<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Penn Series Funds, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement., if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: *
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
5) Total fee paid:
-----------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _______________________________________________
2) Form, Schedule or Registration Statement No.: _________________________
3) Filing Party: _________________________________________________________
4) Date Filed: ___________________________________________________________
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
PHILADELPHIA, PENNSYLVANIA 19172
PIA VARIABLE ANNUITY ACCOUNT I
----------------
To Our Contract Owners and Payees:
The enclosed Notice of Special Meeting of Shareholders of Penn Series Funds,
Inc. and Proxy Statement concern proposals to be voted on by the shareholders
of Penn Series Funds, Inc. at the Special Meeting of Shareholders scheduled to
be held on April 16, 1998.
Shares of Penn Series Funds, Inc. are held by The Penn Insurance and Annuity
Company ("Penn Insurance") and its parent, The Penn Mutual Life Insurance
Company, in separate accounts established for the purpose of funding variable
annuity contracts and variable life insurance policies.
Shares are held by Penn Insurance in PIA Variable Annuity Account I pursuant
to variable annuity contracts. As owners or payees under the contracts, you
are entitled to instruct Penn Insurance as to the voting of shares held in the
separate account.
The proposals to be voted on at the meeting are described in the
accompanying Notice of Special Meeting and Proxy Statement. We urge you to
read the Proxy Statement carefully, and then exercise your right to give
voting instructions. Penn Insurance will vote, in accordance with your
instructions, the number of Fund shares held in the applicable subaccount
which is related to your interest therein as of the close of business on
February 26, 1998.
Please complete, date and sign the enclosed voting instruction form and
return the form to us promptly in the enclosed postage paid envelope. In order
to be given effect, your voting instructions must be received not later than
April 14, 1998.
Sincerely,
Richard F. Plush
Vice President
March 23, 1998
<PAGE>
THE PENN MUTUAL LIFE INSURANCE COMPANY
PHILADELPHIA, PENNSYLVANIA 19172
PENN MUTUAL VARIABLE ANNUITY ACCOUNTS I, II AND III
PENN MUTUAL VARIABLE LIFE ACCOUNT I
----------------
To Our Contract Owners, Policy Owners and Payees:
The enclosed Notice of Special Meeting of Shareholders of Penn Series Funds,
Inc. and Proxy Statement concern proposals to be voted on by the shareholders
of Penn Series Funds, Inc. at the Special Meeting of Shareholders scheduled to
be held on April 16, 1998.
Shares of Penn Series Funds, Inc. are held by The Penn Mutual Life Insurance
Company ("Penn Mutual") and its subsidiary, The Penn Insurance and Annuity
Company, in separate accounts established for the purpose of funding variable
annuity contracts and variable life insurance policies.
Shares are held by Penn Mutual in Penn Mutual Variable Annuity Accounts I,
II and III and Penn Mutual Variable Life Account I pursuant to variable
annuity contracts and variable life policies. As owners or payees under the
contracts and policies, you are entitled to instruct Penn Mutual as to the
voting of shares held in the separate accounts.
The proposals to be voted on at the meeting are described in the
accompanying Notice of Special Meeting and Proxy Statement. We urge you to
read the Proxy Statement carefully, and then exercise your right to give
voting instructions. Penn Mutual will vote, in accordance with your
instructions, the number of Fund shares held in the applicable separate
account or subaccount which is related to your interest therein as of the
close of business on February 26, 1998.
Please complete, date and sign the enclosed voting instruction form and
return the form to us promptly in the enclosed postage paid envelope. In order
to be given effect, your voting instructions must be received not later than
April 14, 1998.
Sincerely,
Richard F. Plush
Vice President
March 23, 1998
<PAGE>
PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
APRIL 16, 1998
----------------
A Special Meeting of Shareholders (the "Meeting") of Penn Series Funds, Inc.
(the "Company") will be held at the offices of The Penn Mutual Life Insurance
Company ("Penn Mutual") on Thursday, April 16, 1998, at 9:00 a.m. (Eastern
Time), in the Board Room, Third Floor, at 600 Dresher Road, Horsham,
Pennsylvania 19044.
At the Meeting, shareholders of Penn Series Funds, Inc. ("Shareholders")
will be asked to vote on the election of Directors for the Company, amendments
to the investment policies of certain of the Company's funds (each, a "Fund"
and together, the "Funds"), ratification of the selection of the Company's
independent public accountant, approval of new investment advisory and
investment sub-advisory agreements for certain Funds, and other matters
detailed below (the "Proposals"). The enclosed voting instruction form permits
the Shareholders of each Fund to instruct Penn Mutual to vote for or against
all proposals that apply to that Fund by checking a single box, or to vote
separately on each applicable Proposal.
The Proposals are highlighted below and grouped in sections for ease of
identification.
SECTION I: ELECTION OF BOARD OF DIRECTORS
PROPOSAL 1--Elect a Board of Directors of the Company.
SECTION II: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
PROPOSAL 2--Approve Ernst & Young LLP as the Company's Independent Auditors
SECTION III: APPROVAL OF CHANGES TO INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS
Proposals 3 through 8 relate to amending and updating the investment
policies of the Flexibly Managed and High Yield Bond Funds to provide
investment flexibility and to reflect recent changes in the law. The specifics
of these Proposals are as follows:
PROPOSAL 3--Approve changes to the investment policies of the Flexibly Managed
Fund to apply the Fund's 10% limit on ownership of voting
securities of any issuer to 75% of the total assets of the Fund,
rather than 100% of total assets.
PROPOSAL 4--Approve changes in the investment policies of the High Yield Bond
Fund to apply the Fund's 5% limit on assets invested in any one
issuer and 10% limit on ownership of voting securities of any
issuer to 75% of the total assets of the Fund, rather than 100% of
total assets.
PROPOSAL 5--Approve changes to the investment policies of the Flexibly Managed
and High Yield Bond Funds to permit each Fund to invest up to 15%
of their respective net assets in illiquid securities and change
the policies from fundamental to non-fundamental.
PROPOSAL 6--Approve changes in the investment policies of the Flexibly Managed
and High Yield Bond Funds to remove each Fund's investment policy
limiting investments in securities of issuers which have been in
operation for less than three years to 5% of the total assets of
the Fund.
<PAGE>
PROPOSAL 7--Approve changes to the investment policies of the Flexibly Managed
and High Yield Bond Funds to permit the Funds to invest in
securities backed by real estate or in securities of companies
engaged in the real estate business.
PROPOSAL 8--Approve changes in the investment policies of the High Yield Bond
Fund to permit the Fund to invest up to 10% of its assets in
warrants to purchase common stocks and change the policy regarding
warrants from fundamental to non-fundamental.
SECTION IV: APPROVAL OF INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL
EQUITY FUNDS AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Proposal 9 relates to the selection of Independence Capital Management, Inc.
("ICMI") as investment adviser to the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond and International Equity Funds and approval
of a new Investment Advisory Agreement for each Fund. The specifics of this
Proposal are as follows:
PROPOSAL 9--Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and
International Equity Funds and approve the Investment Advisory
Agreement between the Company, on behalf of the Funds, and ICMI.
SECTION V: APPROVAL OF SUB-ADVISERS TO THE VALUE EQUITY, SMALL CAPITALIZATION,
FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL EQUITY FUNDS AND
APPROVAL OF SUB-ADVISORY AGREEMENTS
Proposals 10 through 12 relate to the selection of T. Rowe Price Associates,
Inc. ("T. Rowe Price") as sub-adviser to the Flexibly Managed and High Yield
Bond Funds, OpCap Advisors ("OpCap") as sub-adviser to the Value Equity and
Small Capitalization Funds, and Vontobel USA Inc. ("Vontobel") as sub-adviser
to the International Equity Fund and the approval of a sub-advisory agreement
between ICMI and each sub-adviser. The specifics of these Proposals are as
follows:
PROPOSAL 10--Approve OpCap as investment sub-adviser to the Value Equity and
Small Capitalization Funds, and approve a Sub-Advisory Agreement
between ICMI and OpCap.
PROPOSAL 11--Approve T. Rowe Price as investment sub-adviser to the Flexibly
Managed and High Yield Bond Funds, and approve a Sub-Advisory
Agreement between ICMI and T. Rowe Price.
PROPOSAL 12--Approve Vontobel as investment sub-adviser to the International
Equity Fund, and approve a Sub-Advisory Agreement between ICMI
and Vontobel.
Shareholders of record at the close of business on February 26, 1998 are
entitled to notice of and to vote at this meeting or any adjournment thereof.
By Order of the Board of Directors
C. Ronald Rubley
Secretary
March 23, 1998
<PAGE>
PROXY STATEMENT
PENN SERIES FUNDS, INC.
600 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044
----------------
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 16, 1998
----------------
This proxy statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of the Penn Series Funds, Inc. (the
"Company") of voting instructions to be voted at a Special Meeting of
Shareholders and all adjournments thereof (the "Meeting"), to be held at the
offices of The Penn Mutual Life Insurance Company, Board Room, Third Floor,
600 Dresher Road, Horsham, Pennsylvania on Thursday, April 16, 1998 at 9:00
a.m. (Eastern Time). The approximate mailing date of this proxy statement and
the accompanying voting instruction form is March 23, 1998.
The purpose of the Meeting is to allow Shareholders of the Company to (1)
elect a Board of Directors; (2) ratify the selection of Ernst & Young LLP as
the Company's independent auditors; (3) approve changes to the investment
policies of the Flexibly Managed and High Yield Bond Funds; (4) approve the
selection of Independence Capital Management, Inc. ("ICMI") as investment
adviser to the Value Equity, Small Capitalization, Flexibly Managed, High
Yield Bond and International Equity Funds and approve an Investment Advisory
Agreement between the Company, on behalf of the Funds, and ICMI; and (5)
approve the selection of T. Rowe Price Associates, Inc. ("T. Rowe Price") as
sub-adviser to the Flexibly Managed and High Yield Bond Funds, OpCap Advisors
("OpCap") as sub-adviser to the Value Equity and Small Capitalization Funds,
and Vontobel USA Inc. ("Vontobel") as sub-adviser to the International Equity
Fund and approve a Sub-Advisory Agreement between ICMI and each sub-adviser.
The Proposals contained in Sections I and II of this Proxy Statement must be
acted upon by all Shareholders of the Company. The Proposals contained in
Section III must be acted upon by the Shareholders of the Flexibly Managed and
High Yield Bond Funds voting separately. The Proposals in Sections IV and V
must be acted upon by the Shareholders of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds voting separately.
<PAGE>
The summary voting tables below set forth the action required by
Shareholders of the Company:
SECTION I: ELECTION OF BOARD OF DIRECTORS
PROPOSAL
NUMBER FUND
-------- ---------
1 All Funds
SECTION II: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
PROPOSAL
NUMBER FUND
-------- ---------
2 All Funds
SECTION III: APPROVAL OF CHANGES TO INVESTMENT POLICIES
OF THE FLEXIBLY MANAGED AND HIGH YIELD BOND FUNDS
PROPOSAL
NUMBER FUND
-------- ----
3 Flexibly Managed
4 High Yield Bond
5 Flexibly Managed & High Yield Bond
6 Flexibly Managed & High Yield Bond
7 Flexibly Managed & High Yield Bond
8 High Yield Bond
SECTION IV: APPROVAL OF INVESTMENT ADVISER TO THE VALUE EQUITY,
SMALL CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND
INTERNATIONAL EQUITY FUNDS AND APPROVAL
OF INVESTMENT ADVISORY AGREEMENT
PROPOSAL
NUMBER FUND
-------- ----
9 Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond &
International Equity
SECTION V: APPROVAL OF SUB-ADVISERS TO THE VALUE EQUITY, SMALL CAPITALIZATION,
FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL EQUITY FUNDS
AND APPROVAL OF SUB-ADVISORY AGREEMENTS
PROPOSAL
NUMBER FUND
-------- ----
10 Value Equity & Small Capitalization
11 Flexibly Managed & High Yield Bond
12 International Equity
FOR THOSE SHAREHOLDERS WHO WISH TO VOTE FOR OR AGAINST ALL OF THE PROPOSALS
TO WHICH HIS OR HER SHARES RELATE, THE ACCOMPANYING VOTING INSTRUCTION FORM
MAY BE COMPLETED BY CHECKING A SINGLE BOX. HOWEVER, THE VOTING INSTRUCTION
FORM ALSO SETS FORTH EACH APPLICABLE PROPOSAL, WHICH CAN BE VOTED ON
SEPARATELY.
2
<PAGE>
The Company will furnish, without charge, a copy of its most recent Annual
Report to Shareholders upon request. Requests should be directed to the
Company at The Penn Mutual Life Insurance Company, Customer Service Group,
Philadelphia, PA 19172 or by calling 1-800-523-0650.
The record date for determining Shareholders entitled to vote at the Meeting
is February 26, 1998. The following table sets forth the net assets and
approximate number of shares issued and outstanding for each fund of the
Company (each, a "Fund" and together, the "Funds") as of the close of business
on February 26, 1998.
<TABLE>
<CAPTION>
FUND NET ASSETS SHARES OUTSTANDING
---- ---------- ------------------
<S> <C> <C>
Growth Equity $ 147,669,690.29 5,564,042.588
Value Equity $ 325,692,211.40 13,593,164.082
Small Capitalization $ 42,738,054.90 2,813,565.168
Emerging Growth $ 21,797,403.38 1,498,103.325
Flexibly Managed $ 539,025,260.84 26,422,806.904
International Equity $ 140,392,311.82 7,995,006.368
Quality Bond $ 41,437,939.89 3,992,094.402
High Yield Bond $ 62,583,066.94 6,366,537.837
Money Market $ 38,787,077.18 38,787,077.180
</TABLE>
Each share is entitled to one vote on each matter to which such shares are
to be voted at the Meeting. Shares of the Company are sold only to The Penn
Mutual Life Insurance Company ("Penn Mutual") and its subsidiary, The Penn
Insurance and Annuity Company ("Penn Insurance"). Penn Mutual and Penn
Insurance hold shares of one or more of the Funds in one or more of the
following separate accounts: Penn Mutual Variable Annuity Account I, II, and
III, Penn Mutual Variable Life Account I, and PIA Variable Annuity Account I.
The Funds are held as investment vehicles for variable annuity contracts and
variable life insurance policies.
VOTING
With respect to each Fund, a "vote of the majority of the outstanding voting
securities" is required, which is defined under the Investment Company Act of
1940, as amended ("1940 Act"), as the lesser of (i) 67% or more of the voting
shares of the Fund entitled to vote thereon present in person or by proxy at
the Meeting, if the holders of more than 50% of the outstanding voting shares
of the Fund entitled to vote thereon are present in person or represented by
proxy, or (ii) more than 50% of the outstanding voting securities of the Fund
entitled to vote thereon.
Under current interpretation and administration of the 1940 Act, and
regulations thereunder, Penn Mutual and Penn Insurance are required to vote
their shares in accordance with instructions from their variable annuity
contract owners and variable life insurance policy owners. Instructions are
obtained by Penn Mutual and Penn Insurance by sending this proxy statement to
their contract owners and policy owners and soliciting instructions.
Shares held in registered separate accounts for which contract owners and
policy owners do not give instructions are voted for and against the proposal
in the same proportions as the shares voted pursuant to instructions. In
addition, any shares held by Penn Mutual or Penn Insurance in their general
accounts also will be voted for or against a proposal in the same proportion
as shares for which voting instructions have been received.
In the event that voting instructions are not received with respect to 50%
or more of the shares held in the separate accounts, Penn Mutual and/or Penn
Insurance, at their discretion, may vote all Fund shares in such accounts for
one or more adjournments of the Meeting to permit further solicitation of
instructions.
Voting instructions given pursuant to this solicitation may be revoked at
any time prior to their exercise by filing with Penn Mutual or Penn Insurance,
as appropriate, a written notice of revocation prior to the Meeting, by
delivering a duly authorized voting instruction form bearing a later date, or
by attending the Meeting and voting in person.
3
<PAGE>
SECTION I: ELECTION OF BOARD OF DIRECTORS
PROPOSAL 1: ELECT BOARD OF DIRECTORS OF THE COMPANY
At the Meeting, it is proposed that seven Directors be elected to hold
office until their successors are duly elected and qualified. Shareholders are
being asked to elect Eugene Bay, Robert E. Chappell, James S. Greene, William
H. Loesche, Jr., Larry L. Mast, Daniel J. Toran and M. Donald Wright, as
Directors of the Company (each, a "Nominee" and collectively, the "Nominees").
Messrs. Bay, Greene, Loesche, and Wright are currently members of the Board.
Messrs. Loesche, Wright, and Greene were elected to the Board by a vote of
Shareholders on October 15, 1992. Mr. Bay was appointed to the Board on
February 2, 1993. Messrs. Chappell, Mast, and Toran have not previously served
on the Board.
The Proposal to elect a Board of Directors is being presented for
Shareholder approval pursuant to the requirements under the 1940 Act. Each
Nominee has consented to being named in this Proxy Statement and to serving as
Director if elected. The Company knows of no reason why any Nominee would be
unable or unwilling to serve as Director if elected.
INFORMATION REGARDING NOMINEES
The following information is provided for each Nominee. It includes his or
her name, position with the Company, length of service with the Company,
principal occupation or employment during the past five years, and
directorships with other companies that periodically file reports with the
Securities and Exchange Commission. No Nominee owns shares of the Company.
4
<PAGE>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME AND ADDRESS PENN SERIES PAST FIVE YEARS
- -------------------- -------------------- ------------------------------
Eugene Bay Director since Senior Pastor, Bryn Mawr
121 Fishers Road 1993 Presbyterian Church, Bryn
Bryn Mawr, PA 19010 Mawr, PA.
Robert E. Chappell* Nominee Chairman of the Board and
The Penn Mutual Chief Executive Officer
Life Insurance (since December 1996),
Company President and Chief Executive
600 Dresher Road Officer (April 1995 to
Horsham, PA 19044 December 1996), President and
Chief Operating Officer
(January 1994 to April 1995),
The Penn Mutual Life
Insurance Company; Executive
Vice President, (January 1992
to December 1993), Chairman
of the Board (June 1991 to
January 1992), Chairman,
President and Chief Executive
Officer, PNC Bank (prior
thereto).
James S. Greene Director since Retired: Vice President and
P.O. Box 3761 1992 Director, International Raw
Vero Beach, FL Materials, Inc.,
32964-3761 Philadelphia, PA (commodities
trading), prior to September
1990.
William H. Loesche, Director since Retired; Adviser (since April
Jr. 1985 1988), Director (prior
100 Gray's Lane thereto), Keystone Insurance
Apt. 101 Company and Keystone
Haverford, PA 19041 Automobile Club,
Philadelphia, PA.
Larry L. Mast* Nominee Executive Vice President, The
The Penn Mutual Penn Mutual Life Insurance
Life Insurance Company, May 1997 to present;
Company Senior Vice President,
600 Dresher Road Lafayette Life Insurance
Horsham, PA 19044 Company, September 1994 to
May 1997; Vice President,
Security Benefit Insurance
Company, May 1993 to
September 1994; Vice
President, Home Life
Insurance Company, prior
thereo.
Daniel J. Toran* Nominee President and Chief Operating
The Penn Mutual Officer (January 1997 to
Life Insurance present); Executive Vice
Company President, Sales and
600 Dresher Road Marketing (May 1996 to
Horsham, PA 19044 January 1997), The Penn
Mutual Life Insurance
Company; Executive Vice
President, The New England
Mutual Life Insurance
Company, prior thereto.
M. Donald Wright Director since President, M. Donald Wright
100 Chetwynd Drive 1988 Professional Corporation,
Rosemont, PA 19010 Bryn Mawr, PA (financial
planning and consulting);
Director, Graduate School of
Financial Services, The
American College, since April
1991.
- --------
* Messrs. Chappell, Mast and Toran are "interested persons" of the Company by
virtue of their relationships with Penn Mutual.
5
<PAGE>
COMPENSATION OF DIRECTORS
The Company pays compensation to Directors who are not "interested persons"
of the Company under the 1940 Act (each an "Independent Director"). For the
fiscal year ended December 31, 1997, the Company paid the following
compensation to such Directors: Eugene Bay--$10,000; James S. Greene--$12,500;
William H. Loesche, Jr.--$12,500; and M. Donald Wright--$12,500. No other
compensation was paid to Directors or to officers of the Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
There were five meetings of the Board held during the fiscal year ended
December 31, 1997. In such fiscal year, all Directors, except for Mr. Bay,
attended at least 75% of the meetings of the Board held during their
respective terms.
The Board has an Executive Committee. The Executive Committee meets during
intervals between meetings of the Board as may be necessary. The members of
the Executive Committee for the fiscal year ended December 31, 1997 were
Messrs. Illoway, Greene, and Richard J. Liburdi, formerly a Director of the
Company. The Executive Committee did not meet during the fiscal year ended
December 31, 1997.
The Board has an Audit Committee. The Audit Committee makes recommendations
to the full Board with respect to the engagement of independent accountants,
and reviews, with the independent accountants, the results of the audit
engagement and the financial operations of the Company. The members of the
Audit Committee during the fiscal year ended December 31, 1997 were Messrs.
Wright, Greene, and Loesche. In the fiscal year ended December 31, 1997, the
Audit Committee met three times. In such fiscal year, all members attended at
least 75% of the meetings of the Audit Committee.
