<PAGE>
- --------------------------------------------------------------------------------
FLEXIBLY MANAGED FUND
The fund advanced strongly, but its cautious strategy could not keep up with
the broad market. However, during the year's few periods of market difficulty,
performance was outstanding.
MARKET ENVIRONMENT
The broad stock market rose for the seventh consecutive year. Unlike the prior
six, however, 1997 saw considerably more price volatility. We had two
intermediate declines greater than 10%, something which had not happened since
1990. Long-term interest rates fell during the year, while short-term rates
were largely unchanged. Inflation remained in check, which is unusual since
labor is tight and wages, which represent about two-thirds of all costs, have
begun to rise. Outside the United States, the big news was sick currencies and
stock markets in much of Asia. Observers have tended to downplay the potential
negative effects on the U.S., but we remain concerned. While direct trade links
are small compared with our huge economy, the financial and commodity links are
significant.
PORTFOLIO HIGHLIGHTS
Media stocks continue as a stellar area of investment, with both New York Times
and Washington Post being important contributors to performance. They remain
large holdings, although we have substantially reduced the New York Times
position. We also trimmed two of our other big winners, Automatic Data
Processing convertible bonds and FirstEnergy. Our biggest disappointments were
the plummeting gold mining stocks. New purchase activity included about 20 new
convertibles and equities during the year. Niagara Mohawk and MacMillan Bloedel
(stocks), and Chiron (convertible bond) were three of the more significant
recent purchases. An unusual fixed income purchase is now one of our top five
holdings -putable TVA bonds. In return for their favorable risk/return
characteristics we give up a portion of current income - a reasonable tradeoff
given the uncertainty and potential magnitude of possible future interest rate
changes.
OUTLOOK
The economy still looks fine. Yes, Christmas retail sales disappointed some
merchants, and yes, some Americans have too much credit card debt, but we
expect only a moderate slowing. Corporate earnings growth in 1998, however, is
not likely to match that of 1997. We are at record high profit margins, and if
inflation is truly subdued, profits could well be squeezed. With regard to
interest rates, we have gone from predicting a modest rise to thinking that
almost anything is possible. Low inflation and possible profit problems or a
slowing economy might drive rates far lower than we had thought possible. On
the other hand, financial turmoil might move them up substantially. Finally, we
consider valuation to be the most significant negative facing the stock market,
just as it was 12 months ago. Historic yardsticks like price/earnings ratios
and dividend yields are off the charts, and we are skeptical of the underlying
accounting.
T. Rowe Price Associates, Inc.
Investment Adviser
- --------------------------------------------------------------------------------
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Flexibly
Managed Fund and S&P 500
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years 10 Years Since 3/1/87
<S> <C> <C> <C> <C>
Penn Series 15.65% 14.69% 14.22% 13.48%
S&P 500 33.32% 20.25% 18.10% 15.36%
</TABLE>
<TABLE>
<CAPTION>
Penn Series S&P 500
<S> <C> <C>
3/1/87 10,000 10,000
12/31/87 10,420 8,915
12/31/88 12,390 10,394
12/31/89 15,020 13,658
12/31/90 14,893 13,278
12/31/91 18,118 17,315
12/31/92 19,851 18,634
12/31/93 22,986 20,511
12/31/94 23,938 20,868
12/31/95 29,271 28,702
12/31/96 34,063 35,292
12/31/97 39,394 47,051
</TABLE>
The performance information shown here does not reflect variable account
charges and fees nor does it reflect the period prior to March 1, 1987 when T.
Rowe Price Associates, Inc. became the Fund's investment adviser. Past
performance is not predictive of future performance. Shares may be worth more
or less when redeemed than when purchased. Assumes reinvestment of all
dividends.
<PAGE>
- --------------------------------------------------------------------------------
HIGH YIELD BOND FUND
High-yield bonds continued to be buoyed by the economy's momentum, and were the
best-performing area of the U.S. bond market in 1997. With inflation remaining
subdued and prospects of another tightening by the Federal Reserve becoming a
distant memory, interest rates retraced their first-half rise during the second
half. Like high-quality bonds, high-yield (junk) bonds benefited from falling
rates, but, unlike their high-quality counterparts, they cheered evidence of
strong economic growth.
The high-yield picture dimmed only in October, when financial market turmoil
spread from Southeast Asia, where it began last July, to virtually all other
stock markets. Since a healthy equity market is always important to high-yield
issuers, who hope one day to replace bonds with stocks or to benefit from
buyouts, high-yield bonds faltered as stocks plunged. In addition, the slowdown
in Asia raised the possibility of slower growth in the U.S. As is usually the
case in such circumstances, the lower-quality tiers-previously the best
performers in 1997--were hit the hardest. Nevertheless, there was a positive
side to the correction, ill our view, because the yield difference between
high-and low-quality bonds widened for a while, reducing some bond valuations
that had seemed excessive and providing some buying opportunities.
The high-yield market's supply and demand fundamentals remained basically
healthy. The volume of new issues coming to market set a calendar-year record,
with telecommunications companies dominating issuance in the second half and a
surge of foreign offerings earlier in the year. Fortunately, the demand side of
the equation remained strong, as high-yield bonds continued to become accepted
as a mainstream asset class by individuals and a wide variety of institutional
investors.
PERFORMANCE AND STRATEGY REVIEW
The fund performed well during the past six and 12 months ended December 31,
1997, exceeding the Merrill Lynch High Yield Index for both periods as well as
the average return of competitor funds. The fund's performance reflected our
underweighting of lower quality credits. In particular, we held few foreign
issues compared with their weighting in the overall high-yield marketplace and
in some other high-yield mutual funds. This posture restrained your fund's
comparative returns earlier in the year, when lower-quality issues were the
performance leaders, but was beneficial during the October correction.
Our strategy during recent months was to position the fund somewhat more
aggressively while tightening risk control measures. Of the two major areas of
opportunity during the period, foreign bonds and new telecommunications bonds,
we focused on the latter, raising exposure to the sector to 11% of net assets--
still below the sector's market weighting of almost 14%. Drawing as always on
the rigorous research of our internal credit analysts, we are optimistic about
the prospects of the telecommunications sector, particularly the competitive
local exchange carriers. These companies are borrowing heavily to lay fiber
optic lines across the country to challenge the baby Bells. As part of our
risk-control strategy, we spread this exposure over 21 different companies.
- --------------------------------------------------------------------------------
Apart from the increase in telecommunications, there were no notable sector
shifts during the second half, and the fund's assets remain well diversified
among about two dozen industries. Our largest holdings remained equally well
diversified. We purchased some U.S. Treasury bonds during the market turmoil of
October, when quality spreads widened, because it seemed a prudent move until
the extent of the correction was apparent. Treasuries also benefited from their
"safe haven" status, providing robust returns during the period.
OUTLOOK
After weighing the positives and potential negatives, our view of the high-
yield market is constructive. Valuations have improved, demand is strong, and
the corporate consolidation trend continues to boost prices of many high-yield
issues. Most important, U.S. economic growth seems likely to remain solid, and
a slightly slower pace due to the Asia crisis should not trigger credit
problems. We have some concerns, however. The overall credit quality of new
high-yield bond issues has gradually deteriorated, and we become ever more
selective. The growing overseas component of our market also makes it
potentially more volatile, in our opinion.
All in all, we expect further good returns on high-yield bonds in the coming
months but would be surprised to see a repeat of the price appreciation evident
through most of 1997. We intend to exercise caution in selecting new holdings
and vigilance over risk. Investors should keep in mind that this market, like
the stock market, can experience sharp changes in psychology that are hard to
predict, so that high-yield bonds should be part of a well-diversified
portfolio.
T. Rowe Price Associates, Inc.
Investment Adviser
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series High Yield
Bond Fund and First Boston High Yield Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years 10 Years Since 3/1/87
<S> <C> <C> <C> <C>
Penn Series 15.78% 11.22% 11.14% 9.90%
First Boston 12.63% 11.85% 12.10% 12.43%
</TABLE>
<TABLE>
<CAPTION>
Penn Series First Boston
<S> <C> <C>
3/1/87 10,000 10,000
12/31/87 9,677 10,101
12/31/88 11,397 11,480
12/31/89 11,330 11,523
12/31/90 10,316 10,788
12/31/91 14,122 15,508
12/31/92 16,354 18,092
12/31/93 19,587 21,513
12/31/94 18,151 21,302
12/31/95 21,128 25,010
12/31/96 24,042 28,116
12/31/97 27,836 31,667
</TABLE>
The performance information shown here does not reflect variable account
charges and fees nor does it reflect the period prior to March 1, 1987 when T.
Rowe Price Associates, Inc. became the Fund's investment adviser. Past
performance is not predictive of future performance. Shares may be worth more
or less when redeemed than when purchase. Assumes reinvestment of all
dividends.
<PAGE>
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
The U.S. stock market ended 1997 with a level of uncertainty not seen in some
time, as investors pondered the implications of the Asian financial crises.
Whether and how this crisis will affect economic conditions in the United
States is a central issue facing the market today. We performed well in this
challenging environment.
At one extreme, some analysts have suggested a period of danger looms on the
horizon. They believe the Asian crisis could tip low U.S. inflation into
deflation and even depression. At the other extreme, some analysts have
suggested the U.S. economy will feel if any ill effect from events in Asia.
Many in this latter group are worried about the prospect of re-inflation ,
caused by a tight U.S. job market, than deflation.
As much as any factor, the ebbing of inflation has fueled the extraordinary
bull market of the past 13 years. Either a resurgence of inflation, on the one
hand, or a protracted economic downturn, on the other, might well shrink equity
valuations and bring the bull market tumbling down. Conversely, a sustained
environment of low inflation and economic growth could propel the market to new
highs.
We believe a tight U.S. job market and the Asian crisis will approximately
offset each other in their impact on the U.S. economy. It is our best guess,
therefore, that inflation will not pick up markedly, nor will the United States
slide into severe recession. Whether the stock market indexes will rise or fall
in 1998 is a matter of conjecture. We would not be surprised, however, to see a
high level of market volatility until these issues sort them selves out. We are
not overly concerned about this prospect, since volatility creates
opportunities to buy stocks we like at favorable prices.
We continue to invest for the long term in superior businesses that are
reasonably valued, especially those which generate a high level of cash
throughout the economic cycle. By being disciplined in our value approach, we
seek to control risk and match or exceed our benchmarks regardless of economic
or market trends.
OpCap Advisors
Investment Adviser
- --------------------------------------------------------------------------------
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Value
Equity Fund and S&P 500
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years Since 11/1/92
<S> <C> <C> <C>
Penn Series 24.98% 18.84% 19.09%
S&P 33.32% 20.25% 20.63%
</TABLE>
<TABLE>
<CAPTION>
Penn Series S&P 500
<S> <C> <C>
11/1/92 10,000 10,000
12/31/92 10,402 10,467
12/31/93 11,138 11,522
12/31/94 11,464 11,687
12/31/95 15,761 16,075
12/31/96 19,731 19,767
12/31/97 19,731 26,353
</TABLE>
The performance information shown here does not reflect variable account
charges and fees nor does it reflect the period prior to November 1, 1992 when
OpCap became the Fund's investment adviser. Past performance is not predictive
of future performance. Shares may be worth more or less when redeemed than
when purchased. Assumes reinvestment of all dividends.
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAPITALIZATION FUND
The small cap market, which had sprung into life in the third quarter,
outperforming large caps, lagged in the fourth quarter due in part to investor
concerns about the impact of the Asian financial crisis and a resulting desire
to own liquid, easily tradable securities. Apart from the third quarter, small
caps as a class have now underperformed large caps for three years. We believe
many small cap issues are attractively valued at this time.
We invest in companies that have a significant record of earnings and revenue
growth, generate sizable cash flow, have high cash flow returns on assets and
have quality balance sheets. We purchase these companies at attractive
multiples relative to the market and to where they have traded in the past. We
continue to perform well by remaining disciplined in our value philosophy.
We reduced our cash reserves and established several new positions in the
fourth quarter, including Watkins-Johnson, which makes semiconductor
manufacturing equipment and electronic products for the wireless industry:
Belden Inc., which manufacturers wire and cable: and National Patent
Development, a holding company whose main operating unit is General Physics,
which provides training to business and government.
WestPoint Stevens, which we have owned for nearly three years, elucidates our
value style. The company is the largest U.S. manufacturer of sheets and towels.
It is also the lowest-cost manufacturer and has operating margins that are
twice the industry average. The company generates significant free cash flow,
which is plowed back into the business and is employed also for an aggressive
share repurchase program. The company's earnings and cash flow outlook is
excellent. WestPoint Stevens is valued as a textile manufacturer, but we
believe it should be valued at higher multiples afforded to consumer products
companies, a view that is beginning to gain recognition among other investors.
We first bought the stock at an average price of about $19 a share, with a
target of $30. We subsequently raised our target to $40 and then to $50 as the
economic value of the business was increased through the effective allocation
of cash flow. The stock was trading recently at about $46 a share. In summary,
we like this business because it is well managed, has high returns, uses cash
flow wisely, has excellent growth prospects and is attuned to the interests of
shareholders. It is, in addition, reasonable valued.
OpCap Advisors
Investment Adviser
- --------------------------------------------------------------------------------
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Small Cap
Fund and Russell 2000
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year Since 3/1/95
<S> <C> <C>
Penn Series 23.02% 19.58%
Russell 2000 22.37% 22.54%
</TABLE>
<TABLE>
<CAPTION>
Penn Series Russell 2000
<S> <C> <C>
3/1/95 10,000 10,000
12/31/95 11,276 12,490
12/31/96 13,504 14,550
12/31/97 16,613 17,804
</TABLE>
The performance information shown here does not reflect variable account
charges and fees. Past performance is not predictive of future performance.
Shares may be worth more or less when redeemed than when purchased. Assumes
reinvestment of all dividends.
<PAGE>
- --------------------------------------------------------------------------------
GROWTH EQUITY FUND
Entering 1997 we expressed some concern about the economy's ability to sustain
growth at a pace that neither threatens to push inflation higher nor jeopardize
corporate profits. We envisioned the Federal Reserve walking a tightrope as it
attempted to balance the economy's competing forces. In many ways this scenario
proved to be right on the mark and the stock market has fared very well indeed.
Stronger than expected corporate earnings growth, low inflation, declining
long-term interest rates, a shrinking budget deficit and some flight of foreign
investment to the relative safety of the U.S. contributed to the stock market's
dramatic gains in 1997.
The Growth Equity Fund advanced 26.74% in 1997 which compares with the 25.30%
return for the Lipper Growth Fund Average, the 28.08% return for the overall
Lipper Growth Index and the S&P 500's return of 33.32%. While all of the broad
sectors of the S&P 500 participated in this year's advance it was not an easy
year for growth stock managers. A review of the Lipper Universe of growth fund
managers found that only 11% of growth funds outperformed the index for the
full year. Much of this difficulty can be attributed to the nature of the
advance and, in particular, the market's continued bias toward larger cap
stocks. Illustrative of this latter point is that only the top quintile (20%)
representing the largest companies in the S&P 500 outperformed the index for
the full year. Additionally, for the year the unweighted average return earned
by the stocks in the S&P 500 was 28.9%, which was a not insignificant 450 basis
points below the index's official, market weighted return.
For the year strength was particularly evident in Healthcare (+50.5%),
Financials (+34.4%), Consumer Staples (+32.2%), and Utilities (+30.5%). Other
sectors generating solid although below market returns were Consumer Cyclicals
(+26.2%), Capital Goods (+20.8%), Technology (+19.2%) and Energy (+11.8%).
Basic Materials (-1.1 %) posted a modest decline but never represented a
significant percentage of the portfolio.
The Growth Equity Fund's portfolio continues to emphasize investment in
companies capable of generating consistently strong earnings and sales gains in
an increasingly global economy. Leaders in technology, health care, and
financial services remain at the head of our list. As a result, by virtually
all measures the fund's characteristics are decidedly stronger than those for
the S&P 500 taken as a whole. At the same time, the Fund's management believes
it is paying less for that growth than would a buyer of an S&P 500 index fund.
Presently the S&P 500 is priced at 2.7x's its long-term growth rate based on
current fiscal year earnings and 2.5x's the following year's numbers. Compare
this to the 1.6x's current fiscal year numbers for the Growth Equity Fund and
the 1.4x's based on next year's earnings. This combination of earnings growth
and reasonable valuation helps to position the Fund to reward longer-term
growth investors.
We enter 1998 with modest expectations. The positives appear sufficient to
provide a reasonably attractive environment for the U.S. financial markets, but
the negatives give us pause. As a result, we envision returns for the stock
market in 1998 being less robust than the past few years. While many of the
same factors are at work as in 1997 there is a twist. A year ago concerns
centered around the re-emergence of inflationary pressures within the U.S.
economy, while today investors are more concerned about the global deflationary
pressures being exacerbated by the turmoil in Southeast Asia. Our nation's
ability to adjust to this heightened influence will have a direct impact on the
performance of its financial markets.
- --------------------------------------------------------------------------------
With interest rates likely to be a neutral, if not positive, influence on the
stock market in 1998 what other factors can be expected to impact returns in
the U.S. stock market? First, corporate profits are expected to grow but at a
decidedly slower rate than in recent years. For most companies the
opportunities for margin expansion have been largely exploited. Consequently a
company's ability to generate sales growth will increasingly determine its
bottom line.
Secondly, the potential for technology to unlock opportunities for new products
and services and increase productivity is enormous. As one strategist put it,
"the emergence of a large and growing installed PC base, and a shift to
internetworking have laid the groundwork for an Information Age in which
creation, distribution and manipulation of information is a central wealth-
creating activity." Those companies utilizing technology most effectively can
maintain strong profit growth.
Thirdly, mergers should continue to play a role in improving the profitability
of individual companies. The easiest gains, however, have already been
realized. And lastly, demographics and the renewed climb in real wages suggest
that both consumer spending and personal investment can gain momentum.
Independence Capital Management, Inc.
Investment Adviser
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Growth
Equity Fund and S&P 500
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years Since 11/1/92
<S> <C> <C> <C>
Penn Series 26.74% 14.67% 15.59%
S&P 500 33.32% 20.25% 20.63%
</TABLE>
<TABLE>
<CAPTION>
Penn Series S&P 500
<S> <C> <C>
11/1/92 10,000 10,000
12/31/92 10,661 10,467
12/31/93 11,986 11,522
12/31/94 11,013 11,687
12/31/95 13,926 16,075
12/31/96 16,678 19,767
12/31/97 21,140 26,353
</TABLE>
The performance information shown here does not reflect variable account
charges and fees nor does it reflect the period prior to November 1, 1992 when
Independence Capital Management, Inc. became the Fund's investment adviser.
Past performance is not predictive of future performance. Shares may be worth
more or less when redeemed than when purchased. Assumes reinvestment of all
dividends.
<PAGE>
- --------------------------------------------------------------------------------
QUALITY BOND FUND
The bond market continued to take its cue from overseas developments over the
past three months. The Asia meltdown in currencies and stock markets focused
attention on potential and (likely) future deflationary impacts on the US and
the world's economy. The bond market rallied significantly over the quarter
with the yield curve flattening, 30 year bonds fell .50% while 2 year bonds
fell .15%.
Interestingly, US Treasury interest rates (in all parts of the yield curve
except the 30 year) actually fell below the Federal Funds rate in the early
weeks of January. Obviously, this is the markets' vote that the Federal Reserve
will have to ease monetary policy soon to offset the deflationary impact of the
Asian financial crisis.
Yet the very first impact on the US economy from the Asian meltdown is the
dramatic fall in US interest rates since the summer when the crisis began. The
roughly 1% fall in rates have sent residential mortgage rates to 4 year lows
and have helped the US housing market to reach boom-like conditions now. New
home sales are at 20 year highs, while the inventory of houses are at 23 year
lows. Consumer confidence is at record highs and the unemployment rate is at 26
year lows. Wage gains and income are moving at the highs for this cycle and are
at 10 year highs. This bodes well for near term economic growth, an event the
markets are not looking for. We find it highly unlikely the Federal Reserve
eases monetary policy in the first quarter.
