<PAGE>
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:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)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 Accounts I, II and III
Penn Mutual Variable Life Account I
_____________________
To Our Contract Owners, Policy Owners and Payees:
The enclosed Notice of Special Meeting of Shareholders of Penn Series
Funds, Inc. and Proxy Statement concern proposals to be voted on by the
shareholders of Penn Series Funds, Inc. at the Special Meeting of Shareholders
scheduled to be held on April 16, 1998.
Shares of Penn Series Funds, Inc. are held by The Penn Mutual Life
Insurance Company ("Penn Mutual") and its subsidiary, The Penn Insurance and
Annuity Company, in separate accounts which they have established to fund
variable annuity contracts and variable life insurance policies.
Shares are held by Penn Mutual in Penn Mutual Variable Annuity Accounts I,
II and III and Penn Mutual Variable Life Account I pursuant to variable annuity
contracts and variable life policies. 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 are described in the
accompanying Notice of Special Meeting and Proxy Statement. 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
which is related to your interest therein as of the close of business on
February 26, 1998.
Please complete, date and sign the enclosed voting instruction form and
return the form to us promptly in the enclosed postage paid envelope. In order
to be given effect, your voting instructions must be received not later than
April 14, 1998.
Sincerely,
Richard F. Plush
Vice President
March 23, 1998
<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. and Proxy Statement concern proposals to be voted on by the
shareholders of Penn Series Funds, Inc. at the Special Meeting of Shareholders
scheduled to be held on April 16, 1998.
Shares of Penn Series Funds, Inc. are held by The Penn Insurance and
Annuity Company ("Penn Insurance") and its parent, The Penn Mutual Life
Insurance Company, in separate accounts which they have established to fund
variable annuity contracts and variable life insurance policies.
Shares are held by Penn Insurance in PIA Variable Annuity Account I
pursuant to variable annuity contracts. As owners or payees under the
contracts, you are entitled to instruct Penn Insurance as to the voting of
shares held in the separate account.
The proposals to be voted on at the meeting are described in the
accompanying Notice of Special Meeting and Proxy Statement. 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 subaccount which is related to
your interest therein as of the close of business on February 26, 1998.
Please complete, date and sign the enclosed voting instruction form and
return the form to us promptly in the enclosed postage paid envelope. In order
to be given effect, your voting instructions must be received not later than
April 14, 1998.
Sincerely,
Richard F. Plush
Vice President
March 23, 1998
<PAGE>
PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044
______________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 16, 1998
______________
A Special Meeting of Shareholders (the "Meeting") of Penn Series Funds,
Inc. (the "Company") will be held at the offices of The Penn Mutual Life
Insurance Company ("Penn Mutual") on Thursday, April 16, 1998, at 9:00 a.m.
(Eastern Time), in the Board Room, Third Floor, at 600 Dresher Road, Horsham,
Pennsylvania 19044.
At the Meeting, shareholders of Penn Series Funds, Inc. ("Shareholders")
will be asked to vote on the election of Directors for the Company, amendments
to the investment policies of certain of the Company's funds (each, a "Fund" and
together, the "Funds"), ratification of the selection of the Company's
independent public accountant, new investment advisory and investment sub-
advisory agreements for certain Funds, and other matters detailed below (the
"Proposals"). The enclosed voting instruction form permits the Shareholders of
each Fund to instruct Penn Mutual to vote for or against all proposals that
apply to that Fund by checking a single box, or to vote separately on each
applicable Proposal.
The Proposals are highlighted below and grouped in sections for ease of
identification.
SECTION I: Election of Board of Directors
PROPOSAL 1- Elect a Board of Directors of the Company.
SECTION II: Ratification of Selection of Independent Auditors
PROPOSAL 2- Approve Ernst & Young LLP as the Company's
Independent Auditors
SECTION III: Approval of Changes to Investment Policies of the Flexibly
Managed and High Yield Bond Funds
Proposals 3 through 8 relate to amending and updating the investment
policies of the Flexibly Managed and High Yield Bond Funds to provide investment
flexibility and to reflect recent changes in the law. The specifics of these
Proposals are as follows:
<PAGE>
PROPOSAL 3- Approve changes to the investment policies of the Flexibly
Managed Fund to apply the Fund's 10% limit on ownership of
voting securities of any issuer to 75% of the total assets of
the Fund, rather than 100% of total assets.
PROPOSAL 4- Approve changes in the investment policies of the High Yield
Bond Fund to apply the Fund's 5% limit on assets invested in
any one issuer and 10% limit on ownership of voting securities
of any issuer to 75% of the total assets of the Fund, rather
than 100% of total assets.
PROPOSAL 5- Approve changes to the investment policies of the Flexibly
Managed and High Yield Bond Funds to permit each Fund to
invest up to 15% of their respective net assets in illiquid
securities and change the policies from fundamental to non-
fundamental.
PROPOSAL 6- Approve changes in the investment policies of the Flexibly
Managed and High Yield Bond Funds to remove each Fund's
investment policy limiting investments in securities of
issuers which have been in operation for less than three years
to 5% of the total assets of the Fund.
PROPOSAL 7- Approve changes to the investment policies of the Flexibly
Managed and High Yield Bond Funds to permit the Funds to
invest in securities backed by real estate or in securities of
companies engaged in the real estate business.
PROPOSAL 8- Approve changes in the investment policies of the High Yield
Bond Fund to permit the Fund to invest up to 10% of its assets
in warrants to purchase common stocks and change the policy
regarding warrants from fundamental to non-fundamental.
SECTION IV: APPROVAL OF INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS AND APPROVAL OF INVESTMENT ADVISORY
AGREEMENT
Proposal 9 relates to the selection of Independence Capital Management,
Inc. ("ICMI") as investment adviser to the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond and International Equity Funds and approval of
a new Investment Advisory Agreement for each Fund. The specifics of this
Proposal are as follows:
PROPOSAL 9- Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and
International Equity Funds and approve the Investment Advisory
Agreement between the Company, on behalf of the Funds, and
ICMI.
<PAGE>
SECTION V: APPROVAL OF SUB-ADVISERS TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS AND APPROVAL OF SUB-ADVISORY
AGREEMENTS
Proposals 10 through 12 relate to the selection of T. Rowe Price
Associates, Inc. ("T. Rowe Price") as sub-adviser to the Flexibly Managed and
High Yield Bond Funds, OpCap Advisors ("OpCap") as sub-adviser to the Value
Equity and Small Capitalization Funds, and Vontobel USA Inc. ("Vontobel") as
sub-adviser to the International Equity Fund and the approval of a sub-advisory
agreement between ICMI and each sub-adviser. The specifics of these Proposals
are as follows:
PROPOSAL 10- Approve OpCap as investment sub-adviser to the Value Equity
Fund and Small Capitalization Funds, and approve a Sub-
Advisory Agreement between ICMI and OpCap.
PROPOSAL 11- Approve T. Rowe Price as investment sub-adviser to the
Flexibly Managed and High Yield Bond Funds, and approve a
Sub-Advisory Agreement between ICMI and T. Rowe Price.
PROPOSAL 12- Approve Vontobel as investment sub-adviser to the
International Equity Fund, and approve a Sub-Advisory
Agreement between ICMI and Vontobel.
Shareholders of record at the close of business on February 26, 1998 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
March [23], 1998
<PAGE>
PROXY STATEMENT
PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044
______________
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1998
______________
This proxy statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of the Penn Series Funds, Inc. (the
"Company") of voting instructions to be voted at a Special Meeting of
Shareholders and all adjournments thereof (the "Meeting"), to be held at the
offices of The Penn Mutual Life Insurance Company, Board Room, Third Floor, 600
Dresher Road, Horsham, Pennsylvania on Thursday, April 16, 1998 at 9:00 a.m.
(Eastern Time). The approximate mailing date of this proxy statement and the
accompanying voting instruction form is March [23], 1998.
The purpose the Meeting is to allow Shareholders of the Company to (1)
elect a Board of Directors; (2) ratify the selection of Ernst & Young LLP as the
Company's independent auditors; (3) approve changes to the investment policies
of the Flexibly Managed and High Yield Bond Funds; (4) approve the selection of
Independence Capital Management, Inc. ("ICMI") as investment adviser to the
Value Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds and approve an Investment Advisory Agreement between
the Company, on behalf of the Funds, and ICMI; and (5) approve the selection of
T. Rowe Price Associates, Inc. ("T. Rowe Price") as sub-adviser to the Flexibly
Managed and High Yield Bond Funds, OpCap Advisors ("OpCap") as sub-adviser to
the Value Equity and Small Capitalization Funds, and Vontobel USA Inc.
("Vontobel") as sub-adviser to the International Equity Fund and approve a Sub-
Advisory Agreement between ICMI and each sub-adviser.
The Proposals contained in Sections I and II of this Proxy Statement must
be acted upon by all Shareholders of the Company. The Proposals contained in
Section III must be acted upon by the Shareholders of the Flexibly Managed and
High Yield Bond Funds voting separately. The Proposals in Sections IV and V
must be acted upon the Shareholders of the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond, and International Equity Funds voting
separately.
1
<PAGE>
The summary voting tables below set forth the action required by
Shareholders of the Company:
Section I: Election of Board of Directors
Proposal Number Fund
--------------- ----
1 All Funds
Section II: Ratification of Selection of Independent Auditors
Proposal Number Fund
--------------- ----
2 All Funds
Section III: Approval of Changes to Investment Policies
of the Flexibly Managed and High Yield Bond Funds
Proposal Number Fund
--------------- ----
3 Flexibly Managed
4 High Yield Bond
5 Flexibly Managed & High Yield Bond
6 Flexibly Managed & High Yield Bond
7 Flexibly Managed & High Yield Bond
8 High Yield Bond
Section IV: Approval of Investment Adviser to the Value Equity,
Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds and Approval
of Investment Advisory Agreement
Proposal Number Fund
--------------- ----
9 Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond &
International Equity
Section V: Approval of Sub-Advisers to the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond and International Equity Funds
and Approval of Sub-Advisory Agreements
Proposal Number Fund
--------------- ----
10 Value Equity & Small Capitalization
11 Flexibly Managed & High Yield Bond
12 International Equity
FOR THOSE SHAREHOLDERS WHO WISH TO VOTE FOR OR AGAINST ALL OF THE PROPOSALS TO
WHICH HIS OR HER SHARES RELATE, THE ACCOMPANYING VOTING INSTRUCTION FORM MAY BE
COMPLETED BY CHECKING A SINGLE BOX. HOWEVER, THE VOTING INSTRUCTION FORM ALSO
SETS FORTH EACH APPLICABLE PROPOSAL, WHICH CAN BE VOTED ON SEPARATELY.
-2-
<PAGE>
The Company will furnish, without charge, a copy of its most recent Annual
Report to Shareholders upon request. Requests should be directed to the Company
at The Penn Mutual Life Insurance Company, Customer Service Group, Philadelphia,
PA 19172 or by calling 1-800-523-0650.
The record date for determining Shareholders entitled to vote at the
Meeting is February 26, 1998. The following table sets forth the net assets and
approximate number of shares issued and outstanding for each fund of the Company
(each, a "Fund" and together, the "Funds") as of the close of business on
February 26, 1998.
<TABLE>
<CAPTION>
Fund Net Assets Shares Outstanding
---- ---------- ------------------
<S> <C> <C>
Growth Equity $147,669,690.29 5,564,042.588
Value Equity $325,692,211.40 13,593,164.082
Small Capitalization $ 42,738,054.90 2,813,565.168
Emerging Growth $ 21,797,403.38 1,498,103.325
Flexibly Managed $539,025,260.84 26,422,806.904
International Equity $140,392,311.82 7,995,006.368
Quality Bond $ 41,437,939.89 3,992,094.402
High Yield Bond $ 62,583,066.94 6,366,537.837
Money Market $ 38,787,077.18 38,787,077.180
</TABLE>
Each share is entitled to one vote on each matter to which such shares are
to be voted at the Meeting. 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 one or more of the Funds in one or more of the
following separate accounts: Penn Mutual Variable Annuity Account I, II, and
III, Penn Mutual Variable Life Account I, and PIA Variable Annuity Account I.
The Funds are held as investment vehicles for variable annuity contracts and
variable life insurance policies.
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.
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.
-3-
<PAGE>
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.
SECTION I: ELECTION OF BOARD OF DIRECTORS
PROPOSAL 1: ELECT BOARD OF DIRECTORS OF THE COMPANY
At the Meeting, it is proposed that seven Directors be elected to hold
office until their successors are duly elected and qualified. Shareholders are
being asked to elect Eugene Bay, Robert E. Chappell, James S. Greene, William H.
Loesche, Jr., Larry L. Mast, Daniel J. Toran and M. Donald Wright, as Directors
of the Company (each, a "Nominee" and collectively, the "Nominees"). Messrs.
Bay, Greene, Loesche, and Wright are currently members of the Board. Messrs.
Loesche, Wright, and Greene were elected to the Board by a vote of Shareholders
on October 15, 1992. Mr. Bay was appointed to the Board on February 2, 1993.
Messrs. Chappell, Mast, and Toran have not previously served on the Board.
The Proposal to elect a Board of Directors is being presented for
Shareholder approval pursuant to the requirements under the 1940 Act. Each of
the Nominees has consented to being named in this Proxy Statement and to serving
as Director if elected. The Company knows of no reason why any Nominee would be
unable or unwilling to serve as Director if elected.
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Company, length of service with the Company,
principal occupation or employment during the past five years, and directorships
with other companies that periodically file reports with the Securities and
Exchange Commission. No Nominee owns shares of the Company.
-4-
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS PENN SERIES DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Eugene Bay Director Senior Pastor, Bryn Mawr
121 Fishers Road since 1993 Presbyterian Church, Bryn Mawr,
Bryn Mawr, PA 19010 PA.
Robert E. Chappell* Nominee
The Penn Mutual Life Chairman of the Board and Chief
Insurance Company Executive Officer (since December
600 Dresher Road 1996), President and Chief
Horsham, PA 19044 Executive Officer (April 1995 -
December 1996), President and
Chief Operating Officer (January
1994 to April 1995), The Penn
Mutual Life Insurance Company);
Executive Vice President,
(January 1992 to December 1993);
Chairman of the Board (June 1991
to January 1992), Chairman,
President and Chief Executive
Officer, PNC Bank (prior thereto).
James S. Greene Director since Retired: Vice President and
P.O. Box 3761 1992 Director, International Raw
Vero Beach, FL 32964-3761 Materials, Inc., Philadelphia, PA
(commodities trading), prior to
September 1990.
William H. Loesche, Jr. Director since Retired; Adviser (since April
100 Gray's Lane 1985 1988), Director (prior thereto),
Apt. 101 Keystone Insurance Company and
Haverford, PA 19041 Keystone Automobile Club,
Philadelphia, PA.
Larry L. Mast* Nominee Executive Vice President, The
The Penn Mutual Life Penn Mutual Life Insurance
Insurance Company Company May 1997 to present;
600 Dresher Road Senior Vice President, Lafayette
Horsham, PA 19044 Life Insurance Company, September
1994 to May 1997; Vice President,
Security Benefit Insurance
Company, May 1993 to September
1994; Vice President, Home Life
Insurance Company, July 1990 to
May 1993; Agency Manager, The
Equitable Life Insurance Company,
August, 1978 to July 1990.
Daniel J. Toran* Nominee President and Chief Operating
The Penn Mutual Life Officer (January 1997 to
Insurance Company present); Executive Vice
600 Dresher Road President, Sales and Marketing
Horsham, PA 19044 (May 1996 to January 1997), The
Penn Mutual Life Insurance
Company; Executive Vice
President, The New England Mutual
Life Insurance Company, prior
thereto.