BOARD APPROVAL OF ELECTION OF DIRECTORS
At a meeting of the Board of Directors held on February 9, 1998, the Board
of Directors recommended that Shareholders vote FOR each of the Nominees for
Director named herein. In recommending that Shareholders elect the Nominees as
Directors of the Company, the Board considered the Nominees' experience and
qualifications.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
SECTION II: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
PROPOSAL 2: APPROVAL OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS
The Board selected Ernst & Young LLP ("E&Y") as the Company's independent
auditors for the fiscal year ending December 31, 1998 at its meeting held on
February 9, 1998 and recommends that Shareholders vote to approve the
selection of E&Y.
Coopers & Lybrand L.L.P. ("C&L") served as independent public accountants of
the Company for its fiscal year ended December 31, 1996 and for its prior
fiscal years. In 1997 the Company decided that it would be in the interests of
Shareholders to engage new independent public accountants to audit its
financial statements. Discussions took place with C&L and the Firm resigned on
cordial terms. The decision to change accountants was recommended by the Audit
Committee and approved by the full Board. There were no disagreements with C&L
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure during the past two fiscal years (or
any subsequent interim period) such that if not resolved the disagreement
would have caused C&L to make reference to the disagreement in its report. The
report of C&L on the financial statements for each of the past two fiscal
years was not adverse or qualified or modified in any way. Neither E&Y nor C&L
plan to be present at the meeting. They have been given an opportunity to make
a statement at the meeting and have concluded that it is unnecessary to do so.
6
<PAGE>
During the past two fiscal years and any subsequent interim period neither
C&L nor E&Y advised the Company that, (a) the internal controls necessary for
the Company to develop reliable financial statements do not exist, (b)
information has come to its attention that it has led it no longer to rely on
management representations or that it has made it unwilling to be associated
with financial statements prepared by management, (c) the scope of the audit
needs to be expanded, or that information has come to its attention that, if
further investigated, may materially impact the fairness or reliability of a
previous report or the underlying financial statements, or financial
statements to be issued, or its willingness to rely on management's
representations or to be associated with the financial statements, (d)
information has come to its attention that materially impacts the fairness or
reliability of a previously issued report or financial statements, or
financial statements issued or to be issued for a subsequent period to be
covered by its report (including information that, unless resolved to C&L's or
E&Y's satisfaction, would prevent it from issuing an unqualified report).
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 2.
SECTION III: APPROVAL OF CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS
Proposals 3 through 8 relate to certain changes to the fundamental
investment policies of the Flexibly Managed and High Yield Bond Funds. The
Board recommends the modification or elimination of some of the Funds'
fundamental policies in order to update the policies to reflect changes in the
law and other regulatory developments and provide the Funds with flexibility
to adapt to developments in the securities markets. The changes to a Fund's
fundamental policies will become effective immediately upon Shareholder
approval. For each Fund, if a Proposal is not approved by a vote of
Shareholders of the Fund, the current policy as applied to the Fund will
remain unchanged. Each Fund's investment objective, as distinguished from its
investment policies, will not be changed.
PROPOSAL 3: APPROVE CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY MANAGED
FUND TO APPLY THE FUND'S 10% LIMIT ON OWNERSHIP OF VOTING SECURITIES
OF AN ISSUER TO 75% OF THE TOTAL ASSETS OF THE FUND, RATHER THAN
100% OF TOTAL ASSETS.
At the Meeting, Shareholders of the Flexibly Managed Fund will vote on a
change that would apply the Fund's 10% limit on the ownership of outstanding
voting securities of any one issuer to 75% of the Fund's assets. The Fund's
current investment policy states:
The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result, (A) PERCENT LIMIT ON
ASSETS INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase
agreements with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF
ANY ONE ISSUE. More than 10% of the outstanding voting securities of any
issuer would be held by the Fund.
Subject to Shareholder approval, the Company intends to replace the Fund's
current fundamental policy with the following:
The Flexibly Managed Fund may not: (1) purchase the securities of any
issuer (other than obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result: (A) PERCENT LIMIT ON
ASSETS INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's total
assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of a single issuer (including repurchase
agreements with any one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF
ANY ONE ISSUE. With respect to 75% of the Fund's total assets, more than
10% of the outstanding voting securities of any issuer would be held by the
Fund.
7
<PAGE>
As revised, this policy will conform to the diversification requirements of
the 1940 Act. If the Proposal is approved, the Fund would be required to
invest 75% of its total assets so that the Fund owned no more than 10% of the
voting securities of any issuer. The 10% limitation on the voting securities
of any issuer previously applied to all of the Fund's assets, but under the
proposed amended limitation will apply only to 75% of the Fund's assets. As to
the remaining 25% of total assets, there would be no direct limitation on the
amount of voting securities of a single issuer that the Fund could hold.
Having increased flexibility to acquire larger positions in the securities of
individual issuers may provide opportunities to enhance the Fund's
performance.
Under the proposed amendments to the Fund's fundamental limitation on
diversification, the Fund will continue to conform to the "diversification"
requirements for regulated investment companies under the Internal Revenue
Code of 1986, as amended (the "Code"). If the Proposal is approved, the new
fundamental diversification limitation may not be changed without a vote of
Shareholders of the Fund. Adoption of the proposed limitation regarding
diversification is not expected to have any immediate effect on the way the
Fund is managed, the investment performance of the Fund, or the instruments in
which it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 3.
PROPOSAL 4: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE HIGH YIELD BOND
FUND TO APPLY THE FUND'S 5% LIMIT ON ASSETS INVESTED IN ANY ONE
ISSUER AND 10% LIMIT ON OWNERSHIP OF VOTING SECURITIES OF AN ISSUER
TO 75% OF THE TOTAL ASSETS OF THE FUND, RATHER THAN 100% OF TOTAL
ASSETS.
At the Meeting, Shareholders of the High Yield Bond Fund will vote on a change
that would apply the Fund's 5% limit on assets invested in any one issuer and
the Fund's 10% limit on ownership of voting securities of any one issuer to
75% of the Fund's assets. The Fund's current fundamental investment policy
states:
The High Yield Bond Fund may not: (1) purchase the securities of any issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS
INVESTED IN ANY ONE ISSUER. More than 5% of the value of the Fund's total
assets would be invested in the securities of a single issuer (including
repurchase agreements with any one issuer); (B) PERCENT LIMIT ON SHARE
OWNERSHIP OF ANY ONE ISSUE. More than 10% of the outstanding voting
securities of any issuer would be held by the Fund.
Subject to Shareholder approval, the Company intends to replace the Fund's
current fundamental policy with the following:
The High Yield Bond Fund may not: (1) purchase the securities of any issuer
(other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) if, as a result: (A) PERCENT LIMIT ON ASSETS
INVESTED IN ANY ONE ISSUER. With respect to 75% of the Fund's total assets,
more than 5% of the value of the Fund's total assets would be invested in
the securities of a single issuer (including repurchase agreements with any
one issuer); (B) PERCENT LIMIT ON SHARE OWNERSHIP OF ANY ONE ISSUE. With
respect to 75% of the Fund's total assets, more than 10% of the outstanding
voting securities of any issuer would be held by the Fund.
As revised, this policy will conform to the diversification requirements of
the 1940 Act. If the Proposal is approved, the Fund would be required to
invest 75% of its total assets so that no more than 5% of total assets would
be invested in any one issuer, and so that the Fund owned no more than 10% of
the voting securities of any such issuer. These limitations previously applied
to all of the Fund's assets, but under the proposed amended limitation will
apply only to 75% of the Fund's assets. As to the remaining 25% of total
assets, there would be no direct limitation on the amount of assets the Fund
could invest in any single issuer or the amount of voting securities of a
single issuer that the Fund could hold. Having increased flexibility to
acquire larger positions in the securities of individual issuers may provide
opportunities to enhance the Fund's performance. At the same time, investing a
larger percentage of a the Fund's assets in a single issuer's securities
increases the Fund's exposure to credit and other risks associated with that
issuer's financial condition and business operations, including market risk
and the risk of bankruptcy or default.
Under the proposed amendments to the Fund's fundamental limitation on
diversification, the Fund will continue to conform to the "diversification"
requirements for regulated investment companies under the Code.
8
<PAGE>
If the Proposal is approved, the new fundamental diversification limitation
may not be changed without a vote of Shareholders of the Fund. Adoption of the
proposed limitation regarding diversification is not expected to have any
immediate effect on the way the Fund is managed, the investment performance of
the Fund, or the instruments in which it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 4.
PROPOSAL 5: APPROVE CHANGES TO THE INVESTMENT POLICIES OF THE FLEXIBLY MANAGED
AND HIGH YIELD BOND FUNDS TO PERMIT EACH FUND TO INVEST UP TO 15% OF
THEIR RESPECTIVE NET ASSETS IN ILLIQUID SECURITIES AND CHANGE THE
POLICIES FROM FUNDAMENTAL TO NON-FUNDAMENTAL.
At the Meeting, the Shareholders of the Flexibly Managed Fund and
Shareholders of the High Yield Bond Fund will vote on proposals to approve an
increase in the amount of their respective net assets that each Fund may
invest in illiquid securities and reclassify the policies from fundamental to
non-fundamental.
The Flexibly Managed Fund's current policy states that the Fund may not:
Purchase a security if, as a result, more than 10% of the value of the
Fund's total assets would be invested in (a) securities with legal or
contractual restrictions on resale; (b) repurchase agreements maturing in
more than seven (7) days; and (c) other securities that are not readily
marketable.
Similarly, the High Yield Bond Fund's current policy states that the Fund
may not:
Invest more than 10% of the value of its total assets in repurchase
agreements maturing in more than seven days and restricted securities,
illiquid securities, and securities without readily available market
quotations.
Subject to Shareholder approval, the Company intends to change each Fund's
policy concerning investing in illiquid securities from a fundamental policy
to a non-fundamental policy and to amend the policy to state that the Fund may
not:
Invest more than 15% of the value of its net assets in repurchase
agreements maturing in more than seven days and restricted securities,
illiquid securities, and securities without readily available market
quotations.
As revised, this policy will reflect current interpretations under the 1940
Act which permit open-end management investment companies, such as the
Flexibly Managed and High Yield Bond Funds, to invest up to 15% of their net
assets in illiquid securities. If the Proposal is approved, the Flexibly
Managed Fund and High Yield Bond Fund, respectively, would be able to invest
up to 15% of their net assets in illiquid securities rather than 10% of their
total assets. Increasing each Fund's ability to invest in illiquid securities
will conform each Fund's investment policy to current regulatory
interpretations. In addition, an increase in the Funds' limitation on illiquid
securities will provide increased investment flexibility and may provide
opportunities to enhance each Fund's performance. Investing a larger
percentage of each Fund's asset in illiquid securities may, of course,
increase a Fund's exposure to risks associated with such securities, including
the risk that a Fund will be unable to sell a security at an opportune time
and thus causing the security to be viewed as a speculative investment.
The Company proposes to change the policies from fundamental policies to
non-fundamental policies to give the Board the flexibility to change the
policies in the future as it deems appropriate in the interest of investors in
the Funds.
Adoption of the proposed policy on illiquid securities is not expected to
affect, in the foreseeable future, the manner in which the Flexibly Managed or
High Yield Bond Funds are managed, the investment performance of the Funds, or
the instruments in which they invest.
9
<PAGE>
Shareholders of the Flexibly Managed Fund and Shareholders of the High Yield
Bond Fund are entitled to vote separately on Proposal 5. The Proposal will be
approved or disapproved with respect to each Fund, regardless of whether the
Shareholders of the other Fund approve or disapprove the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 5.
PROPOSAL 6: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE FLEXIBLY MANAGED
AND HIGH YIELD BOND FUNDS TO REMOVE EACH FUND'S INVESTMENT POLICY
LIMITING INVESTMENTS IN SECURITIES OF ISSUERS WHICH HAVE BEEN IN
OPERATION FOR LESS THAN THREE YEARS TO 5% OF THE TOTAL ASSETS OF THE
FUND.
At the Meeting, Shareholders of the Flexibly Managed Fund and Shareholders
of the High Yield Bond Fund will vote on removing their respective fundamental
investment policy which requires their Fund to limit its investments in
securities of issuers which have been in operation for less than three years
to 5% of its total assets. Each Fund's current policy states that the Fund may
not purchase the securities of any one issuer (other than obligations issued
or guaranteed by the U.S. Government, its agencies, or instrumentalities) if,
as a result:
More than 5% of the value of the Fund's total assets would be invested in
the securities of issuers which at the time of purchase had been in
operation for less than three years, including predecessors and
unconditional guarantors.
Subject to Shareholder approval, this fundamental investment policy would be
eliminated from the investment policies of each Fund.
The primary purpose of this Proposal is to update the Flexibly Managed and
High Yield Bond Funds' investment policies in light of recent changes in the
law. Each Fund's fundamental policy was originally adopted to be consistent
with state securities ("blue sky") regulations, which placed limits on the
amounts of certain types of securities that a mutual fund could purchase.
Recent federal legislation eliminated state regulatory requirements including
the requirement embodied in these investment policies. If the Proposal is
approved, each of the Flexibly Managed and High Yield Bond Funds will be able
to invest more than 5% of their respective total assets in newly formed or
"unseasoned" issuers. Eliminating this fundamental policy will conform the
Flexibly Managed and High Yield Bond Fund's investment policies to the
requirements of current federal law. In addition, eliminating this policy will
provide increased investment flexibility and may provide opportunities to
enhance a Fund's performance. While removal of the restrictive investment
policy will permit each Fund to invest an unlimited amount of its respective
assets in newly formed or "unseasoned companies," the investment adviser and
sub-adviser will exercise care, consistent with the Fund's investment
objectives and policies, in investing any of a Fund's assets in such
securities.
Elimination of this fundamental policy is not expected to affect, in the
foreseeable future, the manner in which the Flexibly Managed and High Yield
Bond Funds are managed, the investment performance of the Funds, or the
instruments in which they invest.
Shareholders of the Flexibly Managed Fund and Shareholders of the High Yield
Bond Fund are entitled to vote separately on Proposal 6. The Proposal shall be
approved or disapproved with respect to each Fund, regardless of whether the
Shareholders of the other Fund approve or disapprove the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 6.
PROPOSAL 7: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE FLEXIBLY MANAGED
AND HIGH YIELD BOND FUNDS TO PERMIT THE FUNDS TO INVEST IN
SECURITIES BACKED BY REAL ESTATE OR IN SECURITIES OF COMPANIES
ENGAGED IN THE REAL ESTATE BUSINESS.
At the Meeting, Shareholders of the Flexibly Managed and High Yield Bond
Funds will vote on amending each Fund's investment policy concerning real
estate to permit the Funds to purchase securities backed by real
10
<PAGE>
estate or in securities of companies engaged in the real estate business. Each
Fund's current investment policy states that the Fund may not:
Purchase or sell real estate (although it may purchase money market
securities secured by companies which invest in real estate interests
therein).
Subject to Shareholder approval, each Fund's investment policy would state
that the Fund may not:
Purchase or sell real estate, including limited partnership interests
therein, unless acquired as a result of ownership of securities or other
instruments (this restriction shall not prevent the Fund from investing in
securities of other instruments backed by real estate or in securities of
companies engaged in the real estate business).
The primary purpose of this Proposal is to provide the Funds with increased
investment flexibility. Currently, the Funds may not invest in real estate,
with the limited exception of money market instruments secured by companies,
which invest in real estate. Under the Proposal, the Funds would still be
prohibited from direct investments in real estate, but would be allowed to
invest in securities backed by real estate, or in the securities of companies
engaged in the real estate industry. The Proposal would enhance investment
flexibility in several ways. First, it would permit the Funds to acquire a
wide variety of securities or other instruments, not only money market
securities, that are secured by a mortgage or other right to foreclose on real
estate. Second, the Proposal would clarify that the Funds may invest in
securities issued or guaranteed by companies engaged in acquiring,
constructing, financing, developing, or operating real estate projects. Any
investments in these securities or other instruments are, of course, subject
to each Fund's investment objectives and policies. This increased flexibility
may provide the Funds with increased opportunities to enhance performance. At
the same time, to the extent that the Funds invest to a greater degree in real
estate related securities, the Funds' exposure to the risks of the real estate
market will be increased.
Adoption of the proposed policies is not expected to affect, in the
foreseeable future, the manner in which the Funds are managed, the investment
performance of the Funds, or the instruments in which they invest. If the
Proposal is approved, the new fundamental policies cannot be changed without a
future vote of Shareholders.
Shareholders of the Flexibly Managed Fund and Shareholders of the High Yield
Bond Fund are entitled to vote separately on Proposal 7. The Proposal shall be
approved or disapproved with respect to each Fund, regardless of whether the
Shareholders of the other Fund approve or disapprove the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 7.
PROPOSAL 8: APPROVE CHANGES IN THE INVESTMENT POLICIES OF THE HIGH YIELD BOND
FUND TO PERMIT THE FUND TO INVEST UP TO 10% OF ITS ASSETS IN
WARRANTS TO PURCHASE COMMON STOCKS AND CHANGE THE POLICY FROM
FUNDAMENTAL TO NON-FUNDAMENTAL.
At the meeting, Shareholders of the High Yield Bond Fund will vote on
increasing the Fund's percentage limit on warrants to 10%. The High Yield Bond
Fund's fundamental policy states that the Fund may not:
Invest more than 20% of the Fund's total assets in common stocks
(including up to 5% in warrants):
Subject to Shareholder approval, the High Yield Bond Fund's investment
policy would be reclassified as non-fundamental and read as follows:
Invest more than 20% of the Fund's total assets in common stocks
(including up to 10% in warrants).
The primary purpose of this Proposal is to update the High Yield Bond Fund's
investment policies in light of recent changes in the law. The 5% limit on the
purchase of warrants contained in this policy was originally adopted to be
consistent with state "blue sky" regulations, which placed limits on the
amounts of certain types of securities that a mutual fund could purchase.
Recent federal legislation eliminated state regulatory requirements, including
the percentage limitations contained in this policy. If the Proposal is
approved, the High
11
<PAGE>
Yield Bond Fund will be able to invest up to 10% of its total assets in
warrants. The Fund's management has no present intention to purchase equity
securities or securities convertible into equities. However, the Fund's
management believes that a 10% limit on warrants, a form of equity security,
provides the appropriate flexibility for a fixed income fund, such as the High
Yield Bond Fund. Increasing this limitation to 10% will increase investment
flexibility and may provide opportunities to enhance the Fund's performance.
The Company proposes to change the policy from a fundamental policy to a
non-fundamental policy to give the Board additional flexibility to change the
policy in the future as it deems appropriate in the interest of investors in
the Fund.
Adoption of the proposed policy on warrants is not expected to affect, in
the foreseeable future, the manner in which the High Yield Bond Fund is
managed, the investment performance of the Fund, or the instruments in which
it invests.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 8.
SECTION IV: APPROVAL OF INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL
EQUITY FUNDS AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
PROPOSAL 9: APPROVE ICMI AS INVESTMENT ADVISER TO THE VALUE EQUITY, SMALL
CAPITALIZATION, FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL
EQUITY FUNDS, AND APPROVE THE INVESTMENT ADVISORY AGREEMENT
The Board recommends that Shareholders of each of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds approve ICMI as the investment adviser to the Funds and approve the
proposed Investment Advisory Agreement (the "Proposed ICMI Advisory
Agreement") between the Company and ICMI relating to the Funds (attached
hereto as Exhibit A to this Proxy Statement). The Directors of the Company,
including the Independent Directors, approved the Proposed ICMI Advisory
Agreement at a meeting held on February 9, 1998.
Other than the identity of the investment adviser, there are no material
differences between the Proposed ICMI Advisory Agreement and the current
investment advisory agreements of the Value Equity, Small Capitalization,
Flexibly Managed, High Yield Bond and International Equity Funds. Under the
Proposed ICMI Advisory Agreement, ICMI will serve as investment adviser to the
Funds. Subject to shareholder approval, ICMI will, in turn, delegate various
investment advisory duties to each of the Fund's current investment adviser as
sub-adviser (the "Sub-Advisers"). The Sub-Advisers will be responsible for the
day-to-day investment management of the Fund. ICMI will have general oversight
responsibility for the investment advisory services, including formulating
investment policies and analyzing economic trends that may affect the Funds,
and directing and evaluating the investment management services rendered by
the Sub-Advisers. ICMI will be compensated at the same rate of compensation as
the Funds' current investment advisers. ICMI, in turn, will compensate the
Sub-Advisers out of its advisory fee. Accordingly, the overall cost to each
Fund of advisory and management services will not increase.
The Proposed ICMI Advisory Agreement. ICMI will serve as investment adviser
and supervise and direct the investments of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity
Funds in accordance with the investment objectives, program and restrictions
applicable to each Fund as provided in the Company's then-current Prospectus
and Statement of Additional Information. In providing these investment
advisory services, ICMI will obtain and evaluate information relating to the
economy, industries, businesses, securities markets and securities as it may
deem necessary or useful in the discharge of its obligations and will
formulate and implement a continuing program for the management of the assets
and resources of each Fund in a manner consistent with the investment
objectives of the Fund. In furtherance of this duty, ICMI, is
12
<PAGE>
authorized, in its discretion to buy, sell, exchange, convert, lend, and
otherwise trade in any stocks, bonds, and other securities or assets and place
orders and negotiate the commissions (if any) for the execution of
transactions in securities with or through such brokers, dealers, underwriters
or issuers as ICMI may select. ICMI is authorized to employ, retain, or
otherwise avail itself of a sub-adviser or sub-advisers to assist it in
performing its duties and meeting its responsibilities and may delegate to
such sub-advisers duties assumed by ICMI under the Proposed ICMI Advisory
Agreement.
