1.00%

The New Sub-Advisory Agreement

The Board approved the New Sub-Advisory Agreement on August 5, 1997,
the form of which is attached as Annex B. The form of the New Sub-Advisory
Agreement is identical to the Current Advisory Sub-Agreement, except for the
dates of execution and effectiveness.

The investment advisory fee as a percentage of net assets payable by
the Fund will be the same under the New Sub-Advisory Agreement.

The Board held a meeting on August 5, 1997, at which meeting, the
Directors, including the Independent Directors, unanimously approved the New
Sub-Advisory Agreement for the Company and recommended the New Sub-Advisory
Agreement for approval by the shareholders of the Fund. The New Sub-Advisory
Agreement would take effect upon the later of (i) the obtaining approval or (ii)
the closing of the Robertson, Stephens Merger. The New Sub-Advisory Agreement
will continue in effect for as long as such continuance be approved at least
annually in accordance with the 1940 Act.

In evaluating the New Sub-Advisory Agreement, the Board took into
account that the Fund's Current Sub-Advisory Agreement, including its terms
relating to services to be provided thereunder by the Sub-Adviser and the fees
and expenses payable by the Company, is identical, except for the dates of
execution and effectiveness.

The Board considered the terms of the Robertson, Stephens Merger and
the possible effects of the Robertson, Stephens Merger upon the ability of RSIM
to provide advisory services to the Company. In this regard, the Board reviewed
(i) BankAmerica's plans for an autonomous structure under which RSIM would
continue to operate as a separate business unit and retain its investment
approach and philosophy; and (ii) the incentives in the Merger Agreement to
encourage key RSIM personnel to remain with the Sub-Adviser.

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<PAGE>

After consideration of the above factors and such other factors as the
Board deemed relevant, the Directors, including the Independent Directors,
unanimously (i) approved the New Sub-Advisory Agreement; and (ii) voted to
recommend the approval of the New Sub-Advisory Agreement to shareholders of the
Emerging Growth Fund.

In the event that the shareholders of the Fund do not approve the New
Sub-Advisory Agreement, the Current Sub-Advisory Agreement will remain in effect
and the Board will take such action as it deems in the interest of the Fund and
their shareholders, which may include proposing that shareholders approve an
agreement in lieu of such New Sub-Advisory Agreement. If the Robertson, Stephens
Merger is not consummated, RSIM would continue to serve as investment adviser to
the Fund pursuant to the terms in the Current Sub-Advisory Agreement.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT

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<PAGE>

ADDITIONAL INFORMATION

Directors and Officers of the Company

Information is set forth below about the Company's current Directors
and principal executive officers, including their name, position with the
company, and relationship to OpCap or RSIM, if any. No Director or officer owns
shares of the Company.

Name and Position Affiliation Affiliation
with the Company with Op Cap* with RSIM*
----------------- ----------- -----------
Eugene Bay None None
Director
James S. Greene None None
Director
L. Stockton Illoway None None
President and Director
Richard J. Liberdi None None
Director
William H. Loesche, Jr. None None
Director
M. Donald Wright None None
Director
James B. McElwain None None
Executive Vice President
Richard F. Plush None None
Vice President
C. Ronald Rubley None None
Secretary
Steven M. Herzberg None None
Treasurer
Ann M. Strootman None None
Vice President and Controller

* This information has been furnished by each Director or officer.

Administrator

Penn Mutual is the administrative and corporate services agent for the
Company. Penn Mutual is a Pennsylvania mutual life insurance company located at
Independence Square, Philadelphia, Pennsylvania 19172. Under an administrative
and corporate services agreement,

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<PAGE>

Penn Mutual administers the Company's corporate affairs, subject to the
supervision of the Board and, in connection therewith, furnishes the Company
with office facilities, prepares regulatory filings, provides staff assistance
to the Board, and provides ordinary bookkeeping services.