We think the Asian crisis with 80-90% declines in Asian stock indices is
possibly the worst financial/economic problem this generation has seen and will
have enormous impact over the world economy over the next 12-24 months.
However, the US bond market has so quickly discounted this, driving rates lower
than the Federal Funds rate for example, that not only is the market ripe for a
sell-off due to its overbought nature but the very low rates are in fact giving
a sharp economic stimulus to the (leveraged to interest rates) US economy. As a
result, we think that the bond market may be set for a period of rising rates,
a set-back that we would view as a buying opportunity in line with our
strategic view of lower rates.
Performance was disappointing on a relative basis for 1997. For 1997, returns
posted were +8.03% vs. 9.54% and 9.17% for the Salomon Index and Lipper "A"
average respectively. Performance was dragged down primarily due to mistakes
made in individual bond selection, exposure to Asian government bonds,
specifically Korean and Thailand bonds (AA and A rated prior to Asian crisis).
These two bond holdings reduced the return to the Fund by approximately 1.1% in
1997. We are instituting more rigorous methodology to the bond selection
process and expect improved results for 1998. The 1997 returns were also hurt
by the timing of the change in benchmark comparisons. The longer duration
Lipper "A" average was used in the period of rising rates (in the first quarter
of 1997). Subsequently, we systematically shortened duration to more closely
match the Salomon Index when rates were near their peak for the year. This
effect caused performance to suffer by approximately .25%.
Independence Capital Management, Inc.
Investment Adviser
- --------------------------------------------------------------------------------
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Quality
Bond Fund and Lehman Aggregate Bond Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C>
1 Year 5 Years Since 11/1/92
Penn Series 8.03% 7.41% 7.55%
Lehman Index 9.68% 7.48% 7.56%
</TABLE>
<TABLE>
<CAPTION>
Penn Series Lehman Index
<S> <C> <C>
11/1/92 10,000 10,000
12/31/92 10,198 10,161
12/31/93 11,388 11,152
12/31/94 10,778 10,826
12/31/95 12,949 12,826
12/31/96 13,485 13,289
12/31/97 14,568 14,576
</TABLE>
The performance information shown here does not reflect variable account
charges and fees nor does it reflect the period prior to November 1, 1992 when
Independence Capital Management, Inc. became the Fund's investment adviser.
Past performance is not predictive of future performance. Shares may be worth
more or less when redeemed than when purchased. Assumes reinvestment of all
dividends.
<PAGE>
- --------------------------------------------------------------------------------
EMERGING GROWTH FUND
Since its inception date of May 1, 1997, the Emerging Growth Fund has returned
39.2% verses 27.7% for the Russell 2000 Growth Index.
The portfolio's strategy remains focused on identifying attractive emerging
growth companies: we look for companies with revenue and earning growth of at
least 20 percent per year, a proprietary advantage.
Since the portfolio's inception, the technology sector has provided a
significant excess return. In the third quarter, our technology overweighting
helped the Emerging Growth portfolio materially outperform the small cap growth
benchmark by 9.94 percent. In the fourth quarter, however, most market indexes
fell as a result of the Asian crisis, and the fund gave back some of its gains.
Technology stocks were particularly hard hit in the fourth quarter. While the
Asian weakness will impact certain technology companies, we also believe a
large number of smaller technology stocks declined in sympathy, rather than
because of deteriorating fundamentals. Despite the downturn, we continue to be
optimistic about our holdings in the technology sector.
We are particularly excited about companies in several emerging growth
subsectors. The internet is one obvious example of a new subsector. Excite
(XCIT), a company that produces an internet search engine, was one of the
portfolio's top performers last year. Check Point Software Technologies (CHKPF)
is another company we own in the internet industry. (CHKPF) is a leading
worldwide producer of software that protects internet and intranet connected
corporate networks from unauthorized access. (CHKPF) is the portfolio's seventh
largest holding.
We also own several regional airlines in the transportation sector. Regional
airlines have benefited from several factors. First, the strong U.S. economy
has helped raise both business and leisure travel. Second, some regionals have
picked up expanded routes as large carriers seek to concentrate on routes
between hubs. Finally, regional carriers have upgraded their fleets from prop
planes to small jets. This upgrade has enabled carriers to attract more
passengers and fly routes more efficiently. Two companies we hold in the
portfolio are Atlantic Coast Airlines (ACAI) and Skywest Inc. (SKYW).
Going into 1998, the portfolio's overall characteristics have not changed. As
of December 31, 1997, the consensus outlook for the Emerging Growth portfolio's
5 Year EPS growth is 29.1 percent compared to 25.3 for the Russell 2000 Growth
Index. The portfolio's median market cap is $420 million compared with $490
million for the Russell 2000 Growth Index. As the numbers show, we remain
committed to our strategy of investing in emerging growth companies with a
competitive advantage in the market place.
We are pleased to have commenced a relationship with Penn Mutual in 1997 and
look forward to building our relationship in the future.
Independence Capital Management, Inc.
Investment Adviser
Robertson Stephens Investment Management
Investment Sub-Adviser
- --------------------------------------------------------------------------------
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series Emerging
Growth Fund and Russell 2000
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
Since 5/1/97
<S> <C>
Penn Series 39.22%
Russell 2000 28.68%
</TABLE>
<TABLE>
<CAPTION>
Penn Series Russell 2000
<S> <C> <C>
5/1/97 10,000 10,000
12/31/97 13,504 14,550
</TABLE>
The performance information shown here does not reflect variable account
charges and fees. Past performance is not predictive of future performance.
Shares may be worth more or less when redeemed than when purchased. Assumes
reinvestment of all dividends.
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
It's been painful to witness the extinguishing of emerging Asia's economic
growth ambitions. What had been believed for more than a decade to be good-
quality growth has proved to have a hollow core, like the empty buildings
visible on city skylines throughout the region. For more than a year we've been
bearish on emerging Asia, fearing that it had lost its competitive advantage,
less because of exchange rate factors than a lack of transparency in its
financial system and a growing reliance on external debt. Now in Asia, as was
the case in the US, Japan and Latin America, it's being demonstrated that the
use of debt to fuel growth can be detrimental. Keep in mind that Asia's debt
crises had a spillover effect on currency markets and not the reverse. These
crises occurred because of the huge pile-up of short-term US$ debt that was
getting difficult to roll over and impossible to service. With their products
in high demand, Asian economies got ahead of themselves, borrowing too much in
a frenetic race to build infrastructure and production capacity. Nor did it
help that their growth was being fed by a synthetic world of financial
speculation.
Given reduced forecasts for economic growth and company earnings worldwide, the
pressing need for market reforms in emerging economies, and the looming risk of
stagflation (not deflation), what markets will we focus on this year? The fact
that currency devaluations will, to a certain extent, buoy Asia's export
competitiveness is not in and of itself particularly cheering. For one thing,
its assembly economies rely on foreign production components and are facing
stiff hikes in import prices. For another, the combination of falling currency
values and rising interest rates in local markets has boosted the cost of
foreign exchange debt significantly, pushing many companies into bankruptcy.
With most outstanding debt denominated in US$, Asian governments won't be able
to deflate their way out of trouble.
Looking at IBES earnings estimates as of the end of December, upward revisions
outnumbered downward revisions for both European and Japanese companies, which
means there is a marginal risk that investors will be disappointed. The most
vulnerable sectors are highly cyclical companies. We've been bullish for more
than three years and strongly believe that, just as they did this year, good-
quality companies with sustainable growth rates will continue to perform well.
Earnings are still growing in Europe and Japan, and declining interest rates
and strong bond markets provide a buffer for the markets in terms of earnings
yield. Nevertheless, at this stage in the cycle of P/E expansion, prudence is
our byword. Where there is no margin of safety, we will not invest. On the
basis of fundamentals, we believe our stocks should be relatively immune to an
economic downturn in Asia since they do not depend on the elasticity of the
economy but are mostly in constant demand, for example, Vendex (temp agency),
Elsevier (technical publishing), Fuji Photo (color film paper) Takeda Chemical
(pharmaceuticals) Provident (personal finance company), BIC (razors), Aegon
(life insurance). These companies, which are typical of the majority of our
portfolio holdings, are not only immune to cyclical factors or financial
crises, but they also have 15-20 year track records of sticking to their core
business and producing the same products or services for years. We expect them
to continue to generate strong sales and double-digit earnings growth.
We were for the most part hedged against a rallying US dollar, which exhibited
strength against virtually all the major trading currencies of continental
Europe and the Japanese yen. Last year again favorable
- --------------------------------------------------------------------------------
interest differentials made the forward carry points of our hedges very
attractive against the spot price. Looking out over the next 12 months, we are
cautious in terms of further double-digit appreciation of the US$. We are
maintaining our hedged position in Japan, and may reverse our currently
unhedged position in Europe.
Vontobel, USA
Investment Adviser
LOGO
Comparison of Change in Value of $10,000 Investment in Penn Series
International Equity Fund and MSCI Europe Australia Far East (EAFE) Index
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years Since 11/2/92
<S> <C> <C> <C>
Penn Series 10.41% 13.70% 13.67%
EAFE 1.78% 11.39% 11.30%
</TABLE>
<TABLE>
<CAPTION>
Penn Series EAFE
<S> <C> <C>
11/2/92 10,000 10,000
12/31/92 10,200 10,140
12/31/93 14,090 13,446
12/31/94 13,201 14,491
12/31/95 15,023 16,114
12/31/96 17,557 17,087
12/31/97 19,385 17,391
</TABLE>
The performance information shown here does not reflect variable account
charges and fees. Past performance is not predictive of future performance.
Shares may be worth more or less when redeemed than when purchased. Assumes
reinvestment of all dividends.
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE MONEY MARKET FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------- ------ -----------
<S> <C> <C> <C> <C>
COMMERCIAL PAPER (32.9%)
- ------------------------
Carolina Power and Light 5.70%............ 02/27/98 NR $1,500 $ 1,486,462
Caterpillar Inc.
5.55%.................................... 04/03/98 A-1 1,100 1,084,398
5.72%.................................... 02/23/98 A-1 375 371,842
Dekalb County for Emory University 5.70%.. 01/06/98 A-1 1,500 1,500,000
General Electric Capital Corp. 5.72%...... 03/20/98 A-1 750 740,705
General Motors Acceptance Corp. 5.80%..... 01/06/98 A-2 1,500 1,498,792
IBM Credit Corp. 5.65%.................... 01/06/98 A-1 750 749,411
Merrill Lynch & Co., Inc. 5.68%........... 03/13/98 A-1 2,000 1,977,596
San Diego Gas & Electric Co. 5.65%........ 01/02/98 A-1 1,400 1,400,000
Sears Roebuck Acceptance Corp. 5.71%...... 04/02/98 A2 1,500 1,478,350
-----------
TOTAL COMMERCIAL PAPER
(Cost $12,287,556)................................................ 12,287,556
-----------
CORPORATE BONDS (8.0%)
- ----------------------
Allstate Corp. 5.875%..................... 06/15/98 A+ 125 124,913
Associates Corporation North America
5.25%.................................... 09/01/98 AA- 350 348,266
Ford Global Bond 6.25%.................... 02/26/98 A 300 300,096
GTE California Inc. 6.25%................. 01/15/98 AA- 680 680,025
International Lease Finance Corp. 5.75%... 07/01/98 A+ 465 464,843
NationsBank Corp. 6.625%.................. 01/15/98 A+ 390 390,062
PepsiCo. Inc. 6.125%...................... 01/15/98 A 115 114,996
Rockwell International 7.625%............. 02/17/98 AA+ 215 215,396
Sears Roebuck Co. 8.45%................... 11/01/98 A- 100 101,755
Southwestern Bell Telephone 6.05%......... 02/04/98 AA 250 249,978
-----------
TOTAL CORPORATE BONDS
(Cost $2,990,330)................................................. 2,990,330
-----------
VARIABLE RATE DEMAND NOTES (39.6%)+
- -----------------------------------
Alabama State Development Authority
6.00%.................................... 01/07/98 A+/A-1 550 550,000
Barton Healthcare 5.80%................... 01/07/98 A1 430 430,000
Baylis Group Partnership 6.10%............ 01/07/98 A-1 700 700,000
Berks County Industrial Development
Authority 5.90%.......................... 01/07/98 A-1/P-1 540 540,000
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- -------- ------ -----------
<S> <C> <C> <C> <C>
Bloomfield, New Mexico 6.00%............. 01/07/98 A1/P-1 $ 600 $ 600,000
Columbia County Georgia Development
Authority 6.15%......................... 01/07/98 Aa3 1,470 1,470,000
Community Health Systems, Inc. 6.15%..... 01/07/98 A-1 1,465 1,465,000
Durham Risk Management Co. 5.75%......... 01/07/98 AAA/A-1+ 500 500,000
Fairview Hospital and Healthcare Services
6.05%................................... 01/07/98 AAA/A-1 500 500,000
GMG Warehouse American National 5.80%.... 01/07/98 AA- 975 975,000
Health Insurance Plan of Greater NY
6.15%................................... 01/07/98 AAA/A-1+ 1,500 1,500,000
Illinois Development Finance Authority
5.80%................................... 01/07/98 Aa2 600 600,000
Liliha Partners Lp 6.20%................. 01/07/98 AA+/A-1+ 1,455 1,455,000
Montgomery County PA Industrial
Development Authority 5.90%............. 01/07/98 P-1 805 805,000
New York, New York 5.75%................. 01/07/98 AAA 1,600 1,600,000
Saint Francis Health 6.20%............... 01/07/98 A1/P-1 490 490,000
Silver City New Mexico 6.00%............. 01/07/98 A1/P-1 600 600,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(Cost $14,780,000)................................................ 14,780,000
-----------
MEDIUM TERM NOTES (16.8%)
- -------------------------
Caterpillar, Inc. 7.47%.................. 01/15/98 A+ 600 600,344
Ford Motor Credit 6.35%.................. 02/12/98 A 980 980,535
IBM Credit Corp. 6.75%................... 04/20/98 A 250 250,579
Lehman Brothers Holdings, Inc.
5.75%................................... 02/15/98 A 780 779,757
8.38%................................... 02/24/98 A 1,000 1,003,334
6.25%................................... 06/29/98 A 100 100,055
6.65%................................... 07/14/98 A 190 190,489
Salomon, Inc. 8.64%...................... 02/27/98 A 1,950 1,957,961
Sears Roebuck Co. 7.94%.................. 02/06/98 A- 400 400,733
-----------
TOTAL MEDIUM TERM NOTES
(Cost $6,263,787)................................................. 6,263,787
-----------
</TABLE>
1
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE MONEY MARKET FUND
<TABLE>
<CAPTION>
NUMBER
OF SHARES VALUE
---------- -----------
<S> <C> <C>
SHORT TERM INVESTMENTS (2.7%)
- -----------------------------
Janus Money Mar-
ket Fund,
Inc............ 1,007,168 $ 1,007,168
Temporary In-
vestment Fund,
Inc............ 5,010 5,010
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,012,178).......... 1,012,178
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $37,333,851)(a)...... $37,333,851
===========
</TABLE>
- -------
(a) Cost for Federal income tax purposes.
+ The rate shown is the rate as of December 31, 1997, and the maturity shown
is the next interest readjustment date.
The Standard & Poor's Corporation, Moody's Investors Service, Fitch
Investors Service and Duff & Phelps Credit Rating Co. Ratings are the most
recent ratings available at December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF PORTFOLIO
MATURITY AMOUNT --------------------------------------------------
SCHEDULE PAR (CUM)
-------- ----------- --------------
<S> <C> <C> <C>
1 - 7 days $19,930,000 54.8% 54.8%
15 - 30 days 1,785,000 4.9% 59.7%
31 - 60 days 7,750,000 21.3% 81.0%
61 - 90 days 2,750,000 7.6% 88.6%
91 - 120 days 2,850,000 7.8% 96.4%
Over 150 days 1,330,000 3.6% 100.0%
----------- -----------
$36,395,000 100.0%
=========== ===========
</TABLE>
Average Weighted Maturity - 35 days
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE QUALITY BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
CORPORATE BONDS (13.9%)
- -----------------------
BROADCASTING (0.9%)
News America Holdings 8.50%................. 02/23/25 BBB- $ 360 $ 412,650
-----------
CANADIAN GOV'T AGENCYED FRUIT (3.0%)
Hydro-Quebec 8.05%.......................... 07/07/24 A+ 1,150 1,334,000
-----------
ELECTRIC POWER (0.7%)
Korea Electric Power 7.75%.................. 04/01/13 BBB- 500 331,875
-----------
FINANCIAL (3.0%)
Associates Corp. N.A. 7.75%................. 02/15/05 AA- 500 540,000
General Electric Capital Corp. 8.125%....... 02/01/99 AAA 500 511,875
Morgan Stanley Financial PLC 8.03%.......... 02/28/17 A- 250 266,250
-----------
1,318,125
-----------
GENERAL OBLIGATION BONDS (2.3%)
General Electric Capital Corp. 6.66%........ 05/01/18 AAA 1,000 1,016,250
-----------
RAILROADS (0.6%)
Union Pacific Co. 8.35%..................... 05/01/25 BBB 250 277,500
-----------
RETAIL (1.6%)
Penney (J.C.) Inc. Note 9.45%............... 07/15/02 A 175 187,688
Rite Aid Corp. 7.70%........................ 02/15/27 BBB+ 500 543,750
-----------
731,438
-----------
SERVICES-EQUIPMENT RENTING & LEASING (0.2%)
Service Corp. International 7.00%........... 06/01/15 BBB+ 100 103,250
-----------
TRANSPORTATION (1.6%)
CSX Corp. 7.05%............................. 05/01/02 BBB 660 674,850
-----------
TOTAL CORPORATE BONDS
(Cost $6,019,575).................................................. 6,199,938
-----------
U.S. TREASURY OBLIGATIONS (15.2%)
- ---------------------------------
U.S. Treasury Notes
5.75%...................................... 11/30/02 NR 2,500 2,503,000
7.875%..................................... 11/15/99 NR 750 779,130
7.75%...................................... 12/31/99 NR 1,000 1,039,330
6.625%..................................... 02/15/27 NR 1,370 1,487,067
-----------
5,808,527
-----------
U.S. Treasury Bond 6.375%................... 08/15/27 NR 950 1,003,076
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $6,707,031).................................................. 6,811,603
-----------
AGENCY OBLIGATIONS (37.9%)
- --------------------------
Federal Home Loan Bank 4.75%................ 01/02/98 NR 8,100 8,098,931
Federal National Mortgage
6.45%...................................... 12/01/03 NR 1,220 1,229,203
6.67%...................................... 01/01/05 NR 1,775 1,809,435
6.825%..................................... 09/01/07 NR 2,741 2,768,131
Federal National Mortgage 6.00%............. 01/01/13 NR 3,100 3,052,531
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $16,922,957)................................................. 16,958,231
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------ -----------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (18.4%)
- -------------------------------
MBNA Master Credit Card Trust, 1995-C
6.45%..................................... 02/15/08 AAA $4,300 $ 4,356,585
Morgan Stanley 6.95%....................... 12/12/05 AA 471 485,761
Railcar Leasing L.L.C. 7.125%.............. 01/15/13 AAA 1,000 1,047,500
Sasco 1996- CFL Class B 6.303%............. 02/25/28 AA 500 498,446
Southern California Edison 6.28%........... 09/25/05 AAA 1,850 1,853,330
-----------
TOTAL ASSET-BACKED SECURITIES
(Cost $8,209,448)................................................. 8,241,622
-----------
VARIABLE RATE OBLIGATION (6.2%)
- -------------------------------
Signet Credit Card Master Trust, 1993-4
6.23%+ (Cost $2,754,727).................. 05/15/02 AAA 2,750 2,754,675
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
SHORT TERM INVESTMENTS
(8.4%)
- ----------------------
Janus Money
Market
Fund........ 1,920,392 1,920,392
Temporary
Investment
Fund Class
B........... 1,815,395 1,815,395
-----------
TOTAL SHORT TERM
INVESTMENTS
(Cost $3,735,787)...... 3,735,787
-----------
TOTAL INVESTMENTS
(100.0%)
(Cost $44,349,525)(a).. $44,701,856
===========
</TABLE>
- -------
+ The rate shown is the rate as of December 31, 1997.