The Proposed ICMI Advisory Agreement will begin on or about May 1, 1998 and,
unless sooner terminated, it shall remain in effect until two years from date
of execution. Thereafter, it will continue in effect from year to year with
respect to each Fund, subject to the termination provisions and all other
terms and conditions, so long as such continuation shall be specifically
approved at least annually (a) by either the Board, or by a vote of a majority
of the outstanding voting securities of the series of shares of the Company
representing interests in the Fund and (b) in either event by the vote, cast
in person at a meeting called for the purpose of voting on such approval, of a
majority of the Independent Directors. The Proposed ICMI Advisory Agreement
may be terminated by the Company or by ICMI with respect to any Fund, without
the payment of any penalty, upon 60 days' prior notice in writing from the
Company to ICMI, or upon 90 days' prior notice in writing from ICMI to the
Company; provided, that in the case of termination by the Company, such action
shall have been authorized by the Independent Directors, or by vote of a
majority of the outstanding voting securities of the series of shares of the
Company representing interests in the affected Fund. The Proposed ICMI
Advisory Agreement will automatically terminate in the event of an assignment.
Advisory Fees and Expense Limitations. The terms of the Proposed ICMI
Advisory Agreement provide that ICMI will receive a fee accrued daily and paid
monthly as follows: 0.50% of the respective average daily net assets of the
Value Equity, Small Capitalization, Flexibly Managed and High Yield Bond Funds
and 0.75% of the average daily net assets of the International Equity Fund.
The expense limitations of the Funds as a percentage of each Fund's average
daily net assets are as follows: Value Equity Fund, Small Capitalization Fund,
Flexibly Managed Fund, 1.00%, International Equity Fund, 1.50% and High Yield
Bond Fund, 0.90%. The rates of compensation to be paid to ICMI and expense
limitations are identical to the rates of compensation and expense limitations
contained in the Funds' current investment advisory agreements.
With respect to each of the Value Equity, Small Capitalization and
International Equity Funds, to the extent that a Fund's total expenses for a
fiscal year (excluding interest, taxes, brokerage, other expenses which are
capitalized in accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and accounting,
administrative and corporate services fees before any adjustment pursuant to
this provision) exceed the expense limitation for the Fund in an amount up to
and including 0.10% of the average daily net assets of the Fund, such excess
amount shall be a liability of ICMI to the Fund. The liability (if any) of
ICMI to pay the Fund such excess amount shall be determined on a daily basis.
If, at the end of each month, there is any liability of ICMI to the Fund such
excess amount, the advisory fee shall be reduced by such liability. If, at the
end of each month, there is no liability of ICMI to pay the Fund such excess
amount and if payments of the advisory fee at the end of prior months during
the fiscal year have been reduced in excess of that required to maintain
expenses within the expense limitation, such excess reduction shall be
recaptured by ICMI and shall be payable by the Fund to ICMI along with the
advisory fee payable to ICMI for that month. To the extent such total expenses
exceed 0.10% of the average daily net assets of a Fund, Penn Mutual,
Administrator and Corporate Services Agent for each Fund, will waive its fees
or reimburse such Fund for any such excess.
With respect to each of the Flexibly Managed and High Yield Bond Funds, to
the extent that a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance with
generally accepted accounting principles, and extraordinary expenses, but
including investment advisory and accounting administrative and corporate
service fees before any adjustment pursuant to this provision) exceed the
expense limitation for the Fund, one-half of such excess amount shall be a
liability of ICMI to the Fund. The liability (if any) of ICMI to pay the Fund
one-half of such excess amount shall be determined on a daily basis. If, at
the end of each month, there is any liability of ICMI to pay the Fund such
excess amount, the advisory fee shall be reduced by such liability. If, at the
end of each month, there is no liability of ICMI to
13
<PAGE>
pay the Fund such excess amount and if payments of the advisory fee at the end
of prior months during the fiscal year have been reduced in excess of that
required to maintain expenses within the expense limitation, such excess
reduction shall be recaptured by ICMI and shall be payable by the Fund to ICMI
along with the advisory fee payable to ICMI for that month. If, at the end of
the fiscal year, there is any remaining liability of ICMI to pay the Fund such
excess amount (which has not been paid through reduction of the advisory fee),
ICMI shall remit to the Fund an amount sufficient to pay such remaining
liability. Penn Mutual, Administrative and Corporate Services Agent, will
waive fees or reimburse the Funds for the other half of any such excess.
Description of the Investment Adviser. ICMI is a wholly-owned subsidiary of
Penn Mutual, a life insurance company that has been in the insurance and
investment business since the late 1800s. As of December 31, 1997, Penn Mutual
and its subsidiaries had assets under management of over $8 billion. ICMI was
organized in June 1989 and, in addition to serving as investment adviser to
certain Funds (see below), also serves as investment adviser to corporate and
pension fund accounts. Its offices are located at 600 Dresher Road, Horsham,
Pennsylvania 19044. As of December 31, 1997, ICMI serves as investment adviser
for over $400 million of investment assets.
Listed below are the names of the directors and the principal executive
officer of ICMI. The principal business address of each director and the
principal executive officer, as it relates to their duties at ICMI, is 600
Dresher Road, Horsham, Pennsylvania 19044.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
Peter M. Sherman Chairman, President & Chief Executive Officer
Robert E. Chappell Director
Richardson T. Merriman Director & Senior Vice President
</TABLE>
ICMI serves as investment adviser to the Growth Equity, Quality Bond, and
Money Market Funds pursuant to an investment advisory agreement dated November
1, 1992 and to the Emerging Growth Fund pursuant to an investment advisory
agreement dated April 15, 1997. For management services provided to the Growth
Equity, Quality Bond, and Money Market Funds, ICMI is entitled to a fee paid
monthly at an annual rate of 0.50%, 0.45%, and 0.40%, respectively, of each
Fund's respective average daily net assets. For management services provided
to the Emerging Growth Fund, ICMI receives a fee paid monthly at the following
annual rate: (i) 0.80% of the first $25,000,000 of average daily net assets of
the Fund; (ii) 0.75% of the next $25,000,000 of average daily net assets of
the Fund; and (iii) 0.70% of average daily net assets in excess of
$50,000,000. In the fiscal year ended December 31, 1997, the Company paid ICMI
the following investment advisory fees:
<TABLE>
<CAPTION>
NET ASSETS
FUND FEE PAID AT 12/31/97
---- -------- ------------
<S> <C> <C>
Growth Equity $600,772 $136,058,246
Emerging Growth $ 50,608* $ 17,941,718
Quality Bond $164,758 $ 40,077,028
Money Market $148,226 $ 37,476,384
</TABLE>
- --------
* For the period from May 1, 1997 (commencement of operations) through
December 31, 1997 and net of fee waivers of $9,862.
Directors' Consideration. At a meeting held on February 9, 1998, the Board
reviewed ICMI's qualifications to act as investment adviser for the Value
Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds. In recommending that Shareholders approve the
Proposed ICMI Advisory Agreement, the Directors evaluated ICMI's investment
personnel and the quality of services ICMI is expected to provide to the Value
Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds, as well as other factors relating to ICMI's
provision of investment advisory services including, but not limited to (1)
the nature and quality of the services expected to be rendered by ICMI; (2)
the distinct investment objectives and policies of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity
Funds; (3) the fact that the compensation paid to ICMI will be at the same
14
<PAGE>
rate as that paid under the current investment advisory agreements for the
Funds; (4) the performance of the Funds currently advised by ICMI; (5) the
history, reputation, qualification and background of ICMI as well as the
qualification of its personnel and its financial condition; and (6) other
factors deemed relevant.
In the event Shareholders of any of the Funds do not approve the selection
of ICMI as investment adviser and the Proposed ICMI Investment Agreement, the
Fund's current investment advisory agreement will continue and Directors will
consider the appropriate course of action.
INFORMATION CONCERNING THE CURRENT INVESTMENT ADVISORY AGREEMENTS
OpCap Advisory Agreement
OpCap currently provides investment advisory services to the Value Equity
and Small Capitalization Funds pursuant to an investment advisory agreement
between OpCap and the Company ("OpCap Advisory Agreement") dated November 5,
1997. The OpCap Advisory Agreement was last approved by Shareholders of the
Value Equity and Small Capitalization Fund on October 10, 1997. The OpCap
Advisory Agreement was most recently approved for continuance by the Board,
including the Independent Directors, on February 9, 1998.
The OpCap Advisory Agreement. The terms of the OpCap Advisory Agreement are
substantially similar to those of the Proposed ICMI Advisory Agreement (see
"The Proposed ICMI Advisory Agreement," above). Pursuant to the OpCap Advisory
Agreement, OpCap is paid monthly at an annual rate of 0.50% of each Fund's
respective average daily net assets. In the fiscal year ended December 31,
1997, OpCap received fees of $1,279,429 and $137,566 for services provided to
the Value Equity and Small Capitalization Funds, respectively.
Termination of the OpCap Advisory Agreement. Subject to Shareholder approval
of the Proposed ICMI Advisory Agreement, the Board voted on February 9, 1998
to terminate the OpCap Advisory Agreement based on the determination that the
selection of ICMI to provide investment advisory services to the Value Equity
and Small Capitalization Funds as described herein will be in the best
interest of the Funds. It is anticipated that the OpCap Advisory Agreement
will terminate on or about May 1, 1998. The Board approved ICMI as the new
investment adviser for the Value Equity and Small Capitalization Funds for the
same rate of compensation and on substantially the same terms as OpCap. At the
same meeting, the Board approved OpCap as investment sub-adviser to the Value
Equity and Small Capitalization Funds, effective upon approval of Shareholders
(see Proposal 10, below).
T. Rowe Price Advisory Agreement
T. Rowe Price currently provides investment advisory services to the
Flexibly Managed and High Yield Bond Funds pursuant to an investment advisory
agreement between T. Rowe Price and the Company ("Price Advisory Agreement")
dated May 1, 1989. The T. Rowe Price Advisory Agreement was most recently
approved for continuance by the Board, including the Independent Directors, on
February 9, 1998.
The Price Advisory Agreement. The terms of the Price Advisory Agreement are
substantially similar to those of the Proposed ICMI Advisory Agreement (see
"The Proposed ICMI Advisory Agreement," above). Pursuant to the Price Advisory
Agreement, T. Rowe Price is paid monthly at the annual rate of 0.50% of each
Fund's respective average daily net assets. In the fiscal year ended December
31, 1997, T. Rowe Price received fees of $2,310,427 and $254,474 for services
provided to the Flexibly Managed and High Yield Bond Funds, respectively.
Termination of the Price Advisory Agreement. Subject to Shareholder approval
of the Proposed ICMI Advisory Agreement, the Board voted on February 9, 1998
to terminate the Price Advisory Agreement based on the determination that the
selection of ICMI, to provide investment advisory services to the Flexibly
Managed and High Yield Bond Funds as described herein will be in the best
interest of the Funds. It is anticipated that the Price Advisory Agreement
will terminate on or about May 1, 1998. The Board approved ICMI as the new
investment adviser for the Flexibly Managed and High Yield Bond Funds for the
same rate of compensation and
15
<PAGE>
on substantially the same terms as T. Rowe Price. At the same meeting, the
Board approved T. Rowe Price as investment sub-adviser to the Flexibly Managed
and High Yield Bond Funds, effective upon approval of Shareholders (see
Proposal 11, below).
Vontobel Advisory Agreement
Vontobel currently provides investment advisory services to the
International Equity Fund pursuant to an investment advisory agreement between
Vontobel and the Company ("Vontobel Advisory Agreement") dated November 1,
1992. The Vontobel Advisory Agreement was most recently approved for
continuance by the Board, including the Independent Directors, on February 9,
1998.
The Vontobel Advisory Agreement. The terms of the Vontobel Advisory
Agreement are substantially similar to those of the Proposed ICMI Advisory
Agreement (see "The Proposed ICMI Advisory Agreement," above). Pursuant to the
Vontobel Advisory Agreement, Vontobel is paid monthly at the annual rate of
0.75% the Fund's average daily net assets. In the fiscal year ended December
31, 1997, Vontobel received fees of $912,368 for investment advisory services
provided to the International Equity Fund.
Termination of the Vontobel Advisory Agreement. Subject to Shareholder
approval of the Proposed ICMI Advisory Agreement, the Board voted on February
9, 1998 to terminate the Vontobel Advisory Agreement based on the
determination that the selection of ICMI to provide investment advisory
services to the International Equity Fund as described herein, will be in the
best interest of the Fund. It is anticipated that the Vontobel Advisory
Agreement will terminate on or about May 1, 1998. The Board approved ICMI as
the new investment adviser for the International Equity Fund for the same rate
of compensation and on substantially the same terms as Vontobel. At the same
meeting, the Board approved Vontobel as investment sub-adviser to the
International Equity Fund, effective upon approval of Shareholders (see
Proposal 12, below).
Shareholders of the Value Equity, Small Capitalization, Flexibly Managed,
High Yield and International Equity Funds will vote separately on Proposal 9.
The Proposal shall be approved with respect to a Fund if approved by the
Shareholders of that Fund, regardless of whether the Shareholders of the other
Funds approve the Proposal.
THE DIRECTORS RECOMMEND THAT THE SHAREHOLDERS VOTE FOR PROPOSAL 9.
SECTION V: APPROVAL OF SUB-ADVISERS TO THE VALUE EQUITY, SMALL CAPITALIZATION,
FLEXIBLY MANAGED, HIGH YIELD BOND AND INTERNATIONAL EQUITY FUNDS
AND APPROVAL OF SUB-ADVISORY AGREEMENTS
The Board recommends that Shareholders of each of the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond and International Equity
Funds approve the applicable Sub-Adviser described in Proposals 10 through 12
as investment sub-adviser and approve the respective investment sub-advisory
agreement between ICMI and each Sub-Adviser (each, a "Sub-Advisory
Agreement").
As described more fully in the Proposals below, the Sub-Advisers will serve
as investment sub-advisers pursuant to three separate Sub-Advisory Agreements
with ICMI: one between ICMI and OpCap for the Value Equity and Small
Capitalization Funds; one between ICMI and T. Rowe Price for the Flexibly
Managed and High Yield Bond Funds; and one between ICMI and Vontobel for the
International Equity Fund. The forms of Sub-Advisory Agreements are attached
as Exhibits B through D to this Proxy Statement.
The Sub-Advisory Agreements. The terms of each Sub-Advisory Agreement are
substantially similar, with the exception of the rate of compensation, to the
Proposed Investment Advisory Agreement between the Company and ICMI as
described in Proposal 9. Pursuant to each Sub-Advisory Agreement, a Sub-
Adviser shall serve as investment sub-adviser and shall supervise and direct
the cash, securities and other assets of the Fund (or Funds) for which it
serves as Sub-Adviser, and exercise all rights incidental to ownership in
accordance with the investment objectives, program and restrictions applicable
to the Fund (or Funds) as provided in the
16
<PAGE>
Company's Prospectus and Statement of Additional Information, as amended from
time to time, and such other limitations as may be imposed by law or as the
Company may impose with notice in writing to the Sub-Adviser. To enable a Sub-
Adviser to fully exercise its discretion, ICMI appoints each Sub-Adviser as
agent and attorney-in-fact for the Fund (or Funds) for which it serves as Sub-
Adviser with full power and authority to buy, sell and otherwise deal in
securities and contracts for the Fund (or Funds). No investment will be made
by a Sub-Adviser for a Fund if that investment would violate the objectives,
investment restrictions or limitations of that Fund as set out in the
Prospectus and the SAI previously delivered to the Sub-Adviser. A Sub-Adviser
shall not take custody of any assets of the Company, but shall issue
settlement instructions to the custodian designated by the Company.
Each Sub-Adviser shall, in its discretion, obtain and evaluate such
information relating to the economy, industries, businesses, securities
markets and securities as it may deem necessary or useful in the discharge of
its obligations hereunder and shall formulate and implement a continuing
program for the management of the assets and resources of the Fund (or Funds)
for which it serves as Sub-Adviser in a manner consistent with the investment
objectives and policies of the Fund (or Funds). In furtherance of this duty,
each Sub-Adviser, as agent and attorney-in-fact with respect to ICMI and the
Company, is authorized, in its discretion and without prior consultation with
the Company, to: (1) buy, sell, exchange, convert, lend, and otherwise trade
in any stocks, bonds, and other securities or assets; and (2) place orders and
negotiate the commissions (if any) for the execution of transactions in
securities with or through such brokers, dealers, underwriters or issuers as
the Sub-Adviser may select; and (3) take such other actions the Sub-Adviser
deems to be appropriate; provided, however, that the Sub-Adviser shall make no
investment for a Fund that would violate the objectives, program, restrictions
or limitations of the Fund.
Each Sub-Advisory Agreement may be terminated by ICMI, the Company or by the
respective Sub-Adviser, with respect to a Fund, without payment of any
penalty, upon 60 days' prior notice in writing from the Company to the Sub-
Adviser, or upon 90 days' prior notice in writing from the Sub-Adviser to the
Company; provided, that in the case of termination by ICMI or the Company,
such action shall have been authorized by resolution of a majority of the
Independent Directors, or by vote of a majority of the outstanding voting
securities of the series of shares of the Company representing interests in
the affected Fund.
Directors' Considerations. At a meeting held on February 9, 1998, the Board
reviewed each Sub-Adviser's qualifications to act as investment sub-adviser
for the applicable Fund (or Funds) as described in the Proposals below. In
recommending that Shareholders approve each Sub-Advisory Agreement, the
Directors evaluated each Sub-Adviser's investment personnel and the quality of
services each Sub-Adviser is expected to provide to the Fund (or Funds) for
which it will serve as Sub-Adviser, as well as other factors relating to the
Sub-Adviser's provision of investment advisory services including, but not
limited to (1) the nature and quality of the services expected to be rendered
by the Sub-Adviser; (2) the distinct investment objectives and policies of the
Value Equity, Small Capitalization, Flexibly Managed, High Yield Bond and
International Equity Funds; (3) the fact that the compensation paid by the
Funds for investment advisory and sub-advisory services pursuant to the
Proposed ICMI Advisory Agreement and the Sub-Advisory Agreements will be at
the same rate as that paid under the Funds' current investment advisory
agreements; (4) the performance of the Sub-Advisers as investment advisers to
the respective Funds pursuant to the current investment advisory agreements;
(5) the history, reputation, qualification and background of each Sub-Adviser
as well as the qualification of their personnel and their financial condition;
and (6) other factors deemed relevant.
In the event Shareholders of a Fund do not approve the selection of the
applicable Sub-Adviser and the applicable Sub-Advisory Agreement, the
Directors will consider the appropriate course of action.
PROPOSAL 10: APPROVE OPCAP AS INVESTMENT SUB-ADVISER TO THE VALUE EQUITY AND
SMALL CAPITALIZATION FUNDS, AND TO APPROVE A SUB-ADVISORY AGREEMENT
BETWEEN ICMI AND OPCAP.
The Board recommends that the Shareholders of the Value Equity and Small
Capitalization Funds approve OpCap as investment sub-adviser to the Value
Equity and Small Capitalization Funds and approve a Sub-
17
<PAGE>
Advisory Agreement (the terms of which are described above) between ICMI and
OpCap (the "OpCap Sub-Advisory Agreement"). The form of OpCap Sub-Advisory
Agreement is attached as Exhibit B to this Proxy Statement.
Sub-Advisory Fees and Expense Limitations. Under the OpCap Sub-Advisory
Agreement, ICMI will pay OpCap a fee based upon the average daily net assets
of a Fund at the following rates: 0.40% with respect to the first $50,000,000
of the combined total average daily net assets of the two Funds; 0.35% with
respect to the next $200,000,000 of the combined total average daily net
assets of the two Funds; and 0.30% with respect to the combined total average
daily net assets of the two Funds in excess of $250,000,000. The expense
limitation for each of the Value Equity and Small Capitalization Funds, as a
percentage of average daily net assets, is 1.00%. To the extent that a Fund's
expenses exceed the expense limitation for the Fund in an amount up to and
including 0.10% of the average daily net assets of the Fund, such excess, as
calculated under the terms of the agreement, will be a liability of OpCap to
ICMI and will be paid to ICMI through waiver of the sub-advisory fees.