Expenses

All costs of solicitation (including printing and mailing of this proxy
statement, meeting notice, and voting instruction cards, as well as any
necessary supplementary solicitations) will be paid for by Oppenheimer Group,
Inc. and PIMCO Advisors for Proposal 1 and by RSIM for Proposal 2. The Company
will not pay for expenses relating to the approval of either Proposal.

Submission of Shareholder Proposals

The Company does not hold annual shareholder meetings. Shareholders
wishing to submit proposals for inclusion in a proxy statement for a shareholder
meeting subsequent to the Meeting, if any, should send their written proposals
to Secretary, Penn Series Funds, Inc., 600 Dresher Road, Horsham, PA 19044.

General

The Company knows of no business other than that mentioned in the
Proposals contained in the Notice that will be presented for consideration at
the Meeting. If any other matters are properly presented, it is the intention of
the persons named on the enclosed voting instruction card to vote instructions
in accordance with their best judgment.

A list of shareholders of the Company entitled to be present and vote
at the meeting will be available at the offices of the Company, 600 Dresher
Road, Horsham, PA 19044, for inspection by any shareholder during regular
business hours for ten days prior to the date of the Meeting.

IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN,
SIGN AND RETURN THE ENCLOSED VOTING INSTRUCTION CARD PROMPTLY.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.

C. Ronald Rubley
Secretary

September 15, 1997.

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<PAGE>

ANNEX A

FORM OF NEW INVESTMENT ADVISORY AGREEMENT

Between
PENN SERIES FUNDS, INC.
And
OPCAP ADVISORS
Relating To The
VALUE EQUITY FUND
And
SMALL CAPITALIZATION FUND

INVESTMENT ADVISORY AGREEMENT, made as of the _____ day of ______,
1997, by and between PENN SERIES FUNDS, INC. ("Penn Series"), a corporation
organized and existing under the laws of the State of Maryland, and OPCAP
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 Investment Advisers Act of 1940, as amended; and

WHEREAS, Penn Series desires Adviser to render investment advisory
services to Penn Series, and Adviser desires to provide such services, 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 and
Small Capitalization Funds of Penn Series (collectively the "Funds" and
individually the "Fund") in accordance with the investment objectives, program
and restrictions applicable to the Funds 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 a Fund
if that investment is in violation of the objectives, program, restrictions or
limitations of the Fund. Adviser shall not

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<PAGE>

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 each Fund in a manner consistent with the investment objectives
of the Fund. In furtherance of this duty, Adviser, as agent and attorney-in-fact
for 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 a 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 each 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 0.50% of each Fund's average daily net assets.

b. Method of computation. The fee for each 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.

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<PAGE>

c. Expense Limitation. The expense limitation of each 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 0.10% 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 a 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 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.

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<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 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

A-4

<PAGE>

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 a 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 a 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 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 each
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

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<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 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

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<PAGE>

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 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 terminated as hereinafter provided, shall
continue in effect 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 a Fund and (b) by the vote of a
majority of the directors of Penn Series who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. 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 a 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 a 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 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

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<PAGE>

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
affected 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 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: President, and that of
Adviser is One World Financial Center, New York, New York 10281,
Attention: 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.

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<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.

- ----------------------------------- --------------------------------
Secretary President

Attest: OPCAP ADVISORS

___________________________________ By: ____________________________
Secretary

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<PAGE>

ANNEX B

FORM OF NEW 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 ________ day of ___, 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;

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<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 cash, securities and
other assets of the Emerging Growth Fund of Penn Series ("the Fund"), and to
exercise all rights incidental to ownership 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. To enable Sub-Adviser to fully
exercise its discretion, Adviser hereby appoints Sub-Adviser as agent and
attorney-in-fact for the Fund with full power and authority to buy, sell and
otherwise deal in securities and contracts for the Fund. No investment will be
made by Sub-Adviser for the Fund if that investment is in violation of the
objectives investment restrictions or limitations of the Fund set out in the
prospectus and the SAI previously delivered to the Sub-Advisor or to be
delivered. 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, in its discretion, 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; and

(iii) to take such other actions Sub-Adviser deems to be
appropriate;

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.