(a) Also cost for Federal income tax purposes. At December 31, 1997, Net
unrealized appreciation was $352,331. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost of $545,769 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $193,438.
The Standard & Poor's corporation ratings are the most recent ratings
available at December 31, 1997.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
ASSET-BACKED SECURITIES (1.0%)
- ------------------------------
Airplanes Pass Through Trust 10.875%
(Cost $506,762).......................... 03/15/19 BB $ 500 $ 560,000
-----------
CORPORATE BONDS (87.5%)
- -----------------------
ADVERTISING (0.6%)
ITT Publimedia BV 9.375%.................. 09/15/07 NR 350 369,250
-----------
AEROSPACE & DEFENSE (3.7%)
BE Aerospace, Inc. 9.875%................. 02/01/06 B 500 527,500
Communications & Power Industries 12.00%.. 08/01/05 B 750 840,000
Dyncorp, Inc. 9.50%....................... 03/01/07 B 425 433,500
L-3 Communications Corp. 10.375%.......... 05/01/07 B- 325 352,625
-----------
2,153,625
-----------
AUTOMOBILES & RELATED (1.1%)
Chief Auto Parts Inc. 10.50%.............. 05/15/05 B 125 123,750
Trident Automotive 10.00%................. 12/15/05 B- 250 255,625
Venture Holdings Trust 9.50%.............. 07/01/05 B+ 250 253,750
-----------
633,125
-----------
BROADCASTING (2.1%)
Azteca Holdings SA 11.00%................. 06/15/02 B- 200 206,000
Muzak Limited Partners 10.00%............. 10/01/03 B+ 500 530,000
Pegasus Communications 9.625%............. 10/15/05 B- 150 153,750
Sinclair Broadcast Group 8.75%............ 12/15/07 B 350 349,125
-----------
1,238,875
-----------
BUILDING & REAL ESTATE (0.9%)
B.F. Saul 11.625%......................... 04/01/02 B- 500 532,500
-----------
BUILDING PRODUCTS (2.1%)
American Builders and Contractors
10.625%.................................. 05/15/07 B 500 518,750
Maxxam Group, Inc. 11.25%................. 08/01/03 CCC+ 500 528,750
Werner Holdings Co., INC. 10.00%.......... 11/15/07 B- 200 205,500
-----------
1,253,000
-----------
CABLE OPERATORS (3.8%)
Comcast U.K. Cable 11.4683%++............. 11/15/07 B- 450 365,625
Diamond Cable Communication PLC
9.1803%++................................ 12/15/05 B- 350 272,125
Frontiervision L.P. 11.00%................ 10/15/06 B 300 333,000
Fundy Cable Ltd. 11.00%................... 11/15/05 BB 500 535,000
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
Galaxy Telecom L.P. 12.375%............... 10/01/05 B- $ 250 $ 275,000
Telewest Communication PLC
9.625%................................... 10/01/06 B+ 125 131,875
11.0672%++............................... 10/01/07 B+ 250 194,375
UIh Australia Pacific 4.3227%++........... 05/15/06 B 175 120,750
-----------
2,227,750
-----------
CHEMICALS (2.5%)
International Specialty Products Holdings,
Inc. 9.75%............................... 02/15/02 BB- 500 528,750
Sovereign Specialty Chemicals 9.50%....... 08/01/07 B- 500 513,750
Sterling Chemicals Holdings 10.3802%++.... 08/15/08 B+ 200 122,000
Sterling Chemicals Inc. 11.25%............ 04/01/07 NR 300 300,000
-----------
1,464,500
-----------
CONGLOMERATES (0.8%)
ICF Kaiser International, Inc. 13.00%..... 12/31/03 NR 400 449,500
-----------
CONSUMER PRODUCTS (0.3%)
Color Spot Nurseries 10.50%............... 12/15/07 B- 200 202,000
-----------
CONTAINER (2.2%)
BWAY Corp. 10.25%......................... 04/15/07 B 350 379,750
Plastic Containers, Inc. 10.00%........... 12/15/06 B+ 500 537,500
U.S. Can Corp. 10.125%.................... 10/15/06 B 350 370,125
-----------
1,287,375
-----------
DIVERSIFIED CHEMICALS (0.2%)
Koppers Industry, Inc. 9.875%............. 12/01/07 B- 125 128,750
-----------
ELECTRONIC COMPONENTS (3.2%)
Celestica International 10.50%............ 12/31/06 NR 275 290,125
Details Holdings Inc.
10.00%................................... 11/15/05 B- 275 282,563
6.1500%++................................ 11/15/07 B- 250 146,250
DII Group, Inc. 8.50%..................... 09/15/07 B 375 367,500
Fairchild Semiconductor 10.125%........... 03/15/07 B 250 262,500
Viasystems, Inc. 9.75%.................... 06/01/07 B- 500 516,250
-----------
1,865,188
-----------
ENERGY SERVICES (4.8%)
Amerigas Partners L.P. 10.125%............ 04/15/07 BB+ 400 434,000
Falcon Drilling Co. 8.875%................ 03/15/03 B+ 150 157,500
Kelley Oil & Gas Corp. 10.375%............ 10/15/06 B- 350 373,625
Ocean Energy, Inc. 9.75%.................. 10/01/06 B- 275 301,813
Plains Resources, Inc. 10.25%............. 03/15/06 B 550 592,625
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
Pride Petroleum Services 9.375%.......... 05/01/07 BB- $ 425 $ 456,875
Rutherford-Moran Oil 10.75%.............. 10/01/04 CCC+ 450 459,000
-----------
2,775,438
-----------
ENTERTAINMENT & LEISURE (4.4%)
Bally Total Fitness Holdings 9.875%...... 10/15/07 B- 500 507,500
Hollywood Theaters Inc. 10.625%.......... 08/01/07 B- 200 212,500
Regal Cinemas Inc. 8.50%................. 10/01/07 B+ 400 397,500
Six Flags Theme Parks 9.7780%++.......... 06/15/05 B 400 426,000
Speedway Motorsports Inc. 8.50%.......... 08/15/07 B+ 500 511,250
United Artists Theatre 9.30%............. 07/01/15 BB 487 491,936
-----------
2,546,686
-----------
FINANCIAL SERVICES (1.9%)
Ocwen Capital Trust I 10.875%............ 08/01/27 B+ 250 272,500
Ocwen Financial Corp. 11.875%............ 10/01/03 B+ 500 561,250
Superior National Capital Trust 10.75%... 12/01/17 BB 250 256,250
-----------
1,090,000
-----------
FOOD PROCESSING (0.4%)
Mrs. Fields Original 10.125%............. 12/01/04 B+ 250 251,875
-----------
FOOD/TOBACCO (4.4%)
Ameriserve Food Co. 10.125%.............. 07/15/07 NR 350 364,000
Archibald Candy Corp. 10.25%............. 07/01/04 B 500 521,250
Aurora Foods Inc. 9.875%................. 02/15/07 B- 325 342,875
Del Monte Foods Co. 6.1518%++............ 12/15/07 B- 225 128,813
Keebler Corporation 10.75%............... 07/01/06 BB- 600 676,500
Southern Foods 9.875%.................... 09/01/07 B 500 522,500
-----------
2,555,938
-----------
HEALTHCARE (1.3%)
Kinetic Concepts, Inc. 9.625%............ 11/01/07 B- 150 152,438
Owens & Minor, Inc. 10.875%.............. 06/01/06 B+ 250 277,500
Paragon Health Networks 5.2545%++........ 11/01/07 B- 500 310,000
-----------
739,938
-----------
HOTEL & GAMING (5.5%)
#@Capital Gaming International, Inc.
45.6951%++............................. 02/01/01 NR 5 250
Casino America Inc. 12.50%............... 08/01/03 B 250 271,250
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
Courtyards By Marriott 10.75%.............. 02/01/08 B- $ 500 $ 550,000
Grand Casinos Inc. 10.125%................. 12/01/03 BB 200 216,000
HMC Acquisition Properties 9.00%........... 12/15/07 BB 400 418,000
Horseshoe Gaming L.L.C. 9.375%............. 06/15/07 B 150 157,875
Majestic Star Casino L.L.C. 12.75%......... 05/15/03 B 500 536,250
Red Roof Inns Senior Note 9.625%........... 12/15/03 B 500 517,500
Rio Hotel & Casino, Inc. 10.625%........... 07/15/05 B+ 350 378,875
Rio Hotel & Casino, Inc. 9.50%............. 04/15/07 B+ 50 53,000
Trump Atlantic City, Inc. 11.25%........... 05/01/06 B 75 74,063
-----------
3,173,063
-----------
MANUFACTURING (3.4%)
Amtrol, Inc. 10.625%....................... 12/31/06 B- 250 255,625
Axiohm Transaction Corp. 9.75%............. 10/01/07 B- 250 253,750
Hawk Corp. 10.25%.......................... 12/01/03 B+ 350 373,625
HCC Industries, Inc. 10.75%................ 05/15/07 B- 500 518,750
International Wire Group 11.75%............ 06/01/05 B- 500 548,750
-----------
1,950,500
-----------
MEDIA AND COMMUNICATIONS (1.3%)
Northland Cable Television 10.25%.......... 11/15/07 B- 500 526,875
Transwestern Holdings 5.0971%++............ 11/15/08 B- 250 150,000
Transwestern Publishing 9.625%............. 11/15/07 B- 100 104,000
-----------
780,875
-----------
METALS (1.6%)
AEI Holding Co. 10.00%..................... 11/15/07 B- 500 515,000
Haynes International, Inc. 11.625%......... 09/01/04 B- 350 399,000
-----------
914,000
-----------
MISCELLANEOUS CONSUMER PRODUCTS (7.2%)
American Safety Razor Co. 9.875%........... 08/01/05 BB- 500 536,875
Chattem Inc. 12.75%........................ 06/15/04 B- 500 565,000
CLN Holdings, Inc. 11.4322%++.............. 05/15/01 B 500 332,500
Doane Products Co. 10.625%................. 03/01/06 B 500 540,000
Hedstrom Corp. 10.00%...................... 06/01/07 B- 400 403,000
Hedstrom Holdings Inc. 5.1948%++........... 06/01/09 NR 100 60,000
Herff Jones Inc. 11.00%.................... 08/15/05 B 500 548,750
PM Holdings Corp. 10.6203%++............... 09/01/05 B 400 322,000
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
Revlon Worldwide 10.65046%++............... 03/15/01 B- $ 500 $ 348,750
Windy Hill Pet Food Co. 9.75%.............. 05/15/07 NR 500 520,000
-----------
4,176,875
-----------
PAPER & PAPER PRODUCTS (1.6%)
Repap New Brunswick 10.625%................ 04/15/05 CC 500 475,000
Riverwood Intl. Corp.
10.875%................................... 04/01/08 CCC+ 250 236,250
10.625%................................... 08/01/07 B- 200 202,000
-----------
913,250
-----------
PRINTING AND PUBLISHING (1.4%)
American Lawyer Media Holdings
5.4660%++................................. 12/15/08 CCC+ 175 98,875
9.75%..................................... 12/15/07 B 150 152,250
Sun Media Corp. 9.50%...................... 02/15/07 B- 500 540,000
-----------
791,125
-----------
RETAIL (2.6%)
Community Distributors 10.25%.............. 10/15/04 B+ 250 256,250
Pantry Inc. 10.25%......................... 10/15/07 B- 500 512,500
Safelite Glass Corp. 9.875%................ 12/15/06 B 400 422,000
Specialty Retailers, Inc. 8.50%............ 07/15/05 BB- 325 329,875
-----------
1,520,625
-----------
SAVINGS & LOAN ASSOCIATIONS (1.6%)
First Federal Financial Corp. 11.75%....... 10/01/04 B+ 500 560,000
ML Capital Trust I 9.875%.................. 03/01/27 NR 300 342,342
-----------
902,342
-----------
SERVICE (6.5%)
Alliance Imaging 9.625%.................... 12/15/05 B- 450 455,063
Allied Waste Industries 11.3000%++......... 06/01/07 B+ 500 351,250
Coinmach Corp. 11.75%...................... 11/15/05 B+ 682 757,020
Decisionone Corp. 9.75%.................... 08/01/07 B- 200 205,000
Decisionone Holdings 5.0011%++............. 08/01/08 B- 300 192,000
International Logistics Ltd 9.75%.......... 10/15/07 B+ 250 248,125
Intertek Finance PLC. 10.25%............... 11/01/06 NR 445 467,250
Iron Mountain Inc. 8.75%................... 09/30/09 B- 500 512,500
Protection One Alarm 10.3600%++............ 06/30/05 B- 400 437,000
Town Sports International 9.75%............ 10/15/04 B 150 147,000
-----------
3,772,208
-----------
SUPERMARKETS (0.4%)
Pathmark Stores 9.625%..................... 05/01/03 CCC+ 250 230,000
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (9.9%)
American Communications Services
3.3804%++................................ 11/01/05 NR $ 250 $ 201,250
Colt Telecom Group PLC 12.0002%++......... 12/15/06 NR 700 542,500
Concentric Network Corp. 12.75%........... 12/15/07 NR 150 154,125
Globalstar L.P. 11.375%................... 02/15/04 B 350 353,500
Hyperion Telecommunication
6.1118%++................................ 04/15/03 B 150 109,875
12.25%................................... 09/01/04 B 150 165,000
Intermedia Communications, Inc.
10.3404%++............................... 05/15/06 B 200 159,000
11.2502%++............................... 07/15/07 B 250 181,875
Mcleodusa, Inc. 9.25%..................... 07/15/07 B 350 367,500
Metrocall, Inc. 9.75%..................... 11/01/07 CCC 500 490,000
Metronet Communications
12.00%................................... 08/15/07 NR 150 172,500
5.1757%++................................ 11/01/07 NR 500 305,000
Microcell Telecommunications 11.2496%++... 06/01/06 NR 500 337,500
Netia Holdings
4.4225%++................................ 11/01/07 NR 100 57,000
10.25%................................... 11/01/07 NR 250 240,000
Nextel Commmunication
5.0159%++................................ 10/31/07 CCC 250 153,438
8.9111%++................................ 08/15/04 CCC 100 89,000
5.2530%++................................ 09/15/07 CCC 250 158,125
Nextlink Communications 9.625%............ 10/01/07 B 250 258,125
Omnipoint Corp. 11.625%................... 08/15/06 CCC+ 150 159,563
Pricellular Wireless 10.75%............... 11/01/04 B 250 274,063
Qwest Communications International
4.6803%++................................ 10/15/07 B+ 350 238,875
RCN Corp.
5.4842%++................................ 10/15/07 B 250 156,875
10.00%................................... 10/15/07 B 125 129,683
Sprint Spectrum L.P. 11.00%............... 08/15/06 B+ 200 224,500
Vialog Corp. 12.75%....................... 11/15/01 B- 75 78,375
-----------
5,757,247
-----------
TEXTILES & APPAREL (1.6%)
Delta Mills, Inc. 9.625%.................. 09/01/07 B+ 500 510,000
Dyersburg Corp. 9.75%..................... 09/01/07 NR 100 104,500
Glenoit Corp. 11.00%...................... 04/15/07 B- 300 322,500
#@Plaid Clothing Corp. 11.00%.............. 08/01/03 D 375 450
-----------
937,450
-----------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE HIGH YIELD BOND FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- -----------
<S> <C> <C> <C> <C>
TRANSPORTATION (2.2%)
Greyhound Lines 11.50%..................... 04/15/07 NR $ 500 $ 553,125
Sea Containers Ltd. 12.50%................. 12/01/04 BB- 215 243,488
Travelcenters of America 10.25%............ 04/01/07 B 450 472,500
-----------
1,269,113
-----------
TOTAL CORPORATE BONDS
(Cost $49,347,591)................................................. 50,853,986
-----------
U.S. TREASURY OBLIGATION (1.7%)
- -------------------------------
U.S. Treasury Note 6.00% (Cost $972,188)... 02/15/26 NR 1,000 998,750
-----------
COMMERCIAL PAPER (1.9%)
- -----------------------
UBS Finance 6.75% (Cost $1,108,792)........ 01/02/98 NR 1,109 1,108,792
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
COMMON STOCKS (1.8%)
- --------------------
@Berg Electronics Corp....................................... 7,396 168,259
@+Capital Gaming Intl., Inc.................................. 34 394
@+Dr. Pepper Bottling Holdings, Inc.......................... 14,800 355,200
+Gaylord Containers Corp., Class A........................... 7,500 43,125
+Hedstrom Holdings........................................... 6,065 7,581
Imperial Credit Commercial Mortgage Investment Corp......... 16,500 241,313
+Nextel Communications, Inc.................................. 232 6,032
Ocwen Assest Investment Corp................................ 5,000 102,500
Protection One, Inc......................................... 8,400 95,025
-----------
TOTAL COMMON STOCK
(Cost $694,037).................................................... 1,019,429
-----------
PREFERRED STOCKS (6.0%)
- -----------------------
American Communication Services............................. 1,548 155,942
American Radio Systems...................................... 2,631 310,787
Anvil Holdings, Inc......................................... 4,001 96,023
Bank United Capital Trust................................... 250 257,500
Cablevision Systems Corp.................................... 8,455 981,337
Capstar Broadcasting Partners............................... 3,194 348,146
Chancellor Media Corp....................................... 2,806 319,863
Chevy Chase Pfd............................................. 5,185 269,620
Clarke USA, Inc............................................. 2,500 265,000
Criimi Mae, Inc............................................. 10,000 341,875
Intermedia Communications, Inc. Series B.................... 5,573 68,270
Nextel Communications....................................... 920 105,340
-----------
TOTAL PREFERRED STOCK
(Cost $3,193,344).................................................. 3,519,703
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
WARRANTS (0.1%)
- ---------------
+Globalstar Inc............................................. 350 $ 35,350
+ICF Kaiser Intl. Inc....................................... 2,800 2,800
+Intermedia Communicaton.................................... 50 3,562
+Microcell Telecom.......................................... 800 11,600
+Microcell Telecom.......................................... 800 8
@+President Casinos, Inc.................................... 4,415 1,104
+Primus Telecommunications.................................. 200 2,000
@+Wright Medical Technology, Inc............................ 2,676 26,765
+Wireless One, Inc.......................................... 450 112
-----------
TOTAL WARRANTS
(Cost $38,000).................................................... 83,301
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $55,860,714)(a)............................................. $58,143,961
===========
</TABLE>
- -------
@ Restricted Security.
+ Non-income producing.
++ Effective yield.
# Securities in default.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$55,868,331. Net unrealized appreciation was $2,275,630. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $2,968,233 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $692,603.