Description of OpCap. OpCap is a subsidiary of Oppenheimer Capital, a
registered investment adviser with approximately $61.4 billion in assets under
management on December 31, 1997. All investment management services performed
by OpCap are performed by employees of Oppenheimer Capital. On November 4,
1997, PIMCO Advisors L.P. ("PIMCO Advisors"), a registered investment adviser
with $125 billion in assets under management through various subsidiaries, and
its affiliates acquired control of Oppenheimer Capital and its subsidiary
OpCap Advisors. On November 30, 1997, Oppenheimer Capital merged with a
subsidiary of PIMCO Advisors and, as a result, Oppenheimer Capital and OpCap
Advisors became indirect wholly-owned subsidiaries of PIMCO Advisors. PIMCO
Advisors has two general partners: PIMCO Partners, G.P. ("PIMCO G.P."), a
California general partnership, and PIMCO Advisors Holding L.P. (formerly
Oppenheimer Capital, L.P.), a New York Stock Exchange-listed Delaware limited
partnership of which PIMCO G.P. is the sole general partner. PIMCO G.P.
beneficially owns or controls (through its general partner interest in PIMCO
Advisors Holdings, L.P. formerly, Oppenheimer Capital, L.P.) greater than 80%
of the units of limited partnership ("Units") of PIMCO Advisors. PIMCO G.P.
has two general partners. The first of these is Pacific Investment Management
Company, a wholly-owned subsidiary of Pacific Financial Asset Management
Company, which is a direct subsidiary of Pacific Life Insurance Company
("Pacific Life"). The managing general partner of PIMCO G.P. is PIMCO Partners
L.L.C. ("PPLLC"), a California limited liability company. PPLLC's members are
the Managing Directors (the "PIMCO Managers") of Pacific Investment Management
Company, a subsidiary of PIMCO Advisors (the "PIMCO Subpartnership"). The
PIMCO Managers are: William H. Gross, Dean S. Meiling, James F. Muzzy, William
F. Podlich, III, Brent R. Harris, John L. Hague, William S. Thompson, Jr.,
William S. Powers, David H. Edington, Benjamin Trosky, William R. Benz, II and
Lee R. Thomas, III. PIMCO Advisors is governed by a Management Board, which
consists of sixteen members. Pursuant to a delegation by its general partners,
PIMCO G.P. has the power to designate up to nine members of the Management
Board and the PIMCO Subpartnership, of which the PIMCO Managers are the
Managing Directors, has the power to designate up to two members. In addition,
PIMCO G.P., as the controlling general partner of PIMCO Advisors, has the
power to revoke the delegation to the Management Board and exercise control of
PIMCO Advisors. As a result, Pacific Life and/or the PIMCO Managers may be
deemed to control PIMCO Advisors. Pacific Life and the PIMCO Managers disclaim
such control. Because of direct or indirect power to appoint 25% of the
members of the Equity Board, (i) Pacific Life and (ii) the PIMCO Managers
and/or the PIMCO Subpartnership may each be deemed, under applicable
provisions of the 1940 Act, to control PIMCO Advisors. Pacific Life, the PIMCO
Subpartnership and the PIMCO Managers disclaim such control.
Listed below are the names and principal occupations of the principal
executive officers of Oppenheimer Capital and OpCap. The principal business
address of each person listed below is Oppenheimer Tower, 200 Liberty Street,
One World Financial Center, New York, New York 10281.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
---------------- --------------------
<S> <C>
Joseph La Motta Chairman, OpCap.
George Long Chairman and President, Oppenheimer Capital.
Bernard Garil President, OpCap Advisors.
</TABLE>
18
<PAGE>
For the fiscal year ended December 31, 1997, OpCap served as investment
adviser to the Value Equity and Small Capitalization Funds. As compensation
for providing investment advisory services to the Funds during this period,
OpCap received $1,279,429 and $137,566 in fees from the Value Equity and Small
Capitalization Funds, respectively.
OpCap also serves as investment adviser or sub-adviser to other registered
investment companies with investment objectives similar to either the Value
Equity or Small Capitalization Funds. The approximate net assets and the
investment advisory fees paid by such funds are listed in Appendix A to this
Proxy Statement.
To Company management's knowledge, no Director of the Company owns any
interest in OpCap, Oppenheimer Capital, or PIMCO Advisors.
Shareholders of the Value Equity and Small Capitalization Funds are entitled
to vote separately on Proposal 10. The Proposal shall be approved with respect
to a Fund, regardless of whether the Shareholders of the other Fund approve
the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 10.
PROPOSAL 11: APPROVE T. ROWE PRICE AS INVESTMENT SUB-ADVISER TO THE FLEXIBLY
MANAGED AND HIGH YIELD BOND FUNDS, AND APPROVE A SUB-ADVISORY
AGREEMENT BETWEEN ICMI AND T. ROWE PRICE.
The Board of Directors recommends that the Shareholders of the Flexibly
Managed and High Yield Bond Funds approve T. Rowe Price as investment sub-
adviser to the Flexibly Managed and High Yield Bond Funds and approve a Sub-
Advisory Agreement (the terms of which are described above) between ICMI and
T. Rowe Price (the "Price Sub-Advisory Agreement"). The form of Price Sub-
Advisory Agreement is attached as Exhibit C to this Proxy Statement.
Sub-Advisory Fees and Expense Limitations. Under the Price Sub-Advisory
Agreement, ICMI will pay T. Rowe Price a fee based upon the average daily net
assets of a Fund at the following rates: 0.50% with respect to the first
$250,000,000 of the combined total average daily net assets of the two Funds
and 0.40% with respect to the next $500,000,000 of combined total average
daily net assets of the two Funds; provided that the fee rate shall be 0.40%
with respect to all average daily net assets of the two Funds at such time the
combined total average daily net assets of the two Funds exceed $750,000,000.
The expense limitation for the Flexibly Managed and High Yield Bond Funds, as
a percentage of average daily net assets, is 1.00% and 0.90%, respectively. To
the extent that a Fund's expenses exceed the expense limitation, one-half of
such excess amount, as calculated under the terms of the agreement, will be
liability of T. Rowe Price to ICMI and will be paid to ICMI through waiver of
the sub-advisory fee.
Description of T. Rowe Price. T. Rowe Price was incorporated in 1947 as
successor to the investment counseling firm founded by the late Mr. T. Rowe
Price in 1937. Its corporate home office is located at 100 East Pratt Street,
Baltimore, Maryland 21202. T. Rowe Price serves as investment adviser to a
variety of individual and institutional investors accounts, including other
mutual funds. As of December 31, 1997, T. Rowe Price and its affiliates,
managed more than $124 billion of assets.
19
<PAGE>
Listed below are the names and principal occupations of the principal
executive officers of T. Rowe Price. The business address of each such person,
unless otherwise indicated, is 100 East Pratt Street, Baltimore, Maryland
21202.
<TABLE>
<CAPTION>
NAME POSITION WITH T. ROWE PRICE PRINCIPAL OCCUPATION
---- --------------------------- --------------------
<S> <C> <C>
James E. Halbkat, Jr. Director President of U.S. Monitor Corp.
P.O. Box 23109
Hilton Head Island, SC 29925
Richard L. Menschel Director Limited Partner of
85 Broad St., 2nd Floor Goldman Sachs Group L.P.
New York, NY 10004
John W. Rosenblum Director Dean of the Jepson School of
University of Richmond Leadership Studies at the
Richmond, Virginia 23173 University of Richmond;
Director of Chesapeake
Corporation, Camdus
Communications Corp., Comdial
Corp. and Cone Mills Corp.
Robert L. Strickland Director Chairman of Loew's
604 Two Piedmont Plaza Bldg. Companies, Inc.; Director of
Winston-Salem, NC 27104 Hannaford Bros., Co.
Phillip C. Walsh Director Consultant to Cyprus Annex
Pleasant Valley minerals Company.
Peapack, NJ 07977
Ann Marie Whittemore Director Partner of the law firm of
One James Center McGuire, Woods, Battle & Booth;
Richmond, VA 23219 Director of Owens and Minor, Inc.,
USF&G Corp. and the James
River Corp.
George J. Collins Director Director of Rowe Price-Fleming
International, Inc.
("Price Fleming").
James S. Riepe Vice-Chairman of the Board, Director of Price-Fleming.
Director and Managing Director
George A. Roche Chairman of the Board, President, Director of Price-Fleming.
Director
M. David Testa Vice-Chairman of the Board, Director of Price-Fleming.
Director and Managing Director
Henry H. Hopkins Director and Managing Director Vice President of Price-Fleming.
Charles P. Smith Director and Managing Director Vice President of Price-Fleming.
Peter Van Dyke Director and Managing Director Vice President of Price-Fleming.
James A.C. Kennedy III Director and Managing Director
John H. Laport, Jr. Director and Managing Director
William T. Reynolds Director and Managing Director
Brian C. Rogers Director and Managing Director
</TABLE>
20
<PAGE>
For the fiscal year ended December 31, 1997, T. Rowe Price served as
investment adviser to the Flexibly Managed and High Yield Bond Funds. As
compensation for providing investment advisory services to the Funds during
this period, T. Rowe Price received $2,310,427 and $254,474 in fees from the
Flexibly Managed and High Yield Bond Funds, respectively.
T. Rowe Price also serves as investment adviser or sub-adviser to other
registered investment companies with investment objectives similar to either
the Flexibly Managed or High Yield Bond Funds. The approximate net assets and
the investment advisory fees paid by such funds are listed in Appendix B to
this Proxy Statement.
To Company management's knowledge, no Director of the Company owns any
interest in T. Rowe Price.
Shareholders of the Flexibly Managed and High Yield Bond Funds are entitled
to vote separately on Proposal 11. The Proposal shall be approved with respect
to a Fund, regardless of whether the Shareholders of the other Fund approve
the Proposal.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 11.
PROPOSAL 12: APPROVE VONTOBEL AS INVESTMENT SUB-ADVISER TO THE INTERNATIONAL
EQUITY FUND, AND APPROVE A SUB-ADVISORY AGREEMENT BETWEEN ICMI AND
VONTOBEL.
The Board recommends that the Shareholders of the International Equity Fund
approve Vontobel as investment sub-adviser to the Fund and approve a Sub-
Advisory Agreement (the terms of which are discussed above) between ICMI and
Vontobel (the "Vontobel Sub-Advisory Agreement"). The form of Vontobel Sub-
Advisory Agreement is attached as Exhibit D to this Proxy Statement.
Advisory Fee and Expense Limitations. Under the Vontobel Sub-Advisory
Agreement, ICMI will pay Vontobel a fee at the annual rate of 0.50% of the
International Equity Fund's average daily net assets. The expense limitation
for the International Equity Fund, as a percentage of average daily net
assets, is 1.50%. To the extent that the Fund's expenses exceed the expense
limitation in an amount up to and including 0.10% of the average daily net
assets of the Fund, such excess, as calculated under the terms of the
agreement, will be a liability of Vontobel to ICMI and will be paid to ICMI
through waiver of the sub-advisory fee.
Description of Vontobel. Vontobel is a wholly owned subsidiary of Vontobel
Holding Ltd., and an affiliate of Bank J. Vontobel & Co., Ltd., one of the
largest private banks and brokerage firms in Switzerland. Its principal place
of business is located at 450 Park Avenue, New York, New York 10022. As of
December 31, 1997, Vontobel managed assets of over $1.9 billion, a substantial
part of which was invested outside of the United States. The Vontobel group of
companies has investments in excess of $30 billion under management.
21
<PAGE>
Listed below are the names, addresses, and principal occupations of the
directors and the principal executive officer of Vontobel. The principal
business address of each director and the principal executive officer, as it
relates to their duties at Vontobel is 450 Park Avenue, New York, New York
10022.
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
- ---------------- --------------------
<S> <C>
Dr. Wolfhard Graetz Chairman, Vontobel USA Inc.; Chief Executive Officer,
Vontobel Asset Management Ltd.; Chairman, Tardy, de
Watteville; Chairman, Vontobel Fund Management.
Dr. Hans-Dieter Vontobel Deputy Chairman, Vontobel USA Inc., Chairman, Vontobel
Holding Ltd., Chairman, Vontobel Asset Management Ltd.
Heinrich Schlegel Director, President, and Chief Executive Officer,
Vontobel USA Inc., Director, Vontobel Funds, Inc.
</TABLE>
For the fiscal year ended December 31, 1997, Vontobel served as investment
adviser to the International Equity Fund. As compensation for providing
investment advisory services to the Fund during this period, Vontobel received
$912,368 in fees from the International Equity Fund.
Vontobel also serves as investment adviser or sub-adviser to the following
registered investment company with investment objectives similar to the
International Equity Fund.
<TABLE>
<CAPTION>
NET ASSETS AT
FUND 12/31/97 ADVISORY FEE
- ---- ------------- ------------
<S> <C> <C>
Vontobel International Equity $160,937,272 1.00% on first $100 million;
Fund 75% on assets over $100 million
</TABLE>
To Company management's knowledge, no Director of the Company owns any
interest in Vontobel.
THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 12.
22
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS OF THE COMPANY
Information is set forth below about the Company's current Directors and
principal executive officers, including their name, position with the Company,
and principal occupation or employment for the last five years. No Director or
officer owns shares of the Company.
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS PENN SERIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ---------------- ------------- -------------------------------------------
<S> <C> <C>
Eugene Bay Director Senior Pastor, Bryn Mawr Presbyterian
121 Fishers Road Church, Bryn Mawr, PA.
Bryn Mawr, PA 19010
James S. Greene Director Retired: Vice President and Director,
P.O. Box 3761 International Raw Materials, Inc.,
Vero Beach, FL 32964-3761 Philadelphia, PA (commodities trading),
prior to September 1990.
L. Stockton Illoway* Director Marketing Director, Independence Financial
600 Dresher Road Group, The Penn Mutual Life Insurance
Horsham, PA 19044 Company, Bala Cynwyd, PA, since 1997;
Senior Vice President, Marketing and Field
Sales Support (June 1996 to 1997), Senior
Vice President, Pension and Annuity
(December 1993 to June 1996) Senior Vice
President, Individual Retirement Investment
Service (September 1993 to December 1993),
Regional Vice President (prior thereto),
The Penn Mutual Life Insurance Company.
William H. Loesche, Jr. Director Retired; Adviser (since April 1988),
100 Gray's Lane Director (prior thereto), Keystone
Apt. 101 Insurance Company and Keystone Automobile
Haverford, PA 19041 Club, Philadelphia, PA.
M. Donald Wright Director President, M. Donald Wright Professional
100 Chetwynd Drive Corporation, Bryn Mawr, PA (financial
Rosemont, PA 19010 planning and consulting); Director,
Graduate School of Financial Services, The
American College, since April 1991.
James B. McElwain President Assistant Vice President, Investment
600 Dresher Road Marketing and Operations (since August
Horsham, PA 19044 1995), Assistant Vice President, Retirement
and Investment Sales Operation, The Penn
Mutual Life Insurance Company, (November
1991 to August 1995), National Director of
Marketing, Asset Management Sales, The
Metropolitan Life Insurance Company, prior
thereto.
Richard F. Plush Vice President Vice President (1992 to present), Assistant
600 Dresher Road Vice President and Senior Actuary, The Penn
Horsham, PA 19044 Mutual Life Insurance Company (prior
thereto).
Lee J. Anderson Vice President Senior Investment Consultant, The Penn
600 Dresher Road Mutual Life Insurance Company (March 1995
Horsham, PA 19044 to present); Investment Statistical
Analyst, Independence Capital Management,
Inc., prior thereto.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS PENN SERIES PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
- ---------------- ------------- -------------------------------------------
<S> <C> <C>
C. Ronald Rubley Secretary Attorney, Morgan, Lewis & Bockius LLP,
2000 One Logan Square Philadelphia, PA, since January 1996;
Philadelphia, PA 19103 Associate General Counsel, The Penn Mutual
Life Insurance Company, prior thereto.
Steven M. Herzberg Treasurer Assistant Vice President and Treasurer, The
600 Dresher Road Penn Mutual Life Insurance Company
Horsham, PA 19044 (December 1997 to present); Director of
Financial Planning and Treasurer (November
1995 to December 1997); Director, Cost and
Budget (November 1991 to November 1995);
Director, Benefits Administration, prior
thereto.
Ann M. Strootman Controller Vice President and Controller (since
600 Dresher Road January 1996), Assistant Vice President,
Horsham, PA 19044 Financial and Management Accounting (1994
to January 1996), Director of Financial
Accounting (prior thereto), The Penn Mutual
Life Insurance Company.
</TABLE>
- --------
* Mr. Illoway is an "interested person" of the Company under the 1940 Act by
virtue of his relationship with Penn Mutual.
PRINCIPAL HOLDERS OF SECURITIES
On January 31, 1998, the outstanding shares of the Funds were owned by Penn
Mutual and PIA as follows:
<TABLE>
<CAPTION>
GROWTH VALUE EMERGING FLEXIBLY INTERNATIONAL QUALITY SMALL MONEY
EQUITY EQUITY GROWTH MANAGED EQUITY BOND HIGH YIELD CAPITALIZATION MARKET
FUND FUND FUND FUND FUND FUND BOND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of
Outstanding Shares
Owned by Penn Mutual
and Held in Separate
Accounts Pursuant to
Variable Annuity
Contracts 89% 80% 60% 77% 79% 76% 77% 59% 58%
- --------------------------------------------------------------------------------------------------------------
Percentage of
Outstanding Shares
Owned by PIA and Held
in a Separate Account
Pursuant to Variable
Annuity Contracts 5% 11% 14% 14% 10% 13% 14% 28% 21%
- --------------------------------------------------------------------------------------------------------------
Percentage of
Outstanding Shares
Owned by Penn Mutual
and Held in a Separate
Account Pursuant to
Variable Life
Insurance Contracts 6% 9% 8% 9% 11% 11% 9% 13% 21%
- --------------------------------------------------------------------------------------------------------------
Percentage of
Outstanding Shares
Owned by Penn Mutual
and Held in its
General Account as an
Equity Investment..... 0% 0% 18% 0% 0% 0% 0% 0% 0%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Unaudited.
24
<PAGE>
ADMINISTRATIVE AND CORPORATE SERVICES AGENT
Penn Mutual is the administrative and corporate services agent for the
Company. Penn Mutual is a Pennsylvania mutual life insurance company located
at 600 Dresher Road, Horsham, Pennsylvania 19044. Under an administrative and
corporate services agreement, Penn Mutual administers the Company's corporate
affairs, subject to the supervision of the Board and, in connection therewith,
furnishes the Company with office facilities, prepares regulatory filings,
provides staff assistance to the Board, and provides ordinary bookkeeping
services and general administrative services required in the conduct of its
investment business. In the fiscal year ended December 31, 1997, Penn Mutual
received $1,677,972 for providing administrative and corporate services to the
Company.
EXPENSES
All costs of solicitation (including printing and mailing of this proxy
statement, meeting notice, and voting instruction forms, as well as any
necessary supplementary solicitations) will be paid for by the Company.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Company does not hold annual shareholder meetings. Shareholders wishing
to submit proposals for inclusion in a proxy statement for a shareholder
meeting subsequent to the Meeting, if any, should send their written proposals
to Secretary, Penn Series Funds, Inc., 600 Dresher Road, Horsham, PA 19044.
GENERAL
The Company knows of no business other than that mentioned in the Proposals
contained in the Notice that will be presented for consideration at the
Meeting. If any other matters are properly presented, it is the intention of
the persons named on the enclosed voting instruction form to vote instructions
in accordance with their best judgment.
A list of shareholders of the Company entitled to be present and vote at the
meeting will be available at the offices of the Company, 600 Dresher Road,
Horsham, PA 19044, for inspection by any shareholder during regular business
hours for ten days prior to the date of the Meeting.
IF YOU CANNOT BE PRESENT IN PERSON, YOU ARE REQUESTED TO FILL IN, SIGN AND
RETURN THE ENCLOSED VOTING INSTRUCTION PROMPTLY. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
25
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
BETWEEN
PENN SERIES FUNDS, INC.
AND
INDEPENDENCE CAPITAL MANAGEMENT, INC.
RELATING TO
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
FLEXIBLY MANAGED FUND
INTERNATIONAL EQUITY FUND
HIGH YIELD BOND FUND
INVESTMENT ADVISORY AGREEMENT, made as of May 1, 1998 by and between PENN
SERIES FUNDS, INC. ("Penn Series"), a corporation organized and existing under
the laws of the State of Maryland, and INDEPENDENCE CAPITAL MANAGEMENT, INC.
("Adviser"), a corporation organized and existing under the laws of the State
of Pennsylvania.
W I T N E S S E T H :
WHEREAS, Penn Series is an open-end management investment company registered
as such under the Investment Company Act of 1940, as amended (the "Act") and
is authorized to issue shares in separate series with each series representing
interests in a separate fund of securities and other assets; and
WHEREAS, Adviser is engaged principally in the business of rendering
investment advisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, Penn Series desires Adviser to render investment advisory services
to Penn Series in the manner and on the terms and conditions hereinafter set
forth, and Adviser desires to render such services under such terms and
conditions:
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. INVESTMENT ADVISORY SERVICES. Adviser shall serve as investment
adviser and shall supervise and direct the investments of the Value Equity,
Small Capitalization, Flexibly Managed, International Equity and the High
Yield Bond Funds of Penn Series (individually a "Fund" and collectively the
"Funds"), in accordance with the investment objectives, program and
restrictions applicable to the Fund as provided in Penn Series' Prospectus
and Statement of Additional Information, as amended from time to time, and
such other limitations as may be imposed by law or as Penn Series may
impose with notice in writing to Adviser. No investment will be made by
Adviser for a Fund if that investment would be in violation of the
objectives, program, restrictions or limitations of the Fund. Adviser shall
not take custody of any assets of Penn Series, but shall issue settlement
instructions to the custodian designated by Penn Series (the "Custodian").