B-2

<PAGE>

3. Fee.

A. Payment of Fee. For the services Sub-Adviser renders to
Penn Series under this Agreement, Adviser will pay Sub-Adviser
a fee based on the average daily net assets of the Fund.

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 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

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<PAGE>

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 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 advise Penn
Series' Board of Directors, when requested, 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

B-4

<PAGE>

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 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.

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 at or
prior to the time such documents are made available to the public.

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 upon reasonable notice to Sub-Adviser and,
in the event of termination of this Agreement, will be promptly delivered to
Adviser and Penn Series upon request.

11. Services to Other Clients. Subject to compliance with the 1940 Act,
nothing herein contained shall be deemed to prohibit Sub-Adviser or any of its
affiliated persons from acting, and being separately compensated for acting, in
one or more capacities on behalf of the Fund. 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

B-5

<PAGE>

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 such information by duly constituted
authorities, when so requested by Adviser and Penn Series.

13. Proxies. Subject to such 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 by 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 any applicable requirements of
the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, or 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 respective 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 willful 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; nor shall such persons be liable for any loss or damage
resulting from the imposition

B-6

<PAGE>

by any government of exchange control restrictions which might affect the
liquidity of the Fund's assets maintained with custodians or securities
depositories in foreign countries, or from any political acts of any foreign
governments to which such assets might be exposed, or for any tax of any kind,
including, without limitation, any statutory, governmental, state, provincial,
regional, local or municipal imposition, duty, contribution or levy imposed by
any government or governmental agency upon or with respect to such assets or
income earned with respect thereto (collectively, "Taxes"). Similarly, the
Sub-Adviser shall have no responsibility for and shall incur no liability to the
Fund, any shareholder of the Fund, or the Adviser relating to (i) the duty of
the Fund to register with any government or agency; (ii) the selection of
investment objectives and policies of the Fund; and (iii) the administration of
any plans or trusts investing in the Fund. 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, 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 omission of 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; (ii) any action of 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; or (iii) any
action or omission of Adviser or any affiliated corporation, 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. Nothwithstanding the forgoing, 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

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<PAGE>

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. Neither Penn Series nor Adviser shall 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 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 written consent of the parties hereto, 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 any party hereto 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

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<PAGE>

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.
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: General Counsel.

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
law.

B-9

<PAGE>

F. Counterparts. This Agreement may be entered into in
counterparts, each of which when so executed and delivered
shall be deemed to be an original, and together shall
constitute one document.

G. Entire Agreement; Severability. This Agreement is the
entire agreement of the parties and supersedes all prior or
contemporaneous written or oral negotiations, correspondence,
agreements and understandings regarding the subject matter
hereof. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability
of any and all other provisions hereof.

H. No Third Party Beneficiaries. Neither party intends for
this Agreement to benefit any third-party not expressly named
in this Agreement.

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.

By:
- ------------------------------- ----------------------------
Secretary

Attest: ROBERTSON STEPHENS
INVESTMENT MANAGEMENT, INC.

By:
- ------------------------------- -----------------------------
Secretary
---------------------------
(Print Name)
---------------------------
(Title)

B-10

<PAGE>

APPENDIX A

The following table indicates the name, net assets, contractual
advisory fee and net advisory fee after fee waiver and/or expense reimbursement
for the last fiscal year for other registered investment companies managed by
OpCap. These investment companies have similar investment objectives to either
the Value Equity Fund or the Small Capitalization Fund.