M. Donald Wright Director since President, M. Donald Wright
100 Chetwynd Drive 1988 Professional Corporation, Bryn
Rosemont, PA 19010 Mawr, PA (financial planning and
consulting); Director, Graduate
School of Financial Services, The
American College, since April
1991.
</TABLE>
________________
* Denotes a person that is an "interested person" as that term is defined
in the 1940 Act.
-5-
<PAGE>
COMPENSATION OF DIRECTORS
Each Director who is not an "interested person" as that term is defined in
the 1940 Act (an "Independent Director") receives an aggregate annual fee from
the Company. In the fiscal year ended December 31, 1997, the Company paid
directors' fees in the aggregate amount of $47,500 to each Independent Director.
The Company has made no provision for the payment of retirement or pension
benefits to any Director. For the fiscal year ended December 31, 1997,
Independent Directors' fees attributable to the assets of the Fund totaled
[$insert].
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
There were five meetings of the Board held during the fiscal year ended
December 31, 1997. In such fiscal year, all Directors, except for Mr. Bay,
attended at least 75% of the meetings of the Board held during their respective
terms.
The Board has an Executive Committee. The Executive Committee meets during
intervals between meetings of the Board as may be necessary. The members of the
Executive Committee for the fiscal year ended December 31, 1997 were Messrs.
Illoway, Greene, and Richard J. Liburdi, formerly a Director of the Company.
The Executive Committee did not meet during the fiscal year ended December 31,
1997.
The Board has an Audit Committee. The Audit Committee makes
recommendations to the full Board with respect to the engagement of independent
accountants, and reviews, with the independent accountants, the results of the
audit engagement and the financial operations of the Company. The members of
the Audit Committee during the fiscal year ended December 31, 1997 were Messrs.
Wright, Greene, and Loesche. In the fiscal year ended December 31, 1997, the
Audit Committee met three times. In such fiscal year, all members attended at
least 75% of the meetings of the Audit Committee.
BOARD APPROVAL OF ELECTION OF DIRECTORS
At a meeting of the Board of Directors held on February 9, 1998, the Board
of Directors recommended that Shareholders vote FOR each of the Nominees for
Director named herein. In recommending that Shareholders elect the Nominees as
Directors of the Company, the Board considered the Nominees' experience and
qualifications.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
---
SECTION II: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
-6-
<PAGE>
PROPOSAL 2: APPROVAL OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS
The Board selected Ernst &Young LLP ("E&Y") as the Company's independent
auditors for the fiscal year ending December 31, 1998 at its meeting held on
February 9, 1998 and recommends that Shareholders vote to approve the selection
of E&Y.
Coopers & Lybrand L.L.P. served as independent public accountants of the
Company for its fiscal year ended December 31, 1996 and for its prior fiscal
years. In 1997 the Company decided that it would be in the interests of
Shareholders to engage new independent public accountants to audit its financial
statements. Discussions took place with Coopers & Lybrand L.L.P. and the Firm
resigned on cordial terms. The decision to change accountants was recommended
by the Audit Committee and approved by the full Board. There were no
disagreements with C&L on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure during the past
two fiscal years (or any subsequent interim period) such that if not resolved
the disagreement would have caused C&L to make reference to the disagreement in
its report. The report of C&L on the financial statements for each of the past
two fiscal years was not adverse or qualified or modified in any way.
During the past two fiscal years and any subsequent interim period neither
C&L nor E&Y advised the Company that, (a) the internal controls necessary for
the Company to develop reliable financial statements do not exist, (b)
information has come to its attention that it has led it no longer to rely on
management representations or that it has made it unwilling to be associated
with financial statements prepared by management, (c) the scope of the audit
needs to be expanded, or that information has come to its attention that, if
further investigated, may materially impact the fairness or reliability of a
previous report or the underlying financial statements, or financial statements
to be issued, or its willingness to rely on management's representations or to
be associated with the financial statements, (d) information has come to its
attention that materially impacts the fairness or reliability of a previously
issued report or financial statements, or financial statements issued or to be
issued for a subsequent period to be covered by its report (including
information that, unless resolved to C&L's or E&Y's satisfaction, would prevent
it from issuing an unqualified report).
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 2.
---
SECTION III: APPROVAL OF CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS
-7-
<PAGE>
Proposals 3 through 8 relate to certain changes to the fundamental
investment policies of the Flexibly Managed and High Yield Bond Funds. The
Board recommends the modification or elimination of some of the Funds'
fundamental policies in order to (1) update the policies to reflect changes in
the law and other regulatory developments and provide the Funds with flexibility
to adapt to developments in the securities markets. The changes to a Fund's
fundamental policies will become effective immediately upon Shareholder
approval. For each Fund, if a Proposal is not approved by a vote of
Shareholders of the Fund, the current policy as applied to the Fund will remain
unchanged. Each Fund's investment objective, as distinguished from its
investment policies, will not be changed.
PROPOSAL 3: APPROVE CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED FUND TO APPLY THE FUND'S 10% LIMIT ON OWNERSHIP OF VOTING
SECURITIES OF AN ISSUER TO 75% OF THE TOTAL ASSETS OF THE FUND,
RATHER THAN 100% OF TOTAL ASSETS.
At the Meeting, Shareholders of the Flexibly Managed Fund will vote on a
change that would apply the Fund's 10% limit on the ownership of outstanding
voting securities of any one issuer to 75% of the Fund's assets. The Fund's
current investment policy states:
The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result, (a) PERCENT LIMIT ON
ASSETS INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase
agreements with any one issuer); (b) PERCENT LIMIT ON SHARE OWNERSHIP OF
ANY ONE ISSUE. More than 10% of the outstanding voting securities of any
issuer would be held by the Fund.
Subject to Shareholder approval, the Company intends to replace the Fund's
current fundamental policy with the following:
The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result: (a) PERCENT LIMIT ON
ASSETS INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase
agreements with any one issuer); (b) PERCENT LIMIT ON SHARE OWNERSHIP OF
ANY ONE ISSUE. With respect to 75% of the Fund's total assets, more than
10% of the outstanding voting securities of any issuer would be held by the
Fund.
As revised, this policy will conform to the diversification requirements of
the 1940 Act. If the Proposal is approved, the Fund would be required to invest
75% of its total assets so that no
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<PAGE>
more than 10% of the voting securities of any such issuer. The 10% limitation on
the voting securities of any issuer previously applied to all of the Fund's
assets, but under the proposed amended limitation will apply only to 75% of the
Fund's assets. As to the remaining 25% of total assets, there would be no direct
limitation on the amount of voting securities of a single issuer that the Fund
could hold. Having increased flexibility to acquire larger positions in the
securities of individual issuers may provide opportunities to enhance the Fund's
performance.
Under the proposed amendments to the Fund's fundamental limitation on
diversification, the Fund will continue to conform to the "diversification"
requirements for regulated investment companies under the Internal Revenue Code
of 1986, as amended (the "Code"). If the Proposal is approved, the new
fundamental diversification limitation may not be changed without a vote of
Shareholders of the Fund. Adoption of the proposed limitation regarding
diversification is not expected to have any immediate effect on the way the Fund
is managed, the investment performance of the Fund, or the instruments in which
it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 3.
---
PROPOSAL 4: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE HIGH YIELD
BOND FUND TO APPLY THE FUND'S 5% LIMIT ON ASSETS INVESTED IN ANY
ONE ISSUER AND 10% LIMIT ON OWNERSHIP OF VOTING SECURITIES OF AN
ISSUER TO 75% OF THE TOTAL ASSETS OF THE FUND, RATHER THAN 100%
OF TOTAL ASSETS.
At the Meeting, Shareholders of the High Yield Bond Fund will vote on a change
that would apply the Fund's 5% limit on assets invested in any one issuer and
the Fund's 10% limit on ownership of voting securities of any one issuer to 75%
of the Fund's assets. The Fund's current fundamental investment policy states:
The High Yield Bond Fund may not: (1) purchase the securities of any issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (a) Percent Limit on Assets
Invested in Any One Issuer. More than 5% of the value of the Fund's total
assets would be invested in the securities of a single issuer (including
repurchase agreements with any one issuer); (b) Percent Limit on Share
Ownership of Any One Issue. More than 10% of the outstanding voting
securities of any issuer would be held by the Fund.
Subject to Shareholder approval, the Company intends to replace the Fund's
current fundamental policy with the following:
The High Yield Bond Fund may not: (1) purchase the securities of any issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (a) PERCENT LIMIT ON ASSETS
INVESTED IN ANY ONE
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<PAGE>
ISSUER. With respect to 75% of the Fund's total assets, more than 5% of the
value of the Fund's total assets would be invested in the securities of a
single issuer (including repurchase agreements with any one issuer); (b)
PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE. With respect to 75% of
the Fund's total assets, more than 10% of the outstanding voting securities
of any issuer would be held by the Fund.
As revised, this policy will conform to the diversification requirements of
the 1940 Act. If the Proposal is approved, the Fund would be required to invest
75% of its total assets so that no more than 5% of total assets would be
invested in any one issuer, and so that the Fund owned no more than 10% of the
voting securities of any such issuer. These limitations previously applied to
all of the Fund's assets, but under the proposed amended limitation will apply
only to 75% of the Fund's assets. As to the remaining 25% of total assets,
there would be no direct limitation on the amount of assets the Fund could
invest in any single issuer or the amount of voting securities of a single
issuer that the Fund could hold. Having increased flexibility to acquire larger
positions in the securities of individual issuers may provide opportunities to
enhance the Fund's performance. At the same time, investing a larger percentage
of a the Fund's assets in a single issuer's securities increases the Fund's
exposure to credit and other risks associated with that issuer's financial
condition and business operations, including market risk and the risk of
bankruptcy or default.
Under the proposed amendments to the Fund's fundamental limitation on
diversification, the Fund will continue to conform to the "diversification"
requirements for regulated investment companies under the Code. If the Proposal
is approved, the new fundamental diversification limitation may not be changed
without a vote of Shareholders of the Fund. Adoption of the proposed limitation
regarding diversification is not expected to have any immediate effect on the
way the Fund is managed, the investment performance of the Fund, or the
instruments in which it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 4.
---
PROPOSAL 5: APPROVE CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS TO PERMIT EACH FUND TO INVEST
UP TO 15% OF THEIR RESPECTIVE NET ASSETS IN ILLIQUID SECURITIES
AND CHANGE THE POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL.
At the Meeting, the Shareholders of the Flexibly Managed Fund and the High
Yield Bond Fund will vote on proposals to approve an increase in the amount of
their respective net assets that each Fund may invest in illiquid securities and
reclassify the policies from fundamental to non-fundamental.
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<PAGE>
The Flexibly Managed Fund's current policy states that the Fund may not:
Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in (a) securities with legal or
contractual restrictions on resale; (b) repurchase agreements maturing in
more than seven (7) days; and (c) other securities that are not readily
marketable.
Similarly, the High Yield Bond Fund's current policy states that the Fund
may not:
Invest more than 10% of the value of its total assets in repurchase
agreements maturing in more than seven days and restricted securities,
illiquid securities, and securities without readily available market
quotations.
Subject to Shareholder approval, the Company intends to change each Fund's
policy concerning investing in illiquid securities from a fundamental policy to
a non-fundamental policy and to amend the policy to state that the Fund may not:
Invest more than 15% of the value of its net assets in repurchase
agreements maturing in more than seven days and restricted securities,
illiquid securities, and securities without readily available market
quotations.
As revised, this policy will reflect current interpretations under the 1940
Act which permit open-end management investment companies, such as the Flexibly
Managed and High Yield Bond Funds, to invest up to 15% of their net assets in
illiquid securities. If the Proposal is approved, the Flexibly Managed Fund and
High Yield Bond Fund, respectively, would be able to invest up to 15% of their
net assets in illiquid securities rather than 10% of their total assets.
Increasing each Fund's ability to invest in illiquid securities will conform
each Fund's investment policy to current regulatory interpretations. In
addition, an increase in the Funds' limitation on illiquid securities will
provide increased investment flexibility and may provide opportunities to
enhance each Fund's performance. Investing a larger percentage of each Fund's
asset in illiquid securities may, of course, increase a Fund's exposure to risks
associated with such securities, including the risk that a Fund will be unable
to sell a security at an opportune time and thus causing the security to be
viewed as a speculative investment.
The Company proposes to change the policies from fundamental policies to
non-fundamental policies to give the Board the flexibility to change the
policies in the future as it deems appropriate in the interest of investors in
the Funds.
Adoption of the proposed policy on illiquid securities is not expected to
affect, in the foreseeable future, the manner in which the Flexibly Managed or
High Yield Bond Funds are managed, the investment performance of the Funds, or
the instruments in which they invest.
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<PAGE>
Shareholders of the Flexibly Managed Fund and Shareholders of the High
Yield Bond Fund are entitled to vote on Proposal 5. The Proposal will be
approved with respect to each Fund, regardless of whether the Shareholders of
the other Fund approve the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 5.
---
PROPOSAL 6: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS TO REMOVE EACH FUND'S
INVESTMENT POLICY LIMITING INVESTMENTS IN SECURITIES OF ISSUERS
WHICH HAVE BEEN IN OPERATION FOR LESS THAN THREE YEARS TO 5% OF
THE TOTAL ASSETS OF THE FUND.
At the Meeting, Shareholders of the Flexibly Managed Fund and Shareholders
of the High Yield Bond Fund will vote on removing their respective fundamental
investment policy which requires their Fund to limit its investments in
securities of issuers which have been in operation for less than three years to
5% of its total assets. Each Fund's current policy states that the Fund may not
purchase the securities of any one issuer (other than obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities) if, as a
result:
More than 5% of the value of the Fund's total assets would be invested in
the securities of issuers which at the time of purchase had been in
operation for less than three years, including predecessors and
unconditional guarantors.
Subject to Shareholder approval, this fundamental investment policy would
be eliminated from the investment policies of each Fund.
The primary purpose of this Proposal is to update the Flexibly Managed and
High Yield Bond Funds' investment policies in light of recent changes in the
law. Each Fund's fundamental policy was originally adopted to be consistent
with state securities ("blue sky") regulations, which placed limits on the
amounts of certain types of securities tha a mutual fund could purchase. Recent
federal legislation eliminated state regulatory requirements including the
requirement embodied in these investment policies. If the Proposal is approved,
each of the Flexibly Managed and High Yield Bond Funds will be able to invest
more than 5% of their respective total assets in newly formed or "unseasoned"
issuers. Eliminating this fundamental policy will conform the Flexibly Managed
and High Yield Bond Fund's investment policies to the requirements of current
federal law. In addition, eliminating this policy will provide increased
investment flexibility and may provide opportunities to enhance a Fund's
performance. While removal of the restrictive investment policy will permit each
Fund to invest an unlimited amount of its respective assets in newly formed or
"unseasoned companies," the investment
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<PAGE>
adviser and sub-adviser will exercise care, consistent with the Fund's
investment objectives and policies, in investing any of a Fund's assets in such
securities.
Elimination of this fundamental policy is not expected to affect, in the
foreseeable future, the manner in which the Flexibly Managed and High Yield Bond
Funds are managed, the investment performance of the Funds, or the instruments
in which they invest.
Shareholders of the Flexibly Managed Fund and Shareholders of the High
Yield Bond Fund are entitled to vote on Proposal 6. The Proposal shall be
approved with respect to each Fund, regardless of whether the Shareholders of
the other Fund approve the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 6.
---
PROPOSAL 7: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS TO PERMIT THE FUNDS TO INVEST
IN SECURITIES BACKED BY REAL ESTATE OR IN SECURITIES OF COMPANIES
ENGAGED IN THE REAL ESTATE BUSINESS.