Adviser shall obtain and evaluate such information relating to the economy,
industries, businesses, securities markets and securities as it may deem
necessary or useful in the discharge of its obligations hereunder and shall
formulate and implement a continuing program for the management of the
assets and resources of each
A-1
<PAGE>
Fund in a manner consistent with the investment objectives of the Fund. In
furtherance of this duty, Adviser, as agent and attorney-in-fact with
respect to Penn Series, is authorized, in its discretion and without prior
consultation with Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the execution
of transactions in securities with or through such brokers, dealers,
underwriters or issuers as Adviser may select, in conformance with
the provisions of Paragraph 4 herein;
provided, however, that Adviser shall make no investment for a Fund that is
in violation of the objectives, program, restrictions or limitations of the
Fund.
2. ACCOUNTING AND RELATED SERVICES. Adviser agrees to cooperate with the
Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the
Accounting Services Agreement. As requested from time to time, Adviser
shall provide Penn Series and its Accounting Services Agent with such
information as may be reasonably necessary to properly account for
financial transactions with respect to each Fund.
3. FEES.
A. PAYMENT OF FEES. For the services rendered to Penn Series under
this Agreement, Penn Series will pay Adviser fees based on average
daily net assets of each Fund.
B. FEE RATES. The fees shall be paid at the following rates:
<TABLE>
<S> <C>
Value Equity Fund .50%
Small Capitalization Fund .50%
Flexibly Managed Fund .50%
International Equity Fund .75%
High Yield Bond Fund .50%
</TABLE>
C. METHOD OF COMPUTATION. Each fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Adviser as of the first business day of the next succeeding calendar
month. The daily fee will be computed by multiplying the fraction of
one over the number of calendar days in the year by the annual rate
applicable to the Fund as set forth above, and multiplying this
product by the net assets of the Fund. The Fund's net assets, for
purposes of the calculations described above, will be determined in
accordance with Penn Series' Prospectus and Statement of Additional
Information as of the close of business on the most recent previous
business day on which Penn Series was open for business.
D. EXPENSE LIMITATION. The expense limitations of the Funds are as
follows:
<TABLE>
<S> <C>
Value Equity Fund 1.00%
Small Capitalization Fund 1.00%
Flexibly Managed Fund 1.00%
International Equity Fund 1.50%
High Yield Bond Fund 0.90%
</TABLE>
With respect to each of the Value Equity, Small Capitalization and
International Equity Funds, the extent that a Fund's total expenses
for a fiscal year (excluding interest, taxes, brokerage, other
expenses which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses, but including
investment advisory and accounting, administrative and corporate
services fees before any adjustment pursuant to this provision)
exceed the expense limitation for the Fund in an amount up to and
including .10% of the average daily net assets of the Fund, such
excess amount shall be a liability of Adviser to Penn Series. The
liability (if any) of Adviser to pay Penn Series such excess amount
shall be determined on a daily basis. If, at the end of each month,
there is any liability of Adviser to pay Penn Series such
A-2
<PAGE>
excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month, there is no liability of Adviser to
pay Penn Series such excess amount and if payments of the advisory
fee at the end of prior months during the fiscal year have been
reduced in excess of that required to maintain expenses within the
expense limitation, such excess reduction shall be recaptured by
Adviser and shall be payable by Penn Series to Adviser along with
the advisory fee payable to Adviser for that month.
With respect to each of the Flexibly Managed Fund and the High
Yield Bond Funds, to the extent that a Fund's total expenses for a
fiscal year (excluding interest, taxes, brokerage, other expenses
which are capitalized in accordance with generally accepted
accounting principles, and extraordinary expenses, but including
investment advisory and accounting administrative and corporate
service fees before any adjustment pursuant to this provision)
exceed the expense limitation for the Fund, one-half of such excess
amount shall be a liability of Adviser to Penn Series. The liability
(if any) of Adviser to pay Penn Series one-half of such excess
amount shall be determined on a daily basis. If, at the end of each
month, there is any liability of Adviser to pay Penn Series such
excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month, there is no liability of Adviser to
pay Penn Series such excess amount and if payments of the advisory
fee at the end of prior months during the fiscal year have been
reduced in excess of that required to maintain expenses within the
expense limitation, such excess reduction shall be recaptured by
Adviser and shall be payable by Penn Series to Adviser along with
the advisory fee payable to Adviser for that month. If, at the end
of the fiscal year, there is any remaining liability of Adviser to
pay Penn Series such excess amount (which has not been paid through
reduction of the advisory fee), Adviser shall remit to Penn Series
an amount sufficient to pay such remaining liability.
4. BROKERAGE. In executing portfolio transactions and selecting brokers
or dealers for a Fund, Adviser will use its best efforts to seek the best
price and the most favorable execution of its orders. In assessing the best
price and the most favorable execution for any transaction, Adviser shall
consider the breadth of the market in the security, the price of the
security, the skill, financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any. Where
best price and most favorable execution will not be compromised, Adviser
may take into account the research and related services that the broker has
provided to Penn Series or the Adviser. It is understood that the Adviser
will not be deemed to have acted unlawfully or to have breached a fiduciary
duty to the Fund or be in breach of any obligation owing to the Fund under
this Agreement, or otherwise, by reason of its having directed a securities
transaction on behalf of the Fund to a broker-dealer in compliance with the
provisions of Section 28(e) of the Securities Exchange Act of 1934 or as
described from time to time in the Penn Series' Prospectus and Statement of
Additional Information. In addition, Adviser is authorized to take into
account the sale of variable contracts which are invested in Penn Series
shares in allocating to brokers or dealers purchase and sale orders for
portfolio securities, provided that Adviser believes that the quality of
the transaction and commission are comparable to what they would be with
other qualified firms. Adviser shall regularly advise Penn Series' Board of
Directors as to all payments of commissions and as to its brokerage
policies and practices and shall follow such instructions with respect
thereto as may be, given by Penn Series' board.
5. USE OF THE SERVICES OF OTHERS. Adviser may (at its cost except as
contemplated in Section 4 of this Agreement) employ, retain or otherwise
avail itself of a sub-adviser or sub-advisors to assist it in performing
its duties and meeting its responsibilities under this Agreement, and may
delegate to such sub-adviser sub-advisers duties assumed by the Adviser
under this Agreement. In addition, Adviser may (at its cost, except as
contemplated in Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or
organizations for the purpose of providing itself or Penn Series, as
appropriate, with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as Adviser may deem necessary, appropriate or convenient for the
discharge of its obligations
A-3
<PAGE>
hereunder or otherwise helpful to Penn Series, or in the discharge of
Adviser's overall responsibilities with respect to the other accounts which
it serves as investment adviser.
6. PERSONNEL, OFFICE SPACE, AND FACILITIES. Adviser at its own expense
shall furnish or provide and pay the cost of such office space, office
equipment, office personnel, and office services as it, or any affiliated
corporation of Adviser, requires in the performance of services under this
Agreement.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Adviser or any affiliate in performance of this Agreement are the property
of Adviser and will not become the property of Penn Series.
8. CERTAIN PERSONNEL. Adviser agrees to permit individuals who are
officers or employees of Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
advisory board, or members of any other committee of Penn Series, without
remuneration or other cost to Penn Series. Adviser shall pay all salaries,
expenses, and fees of officers and/or directors of Penn Series who are
affiliated with Adviser.
9. REPORTS TO PENN SERIES AND COOPERATION WITH ACCOUNTANTS. Adviser, and
any affiliated corporation of Adviser performing services for Penn Series
described in this Agreement, shall furnish to or place at the disposal of
Penn Series, such information, reports, evaluations, analyses and opinions
as Penn Series may, at any time or from time to time, reasonably request or
as Adviser may deem helpful, to reasonably ensure compliance with
applicable laws and regulations or for any other purpose. Adviser and its
affiliates shall cooperate with Penn Series' independent public accountants
and take all reasonable action in the performance of services and
obligations under this Agreement to assure that the information needed by
such accountants is made available to them for the expression of their
opinion without any qualification as to the scope of their examination,
including, but not limited to, their opinion included in Penn Series'
annual report under the Act and annual amendment to Penn Series'
registration statement under the Act.
10. REPORTS TO ADVISER. Penn Series shall furnish or otherwise make
available to Adviser such prospectuses, financial statements, proxy
statements, reports, and other information relating to the business and
affairs of Penn Series, as Adviser may, at any time or from time to time,
reasonably require in order to discharge its obligations under this
Agreement.
11. OWNERSHIP OF RECORDS. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act
and that are maintained and kept current by Adviser or any affiliated
corporation of Adviser, or by any sub-adviser or affiliated corporation of
a sub-adviser, on behalf of Penn Series are the property of Penn Series.
Such records will be preserved by Adviser or an affiliated corporation, or
by any sub-adviser or affiliated corporation, for the periods prescribed in
Rule 3la-2 under the Act, where applicable, or in such other applicable
rules that may be adopted time under the Act. Such records may be inspected
by representatives of Penn Series at reasonable times, and, in the event of
termination of this Agreement, will be promptly delivered to Penn Series.
12. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the
freedom of Adviser or any affiliated person of Adviser to render investment
supervisory and other services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities. It is understood
that Adviser may give advice and take action for its other clients which
may differ from advice given, or the timing or nature of action taken, for
a Fund. Adviser is not obligated to initiate transactions for a Fund in any
security which Adviser, its principals, affiliates or employees may
purchase or sell for its or their own accounts or for other clients.
13. CONFIDENTIAL RELATIONSHIP. Information furnished by one party to
another, including a party's respective agents and employees, is
confidential and shall not be disclosed to third parties unless required by
law. Adviser, on behalf of itself and its affiliates and representatives,
agrees to keep confidential all records and other information relating to
Penn Series, except after prior notification to and approval in writing by
Penn Series, which approval shall not be unreasonably withheld, and may not
be withheld where Adviser or any affiliate may be exposed to civil or
criminal contempt proceedings for failure to comply,
A-4
<PAGE>
when requested to divulge such information by duly constituted authorities,
or when so requested by Penn Series.
14. PROXIES. Subject to such direction and oversight by Penn Series as
the Board of Directors of Penn Series shall deem appropriate, Adviser shall
vote proxies solicited by or with respect to the issuers of securities held
in the Funds.
15. INSTRUCTIONS, OPINION OF COUNSEL AND SIGNATURES. At any time Adviser
may apply to an officer of Penn Series for instructions, and may consult
legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Adviser shall not be liable for any
action taken or omitted by it or an affiliate in good faith in accordance
with such instructions or with the advice or opinion of Penn Series' legal
counsel. Adviser and its affiliates shall be protected in acting upon any
instruction, advice, or opinion provided by Penn Series or its legal
counsel and upon any other paper or document delivered by Penn Series or
its legal counsel believed by Adviser to be genuine and to have been signed
by the proper person or persons and shall not be held to have notice of any
change of authority of any officer or agent of Penn Series, until receipt
of written notice thereof from Penn Series.
16. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Except as such
responsibility may be placed upon Adviser or any affiliate expressly by, or
by fair implication of, the terms of this Agreement, and except for the
accuracy of information furnished to Penn Series by Adviser or any
affiliate, Penn Series assumes full responsibility for the preparation,
contents and distribution of the prospectuses for Penn Series, for
complying with all applicable requirements of the Act, the Securities
Exchange Act of 1934, the Securities Act of 1933, and any other laws, rules
and regulations of governmental authorities having jurisdiction over Penn
Series.
17. LIMITATION OF LIABILITY. Neither Adviser nor any of its affiliates,
their officers, directors, employees or agents, or any person performing
executive, administrative, trading, or other functions for Penn Series (at
the direction or request of Adviser), or Adviser or its affiliates in
connection with the discharge of obligations undertaken or reasonably
assumed with respect to this Agreement, shall be liable for any error of
judgment or mistake of law or for any loss suffered by Penn Series in
connection with the matters to which this Agreement relates, except for
such error, mistake or loss resulting from willful misfeasance, bad faith,
negligence or misconduct in the performance of its, his or her duties on
behalf of Penn Series or constituting or resulting from a failure to comply
with any term of this Agreement. Adviser shall not be responsible for any
loss incurred by reason of any act or omission of the Custodian Transfer
Agent, Accounting Services Agent, or other third party with which Company
has a contractual arrangement, or of any broker, dealer, underwriter or
issuer selected by Adviser with reasonable care.
18. OBLIGATIONS OF PENN SERIES AND ADVISER. It is expressly agreed that
the obligations of Penn Series and Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have
been authorized by the Board of Directors of Penn Series and signed by an
authorized officer of Penn Series, acting as such, and shall bind Penn
Series.
19. INDEMNIFICATION BY PENN SERIES. Penn Series will indemnify and hold
Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Adviser resulting from:
(i) any action or omitting to act by Adviser or any affiliated corporation,
with respect to any service described in this Agreement, upon instructions
reasonably believed by Adviser or any affiliated corporation to have been
executed by an individual who has been identified in writing by Penn Series
as a duly authorized officer of Penn Series; or (ii) any action by Adviser
or any affiliated corporation, with respect to any service described in
this Agreement, upon information provided by Penn Series in form and under
policies agreed to by Adviser and Penn Series. Adviser shall not be
entitled to such indemnification in respect of actions or omissions
constituting negligence or willful misconduct of Adviser or its affiliates,
agents or contractors, or constituting a failure by Adviser or any
affiliate to comply with any term of this Agreement. Prior to the
confession of any claim against Adviser which may be subject to this
indemnification, Adviser shall give Penn Series reasonable opportunity to
defend against said claim in its own name or in the name of Adviser.
A-5
<PAGE>
20. INDEMNIFICATION BY ADVISER. Adviser will indemnify and hold harmless
Penn Series from all loss, cost, damage and expense, including reasonable
expenses for legal counsel, incurred by Penn Series resulting from any
claim, demand, action or suit arising out of Adviser's or any affiliate's
failure to comply with any term of this Agreement or which arise out of the
willful misfeasance, bad faith, negligence or misconduct of Adviser, its
affiliates, their agents or contractors. Penn Series shall not be entitled
to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Penn Series or its agents or
contractors or constituting a failure by Penn Series to comply with any
term of this Agreement; provided, that such negligence or misconduct is not
attributable to Adviser or any person that is an affiliate of Adviser or an
affiliate of an affiliate of Adviser. Prior to confessing any claim against
it which may be subject to this indemnification, Penn Series shall give
Adviser reasonable opportunity to defend against said claim in its own name
or in the name of Penn Series. For purposes of this Section 20 and of
Section 19 hereof, no broker or dealer shall be deemed to be acting as
agent or contractor of Adviser or any affiliate of Adviser, in effecting or
executing any portfolio transaction for a Fund.
21. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
22. DUAL INTERESTS. It is understood that some person or persons may be,
or from time to time become, directors, officers, or shareholders of both
Penn Series and Adviser (including its affiliates), and that the existence
of any such dual interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by a specific provision
of applicable law.
23. TERM OF AGREEMENT. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of
execution. Thereafter, this Agreement shall continue in effect from year to
year with respect to the Fund, subject to the termination provisions and
all other terms and conditions hereof, so long as such continuation shall
be specifically approved at least annually (a) by either the board of
directors of Penn Series, or by a vote of a majority of the outstanding
voting securities of the series of shares of Penn Series representing
interests in the Fund and (b) in either event by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a
majority of the directors of Penn Series who are not parties to this
Agreement or interested persons of any such party. Adviser shall furnish to
Penn Series, promptly upon its request, such information as may reasonably
be necessary to evaluate the terms of this Agreement with respect to the
Fund or any extension, renewal or amendment hereof.
24. AMENDMENT AND ASSIGNMENT OF AGREEMENT. This Agreement may not be
amended or assigned without the affirmative vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the affected Fund, and, without affecting any
claim for damages or other right that Penn Series may have as a result
thereof, this Agreement shall automatically and immediately terminate in
the event of its assignment.
25. TERMINATION OF AGREEMENT. This Agreement may be terminated by Penn
Series or by Adviser with respect to any Fund, without the payment of any
penalty, upon 60 days' prior notice in writing from Penn Series to Adviser,
or upon 90 days' prior notice in writing from Adviser to Penn Series;
provided, that in the case of termination by Penn Series, such action shall
have been authorized by resolution of a majority of its directors who are
not interested persons of any party to this Agreement, or by vote of a
majority of the outstanding voting securities of the series of shares of
Penn Series representing interests in the Fund.
26. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
A-6
<PAGE>
C. DEFINITIONS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the Act. Specifically, the terms "vote of
a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein,
shall have the meanings assigned to them by Section 2(a) of the Act.
In addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
D. NOTICE. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it
is agreed that for this purpose the address of Penn Series is Penn
Series Funds, Inc., 600 Dresher Road, Horsham, PA 19044, Attention:
President, and that of Adviser is Independence Capital Management,
Inc., 600 Dresher Road, Horsham, PA 19044, Attention: President.
E. STATE LAW. The Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Maryland
except where such state laws have been preempted by Federal law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Penn Series Funds, Inc.
By: _________________________________
Independence Capital Management,
Inc.
By: _________________________________
A-7
<PAGE>
EXHIBIT B
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND
OPCAP ADVISORS
RELATING TO
VALUE EQUITY FUND
SMALL CAPITALIZATION FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and OPCAP ADVISORS
("Sub-Adviser"), a partnership organized and existing under the laws of the
State of Delaware.
W I T N E S S E T H:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end management
investment company registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares in separate
series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as an investment
advisers under the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser is authorized to render investment advisory services to
Penn Series and to enter into a sub-advisory agreement with a sub-adviser for
the rendering of investment advisory services by the Sub-Adviser to Adviser;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in
such manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. INVESTMENT SUB-ADVISORY SERVICES. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the investments of
the Value Equity and Small Capitalization Funds (each a "Fund" and together
the "Funds"), and to exercise all rights incidental to ownership in
accordance with the investment objectives, program and restrictions
applicable to the Funds as provided in Penn Series' Prospectus and
Statement of Additional Information ("SAI"), as amended from time to time,
and such other limitations as may be imposed by law or as Penn Series or
Adviser may impose with notice in writing to Sub-Adviser. To enable Sub-
Adviser to fully exercise its discretion, Adviser hereby appoints Sub-
Adviser as agent and attorney-in-fact for the Funds with full power and
authority to buy, sell and otherwise deal in securities and contracts for
the Funds. No investment will be made by Sub-Adviser for a Fund if that
investment would violate the investment objectives, investment restrictions
or limitations of a Fund set out in the Prospectus and the SAI delivered to
the Sub-Adviser and as may be amended and delivered to Sub-Adviser in the
future. Sub-Adviser shall not take custody of any assets of Penn Series,
but shall issue
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settlement instructions to the custodian designated by Penn Series (the
"Custodian"). Sub-Adviser shall, in its discretion, obtain and evaluate
such information relating to the economy, industries, businesses,
securities markets and securities as it may deem necessary or useful in the
discharge of its obligations hereunder and shall formulate and implement a
continuing program for the management of the assets and resources of the
Funds in a manner consistent with the investment objectives of the Funds.
In furtherance of this duty, Sub-Adviser, as agent and attorney-in-fact
with respect to Adviser and Penn Series, is authorized, in its discretion
and without prior consultation with Adviser or Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4 herein;
and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Fund
that would violate the objectives, investment program, or restrictions or
limitations of the Fund.
2. ACCOUNTING AND RELATED SERVICES. Sub-Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the
Accounting Services Agent. As requested from time to time, Sub-Adviser
shall provide Penn Series and its Accounting Services Agent with such
information as may be reasonably necessary to properly account for
financial transactions with respect to the Fund.
3. FEES.
A. PAYMENT OF FEES. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of each Fund.
B. FEE RATES. The fee rates, based on the average daily net assets of
each Fund, shall be as follows:
0.40% with respect to the first $50,000,000 of the combined total
average daily net assets of the two Funds;
0.35% with respect to the next $200,000,000 of the combined total
average daily net assets of the two Funds;
0.30% with respect to the combined total average daily net assets
of the two Funds in excess of $250,000,000.
C. METHOD OF COMPUTATION. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.
D. EXPENSE LIMITATION. The expense limitation of each Fund, as a
percentage of the Fund's average daily net assets, is 1.00%. To the
extent that a Fund's total expenses for a fiscal year (excluding
interest, taxes, brokerage, other expenses which are capitalized in
accordance with generally accepted accounting principles, and
extraordinary expenses, but including investment advisory and
accounting, administrative and corporate services fees before any
adjustment pursuant to this provision) exceed the expense limitation
for the Fund in an amount up to and including .10% of the average
daily net assets of the Fund, such excess amount shall be a
liability of Sub-Adviser to Adviser. The liability (if any) of Sub-
Adviser to pay Adviser such excess
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amount shall be determined on a daily basis. If, at the end of each
month, there is any liability of Sub-Adviser to pay Adviser such
excess amount, the advisory fee shall be reduced by such liability.
If, at the end of each month, there is no liability of Sub-Adviser to
pay Adviser such excess amount and if payments of the advisory fee at
the end of prior months during the fiscal year have been reduced in
excess of that required to maintain expenses within the expense
limitation, such excess reduction shall be recaptured by Sub-Adviser
and shall be payable by Adviser to Sub-Adviser along with the
advisory fee payable to Sub-Adviser for that month.
4. BROKERAGE. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the
best price and the most favorable execution of its orders. In assessing the
best price and the most favorable execution for any transaction, Sub-
Adviser shall consider the breadth of the market in the security, the price
of the security, the skill, financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any.