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE GROWTH EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
COMMON STOCK (93.8%)
- --------------------
BEVERAGES - SOFT DRINKS (2.7%)
PepsiCo, Inc. ........................................... 100,000 $ 3,643,750
------------
CHEMICALS (0.9%)
Du Pont (E.I.) de Nemours & Co. ......................... 20,000 1,201,250
------------
COMPUTER SOFTWARE & SERVICES (6.2%)
+ Cisco Systems, Inc. .................................... 45,000 2,511,563
Computer Associates Intl., Inc. ......................... 40,000 2,115,000
+ Microsoft Corp. ........................................ 30,000 3,876,563
------------
8,503,126
------------
COMPUTER SYSTEMS (6.1%)
Compaq Computer Corp. ................................... 60,000 3,386,250
+ Dell Computer Corp. .................................... 15,000 1,260,469
Hewlett-Packard Co. ..................................... 20,000 1,250,000
Intel Corp. ............................................. 35,000 2,457,656
------------
8,354,375
------------
CONSUMER GOODS & SERVICES (2.3%)
+ Cendant Corp. .......................................... 90,000 3,093,750
------------
DIVERSIFIED OPERATIONS (5.0%)
General Electric Co. .................................... 70,000 5,136,250
Tyco International Limited............................... 40,000 1,802,500
------------
6,938,750
------------
ELECTRONICS - SEMICONDUCTORS (1.3%)
+ Adaptec, Inc. .......................................... 50,000 1,859,375
------------
ENTERTAINMENT (2.2%)
The Walt Disney Co. ..................................... 30,000 2,971,875
------------
FINANCIAL SERVICES (13.9%)
Ahmanson (H.F.) & Co. ................................... 30,000 2,008,125
American Express Co. .................................... 20,000 1,785,000
BankAmerica Corp. ....................................... 20,000 1,460,000
The Charles Schwab Corp. ................................ 40,000 1,677,500
Chase Manhattan Corp. ................................... 15,000 1,642,500
Citicorp................................................. 15,000 1,896,563
Fannie Mae............................................... 40,000 2,282,500
MBNA Corp. .............................................. 60,000 1,638,750
Merrill Lynch & Co., Inc. ............................... 40,000 2,917,500
SunAmerica, Inc. ........................................ 40,000 1,710,000
------------
19,018,438
------------
HOUSEHOLD PRODUCTS (2.6%)
The Procter & Gamble Co. ................................ 45,000 3,591,562
------------
INSURANCE (4.9%)
Allstate Corp. .......................................... 20,000 1,817,500
American International Group, Inc. ...................... 20,000 2,175,000
Travelers Group, Inc. ................................... 50,000 2,693,750
------------
6,686,250
------------
MEDICAL SUPPLIES (2.4%)
Guidant Corp. ........................................... 30,000 1,867,500
HBO & Co. ............................................... 30,000 1,439,062
------------
3,306,562
------------
OIL & GAS (3.7%)
+ Global Marine Inc. ..................................... 50,000 1,225,000
Halliburton Co. ......................................... 20,000 1,038,750
Schlumberger Limited..................................... 35,000 2,817,500
------------
5,081,250
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
PHARMACEUTICALS (14.9%)
Bristol-Myers Squibb Co. .............................. 40,000 $ 3,785,000
Eli Lilly & Co. ....................................... 30,000 2,088,750
Johnson & Johnson...................................... 60,000 3,952,500
Merck & Co., Inc. ..................................... 40,000 4,250,000
Pfizer, Inc. .......................................... 40,000 2,982,500
Schering-Plough Corp. ................................. 35,000 2,174,375
Warner-Lambert Co. .................................... 10,000 1,240,000
------------
20,473,125
------------
RETAIL STORES (17.3%)
+ Costco Companies, Inc. ............................... 80,000 3,567,500
CVS Corp. ............................................. 50,000 3,203,125
+ Kroger Co. ........................................... 50,000 1,846,875
The Home Depot, Inc. .................................. 70,000 4,121,250
+ Safeway Inc. ......................................... 60,000 3,795,000
+ Staples, Inc. ........................................ 120,000 3,337,500
Wal-Mart Stores, Inc. ................................. 100,000 3,943,750
------------
23,815,000
------------
TELECOMMUNICATIONS (7.4%)
+ AirTouch Communications, Inc. ........................ 50,000 2,078,125
AT&T Corp. ............................................ 40,000 2,450,000
SBC Communications, Inc. .............................. 40,000 2,930,000
+ WorldCom, Inc. ....................................... 90,000 2,725,312
------------
10,183,437
------------
TOTAL COMMON STOCK
(Cost $94,983,039)............................................... 128,721,875
------------
SHORT TERM INVESTMENTS (6.2%)
- -----------------------------
Temporary Cash Investment Fund, Inc. .................. 4,254,155 4,254,155
Temporary Investment Fund, Inc. ....................... 4,254,117 4,254,117
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $8,508,272)................................................ 8,508,272
------------
TOTAL INVESTMENTS (100.0%)
(Cost $103,491,311)(a)........................................... $137,230,147
============
</TABLE>
- -------
+Non-income producing.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$103,736,261. Net unrealized appreciation was $33,493,886. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $33,871,198 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $377,312.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE VALUE EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK (82.5%)
- --------------------
ADVERTISING (1.4%)
Omnicom Group, Inc. ...................................... 100,000 $ 4,237,500
-----------
AEROSPACE & DEFENSE (4.5%)
The Boeing Company........................................ 25,300 1,238,119
Lockheed Martin Corp. .................................... 126,000 12,411,000
-----------
13,649,119
-----------
AIRLINES (1.8%)
+ AMR Corp. ............................................... 43,000 5,525,500
-----------
AUTOMOTIVE PARTS - EQUIPMENT (2.0%)
LucasVarity PLC........................................... 178,520 6,225,885
-----------
BUILDING PRODUCTS (0.9%)
Armstrong World Industries, Inc. ......................... 35,000 2,616,250
-----------
CHEMICALS (3.5%)
Dupont (E.I.) de Nemours & Co. ........................... 80,000 4,805,000
Hercules, Inc. ........................................... 50,000 2,503,125
Monsanto Co. ............................................. 72,000 3,024,000
Solutia, Inc. ............................................ 15,400 410,988
-----------
10,743,113
-----------
COSMETICS (1.3%)
Avon Products, Inc. ...................................... 65,000 3,989,375
-----------
DIVERSIFIED (6.4%)
Canadian Pacific, Ltd. ................................... 180,000 4,905,000
General Electric Co. ..................................... 80,000 5,870,000
Tenneco, Inc. ............................................ 68,000 2,686,000
Textron, Inc. ............................................ 95,000 5,937,500
-----------
19,398,500
-----------
ENTERTAINMENT & LEISURE (2.3%)
Carnival Corp. - Class A.................................. 125,000 6,921,875
-----------
ELECTRONIC SEMICONDUCTORS (1.0%)
+ Adaptec, Inc. ........................................... 81,000 3,012,188
-----------
ELECTRONICS (2.2%)
+ Arrow Electronics, Inc. ................................. 96,000 3,114,000
Avnet, Inc. .............................................. 56,000 3,696,000
-----------
6,810,000
-----------
FINANCIAL SERVICES (13.1%)
BankBoston Corp. ......................................... 51,000 4,790,812
Citicorp.................................................. 63,000 7,965,562
Countrywide Credit Industries, Inc. ...................... 190,000 8,146,250
Freddie Mac............................................... 220,000 9,226,250
Wells Fargo & Co. ........................................ 28,333 9,617,283
-----------
39,746,157
-----------
HEALTHCARE (3.1%)
+ Tenet Healthcare Corp. .................................. 282,500 9,357,813
-----------
INSURANCE (20.1%)
Ace Limited............................................... 175,000 16,887,500
AFLAC, Inc. .............................................. 105,375 5,387,297
American International Group, Inc. ....................... 30,250 3,289,687
Everest Reinsurance Holdings, Inc. ....................... 120,000 4,950,000
EXEL Limited.............................................. 247,600 15,691,650
General Re Corp. ......................................... 41,000 8,692,000
Mid Ocean Limited......................................... 113,900 6,179,075
-----------
61,077,209
-----------
MACHINERY - DIVERSIFIED (5.6%)
Caterpillar, Inc. ........................................ 237,000 11,509,312
Dover Corp. .............................................. 156,000 5,635,500
-----------
17,144,812
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
MEDICAL SUPPLIES (2.2%)
Becton, Dickinson & Co. .................................. 134,000 $ 6,700,000
-----------
PAPER & PAPER PRODUCTS (0.3%)
Champion International Corp. ............................. 20,000 906,250
-----------
PHOTOGRAPHIC EQUIPMENT (1.8%)
Polaroid Corp. ........................................... 115,000 5,599,063
-----------
RESTAURANTS (2.1%)
McDonald's Corp. ......................................... 136,000 6,494,000
-----------
RETAIL (2.7%)
The May Department Stores Co. ............................ 154,000 8,113,875
-----------
TELECOMMUNICATIONS (1.4%)
Sprint Corp. ............................................. 72,250 4,235,656
-----------
TEXTILES (0.2%)
Shaw Industries, Inc. .................................... 55,000 639,375
-----------
TOYS (1.4%)
Mattel, Inc. ............................................. 114,531 4,266,280
-----------
TRAVEL SERVICES (1.2%)
+ The SABRE Group Holdings, Inc. .......................... 125,000 3,609,375
-----------
TOTAL COMMON STOCK
(Cost $160,697,458)............................................... 251,019,170
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY (000)
-------- -------
<S> <C> <C> <C>
COMMERCIAL PAPER (14.2%)
- ------------------------
American Express Credit Corp. 5.75%.............. 01/28/98 $14,786 14,722,235
General Motors Acceptance Corp. 5.86%............ 01/14/98 14,500 14,469,316
John Deere Capital Corp. 5.65%................... 01/07/98 14,152 14,138,674
------------
TOTAL COMMERCIAL PAPER
(Cost $43,330,225)................................................ 43,330,225
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
SHORT TERM INVESTMENTS (3.3%)
- -----------------------------
Temporary Cash Investment Fund, Inc. ................... 4,997,559 4,997,559
Temporary Investment Fund, Inc. ........................ 5,001,360 5,001,360
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $9,998,919)................................................. 9,998,919
------------
TOTAL INVESTMENTS (100.0%)
(Cost $214,026,602)(a)............................................ $304,348,314
============
</TABLE>
- -------
+ Non-income producing.
(a) Also cost for Federal income tax purposes. At December 31, 1997, net
unrealized appreciation was $90,321,712. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of
market value over tax cost of $90,738,552 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $416,840.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCK (51.8%)
- --------------------
AUTOMOTIVE PARTS - EQUIPMENT (0.2%)
Exide Corp. ............................................ 35,000 $ 905,625
-----------
BANKS (0.1%)
Bank fuer International Zahlungs........................ 124 775,770
-----------
BUILDING PRODUCTS (0.6%)
Hanson PLC (ADR)........................................ 53,125 1,225,195
Johns Manville Corp. ................................... 190,000 1,911,875
-----------
3,137,070
-----------
CHEMICALS (1.8%)
Great Lakes Chemical Corp. ............................. 169,900 7,624,263
Millenium Chemicals, Inc. .............................. 60,000 1,413,750
-----------
9,038,013
-----------
COMPUTERS (0.9%)
International Business Machines Corp. .................. 42,500 4,443,906
-----------
ELECTRIC UTILITIES (9.5%)
Energy Group PLC (ADR).................................. 76,000 3,391,500
+ FirstEnergy Corp. ..................................... 935,000 27,115,000
+ Niagara Mohawk Power Corp. ............................ 377,000 3,958,500
Unicom Corp. ........................................... 475,000 14,606,250
-----------
49,071,250
-----------
ENERGY SERVICES (1.4%)
Wheelabrator Technologies, Inc. ........................ 451,000 7,244,187
-----------
FINANCIAL SERVICES (1.6%)
American Express Co. ................................... 24,000 2,142,000
Fannie Mae.............................................. 35,000 1,997,187
Fund American Enterprises Holdings, Inc. ............... 35,000 4,235,000
-----------
8,374,187
-----------
FOOD PROCESSING (0.6%)
McCormick & Co., Inc. .................................. 108,000 3,030,750
-----------
FOREST & PAPER PRODUCTS (2.2%)
Deltic Timber Corp. .................................... 10,000 273,750
International Paper Co. ................................ 28,000 1,207,500
Louisiana-Pacific Corp. ................................ 65,000 1,235,000
MacMillan Bloedel Limited............................... 396,000 4,145,625
Weyerhaeuser Co. ....................................... 90,000 4,415,625
-----------
11,277,500
-----------
HOLDINGS COMPANY DIVERSIFIED (3.5%)
Loews Corp. ............................................ 136,000 14,433,000
Lonrho PLC.............................................. 2,400,000 3,672,563
-----------
18,105,563
-----------
INSURANCE (1.9%)
Leucadia National Corp. ................................ 74,000 2,553,000
Unitrin, Inc. .......................................... 57,000 3,697,875
Willis Corroon Group PLC (ADR).......................... 277,000 3,410,563
-----------
9,661,438
-----------
MANUFACTURING (0.5%)
Corning Inc. ........................................... 77,000 2,858,625
-----------
MEDIA AND COMMUNICATIONS (2.2%)
+ Chris-Craft Industries, Inc. .......................... 145,000 7,585,313
Meredith Corp. ......................................... 100,000 3,568,750
-----------
11,154,063
-----------
MEDICAL (0.5%)
Smith and Nephew PLC.................................... 950,000 2,821,473
-----------
MINING (2.2%)
Homestake Mining Co. ................................... 230,000 2,041,250
Newmont Mining Corp. ................................... 255,000 7,490,625
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------- ------------
<S> <C> <C>
Prime Resources Group, Inc. ............................ 252,000 $ 1,672,932
------------
11,204,807
------------
MISCELLANEOUS CONSUMER PRODUCTS (1.5%)
Philip Morris Companies, Inc. .......................... 165,000 7,476,562
------------
OFFICE SUPPLIES (0.1%)
Cross (A.T.) Co., Class A............................... 38,000 384,750
------------
OIL & GAS (9.1%)
Amerada Hess Corp. ..................................... 300,000 16,462,500
Atlantic Richfield Co. ................................. 66,000 5,288,250
Kerr-McGee Corp. ....................................... 14,000 886,375
Mitchell Energy & Development Corp. Class B............. 120,000 3,495,000
Murphy Oil Corp. ....................................... 126,000 6,827,625
Texaco, Inc. ........................................... 144,973 7,882,907
Union Texas Petroleum Holdings, Inc. ................... 295,000 6,139,688
------------
46,982,345
------------
PHARMACEUTICALS (3.7%)
Genentech, Inc. Special Common.......................... 275,000 16,671,875
Pharmacia & Upjohn, Inc. ............................... 12,000 439,500
Schering-Plough Corp. .................................. 36,000 2,236,500
------------
19,347,875
------------
PHOTO EQUIPMENT (0.7%)
Polaroid Corp. ......................................... 74,000 3,602,875
------------
PUBLISHING (4.6%)
New York Times Co., Class A............................. 160,000 10,580,000
The Washington Post Co., Class B........................ 24,000 11,676,000
Readers Digest Assoc., Inc., Class A.................... 10,000 236,250
Readers Digest Assoc., Inc., Class B.................... 50,300 1,226,063
------------
23,718,313
------------
RETAIL (1.4%)
Hills Stores Co. ....................................... 111,000 353,813
The Limited, Inc. ...................................... 75,000 1,912,500
+ Petrie Stores Corp. ................................... 1,130,000 3,454,975
+ Toys 'R' Us, Inc. ..................................... 10,000 314,375
Wal-Mart Stores, Inc. .................................. 36,000 1,419,750
------------
7,455,413
------------
TRANSPORTATION SERVICES (1.0%)
Overseas Shipholding Group, Inc. ....................... 139,000 3,031,936
Ryder System, Inc. ..................................... 60,000 1,965,000
------------
4,996,936
------------
TOTAL COMMON STOCK
(Cost $204,817,836)............................................... 267,069,296
------------
PREFERRED STOCK (4.1%)
- ----------------------
Cleveland Electric Illum. Series L 7.00%................ 34,550 3,316,800
Cleveland Electric Illum. Series R 8.80%................ 2,550 2,708,330
Cleveland Electric Illum. Series S 9.00%................ 2,500 2,684,475
Entergy Gulf States Utilities Inc. Series B 7.20%....... 15,853 797,604
International Paper Capital 5.25% Convertible........... 5,000 240,000
Kemper Co. Series e 5.75%............................... 100,000 5,200,000
Niagara Mohawk Power Corp. Series A 6.50%............... 24,000 537,000
Niagara Mohawk Power Corp. Series B 7.50%............... 7,000 178,062
Niagra Mohawk Power Corp. Series C 7.20%................ 5,500 132,000
Rouse Co. $3 Series B Convertible....................... 111,000 5,605,500
------------
TOTAL PREFERRED STOCK
(Cost $18,553,823)................................................ 21,399,771
------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>
NUMBER
OF CONTRACTS VALUE
------------ ------------
<S> <C> <C>
PUT OPTIONS (0.2%)
- ------------------
+Automatic Data Processing $55, February 21, 1998.... 110 $ 7,563
+Automatic Data Processing $60, May 16, 1998......... 120 38,250
+Cendant Corp. $27, January 17, 1998................. 90 3,645
+Deomi $45, January 17, 1998......................... 5 3,625
+IBM $100, January 17, 1998.......................... 140 18,375
+IBM $105, January 17, 1998.......................... 110 34,375
+IBM $115, January 17, 1998.......................... 120 126,000
+IBM $120, July 18, 1998............................. 120 219,000
+IBM $95, January 17, 1998........................... 100 6,250
+Limited $25, February 21, 1998...................... 115 10,781
+Pharmacia & Upjohn $40.00, April 4, 1998............ 120 51,750
+Polaroid $60, April 18, 1998........................ 48 55,200
+Schering-Plough $55, February 21, 1998.............. 220 11,000
+Schering-Plough $65, August 22, 1998................ 120 75,000
+Schering-Plough $65, February 21, 1998.............. 120 51,750
+Texaco $70, April 18, 1998.......................... 120 189,000
+Wal-Mart $42.50, June 20, 1998...................... 120 53,250
------------
TOTAL OPTIONS
(Cost $1,737,588)................................................ 954,814
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000)
-------- ------ -------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (3.3%)
- --------------------------------
U.S. TREASURY NOTES
6.25%.................................... 06/30/98 NR $ 1,250 1,254,688
5.50%.................................... 02/28/99 NR 10,000 9,984,400
6.75%.................................... 05/31/99 NR 2,000 2,029,380
6.125%................................... 07/31/00 NR 1,250 1,262,887
6.25%.................................... 04/30/01 NR 2,500 2,539,050
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $17,015,527)............................................... 17,070,405
------------
AGENCY OBLIGATIONS (4.7%)
- -------------------------
Tennessee Valley Authority
5.88%................................... 04/01/36 NR 13,750 13,767,188
5.98%................................... 04/01/36 AAA 4,600 4,605,750
6.235%.................................. 07/15/45 NR 5,600 5,727,680
------------
TOTAL AGENCY OBLIGATIONS
(Cost $24,235,795)............................................... 24,100,618
------------
MEDIUM TERM NOTES (1.7%)
- ------------------------
Federal National Mortgage Association
5.70%................................... 01/21/98 AAA 2,600 2,591,767
FNMA Medium Term Note 5.37%.............. 02/07/01 AAA 1,600 1,577,088
FNMA Global Bond 6.375%.................. 01/16/02 AAA 3,200 3,251,519
Merck & Company 5.76%.................... 05/03/37 AAA 1,150 1,172,160
------------
TOTAL MEDIUM TERM NOTES
(Cost $8,522,023)................................................ 8,592,534
------------
COMMERCIAL PAPER (11.7%)
- ------------------------
Abbott Laboratories 5.80%................ 01/07/98 A-1+ 5,000 4,995,167
Bell Atlantic Financial Services 5.85%... 01/27/98 A-1 5,000 4,978,875
Ciesco L.P. 6.40%........................ 01/02/98 A-1+ 10,000 9,998,222
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- ------------
<S> <C> <C> <C> <C>
Coca-Cola Company 5.80%................... 01/09/98 A-1+ $ 7,355 $ 7,345,520
5.56%.................................... 02/09/98 A-1+ 10,000 9,938,575
Hewlett-Packard Company 5.95%............. 01/21/98 A-1+ 597 595,027
Minnesota Mining & Manufacturer 5.80%..... 01/09/98 A-1+ 5,000 4,993,555
Procter & Gamble 5.90%.................... 01/16/98 A-1+ 12,557 12,526,131
Procter & Gamble Co. 5.48%................ 01/07/98 A-1+ 5,000 4,995,505
------------
TOTAL COMMERCIAL PAPER
(Cost $60,367,697)................................................ 60,366,577
------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
CONVERTIBLE BONDS (10.9%)
- -------------------------
BellSouth Telecommunications Debentures
5.85%...................................... 11/15/45 AAA 3,800 3,805,928
Chiron Corp. 1.90%.......................... 11/17/00 BBB+ 5,700 5,094,375
Ensearch Corp. 6.375%....................... 04/01/02 BBB- 5,650 5,734,750
Grand Metro PLC Euro-Bond 6.50%............. 01/31/00 A+ 2,000 2,789,440
Homestake Mining Co. 5.50%.................. 06/23/00 BBB- 4,900 4,532,500
Inco Limited 7.75%.......................... 03/15/16 BBB- 1,750 1,750,980
Inco Limited 5.75%.......................... 07/01/04 BBB- 3,790 3,654,204
Istituto Nazionale Delle Assicurazioni
(Republic of Italy) Convertible Bond
5.00%...................................... 06/28/01 AA 980 1,205,400
Lonhro Conv. Euro Bond 6.00%................ 02/27/04 NR 1,825 2,612,505
McKesson Corp. 4.50%........................ 03/01/04 A- 1,500 1,357,500
Ogden Corp. 5.75%........................... 10/20/02 BBB 250 240,625
Peninsular & Oriental 7.25%................. 05/19/03 NR 1,900 3,579,597
Pep Boys 4.00%.............................. 09/01/99 BBB 1,000 988,330
Potomac Electric Power Co. 5.00%............ 09/01/02 A- 2,300 2,213,750
Rouse Company 5.75%......................... 07/23/02 BBB- 6,425 7,424,987
Thomas Nelson 5.75%......................... 11/30/99 B 500 483,750
UBS Finance 2.00%........................... 12/15/00 AA+ 300 290,019
WMX Technologies 2.00%...................... 01/24/05 BBB+ 9,700 8,338,993
------------
TOTAL CONVERTIBLE BONDS
(Cost $54,124,771)............................................... 56,097,633
------------
ZERO COUPON BONDS (11.5%)
- -------------------------
Alza Corp. 5.0261%++........................ 07/14/14 BBB- 14,250 6,697,500
Automatic Data Processing, Inc. 5.1212%++... 02/20/12 AA 19,500 15,497,430
Marriott International 3.9190%++............ 03/25/11 BBB 4,950 3,230,222
News America Holdings Lyons 5.3521%++....... 03/11/13 BBB 8,400 3,992,604
Office Depot Inc. 4.2615%++................. 11/01/08 BB- 3,200 2,092,768
Pep Boys 4.0068%++.......................... 09/20/11 BBB 6,700 3,605,404
Roche Holdings, Inc. 6.375%++............... 05/06/04 NR 17,600 8,206,000
Times Mirror Co. 4.5427%++.................. 04/15/12 A 2,800 1,180,900
Time Warner Inc. 6.2910%++.................. 06/22/13 BBB- 19,000 9,737,500
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE FLEXIBLY MANAGED FUND
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000) VALUE
-------- ------ ------- ------------
<S> <C> <C> <C> <C>
U.S. Cellular Corp. 6.017%++............. 06/15/15 BBB- $14,000 $ 5,141,220
------------
TOTAL ZERO COUPON BONDS
(Cost $50,294,327)............................................... 59,381,548
------------
<CAPTION>
SHARES
-------
<S> <C> <C>
SHORT TERM INVESTMENTS (0.1%)
- -----------------------------
Temporary Investment Fund, Inc.