At the Meeting, Shareholders of the Flexibly Managed and High Yield Bond
Funds will vote on amending each Fund's investment policy concerning real estate
to permit the Funds to purchase securities backed by real estate or in
securities of companies engaged in the real estate business. Each Fund's
current investment policy states that the Fund may not:
Purchase or sell real estate (although it may purchase money market
securities secured by companies which invest in real estate interests
therein).
Subject to Shareholder approval, each Fund's investment policy would state
that the Fund may not:
Purchase or sell real estate, including limited partnership interests
therein, unless acquired as a result of ownership of securities or
other instruments (this restriction shall not prevent the Fund from
investing in securities of other instruments backed by real estate or
in securities of companies engaged in the real estate business).
The primary purpose of this Proposal is to provide the Funds with increased
investment flexibility. Currently, the Funds may not invest in real estate,
with the limited exception of money market instruments secured by companies,
which invest in real estate. Under the Proposal, the Funds would still be
prohibited from direct investments in real estate, but would be allowed to
invest in securities backed by real estate, or in the securities of companies
engaged in the real estate industry. The Proposal would enhance investment
flexibility in several ways. First, it would permit the Funds to acquire a wide
variety of securities or other instruments, not
-13-
<PAGE>
only money market securities, that are secured by a mortgage or other right to
foreclose on real estate. Second, the Proposal would clarify that the Funds may
invest in securities issued or guaranteed by companies engaged in acquiring,
constructing, financing, developing, or operating real estate projects. Any
investments in these securities or other instruments are, of course, subject to
each Fund's investment objectives and policies. This increased flexibility may
provide the Funds with increased opportunities to enhance performance. At the
same time, to the extent that the Funds invest to a greater degree in real
estate related securities, the Funds' exposure to the risks of the real estate
market will be increased.
Adoption of the proposed policies is not expected to affect, in the
foreseeable future, the manner in which the Funds are managed, the investment
performance of the Funds, or the instruments in which they invest. If the
Proposal is approved, the new fundamental policies cannot be changed without a
future vote of Shareholders.
Shareholders of the Flexibly Managed Fund and Shareholders of the High
Yield Bond Fund are entitled to vote on Proposal 7. The Proposal shall be
approved with respect to each Fund, regardless of whether the Shareholders of
the other Fund approve the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 7.
---
PROPOSAL 8: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE HIGH YIELD BOND
FUND TO PERMIT THE FUND TO INVEST UP TO 10% OF ITS ASSETS IN
WARRANTS TO PURCHASE COMMON STOCKS AND CHANGE THE POLICY FROM
FUNDAMENTAL TO NON-FUNDAMENTAL.
At the meeting, Shareholders of the High Yield Bond Fund will vote on
increasing the Fund's percentage limit on warrants to 10%. The High Yield Bond
Fund's fundamental policy states that the Fund may not:
Invest more than 20% of the Fund's total assets in common stocks (including
up to 5% in warrants):
Subject to Shareholder approval, the High Yield Bond Fund's investment
policy would be reclassified as non-fundamental and read as follows:
Invest more than 20% of the Fund's total assets in common stocks (including
up to 10% in warrants).
The primary purpose of this Proposal is to update the High Yield Bond
Fund's investment policies in light of recent changes in the law. The 5% limit
on the purchase of warrants contained in this policy was originally adopted to
be consistent with state "blue sky" regulations,
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<PAGE>
which placed limits on the amounts of certain types of securities that a mutual
fund could purchase. Recent federal legislation eliminated state regulatory
requirements, including the percentage limitations contained in this policy. If
the Proposal is approved, the High Yield Bond Fund will be able to invest up to
10% of its total assets in warrants. The Fund's management has no present
intention to purchase equity securities or securities convertible into equities.
However, the Fund's management believes that a 10% limit on warrants, a form of
equity security, provides the appropriate flexibility for a fixed income fund,
such as the High Yield Bond Fund. Increasing this limitation to 10% will
increase investment flexibility and may provide opportunities to enhance the
Fund's performance.
The Company proposes to change the policy from a fundamental policy to a
non-fundamental policy to give the Board additional flexibility to change the
policy in the future as it deems appropriate in the interest of investors in the
Fund.
Adoption of the proposed policy on warrants is not expected to affect, in
the foreseeable future, the manner in which the High Yield Bond Fund is managed,
the investment performance of the Fund, or the instruments in which it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 8.
---
SECTION IV: APPROVAL OF INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS AND APPROVAL OF INVESTMENT ADVISORY
AGREEMENT
PROPOSAL 9: APPROVE ICMI AS INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS, AND APPROVE THE INVESTMENT ADVISORY
AGREEMENT
The Board recommends that Shareholders of each of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds approve ICMI as the investment adviser to the Funds and approve the
proposed Investment Advisory Agreement (the "Proposed ICMI Advisory Agreement")
between the Company and ICMI relating to the Funds (attached hereto as Exhibit A
to this Proxy Statement). The Directors of the Company, including the
Independent Directors, approved the Proposed ICMI Advisory Agreement at a
meeting held on February 9, 1998.
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<PAGE>
Other than the identity of the investment adviser, there are no material
differences between the Proposed ICMI Advisory Agreement and the current
investment advisory agreements of the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond and International Equity Funds. Under the
Proposed ICMI Advisory Agreement, ICMI will serve as investment adviser to the
Funds. Subject to shareholder approval, ICMI will, in turn, delegate various
investment advisory duties to each of the Fund's current investment adviser as
sub-adviser (the "Sub-Advisers"). The Sub-Advisers will be responsible for the
day-to-day investment management of the Fund. ICMI will have general oversight
responsibility for the investment advisory services, including formulating
investment policies and analyzing economic trends that may affect the Funds, and
directing and evaluating the investment management services rendered by the Sub-
Advisers. ICMI will be compensated at the same rate of compensation as the
Funds' current investment advisers. ICMI, in turn, will compensate the Sub-
Advisers out of its advisory fee. Accordingly, the overall cost to each Fund of
advisory and management services will not increase.
The Proposed ICMI Advisory Agreement. ICMI will serve as investment
adviser and supervise and direct the investments of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity Funds
in accordance with the investment objectives, program and restrictions
applicable to each Fund as provided in the Company's then-current Prospectus and
Statement of Additional Information. In providing these investment advisory
services, ICMI will obtain and evaluate information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations and will 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, ICMI, is authorized, in its discretion to buy, sell,
exchange, convert, lend, and otherwise trade in any stocks, bonds, and other
securities or assets and 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 ICMI may select. ICMI is authorized to
employ, retain, or otherwise avail itself of a sub-adviser or sub-advisers to
assist it in performing its duties and meeting its responsibilities and may
delegate to such sub-advisers duties assumed by ICMI under the Proposed ICMI
Advisory Agreement.
The Proposed ICMI Advisory Agreement will begin on or about May 1, 1998
and, unless sooner terminated, it shall remain in effect until two years from
date of execution. Thereafter, it will continue in effect from year to year
with respect to each Fund, subject to the termination provisions and all other
terms and conditions, so long as such continuation shall be specifically
approved at least annually (a) by either the Board, or by a vote of a majority
of the outstanding voting securities of the series of shares of the Company
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 Independent Directors. The Proposed ICMI Advisory Agreement may
be terminated by the Company or by ICMI with respect to any Fund, without the
payment of any penalty, upon 60 days' prior notice in writing from the Company
to ICMI, or upon 90 days' prior notice in writing from ICMI to the Company;
provided, that in the case of termination by
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<PAGE>
the Company, such action shall have been authorized by the Independent
Directors, or by vote of a majority of the outstanding voting securities of the
series of shares of the Company representing interests in the affected Fund. The
Proposed ICMI Advisory Agreement will automatically terminate in the event of an
assignment.
Advisory Fees and Expense Limitations. The terms of the Proposed ICMI
Advisory Agreement provide that ICMI will receive a fee accrued daily and paid
monthly as follows: 0.50% of the respective average daily net assets of the
Value Equity, Small Capitalization, Flexibly Managed and High Yield Bond Funds
and 0.75% of the average daily net assets of the International Equity Fund. The
expense limitations of the Funds as a percentage of each Fund's average daily
net assets are as follows: Value Equity Fund, Small Capitalization Fund,
Flexibly Managed Fund, 1.00%, International Equity Fund, 1.50% and High Yield
Bond Fund, 0.90%. The rates of compensation to be paid to ICMI are identical to
the rates of compensation contained in the Funds' current investment advisory
agreements. The expense limitation provisions contained in the Proposed ICMI
Advisory Agreement are substantially similar to those contained in the Funds'
current investment advisory agreements.
With respect to each of the Value Equity, Small Capitalization and
International Equity Funds, to the extent that a 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 accounting,
administrative and corporate services fees before any adjustment pursuant to
this provision) exceed the expense limitation for the Fund in an amount up to
and including .10% of the average daily net assets of the Fund, such excess
amount shall be a liability of ICMI to the Fund. The liability (if any) of ICMI
to pay the Fund such excess amount shall be determined on a daily basis. If, at
the end of each month, there is any liability of ICMI to the Fund such excess
amount, the advisory fee shall be reduced by such liability. If, at the end of
each month, there is no liability of ICMI to pay the Fund 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 ICMI and
shall be payable by the Fund to ICMI along with the advisory fee payable to ICMI
for that month. To the extent such total expenses exceed 10% of the average
daily net assets of a Fund, Penn Mutual, Administrator and Corporate Services
Agent for each Fund, will waive its fees or reimburse such Fund for any such
excess.
With respect to each of the Flexibly Managed and High Yield Bond Funds, to
the extent that a 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 accounting 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 ICMI to the Fund. The liability (if any) of ICMI to pay the Fund
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 ICMI to pay the Fund such excess
amount, the advisory fee shall be reduced by such liability. If, at the end of
each month, there is no liability of ICMI to pay the Fund such
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<PAGE>
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 ICMI and shall be payable by the Fund to ICMI along with the
advisory fee payable to ICMI for that month. If, at the end of the fiscal year,
there is any remaining liability of ICMI to pay the Fund such excess amount
(which has not been paid through reduction of the advisory fee), ICMI shall
remit to the Fund an amount sufficient to pay such remaining liability. Penn
Mutual, Administrative and Corporate Services Agent, will waive fees or
reimburse the Funds for the other half of any such excess.
Description of the Investment Adviser. ICMI is a wholly-owned subsidiary
of Penn Mutual, a life insurance company that has been in the insurance and
investment business since the late 1800s. As of December 31, 1997, Penn Mutual
and its subsidiaries had assets under management of over $8 billion. ICMI was
organized in June 1989 and, in addition to serving as investment adviser to
certain of the Company's Funds (see below), also serves as investment adviser to
corporate and pension fund accounts. Its offices are located at 600 Dresher
Road, Horsham, Pennsylvania 19044. As of December 31, 1997, ICMI serves as
investment adviser for over $400 million of investment assets.
Listed below are the names of the directors and the principal executive
officer of ICMI. The principal business address of each director and the
principal executive officer, as it relates to their duties at ICMI, is 600
Dresher Road, Horsham, Pennsylvania 19044.
Name Title
---- -----
Peter M. Sherman Chairman, President & Chief Executive Officer
Robert E. Chappell Director
Richardson T. Merriman Director & Senior Vice President
ICMI serves as investment adviser to the Growth Equity, Quality Bond, and
Money Market Funds pursuant to an investment advisory agreement dated November
1, 1992 and to the Emerging Growth Fund pursuant to an investment advisory
agreement dated April 15, 1997. For management services provided to the Growth
Equity, Quality Bond, and Money Market Funds, ICMI is entitled to a fee paid
monthly at an annual rate of 0.50%, 0.45%, and 0.40%, respectively, of each
Fund's respective average daily net assets. For management services provided to
the Emerging Growth Fund, ICMI receives a fee paid monthly at the following
annual rate: (i) 0.80% of the first $25,000,000 of average daily net assets of
the Fund; (ii) 0.75% of the next $25,000,000 of average daily net assets of the
Fund; and (iii) 0.70% of average daily net assets in excess of $50,000,000. In
the fiscal year ended December 31, 1997, the Company paid ICMI the following
investment advisory fees:
Fund Fee Paid
---- --------
Growth Equity $600,772
Emerging Growth $ 50,608*
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<PAGE>
Quality Bond $164,758
Money Market $148,226
--------
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997 and net of fee waivers of $9,862.
Directors' Consideration. At a meeting held on February 9, 1998, the
Board reviewed ICMI's qualifications to act as investment adviser for the Value
Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds. In recommending that Shareholders approve the
Proposed ICMI Advisory Agreement, the Directors evaluated ICMI's investment
personnel and the quality of services ICMI is expected to provide to the Value
Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds, as well as other factors relating to ICMI's
provision of investment advisory services including, but not limited to (1) the
nature and quality of the services expected to be rendered by ICMI; (2) the
distinct investment objectives and policies of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity
Funds; (3) the fact that the compensation paid to ICMI will be at the same rate
as that paid under the current investment advisory agreements for the Funds; (4)
the performance of the Funds currently advised by ICMI; (5) the history,
reputation, qualification and background of ICMI as well as the qualification of
its personnel and its financial condition; and (6) other factors deemed
relevant.
In the event Shareholders of any of the Funds do not approve the selection
of ICMI as investment adviser and the Proposed ICMI Investment Agreement, the
Fund's current Investment Advisory Agreement will continue and Directors will
consider the appropriate course of action.
INFORMATION CONCERNING THE CURRENT INVESTMENT ADVISORY AGREEMENTS
OpCap Advisory Agreement
------------------------
OpCap currently provides investment advisory services to the Value Equity
and Small Capitalization Funds pursuant to an investment advisory agreement
between OpCap and the Company ("OpCap Advisory Agreement") dated November 5,
1997. The OpCap Advisory Agreement was last approved by Shareholders of the
Value Equity and Small Capitalization Fund on October 10, 1997. The OpCap
Advisory Agreement was most recently approved for continuance by the Board,
including the Independent Directors, on February 9, 1998.
The OpCap Advisory Agreement. The terms of the OpCap Advisory Agreement
are substantially similar to those of the Proposed ICMI Advisory Agreement (see
"The Proposed ICMI Advisory Agreement," above). Pursuant to the OpCap Advisory
Agreement, OpCap is paid monthly at an annual rate of 0.50% of each Fund's
respective average daily net assets. In the fiscal year ended December 31,
1997, OpCap received fees of $1,279,429 and $137,566 for services provided to
the Value Equity and Small Capitalization Funds, respectively.
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<PAGE>
Termination of the OpCap Advisory Agreement. Subject to Shareholder
approval of the Proposed ICMI Advisory Agreement, the Board voted on February 9,
1998 to terminate the OpCap Advisory Agreement based on the determination that
the selection of ICMI, to provide investment advisory services to the Value
Equity and Small Capitalization Funds as described herein, will be in the best
interest of the Funds. It is anticipated that the OpCap Advisory Agreement will
terminate on or about May 1, 1998. The Board approved ICMI as the new
investment adviser for the Value Equity and Small Capitalization Funds for the
same rate of compensation and on substantially the same terms as OpCap. At the
same meeting, the Board approved OpCap as investment sub-adviser to the Value
Equity and Small Capitalization Funds, effective upon approval of Shareholders
(see Proposal 10, below).
T. Rowe Price Advisory Agreement
- --------------------------------
T. Rowe Price currently provides investment advisory services to the
Flexibly Managed and High Yield Bond Funds pursuant to an investment advisory
agreement between T. Rowe Price and the Company ("Price Advisory Agreement")
dated May 1, 1989. The T. Rowe Price Advisory Agreement was most recently
approved for continuance by the Board, including the Independent Directors, on
February 9, 1998.