<TABLE>
<CAPTION>
Approximate Net
Assets
Fund (as of 8/4/97) Advisory Fee Rate
- ---- --------------- -----------------
<S> <C> <C>
Oppenheimer Quest Value Fund, Inc. $1,003,593,276 1.0% on the first $400
million; 0.90% on the next
$400 million; 0.85% of net
assets in excess of $800
million(1)

Oppenheimer Quest Small Cap Value Fund $ 230,070,963 1.0% on the first $400
million; 0.90% on the next
$400 million; 0.85% of net
assets in excess of $800
million(1)

Enterprise Accumulation Trust:
Equity Portfolio $ 458,862,923 0.40% on the first $1 billion;
0.30% on assets over $1
billion; and 0.25% for assets in
excess of $2 billion(2)

Enterprise Group of Funds:
</TABLE>

B-1

<PAGE>

<TABLE>
<CAPTION>
Approximate Net
Assets
Fund (as of 8/4/97) Advisory Fee Rate
- ---- --------------- -----------------
<S> <C> <C>
Equity Portfolio $ 3,021,498 0.40% on the first $100
million; 0.30% on assets in
excess of $100 million(3)
Endeavor Series Trust:
Value Equity Portfolio $ 188,046,428 .40%(4)

The Saratoga Advantage Trust:
Large Capitalization Value Portfolio $ 29,884,830 .30%(5)

OCC Accumulation Trust:
Equity Portfolio $ 23,162,792 0.80% of the first $400 million
of average net assets; 0.75% on
the next $400 million of
average net assets and 0.70% of
assets in excess of $800
million(6)
Small Cap Portfolio $ 51,238,610 0.80% of the first $400 million
of average net assets; 0.75% on
the next $400 million of
average net assets and 0.70% of
assets in excess of $800
million(6)

- ---------------------------------------------------------------------------------------------------------
</TABLE>

B-2

<PAGE>

(1) With respect to each of these funds, Oppenheimer Funds, Inc. ("OFI") is
the investment adviser and OpCap Advisors is the sub-adviser. OFI pays
OpCap Advisors monthly an annual fee based on the average daily net
assets of the fund equal to 40% of the advisory fee collected by OFI
based on the total net assets of the fund as of November 22, 1995 (the
"base amount") plus 30% of the investment advisory fee collected by OFI
based on the total net assets of the fund that exceed the base amount.

(2) These fees are for investment advisory services only. Management
services are provided to the portfolio by a third party, not OpCap
Advisors. The Manager, who pays the investment advisory fee to OpCap
Advisors, receives a management fee, on an annual basis, of 0.80% of
the first $400 million of the average daily net assets; 0.75% on the
next $400 million and 0.70% on assets above $800 million of the
portfolio.

(3) This fee is for investment advisory services only. Management services
are provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors,
receives a management fee of 0.75% of the average daily net assets of
the Portfolio.

(4) This fee is for investment advisory services only. Management services
are provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee of OpCap Advisors,
receives a management fee of 0.80% of average daily net assets of the
portfolio.

(5) This fee is for investment advisory services only. Management services
are provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors,
receives a management fee of 0.65% of the average daily net assets of
the portfolio.

(6) OpCap Advisors will waive its management fee and reimburse expenses so
that total operating expenses (net of any expense offsets and excluding
the amount of any interest, taxes, brokerage commissions and
extraordinary expenses) do not exceed 1.25% of each Portfolio's average
daily net assets and until December 31, 1997, will waive its management
fee and reimburse expenses of those Portfolios so that their total
operating expenses do not exceed 1.00% of their average daily net
assets.

B-3

<PAGE>

THE PENN MUTUAL LIFE INSURANCE COMPANY
PENN MUTUAL VARIABLE LIFE ACCOUNT I

Voting Instruction Form

At a Special Meeting of Shareholders of Penn Series Funds, Inc. (the
"Company") scheduled to be held on October 10, 1997, and at any adjournments
thereof, the undersigned owner of a variable life policy (or policies)
participating in Penn Mutual Variable Life Account I hereby instructs The Penn
Mutual Life Insurance Company ("Penn Mutual") to vote shares of Funds of the
Company held under my policy (or policies) in accordance with the instructions
below, and to vote the shares on any other matters that may properly come before
the meeting, all as set forth in the Notice of Special Meeting and Proxy
Statement that accompanied this Voting Instruction Form.