Where best price and most favorable execution will not be compromised, Sub-
Adviser may take into account the research and related services that the
broker has provided to Penn Series or the Sub-Adviser. It is understood
that the Sub-Adviser will not be deemed to have acted unlawfully or to have
breached a fiduciary duty to the Fund or be in breach of any obligation
owing to the Fund under this Agreement, or otherwise, by reason of its
having directed a securities transaction on behalf of the Fund to a broker-
dealer in compliance with the provisions of Section 28(e) of the Securities
Exchange Act of 1934, as amended, or as described from time to time in the
Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of
variable contracts which are invested in Penn Series shares in allocating
to brokers or dealers purchase and sale orders for portfolio securities,
provided that Sub-Adviser believes that the quality of the transaction and
commission are comparable to what they would be with other qualified firms.
Sub-Adviser shall advise Penn Series' Board of Directors, when requested,
as to all payments of commissions and as to its brokerage policies and
practices and shall follow such instructions with respect thereto as may be
given by Penn Series' board.
5. USE OF THE SERVICES OF OTHERS. Sub-Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or
organizations for the purpose of providing Penn Series, Adviser or itself,
as appropriate, with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as Sub-Adviser may deem necessary, appropriate or convenient for
the discharge of its obligations hereunder or otherwise helpful to Penn
Series and Adviser, or in the discharge of Sub-Adviser's overall
responsibilities with respect to the other accounts which it serves as
investment adviser.
6. PERSONNEL, OFFICE SPACE, AND FACILITIES. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space,
office equipment, office personnel, and office services as it, or any
affiliated corporation of Sub-Adviser, requires in the performance of
services under this Agreement.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the
property of Sub-Adviser and will not become the property of Penn Series or
Adviser.
8. REPORTS TO PENN SERIES AND COOPERATION WITH ACCOUNTANTS. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for
Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information,
reports, evaluations, analyses and opinions as Penn Series and Adviser may,
at any time or from time to time, reasonably request or as Sub-Adviser may
deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Sub-Adviser and its affiliates shall
cooperate with Penn Series' independent public accountants and take all
reasonable action in the performance of services and obligations under this
Agreement to assure that the information needed by such accountants is made
available to them for the expression of their opinion without any
qualification as to the scope of their examination, including, but not
limited to, their opinion included in Penn Series' annual report under the
Act and annual amendment to Penn Series' registration statement under the
Act.
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9. REPORTS TO SUB-ADVISER. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
and other information relating to the business and affairs of Penn Series,
as Sub-Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
10. OWNERSHIP OF RECORDS. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act
and that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of
Penn Series. Such records will be preserved by Sub-Adviser itself or
through an affiliated corporation for the periods prescribed in Rule 3la-2
under the Act, where applicable, or in such other applicable rules that may
be adopted time under the Act. Such records may be inspected by
representatives of Penn Series and Adviser at reasonable times and, in the
event of termination of this Agreement, will be promptly delivered to
Adviser and Penn Series upon request.
11. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to
act as investment adviser or investment counselor to other persons, firms
or corporations or to engage in other business activities; but so long as
this Agreement or any extension, renewal or amendment hereof shall remain
in effect as to Fund, or until Sub-Adviser shall otherwise consent, Sub-
Adviser shall be the only investment sub-adviser to the Fund. It is
understood that Sub-Adviser may give advice and take action for its other
clients which may differ from advice given, or the timing or nature of
action taken, for a Fund. Sub-Adviser is not obligated to initiate
transactions for a Fund in any security which Sub-Adviser, its principals,
affiliates or employees may purchase or sell for its or their own accounts
or other clients.
12. CONFIDENTIAL RELATIONSHIP. Information furnished by Penn Series or by
one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates
and representatives, agrees to keep confidential all records and other
information relating to Adviser or Penn Series (as the case may be), except
after prior notification to and approval in writing by Adviser or Penn
Series (as the case may be), which approval shall not be unreasonably
withheld, and may not be withheld, where Sub-Adviser or any affiliate may
be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
when so requested by Adviser and Penn Series.
13. PROXIES. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in a
Fund.
14. INSTRUCTIONS, OPINION OF COUNSEL AND SIGNATURES. At any time Sub-
Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in
accordance with such instructions or with the advice or opinion of Penn
Series' legal counsel. Sub-Adviser and its affiliates shall be protected in
acting upon any instruction, advice, or opinion provided by Penn Series or
its legal counsel and upon any other paper or document delivered by Penn
Series or its legal counsel believed by Sub-Adviser to be genuine and to
have been signed by the proper person or persons and shall not be held to
have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series. Sub-
Adviser shall inform Adviser of all applications to Penn Series for
instructions and all consultations with legal counsel for Penn Series at
the time of such application or consultation.
15. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms
of this Agreement, and except for the accuracy of information furnished to
Penn Series by Sub-Adviser or any affiliate, Sub-Adviser does not assume
responsibility for the preparation, contents and distribution of the
prospectuses for Penn Series, for complying with any applicable
requirements of the Act, the Securities Exchange Act of 1934, the
Securities
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<PAGE>
Act of 1933, or any other laws, rules and regulations of governmental
authorities having jurisdiction over Penn Series.
16. LIMITATION OF LIABILITY. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or
any person performing executive, administrative, trading, or other
functions for Penn Series (at the direction or request of Sub-Adviser), or
Sub-Adviser or its affiliates in connection with the discharge of
obligations undertaken or reasonably assumed with respect to this
Agreement, shall be liable for any error of judgment or mistake of law or
for any loss suffered by Penn Series in connection with the matters to
which this Agreement relates, except for such error, mistake or loss
resulting from willful misfeasance, bad faith, negligence or willful
misconduct in the performance of its, his or her duties on behalf of Penn
Series or constituting or resulting from a failure to comply with any term
of this Agreement. Sub-Adviser shall not be responsible for any loss
incurred by reason of any act or omission of the Custodian or of any
broker, dealer, underwriter or issuer selected by Sub-Adviser with
reasonable care.
17. OBLIGATIONS OF ADVISER AND SUB-ADVISER. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have
been authorized in accordance with the governing documents of each party
and in accordance with applicable law, and shall be signed by an authorized
officer of each party, acting as such, and shall be binding on each party.
18. INDEMNIFICATION BY ADVISER. Adviser will indemnify and hold Sub-
Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting
from: (i) any action or omission of Sub-Adviser or any affiliated
corporation, with respect to any service described in this Agreement, upon
instructions reasonably believed by Sub-Adviser or any affiliated
corporation to have been executed by an individual who has been identified
in writing by Penn Series as a duly authorized officer of Penn Series or
Adviser; (ii) any action of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement upon information
provided by Penn Series or Adviser in form and under policies agreed to by
Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall not be entitled
to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Sub-Adviser or its affiliates, agents
or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any
claim against Adviser which may be subject to this indemnification, Sub-
Adviser shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Sub-Adviser.
19. INDEMNIFICATION BY SUB-ADVISER. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series
and Adviser and resulting from any claim, demand, action or suit arising
out of Sub-Adviser's or any affiliate's failure to comply with any term of
this Agreement or which arise out of the willful misfeasance, bad faith,
negligence or misconduct of Sub-Adviser, its affiliates, their agents or
contractors. Neither Penn Series nor Adviser shall be entitled to such
indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or Adviser, or their agents or
contractors or constituting a failure by Adviser to comply with any term of
this Agreement; provided, that such negligence or misconduct is not
attributable to Sub-Adviser or any person that is an affiliate of Sub-
Adviser or an affiliate of an affiliate of Sub-Adviser. Prior to confessing
any claim against it which may be subject to this indemnification, Adviser
shall give Sub-Adviser reasonable opportunity to defend against said claim
in its own name or in the name of Adviser. For purposes of this Section 19
and of Section 18 hereof, no broker or dealer shall be deemed to be acting
as agent or contractor of Sub-Adviser or any affiliate of Sub-Adviser, in
effecting or executing any portfolio transaction for the Fund.
20. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
21. TERM OF AGREEMENT. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years
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from date of execution. Thereafter, this Agreement shall continue in effect
from year to year with respect to each Fund, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either
the Board of Directors of Penn Series, or by a vote of a majority of the
outstanding voting securities of the series of shares of Penn Series
representing interests in the Fund and (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser
shall furnish to Penn Series, promptly upon its request, such information
as may reasonably be necessary to evaluate the terms of this Agreement with
respect to each Fund or any extension, renewal or amendment hereof.
22. AMENDMENT AND ASSIGNMENT OF AGREEMENT. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting
securities of the series of shares of Penn Series representing interests in
the affected Fund, and, without affecting any claim for damages or other
right that any party hereto may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its
assignment.
23. TERMINATION OF AGREEMENT. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without
payment of any penalty, upon 60 days' prior notice in writing from Adviser
to Sub-Adviser, or upon 90 days' prior notice in writing from Sub-Adviser
to Adviser; provided, that in the case of termination by Adviser or Penn
Series, such action shall have been authorized by resolution of a majority
of its directors who are not interested persons of any party to this
Agreement, or by vote of a majority of the outstanding voting securities of
the series of shares of Penn Series representing interests in the affected
Fund.
24. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. DEFINITIONS. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the Act. Specifically, the terms "vote of
a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein,
shall have the meanings assigned to them by Section 2(a) of the Act.
In addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
D. NOTICE. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it
is agreed that for this purpose the address of Adviser is
Independence Capital Management, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Sub-Adviser is OpCap
Advisors, 1 World Financial Center, New York, New York 10281,
Attention: President.
E. STATE LAW. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.
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F. COUNTERPARTS. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be
an original, and together shall constitute one document.
G. ENTIRE AGREEMENT; SEVERABILITY. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any and all other provisions
hereof.
H. NO THIRD PARTY BENEFICIARIES. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
I. CHANGES IN SUB-ADVISER ORGANIZATION. The Sub-Adviser agrees to
notify the Adviser within a reasonable period of time regarding a
material change in the members of Sub-Adviser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Attest:
INDEPENDENCE CAPITAL MANAGEMENT, INC.
___________________________________
Secretary By: ___________________________________
Attest: OPCAP ADVISORS
By: ___________________________________
___________________________________
Secretary
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EXHIBIT C
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND
T. ROWE PRICE ASSOCIATES, INC.
RELATING TO
FLEXIBLY MANAGED FUND
HIGH YIELD BOND FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and T. ROWE PRICE
ASSOCIATES, INC. ("Sub-Adviser"), a corporation organized and existing under
the laws of the State of Maryland.
W I T N E S S E T H:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end management
investment company registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares in separate
series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as investment
advisers under the federal Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser renders investment advisory services to Penn Series
pursuant to an investment advisory agreement entered into by Penn Series and
Adviser;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in
such manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. INVESTMENT SUB-ADVISORY SERVICES. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the cash, securities
and other assets of the Flexibly Managed and High Yield Bond Funds (each a
"Fund" and together the "Funds"), and to exercise all rights incidental to
ownership in accordance with the investment objectives, program and
restrictions applicable to the Funds as provided in Penn Series' Prospectus
and Statement of Additional Information, as amended from time to time, and
such other limitations as may be imposed by law or as Penn Series may
impose with notice in writing to Sub-Adviser. To enable Sub-Adviser to
fully exercise its discretion, Adviser hereby appoints Sub-Adviser as agent
and attorney-in-fact for the Funds with full power and authority to buy,
sell and otherwise deal in securities and contracts for the Funds. No
investment will be made by Sub-Adviser for Funds if that investment would
violate the objectives, investment restrictions or limitations of a Fund
set out in the prospectus and the SAI previously delivered to the Sub-
Adviser or to be delivered. Sub-Adviser shall not take custody of any
assets of Penn Series, but shall issue settlement instructions to the
custodian designated
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by Penn Series (the "Custodian"). Sub-Adviser shall, in its discretion,
obtain and evaluate such information relating to the economy, industries,
businesses, securities markets and securities as it may deem necessary or
useful in the discharge of its obligations hereunder and shall formulate
and implement a continuing program for the management of the assets and
resources of the Funds in a manner consistent with the investment
objectives of the Funds. In furtherance of this duty, Sub-Adviser, as agent
and attorney-in-fact with respect to Adviser and Penn Series, is
authorized, in its discretion and without prior consultation with Penn
Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4 herein;
and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Funds
that would violate the objectives, program, restrictions or limitations of
the Funds.
2. ACCOUNTING AND RELATED SERVICES. Sub-Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the
Accounting Services Agent. As requested from time to time, Sub-Adviser
shall provide Penn Series and its Accounting Services Agent with such
information as may be reasonably necessary to properly account for
financial transactions with respect to the Fund.
3. FEES.
A. PAYMENT OF FEES. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser fees based
on the average daily net assets of each Fund.
B. FEE RATES. The fee rates, based on the average daily net assets of
each Fund, shall be as follows:
0.50% with respect to the first $250,000,000 of the combined total
average daily net assets of the two Funds;
0.40% with respect to the next $500,000,000 of combined total
average daily net assets of the two Funds;
Provided, the fee rate shall be 0.40% with respect to all average
daily net assets of the two Funds at such time the combined total
average daily net assets of the two Funds exceed $750,000,000.
C. METHOD OF COMPUTATION. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business. If this Agreement is terminated before the end of the
month, the fee for the period from the beginning of such month to
the date of termination shall be prorated based upon services
provided through the date of termination.
D. EXPENSE LIMITATION. The expense limitation of the Flexibly Managed
and High Yield Bond Funds, as a percentage of each Fund's average
daily net assets, is 1.00% and 0.90%, respectively. To the extent
that a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and extraordinary
expenses, but including investment advisory and accounting,
administrative and
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corporate service fees before any adjustment pursuant to this
provision) exceed the expense limitation for the Fund, one-half of
such excess amount shall be a liability of Sub-Adviser to Adviser.
The liability (if any) of Sub-Adviser to pay Adviser one-half of such
excess amount shall be determined on a daily basis. If, at the end of
each month, there is any liability of Sub-Adviser to pay Adviser such
excess amount, the fee shall be reduced by such liability. If, at the
end of each month, there is no liability of Sub-Adviser to pay
Adviser such excess amount and if payments of the fee at the end of
prior months during the fiscal year have been reduced in excess of
that required in this subsection, such excess reduction shall be
recaptured by Sub-Adviser and shall be payable by Adviser to Sub-
Adviser along with the fee payable to Sub-Adviser for that month. If,
at the end of the fiscal year, there is any remaining liability of
Sub-Adviser to pay Adviser such excess amount (which has not been
paid through reduction of the fee), Sub-Adviser shall remit to
Adviser an amount sufficient to pay such remaining liability.
4. BROKERAGE. In executing portfolio transactions and selecting brokers
or dealers for the Funds, Sub-Adviser will use its best efforts to seek the
best price and the most favorable execution of its orders. In assessing the
best price and the most favorable execution for any transaction, Sub-
Adviser shall consider the breadth of the market in the security, the price
of the security, the skill, financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any.
Where best price and most favorable execution will not be compromised, Sub-
Adviser may take into account the research and related services that the
broker has provided to the Funds or the Sub-Adviser. It is understood that
the Sub-Adviser will not be deemed to have acted unlawfully or to have
breached a fiduciary duty to the Funds or be in breach of any obligation
owing to the Funds under this Agreement, or otherwise, by reason of its
having directed a securities transaction on behalf of the Funds to a
broker-dealer in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934, as amended, or as described from time to
time in the Penn Series' Prospectus and Statement of Additional
Information. In addition, Sub-Adviser is authorized to take into account
the sale of variable contracts which are invested in Penn Series shares in
allocating to brokers or dealers purchase and sale orders for portfolio
securities, provided that Sub-Adviser believes that the quality of the
transaction and commission are comparable to what they would be with other
qualified firms. Sub-Adviser shall advise Penn Series' Board of Directors,
when requested, as to all payments of commissions and as to its brokerage
policies and practices and shall follow such reasonable instructions with
respect thereto as may be given by Penn Series' Board.
5. USE OF THE SERVICES OF OTHERS. Sub-Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or
organizations for the purpose of providing Penn Series, Adviser or itself,
as appropriate, with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as Sub-Adviser may deem necessary, appropriate or convenient for
the discharge of its obligations hereunder or otherwise helpful to Penn
Series and Adviser, or in the discharge of Sub-Adviser's overall
responsibilities with respect to the other accounts which it serves as
investment adviser.
6. PERSONNEL, OFFICE SPACE, AND FACILITIES. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space,
office equipment, office personnel, and office services as it, or any
affiliated corporation of Sub-Adviser, requires in the performance of
services under this Agreement.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the
property of Sub-Adviser and will not become the property of Penn Series or
Adviser.
8. REPORTS TO PENN SERIES AND COOPERATION WITH ACCOUNTANTS. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for
Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information,
reports, evaluations, analyses and opinions as Penn Series and Adviser may,
at any time or from time to time, reasonably request or as Sub-Adviser may
deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Sub-Adviser and its affiliates shall
cooperate with Penn Series' independent public accountants and take all
reasonable action in the performance of services and obligations under this
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Agreement to assure that the information needed by such accountants is made
available to them for the expression of their opinion without any
qualification as to the scope of their examination, including, but not
limited to, their opinion included in Penn Series' annual report under the
Act and annual amendment to Penn Series' registration statement under the
Act.
9. REPORTS TO SUB-ADVISER. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
articles of incorporation, by-laws and other information relating to the
business and affairs of Penn Series as Sub-Adviser may, at any time or from
time to time, reasonably require in order to discharge its obligations
under this Agreement. Any printed matter, or other material prepared for
distribution to the stockholders of Penn Series or the public, which refers
in any way to Sub-Adviser or any affiliated corporation of Adviser other
than merely to identify Sub-Adviser as the Sub-Adviser, shall be furnished
to Sub-Adviser at least 14 days prior to use thereof. Penn Series and
Adviser shall not use such material if Sub-Adviser shall object thereto in
writing within 7 days after its receipt by Sub-Adviser. In the event of
termination of this Agreement, Penn Series and Adviser shall, on written
request of Sub-Adviser, forthwith delete any reference to Sub-Adviser or
any affiliated corporation of Sub-Adviser from any materials prepared on
behalf of Penn Series.
10. OWNERSHIP OF RECORDS. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act
and that are maintained and kept current by Sub-Adviser or any affiliated
corporation of Sub-Adviser on behalf of Penn Series are the property of
Penn Series. Such records will be preserved by Sub-Adviser itself or
through an affiliated corporation for the periods prescribed in Rule 3la-2
under the Act, where applicable, or in such other applicable rules that may
be adopted time under the Act. Such records may be inspected by
representatives of Penn Series and Adviser at reasonable times and, in the
event of termination of this Agreement, will be promptly delivered to
Adviser and Penn Series upon request.
11. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to
act as investment advisor or investment counselor to other persons, firms
or corporations or to engage in other business activities; but so long as
this Agreement or any extension, renewal or amendment hereof shall remain
in effect as to the Funds, or until Sub-Adviser shall otherwise consent,
Sub-Adviser shall be the only investment Sub-Adviser to the Fund. It is
understood that Sub-Adviser may give advice and taken action for its other
clients which may differ from advice given, or the timing or nature of
action taken, for a Fund. Sub-Adviser is not obligated to initiate
transactions for a Fund in any security which Sub-Adviser , its principals,
affiliates or employees may purchase or sell for its or their own accounts
or other clients.
12. CONFIDENTIAL RELATIONSHIP. Information furnished by Penn Series or by
one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates
and representatives, agrees to keep confidential all records and other
information relating to Adviser or Penn Series (as the case may be), except
after prior notification to and approval in writing by Adviser or Penn
Series (as the case may be), which approval shall not be unreasonably
withheld, and may not be withheld, where Sub-Adviser or any affiliate may
be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
when so requested by Adviser and Penn Series.
13. PROXIES. Subject to such oversight as the Board of Directors of Penn
Series shall deem appropriate, Sub-Adviser shall vote proxies solicited by
or with respect to the issuers of securities held in a Fund.
14. INSTRUCTIONS, OPINION OF COUNSEL AND SIGNATURES. At any time Sub-
Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in
accordance with such instructions or with the advice or
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opinion of Penn Series' legal counsel. Sub-Adviser and its affiliates shall
be protected in acting upon any instruction, advice, or opinion provided by
Penn Series or its legal counsel and upon any other paper or document
delivered by Penn Series or its legal counsel believed by Sub-Adviser to be
genuine and to have been signed by the proper person or persons and shall
not be held to have notice of any change of authority of any officer or
agent of Penn Series, until receipt of written notice thereof from Penn
Series.
15. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms
of this Agreement, and except for the accuracy of information furnished to
Penn Series by Sub-Adviser or any affiliate, Sub-Adviser does not assume
responsibility for the preparation, contents and distribution of the
prospectuses for Penn Series, for complying with any applicable
requirements of the Act, the Securities Exchange Act of 1934, the
Securities Act of 1933, or any other laws, rules and regulations of
governmental authorities having jurisdiction over Penn Series.
16. LIMITATION OF LIABILITY. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or
any person performing executive, administrative, trading, or other
functions for Penn Series (at the direction or request of Sub-Adviser), or
Sub-Adviser or its affiliates in connection with the discharge of
obligations undertaken or reasonably assumed with respect to this
Agreement, shall be liable for any error of judgment or mistake of law or
for any loss suffered by Penn Series in connection with the matters to
which this Agreement relates, except for such error, mistake or loss
resulting from willful misfeasance, bad faith, negligence or willful
misconduct in the performance of its, his or her duties on behalf of Penn
Series or constituting or resulting from a failure to comply with any term
of this Agreement. Sub-Adviser shall not be responsible for any loss
incurred by reason of any act or omission of the Custodian or of any
broker, dealer, underwriter or issuer selected by Sub-Adviser with
reasonable care.