The Price Advisory Agreement. The terms of the Price Advisory Agreement
are substantially similar to those of the Proposed ICMI Advisory Agreement (see
"The Proposed ICMI Advisory Agreement," above). Pursuant to the Price Advisory
Agreement, T. Rowe Price is paid monthly at the annual rate of 0.50% of each
Fund's respective average daily net assets. In the fiscal year ended December
31, 1997, T. Rowe Price received fees of $2,310,427 and $254,474 for services
provided to the Flexibly Managed and High Yield Bond Funds, respectively.
Termination of the Price Advisory Agreement. Subject to Shareholder
approval of the Proposed ICMI Advisory Agreement, the Board voted on February 9,
1998 to terminate the Price Advisory Agreement based on the determination that
the selection of ICMI, to provide investment advisory services to the Flexibly
Managed and High Yield Bond Funds as described herein will be in the best
interest of the Funds. It is anticipated that the Price Advisory Agreement will
terminate on or about May 1, 1998. The Board approved ICMI as the new
investment adviser for the Flexibly Managed and High Yield Bond Funds for the
same rate of compensation and on substantially the same terms as T. Rowe Price.
At the same meeting, the Board approved T. Rowe Price as investment sub-adviser
to the Flexibly Managed and High Yield Bond Funds, effective upon approval of
Shareholders (see Proposal 11, below).
Vontobel Advisory Agreement
- ---------------------------
Vontobel currently provides investment advisory services to the
International Equity Fund pursuant to an investment advisory agreement between
Vontobel and the Company ("Vontobel Advisory Agreement") dated November 1, 1992.
The Vontobel Advisory Agreement
-20-
<PAGE>
was most recently approved for continuance by the Board, including the
Independent Directors, on February 9, 1998.
The Vontobel Advisory Agreement. The terms of the Vontobel Advisory
Agreement are substantially similar to those of the Proposed ICMI Advisory
Agreement (see "The Proposed ICMI Advisory Agreement," above). Pursuant to the
Vontobel Advisory Agreement, Vontobel is paid monthly at the annual rate of
0.75% the Fund's average daily net assets. In the fiscal year ended December
31, 1997, Vontobel received fees of $912,368 for investment advisory services
provided to the International Equity Fund.
Termination of the Vontobel Advisory Agreement. Subject to Shareholder
approval of the Proposed ICMI Advisory Agreement, the Board voted on February 9,
1998 to terminate the Vontobel Advisory Agreement based on the determination
that the selection of ICMI, to provide investment advisory services to the
International Equity Funds as described herein, will be in the best interest of
the Fund. It is anticipated that the Vontobel Advisory Agreement will terminate
on or about May 1, 1998. The Board approved ICMI as the new investment adviser
for the International Equity Fund for the same rate of compensation and on
substantially the same terms as Vontobel. At the same meeting, the Board
approved Vontobel as investment sub-adviser to the International Equity Fund,
effective upon approval of Shareholders (see Proposal 12, below).
Shareholders of the Value Equity, Small Capitalization, Flexibly Managed,
High Yield and International Equity Funds will vote on Proposal 9. The Proposal
shall be approved with respect to a Fund if approved by the Shareholders of that
Fund, regardless of whether the Shareholders of the other Funds approve the
Proposal.
THE DIRECTORS RECOMMEND THAT THE SHAREHOLDERS VOTE FOR PROPOSAL 9.
---
SECTION V: APPROVAL OF SUB-ADVISERS TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS AND APPROVAL OF SUB-ADVISORY
AGREEMENTS
The Board recommends that Shareholders of each of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity Funds
approve the applicable Sub-Adviser described in Proposals 10 through 12 as
investment sub-adviser and approve the respective investment sub-advisory
agreement between ICMI and each Sub-Adviser (each, a "Sub-Advisory Agreement").
-21-
<PAGE>
As describe more fully in the Proposals below, the Sub-Advisers will serve
as investment sub-advisers pursuant to three separate Sub-Advisory Agreements
with ICMI: one between ICMI and OpCap for the Value Equity and Small
Capitalization Funds; one between ICMI and T. Rowe Price for the Flexibly
Managed and High Yield Bond Funds; and one between ICMI and Vontobel for the
International Equity Fund. The forms of Sub-Advisory Agreements are attached as
Exhibits B through D to this Proxy Statement.
The Sub-Advisory Agreements. The terms of each Sub-Advisory Agreement are
substantially similar with the exception of the rate of compensation and the
expense limitation provision as described under "Compensation" in each Proposal.
Pursuant to each Sub-Advisory Agreement, a Sub-Adviser shall serve as investment
sub-adviser and shall supervise and direct the cash, securities and other assets
of the Fund (or Funds) for which it serves as Sub-Adviser, and exercise all
rights incidental to ownership in accordance with the investment objectives,
program and restrictions applicable to the Fund (or Funds) as provided in the
Company's Prospectus and Statement of Additional Information, as amended from
time to time, and such other limitations as may be imposed by law or as the
Company may impose with notice in writing to the Sub-Adviser. To enable a Sub-
Adviser to fully exercise its discretion, ICMI appoints each Sub-Adviser as
agent and attorney-in-fact for the Fund (or Funds) for which it serves as Sub-
Adviser with full power and authority to buy, sell and otherwise deal in
securities and contracts for the Fund (or Funds). No investment will be made by
a Sub-Adviser for a Fund if that investment would violate the objectives,
investment restrictions or limitations of that Fund as set out in the Prospectus
and the SAI previously delivered to the Sub-Adviser. A Sub-Adviser shall not
take custody of any assets of the Company, but shall issue settlement
instructions to the custodian designated by the Company.
Each 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 (or Funds) for which it
serves as Sub-Adviser in a manner consistent with the investment objectives and
policies of the Fund (or Funds). In furtherance of this duty, each Sub-Adviser,
as agent and attorney-in-fact with respect to ICMI and the Company, is
authorized, in its discretion and without prior consultation with the Company,
to: (1) buy, sell, exchange, convert, lend, and otherwise trade in any stocks,
bonds, and other securities or assets; and (2) 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 the Sub-Adviser may
select; and (3) take such other actions the Sub-Adviser deems to be appropriate;
provided, however, that the Sub-Adviser shall make no investment for a Fund that
would violate the objectives, program, restrictions or limitations of the Fund.
Each Sub-Advisory Agreement may be terminated by ICMI, the Company or by
the respective Sub-Adviser, with respect to a Fund, without payment of any
penalty, upon 60 days' prior notice in writing from the Company to the Sub-
Adviser, or upon 90 days' prior notice in
-22-
<PAGE>
writing from the Sub-Adviser to the Company; provided, that in the case of
termination by ICMI or the Company, such action shall have been authorized by
resolution of a majority of the Independent Directors, or by vote of a majority
of the outstanding voting securities of the series of shares of the Company
representing interests in the affected Fund.
Directors' Considerations. At a meeting held on February 9, 1998, the
Board reviewed each Sub-Adviser's qualifications to act as investment sub-
adviser for the applicable Fund (or Funds) as described in the Proposals below.
In recommending that Shareholders approve each Sub-Advisory Agreement, the
Directors evaluated each Sub-Adviser's investment personnel and the quality of
services each Sub-Adviser is expected to provide to the Fund (or Funds) for
which it will serve as Sub-Adviser, as well as other factors relating to the
Sub-Adviser's provision of investment advisory services including, but not
limited to (1) the nature and quality of the services expected to be rendered by
the Sub-Adviser; (2) the distinct investment objectives and policies of the
Value Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds; (3) the fact that the compensation paid by the Funds
for investment advisory and sub-advisory services pursuant to the Proposed ICMI
Advisory Agreement and the Sub-Advisory Agreements will be at the same rate as
that paid under the Funds' current investment advisory agreements; (4) the
performance of the Sub-Advisers as investment advisers to the respective Funds
pursuant to the current investment advisory agreements; (5) the history,
reputation, qualification and background of each Sub-Adviser as well as the
qualification of their personnel and their financial condition; and (6) other
factors deemed relevant.
In the event Shareholders of a Fund do not approve the selection of the
applicable Sub-Adviser and the applicable Sub-Advisory Agreement, the Directors
will consider the appropriate course of action.
PROPOSAL 10: APPROVE OPCAP AS INVESTMENT SUB-ADVISER TO THE VALUE EQUITY AND
SMALL CAPITALIZATION FUNDS, AND TO APPROVE A SUB-ADVISORY
AGREEMENT BETWEEN ICMI AND OPCAP.
The Board recommends that the Shareholders of the Value Equity and Small
Capitalization Funds approve OpCap as investment sub-adviser to the Value Equity
and Small Capitalization Funds and approve a Sub-Advisory Agreement (the terms
of which are described above) between ICMI and OpCap (the "OpCap Sub-Advisory
Agreement"). The form of OpCap Sub-Advisory Agreement is attached as Exhibit B
to this Proxy Statement.
Sub-Advisory Fees and Expense Limitations. Under the OpCap Sub-Advisory
Agreement, ICMI will pay OpCap a fee based upon the average daily net assets of
a Fund at the following rates: 0.40% with respect to the first $50,000,000 of
the combined total average daily net assets of the two Funds; 0.35% with respect
to the next $200,000,000 of the combined total average daily net assets of the
two Funds; and 0.30% with respect to the combined total average daily net assets
of the two Funds in excess of $250,000,000. The expense limitation for each of
-23-
<PAGE>
the Value Equity and Small Capitalization Funds, as a percentage of average
daily net assets, is 1.00%. To the extent that a Fund's expenses 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, as calculated under the terms
of the agreement, will be a liability of OpCap to ICMI and will be paid to ICMI
through waiver of the sub-advisory fees.
Description of OpCap. OpCap is a subsidiary of Oppenheimer Capital, a
registered investment adviser with approximately $61.4 billion in assets under
management on December 31, 1997. All investment management services performed by
OpCap are performed by employees of Oppenheimer Capital. On November 4, 1997,
PIMCO Advisors L.P. ("PIMCO Advisors"), a registered investment adviser with
$125 billion in assets under management through various subsidiaries, and its
affiliates acquired control of Oppenheimer Capital and its subsidiary OpCap
Advisors. On November 30, 1997, Oppenheimer Capital merged with a subsidiary of
PIMCO Advisors and, as a result, Oppenheimer Capital and OpCap Advisors became
indirect wholly-owned subsidiaries of PIMCO Advisors. PIMCO Advisors has two
general partners: PIMCO Partners, G.P. ("PIMCO G.P."), a California general
partnership, and PIMCO Advisors Holding L.P. (formerly Oppenheimer Capital,
L.P.), a New York Stock Exchange-listed Delaware limited partnership of which
PIMCO G.P. is the sole general partner. PIMCO G.P. beneficially owns or controls
(through its general partner interest in PIMCO Advisors Holdings, L.P. formerly,
Oppenheimer Capital, L.P.) greater than 80% of the units of limited partnership
("Units") of PIMCO Advisors. PIMCO G.P. has two general partners. The first of
these is Pacific Investment Management Company, a wholly-owned subsidiary of
Pacific Financial Asset Management Company, which is a direct subsidiary of
Pacific Life Insurance Company ("Pacific Life"). The managing general partner
of PIMCO G.P. is PIMCO Partners L.L.C. ("PPLLC"), a California limited liability
company. PPLLC's members are the Managing Directors (the "PIMCO Managers") of
Pacific Investment Management Company, a subsidiary of PIMCO Advisors (the
"PIMCO Subpartnership"). The PIMCO Managers are: William H. Gross, Dean S.
Meiling, James F. Muzzy, William F. Podlich, III, Brent R. Harris, John L.
Hague, William S. Thompson, Jr., William S. Powers, David H. Edington, Benjamin
Trosky, William R. Benz, II and Lee R. Thomas, III. PIMCO Advisors is governed
by a Management Board, which consists of sixteen members. Pursuant to a
delegation by its general partners PIMCO G.P. has the power to designate up to
nine members of the Management Board and the PIMCO Subpartnership, of which the
PIMCO Managers are the Managing Directors, has the power to designate up to two
members. In addition, PIMCO G.P., as the controlling general partner of PIMCO
Advisors, has the power to revoke the delegation to the Management Board and
exercise control of PIMCO Advisors. As a result, Pacific Life and/or the PIMCO
Managers may be deemed to control PIMCO Advisors. Pacific Life and the PIMCO
Managers disclaim such control. Because of 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, the PIMCO
Subpartnership and the PIMCO Managers disclaim such control.
-24-
<PAGE>
Listed below are the names and principal occupations of the principal
executive officers of Oppenheimer Capital and OpCap. The principal business
address of each person listed below is Oppenheimer Tower, 200 Liberty Street,
One World Financial Center, New York, New York 10281.
Name and Address Principal Occupation
---------------- --------------------
Joseph La Motta Chairman, OpCap.
George Long Chairman and President, Oppenheimer Capital.
Bernard Garil President, OpCap Advisors.
For the fiscal year ended December 31, 1997, OpCap served as investment
adviser to the Value Equity and Small Capitalization Funds. As compensation for
providing investment advisory services to the Funds during this period, OpCap
received $1,279,429 and $137,566 in fees from the Value Equity and Small
Capitalization Funds, respectively.
OpCap also serves as investment adviser or sub-adviser to other registered
investment companies with investment objectives similar to either the Value
Equity or Small Capitalization Funds. The approximate net assets and the
investment advisory fees paid by such funds are listed in Appendix A to this
Proxy Statement.
[To Company management's knowledge, no Director of the Company owns any
interest in OpCap, Oppenheimer Capital, or PIMCO Advisors.]
Shareholders of the Value Equity and Small Capitalization Funds are
entitled to vote on Proposal 10. The Proposal shall be approved with respect to
a Fund, regardless of whether the Shareholders of the other Fund approve the
Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE
FOR PROPOSAL 10.
PROPOSAL 11: APPROVE T. ROWE PRICE AS INVESTMENT SUB-ADVISER TO THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS, AND APPROVE A SUB-ADVISORY
Agreement BETWEEN ICMI AND T. ROWE PRICE.
The Board of Directors recommends that the Shareholders of the Flexibly
Managed and High Yield Bond Funds approve T. Rowe Price as investment sub-
adviser to the Flexibly Managed and High Yield Bond Funds and approve a Sub-
Advisory Agreement (the terms of which are described above) between ICMI and T.
Rowe Price (the "Price Sub-Advisory Agreement"). The form of Price Sub-Advisory
Agreement is attached as Exhibit C to this Proxy Statement.
-25-
<PAGE>
Sub-Advisory Fees and Expense Limitations. Under the Price Sub-Advisory
Agreement, ICMI will pay T. Rowe Price a fee based upon the average daily net
assets of a Fund at the following rates: 0.50% with respect to the first
$250,000,000 of the combined total average daily net assets of the two Funds and
0.40% with respect to the next $500,000,000 of combined total average daily net
assets of the two Funds; provided that the fee rate shall be 0.40% with respect
to all average daily net assets of the two Funds at such time the combined total
average daily net assets of the two Funds exceed $750,000,000. The expense
limitation for each of the Flexibly Managed and High Yield Bond Funds, as a
percentage of average daily net assets, is 1.00%. To the extent that a Fund's
expenses exceed the expense limitation, one-half of such excess amount, as
calculated under the terms of the agreement, will be liability of T. Rowe Price
to ICMI and will be paid to ICMI through waiver of the sub-advisory fee.
Description of T. Rowe Price. T. Rowe Price was incorporated in 1947 as
successor to the investment counseling firm founded by the late Mr. T. Rowe
Price in 1937. Its corporate home office is located at 100 East Pratt Street,
Baltimore, Maryland 21202. T. Rowe Price serves as investment adviser to a
variety of individual and institutional investors accounts, including other
mutual funds. As of December 31, 1997, T. Rowe Price and its affiliates,
managed more than $124 billion of assets.