(Cost $498,155) ........................................ 498,155 498,155
------------
TOTAL INVESTMENTS (100.0%)
(Cost $440,167,542)(a)........................................... $515,531,351
------------
</TABLE>
- -------
+Non-income producing.
++Effective Yield.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$440,317,174. Net unrealized appreciation was $75,214,177. This consisted
of aggregate gross unrealized appreciation for all securities in which
there was an excess of market value over tax cost of $87,231,463 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $12,017,286.
ADR--American Depository Receipt.
The Standards & Poors corporation ratings are the most recent ratings
available at December 31, 1997.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
COMMON STOCK (89.0%)
- --------------------
AUSTRALIA (1.7%)
National Australia Bank Limited........................... 156,025 $ 2,178,592
-----------
BELGIUM (0.8%)
Barco N.V................................................. 5,500 1,009,449
-----------
FINLAND (0.5%)
Cultor Oyj................................................ 12,000 650,080
-----------
FRANCE (9.5%)
Axa-AUP................................................... 20,000 1,548,241
Carrefour Supermarche SA.................................. 2,900 1,513,666
+ Dassault Systemes SA..................................... 35,000 1,067,595
L.D.C. SA................................................. 1,000 152,098
L'OREAL................................................... 2,700 1,056,956
Rhone-Poulenc............................................. 16,000 717,038
Scor...................................................... 35,000 1,674,407
Societe BIC SA............................................ 28,566 2,085,993
Total SA-B................................................ 14,185 1,544,447
Valeo SA.................................................. 13,063 886,376
-----------
12,246,817
-----------
GERMANY (6.0%)
Adidas AG................................................. 11,000 1,456,030
Axa Colonia Konzern AG.................................... 9,000 860,937
Bayer AG.................................................. 35,000 1,299,331
Bayerische Motoren Werke (BMW) AG......................... 1,000 748,037
Deutsche Lufthansa AG..................................... 85,000 1,597,851
Gehe AG................................................... 10,800 546,595
SGL Carbon AG............................................. 9,700 1,240,796
-----------
7,749,577
-----------
HONG KONG (1.0%)
Dah Sing Financial Group.................................. 130,800 314,834
Sun Hung Kai Properties Limited........................... 150,000 1,045,395
-----------
1,360,229
-----------
IRELAND (4.1%)
Allied Irish Banks PLC.................................... 150,290 1,452,824
CRH PLC................................................... 85,021 986,258
+ Elan Corp. PLC (ADR)..................................... 31,000 1,586,813
Greencore Group PLC....................................... 202,027 970,660
Northern Ireland Electricity PLC.......................... 40,000 346,524
-----------
5,343,079
-----------
JAPAN (22.7%)
The Bank of Tokyo-Mitsubishi, Limited..................... 75,000 1,038,293
Bridgestone Corp.......................................... 90,000 1,958,913
Canon, Inc................................................ 46,000 1,075,518
Credit Saison Co., Limited................................ 80,000 1,981,217
Ezaki Glico Co., Limited.................................. 82,000 531,652
Fuji Photo Film Co. Limited............................... 64,000 2,461,139
Hitachi Maxell Limited.................................... 45,000 796,025
Hoya Corp................................................. 33,000 1,040,600
The Industrial Bank of Japan.............................. 95,000 679,505
Ito-Yokado Co. Limited.................................... 18,000 920,620
JUSCO Co. Limited......................................... 56,000 792,487
Komatsu Limited........................................... 150,000 755,647
Murata Manufacturing Co. Limited.......................... 25,000 630,667
Nintendo Co. Limited...................................... 17,000 1,673,575
NTT Data Corp............................................. 26,000 1,405,772
Omron Corp................................................ 93,000 1,459,148
Rohm Co. Limited.......................................... 20,000 2,045,822
SMC Corp.................................................. 13,500 1,194,037
Sony Corp................................................. 18,000 1,605,893
Takeda Chemical Industries................................ 93,000 2,660,799
Taisho Pharmaceutical Co. Limited......................... 65,000 1,664,730
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Tokyo Broadcasting System, Inc............................ 30,000 $ 380,707
Yasuda Fire & Marine Insurance Co. Limited................ 145,000 622,284
-----------
29,375,050
-----------
MALAYSIA (0.3%)
Malayan Banking Berhad.................................... 80,000 232,249
Telekom Malaysia Berhad................................... 45,000 132,952
-----------
365,201
-----------
NETHERLANDS (7.0%)
AEGON N.V. (ADR).......................................... 12,005 1,075,948
AEGON N.V................................................. 18,336 1,632,596
Elsevier N.V.............................................. 105,000 1,698,870
Hagemeyer N.V............................................. 28,418 1,187,337
ING Groep N.V............................................. 31,710 1,335,830
Vendex International N.V.................................. 39,714 2,192,152
-----------
9,122,733
-----------
NORWAY (0.4%)
Smedvig-ASA (ADR)-B....................................... 25,000 525,000
-----------
SINGAPORE (0.3%)
City Developments Limited................................. 80,000 370,340
-----------
SPAIN (1.3%)
Banco Intercontinental Espanol SA......................... 7,800 442,160
Banco Popular Espanol SA.................................. 18,000 1,257,747
-----------
1,699,907
-----------
SWEDEN (5.6%)
Assa Abloy AB-B........................................... 66,000 1,746,833
Astra AB-B................................................ 80,000 1,346,044
Autoliv, Inc. (ADR)....................................... 27,000 884,250
Hennes & Mauritz AB-B..................................... 35,000 1,543,918
OM Gruppen AB............................................. 15,700 571,855
Skandia Forsakrings AB.................................... 24,000 1,132,794
-----------
7,225,694
-----------
SWITZERLAND (9.0%)
Credit Suisse Group....................................... 14,000 2,169,278
Nestle SA................................................. 1,250 1,876,007
+ Pharma Vision 2000 AG.................................... 2,150 1,336,978
Roche Holding AG.......................................... 330 3,281,787
Schweizerische Bankgesellschaft........................... 2,102 3,043,724
-----------
11,707,774
-----------
UNITED KINGDOM (18.8%)
BAA PLC................................................... 765 6,268
Barclays PLC.............................................. 1 27
British Petroleum Co. PLC (ADR)........................... 20,467 1,630,964
Compass Group PLC......................................... 120,000 1,469,025
Dixons Group PLC.......................................... 145,000 1,457,754
EMI Group PLC............................................. 84,185 703,675
General Accident PLC...................................... 73,000 1,267,215
HSBC Holdings PLC......................................... 45,000 1,155,080
Lloyds TSB Group PLC...................................... 150,000 1,942,411
Misys PLC................................................. 76,528 2,304,340
+ Norwich Union PLC........................................ 200,000 1,283,422
Powerscreen International PLC............................. 111,691 1,116,451
Provident Financial PLC................................... 118,293 1,551,288
Rentokil Initial PLC...................................... 350,000 1,526,121
Reuters Holdings PLC...................................... 90,000 984,779
Shell Transport & Trading Co. PLC......................... 265,000 1,918,552
Siebe PLC................................................. 74,090 1,456,809
Smiths Industries PLC..................................... 90,000 1,255,780
Zeneca Group PLC.......................................... 35,000 1,230,687
-----------
24,260,648
-----------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ ------------
<S> <C> <C>
TOTAL COMMON STOCK
(Cost $95,578,835)................................................ $115,190,170
------------
PREFERRED STOCK (1.6%)
- ----------------------
SAP AG (Cost $1,337,258)................................... 6,300 2,046,929
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
MATURITY RATING (000)
-------- ------ -----
<S> <C> <C> <C> <C>
CORPORATE BOND (0.7%)
- ---------------------
SWITZERLAND
Union Bank of Switzerland 2.75%
(Cost $920,625)............................ 06/16/02 NR $750 889,688
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
WARRANTS (0.6%)
- ---------------
+ Compagnie Generale de Eaux............................ 4,700 3,195
+ Rhone Poulenc Wts..................................... 16,000 55,055
+ Credit Suisse......................................... 95,000 781,598
------------
TOTAL WARRANTS
(Cost $623,382).................................................. 839,848
------------
SHORT TERM INVESTMENTS (8.1%)
- -----------------------------
Temporary Cash Investment Fund, Inc.................... 5,236,270 5,236,270
Temporary Investment Fund, Inc......................... 5,235,079 5,235,079
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $10,471,349)............................................... 10,471,349
------------
TOTAL INVESTMENTS (100.0%)
(Cost $108,931,449)(a)........................................... $129,437,984
============
</TABLE>
- -------
+ Non income producing.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$110,039,158. Net unrealized appreciation was $19,398,826. This consisted
of aggregate gross unrealized depreciation for all securities in which
there was an excess of market value over tax cost of $24,875,638 and
aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $5,476,812.
ADR--American Depository Receipt.
COMMON AND PREFERRED STOCK SECTOR DIVERSIFICATION
<TABLE>
<CAPTION>
% OF
MARKET VALUE
VALUE (000'S)
------ --------
<S> <C> <C>
Manufacturing................................................... 21.7% $ 25,418
Financial Services.............................................. 19.5% 22,816
Retail.......................................................... 15.5% 18,208
Insurance....................................................... 9.5% 11,098
Electronics..................................................... 7.0% 8,208
Computers....................................................... 5.8% 6,825
Pharmaceuticals................................................. 5.0% 5,912
Oil............................................................. 4.8% 5,619
Telecommunication............................................... 2.7% 3,197
Automotive...................................................... 2.2% 2,519
Airlines........................................................ 1.4% 1,604
Miscellaneous................................................... 1.3% 1,526
Real Estate..................................................... 1.2% 1,416
Investment Co. ................................................. 1.1% 1,337
Consumer Products............................................... 1.0% 1,187
Utilities....................................................... 0.3% 347
------ --------
100.0% $117,237
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
COMMON STOCK (87.3%)
- --------------------
AUTOMOTIVE PARTS (1.2%)
Borg-Warner Automotive, Inc. ............................... 9,400 $ 488,800
----------
BUILDING MATERIALS (1.3%)
Chicago Bridge & Iron Company N.V. ......................... 21,000 341,250
Medusa Corp. ............................................... 4,400 183,975
----------
525,225
----------
CABLE OPERATORS (1.6%)
TCA Cable TV, Inc. ......................................... 14,100 653,006
----------
CHEMICALS (3.8%)
+ McWhorter Technologies, Inc. .............................. 13,200 339,900
Schulman, A. Inc. .......................................... 46,600 1,176,650
----------
1,516,550
----------
COMPUTER SERVICES & SOFTWARE (10.9%)
+ Auspex Systems, Inc. ...................................... 75,500 759,719
+ BA Merchant Services, Inc. ................................ 27,400 486,350
+ BancTec, Inc. ............................................. 22,000 589,875
+ The BISYS Group, Inc. ..................................... 28,900 964,537
+ Wang Laboratories, Inc. ................................... 69,500 1,542,031
----------
4,342,512
----------
ELECTRICAL EQUIPMENT (1.2%)
AMETEK, Inc. ............................................... 16,900 456,300
----------
ELECTRONICS (6.7%)
Belden, Inc. ............................................... 7,000 246,750
+ Exar Corp. ................................................ 28,000 465,500
+ General Semiconductor, Inc. ............................... 48,300 558,469
+ Oak Industries, Inc. ...................................... 10,160 301,625
+ Tracor, Inc. .............................................. 10,700 328,356
Watkins-Johnson Co. ........................................ 29,400 762,562
----------
2,663,262
----------
HEALTHCARE (5.2%)
+ CorVel Corp. .............................................. 21,500 822,375
+ Magellan Health Services, Inc. ............................ 35,500 763,250
+ Trigon Healthcare, Inc. ................................... 17,800 465,025
----------
2,050,650
----------
HOLDING COMPANY (1.9%)
Triarc Companies, Inc. ..................................... 27,000 735,750
----------
INFORMATION PROCESSING (1.6%)
National Data Corp. ........................................ 18,100 653,863
----------
INSURANCE (14.8%)
+ CNA Surety Corporation..................................... 36,100 557,294
+ Delphi Financial Group, Inc. .............................. 18,014 810,630
Enhance Financial Services Group, Inc. ..................... 6,900 410,550
E.W. Blanch Holdings, Inc. ................................. 26,400 909,150
+ Gryphon Holdings, Inc. .................................... 26,700 448,894
Horace Mann Educators Corp. ................................ 13,800 392,437
RenaissanceRe Holdings Ltd. ................................ 32,500 1,434,062
United Wisconsin Services, Inc. ............................ 35,200 906,400
----------
5,869,417
----------
MACHINERY - DIVERSIFIED (2.5%)
+ Baldwin Technology Company, Inc. .......................... 87,600 438,000
OmniQuip International, Inc. ............................... 27,800 556,869
----------
994,869
----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
MANUFACTURING (12.7%)
+ Champion Enterprises, Inc. ................................ 35,000 $ 719,688
Flowserve Corp. ............................................ 31,000 866,062
Harman International Industries, Inc. ...................... 11,200 475,300
+ Lydall, Inc. .............................................. 47,300 922,350
+ National Patent Development Corp. ......................... 32,500 450,938
+ Paxar Corp. ............................................... 45,750 677,672
Roper Industries, Inc. ..................................... 11,500 324,875
Watts Industries, Inc. ..................................... 16,700 472,819
Woodhead Industries, Inc. .................................. 7,200 135,000
----------
5,044,704
----------
MEDICAL SUPPLIES (2.7%)
DENTSPLY International Inc. ................................ 13,000 401,781
+ Spacelabs Medical, Inc. ................................... 20,100 378,131
Vital Signs, Inc. .......................................... 15,400 294,525
----------
1,074,437
----------
METAL FABRICATE/HARDWARE (2.3%)
EASCO, Inc. ................................................ 21,400 280,875
Kaydon Corp. ............................................... 19,300 629,663
----------
910,538
----------
OIL & GAS (5.9%)
+ Basin Exploration, Inc. ................................... 15,500 275,125
Cabot Oil & Gas Corp. ...................................... 29,700 577,294
KCS Energy, Inc. ........................................... 15,200 315,400
+ Nuevo Energy Co. .......................................... 12,500 509,375
St. Mary Land & Exploration Co. ............................ 18,700 648,656
----------
2,325,850
----------
PAPER AND FOREST PRODUCTS (0.6%)
Rock-Tenn Co. .............................................. 11,000 225,500
----------
PUBLISHING & PRINTING (2.9%)
Bowne & Co., Inc. .......................................... 9,200 366,850
Harland Co., John H. ....................................... 7,600 159,600
Hollinger International, Inc. .............................. 44,600 624,400
----------
1,150,850
----------
RECYCLING (0.4%)
Newfield Exploration Company................................ 6,600 153,862
----------
RETAIL (0.4%)
Longs Drug Stores, Inc. .................................... 4,400 141,350
----------
TELECOMMUNICATIONS (1.9%)
+ ACC Corp. ................................................. 4,900 248,062
+ CommScope, Inc. ........................................... 37,700 506,594
----------
754,656
----------
TEXTILES (4.0%)
+ Burlington Industries, Inc. ............................... 14,200 196,138
Guilford Mills, Inc. ....................................... 25,200 689,850
+ WestPoint Stevens, Inc. ................................... 14,400 684,900
----------
1,570,888
----------
TRANSPORTATION (0.8%)
Interpool, Inc. ............................................ 22,800 337,725
----------
TOTAL COMMON STOCK
(Cost $30,468,479)................................................. 34,640,564
----------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE SMALL CAPITALIZATION FUND
<TABLE>
<CAPTION>
PAR
MATURITY (000) VALUE
-------- ------- -----------
<S> <C> <C> <C>
AGENCY OBLIGATIONS (8.2%)
- -------------------------
Federal Home Loan Bank 5.43%..................... 01/20/98 $ 2,460 $ 2,452,895
Federal Home Loan Mortgage Corp. 5.66%........... 02/05/98 790 785,653
-----------
TOTAL AGENCY OBLIGATIONS
(Cost $3,238,603)................................................. 3,238,548
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
---------
<S> <C> <C>
SHORT TERM INVESTMENTS (4.5%)
- -----------------------------
Temporary Investment Fund