17. OBLIGATIONS OF ADVISER AND SUB-ADVISER. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have
been authorized in accordance with the governing documents of each party
and in accordance with applicable law, and shall be signed by an authorized
officer of each party, acting as such, and shall be binding on each party.
18. INDEMNIFICATION BY ADVISER. Adviser will indemnify and hold Sub-
Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting
from: (i) any action or omission of Sub-Adviser or any affiliated
corporation, with respect to any service described in this Agreement, upon
instructions reasonably believed by Sub-Adviser or any affiliated
corporation to have been executed by an individual who has been identified
in writing by Penn Series as a duly authorized officer of Penn Series or
Adviser; (ii) any action of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement upon information
provided by Penn Series or Adviser in form and under policies agreed to by
Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall not be entitled
to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Sub-Adviser or its affiliates, agents
or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any
claim against Adviser which may be subject to this indemnification, Sub-
Adviser shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Sub-Adviser.
19. INDEMNIFICATION BY SUB-ADVISER. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series
and Adviser and resulting from any claim, demand, action or suit arising
out of Sub-Adviser's or any affiliate's failure to comply with any term of
this Agreement or which arise out of the willful misfeasance, bad faith,
negligence or misconduct of Sub-Adviser, its affiliates, their agents or
contractors. Neither Penn Series nor Adviser shall be entitled to such
indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or Adviser, or their agents or
contractors or constituting a failure by Adviser to comply with any term of
this Agreement; provided, that
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such negligence or misconduct is not attributable to Sub-Adviser or any
person that is an affiliate of Sub-Adviser or an affiliate of an affiliate
of Sub-Adviser. Prior to confessing any claim against it which may be
subject to this indemnification, Adviser shall give Sub-Adviser reasonable
opportunity to defend against said claim in its own name or in the name of
Adviser. For purposes of this Section 19 and of Section 18 hereof, no
broker or dealer shall be deemed to be acting as agent or contractor of
Sub-Adviser or any affiliate of Sub-Adviser, in effecting or executing any
portfolio transaction for the Fund.
20. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
21. TERM OF AGREEMENT. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of
execution. Thereafter, this Agreement shall continue in effect from year to
year with respect to each Fund, subject to the termination provisions and
all other terms and conditions hereof, so long as such continuation shall
be specifically approved at least annually (a) by either the Board of
Directors of Penn Series, or by a vote of a majority of the outstanding
voting securities of the series of shares of Penn Series representing
interests in the Fund and (b) in either event by the vote, cast in person
at a meeting called for the purpose of voting on such approval, of a
majority of the directors of Penn Series who are not parties to this
Agreement or interested persons of any such party. Sub-Adviser shall
furnish to Penn Series, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement with
respect to each Fund or any extension, renewal or amendment hereof.
22. AMENDMENT AND ASSIGNMENT OF AGREEMENT. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting
securities of the series of shares of Penn Series representing interests in
the affected Fund, and, without affecting any claim for damages or other
right that any party hereto may have as a result thereof, this Agreement
shall automatically and immediately terminate in the event of its
assignment.
23. TERMINATION OF AGREEMENT. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, with respect to a Fund, without
payment of any penalty, upon 60 days' prior notice in writing from Penn
Series to Sub-Adviser, or upon 90 days' prior notice in writing from Sub-
Adviser to Penn Series; provided, that in the case of termination by
Adviser or Penn Series, such action shall have been authorized by
resolution of a majority of its directors who are not interested persons of
any party to this Agreement, or by vote of a majority of the outstanding
voting securities of the series of shares of Penn Series representing
interests in the affected Fund.
24. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. DEFINITIONS. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the Act. Specifically, the terms "vote of
a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein,
shall have the meanings assigned to them by Section 2(a) of the Act.
In addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
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<PAGE>
D. NOTICE. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it
is agreed that for this purpose the address of Adviser is
Independence Capital Management, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Sub-Adviser is T. Rowe
Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland
21202, Attention: General Counsel.
E. STATE LAW. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Maryland except where
such state laws have been preempted by Federal law.
F. COUNTERPARTS. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be
an original, and together shall constitute one document.
G. ENTIRE AGREEMENT; SEVERABILITY. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any and all other provisions
hereof.
H. NO THIRD PARTY BENEFICIARIES. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Attest:
INDEPENDENCE CAPITAL MANAGEMENT, INC.
___________________________________ By: ___________________________________
Secretary T. ROWE PRICE ASSOCIATES, INC.
Attest:
By: ___________________________________
___________________________________
Secretary
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<PAGE>
EXHIBIT D
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
INDEPENDENCE CAPITAL MANAGEMENT, INC.
AND
VONTOBEL USA INC.
RELATING TO
INTERNATIONAL EQUITY FUND
INVESTMENT SUB-ADVISORY AGREEMENT, made as of May 1, 1998 by and between
INDEPENDENCE CAPITAL MANAGEMENT, INC. ("Adviser"), a corporation organized and
existing under the laws of the State of Pennsylvania, and VONTOBEL USA INC.
("Sub-Adviser"), a corporation organized and existing under the laws of the
State of New York.
W I T N E S S E T H:
WHEREAS, Penn Series Funds, Inc. ("Penn Series") is an open-end management
investment company registered as such under the Investment Company Act of
1940, as amended (the "Act"), and is authorized to issue shares in separate
series with each series representing interests in a separate fund of
securities and other assets; and
WHEREAS, Adviser and Sub-Adviser are engaged principally in the business of
rendering investment advisory services and are registered as investment
advisers under the Investment Advisers Act of 1940, as amended; and
WHEREAS, Adviser is authorized to render investment advisory services to
Penn Series and to enter into a sub-advisory agreement with Sub-Adviser for
the rendering of investment advisory services by Sub-Adviser to Penn Series;
WHEREAS, Adviser desires Sub-Adviser to render investment sub-advisory
services to Penn Series in the manner and on the terms and conditions
hereinafter set forth; and Sub-Adviser desires to render such services, in
such manner and under such terms;
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, the parties hereto agree as follows:
1. INVESTMENT SUB-ADVISORY SERVICES. Sub-Adviser shall serve as
investment sub-adviser and shall supervise and direct the cash, securities
and other assets of the International Equity Fund (the "Fund"), and to
exercise all rights incidental to ownership in accordance with the
investment objectives, program and restrictions applicable to the Fund as
provided in Penn Series' Prospectus and Statement of Additional Information
("SAI"), as amended from time to time, and such other limitations as may be
imposed by law or as Penn Series or Adviser may impose with notice in
writing to Sub-Adviser. To enable Sub-Adviser to fully exercise its
discretion, Adviser hereby appoints Sub-Adviser as agent and attorney-in-
fact for the Fund with full power and authority to buy, sell and otherwise
deal in securities and contracts for the Fund. No investment will be made
by Sub-Adviser for the Fund if that investment would violate the investment
objectives, investment program, or investment restrictions or limitations
of the Fund set out in the Prospectus and the SAI previously delivered to
the Sub-Adviser or to be delivered. Sub-Adviser shall not take custody of
any assets of Penn Series, but shall issue settlement instructions to the
custodian designated by Penn Series (the "Custodian"). Sub-Adviser shall,
in its discretion, obtain and evaluate such information
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<PAGE>
relating to the economy, industries, businesses, securities markets and
securities as it may deem necessary or useful in the discharge of its
obligations hereunder and shall formulate and implement a continuing
program for the management of the assets and resources of the Fund in a
manner consistent with the investment objectives of the Fund. In
furtherance of this duty, Sub-Adviser, as agent and attorney-in-fact with
respect to Adviser and Penn Series, is authorized, in its discretion and
without prior consultation with Adviser or Penn Series, to:
(i) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(ii) place orders and negotiate the commissions (if any) for the
execution of transactions in securities with or through such
brokers, dealers, underwriters or issuers as Sub-Adviser may
select, in conformance with the provisions of Paragraph 4 herein;
and
(iii) take such other actions Sub-Adviser deems to be appropriate;
provided, however, that Sub-Adviser shall make no investment for the Fund
that would violate the investment objectives, investment program, or
investment restrictions or limitations of the Fund.
2. ACCOUNTING AND RELATED SERVICES. Sub-Adviser agrees to cooperate with
the Accounting Services Agent appointed by Penn Series pursuant to the
Accounting Services Agreement entered into by Penn Series and the
Accounting Services Agent. As requested from time to time, Sub-Adviser
shall provide Penn Series and its Accounting Services Agent with such
information as may be reasonably necessary to properly account for
financial transactions with respect to the Fund.
3. FEES.
A. PAYMENT OF FEE. For the services Sub-Adviser renders to Penn
Series under this Agreement, Adviser will pay Sub-Adviser a fee
based on the average daily net assets of the Fund.
B. FEE RATE. The fee shall be paid at the rate of 0.50%
C. METHOD OF COMPUTATION. The fee shall be accrued for each calendar
day and the sum of the daily fee accruals shall be paid monthly to
Sub-Adviser as of the first business day of the next succeeding
calendar month. The daily fee will be computed by multiplying the
fraction of one over the number of calendar days in the year by the
annual rate applicable to the Fund as set forth above, and
multiplying this product by the net assets of the Fund. A Fund's net
assets, for purposes of the calculations described above, will be
determined in accordance with Penn Series' Prospectus and Statement
of Additional Information as of the close of business on the most
recent previous business day on which Penn Series was open for
business.
D. EXPENSE LIMITATION. The expense limitation of the Fund, as a
percentage of average daily net assets, is 1.50%. To the extent that
a Fund's total expenses for a fiscal year (excluding interest,
taxes, brokerage, other expenses which are capitalized in accordance
with generally accepted accounting principles, and extraordinary
expenses, but including investment advisory and accounting,
administrative and corporate services fees before any adjustment
pursuant to this provision) exceed the expense limitation for the
Fund in an amount up to and including .10% of the average daily net
assets of the Fund, such excess amount shall be a liability of Sub-
Adviser to Adviser. The liability (if any) of Sub-Adviser to pay
Adviser such excess amount shall be determined on a daily basis. If,
at the end of each month, there is any liability of Sub-Adviser to
pay Adviser such excess amount, the advisory fee shall be reduced by
such liability. If, at the end of each month, there is no liability
of Sub-Adviser to pay Adviser such excess amount and if payments of
the advisory fee at the end of prior months during the fiscal year
have been reduced in excess of that required to maintain expenses
within the expense limitation, such excess reduction shall be
recaptured by Sub-Adviser and shall be payable by Adviser to Sub-
Adviser along with the advisory fee payable to Sub-Adviser for that
month. In no circumstance shall the liability of Sub-Adviser under
this Section 3D exceed the total amount of the sub-advisory fees
payable to it hereunder in any given fiscal year.
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<PAGE>
4. BROKERAGE. In executing portfolio transactions and selecting brokers
or dealers for the Fund, Sub-Adviser will use its best efforts to seek the
best price and the most favorable execution of its orders. In assessing the
best price and the most favorable execution for any transaction, Sub-
Adviser shall consider the breadth of the market in the security, the price
of the security, the skill, financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any.
Where best price and most favorable execution will not be compromised, Sub-
Adviser may take into account the research and related services that the
broker has provided to Penn Series or the Sub-Adviser. It is understood
that the Sub-Adviser will not be deemed to have acted unlawfully or to have
breached a fiduciary duty to the Fund or be in breach of any obligation
owing to the Fund under this Agreement, or otherwise, by reason of its
having directed a securities transaction on behalf of the Fund to a broker-
dealer in compliance with the provisions of Section 28(e) of the Securities
Exchange Act of 1934, as amended, or as described from time to time in the
Penn Series' Prospectus and Statement of Additional Information. In
addition, Sub-Adviser is authorized to take into account the sale of
variable contracts which are invested in Penn Series shares in allocating
to brokers or dealers purchase and sale orders for portfolio securities,
provided that Sub-Adviser believes that the quality of the transaction and
commission are comparable to what they would be with other qualified firms.
Sub-Adviser shall advise Penn Series' Board of Directors, when requested,
as to all payments of commissions and as to its brokerage policies and
practices and shall follow such instructions with respect thereto as may be
given by Penn Series' board.
5. USE OF THE SERVICES OF OTHERS. Sub-Adviser may (at its cost except as
contemplated by Section 4 of this Agreement) employ, retain or otherwise
avail itself of the services or facilities of other persons or
organizations for the purpose of providing Penn Series, Adviser or itself,
as appropriate, with such statistical and other factual information, such
advice regarding economic factors and trends, such advice as to occasional
transactions in specific securities or such other information, advice or
assistance as Sub-Adviser may deem necessary, appropriate or convenient for
the discharge of its obligations hereunder or otherwise helpful to Penn
Series and Adviser, or in the discharge of Sub-Adviser's overall
responsibilities with respect to the other accounts which it serves as
investment adviser.
6. PERSONNEL, OFFICE SPACE, AND FACILITIES. Sub-Adviser at its own
expense shall furnish or provide and pay the cost of such office space,
office equipment, office personnel, and office services as it, or any
affiliated corporation of Sub-Adviser, requires in the performance of
services under this Agreement.
7. OWNERSHIP OF SOFTWARE AND RELATED MATERIAL. All computer programs,
magnetic tapes, written procedures and similar items developed and used by
Sub-Adviser or any affiliate in performance of this Agreement are the
property of Sub-Adviser and will not become the property of Penn Series or
Adviser.
8. REPORTS TO PENN SERIES AND COOPERATION WITH ACCOUNTANTS. Sub-Adviser,
and any affiliated corporation of Sub-Adviser performing services for
Adviser and Penn Series described in this Agreement, shall furnish to or
place at the disposal of Penn Series and Adviser, such information,
reports, evaluations, analyses and opinions as Penn Series and Adviser may,
at any time or from time to time, reasonably request or as Sub-Adviser may
deem helpful, to reasonably ensure compliance with applicable laws and
regulations or for any other purpose. Sub-Adviser and its affiliates shall
cooperate with Penn Series' independent public accountants and take all
reasonable action in the performance of services and obligations under this
Agreement to assure that the information needed by such accountants is made
available to them for the expression of their opinion without any
qualification as to the scope of their examination, including, but not
limited to, their opinion included in Penn Series' annual report under the
Act and annual amendment to Penn Series' registration statement under the
Act.
9. REPORTS TO SUB-ADVISER. Penn Series and/or Adviser shall furnish or
otherwise make available to Sub-Adviser such prospectuses, statements of
additional information, financial statements, proxy statements, reports,
and other information relating to the business and affairs of Penn Series
as Sub-Adviser may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
10. OWNERSHIP OF RECORDS. All records required to be maintained and kept
current by Penn Series pursuant to the provisions of rules or regulations
of the Securities and Exchange Commission under Section 31(a) of the Act
and that are maintained and kept current by Sub-Adviser or any affiliated
corporation of
D-3
<PAGE>
Sub-Adviser on behalf of Penn Series are the property of Penn Series. Such
records will be preserved by Sub-Adviser itself or through an affiliated
corporation for the periods prescribed in Rule 3la-2 under the Act, where
applicable, or in such other applicable rules that may be adopted time
under the Act. Such records may be inspected by representatives of Penn
Series and Adviser at reasonable times and, in the event of termination of
this Agreement, will be promptly delivered to Adviser and Penn Series upon
request.
11. SERVICES TO OTHER CLIENTS. Nothing herein contained shall limit the
freedom of Sub-Adviser or any affiliated person of Sub-Adviser to render
investment supervisory and other services to other investment companies, to
act as investment advisor or investment counselor to other persons, firms
or corporations or to engage in other business activities; but so long as
this Agreement or any extension, renewal or amendment hereof shall remain
in effect as to Fund, or until Sub-Adviser shall otherwise consent, Sub-
Adviser shall be the only investment sub-adviser to the Fund. It is
understood that Sub-Adviser may give advice and take action for its other
clients which may differ from advice given, or the timing or nature of
action taken, for a Fund. Sub-Adviser is not obligated to initiate
transactions for the Fund in any security which Sub-Adviser, its
principals, affiliates or employees may purchase or sell for its or their
own accounts or other clients.
12. CONFIDENTIAL RELATIONSHIP. Information furnished by Penn Series or by
one party to another, including Penn Series' or a party's respective agents
and employees, is confidential and shall not be disclosed to third parties
unless required by law. Sub-Adviser, on behalf of itself and its affiliates
and representatives, agrees to keep confidential all records and other
information relating to Adviser or Penn Series (as the case may be), except
after prior notification to and approval in writing by Adviser or Penn
Series (as the case may be), which approval shall not be unreasonably
withheld, and may not be withheld, where Sub-Adviser or any affiliate may
be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities,
when so requested by Adviser and Penn Series.
13. PROXIES. Subject to such oversight by Penn Series as the Board of
Directors of Penn Series shall deem appropriate, Sub-Adviser shall vote
proxies solicited by or with respect to the issuers of securities held in a
Fund.
14. INSTRUCTIONS, OPINION OF COUNSEL AND SIGNATURES. At any time Sub-
Adviser may apply to an officer of Penn Series for instructions, and may
consult legal counsel for Penn Series, in respect of any matter arising in
connection with this Agreement, and Sub-Adviser shall not be liable for any
action taken or omitted by it or by any affiliate in good faith in
accordance with such instructions or with the advice or opinion of Penn
Series' legal counsel. Sub-Adviser and its affiliates shall be protected in
acting upon any instruction, advice, or opinion provided by Penn Series or
its legal counsel and upon any other paper or document delivered by Penn
Series or its legal counsel believed by Sub-Adviser to be genuine and to
have been signed by the proper person or persons and shall not be held to
have notice of any change of authority of any officer or agent of Penn
Series, until receipt of written notice thereof from Penn Series. Sub-
Adviser shall inform Adviser of all applications to Penn Series for
instructions and all consultations with legal counsel for Penn Series at
the time of such application or consultation.
15. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. Except as such
responsibility may be placed upon Sub-Adviser or any affiliate by the terms
of this Agreement, and except for the accuracy of information furnished to
Penn Series by Sub-Adviser or any affiliate, Sub-Adviser does not assume
responsibility for the preparation, contents and distribution of the
prospectuses for Penn Series, for complying with any applicable
requirements of the Act, the Securities Exchange Act of 1934, the
Securities Act of 1933, or any other laws, rules and regulations of
governmental authorities having jurisdiction over Penn Series.
16. LIMITATION OF LIABILITY. Neither Sub-Adviser nor any of its
affiliates, their respective officers, directors, employees or agents, or
any person performing executive, administrative, trading, or other
functions for Penn Series (at the direction or request of Sub-Adviser), or
Sub-Adviser or its affiliates in connection with the discharge of
obligations undertaken or reasonably assumed with respect to this
Agreement, shall be liable for any error of judgment or mistake of law or
for any loss suffered by Penn
D-4
<PAGE>
Series in connection with the matters to which this Agreement relates,
except for such error, mistake or loss resulting from willful misfeasance,
bad faith, negligence or willful misconduct in the performance of its, his
or her duties on behalf of Penn Series or constituting or resulting from a
failure to comply with any term of this Agreement. Sub-Adviser shall not be
responsible for any loss incurred by reason of any act or omission of the
Custodian, Transfer Agent, Accounting Services Agent, or other third party
with which the Fund has a contractual arrangement, or of any broker,
dealer, underwriter or issuer selected by Sub-Adviser with reasonable care.
17. OBLIGATIONS OF ADVISER AND SUB-ADVISER. It is expressly agreed that
the obligations of Adviser and Sub-Adviser hereunder shall not be binding
upon any of their directors, shareholders, nominees, officers, agents or
employees, personally. The execution and delivery of this Agreement have
been authorized in accordance with the governing documents of each party
and in accordance with applicable law, and shall be signed by an authorized
officer of each party, acting as such, and shall be binding on each party.
18. INDEMNIFICATION BY ADVISER. Adviser will indemnify and hold Sub-
Adviser harmless from all loss, cost, damage and expense, including
reasonable expenses for legal counsel, incurred by Sub-Adviser resulting
from: (i) any action or omission of Sub-Adviser or any affiliated
corporation, with respect to any service described in this Agreement, upon
instructions reasonably believed by Sub-Adviser or any affiliated
corporation to have been executed by an individual who has been identified
in writing by Penn Series as a duly authorized officer of Penn Series or
Adviser; (ii) any action of Sub-Adviser or any affiliated corporation, with
respect to any service described in this Agreement upon information
provided by Penn Series or Adviser in form and under policies agreed to by
Sub-Adviser and Penn Series or Adviser. Sub-Adviser shall not be entitled
to such indemnification in respect of actions or omissions constituting
negligence or willful misconduct of Sub-Adviser or its affiliates, agents
or contractors, or constituting a failure by Sub-Adviser or any affiliate
to comply with any term of this Agreement. Prior to the confession of any
claim against Adviser which may be subject to this indemnification, Sub-
Adviser shall give Adviser reasonable opportunity to defend against said
claim in its own name or in the name of Sub-Adviser.