Listed below are the names and principal occupations of the principal
executive officers of T. Rowe Price. The business address of each such person,
unless otherwise indicated, is 100 East Pratt Street, Baltimore, Maryland 21202.
<TABLE>
<CAPTION>
Name Position with T. Rowe Price Principal Occupation
- ---- --------------------------- --------------------
<S> <C> <C>
James E. Halbkat, Jr. Director President of U.S.
P.O. Box 23109 Monitor Corp.
Hilton Head Island, SC 29925
Richard L. Menschel Director Limited Partner of
85 Broad St., 2nd Floor Goldman Sachs Group L.P.
New York, NY 10004
John W. Rosenblum Director Dean of the Jepson
University of Richmond School of Leadership
Richmond, Virginia 23173 Studies at the
University of Richmond;
Director of Chesapeake
Corporation, Camdus
Communications Corp.,
Comdial Corp. and Cone
Mills Corp.
Robert L. Strickland Director Chairman of Loew's
604 Two Piedmont Plaza Bldg. Companies, Inc.;
Winston-Salem, NC 27104 Director of Hannaford
Bros., Co.
Phillip C. Walsh Director Consultant to Cyprus
Pleasant Valley Annex minerals Company.
Peapack, NJ 07977
</TABLE>
-26-
<PAGE>
<TABLE>
<S> <C> <C>
Ann Marie Whittemore Director Partner of the law firm
One James Center of McGuire, Woods,
Richmond, VA 23219 Battle & Booth;
Director of Owens and
Minor, Inc., USF&G
Corp. and the James
River Corp.
George J. Collins Director Director of Rowe Price-Fleming
International, Inc. ("Price Fleming").
James S. Riepe Vice-Chairman of the Director of Price-Fleming.
Board, Director and
Managing Director
George A. Roche Chairman of the Board, Director of Price-Fleming.
President, Director
M. David Testa Vice-Chairman of the Director of Price-Fleming.
Board, Director and
Managing Director
Henry H. Hopkins Director and Managing Director Vice President of Price-Fleming.
Charles P. Smith Director and Managing Director Vice President of Price-Fleming.
Peter Van Dyke Director and Managing Director Vice President of Price-Fleming.
James A.C. Kennedy III Director and Managing Director
John H. Laport, Jr. Director and Managing Director
William T. Reynolds Director and Managing Director
Brian C. Rogers Director and Managing Director
</TABLE>
For the fiscal year ended December 31, 1997, T. Rowe Price served as
investment adviser to the Flexibly Managed and High Yield Bond Funds. As
compensation for providing investment advisory services to the Funds during this
period, T. Rowe Price received $2,310,427 and $254,474 in fees from the Flexibly
Managed and High Yield Bond Funds, respectively.
T. Rowe Price also serves as investment adviser or sub-adviser to other
registered investment companies with investment objectives similar to either the
Flexibly Managed or High Yield Bond Funds. The approximate net assets and the
investment advisory fees paid by such funds are listed in Appendix B to this
Proxy Statement.
[To Company management's knowledge, no Director of the Company owns any
interest in T. Rowe Price.]
Shareholders of the Flexibly Managed and High Yield Bond Funds are entitled
to vote on Proposal 11. The Proposal shall be approved with respect to a Fund,
regardless of whether the Shareholders of the other Fund approve the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE
FOR PROPOSAL 11.
---
-27-
<PAGE>
PROPOSAL 12: APPROVE VONTOBEL AS INVESTMENT SUB-ADVISER TO THE INTERNATIONAL
EQUITY FUND, AND APPROVE A SUB-ADVISORY AGREEMENT BETWEEN ICMI
AND VONTOBEL.
The Board recommends that the Shareholders of the International Equity Fund
approve Vontobel as investment sub-adviser to the Fund and approve a Sub-
Advisory Agreement (the terms of which are discussed above) between ICMI and
Vontobel (the "Vontobel Sub-Advisory Agreement"). The form of Vontobel Sub-
Advisory Agreement is attached as Exhibit D to this Proxy Statement.
Advisory Fee and Expense Limitations. Under the Vontobel Sub-Advisory
Agreement, ICMI will pay Vontobel a fee at the annual rate of 0.50% of the
International Equity Fund's average daily net assets. The expense limitation
for the International Equity Fund, as a percentage of average daily net assets,
is 1.50%. To the extent that the Fund's expenses exceed the expense limitation
in an amount up to and including 0.10% of the average daily net assets of the
Fund, such excess, as calculated under the terms of the agreement, will be a
liability of Vontobel to ICMI and will be paid to ICMI through waiver of the
sub-advisory fee.
Description of Vontobel. Vontobel is a wholly owned subsidiary of Vontobel
Holding Ltd., and an affiliate of Bank J. Vontobel & Co., Ltd., one of the
largest private banks and brokerage firms in Switzerland. Its principal place of
business is located at 450 Park Avenue, New York, New York 10022. As of December
31, 1997, Vontobel managed assets of over $1.9 billion, a substantial part of
which was invested outside of the United States. The Vontobel group of companies
has investments in excess of $30 billion under management.
Listed below are the names, addresses, and principal occupations of the
directors and the principal executive officer of Vontobel. The principal
business address of each director and the principal executive officer, as it
relates to their duties at Vontobel is 450 Park Avenue, New York, New York
10022.
Name and Address Principal Occupation
---------------- --------------------
Dr. Wolfhard Graetz Chairman, Vontobel USA Inc.; Chief Executive
Officer, Vontobel Asset Management Ltd.;
Chairman, Tardy, de Watteville; Chairman,
Vontobel Fund Management.
Dr. Hans-Dieter Vontobel Deputy Chairman, Vontobel USA Inc.,
Chairman, Vontobel Holding Ltd., Chairman,
Vontobel Asset Management Ltd.
Heinrich Schlegel Director, President, and Chief Executive
Officer, Vontobel USA Inc., Director,
Vontobel Funds, Inc.
-28-
<PAGE>
For the fiscal year ended December 31, 1997, Vontobel served as investment
adviser to the International Equity Fund. As compensation for providing
investment advisory services to the Fund during this period, Vontobel received
$912,368 in fees from the International Equity Fund.
Vontobel also serves as investment adviser or sub-adviser to the following
registered investment company with investment objectives similar to the
International Equity Fund.
<TABLE>
<CAPTION>
Net Assets at
Fund 12/31/97 Advisory Fee
- ---- ------------- ------------
<S> <C> <C>
Vontobel International Equity Fund $160,937,272 1.00% on first $100 million;
75% on assets over $100 million
</TABLE>
[To Company management's knowledge, no Director of the Company owns any
interest in Vontobel.]
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 12.
---
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 principal occupation or employment for the last five years. No Director or
officer owns shares of the Company.
<TABLE>
<CAPTION>
Position with Principal Occupation
Name and Address Penn Series During Past Five Years
<S> <C> <C>
Eugene Bay Director Senior Pastor, Bryn Mawr Presbyterian Church, Bryn Mawr, PA.
121 Fishers Road
Bryn Mawr, PA 19010
James S. Greene Director Retired: Vice President and Director, International Raw
P.O. Box 3761 Materials, Inc., Philadelphia, PA (commodities trading),
Vero Beach, FL 32964-3761 prior to September 1990.
</TABLE>
-29-
<PAGE>
<TABLE>
<S> <C> <C>
L. Stockton Illoway* Director Marketing Director, Independence Financial Group, The Penn Mutual
600 Dresher Road Life Insurance Company, Bala Cynwyd, PA, since 1997; Senior
Horsham, PA 19044 Vice President, Marketing and Field Sales Support (June 1996 to 1997),
Senior Vice President, Pension and Annuity (December 1993 to June 1996)
Senior Vice President, Individual Retirement Investment Service (September
1993 to December 1993), Regional Vice President (prior thereto), The Penn
Mutual Life Insurance Company.
William H. Loesche, Jr. Director Retired; Adviser (since April 1988), Director (prior thereto),
100 Gray's Lane Keystone Insurance Company and Keystone Automobile Club,
Apt. 101 Philadelphia, PA.
Haverford, PA 19041
M. Donald Wright Director President, M. Donald Wright Professional Corporation, Bryn Mawr, PA
100 Chetwynd Drive (financial planning and consulting); Director, Graduate School
Rosemont, PA 19010 of Financial Services, The American College, since April 1991.
James B. McElwain President Assistant Vice President, Investment Marketing and Operations
600 Dresher Road (since August 1995), Assistant Vice President, Retirement and
Horsham, PA 19044 Investment Sales Operation, The Penn Mutual Life Insurance Company,
(November 1991 to August 1995), National Director of Marketing, Asset
Management Sales, The Metropolitan Life Insurance Company, prior thereto.
Richard F. Plush Vice President Assistant Vice President and Senior Actuary, The Penn Mutual
600 Dresher Road Life Insurance Company (1973 to present).
Horsham, PA 19044
Lee J. Anderson Vice President Senior Investment Consultant, The Penn Mutual Life Insurance Company
600 Dresher Road (March 1995 to present); Investment Statistical Analyst,
Horsham, PA 19044 Independence Capital Management, Inc., prior thereto.
C. Ronald Rubley Secretary Attorney, Morgan, Lewis & Bockius LLP, Philadelphia, PA, (since
2000 One Logan Square January 1996); Associate General Counsel, The Penn Mutual Life
Philadelphia, PA 19103 Insurance Company, prior thereto.
Steven M. Herzberg Treasurer Assistant Vice President and Treasurer, The Penn Mutual Life
600 Dresher Road Insurance Company (December 1997 to present); Director of Financial
Horsham, PA 19044 Planning and Treasurer (November 1995 to December 1997); Director, Cost and
Budget (November 1991 to November 1995); Director, Benefits Administration,
prior thereto.
</TABLE>
-30-
<PAGE>
<TABLE>
<S> <C> <C>
Ann M. Strootman Controller Vice President and Controller (since January 1996), Assistant
600 Dresher Road Vice President, Financial and Management Accounting (since 1994),
Horsham, PA 19044 Director of Financial Accounting (prior thereto), The Penn Mutual Life
Insurance Company.
</TABLE>
___________________
* Denotes a Director that is an "interested person" under the 1940 Act.
PRINCIPAL HOLDERS OF SECURITIES
On January 31, 1998, the outstanding shares of the Funds were owned by Penn
Mutual and PIA as follows:
<TABLE>
<CAPTION>
Growth Value Emerging Flexibly Quality Small
Equity Equity Growth Managed International Bond High Yield Capitalization
Fund Fund Fund Fund Equity Fund Fund Bond Fund Fund
------ ------ -------- -------- ------------- ------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Outstanding 89% 80% 60% 77% 79% 76% 77% 59%
Shares Owned by Penn
Mutual and Held in Separate
Accounts Pursuant to
Variable Annuity Contracts
Percentage of Outstanding 5% 11% 14% 14% 10% 13% 14% 28%
Shares Owned by PIA and
Held in a Separate Account
Pursuant to Variable Annuity
Contracts
Percentage of Outstanding 6% 9% 8% 9% 11% 11% 9% 13%
Shares Owned by Penn
Mutual and Held in a Separate
Account Pursuant to Variable
Life Insurance Contracts
Percentage of Outstanding Shares 0% 0% 18% 0% 0% 0% 0% 0%
Owned by Penn Mutual and
Held in its General Account as
an Equity Investment
</TABLE>
_________________________
* Unaudited
<TABLE>
<CAPTION>
Money
Market
Fund
-----
<S> <C>
Percentage of Outstanding 58%
Shares Owned by Penn
Mutual and Held in Separate
Accounts Pursuant to
Variable Annuity Contracts
Percentage of Outstanding 21%
Shares Owned by PIA and
Held in a Separate Account
Pursuant to Variable Annuity
Contracts
Percentage of Outstanding 21%
Shares Owned by Penn
Mutual and Held in a Separate
Account Pursuant to Variable
Life Insurance Contracts
Percentage of Outstanding Shares 20%
Owned by Penn Mutual and
Held in its General Account as
an Equity Investment
</TABLE>
___________
* Unaudited.
ADMINISTRATIVE AND CORPORATE SERVICES AGENT
Penn Mutual is the administrative and corporate services agent for the
Company. Penn Mutual is a Pennsylvania mutual life insurance company located at
600 Dresher Road, Horsham, Pennsylvania 19044. Under an administrative and
corporate services agreement, 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 and general administrative services required in the conduct of its
investment business. In the fiscal year ended December 31, 1997, Penn Mutual
received $1,677,972 for providing administrative and corporate services to the
Company.
-31-
<PAGE>
EXPENSES
All costs of solicitation (including printing and mailing of this proxy
statement, meeting notice, and voting instruction forms, as well as any
necessary supplementary solicitations) will be paid for by the Company.
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 form 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.
-32-
<PAGE>
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED VOTING INSTRUCTION FORM3/5/98 PROMPTLY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
Ronald Rubley
Secretary
March [23], 1998.
-33-
<PAGE>
EXHIBIT A
[FORM OF INVESTMENT ADVISORY AGREEMENT BETWEEN INDEPENDENCE CAPITAL MANAGEMENT,
INC. AND PENN SERIES FUNDS, INC.]
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Between
PENN SERIES FUNDS, INC.
and
INDEPENDENCE CAPITAL MANAGEMENT, INC.
Relating to
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
FLEXIBLY MANAGED FUND
INTERNATIONAL EQUITY FUND
HIGH YIELD BOND FUND
INVESTMENT ADVISORY AGREEMENT, made as of May 1, 1998 by and between PENN
SERIES FUNDS, INC. ("Penn Series"), a corporation organized and existing under
the laws of the State of Maryland, and INDEPENDENCE CAPITAL MANAGEMENT, INC.
("Adviser"), a corporation organized and existing under the laws of the State of
Pennsylvania.
WITNESSETH:
WHEREAS, Penn Series is an open-end management investment company
registered as such under the Investment Company Act of 1940, as amended (the
"Act") and is authorized to issue shares in separate series with each series
representing interests in a separate fund of securities and other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory services
to Penn Series in the manner and on the terms and conditions hereinafter set
forth, and Adviser desires to render such services under such terms and
conditions:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Investment Advisory Services. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Value Equity,
Small Capitalization, Flexibly Managed, International Equity and the High
Yield Bond Funds of Penn Series (individually a "Fund" and collectively the
"Funds"), in accordance with the investment objectives, program and restrictions
applicable to the Fund as provided in Penn Series' Prospectus and Statement of
Additional Information, as amended from time to time, and such other limitations
as may be imposed by law or as Penn Series may impose with notice in writing to
Adviser. No investment will be made by Adviser for a Fund if that investment
would be in violation of the objectives, program, restrictions or limitations of
the Fund. Adviser shall not take custody of any assets of Penn Series, but
shall issue settlement instructions to the custodian designated by Penn Series
(the "Custodian"). Adviser shall obtain and evaluate such information relating
to the economy, industries, businesses, securities markets and securities as it
may deem necessary or useful in the discharge of its obligations hereunder and
shall formulate and implement a continuing program for the management of the
assets and resources of 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 with respect to Penn Series, is authorized, in its discretion
and without prior consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the execution
of transactions in securities with or through such brokers, dealers,
underwriters or issuers as Adviser may select, in conformance with
the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for 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 entered into by Penn Series and the Accounting Services
Agreement. As requested from time to time, Adviser shall provide Penn Series
and its Accounting Services Agent with such information as may be reasonably
necessary to properly account for financial transactions with respect to each
Fund.
3. Fees.
A. Payment of Fees. For the services rendered to Penn Series under
this Agreement, Penn Series will pay Adviser fees based on average
daily net assets of each Fund.