The undersigned acknowledges receipt of this Voting Instruction Form
along with a copy of the Notice of Special Meeting of Shareholders and the Proxy
Statement of the Board of Directors of the Company.

|X| Please mark your choice like this and sign and date below.

Penn Mutual recommends a vote FOR the proposals set forth below.

UNITS PROPOSAL FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to Value Equity Fund.

2. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to the Small
Capitalization Fund.

3. Approve the proposed Investment Sub-Advisory Agreement between |_| |_| |_|
Independence Capital Management, Inc. and Robertson Stephens
Investment Management, Inc. for the Emerging Growth Fund.
</TABLE>

Shares will be voted as directed. Penn Mutual will vote on any other
business that may properly come before the meeting in the discretion of its
management. This voting instruction is solicited by Penn Mutual.

PLEASE VOTE, SIGN EXACTLY AS LISTED ABOVE AND DATE THIS VOTING
INSTRUCTION AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IMPORTANT: Your signature(s) should be exactly as your name or names appear on
this Voting Instruction Form. If the shares are held jointly, each holder should
sign. If signing is by attorney, executor, administrator, trustee or guardian,
please print your full title below your signature.

Dated: ______________ ,1997 ________________ _________________
Signature Signature

<PAGE>

THE PENN INSURANCE AND ANNUITY COMPANY
PIA VARIABLE ANNUITY ACCOUNT I

Voting Instruction Form

At a Special Meeting of Shareholders of Penn Series Funds, Inc. (the
"Company") scheduled to be held on October 10, 1997, and at any adjournments
thereof, the undersigned owner of a variable annuity contract (or contracts)
participating in PIA Variable Annuity Account I hereby instructs The Penn
Insurance and Annuity Company ("PIA") to vote shares of Funds of the Company
held under my contract (or contracts) in accordance with the instructions below,
and to vote the shares on any other matters that may properly come before the
meeting, all as set forth in the Notice of Special Meeting and Proxy Statement
that accompanied this Voting Instruction Form.

|x| Please mark your choice like this and sign and date below.

PIA recommends a vote FOR the proposals set forth below.

<TABLE>
<CAPTION>
UNITS PROPOSAL FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to Value Equity Fund.

2. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to the Small
Capitalization Fund.

Shares will be voted as directed. PIA will vote on any other business
that may properly come before the meeting in the discretion of its management.
This voting instruction is solicited by PIA.

Dated: _________________ ,1997 ________________ ____________________
Signature Signature

<PAGE>

THE PENN MUTUAL LIFE INSURANCE COMPANY
PENN MUTUAL VARIABLE ANNUITY ACCOUNT III

Voting Instruction Form

At a Special Meeting of Shareholders of Penn Series Funds, Inc. (the
"Company") scheduled to be held on October 10, 1997, and at any adjournments
thereof, the undersigned owner of a variable annuity contract (or contracts)
participating in Penn Mutual Variable Annuity Account III hereby instructs The
Penn Mutual Life Insurance Company ("Penn Mutual") to vote shares of Funds of
the Company held under my contract (or contracts) in accordance with the
instructions below, and to vote the shares on any other matters that may
properly come before the meeting, all as set forth in the Notice of Special
Meeting and Proxy Statement that accompanied this Voting Instruction Form.

|X| Please mark your choice like this and sign and date below.

Penn Mutual recommends a vote FOR the proposals set forth below.
<TABLE>
<CAPTION>

UNITS PROPOSAL FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>

1. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to Value Equity Fund.

2. Approve the proposed Investment Advisory Agreement between the |_| |_| |_|
Company and OpCap Advisors with respect to the Small
Capitalization Fund.

Dated: ______________, 1997 ____________________ ___________________
Signature Signature