Class B (Cost $1,786,583)........................... 1,786,583 1,786,583
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $35,493,665)(a) ............................................. $39,665,695
===========
</TABLE>
- -------
+ Non-income producing.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$35,510,923. Net unrealized appreciation was $4,154,772. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $4,998,285 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $843,517.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
THE EMERGING GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ ----------
<S> <C> <C>
COMMON STOCK (87.9%)
- --------------------
AEROSPACE & DEFENSE (0.6%)
The Boeing Co. ............................................. 2,000 $ 97,875
----------
AIRLINES (1.1%)
+ Alaska Air Group, Inc. .................................... 1,000 38,750
+ Atlantic Coast Airlines Inc. .............................. 3,000 94,688
+ Midwest Express Holdings, Inc. ............................ 1,000 38,813
----------
172,251
----------
COMPUTER SERVICES & SOFTWARE (19.5%)
+ Aspect Development, Inc. .................................. 3,000 156,375
+ Check Point Software Technologies Ltd. .................... 6,900 282,038
+ CHS Electronics, Inc. ..................................... 1,000 16,938
+ Citrix Systems, Inc. ...................................... 2,300 174,872
+ Cognicase, Inc. ........................................... 7,400 89,031
+ Computer Horizons Corp. ................................... 1,000 45,750
+ Compuware Corp. ........................................... 400 12,813
+ Crystal Systems Solutions ................................. 1,500 37,688
+ ECsoft Group (ADR) ........................................ 20,400 360,825
+ Excite, Inc. .............................................. 3,000 90,094
+ HNC Software, Inc. ........................................ 3,800 164,113
+ Information Management Resources, Inc. .................... 4,000 150,750
+ Intelligroup, Inc. ........................................ 3,000 56,250
+ INTERSOLV, Inc. ........................................... 6,000 121,875
+ Metro Information Services, Inc. .......................... 2,400 67,350
+ New Era of Networks, Inc. ................................. 5,200 57,200
+ Peritus Software Services, Inc. ........................... 2,000 40,813
+ Pervasive Software, Inc. .................................. 16,200 119,475
+ PRT Group, Inc. ........................................... 6,800 76,075
+ PSW Technologies, Inc. .................................... 3,000 42,938
+ RealNetworks, Inc. ........................................ 2,700 37,631
+ Saville Systems Ireland ................................... 7,000 290,281
+ Security Dynamics Technologies, Inc. ...................... 1,500 53,719
+ SMART Modular Technologies, Inc. .......................... 4,600 105,225
+ Software AG Systems, Inc. ................................. 1,700 24,650
+ SunGard Data Systems Inc. ................................. 952 29,512
+ Tier Technologies, Inc. ................................... 18,100 193,444
+ UBICS, Inc. ............................................... 1,000 15,250
+ Yahoo! Inc. ............................................... 2,000 138,688
----------
3,051,663
----------
DISTRIBUTION SERVICES (3.2%)
+ Brightpoint, Inc. ......................................... 9,400 130,425
+ Innovative Valve Technologies, Inc. ....................... 4,200 84,525
+ NBTY, Inc. ................................................ 2,000 66,875
+ U.S.A. Floral Products, Inc ............................... 13,500 214,313
----------
496,138
----------
EDUCATION SERVICES (3.0%)
+ Bright Horizons, Inc. ..................................... 2,000 37,875
+ Caribiner International, Inc. ............................. 1,500 66,750
+ Computer Learning Centers, Inc. ........................... 1,800 110,363
+ Education Management Corp. ................................ 8,000 250,500
----------
465,488
----------
ELECTRONIC COMPONENTS (4.6%)
+ Aavid Thermal Technologies, Inc. .......................... 2,700 64,125
+ Flextronics International Ltd. ............................ 2,000 31,500
+ InTest Corp. .............................................. 6,000 44,250
+ Level One Communications, Inc. ............................ 2,300 64,831
+ Micrel, Inc. .............................................. 3,000 84,938
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------ ---------
<S> <C> <C>
+ Integrations, Inc. ......................................... 1,300 $ 12,391
+ Powerwave Technologies, Inc. ............................... 4,000 66,626
+ Rambus Inc. ................................................ 2,000 91,750
+ Sawtek Inc. ................................................ 6,000 157,875
+ Semtech Corp. .............................................. 2,400 93,600
---------
711,886
---------
FINANCIAL SERVICES (3.8%)
Citicorp..................................................... 1,000 126,438
+ Franchise Mortgage Acceptance Co. LLC....................... 7,000 129,063
Liberty Financial Companies, Inc. ........................... 950 35,863
MBNA Corp. .................................................. 7,000 191,188
Sirrom Capital Corp. ........................................ 2,200 115,225
---------
597,777
---------
FOOD SERVICES (1.8%)
+ American Italian Pasta Co. ................................. 11,100 277,500
---------
HEALTHCARE (1.0%)
+ Sunrise Assisted Living, Inc. .............................. 3,700 158,638
---------
HOTELS & LODGING (5.0%)
+ BridgeStreet Accommodations, Inc. .......................... 22,900 230,431
+ Fairfield Communities, Inc. ................................ 1,700 74,995
Four Seasons Hotels, Co. .................................... 8,600 271,975
+ Interstate Hotels Co. ...................................... 3,000 105,188
+ Silverleaf Resorts, Inc. ................................... 3,700 90,650
+ Vistana, Inc. .............................................. 100 2,288
---------
775,527
---------
HUMAN RESOURCES (7.4%)
+ AccuStaff, Inc. ............................................ 4,000 92,000
+ AHL Services, Inc. ......................................... 7,000 172,375
+ Interim Services, Inc. ..................................... 5,000 129,375
+ MAXIMUS, Inc. .............................................. 10,900 263,644
+ RCM Technologies, Inc. ..................................... 2,400 40,500
+ Romac International, Inc. .................................. 9,600 234,600
Select Appointments Holdings LTD (ADR)....................... 12,200 224,938
---------
1,157,432
---------
INSURANCE (3.2%)
+ ARM Financial Group, Inc. .................................. 3,400 89,675
Travelers Group, Inc. ....................................... 7,500 404,063
---------
493,738
---------
INVESTMENT COMPANIES (3.1%)
+ Affiliated Managers Group, Inc. ............................ 8,500 246,500
T. Rowe Price Associates, Inc. .............................. 3,000 189,000
The Charles Schwab Corp. .................................... 1,000 41,938
---------
477,438
---------
LEASING (1.8%)
+ Financial Federal Corp. .................................... 2,500 59,063
+ Granite Financial Inc. ..................................... 12,200 215,025
---------
274,088
---------
LEISURE (2.5%)
+ American Coin Merchandising, Inc. .......................... 6,000 106,500
+ Steiner Leisure Ltd. ....................................... 9,150 281,363
---------
387,863
---------
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997 (CONTINUED)
THE EMERGING GROWTH FUND
<TABLE>
<CAPTION>
SHARES VALUE
------ --------
<S> <C> <C>
MANUFACTURING (1.3%)
+ Power-One, Inc. ............................................. 4,000 $ 55,250
+ Wesley Jessen VisionCare, Inc. .............................. 3,800 148,675
--------
203,925
--------
MARKETING (1.3%)
+ Abacus Direct Corp. ......................................... 4,500 186,188
+ Boron, LePore & Associates, Inc. ............................ 1,000 27,563
--------
213,751
--------
MEDIA (0.9%)
+ Emmis Broadcasting Corp. .................................... 1,700 77,775
+ Jacor Communications, Inc. .................................. 1,400 74,463
--------
152,238
--------
MEDICAL INSTRUMENTS & DEVICES (1.1%)
+ Cytyc Corp. ................................................. 1,900 47,381
+ Vista Medical Technologies, Inc. ............................ 9,800 121,275
--------
168,656
--------
MEDICAL SERVICES (2.7%)
+ BioReliance Corp. ........................................... 5,300 121,900
HBO & Co. .................................................... 3,500 167,891
+ IMPATH, Inc. ................................................ 1,000 32,250
+ Lincare Holdings, Inc. ...................................... 1,600 91,600
+ Serologicals Corp. .......................................... 500 12,781
--------
426,422
--------
MISCELLANEOUS (0.5%)
+ The Profit Recovery Group International, Inc. ............... 4,500 80,719
--------
NETWORK SYSTEMS (0.7%)
+ Concord Communications, Inc. ................................ 600 12,338
+ MMC Networks, Inc. .......................................... 3,500 58,516
+ Network Solutions, Inc. ..................................... 3,200 42,100
--------
112,954
--------
PUBLISHING (0.8%)
+ The Petersen Companies, Inc. ................................ 5,300 121,900
--------
REAL ESTATE (4.3%)
+CB Commercial Real Estate Services Group, Inc. ............... 10,700 344,406
Intrawest Corp. .............................................. 7,000 121,625
+ LaSalle Partners, Inc. ...................................... 4,400 156,750
+ Trammell Crow Co. ........................................... 2,100 54,075
--------
676,856
--------
RESTAURANTS (0.3%)
+ Star Buffet, Inc. ........................................... 4,000 46,000
--------
RETAIL (3.5%)
+ DM Management Co. ........................................... 2,900 45,856
+ Fossil, Inc. ................................................ 1,000 25,250
+ Gadzooks, Inc. .............................................. 6,000 126,750
+ ONSALE, Inc. ................................................ 3,000 54,000
+ Rocky Shoes and Boots, Inc. ................................. 14,200 213,888
+ Tropical Sportswear International Corp. ..................... 8,200 83,538
--------
549,282
--------
TELECOMMUNICATIONS (5.8%)
+ CellStar Corp. .............................................. 3,500 69,891
+ CIENA Corp. ................................................. 3,100 189,875
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
+ ITC DeltaCom, Inc. ...................................... 11,300 $ 185,038
+ LCC International, Inc. ................................. 2,700 38,644
+ Lightbridge, Inc. ....................................... 9,000 169,313
+STARTEC Global Communications. Corp. ..................... 2,300 51,319
+ Tekelec.................................................. 6,000 183,750
+ Transcrypt International, Inc. .......................... 1,000 25,000
-----------
912,830
-----------
TRANSPORTATION (1.3%)
C.H. Robinson Worldwide, Inc. ............................ 2,400 54,150
+ Pegasus Systems, Inc. ................................... 3,000 44,625
Travel Services International, Inc. ...................... 4,800 112,200
-----------
210,975
-----------
VIDEO COMPONENTS (1.8%)
+ Gemstar International Group Ltd ......................... 11,600 279,125
-----------
TOTAL COMMON STOCK
(Cost $13,246,111)................................................ 13,750,935
-----------
SHORT TERM INVESTMENTS (12.1%)
- ------------------------------
Temporary Investment Fund--Temp Cash...................... 950,091 950,091
Temporary Investment Fund Class B......................... 950,092 950,092
-----------
TOTAL SHORT TERM INVESTMENTS
(Cost $1,900,183)................................................. 1,900,183
-----------
TOTAL INVESTMENTS (100.0%)
(Cost $15,146,294)(a)............................................. $15,651,118
===========
</TABLE>
- -------
+ Non income producing.
(a) At December 31, 1997, the cost for Federal income tax purposes was
$15,197,114. Net unrealized appreciation was $454,004. This consisted of
aggregate gross unrealized appreciation for all securities in which there
was an excess of market value over tax cost of $1,303,496 and aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $849,492.
ADR-American Depository Receipt
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
- ----------------------------------------------------
THIS PAGE LEFT INTENTIONALLY BLANK
19
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH
MARKET FUND BOND FUND BOND FUND EQUITY FUND
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments at value (1).. $37,333,851 $44,701,856 $58,143,961 $137,230,147
Cash...................... 1,000 1,184 127 --
Interest, dividends and
reclaims receivable...... 353,126 313,633 1,097,027 139,944
Receivable for investment
securities sold.......... -- -- -- --
Receivable for capital
stock sold............... -- 4,492 2,399 76,656
Other assets.............. 313 278 505 1,254
----------- ----------- ----------- ------------
Total Assets............. 37,688,290 45,021,443 59,244,019 137,448,001
----------- ----------- ----------- ------------
LIABILITIES:
Cash overdraft............ -- -- -- 6,654
Payable for investment
securities purchased..... -- 4,847,231 -- 1,119,150
Payable for capital stock
redeemed................. -- 59,323 50,623 139,931
Dividends payable......... 176,454 -- -- --
Payable to the investment
advisor.................. 13,646 15,144 24,663 55,891
Payable to The Penn Mutual
Life Insurance Co........ 15,112 14,704 21,465 51,332
Net unrealized
depreciation on forward
foreign currency
contracts................ -- -- -- --
Other liabilities......... 6,694 8,013 9,604 16,797
----------- ----------- ----------- ------------
Total Liabilities........ 211,906 4,944,415 106,355 1,389,755
----------- ----------- ----------- ------------
NET ASSETS................. $37,476,384 $40,077,028 $59,137,664 $136,058,246
=========== =========== =========== ============
Shares of $.10 par value
capital stock issued and
outstanding............... 37,478,141 3,929,034 6,214,249 5,583,243
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
SHARE..................... $ 1.00 $ 10.20 $ 9.52 $ 24.37
NET ASSETS CONSIST OF:
Capital paid in........... $37,478,141 $39,724,697 $58,440,118 $102,355,392
Undistributed net
investment income
(loss)................... -- -- -- --
Accumulated net realized
gain (loss) on investment
transactions and foreign
exchange................. (1,757) -- (1,585,701) (35,982)
Net unrealized
appreciation in value of
investments, futures
contracts and foreign
currency related items... -- 352,331 2,283,247 33,738,836
----------- ----------- ----------- ------------
TOTAL NET ASSETS......... $37,476,384 $40,077,028 $59,137,664 $136,058,246
=========== =========== =========== ============
(1) Investments at cost.... $37,333,851 $44,349,525 $55,860,714 $103,491,311
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE MANAGED INTERNATIONAL CAPITALIZATION GROWTH
EQUITY FUND FUND EQUITY FUND FUND FUND
------------ ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C>
$304,348,314 $515,531,351 $129,437,984 $39,665,695 $15,651,118
-- -- 930,708 -- 2,523,632
346,648 2,462,097 247,018 18,975 2,256
-- 1,033,789 -- 570,879 823,537
-- 9,245 315,342 92,215 118,722
2,728 4,477 1,050 341 147
------------ ------------ ------------ ----------- -----------
304,697,690 519,040,959 130,932,102 40,348,105 19,119,412
------------ ------------ ------------ ----------- -----------
-- -- -- -- --
971,198 1,973,039 930,708 1,582,088 1,141,769
498,560 469,473 14,872 3,437 17,776
-- -- -- -- --
126,658 215,463 81,736 15,736 8,894
110,636 190,588 48,833 13,744 4
-- -- 176,660 -- --
30,170 53,672 41,737 7,006 9,251
------------ ------------ ------------ ----------- -----------
1,737,222 2,902,235 1,294,546 1,622,011 1,177,694
------------ ------------ ------------ ----------- -----------
$302,960,468 $516,138,724 $129,637,556 $38,726,094 $17,941,718
============ ============ ============ =========== ===========
13,432,474 26,029,570 8,038,534 2,683,387 1,395,974
$ 22.55 $ 19.83 $ 16.13 $ 14.43 $ 12.85
$212,638,756 $440,801,069 $110,276,873 $34,563,548 $17,535,073
-- -- (1,026,453) -- (56,325)
-- (26,314) 64,993 (9,484) (41,854)
90,321,712 75,363,969 20,322,143 4,172,030 504,824
------------ ------------ ------------ ----------- -----------
$302,960,468 $516,138,724 $129,637,556 $38,726,094 $17,941,718
============ ============ ============ =========== ===========
$214,026,602 $440,167,542 $108,931,449 $35,493,665 $15,146,294
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY QUALITY HIGH YIELD GROWTH
MARKET FUND BOND FUND BOND FUND EQUITY FUND
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.................... $ -- $ 28,350 $ 315,064 $ 1,172,790
Interest..................... 2,161,404 2,460,829 4,656,080 266,042
Foreign tax withheld......... -- -- -- (2,071)
---------- ---------- ---------- -----------
Total investment income..... 2,161,404 2,489,179 4,971,144 1,436,761
---------- ---------- ---------- -----------
EXPENSES:
Investment advisory fees..... 148,226 164,758 254,474 600,772
Administration fees.......... 56,455 56,299 76,344 186,580
Accounting fees.............. 28,227 28,211 38,169 87,177
Custodian fees and expenses.. 10,746 12,500 25,786 30,482
Other expenses............... 21,074 19,901 16,073 49,747
---------- ---------- ---------- -----------
Total expenses.............. 264,728 281,669 410,846 954,758
Less: Expense waivers....... -- -- -- --
---------- ---------- ---------- -----------
Net expenses................ 264,728 281,669 410,846 954,758
---------- ---------- ---------- -----------
NET INVESTMENT INCOME (LOSS).. 1,896,676 2,207,510 4,560,298 482,003
---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on
investment transactions..... (225) 912,980 2,964,765 13,834,988
Net realized gain from
foreign currency............ -- -- -- --
Change in unrealized
appreciation of investments,
futures contracts and
foreign currency during the
year........................ -- (208,702) (118,203) 14,267,440
---------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS... (225) 704,278 2,846,562 28,102,428
---------- ---------- ---------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.... $1,896,451 $2,911,788 $7,406,860 $28,584,431
========== ========== ========== ===========
</TABLE>
- -----------------------
* For the period from May 1, 1997 (commencement of operations) to December 31,
1997.