B. Fee Rates. The fees shall be paid at the following rates:
-2-
<PAGE>
Value Equity Fund .50%
Small Capitalization Fund .50%
Flexibly Managed Fund .50%
International Equity Fund .75%
High Yield Bond Fund .50%
C. Method of computation. Each fee 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.
D. Expense Limitation. The expense limitations of the Funds are as
follows:
Value Equity Fund 1.00%
Small Capitalization Fund 1.00%
Flexibly Managed Fund 1.00%
International Equity Fund 1.50%
High Yield Bond Fund 0.90%
With respect to each of the Value Equity, Small Capitalization
and International Equity Funds, the extent that a 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 accounting, administrative and
corporate services fees before any adjustment pursuant to this
provision) exceed the expense limitation for the Fund in an amount up
to and including .10% of the average daily net assets of the Fund,
such excess amount shall be a liability of Adviser to Penn Series.
The liability (if any) of Adviser to pay Penn Series such excess
amount shall be determined on a daily basis. If, at the end of each
month, there is any liability of Adviser to pay Penn Series such
excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month, there is no liability of Adviser to pay
Penn Series such excess amount and if payments of the advisory fee at
the end of prior months during the fiscal year have been reduced in
excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Adviser and
shall be payable by Penn Series to Adviser along with the advisory fee
payable to Adviser for that month.
-3-
<PAGE>
With respect to each of the Flexibly Managed Fund and the High
Yield Bond Funds, to the extent that a 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 accounting administrative and corporate service fees
before any adjustment pursuant to this provision) exceed the expense
limitation for the Fund, one-half of such excess amount shall be a
liability of Adviser to Penn Series. The liability (if any) of Adviser
to pay Penn Series one-half of such excess amount shall be determined
on a daily basis. If, at the end of each month, there is any liability
of Adviser to pay Penn Series such excess amount, the advisory fee
shall be reduced by such liability. If, at the end of each month,
there is no liability of Adviser to pay Penn Series such excess amount
and if payments of the advisory fee at the end of prior months during
the fiscal year have been reduced in excess of that required to
maintain expenses within the expense limitation, such excess reduction
shall be recaptured by Adviser and shall be payable by Penn Series to
Adviser along with the advisory fee payable to Adviser for that month.
If, at the end of the fiscal year, there is any remaining liability of
Adviser to pay Penn Series such excess amount (which has not been paid
through reduction of the advisory fee), Adviser shall remit to Penn
Series an amount sufficient to pay such remaining liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for 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.
It is understood that the Adviser will not be deemed to have acted unlawfully or
to have breached a fiduciary duty to a Fund or be in breach of any obligation
owing to a Fund under this Agreement, or otherwise, by reason of its having
directed a securities transaction on behalf of the Fund to a broker-dealer in
compliance with the provisions of Section 28(e) of the Securities Exchange Act
of 1934 or as described from time to time in the Penn Series' Prospectus and
Statement of Additional Information. In addition, Adviser is authorized to take
into account the sale of variable contracts which are invested in Penn Series
shares in allocating to brokers or dealers purchase and sale orders for
portfolio securities, provided that Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Adviser shall regularly advise Penn Series' Board of Directors
as to all payments of commissions and as to its brokerage policies and practices
and shall follow such reasonable instructions with respect thereto as may
be, given by Penn Series' board.
5. Use of the Services of Others. Adviser may (at its cost except as
contemplated in Section 4 of this Agreement) employ, retain or otherwise avail
itself of a sub-adviser or sub-
-4-
<PAGE>
advisors to assist it in performing its duties and meeting its responsibilities
under this Agreement, and may delegate to such sub-adviser sub-advisers duties
assumed by the Adviser under this Agreement. In addition, Adviser may (at its
cost, except as contemplated in Section 4 of this Agreement) employ, retain or
otherwise avail itself of the services or facilities of other persons or
organizations for the purpose of providing itself or Penn Series, as
appropriate, with such statistical and other factual information, such advice
regarding economic factors and trends, such advice as to occasional transactions
in specific securities or such other information, advice or assistance as
Adviser may deem necessary, appropriate or convenient for the discharge of its
obligations hereunder or otherwise helpful to Penn Series, or in the discharge
of Adviser's overall responsibilities with respect to the other accounts which
it serves as investment adviser.
6. Personnel, Office Space, and Facilities. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property of
Adviser and will not become the property of Penn Series.
8. Certain Personnel. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
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.
-5-
<PAGE>
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,
or by any sub-adviser or an affiliated corporation of a sub-adviser, on behalf
of Penn Series are the property of Penn Series. Such records will be preserved
by Adviser or an affiliated corporation, or by any sub-adviser or affiliated
corporation, for the periods prescribed in Rule 3la-2 under the Act, where
applicable, or in such other applicable rules that may be adopted time under the
Act. Such records may be inspected by representatives of Penn Series at
reasonable times, and, in the event of termination of this Agreement, will be
promptly delivered to Penn Series.
12. Services to Other Clients. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood that
Adviser may give advice and take action for its other clients which may differ
from advice given, or the timing or nature of action taken, for 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 the
Funds.
15. Instructions, Opinion of Counsel and Signatures. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult legal
counsel for Penn Series, 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 an 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.
-6-
<PAGE>
16. Compliance with Governmental Rules and Regulations. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or by
fair implication of, the terms of this Agreement, and except for the accuracy of
information furnished to Penn Series by Adviser or any affiliate, Penn Series
assumes full responsibility for the preparation, contents and distribution of
the prospectuses for Penn Series, for complying with all applicable requirements
of the Act, the Securities Exchange Act of 1934, the Securities Act of 1933, and
any other laws, rules and regulations of governmental authorities having
jurisdiction over Penn Series.
17. Limitation of Liability. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at the
direction or request of Adviser), or Adviser or its affiliates in connection
with the discharge of obligations undertaken or reasonably assumed with respect
to this Agreement, shall be liable for any error of judgment or mistake of law
or for any loss suffered by Penn Series in connection with the matters to which
this Agreement relates, except for such error, mistake or loss resulting from
willful misfeasance, bad faith, negligence or misconduct in the performance of
its, his or her duties on behalf of Penn Series or constituting or resulting
from a failure to comply with any term of this Agreement. Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian Transfer Agent, Accounting Services Agent, or other third party with
which Company has a contractual arrangement, or of any broker, dealer,
underwriter or issuer selected by Adviser with reasonable care.
18. Obligations of Penn Series and Adviser. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding upon
any of their directors, shareholders, nominees, officers, agents or employees,
personally. The execution and delivery of this Agreement have been authorized
by the Board of Directors 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.
-7-
<PAGE>
20. Indemnification by Adviser. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any claim,
demand, action or suit arising out of Adviser's or any affiliate's failure to
comply with any term of this Agreement or which arise out of the willful
misfeasance, bad faith, negligence or misconduct of Adviser, its affiliates,
their agents or contractors. Penn Series shall not be entitled to such
indemnification in respect of actions or omissions constituting negligence or
willful misconduct of Penn Series or its agents or contractors or constituting a
failure by Penn Series to comply with any term of this Agreement; provided, that
such negligence or misconduct is not attributable to Adviser or any person that
is an affiliate of Adviser or an affiliate of an affiliate of Adviser. Prior to
confessing any claim against it which may be subject to this indemnification,
Penn Series shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Penn Series. For purposes of this
Section 20 and of Section 19 hereof, no broker or dealer shall be deemed to be
acting as agent or contractor of Adviser or any affiliate of Adviser, in
effecting or executing any portfolio transaction for a Fund.
21. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
22. Dual Interests. It is understood that some person or persons may
be, or from time to time become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence of
any such dual interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by a specific provision of
applicable law.
23. Term of Agreement. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect until two years from date of execution.
Thereafter, this Agreement shall continue in effect from year to year with
respect to the Fund, subject to the termination provisions and all other terms
and conditions hereof, so long as such continuation shall be specifically
approved at least annually (a) by either the board of directors of Penn Series,
or by a vote of a majority of the outstanding voting securities of the series of
shares of Penn Series representing interests in the Fund and (b) in either event
by the vote, cast in person at a meeting called for the purpose of voting on
such approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with respect to
the Fund or any extension, renewal or amendment hereof.
24. Amendment and Assignment of Agreement. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the affected 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.
-8-
<PAGE>
25. Termination of Agreement. This Agreement may be terminated by Penn
Series or by Adviser with respect to any Fund, without the payment of any
penalty, upon 60 days' prior notice in writing from Penn Series to Adviser, or
upon 90 days' prior notice in writing from Adviser to Penn Series; provided,
that in the case of termination by Penn Series, such action shall have been
authorized by resolution of a majority of its directors who are not interested
persons of any party to this Agreement, or by vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund.
26. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of
the outstanding voting securities," "interested person," "assignment,"
and "affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it is
agreed that for this purpose the address of Penn Series is Penn Series
Funds, Inc., 600 Dresher Road, Horsham, PA 19044, Attention:
President, and that of Adviser is Independence Capital Management,
Inc., 600 Dresher Road, Horsham, PA 19044, Attention: President.
-9-
<PAGE>
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the day
and year first above written.
PENN SERIES FUNDS, INC.
By:
---------------------------
INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By:
---------------------------
-10-
<PAGE>
EXHIBIT B
[FORM OF SUB-ADVISORY AGREEMENT BETWEEN INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND OPCAP ADVISORS]
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
OPCAP ADVISORS
Relating to
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and OPCAP ADVISORS ("Sub-
Adviser"), a partnership organized and existing under the laws of the State of
Delaware.
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 and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as investment advisers
under the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser is authorized to render investment advisory services to
Penn Series and to enter into a sub-advisory agreement with a sub-adviser for
the rendering of investment advisory services by the Sub-Adviser to 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; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
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 Flexibly Managed and High Yield Bond Funds (each a "Fund"
and together the "Funds"), and to exercise all rights incidental to ownership 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 Sub-
Adviser. To enable Sub-Adviser to fully exercise its discretion, Adviser hereby
appoints Sub-Adviser as agent and attorney-in-fact for the Funds with full power
and authority to buy, sell and otherwise deal in securities and contracts for
the Funds. No investment will be made by Sub-Adviser for Funds if that
investment would violate the objectives, investment restrictions or limitations
of a Fund set out in the prospectus and the SAI previously delivered to the Sub-
Adviser 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 Funds
in a manner consistent with the investment objectives of the Funds. 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) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Funds that
would violate the objectives, program, restrictions or limitations of the Funds.
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.
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<PAGE>
3. Fees.
A. Payment of Fees. For the services Sub-Adviser renders to Penn Series
under this Agreement, Adviser will pay Sub-Adviser fees based on the
average daily net assets of each Fund.
B. Fee Rates. The fee rates, based on the average daily net assets of
each Fund, shall be as follows:
0.50% with respect to the first $250,000,000 of the combined total
average daily net assets of the two Funds;
0.40% with respect to the next $500,000,000 of combined total average
daily net assets of the two Funds;
Provided, the fee rate shall be 0.40% with respect to all average
--------
daily net assets of the two Funds at such time the combined total
average daily net assets of the two Funds exceed $750,000,000.
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. A Fund's net assets, for purposes of the calculations described
above, will be determined in accordance with Penn Series' Prospectus and
Statement of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for business. If
this Agreement is terminated before the end of the month, the fee for the
period from the beginning of such month to the date of termination shall be
prorated based upon services provided through the date of termination.
D. Expense Limitation. The expense limitation of each Fund, as a
percentage of the Fund's average daily net assets, is 0.90%. To the extent
that a 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 accounting, 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
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<PAGE>
of each month, there is no liability of Sub-Adviser to pay Adviser
such excess amount and if payments of the fee at the end of prior
months during the fiscal year have been reduced in excess of that
required in this subsection, such excess reduction shall be recaptured
by Sub-Adviser and shall be payable by Adviser to Sub-Adviser along
with the fee payable to Sub-Adviser for that month. If, at the end of
the fiscal year, there is any remaining liability of Sub-Adviser to
pay Adviser such excess amount (which has not been paid through
reduction of the fee), Sub-Adviser shall remit to Adviser an amount
sufficient to pay such remaining liability.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Funds, 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 the Funds 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 Funds or be in
breach of any obligation owing to the Funds under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Funds
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, 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
reasonable 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
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<PAGE>
office services as it, or any affiliated corporation of Sub-Adviser, requires in
the performance of services under this Agreement.
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by Sub-
Adviser or any affiliate in performance of this Agreement are the property of
Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for Adviser
and Penn Series described in this Agreement, shall furnish to or place at the
disposal of Penn Series and Adviser, such information, reports, evaluations,
analyses and opinions as Penn Series and 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 for the expression of their opinion
without any qualification as to the scope of their examination, including, but
not limited to, their opinion included in Penn Series' annual report under the
Act and annual amendment to Penn Series' registration statement under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
articles of incorporation, by-laws and other information relating to the
business and affairs of Penn Series as Sub-Adviser may, at any time or from time
to time, reasonably require in order to discharge its obligations under this
Agreement. Any printed matter, or other material prepared for distribution to
the stockholders of Penn Series or the public, which refers in any way to Sub-
Adviser or any affiliated corporation of Adviser other than merely to identify
Sub-Adviser as the Sub-Adviser, shall be furnished to Sub-Adviser at least 14
days prior to use thereof. Penn Series and Adviser shall not use such material
if Sub-Adviser shall object thereto in writing within 7 days after its receipt
by Sub-Adviser. In the event of termination of this Agreement, Penn Series and
Adviser shall, on written request of Sub-Adviser, forthwith delete any reference
to Sub-Adviser or any affiliated corporation of Sub-Adviser from any materials
prepared on behalf of Penn Series.
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
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<PAGE>
representatives of Penn Series and Adviser at reasonable times and, in the event
of termination of this Agreement, will be promptly delivered to Adviser and Penn
Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment advisor or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to the Funds, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall
be the only investment Sub-Adviser to the Fund. It is understood that Sub-
Adviser may give advice and taken action for its other clients which may differ
from advice given, or the timing or nature of action taken, for a Fund. Sub-
Adviser is not obligated to initiate transactions for a Fund in any security
which Sub-Adviser , its principals, affiliates or employees may purchase or sell
for its or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or by
one party to another, including Penn Series' or a party's respective agents and
employees, is confidential and shall not be disclosed to third parties unless
required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when so requested by Adviser and
Penn Series.
13. Proxies. Subject to such oversight 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 a 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.
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
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<PAGE>
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. 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. 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
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<PAGE>
for legal counsel, incurred by Penn Series and Adviser and resulting from any
claim, demand, action or suit arising out of Sub-Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Sub-Adviser, its
affiliates, their agents or contractors. 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 each 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
each 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 affected
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, with respect to a Fund, 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
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<PAGE>
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.
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 resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of
the outstanding voting securities," "interested person," "assignment,"
and "affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it is
agreed that for this purpose the address of Adviser is Independence
Capital Management, Inc., 600 Dresher Road, Horsham, PA 19044,
Attention: President, and that of Sub-Adviser is T. Rowe Price
Associates, Inc., 100 East Pratt Street, Baltimore, Maryland 21202,
Attention: General Counsel.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where such
state laws have been preempted by Federal law.
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<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: T. ROWE PRICE ASSOCIATES, INC.
By:
- ----------------------------- ------------------------------
Secretary
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<PAGE>
EXHIBIT C
[FORM OF SUB-ADVISORY AGREEMENT BETWEEN INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND T. ROWE PRICE ASSOCIATES, INC.]
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
T. ROWE PRICE ASSOCIATES, INC.
Relating to
FLEXIBLY MANAGED FUND
HIGH YIELD BOND FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and T. ROWE PRICE
ASSOCIATES, INC. ("Sub-Adviser"), a corporation organized and existing under the
laws of the State of Maryland.
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 and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as investment advisers
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; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. Investment Sub-Advisory Services. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of the
Value Equity and Small Capitalization Funds (each a "Fund" and together the
"Funds"), and to exercise all rights incidental to ownership in accordance with
the investment objectives, program and restrictions applicable to the Funds as
provided in Penn Series' Prospectus and Statement of Additional Information
("SAI"), as amended from time to time, and such other limitations as may be
imposed by law or as Penn Series or Adviser 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 Funds with
full power and authority to buy, sell and otherwise deal in securities and
contracts for the Funds. No investment will be made by Sub-Adviser for a Fund
if that investment would violate the investment objectives, or investment
restrictions or limitations of a Fund set out in the Prospectus and the SAI
delivered to the Sub-Adviser and as may be amended and delivered to Sub-Adviser
in the future. 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 Funds
in a manner consistent with the investment objectives of the Funds. 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 Adviser or 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) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Funds that
would violate the objectives, investment program, or restrictions or limitations
of the Funds.
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.
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<PAGE>
3. Fees.
A. Payment of Fees. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of each Fund.
B. Fee Rates. The fee rates, based on the average daily net assets of
each Fund, shall be as follows:
0.40% with respect to the first $50,000,000 of the combined total
average daily net assets of the two Funds;
0.35% with respect to the next $200,000,000 of the combined total
average daily net assets of the two Funds;
0.30% with respect to the combined total average daily net assets
of the two Funds in excess of $250,000,000.
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. A Fund's net assets, for
purposes of the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of Additional
Information as of the close of business on the most recent previous
business day on which Penn Series was open for business. If this
Agreement is terminated before the end of the month, the fee for the
period from the beginning of such month to the date of termination
shall be prorated based upon services provided through the date of
termination.
D. Expense Limitation. The expense limitation of each Fund, as a
percentage of the Fund's average daily net assets, is 0.90%. To the
extent that a 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
accounting, administrative and corporate services fees before any
adjustment pursuant to this provision) exceed the expense limitation
for the Fund in an amount up to and including .10% of the average
daily net assets of the Fund, such excess amount shall be a liability
of Sub-Adviser to Adviser. The liability (if any) of Sub-Adviser to
pay Adviser 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 advisory fee shall be reduced by
such liability. If, at the end of each
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<PAGE>
month, there is no liability of Sub-Adviser to pay Adviser 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 Sub-Adviser and shall be payable by Adviser to
Sub-Adviser along with the advisory fee payable to Sub-Adviser for
that month.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Funds, 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 the Funds 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 Funds or be in
breach of any obligation owing to the Funds under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Funds
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, 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.
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<PAGE>
7. Ownership of Software and Related Material. All computer programs,
magnetic tapes, written procedures and similar items developed and used by Sub-
Adviser or any affiliate in performance of this Agreement are the property of
Sub-Adviser and will not become the property of Penn Series or Adviser.
8. Reports to Penn Series and Cooperation with Accountants. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for Adviser
and Penn Series described in this Agreement, shall furnish to or place at the
disposal of Penn Series and Adviser, such information, reports, evaluations,
analyses and opinions as Penn Series and 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 for the expression of their opinion
without any qualification as to the scope of their examination, including, but
not limited to, their opinion included in Penn Series' annual report under the
Act and annual amendment to Penn Series' registration statement under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish
or otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series, as Sub-
Adviser may, at any time or from time to time, reasonably require in order to
discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
and Adviser at reasonable times and, in the event of termination of this
Agreement, will be promptly delivered to Adviser and Penn Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit
the freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment adviser or investment counselor to other persons, firms or
corporations or to engage in other business activities; but so long as this
Agreement or any extension, renewal or amendment hereof shall remain in effect
as to the Funds, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall
be the only investment sub-adviser to the Fund. 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 a Fund. Sub-
Adviser is not obligated to initiate transactions for a Fund in any security
which Sub-
-5-
<PAGE>
Adviser , its principals, affiliates or employees may purchase or sell for its
or their own accounts or other clients.
12. Confidential Relationship. Information furnished by Penn Series or by
one party to another, including Penn Series' or a party's respective agents and
employees, is confidential and shall not be disclosed to third parties unless
required by law. Sub-Adviser, on behalf of itself and its affiliates and
representatives, agrees to keep confidential all records and other information
relating to Adviser or Penn Series (as the case may be), except after prior
notification to and approval in writing by Adviser or Penn Series (as the case
may be), which approval shall not be unreasonably withheld, and may not be
withheld, where Sub-Adviser or any affiliate may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge 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 a 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
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<PAGE>
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. 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. 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 and resulting from any claim, demand, action or suit arising out of Sub-
Adviser's or any affiliate's failure to comply with any term of this Agreement
or which arise out of the willful misfeasance, bad faith, negligence or
misconduct of Sub-Adviser, its affiliates, their agents or contractors. 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
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<PAGE>
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 each 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
each 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 affected
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, with respect to a Fund, without payment
of any penalty, upon 60 days' prior notice in writing from Adviser to Sub-
Adviser, or upon 90 days' prior notice in writing from Sub-Adviser to Adviser;
provided, that in the case of termination by Adviser or Penn Series, such action
shall have been authorized by resolution of a majority of its directors who are
not interested persons of any party to this Agreement, or by vote of a majority
of the outstanding voting securities of the series of shares of Penn Series
representing interests in the affected 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.
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<PAGE>
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 resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States courts or, in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission validly issued
pursuant to the Act. Specifically, the terms "vote of a majority of
the outstanding voting securities," "interested person," "assignment,"
and "affiliated person," as used herein, shall have the meanings
assigned to them by Section 2(a) of the Act. In addition, where the
effect of a requirement of the Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities
and Exchange Commission, whether of special or of general application,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.
D. Notice. Notice under the Agreement shall be in writing,
addressed and delivered or sent by registered or certified mail,
postage prepaid, to the addressed party at such address as such party
may designate for the receipt of such notices. Until further notice,
it is agreed that for this purpose the address of Adviser is
Independence Capital Management, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Sub-Adviser is OpCap
Advisors, 1 World Financial Center, New York, New York 10281,
Attention: President.
E. State Law. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where such
state laws have been preempted by Federal law.
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.
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<PAGE>
H. No Third Party Beneficiaries. Neither party intends for
this Agreement to benefit any third-party not expressly named in this
Agreement.
I. Changes in Sub-Adviser Organization. The Sub-Adviser agrees
to notify the Adviser within a reasonable period of time regarding a
material change in the members of Sub-Adviser.
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: OPCAP ADVISORS
By:
- --------------------------- ---------------------------
Secretary
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<PAGE>
EXHIBIT D
[FORM OF SUB-ADVISORY AGREEMENT BETWEEN INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND VONTOBEL USA INC.]
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
Between
INDEPENDENCE CAPITAL MANAGEMENT, INC.
and
VONTOBEL USA INC.
Relating to
INTERNATIONAL EQUITY FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and VONTOBEL USA INC.
("Sub-Adviser"), a corporation organized and existing under the laws of the
State of New York.
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 and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as investment advisers
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser is authorized to render investment advisory services to
Penn Series and to enter into a sub-advisory agreement with Sub-Adviser for the
rendering of investment advisory services by Sub-Adviser to Penn Series;
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; and Sub-Adviser desires to render such services, in such
manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
<PAGE>
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 International Equity Fund (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 ("SAI"), as amended from time
to time, and such other limitations as may be imposed by law or as Penn Series
or Adviser 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 would violate the
investment objectives, investment program, or investment restrictions or
limitations of the Fund set out in the Prospectus and the SAI previously
delivered to the Sub-Adviser 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 Adviser or 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) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Fund that
would violate the investment objectives, investment program, or investment
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.
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<PAGE>
3. Fees.
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 rate of 0.50%
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. A Fund's net assets, for
purposes of the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of Additional
Information as of the close of business on the most recent previous
business day on which Penn Series was open for business.
D. Expense Limitation. The expense limitation of the Fund, as a
percentage of average daily net assets, is 1.50%. To the extent that
a 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 accounting, administrative and
corporate services fees before any adjustment pursuant to this
provision) exceed the expense limitation for the Fund in an amount up
to and including .10% of the average daily net assets of the Fund,
such excess amount shall be a liability of Sub-Adviser to Adviser.
The liability (if any) of Sub-Adviser to pay Adviser 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 advisory 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 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 Sub-Adviser
and shall be payable by Adviser to Sub-Adviser along with the advisory
fee payable to Sub-Adviser for that month. In no circumstance shall
the liability of Sub-Adviser under this Section 3D exceed the total
amount of the sub-advisory fees payable to it hereunder in any given
fiscal year.
4. Brokerage. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the best
price and the most favorable
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<PAGE>
execution of its orders. In assessing the best price and the most favorable
execution for any transaction, Sub-Adviser shall consider the breadth of the
market in the security, the price of the security, the skill, financial
condition and execution capability of the broker or dealer, and the
reasonableness of the commission, if any. Where best price and most favorable
execution will not be compromised, Sub-Adviser may take into account the
research and related services that the broker has provided to Penn Series or the
Sub-Adviser. It is understood that the Sub-Adviser will not be deemed to have
acted unlawfully or to have breached a fiduciary duty to the Fund or be in
breach of any obligation owing to the Fund under this Agreement, or otherwise,
by reason of its having directed a securities transaction on behalf of the Fund
to a broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, 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 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 and Adviser may, at
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<PAGE>
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 for the
expression of their opinion without any qualification as to the scope of their
examination, including, but not limited to, their opinion included in Penn
Series' annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
9. Reports to Sub-Adviser. Penn Series and/or Adviser shall furnish
or otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports, and
other information relating to the business and affairs of Penn Series as Sub-
Adviser may, at any time or from time to time, reasonably require in order to
discharge its obligations under this Agreement.
10. Ownership of Records. All records required to be maintained and
kept current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act and
that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of Penn
Series. Such records will be preserved by Sub-Adviser itself or through an
affiliated corporation for the periods prescribed in Rule 3la-2 under the Act,
where applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn Series
and Adviser at reasonable times and, in the event of termination of this
Agreement, will be promptly delivered to Adviser and Penn Series upon request.
11. Services to Other Clients. Nothing herein contained shall limit
the freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to act
as investment advisor 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 Fund, or until Sub-Adviser shall otherwise consent, Sub-Adviser shall be
the only investment sub-adviser to the Fund. 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 a 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 other clients.
12. Confidential Relationship. Information furnished by Penn Series
or by one party to another, including Penn Series' or a party's respective
agents and employees, is confidential and shall not be disclosed to third
parties unless required by law. Sub-Adviser, on behalf of itself and its
affiliates and representatives, agrees to keep confidential all records and
other information relating to Adviser or Penn Series (as the case may be),
except after prior notification to and approval in writing by Adviser or Penn
Series (as the case may be), which approval shall not be
-5-
<PAGE>
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 a 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. Sub-Adviser shall not be responsible for any loss incurred
by reason of any act or omission of the Custodian, Transfer Agent, Accounting
Services Agent, or other third party with which the Fund has a contractual
arrangement, or of any broker, dealer, underwriter or issuer selected by Sub-
Adviser with reasonable care.
-6-
<PAGE>
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. 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 and resulting from any claim, demand, action or suit arising out of Sub-
Adviser's or any affiliate's failure to comply with any term of this Agreement
or which arise out of the willful misfeasance, bad faith, negligence or
misconduct of Sub-Adviser, its affiliates, their agents or contractors. 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 or any third party
with which the Fund has a contractual arrangement and with which Sub-Adviser is
obligated to cooperate under the terms of this Agreement, 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.
-7-
<PAGE>
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 Adviser to Sub-Adviser, or upon 90 days'
prior notice in writing from Sub-Adviser to Adviser; provided, that in the case
of termination by Adviser or Penn Series, such action shall have been authorized
by resolution of a majority of its directors who are not interested persons of
any party to this Agreement, or by vote of a majority of the outstanding voting
securities of the series of shares of Penn Series representing interests in the
Fund.
24. Miscellaneous.
A. Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any of
the provisions hereof or otherwise affect their construction or
effect.
B. Interpretation. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. Definitions. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the
-8-
<PAGE>
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 Dresher Road, Horsham, PA 19044,
Attention: President, and that of Sub-Adviser is Vontobel USA Inc.,
450 Park Avenue, New York, New York 10022, Attention: Chief Executive
Officer.
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.
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.
-9-
<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: INDEPENDENCE CAPITAL
MANAGEMENT, INC.
By:
- ---------------------------- -----------------------------
Secretary
Attest: VONTOBEL USA INC.
By:
- --------------------------- ----------------------------
Secretary
-10-
<PAGE>
ANNEX A
FUNDS WITH OBJECTIVES
SIMILAR TO VALUE EQUITY AND
SMALL CAPITALIZATION FUNDS
The following tables indicate 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.
OpCap Advisors is the manager or sub-adviser to the registered investment
companies listed below. 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 2/19/98) Advisory Fee Rate
- ---- ---------------- -----------------
<S> <C> <C>
Oppenheimer Quest Value $1,279,482,378 1.0% on the first $400
Fund, Inc. million; .90% on the next $400
million; .85% of net assets
between $800 million but less
than $4 billion; .80% in
assets over $4 billion but
less than $8 billion and .75%
on assets over $8 billion/(1)/
Oppenheimer Quest $4,531,980,786 1.0% on the first $400
Opportunity Value Fund million; .90% on the next $400
million; .85% of net assets
between $800 million but less
than $4 billion; .80% in
assets over $4 billion but
less than $8 billion and .75%
on assets over $8 billion/(1)/
Oppenheimer Quest Small $ 338,701,814 1.0% on the first $400
Cap Value Fund million; .90% on the next $400
million; .85% of net assets in
excess of $800 million/(1)/
Oppenheimer Quest Officers $ 7,536,425 1.0% of its daily net
Value Fund assets/(1,2)/
Oppenheimer Quest Capital $ 282,444,019 1.0% on the first $400
Value Fund, Inc. million; .90% on the next $400
million; .85% of net assets in
excess of $800 million/(3)/
Enterprise Accumulation
Trust:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Approximate Net
Assets
Fund (as of 2/19/98) Advisory Fee Rate
- ---- ---------------- -----------------
<S> <C> <C>
Equity Portfolio $ 554,718,380 .40% on the first $1 billion;
and .30% on assets over $1
billion/(4)/
Managed Portfolio $2,822,886,625 .40% on the first $1 billion;
.30% on assets over $1
billion; and .25% for assets
in excess of $2 billion/(4)/
Enterprise Group of Funds
Managed Portfolio $ 379,609,068 .40% on the first $100
million; .30% on assets in
excess of $100 million/(5)/
Equity Portfolio $ 5,994,866 .40% on the first $100
million; .30% on assets in
excess of $100 million/(5)/
Endeavor Series Trust:
Value Equity Portfolio $ 229,290,532 .40%/(6)/
Opportunity Value Portfolio $ 30,693,855 .40%/(6)/
WNL Series Trust:
Elite Value Asset $ 10,560,828 .40%/(7)/
Allocation Portfolio
The Saratoga Advantage
Trust:
Large Capitalization Value $ 36,136,150 .30%/(7)/
Portfolio
OCC Accumulation Trust
Equity Portfolio $ 30,942,820 .80% of the first $400 million
of average net assets; .75% on
the next $400 million of
average net assets and .70% of
assets in excess of $800
million/(8)/
Small Cap Portfolio $ 124,525,840 .80% of the first $400 million
of average net assets; .75% on
the next $400 million of
average net assets and .70% of
assets in excess of $800
million/(8)/
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Assets
Fund (as of 2/19/98) Advisory Fee Rate
- ---- ---------------- -----------------
<S> <C> <C>
Managed Portfolio $ 544,970,118 .80% of the first $400 million
of average net assets; .75% on
the next $400 million of
average net assets and .70% of
assets in excess of $800
million/(8)/
</TABLE>
_________________________
/(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)/ OFI's advisory fee for the Oppenheimer Quest Officers Value Fund is
1.00%. However, effective August 1, 1996, OFI is waiving the portion of
its management fee equal to what OFI would have ben required to pay
OpCap as the sub-advisory fee and OpCap has agreed to waive its sub-
advisory fee.