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLY SMALL EMERGING
VALUE MANAGED INTERNATIONAL CAPITALIZATION GROWTH
EQUITY FUND FUND EQUITY FUND FUND FUND *
- ----------- ----------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
$ 3,097,369 $ 7,090,647 $ 1,683,459 $ 191,250 $ 15,587
2,524,642 10,789,548 564,878 226,303 15,001
(6,146) (34,053) (121,111) (1,384) --
- ----------- ----------- ----------- ---------- ----------
5,615,865 17,846,142 2,127,226 416,169 30,588
- ----------- ----------- ----------- ---------- ----------
1,279,429 2,310,427 912,368 137,566 60,470
383,864 693,190 182,487 41,270 11,345
152,928 223,627 97,981 27,518 6,127
37,846 86,208 117,952 13,884 20,621
98,182 186,575 61,601 14,480 8,074
- ----------- ----------- ----------- ---------- ----------
1,952,249 3,500,027 1,372,389 234,718 106,637
-- -- -- -- (19,724)
- ----------- ----------- ----------- ---------- ----------
1,952,249 3,500,027 1,372,389 234,718 86,913
- ----------- ----------- ----------- ---------- ----------
3,663,616 14,346,115 754,837 181,451 (56,325)
- ----------- ----------- ----------- ---------- ----------
16,381,602 29,490,467 4,305,835 2,278,532 1,331,710
-- 80,506 2,563,120 -- --
36,751,125 23,598,612 3,833,566 2,875,385 504,824
- ----------- ----------- ----------- ---------- ----------
53,132,727 53,169,585 10,702,521 5,153,917 1,836,534
- ----------- ----------- ----------- ---------- ----------
$56,796,343 $67,515,700 $11,457,358 $5,335,368 $1,780,209
=========== =========== =========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MONEY MARKET FUND QUALITY BOND FUND
------------------------ --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................. $ 1,896,676 $ 1,467,263 $ 2,207,510 $ 2,357,782
Net realized gain (loss)
on investment
transactions........... (225) -- 912,980 (117,033)
Net realized gain (loss)
from foreign currency.. -- -- -- --
Change in unrealized
appreciation
(depreciation) of
investments and foreign
currency during the
year................... -- -- (208,702) (692,970)
----------- ----------- ------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............ 1,896,451 1,467,263 2,911,788 1,547,779
----------- ----------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income... (1,896,676) (1,467,263) (2,207,510) (2,342,476)
Net realized gains...... -- -- (16,338) --
In excess of net
investment income...... -- -- (16,277) --
----------- ----------- ------------ ------------
TOTAL DISTRIBUTIONS.... (1,896,676) (1,467,263) (2,240,125) (2,342,476)
----------- ----------- ------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Net increase in net
assets from capital
share transactions..... 2,975,990 9,775,026 1,794,024 357,633
----------- ----------- ------------ ------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................ 2,975,765 9,775,026 2,465,687 (437,064)
Net Assets, beginning of
year.................... 34,500,619 24,725,593 37,611,341 38,048,405
----------- ----------- ------------ ------------
NET ASSETS, END OF YEAR.. $37,476,384 $34,500,619 $ 40,077,028 $ 37,611,341
=========== =========== ============ ============
<CAPTION>
HIGH YIELD BOND FUND GROWTH EQUITY FUND
------------------------ --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
OPERATIONS:
Net investment income
(loss)................. $ 4,560,298 $ 3,194,439 $ 482,003 $ 475,615
Net realized gain (loss)
on investment
transactions........... 2,964,765 (499,838) 13,834,988 10,366,718
Net realized gain (loss)
from foreign currency.. -- -- -- --
Change in unrealized
appreciation
(depreciation) of
investments, futures
contracts and foreign
currency during the
year................... (118,203) 2,501,662 14,267,440 7,073,178
----------- ----------- ------------ ------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS............ 7,406,860 5,196,263 28,584,431 17,915,511
----------- ----------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income... (4,560,298) (3,194,439) (482,003) (475,615)
Net realized gains...... -- -- (13,678,856) (10,558,832)
In excess of net
investment income...... (10,576) (25,808) -- --
----------- ----------- ------------ ------------
TOTAL DISTRIBUTIONS.... (4,570,874) (3,220,247) (14,160,859) (11,034,447)
----------- ----------- ------------ ------------
CAPITAL SHARE
TRANSACTIONS:
Net increase in net
assets from capital
share transactions..... 12,260,119 5,623,807 15,595,214 3,565,102
----------- ----------- ------------ ------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS................ 15,096,105 7,599,823 30,018,786 10,446,166
Net Assets, beginning of
year.................... 44,041,559 36,441,736 106,039,460 95,593,294
----------- ----------- ------------ ------------
NET ASSETS, END OF YEAR.. $59,137,664 $44,041,559 $136,058,246 $106,039,460
=========== =========== ============ ============
</TABLE>
- -----------------------
* For the period from May 1, 1997 (commencement of operations) through December
31, 1997.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE EQUITY FUND FLEXIBLY MANAGED FUND
- --------------------------------- -----------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96
- ------------ ------------ ------------ ------------
<S> <C> <C> <C>
$ 3,663,616 $ 2,210,027 $ 14,346,115 $ 12,850,451
16,381,602 8,252,470 29,490,467 16,818,384
-- -- 80,506 (2,411)
36,751,125 25,690,221 23,598,612 21,020,920
- ------------ ------------ ------------ ------------
56,796,343 36,152,718 67,515,700 50,687,344
- ------------ ------------ ------------ ------------
(3,663,616) (2,210,027) (14,346,115) (12,850,451)
(16,381,602) (8,252,470) (29,491,615) (16,768,765)
-- -- (99,694) (4,084)
- ------------ ------------ ------------ ------------
(20,045,218) (10,462,497) (43,937,424) (29,623,300)
- ------------ ------------ ------------ ------------
65,535,450 47,723,822 94,016,309 110,923,988
- ------------ ------------ ------------ ------------
102,286,575 73,414,043 117,594,585 131,988,032
200,673,893 127,259,850 398,544,139 266,556,107
- ------------ ------------ ------------ ------------
$302,960,468 $200,673,893 $516,138,724 $398,544,139
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
EMERGING
INTERNATIONAL EQUITY FUND SMALL CAPITALIZATION FUND GROWTH FUND
- ----------------------------- ----------------------------- -----------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97*
- ------------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
$ 754,837 $ 567,625 $ 181,451 $ 87,435 $ (56,325)
4,305,835 5,713,489 2,278,532 588,102 1,331,710
2,563,120 3,145,612 -- -- --
3,833,566 4,322,244 2,875,385 1,130,459 504,824
- ------------- ------------- ------------ ------------ -----------
11,457,358 13,748,970 5,335,368 1,805,996 1,780,209
- ------------- ------------- ------------ ------------ -----------
(754,837) (567,625) (181,451) (87,435) --
(4,305,835) (4,589,862) (2,286,865) (607,875) (1,373,564)
(3,230,284) (2,877,835) -- -- --
- ------------- ------------- ------------ ------------ -----------
(8,290,956) (8,035,322) (2,468,316) (695,310) (1,373,564)
- ------------- ------------- ------------ ------------ -----------
22,053,566 29,173,205 19,725,010 10,195,439 17,535,073
- ------------- ------------- ------------ ------------ -----------
25,219,968 34,886,853 22,592,062 11,306,125 17,941,718
104,417,588 69,530,735 16,134,032 4,827,907 0
- ------------- ------------- ------------ ------------ -----------
$ 129,637,556 $ 104,417,588 $ 38,726,094 $ 16,134,032 $17,941,718
============= ============= ============ ============ ===========
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE MONEY MARKET FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 0.0503 0.0489 0.0538 0.0365 0.0250
-------- -------- -------- -------- --------
Total from investment
operations................ 0.0503 0.0489 0.0538 0.0365 0.0250
-------- -------- -------- -------- --------
LESS DIVIDENDS:
Dividends from net
investment income.......... (0.0503) (0.0489) (0.0538) (0.0365) (0.0250)
-------- -------- -------- -------- --------
Total dividends............ (0.0503) (0.0489) (0.0538) (0.0365) (0.0250)
-------- -------- -------- -------- --------
Net asset value, end of
year....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total return................ 5.15% 5.00% 5.51% 3.71% 2.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................. $ 37,476 $ 34,501 $ 24,726 $ 16,531 $ 13,005
-------- -------- -------- -------- --------
Ratio of expenses to average
net assets (a)............. 0.70% 0.73% 0.69% 0.73% 0.74%
-------- -------- -------- -------- --------
Ratio of net investment
income to average net
assets (a)................. 5.04% 4.88% 5.37% 3.74% 2.51%
-------- -------- -------- -------- --------
- ---------------------------------------
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been .74%,
.74%, .79% and .82%, and the ratios of net investment income to average net
assets would have been 4.87%, 5.32%, 3.68% and 2.43%, for the years ended
December 31, 1996, 1995, 1994, and 1993, respectively.
- --------------------------------------------------------------------------------
THE QUALITY BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 10.00 $ 10.24 $ 9.04 $ 10.19 $ 10.03
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.60 0.66 0.61 0.61 0.46
Net realized and unrealized gain
(loss) on investment
transactions................... 0.20 (0.24) 1.21 (1.15) 0.71
------- ------- ------- ------- -------
Total from investment
operations.................... 0.80 0.42 1.82 (0.54) 1.17
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net investment
income......................... (0.60) (0.66) (0.61) (0.61) (0.46)
Distribution from net realized
gain........................... 0.00 0.00 0.00 0.00 (0.54)
Distribution in excess of net
realized gain.................. 0.00 0.00 (0.01) 0.00 (0.01)
------- ------- ------- ------- -------
Total distributions............ (0.60) (0.66) (0.62) (0.61) (1.01)
------- ------- ------- ------- -------
Net asset value, end of year.... $ 10.20 $ 10.00 $ 10.24 $ 9.04 $ 10.19
======= ======= ======= ======= =======
Total return.................... 8.03% 4.14% 20.14% (5.29)% 11.67%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)..................... $40,077 $37,611 $38,048 $31,338 $33,027
------- ------- ------- ------- -------
Ratio of expenses to average net
assets (a)..................... 0.75% 0.77% 0.73% 0.78% 0.79%
------- ------- ------- ------- -------
Ratio of net investment income
to average net assets (a)...... 5.87% 6.03% 6.20% 6.14% 5.21%
------- ------- ------- ------- -------
Portfolio turnover rate......... 317.3% 107.6% 449.2% 380.9% 389.4%
------- ------- ------- ------- -------
- ---------------------------------------
</TABLE>
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been .78%,
.78%, .83% and .84% , and the ratios of net investment income to average
net assets would have been 6.02%, 6.15%, 6.09% and 5.16% for the years
ended December 31, 1996, 1995, 1994, and 1993, respectively.
26
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE HIGH YIELD BOND FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year............................ $ 8.91 $ 8.44 $ 7.94 $ 9.55 $ 8.63
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ 0.80 0.70 0.80 0.90 0.77
Net realized and unrealized gain
(loss) on investment
transactions.................... 0.61 0.47 0.50 (1.60) 0.94
------- ------- ------- ------- -------
Total from investment
operations..................... 1.41 1.17 1.30 (0.70) 1.71
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net investment
income.......................... (0.80) (0.70) (0.80) (0.90) (0.77)
Distribution in excess of net
investment income............... 0.00 0.00 0.00 (0.01) (0.02)
------- ------- ------- ------- -------
Total distributions............. (0.80) (0.70) (0.80) (0.91) (0.79)
------- ------- ------- ------- -------
Net asset value, end of year..... $ 9.52 $ 8.91 $ 8.44 $ 7.94 $ 9.55
======= ======= ======= ======= =======
Total return..................... 15.78% 13.87% 16.41% 7.33% 19.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)...................... $59,138 $44,042 $36,442 $32,081 $35,305
------- ------- ------- ------- -------
Ratio of expenses to average net
assets.......................... 0.81% 0.84% 0.87% 0.86% 0.87%
------- ------- ------- ------- -------
Ratio of net investment income to
average net assets.............. 8.96% 8.14% 9.20% 9.18% 9.21%
------- ------- ------- ------- -------
Portfolio turnover rate.......... 111.3% 118.5% 84.3% 90.7% 118.7%
------- ------- ------- ------- -------
Average commission rate paid (a)
................................ $0.0293 $0.0203 -- -- --
------- ------- ------- ------- -------
</TABLE>
- -----------------------
(a) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
- --------------------------------------------------------------------------------
THE GROWTH EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 21.46 $ 20.00 $ 18.30 $ 20.49 $ 18.82
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... 0.10 0.11 0.09 0.13 0.06
Net realized and unrealized
gain (loss) on investment
transactions................. 5.64 3.85 4.75 (1.80) 2.28
-------- -------- ------- ------- -------
Total from investment
operations.................. 5.74 3.96 4.84 (1.67) 2.34
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net investment
income....................... (0.10) (0.11) (0.09) (0.13) (0.06)
Distribution from net realized
gains........................ (2.73) (2.39) (3.05) (0.39) (0.61)
-------- -------- ------- ------- -------
Total distributions.......... (2.83) (2.50) (3.14) (0.52) (0.67)
-------- -------- ------- ------- -------
Net asset value, end of year.. $ 24.37 $ 21.46 $ 20.00 $ 18.30 $ 20.49
======== ======== ======= ======= =======
Total return.................. 26.74% 19.76% 26.45% (8.12)% 12.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................... $136,058 $106,039 $95,593 $80,078 $83,938
-------- -------- ------- ------- -------
Ratio of expenses to average
net assets (a)............... 0.77% 0.80% 0.77% 0.79% 0.77%
-------- -------- ------- ------- -------
Ratio of net investment income
to average net assets (a).... 0.39% 0.48% 0.43% 0.70% 0.30%
-------- -------- ------- ------- -------
Portfolio turnover rate....... 169.1% 177.1% 169.8% 156.2% 185.3%
-------- -------- ------- ------- -------
Average commission rate paid
(b).......................... $ 0.0780 $ 0.0774 -- -- --
-------- -------- ------- ------- -------
</TABLE>
- -----------------------
(a) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets would have been .81%,
.82%, .84% and .82% and the ratios of net investment income to average net
assets would have been .47%, .38%, .65% and .25% for the years ended
December 31, 1996, 1995, 1994 and 1993, respectively.
(b) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
27
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE VALUE EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year......................... $ 19.32 $ 16.28 $ 12.67 $ 12.68 $ 12.14
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... 0.29 0.22 0.25 0.20 0.17
Net realized and unrealized
gain on investment
transactions................. 4.53 3.88 4.50 0.17 0.69
-------- -------- -------- ------- -------
Total from investment
operations.................. 4.82 4.10 4.75 0.37 0.86
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net investment
income....................... (0.29) (0.22) (0.25) (0.20) (0.17)
Distribution from net realized
gains........................ (1.30) (0.84) (0.89) (0.18) (0.15)
-------- -------- -------- ------- -------
Total distributions.......... (1.59) (1.06) (1.14) (0.38) (0.32)
-------- -------- -------- ------- -------
Net asset value, end of year.. $ 22.55 $ 19.32 $ 16.28 $ 12.67 $ 12.68
======== ======== ======== ======= =======
Total return.................. 24.98% 25.19% 37.48% 2.92% 7.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................... $302,960 $200,674 $127,260 $79,021 $69,980
-------- -------- -------- ------- -------
Ratio of expenses to average
net assets................... 0.76% 0.78% 0.80% 0.82% 0.83%
-------- -------- -------- ------- -------
Ratio of net investment income
to average net assets........ 1.43% 1.38% 1.71% 1.59% 1.49%
-------- -------- -------- ------- -------
Portfolio turnover rate....... 18.7% 25.0% 34.3% 30.6% 17.2%
-------- -------- -------- ------- -------
Average commission rate paid
(a).......................... $ 0.0598 $ 0.0588 -- -- --
-------- -------- -------- ------- -------
</TABLE>
- -----------------------
(a) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
- --------------------------------------------------------------------------------
THE FLEXIBLY MANAGED FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of year.................... $ 18.74 $ 17.40 $ 15.19 $ 15.70 $ 14.31
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... 0.61 0.65 0.53 0.43 0.34
Net realized and unrealized
gain on investment
transactions............... 2.33 2.19 2.86 0.22 1.92
-------- -------- -------- -------- --------
Total from investment
operations................ 2.94 2.84 3.39 0.65 2.26
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividend from net investment
income..................... (0.61) (0.65) (0.53) (0.43) (0.34)
Distribution in excess of
net investment income...... 0.00 0.00 (0.01) (0.02) 0.00
Distribution from net
realized gains............. (1.24) (0.85) (0.64) (0.71) (0.53)
-------- -------- -------- -------- --------
Total distributions........ (1.85) (1.50) (1.18) (1.16) (0.87)
-------- -------- -------- -------- --------
Net asset value, end of
year....................... $ 19.83 $ 18.74 $ 17.40 $ 15.19 $ 15.70
======== ======== ======== ======== ========
Total return................ 15.65% 16.37% 22.28% 4.14% 15.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)................. $516,139 $398,544 $266,556 $169,847 $113,492
-------- -------- -------- -------- --------
Ratio of expenses to average
net assets................. 0.76% 0.77% 0.79% 0.82% 0.85%
-------- -------- -------- -------- --------
Ratio of net investment
income to average net
assets..................... 3.10% 3.90% 3.45% 3.14% 2.62%
-------- -------- -------- -------- --------
Portfolio turnover rate..... 37.1% 32.9% 37.2% 37.3% 42.6%
-------- -------- -------- -------- --------
Average commission rate paid
(a)........................ $ 0.0362 $ 0.0627 -- -- --
-------- -------- -------- -------- --------
</TABLE>
- -----------------------
(a) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
28
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE INTERNATIONAL EQUITY FUND
The following table includes selected data for a share outstanding throughout
each year and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................... $ 15.61 $ 14.47 $ 13.01 $ 13.94 $ 10.12
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... 0.58 0.63 0.13 0.09 0.03
Net realized and unrealized gain
(loss) on investments and
foreign currency related
transactions................... 1.04 1.81 1.67 (0.97) 3.83
-------- -------- ------- ------- -------
Total from investment
operations.................... 1.62 2.44 1.80 (0.88) 3.86
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividend from net investment
income......................... (0.53) (0.56) (0.12) (0.02) (0.01)
Distribution in excess of net
investment income.............. 0.00 (0.74) (0.22) 0.00 0.00
Distribution from net realized
gains.......................... (0.57) 0.00 0.00 0.00 (0.03)
Distribution from capital....... 0.00 0.00 0.00 (0.03) 0.00
-------- -------- ------- ------- -------
Total distributions............ (1.10) (1.30) (0.34) (0.05) (0.04)
-------- -------- ------- ------- -------
Net asset value, end of year.... $ 16.13 $ 15.61 $ 14.47 $ 13.01 $ 13.94
======== ======== ======= ======= =======
Total return.................... 10.41% 16.87% 13.80% 6.31% 38.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)..................... $129,638 $104,418 $69,531 $59,393 $40,798
-------- -------- ------- ------- -------
Ratio of expenses to average net
assets......................... 1.13% 1.17% 1.23% 1.22% 1.21%
-------- -------- ------- ------- -------
Ratio of net investment income
to average net assets.......... 0.62% 0.66% 0.91% 0.82% 0.63%
-------- -------- ------- ------- -------
Portfolio turnover rate......... 35.7% 54.8% 62.5% 15.6% 11.1%
-------- -------- ------- ------- -------
Average commission rate paid
(a)............................ $ 0.0420 $ 0.0397 -- -- --
-------- -------- ------- ------- -------
</TABLE>
- -----------------------
(a) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
- --------------------------------------------------------------------------------
THE SMALL CAPITALIZATION FUND
The following table includes selected data for a share outstanding throughout
each year or period and other performance information derived from the
financial statements. It should be read in conjunction with the financial
statements and notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995*
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 12.53 $ 10.96 $ 10.00
-------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................... 0.07 0.07 0.09
Net realized and unrealized gain on
investment transactions................ 2.81 2.09 1.19
-------- -------- -------
Total from investment operations....... 2.88 2.16 1.28
-------- -------- -------
LESS DISTRIBUTIONS:
Dividend from net investment income..... (0.07) (0.07) (0.09)
Distribution from net realized gains.... (0.91) (0.52) (0.23)
-------- -------- -------
Total distributions.................... (0.98) (0.59) (0.32)
-------- -------- -------
Net asset value, end of period.......... $ 14.43 $ 12.53 $ 10.96
======== ======== =======
Total return............................ 23.02% 19.76% 12.76%(d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands)............................. $ 38,726 $ 16,134 $ 4,828
-------- -------- -------
Ratio of expenses to average net
assets................................. 0.85% 0.99%(b) 1.00%(a)(b)
-------- -------- -------
Ratio of net investment income to
average net assets..................... 0.66% 0.85%(b) 1.53%(a)(b)
-------- -------- -------
Portfolio turnover rate................. 71.1% 39.2% 64.3%
-------- -------- -------
Average commission rate paid (c)........ $ 0.0557 $ 0.0486 --
-------- -------- -------
</TABLE>
- -----------------------
(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratios of expenses to average net assets would have been 1.06%
and 1.29%, and the ratios of net investment income to average net assets
would have been 0.78% and 1.24%, respectively, for the year ended December
31, 1996 and the period ended December 31, 1995.
(c) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
(d) Not annualized.
* For the period from March 1, 1995 (commencement of operations) through
December 31, 1995.
29
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
THE EMERGING GROWTH FUND
The following table includes selected data for a share outstanding throughout
the period and other performance information derived from the financial
statements. It should be read in conjunction with the financial statements and
notes thereto.
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
1997*
------------
<S> <C>
Net asset value, beginning of period......................... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss.......................................... 0.00
Net realized and unrealized gain on investment transactions.. 3.92
-------
Total from investment operations............................ 3.92
-------
LESS DISTRIBUTIONS:
Dividend from net investment income.......................... 0.00
Distribution from net realized gains......................... (1.07)
-------
Total distributions......................................... (1.07)
-------
Net asset value, end of period............................... $ 12.85
=======
Total return................................................. 39.22% (d)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..................... $17,942
-------
Ratio of expenses to average net assets...................... 1.15% (a)(b)
-------
Ratio of net investment loss to average net assets........... (0.73%)(a)(b)
-------
Portfolio turnover rate...................................... 392.3% (a)
-------
Average commission rate paid (c)............................. $0.0545
=======
</TABLE>
- -----------------------
(a) Annualized.
(b) Had fees not been waived by the investment advisor and administrator of the
Fund, the ratio of expenses to average net assets and the ratio of net
investment loss to average net assets would have been 1.41% and (0.99%),
respectively, for the period ended December 31, 1997.
(c) Computed by dividing the total amount of commissions paid by total number
of shares purchased and sold during the period for which commissions were
charged.
(d) Not annualized
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997.
30
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1 - SIGNIFICANT ACCOUNTING POLICIES
Penn Series Funds, Inc. (Penn Series) was incorporated in Maryland on April
22, 1982. Penn Series is registered under the Investment Company Act of 1940,
as amended, as an open-end, diversified management investment company.
Penn Series is presently offering shares in its Money Market, Quality Bond,
High Yield Bond, Growth Equity, Value Equity, Flexibly Managed, International
Equity, Small Capitalization and Emerging Growth Funds (the Funds). It is
authorized under its Articles of Incorporation to issue a separate class of
shares in one additional fund. The Fund would have its own investment objective
and policy.
The following is a summary of significant accounting policies followed by
Penn Series in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
INVESTMENT VALUATION:
MONEY MARKET FUND - Investments in securities are valued under the amortized
cost method, which approximates current market value. Under this method,
securities are valued at cost on the date of purchase and thereafter a
proportionate amortization of any discount or premium until maturity is
assumed. Penn Series maintains a dollar weighted average portfolio maturity
appropriate to the objective of maintaining a stable net asset value per share.
The Penn Series Board of Directors (The Board) has established procedures
reasonably designed to stabilize the net asset value per share for purposes of
sales and redemptions at $1.00. The Board performs regular review and
monitoring of the valuation in an attempt to avoid dilution or unfair results
to shareholders.
QUALITY BOND, HIGH YIELD BOND, GROWTH EQUITY, VALUE EQUITY, FLEXIBLY MANAGED,
INTERNATIONAL EQUITY, SMALL CAPITALIZATION AND EMERGING GROWTH FUNDS -
Portfolio securities listed on a national securities exchange are valued at
the last sale price on the securities exchange or securities market on which
such securities primarily are traded or, if there has been no sale on that day,
at the mean between the current closing bid and asked prices. All other
securities for which over-the-counter market quotations are readily available
will be valued on the basis of the mean between the last current bid and asked
prices. When market quotation are not readily available, or when restricted or
other assets are being valued, the securities or assets will be valued at fair
value as determined by The Board.
The high yield securities in which the High Yield Bond Fund may invest are
predominantly speculative as to the issuer's continuing ability to meet
principal and interest payments. The value of the lower quality securities in
which the High Yield Bond Fund may invest will be affected by the credit
worthiness of individual issuers, general economic and specific industry
conditions, and will fluctuate inversely with changes in interest rates. In
addition, the secondary trading market for lower quality bonds may be less
active and less liquid than the trading market for higher quality bonds.
FOREIGN CURRENCY TRANSLATION - The books and records of the Funds are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis: market value of investment securities, assets
and liabilities at the current rate of exchange, purchases and sales of
investment securities, income and expenses at the relevant rates of exchange
prevailing on the respective dates of such transactions.
The Funds do not isolate the portion of realized and unrealized gains and
losses on investments which is due to changes in the foreign exchange rate from
that which is due to changes in market prices of equity securities. Such
fluctuations are included with net realized and unrealized gain or loss from
investments.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the level of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
accounted for on the trade date. Dividend income is recorded on the ex-dividend
date and interest income is accrued as earned. The cost of investment
securities sold is determined by using the specific identification method for
both financial reporting and income tax purposes.
DIVIDENDS TO SHAREHOLDERS: Dividends of investment income and realized
capital gains of each of the Funds, other than Money Market, will be declared
and paid annually. Dividends of net investment income of the Money Market Fund
are declared daily and paid monthly. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for mortgage-backed securities, market
discount and foreign currency transactions.
FEDERAL INCOME TAXES: The Funds intend to continue to qualify as regulated
investment companies under Subchapter M of the Internal Revenue code and to
distribute all of their taxable income, including realized gains, to their
shareholders. Therefore, no federal income tax provision is required.
31
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
2 - DERIVATIVE FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Funds may trade financial instruments with off-balance sheet risk in the
normal course of investing activities and to assist in managing exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts and futures contracts.
The notional or contractual amounts of these instruments represent the
investment the Funds have in particular classes of financial instruments and do
not necessarily represent the amounts potentially subject to risk. The
measurement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
FUTURES CONTRACTS - Each of the Funds, other than Money Market, may enter
into financial futures contracts for the delayed delivery of securities,
currency or contracts based on financial indices on a future date. A Fund is
required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
a Fund each day, dependent on daily fluctuations in the value of the underlying
security, and are recorded for financial statement purposes as unrealized gains
or losses by a Fund. A Fund's investment in financial futures contracts is
designed only to hedge against anticipated future changes in interest or
exchange rates. Should interest or exchange rates move unexpectedly, a Fund may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The Quality Bond Fund has entered into futures contracts during
the year ended December 31, 1997. There were no open futures contracts at
December 31, 1997.
OPTIONS - Each of the Funds, other than Money Market, may write covered
calls. Additionally, each of the Funds may buy put or call options for which
premiums are paid whether or not the option is exercised. Premiums received
from writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are offset
against the proceeds or amount paid on the transaction to determine the
realized gain or loss. If a put option is exercised the premium increases the
cost basis of the securities purchased by a Fund. As writer of an option, the
Fund may have no control over whether the underlying securities may be sold
(call) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. The Flexibly Managed
Fund has entered into put options during the year ended December 31, 1997.
Purchased put options open and outstanding at December 31, 1997 are disclosed
in the schedule of investments. There were no written options outstanding at
December 31, 1997.
FORWARD FOREIGN CURRENCY CONTRACTS - The Funds may enter into forward foreign
currency exchange contracts as a way of managing foreign exchange rate risk. A
Fund may enter into these contracts to fix the U.S. dollar value of a security
that it has agreed to buy or sell for the period between the date the trade was
entered into and the date the security is delivered and paid for. A Fund may
also use these contracts to hedge the U.S. dollar value of securities it
already owns denominated in foreign currencies.
Forward foreign currency contracts are valued at the forward rate, and are
marked-to-market daily. The change in market value is recorded by the Fund as
an unrealized gain or loss. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Fund's portfolio securities, but it does
establish a rate of exchange that can be achieved in the future. Although
forward foreign currency contracts limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain the might
result should the value of the currency increase. In addition, the Funds could
be exposed to risks if the counterparties to the contracts are unable to meet
the terms of their contracts. The Flexibly Managed and International Equity
funds have entered into forward foreign currency contracts for the year ended
December 31, 1997. At December 31, 1997 there were no open contracts in the
Flexibly Managed Fund. Open forward foreign currency contracts held by the
International Equity Fund at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN FOREIGN
FORWARD FOREIGN EXPIRATION CURRENCY FORWARD CONTRACT CONTRACT EXCHANGE
CURRENCY CONTRACT DATE TO BE PURCHASED RATE AMOUNT VALUE (LOSS)
----------------- ---------- --------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
French Franc............ 02/05/98 5,000,000 5.99706 $ 869,338 $ 833,742 $ (35,596)
French Franc............ 04/16/98 22,000,000 5.97347 3,838,772 3,682,951 (155,821)
German Deutsche Mark.... 02/05/98 8,000,000 1.79492 4,655,629 4,457,023 (198,606)
German Deutsche Mark.... 04/16/98 18,000,000 1.78933 10,514,019 10,059,631 (454,388)
Japanese Yen............ 02/05/98 700,000,000 129.34399 5,902,192 5,411,925 (490,267)
Japanese Yen............ 04/14/98 1,600,000,000 128.02933 13,624,674 12,497,136 (1,127,538)
Swiss Franc............. 02/05/98 1,500,000 1.45146 1,078,671 1,033,442 (45,229)
Swiss Franc............. 04/16/98 7,500,000 1.44212 5,432,027 5,200,677 (231,350)
----------- ----------- -----------
$45,915,322 $43,176,527 $(2,738,795)
----------- ----------- -----------
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2 - DERIVATIVE FINANCIAL INSTRUMENTS, CONTINUED
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN FOREIGN
FORWARD FOREIGN EXPIRATION CURRENCY FORWARD CONTRACT CONTRACT EXCHANGE
CURRENCY CONTRACT DATE TO BE SOLD RATE AMOUNT VALUE GAIN/(LOSS)
----------------- ---------- ------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
French Franc............ 02/05/98 5,000,000 5.99706 $ 806,491 $ 833,742 $ (27,251)
French Franc............ 04/16/98 22,000,000 5.97347 3,772,291 3,682,951 89,340
German Deutsche Mark.... 02/05/98 8,000,000 1.79492 4,353,504 4,457,023 (103,519)
German Deutsche Mark.... 04/16/98 18,000,000 1.78794 10,353,158 10,067,452 285,706
Japanese Yen............ 02/05/98 700,000,000 129.34399 6,082,725 5,411,925 670,800
Japanese Yen............ 02/17/98 2,000,000,000 129.13200 16,077,558 15,488,028 589,530
Japanese Yen............ 04/14/98 1,600,000,000 128.02833 13,555,876 12,497,136 1,058,740
Swiss Franc............. 02/05/98 1,500,000 1.45146 1,005,699 1,033,442 (27,743)
Swiss Franc............. 04/16/98 7,500,000 1.44212 5,227,209 5,200,677 26,532
----------- ----------- ----------
$61,234,511 $58,672,376 $2,562,135
----------- ----------- ----------
</TABLE>
3 - INVESTMENT ADVISORY AND OTHER CORPORATE SERVICES
INVESTMENT ADVISORY SERVICES
Under investment advisory agreements, the following advisors manage the
investments of the respective Fund and provide guidance on certain accounting
matters:
<TABLE>
<CAPTION>
ADVISOR PENN SERIES FUND
------- ----------------
<S> <C>
Independence Capital Management, Inc. Money Market Fund
(A wholly owned subsidiary of Penn Quality Bond Fund
Mutual Growth Equity Fund
Life Insurance Company) Emerging Growth Fund
T. Rowe Price Associates Flexibly Managed Fund
High Yield Bond Fund
Vontobel USA, Inc. International Equity Fund
OpCap Advisors Value Equity Fund
Small Capitalization Fund
</TABLE>
Each of the Funds pays their respective advisors, on a monthly basis, an
annual advisory fee based on the average daily net assets of each Fund, at the
following rates pursuant to the investment advisory agreements: Money Market
Fund: 0.40% for first $100 million and 0.35% thereafter; Quality Bond Fund:
0.45% for first $100 million and 0.40% thereafter; Growth Equity Fund: 0.50%
for the first $100 million and 0.45% thereafter; Flexibly Managed Fund: 0.50%;
High Yield Bond Fund: 0.50%; International Equity Fund: 0.75%; Value Equity
Fund: 0.50%; Small Capitalization Fund: 0.50%; Emerging Growth Fund: 0.80% for
the first $25 million, 0.75% for next $25 million and 0.70% thereafter.
Robertson Stephens & Company is the subadvisor for the Emerging Growth Fund,
receiving fees from Independence Capital Management Inc. at the following
rates: 0.70% for the first $25 million, 0.66% for the next $25 million and
0.60% thereafter.
ADMINISTRATIVE AND CORPORATE SERVICES
Under an administrative and corporate services agreement, The Penn Mutual
Life Insurance Company ("Penn Mutual") serves as administrative and corporate
services agent for Penn Series. Each of the Funds pays Penn Mutual, on a
quarterly basis, an annual fee equal to 0.15% of each of the Fund's average
daily net assets.
EXPENSES AND LIMITATIONS THEREON
Each Fund bears all expenses of its operations other than those incurred by
the investment advisors under their respective investment advisory agreements
and those incurred by Penn Mutual under its administrative and corporate
services agreement. The investment advisors and Penn Mutual have each
voluntarily agreed to waive fees or reimburse expenses to the extent each of
the Fund's expense ratio (excluding interest, taxes, brokerage, other
capitalized expenses, but including investment advisory and administrative and
corporate services fees) exceeds the applicable expense limitations for each
Fund. The expense limitations for the Funds are as follows: Money Market,
0.80%; Quality Bond: 0.90%; High Yield Bond: 0.90%; Growth Equity: 1.00%; Value
Equity: 1.00%; Flexibly Managed: 1.00%; International Equity: 1.50%; Small
Capitalization 1.00%; and Emerging Growth 1.15%.
Fees were paid to non-affiliated Directors of Penn Series for the year ended
December 31, 1997. However, no person received compensation from Penn Series
who is an officer, director, or employee of Penn Series, the investment
advisors, administrator, accounting agent or any parent or subsidiary thereof.
33
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4 - CAPITAL STOCK
At December 31, 1997, there were one billion shares of $.10 par value capital
stock authorized for Penn Series. The shares are divided into ten classes of
100 million shares of capital stock. Nine of the classes designated are Penn
Series Money Market Fund Common Stock, Penn Series Quality Bond Fund Common
Stock, Penn Series High Yield Bond Fund Common Stock, Penn Series Growth Equity
Fund Common Stock, Penn Series Value Equity Fund Common Stock, Penn Series
Flexibly Managed Fund Common Stock, Penn Series International Equity Fund
Common Stock, Penn Series Small Capitalization Fund Common Stock and Penn
Series Emerging Growth Fund Common Stock. One of the classes of common stock is
presently designated Class I and no shares have been issued.
Transactions in capital stock of the Money Market Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold............... 52,596,243 $ 52,596,243 44,071,472 $ 44,071,472
Shares issued to
shareholders in
reinvestment of net
investment income........ 1,857,904 1,857,904 1,440,949 1,440,949
Shares reacquired......... (51,478,157) (51,478,157) (35,737,395) (35,737,395)
----------- ------------ ----------- ------------
2,975,990 $ 2,975,990 9,775,026 $ 9,775,026
----------- ------------ ----------- ------------
Transactions in capital stock of the Quality Bond Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold............... 695,043 $ 7,228,270 816,952 $ 8,374,183
Shares issued to
shareholders in
reinvestment of
Net investment income.... 216,422 2,207,510 234,248 2,342,476
Net realized gain from
investment
transactions............ 1,602 16,338 0 0
Distribution in excess of
net investment income... 1,596 16,277 0 0
Shares reacquired......... (745,923) (7,674,394) (1,006,891) (10,359,026)
----------- ------------ ----------- ------------
168,740 $ 1,794,001 44,309 $ 357,633
----------- ------------ ----------- ------------
Transactions in capital stock of the High Yield Bond Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold............... 1,621,677 $ 15,567,712 1,055,047 $ 9,465,000
Shares issued to
shareholders in
reinvestment of
Net investment income.... 479,026 4,560,298 361,419 3,220,247
Distribution in excess of
net investment income... 1,111 10,576 0 0
Shares reacquired......... (829,328) (7,878,467) (792,896) (7,061,440)
----------- ------------ ----------- ------------
1,272,486 $ 12,260,119 623,570 $ 5,623,807
----------- ------------ ----------- ------------
Transactions in capital stock of the Growth Equity Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold............... 560,843 $ 13,907,900 320,394 $ 7,089,450
Shares issued to
shareholders in
reinvestment of
Net investment income.... 19,779 482,003 22,163 475,615
Net realized gain from
investment
transactions............ 561,299 13,678,854 492,024 10,558,832
Shares reacquired......... (500,698) (12,473,543) (673,246) (14,558,795)
----------- ------------ ----------- ------------
641,223 $ 15,595,214 161,335 $ 3,565,102
----------- ------------ ----------- ------------
</TABLE>
34
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
4 - CAPITAL STOCK, CONTINUED
Transactions in capital stock of the Value Equity Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.................. 2,867,800 $ 61,202,630 2,485,344 $ 45,626,673
Shares issued to shareholders
in reinvestment of
Net investment income....... 162,466 3,663,616 114,391 2,210,027
Net realized gain from
investment transactions.... 726,457 16,381,602 427,146 8,252,470
Shares reacquired............ (712,142) (15,712,398) (457,053) (8,365,348)
---------- ------------ --------- ------------
3,044,581 $ 65,535,450 2,569,828 $ 47,723,822
---------- ------------ --------- ------------
Transactions in capital stock of the Flexibly Managed Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.................. 4,061,684 $ 80,965,783 5,176,205 $ 96,448,634
Shares issued to shareholders
in reinvestment of
Net investment income....... 728,483 14,445,809 685,941 12,854,535
Net realized gain from
investment transactions.... 1,487,222 29,491,615 894,811 16,768,765
Shares reacquired............ (1,513,715) (30,886,898) (807,605) (15,147,946)
---------- ------------ --------- ------------
4,763,674 $ 94,016,309 5,949,352 $110,923,988
---------- ------------ --------- ------------
Transactions in capital stock of the International Equity Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.................. 1,665,223 $ 27,762,536 1,812,851 $ 28,060,006
Shares issued to shareholders
in reinvestment of
Net investment income....... 247,062 3,985,121 220,720 3,445,460
Net realized gain from
investment transactions.... 266,946 4,305,835 294,034 4,589,862
Shares reacquired............ (829,261) (13,999,926) (442,745) (6,922,123)
---------- ------------ --------- ------------
1,349,970 $ 22,053,566 1,884,860 $ 29,173,205
---------- ------------ --------- ------------
Transactions in capital stock of the Small Capitalization Fund were as follows:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shares sold.................. 1,398,053 $ 19,734,987 1,108,381 $ 13,236,881
Shares issued to shareholders
in reinvestment of
Net investment income....... 12,575 181,452 6,978 87,435
Distribution in excess of
net investment income...... 158,480 2,286,864 48,711 607,875
Shares reacquired............ (173,037) (2,478,293) (317,129) (3,736,752)
---------- ------------ --------- ------------
1,396,071 $ 19,725,010 846,941 $ 10,195,439
---------- ------------ --------- ------------
Transactions in capital stock of the Emerging Growth Fund were as follows:
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1997*
------------------------
SHARES AMOUNT
---------- ------------
<S> <C> <C>
Shares sold.................. 1,427,602 $ 18,230,138
Net realized gain from
investment transactions.... 106,892 1,373,564
Shares reacquired............ (138,520) (2,069,490)
---------- ------------
1,395,974 $ 17,534,212
---------- ------------
</TABLE>
* For the period from May 1, 1997 (commencement of operations) through December
31, 1997.
35
<PAGE>
- --------------------------------------------------------------------------------
PENN SERIES FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
5 - PURCHASES AND SALES OF INVESTMENTS
During the period ended December 31, 1997, the Funds made the following
purchases and sales of portfolios securities:
<TABLE>
<CAPTION>
QUALITY BOND FUND HIGH YIELD BOND FUND
--------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations..... $ 42,255,306 $ 55,785,705 $ 972,188 $ 0
Other Long-Term
Securities............. 54,752,504 42,327,625 68,812,015 54,810,439
------------- ------------- ------------ ------------
Totals................. $ 97,007,810 $ 98,113,330 $ 69,784,203 $ 54,810,439
------------- ------------- ------------ ------------
<CAPTION>
GROWTH EQUITY FUND VALUE EQUITY FUND
--------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations..... $ 0 $ 0 $ 0 $ 0
Other Long-Term
Securities............. 199,970,040 202,350,217 63,333,929 39,320,862
------------- ------------- ------------ ------------
Totals................. $ 199,970,040 $ 202,350,217 $ 63,333,929 $ 39,320,862
------------- ------------- ------------ ------------
<CAPTION>
FLEXIBLY MANAGED FUND INTERNATIONAL EQUITY FUND
--------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations..... $ 0 $ 0 $ 0 $ 0
Other Long-Term
Securities............. 238,034,883 149,775,022 55,389,023 39,484,122
------------- ------------- ------------ ------------
Totals................. $ 238,034,883 $ 149,775,022 $ 55,389,023 $ 39,484,122
------------- ------------- ------------ ------------
<CAPTION>
SMALL CAPITALIZATION FUND EMERGING GROWTH FUND*
--------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Long Term U.S. Govt. and
Agency Obligations..... $ 0 $ 0 $ 0 $ 0
Other Long-Term
Securities............. 32,757,668 16,994,193 41,948,023 30,946,266
------------- ------------- ------------ ------------
Totals................. $ 32,757,668 $ 16,994,193 $ 41,948,023 $ 30,946,266
------------- ------------- ------------ ------------
</TABLE>
*For the period from May 1, 1997 (commencement of operations) through December
31, 1997.
- --------------------------------------------------------------------------------
6 - CAPITAL LOSS CARRYOVERS
Capital loss carryovers expire as follows:
<TABLE>
<CAPTION>
HIGH YIELD
MONEY BOND
MARKET FUND
------ ----------
<S> <C> <C>
1998.......................................................... $ 872 $ 0
2000.......................................................... 61 0
2001.......................................................... 183 0
2003.......................................................... 416 1,052,436
2004.......................................................... 0 525,647
2005.......................................................... 225 0
------ ----------
Total........................................................ $1,757 $1,578,083
------ ----------
</TABLE>
36
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF PENN SERIES FUNDS, INC.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Penn Series Funds, Inc. (comprising,
respectively, the Money Market Fund, Quality Bond Fund, High Yield Bond Fund,
Growth Equity Fund, Value Equity Fund, Flexibly Managed Fund, International
Equity Fund, Small Capitalization Fund, and Emerging Growth Fund) as of
December 31, 1997, and the related statements of operations, changes in net
assets and financial highlights for the year or period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial statements and financial highlights of Penn Series Funds, Inc. for
the years and periods ended December 31, 1996, were audited by other auditors
whose report dated February 11, 1997, expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodians
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective portfolios of Penn Series Funds, Inc. as of
December 31, 1997, and the results of their operations, the changes in their
net assets and their financial highlights for the year or period then ended, in
conformity with generally accepted accounting principles.
LOGO
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
February 2, 1998