/(3)/ OFI is the investment adviser and OpCap Advisors is the sub-adviser. OFI
pays OpCap a sub-advisory fee equal to 40% of the net advisory fee
calculated by OFI for the fund based on the total net assets of the fund
as of February 28, 1997 and remaining 120 days later (the "base amount")
plus 30% of the investment advisory fee collected by OFI based on the
total net assets that exceed the base amount.
/(4)/ These fees are for investment advisory services only. Management
services are provided to the portfolios 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; .75% on the next
$400 million and .70% on assets above $800 million of each of the
portfolios.
/(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 .75% of the average daily net assets of the
Portfolio.
/(6)/ 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 .80% of average daily net assets of the
portfolios.
/(7)/ 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.
/(8)/ 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 1.00% of each Portfolio's average
daily net assets
<PAGE>
ANNEX B
T. ROWE PRICE FUNDS WITH
OBJECTIVES SIMILAR TO
FLEXIBLY MANAGED AND HIGH YIELD BOND FUNDS
T. Rowe Price acts as investment adviser to a registered investment company
(the "Capital Appreciation Fund") having a similar investment objective and
policies to those of the Flexibly Managed Fund. For its services to the Capital
Appreciation Fund, T. Rowe Price is paid a management fee consisting of three
elements: a "Group" Fee, an "Individual" Fund Fee and a Performance Fee
Adjustment, based on the performance of the Capital Appreciation Fund relative
to the Standard & Poor's 500 Stock Index (the "Index"). The "Group" Fee varies
based on the combined net assets of certain funds distributed b T. Rowe Price
Investment Services, Inc. (excluding T. Rowe Price Index Trust, T. Rowe Price
Spectrum Funds and any institutional and private label mutual funds) (the
"Combined Price Funds"). The fund pays, as a portion of the "Group" Fee, an
amount equal to the ratio of its daily net assets to the daily net assets of all
the Combined Price Funds. The Capital Appreciation Fund pays a flat "Individual"
Fund Fee based on its net assets. The table below sets forth the current "Group"
Fee rate at various asset levels of the Combined Price Funds.
.480% first $1 billion
.450% next $1 billion
.420% next $1 billion
.390% next $1 billion
.370% next $1 billion
.360% next $2 billion
.350% next $2 billion
.340% next $5 billion
.330% next $10 billion
.320% next $10 billion
.310% next $16 billion
.305% next $30 billion
.300% thereafter
The Performance Fee is paid monthly to T. Rowe Price on the first business
day of the next succeeding calendar month and is calculated as follows: The
Monthly Group Fee and Monthly Fund Fee are combined (the "Combined Fee") and are
subject to a downward Performance Fee Adjustment until October 31, 1998,
depending on the total return investment performance of the Fund relative to the
total return performance of the Index during the previous thirty-six (36)
months. Effective November 1, 1998, there will no longer be any Performance Fee
Adjustment. The Performance Fee Adjustment is computed as of the end of each
month and if any adjustments results, is subtracted from the Combined Fee. No
Performance Fee Adjustment is made to the Combined Fee unless the investment
performance ("Investment Performance") of the Capital Appreciation Fund (stated
as a percent) is exceeded by the investment record ("Investment Record") of the
Index (stated as a percent) by at least one full point. (The difference between
the Investment Performance and Investment Record will be referred to as the
Investment Performance Differential.) The Performance Fee Adjustment for any
month is calculated by multiplying the rate of the Performance Fee Adjustment
("Performance Fee Adjustment") achieved for the 36-month period times the
average daily net assets of the Capital Appreciation Fund for such 36-month
period and dividing the product by 12. The Performance Fee Adjustment rate is
calculated by multiplying the Investment Performance Differential (rounded
downward to the nearest full point) times a factor of .02%. Regardless of the
Investment Performance Differential, the Performance Fee Adjustment Rate shall
not exceed (.30)%.
T. Rowe Price also acts as investment sub-adviser to other registered
investment companies ("Sub-advised Mutual Funds") having similar investment
objectives and policies to those of the Flexibly Managed Fund. For this purpose,
the Sub-advised Mutual Funds are mutual funds that are not sponsored by T. Rowe
Price.
<PAGE>
The table below sets forth the name of each investment company having
similar investment objectives and policies of the Flexibly Managed Fund, the
annual rate of compensation (i.e., for the Price Funds, the "individual fee"
charged by T. Rowe Price as a percentage of average daily net assets and, for
the Sub-advised Mutual Funds, the fee T. Rowe Price is paid for its services as
sub-adviser to the respective portfolio), and net assets as of 12/31/97.
Flexibly Managed Fund
- ---------------------
<TABLE>
<CAPTION>
T. Rowe Price Advised Investment Annual Rate of Net Assets as
Mutual Fund Objective Compensation of 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price Long Term .30%* $1,059,900,000
Capital Appreciation Fund Capital Growth
- --------------------------------------------------------------------------------
Sub-advised Mutual Funds
- --------------------------------------------------------------------------------
Ohio National Fund, Inc. Capital Growth .70% on first $ 59,300,000
Capital Appreciation $5 million in
Portfolio assets
.50% on assets
in excess of $5
million
- --------------------------------------------------------------------------------
GCG Trust Fully Managed Long Term Total .50% $ 169,500,000
Series Return,
consistent with
Preservation of
Capital
- --------------------------------------------------------------------------------
</TABLE>
* Individual fund fee is subject to a performance adjustment.
<PAGE>
T. Rowe Price acts as investment adviser to a registered investment company
(the "High Yield Fund") having a similar investment objective and policies to
those of the High Yield Bond Fund. For its services to the High Yield Fund, T.
Rowe Price is paid a management fee consisting of two elements: a "Group" Fee
and an "Individual" Fund Fee. The "Group" fee varies based on the combined net
assets of certain funds distributed by T. Rowe Price Investment Services, Inc.
(excluding T. Rowe Price Index Trust, T. Rowe Price Spectrum Funds and any
institutional and private label mutual funds) (the "Combined Price Funds"). The
High Yield Fund pays, as a portion of the "Group" Fee, an amount equal to the
ratio of its daily net assets to the daily net assets of all the Combined Price
Funds. The High Yield Fund pays a flat "Individual" Fund Fee based on its net
assets. The table below sets forth the current "Group" Fee rate at various asset
levels of the Combined Price Funds.
.480% first $1 billion
.450% next $1 billion
.420% next $1 billion
.390% next $1 billion
.370% next $1 billion
.360% next $2 billion
.350% next $2 billion
.340% next $5 billion
.330% next $10 billion
.320% next $10 billion
.310% next $16 billion
.305% next $30 billion
.300% thereafter
The table below sets forth the name of each investment company having
similar investment objectives and policies of the High Yield Bond Fund, the
annual rate of compensation (i.e., for the Price Funds, the "individual fee"
charged by T. Rowe Price as a percentage of average daily net assets) and net
assets as of 12/31/97.
High Yield Bond Fund
- --------------------
<TABLE>
<CAPTION>
T. Rowe Price Advised Fund Investment Annual Rate of Net Assets as of
Objective Compensation 12/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price High Current .30% $1,571,700,000
High Yield Fund Income and
secondarily
capital
appreciation
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
THE PENN MUTUAL LIFE INSURANCE COMPANY
Penn Mutual Variable Annuity Accounts I, II and III
Penn Mutual Variable Life Account I
Voting Instruction Form
NOTE:
The table below shows the shares of each Fund that are applicable to your
variable annuity contract(s) and/or variable life insurance policy(ies) and
the Proposals that are applicable to each Fund. Please provide voting
instructions with respect to Proposals that are applicable to shares of
Funds held under your contract(s) and/or policy(ies). Proposals 1 and 2 are
applicable to all contracts and policies.
- --------------------------------------------------------------------------------
FUND SHARES HELD APPLICABLE PROPOSALS
Growth Equity Fund
Value Equity Fund
Small Capitalization Fund
Emerging Growth Fund
Flexibly Managed Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund
- --------------------------------------------------------------------------------
At the Special Meeting of Shareholders of Penn Series Funds, Inc. (the
"Company") scheduled to be held on April 16, 1998 and at any adjournments
thereof, the undersigned owner of a variable annuity contract(s) and/or variable
life insurance policy(ies) participating in one or more of the named separate
accounts hereby instructs The Penn Mutual Life Insurance Company ("Penn Mutual")
to vote shares of a Fund or Funds of the Company held under my contract(s)
and/or policy(ies) on the proposals set forth in the Notice of Special Meeting
and Proxy Statement that accompanied this Voting Instruction Form, and for any
adjournments of the Meeting, in accordance with the instructions below.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders scheduled to be held on April 16, 1998 and the accompanying Proxy
Statement.
[X] Please mark your choices below like this on the applicable Proposals and
sign and date below.
If you wish to vote for or against all of the Proposals that are applicable
to your contract(s) or policy(ies), mark your choice in the appropriate
space immediately below in lieu of marking each applicable Proposal.
FOR [_] AGAINST [_]
PROPOSALS
---------
1. Elect a Board of Directors of the Company.
FOR [_] WITHHOLD ALL [_] WITHHOLD ALL EXCEPT [_]
Nominees: Eugene Bay, Robert E. Chappell, James S. Greene, William H. Loesche,
Jr., Lawrence L. Mast, Daniel J. Toran, M. Donald Wright
To withhold authority to vote for specific nominees, mark "Withhold
All Except" and write the nominees' name on the line below.
-----------------------------------------
2. Approve Ernst & Young L.L.P. as the Company's Independent Auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Continued, and to be signed and dated on reverse side.)
<PAGE>
PROPOSALS
---------
3. Approve changes to the investment policies of the Flexibly Managed Fund to
apply the Fund's 10% limit on ownership of voting securities of any issuer
to 75% of the total assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approve changes in the investment policies of the High Yield Bond Fund to
apply the Fund's 5% limit on assets invested in any one issuer and 10%
limit on ownership of voting securities of any issuer to 75% of the total
assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit each Fund to invest up to 15% of their
respective net assets in illiquid securities and change the policies from
fundamental to non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Approve changes in the investment policies of the Flexibly Managed and High
Yield Bond Funds to remove each Fund's investment policy limiting
investments in securities of issuers which have been in operation for less
than three years to 5% of the total assets of the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit the Funds to invest in securities backed by real
estate or in securities of companies engaged in the real estate business.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Approve changes in the investment policies of the High Yield Bond Fund to
permit the Fund to invest up to 10% of its assets in warrants to purchase
common stocks and change the policy regarding warrants from fundamental to
non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds and approve the proposed Investment Advisory Agreement between the
Company, on behalf of the Funds, and ICMI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Approve OpCap as investment sub-adviser to the Value Equity Fund and Small
Capitalization Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and OpCap.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Approve T. Rowe Price as investment sub-adviser to the Flexibly Managed and
High Yield Bond Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and T. Rowe Price.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
12. Approve Vontobel as investment sub-adviser to the International Equity
Fund, and approve the proposed Sub-Advisory Agreement between ICMI and
Vontobel.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The 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. These voting instructions are solicited by Penn Mutual.
Please date, sign and return promptly.
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 an attorney, executor, adminstrator, trustee or guardian, please
print your full title below your signature.
Dated , 1998
- ------------------------------ ---------------
Signature
- ------------------------------
Signature
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
PIA Variable Annuity Account I
Voting Instruction Form
NOTE:
The table below shows the shares of each Fund that are applicable to your
variable annuity contact(s) and the Proposals that are applicable to each
Fund. Please provide voting instructions with respect to Proposals that
are applicable to shares of Funds held under your contact(s). Proposals 1
and 2 are applicable to all contracts.
--------------------------------------------------------------------------
FUND SHARES HELD APPLICABLE PROPOSALS
Growth Equity Fund
Value Equity Fund
Small Capitalization Fund
Emerging Growth Fund
Flexibly Managed Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund
At the Special Meeting of Shareholders of Penn Series Funds, Inc.
(the "Company") scheduled to be held on April 16, 1998 and at any
adjournments thereof, the undersigned owner of a variable annuity
contract(s) participating in one or more of the named separate accounts
hereby instructs The Penn Insurance and Annuity Company ("Penn Insurance")
to vote shares of a Fund or Funds of the Company held under my contract(s)
on the proposals set forth in the Notice of Special Meeting and Proxy
Statement that accompanied this Voting Instruction Form, and for any
adjournments of the Meeting, in accordance with the instructions below.
The undersigned acknowledges receipt of the Notice of Special Meeting
of Shareholders scheduled to be held on April 16, 1998 and the accompanying
Proxy Statement.
[X] Please mark your choices below like this on the applicable Proposals
and sign and date below.
If you wish to vote for or against all of the Proposals that are
applicable to your contract(s), mark your choice in the appropriate
space immediately below in lieu of marking each applicable Proposal.
FOR [_] AGAINST [_]
PROPOSALS
---------
1. Elect a Board of Directors of the Company.
FOR [_] WITHHOLD ALL [_] WITHHOLD ALL EXCEPT [_]
Nominees: Eugene Bay, Robert E. Chappell, James S. Greene,
William H. Loesche, Jr., Lawrence L. Mast, Daniel J.
Toran, M. Donald Wright
To withhold authority to vote for specific nominees,
mark "Withhold All Except" and write the nominees'
name on the line below.
---------------------------------------------
2. Approve Ernst & Young L.L.P. as the Company's Independent
Auditors.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued and to be signed and dated on reverse side.)
<PAGE>
PROPOSALS
---------
3. Approve changes to the investment policies of the Flexibly Managed Fund to
apply the Fund's 10% limit on ownership of voting securities of any issuer
to 75% of the total assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approve changes in the investment policies of the High Yield Bond Fund to
apply the Fund's 5% limit on assets invested in any one issuer and 10%
limit on ownership of voting securities of any issuer to 75% of the total
assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit each Fund to invest up to 15% of their
respective net assets in illiquid securities and change the policies from
fundamental to non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Approve changes in the investment policies of the Flexibly Managed and High
Yield Bond Funds to remove each Fund's investment policy limiting
investments in securities of issuers which have been in operation for less
than three years to 5% of the total assets of the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit the Funds to invest in securities backed by real
estate or in securities of companies engaged in the real estate business.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Approve changes in the investment policies of the High Yield Bond Fund to
permit the Fund to invest up to 10% of its assets in warrants to purchase
common stocks and change the policy regarding warrants from fundamental to
non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds and approve the proposed Investment Advisory Agreement between the
Company, on behalf of the Funds, and ICMI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Approve OpCap as investment sub-adviser to the Value Equity Fund and Small
Capitalization Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and OpCap.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Approve T. Rowe Price as investment sub-adviser to the Flexibly Managed and
High Yield Bond Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and T. Rowe Price.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
12. Approve Vontobel as investment sub-adviser to the International Equity
Fund, and approve the proposed Sub-Advisory Agreement between ICMI and
Vontobel.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The shares will be voted as directed. Penn Insurance will vote on any other
business that may properly come before the meeting, in the discretion of its
management. These voting instructions are solicited by Penn Insurance.
Please date, sign and return promptly.
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 an attorney, executor, adminstrator, trustee or guardian, please
print your full title below your signature.
- -------------------------------------- Dated: , 1998
Signature --------------------
- --------------------------------------
Signature