19. INDEMNIFICATION BY SUB-ADVISER. Sub-Adviser will indemnify and hold
harmless Penn Series and Adviser from all loss, cost, damage and expense,
including reasonable expenses for legal counsel, incurred by Penn Series
and Adviser and resulting from any claim, demand, action or suit arising
out of Sub-Adviser's or any affiliate's failure to comply with any term of
this Agreement or which arise out of the willful misfeasance, bad faith,
negligence or misconduct of Sub-Adviser, its affiliates, their agents or
contractors. Neither Penn Series nor Adviser shall be entitled to such
indemnification in respect of actions or omissions constituting negligence
or willful misconduct of Penn Series or Adviser, or their agents or
contractors or constituting a failure by Adviser to comply with any term of
this Agreement; provided, that such negligence or misconduct is not
attributable to Sub-Adviser or any person that is an affiliate of Sub-
Adviser or an affiliate of an affiliate of Sub-Adviser. Prior to confessing
any claim against it which may be subject to this indemnification, Adviser
shall give Sub-Adviser reasonable opportunity to defend against said claim
in its own name or in the name of Adviser. For purposes of this Section 19
and of Section 18 hereof, no broker or dealer or any third party with which
the Fund has a contractual arrangement and with which Sub-Adviser is
obligated to cooperate under the terms of this Agreement, shall be deemed
to be acting as agent or contractor of Sub-Adviser or any affiliate of Sub-
Adviser, in effecting or executing any portfolio transaction for the Fund.
20. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the
purposes hereof.
21. TERM OF AGREEMENT. The term of this Agreement shall begin on the date
first above written, and unless sooner terminated as hereinafter provided,
this Agreement shall remain in effect until two years from date of
execution. Thereafter, this Agreement shall continue in effect from year to
year with respect to the Fund, subject to the termination provisions and
all other terms and conditions hereof, so long as such continuation shall
be specifically approved at least annually (a) by either the Board of
Directors of Penn Series, or by a vote of a majority of the outstanding
voting securities of the series of shares of Penn Series
D-5
<PAGE>
representing interests in the Fund and (b) in either event by the vote,
cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the directors of Penn Series who are not parties
to this Agreement or interested persons of any such party. Sub-Adviser
shall furnish to Penn Series, promptly upon its request, such information
as may reasonably be necessary to evaluate the terms of this Agreement with
respect to the Fund or any extension, renewal or amendment hereof.
22. AMENDMENT AND ASSIGNMENT OF AGREEMENT. This Agreement may not be
amended or assigned without the written consent of the parties hereto, and
without the affirmative vote of a majority of the outstanding voting
securities of the series of shares of Penn Series representing interests in
the Fund and, without affecting any claim for damages or other right that
any party hereto may have as a result thereof, this Agreement shall
automatically and immediately terminate in the event of its assignment.
23. TERMINATION OF AGREEMENT. This Agreement may be terminated by
Adviser, Penn Series or by Sub-Adviser, without payment of any penalty,
upon 60 days' prior notice in writing from Adviser to Sub-Adviser, or upon
90 days' prior notice in writing from Sub-Adviser to Adviser; provided,
that in the case of termination by Adviser or Penn Series, such action
shall have been authorized by resolution of a majority of its directors who
are not interested persons of any party to this Agreement, or by vote of a
majority of the outstanding voting securities of the series of shares of
Penn Series representing interests in the Fund.
24. MISCELLANEOUS.
A. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
B. INTERPRETATION. Nothing herein contained shall be deemed to
require Penn Series to take any action contrary to its Articles of
Incorporation or By-Laws, or any applicable statutory or regulatory
requirement to which it is subject or by which it is bound, or to
relieve or deprive the board of directors of Penn Series of its
responsibility for and control of the conduct of the affairs of Penn
Series.
C. DEFINITIONS. Any question of interpretation of any terms or
provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Act shall be resolved by
reference to such term or provision of the Act and to
interpretations thereof, if any, by the United States courts or, in
the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission
validly issued pursuant to the Act. Specifically, the terms "vote of
a majority of the outstanding voting securities," "interested
person," "assignment," and "affiliated person," as used herein,
shall have the meanings assigned to them by Section 2(a) of the Act.
In addition, where the effect of a requirement of the Act reflected
in any provision of this Agreement is relaxed by a rule, regulation
or order of the Securities and Exchange Commission, whether of
special or of general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
D. NOTICE. Notice under the Agreement shall be in writing, addressed
and delivered or sent by registered or certified mail, postage
prepaid, to the addressed party at such address as such party may
designate for the receipt of such notices. Until further notice, it
is agreed that for this purpose the address of Adviser is
Independence Capital Management, Inc., 600 Dresher Road, Horsham, PA
19044, Attention: President, and that of Sub-Adviser is Vontobel USA
Inc., 450 Park Avenue, New York, New York 10022, Attention: Chief
Executive Officer.
E. STATE LAW. The Agreement shall be construed and enforced in
accordance with and governed by the laws of Pennsylvania except
where such state laws have been preempted by Federal law.
F. COUNTERPARTS. This Agreement may be entered into in counterparts,
each of which when so executed and delivered shall be deemed to be
an original, and together shall constitute one document.
D-6
<PAGE>
G. ENTIRE AGREEMENT; SEVERABILITY. This Agreement is the entire
agreement of the parties and supersedes all prior or contemporaneous
written or oral negotiations, correspondence, agreements and
understandings regarding the subject matter hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any and all other provisions
hereof.
H. NO THIRD PARTY BENEFICIARIES. Neither party intends for this
Agreement to benefit any third-party not expressly named in this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day
and year first above written.
Attest:
INDEPENDENCE CAPITAL MANAGEMENT, INC.
___________________________________ By: ___________________________________
Secretary VONTOBEL USA INC.
Attest:
By: ___________________________________
___________________________________
Secretary
D-7
<PAGE>
APPENDIX A
FUNDS MANAGED BY OPCAP ADVISORS
WITH OBJECTIVES SIMILAR TO VALUE EQUITY AND
SMALL CAPITALIZATION FUNDS
The following tables indicate the name, net assets, contractual advisory fee
and net advisory fee after fee waiver and/or expense reimbursement for the
last fiscal year for other registered investment companies managed by OpCap.
OpCap Advisors is the manager or sub-adviser to the registered investment
companies listed below. These investment companies have similar investment
objectives to either the Value Equity Fund or the Small Capitalization Fund.
<TABLE>
<CAPTION>
APPROXIMATE NET
ASSETS
FUND (AS OF 2/19/98) ADVISORY FEE RATE
---- --------------- -----------------
<C> <C> <S>
Oppenheimer Quest Value Fund, $1,279,482,378 1.0% on the first $400
Inc. million; .90% on the next
$400 million; .85% of net
assets between $800
million but less than $4
billion; .80% in assets
over $4 billion but less
than $8 billion and .75%
on assets over $8
billion/(1)/
Oppenheimer Quest Opportunity
Value Fund $4,531,980,786 1.0% on the first $400
million; .90% on the next
$400 million; .85% of net
assets between $800
million but less than $4
billion; .80% in assets
over $4 billion but less
than $8 billion and .75%
on assets over $8
billion/(1)/
Oppenheimer Quest Small Cap Value
Fund $ 338,701,814 1.0% on the first $400
million; .90% on the next
$400 million; .85% of net
assets in excess of $800
million/(1)/
Oppenheimer Quest Officers Value
Fund $ 7,536,425 1.0% of its daily net
assets/(1,2)/
Oppenheimer Quest Capital Value
Fund, Inc. $ 282,444,019 1.0% on the first $400
million; .90% on the next
$400 million; .85% of net
assets in excess of $800
million/(3)/
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE NET
ASSETS
FUND (AS OF 2/19/98) ADVISORY FEE RATE
---- --------------- -----------------
<C> <C> <S>
Enterprise Accumulation Trust:
Equity Portfolio $ 554,718,380 .40% on the first $1
billion; and .30% on
assets over $1
billion/(4)/
Managed Portfolio $2,822,886,625 .40% on the first $1
billion; .30% on assets
over $1 billion; and .25%
for assets in excess of
$2 billion/(4)/
Enterprise Group of Funds
Managed Portfolio $ 379,609,068 .40% on the first $100
million; .30% on assets
in excess of $100
million/(5)/
Equity Portfolio $ 5,994,866 .40% on the first $100
million; .30% on assets
in excess of $100
million/(5)/
Endeavor Series Trust:
Value Equity Portfolio $ 229,290,532 .40%/(6)/
Opportunity Value Portfolio $ 30,693,855 .40%/(6)/
WNL Series Trust:
Elite Value Asset Allocation $ 10,560,828 .40%/(7)/
Portfolio
The Saratoga Advantage Trust:
Large Capitalization Value $ 36,136,150 .30%/(7)/
Portfolio
OCC Accumulation Trust
Equity Portfolio $ 30,942,820 .80% of the first $400
million of average net
assets; .75% on the next
$400 million of average
net assets and .70% of
assets in excess of $800
million/(8)/
Small Cap Portfolio $ 124,525,840 .80% of the first $400
million of average net
assets; .75% on the next
$400 million of average
net assets and .70% of
assets in excess of $800
million/(8)/
Managed Portfolio $ 544,970,118 .80% of the first $400
million of average net
assets; .75% on the next
$400 million of average
net assets and .70% of
assets in excess of $800
million/(8)/
</TABLE>
- --------
/(1)/With respect to each of these funds, Oppenheimer Funds, Inc. ("OFI") is the
investment adviser and OpCap Advisors is the sub-adviser. OFI pays OpCap
Advisors monthly an annual fee based on the average daily net assets of the
fund equal to 40% of the advisory fee collected by OFI based on the total
net assets of the fund as of November 22, 1995 (the "base amount") plus 30%
of the investment advisory fee collected by OFI based on the total net
assets of the fund that exceed the base amount.
/(2)/OFI's advisory fee for the Oppenheimer Quest Officers Value Fund is 1.00%.
However, effective August 1, 1996, OFI is waiving the portion of its
management fee equal to what OFI would have been required to pay OpCap as
the sub-advisory fee and OpCap has agreed to waive its sub-advisory fee.
2
<PAGE>
/(3)/OFI is the investment adviser and OpCap Advisors is the sub-adviser. OFI
pays OpCap a sub-advisory fee equal to 40% of the net advisory fee
calculated by OFI for the fund based on the total net assets of the fund as
of February 28, 1997 and remaining 120 days later (the "base amount") plus
30% of the investment advisory fee collected by OFI based on the total net
assets that exceed the base amount.
/(4)/These fees are for investment advisory services only. Management services
are provided to the portfolios by a third party, not OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors, receives a
management fee, on an annual basis, of 0.80% of the first $400 million of
the average daily net assets; .75% on the next $400 million and .70% on
assets above $800 million of each of the portfolios.
/(5)/This fee is for investment advisory services only. Management services are
provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors, receives a
management fee of .75% of the average daily net assets of the Portfolio.
/(6)/This fee is for investment advisory services only. Management services are
provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors, receives a
management fee of 0.65% of the average daily net assets of the portfolio.
/(7)/This fee is for investment advisory services only. Management services are
provided to the portfolio by a party other than OpCap Advisors. The
Manager, who pays the investment advisory fee to OpCap Advisors, receives a
management fee of 0.65% of the average daily net assets of the portfolio.
/(8)/OpCap Advisors will waive its management fee and reimburse expenses so that
total operating expenses (net of any expense offsets and excluding the
amount of any interest, taxes, brokerage commissions and extraordinary
expenses) do not exceed 1.00% of each Portfolio's average daily net assets.
3
<PAGE>
APPENDIX B
FUNDS MANAGED BY T. ROWE PRICE ASSOCIATES, INC.
WITH OBJECTIVES SIMILAR TO
FLEXIBLY MANAGED AND HIGH YIELD BOND FUNDS
T. Rowe Price acts as investment adviser to a registered investment company
(the "Capital Appreciation Fund") having a similar investment objective and
policies to those of the Flexibly Managed Fund. For its services to the
Capital Appreciation Fund, T. Rowe Price is paid a management fee consisting
of three elements: a "Group" Fee, an "Individual" Fund Fee and a Performance
Fee Adjustment, based on the performance of the Capital Appreciation Fund
relative to the Standard & Poor's 500 Stock Index (the "Index"). The "Group"
Fee varies based on the combined net assets of certain funds distributed by T.
Rowe Price Investment Services, Inc. (excluding T. Rowe Price Index Trust, T.
Rowe Price Spectrum Funds and any institutional and private label mutual
funds) (the "Combined Price Funds"). The fund pays, as a portion of the
"Group" Fee, an amount equal to the ratio of its daily net assets to the daily
net assets of all the Combined Price Funds. The Capital Appreciation Fund pays
a flat "Individual" Fund Fee based on its net assets. The table below sets
forth the current "Group" Fee rate at various asset levels of the Combined
Price Funds.
.480% first $1 billion
.450% next $1 billion
.420% next $1 billion
.390% next $1 billion
.370% next $1 billion
.360% next $2 billion
.350% next $2 billion
.340% next $5 billion
.330% next $10 billion
.320% next $10 billion
.310% next $16 billion
.305% next $30 billion
.300% thereafter
The Performance Fee is paid monthly to T. Rowe Price on the first business
day of the next succeeding calendar month and is calculated as follows: The
Monthly Group Fee and Monthly Fund Fee are combined (the "Combined Fee") and
are subject to a downward Performance Fee Adjustment until October 31, 1998,
depending on the total return investment performance of the Fund relative to
the total return performance of the Index during the previous thirty-six (36)
months. Effective November 1, 1998, there will no longer be any Performance
Fee Adjustment. The Performance Fee Adjustment is computed as of the end of
each month and if any adjustments results, is subtracted from the Combined
Fee. No Performance Fee Adjustment is made to the Combined Fee unless the
investment performance ("Investment Performance") of the Capital Appreciation
Fund (stated as a percent) is exceeded by the investment record ("Investment
Record") of the Index (stated as a percent) by at least one full point. (The
difference between the Investment Performance and Investment Record will be
referred to as the Investment Performance Differential.) The Performance Fee
Adjustment for any month is calculated by multiplying the rate of the
Performance Fee Adjustment ("Performance Fee Adjustment") achieved for the 36-
month period times the average daily net assets of the Capital Appreciation
Fund for such 36-month period and dividing the product by 12. The Performance
Fee Adjustment rate is calculated by multiplying the Investment Performance
Differential (rounded downward to the nearest full point) times a factor of
.02%. Regardless of the Investment Performance Differential, the Performance
Fee Adjustment Rate shall not exceed (.30)%.
T. Rowe Price also acts as investment sub-adviser to other registered
investment companies ("Sub-advised Mutual Funds") having similar investment
objectives and policies to those of the Flexibly Managed Fund. For this
purpose, the Sub-advised Mutual Funds are mutual funds that are not sponsored
by T. Rowe Price.
4
<PAGE>
The table below sets forth the name of each investment company having
similar investment objectives and policies of the Flexibly Managed Fund, the
annual rate of compensation (i.e., for the Price Funds, the "individual fee"
charged by T. Rowe Price as a percentage of average daily net assets and, for
the Sub-advised Mutual Funds, the fee T. Rowe Price is paid for its services
as sub-adviser to the respective portfolio), and net assets as of 12/31/97.
<TABLE>
<CAPTION>
INVESTMENT ANNUAL RATE OF NET ASSETS
T. ROWE PRICE ADVISED MUTUAL FUND OBJECTIVE COMPENSATION AS OF 12/31/97
- --------------------------------- -------------- ------------------- --------------
<S> <C> <C> <C>
T. Rowe Price Capital Long Term .30%* $1,059,900,000
Appreciation Fund Capital Growth
<CAPTION>
SUB-ADVISED MUTUAL FUNDS
- ------------------------
<S> <C> <C> <C>
Ohio National Fund, Inc.
Capital Appreciation Capital Growth .70% on first $5 $ 59,300,000
Portfolio million in assets
.50% on assets in
excess of $5
million
GCG Trust Fully Managed Long Term .50% $ 169,500,000
Series Total Return,
consistent
with
Preservation
of Capital
</TABLE>
- --------
* Individual fund fee is subject to a performance adjustment.
T. Rowe Price acts as investment adviser to a registered investment company
(the "High Yield Fund") having a similar investment objective and policies to
those of the High Yield Bond Fund. For its services to the High Yield Fund, T.
Rowe Price is paid a management fee consisting of two elements: a "Group" Fee
and an "Individual" Fund Fee. The "Group" fee varies based on the combined net
assets of certain funds distributed by T. Rowe Price Investment Services, Inc.
(excluding T. Rowe Price Index Trust, T. Rowe Price Spectrum Funds and any
institutional and private label mutual funds) (the "Combined Price Funds").
The High Yield Fund pays, as a portion of the "Group" Fee, an amount equal to
the ratio of its daily net assets to the daily net assets of all the Combined
Price Funds. The High Yield Fund pays a flat "Individual" Fund Fee based on
its net assets. The table below sets forth the current "Group" Fee rate at
various asset levels of the Combined Price Funds.
.480% first $1 billion
.450% next $1 billion
.420% next $1 billion
.390% next $1 billion
.370% next $1 billion
.360% next $2 billion
.350% next $2 billion
.340% next $5 billion
.330% next $10 billion
.320% next $10 billion
.310% next $16 billion
.305% next $30 billion
.300% thereafter
5
<PAGE>
The table below sets forth the name of each investment company having
similar investment objectives and policies of the High Yield Bond Fund, the
annual rate of compensation (i.e., for the Price Funds, the "individual fee"
charged by T. Rowe Price as a percentage of average daily net assets) and net
assets as of 12/31/97.
<TABLE>
<CAPTION>
ANNUAL RATE NET ASSETS
T. ROWE PRICE ADVISED FUND INVESTMENT OBJECTIVE OF COMPENSATION AS OF 12/31/97
- -------------------------- -------------------- --------------- --------------
<S> <C> <C> <C>
T. Rowe Price High Yield High Current Income and .30% $1,571,700,000
Fund secondarily capital
appreciation
</TABLE>
6
<PAGE>
THE PENN INSURANCE AND ANNUITY COMPANY
PIA Variable Annuity Account I
Voting Instruction Form
NOTE:
The table below shows the shares of each Fund that are applicable to your
variable annuity contact(s) and the Proposals that are applicable to each
Fund. Please provide voting instructions with respect to Proposals that
are applicable to shares of Funds held under your contact(s). Proposals 1
and 2 are applicable to all contracts.
--------------------------------------------------------------------------
FUND SHARES HELD APPLICABLE PROPOSALS
Growth Equity Fund
Value Equity Fund
Small Capitalization Fund
Emerging Growth Fund
Flexibly Managed Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund
At the Special Meeting of Shareholders of Penn Series Funds, Inc.
(the "Company") scheduled to be held on April 16, 1998 and at any
adjournments thereof, the undersigned owner of a variable annuity
contract(s) participating in the named separate account hereby instructs
The Penn Insurance and Annuity Company ("Penn Insurance") to vote shares of
a Fund or Funds of the Company held under my contract(s) on the proposals
set forth in the Notice of Special Meeting and Proxy Statement that
accompanied this Voting Instruction Form, and for any adjournments of the
Meeting, in accordance with the instructions below.
The undersigned acknowledges receipt of the Notice of Special Meeting
of Shareholders scheduled to be held on April 16, 1998 and the accompanying
Proxy Statement.
[X] Please mark your choices below like this on the applicable Proposals
and sign and date below
If you wish to vote for or against all of the Proposals that are
applicable to your contract(s), mark your choice in the appropriate
space immediately below in lieu of marking each applicable Proposal.
FOR [_] AGAINST [_]
PROPOSALS
---------
1. Elect a Board of Directors of the Company.
FOR [_] WITHHOLD ALL [_] WITHHOLD ALL EXCEPT [_]
Nominees: Eugene Bay, Robert E. Chappell, James S. Greene,
William H. Loesche, Jr., Larry L. Mast, Daniel J.
Toran, M. Donald Wright
To withhold authority to vote for specific nominees,
mark "Withhold All Except" and write the nominees'
name on the line below.
---------------------------------------------
2. Approve Ernst & Young L.L.P. as the Company's Independent
Auditors.
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued, and to be signed and dated on reverse side.)
<PAGE>
PROPOSALS
---------
3. Approve changes to the investment policies of the Flexibly Managed Fund to
apply the Fund's 10% limit on ownership of voting securities of any issuer
to 75% of the total assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approve changes in the investment policies of the High Yield Bond Fund to
apply the Fund's 5% limit on assets invested in any one issuer and 10%
limit on ownership of voting securities of any issuer to 75% of the total
assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit each Fund to invest up to 15% of their
respective net assets in illiquid securities and change the policies from
fundamental to non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Approve changes in the investment policies of the Flexibly Managed and High
Yield Bond Funds to remove each Fund's investment policy limiting
investments in securities of issuers which have been in operation for less
than three years to 5% of the total assets of the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit the Funds to invest in securities backed by real
estate or in securities of companies engaged in the real estate business.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Approve changes in the investment policies of the High Yield Bond Fund to
permit the Fund to invest up to 10% of its assets in warrants to purchase
common stocks and change the policy regarding warrants from fundamental to
non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds and approve the proposed Investment Advisory Agreement between the
Company and ICMI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Approve OpCap as investment sub-adviser to the Value Equity Fund and Small
Capitalization Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and OpCap.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Approve T. Rowe Price as investment sub-adviser to the Flexibly Managed and
High Yield Bond Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and T. Rowe Price.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
12. Approve Vontobel as investment sub-adviser to the International Equity
Fund, and approve the proposed Sub-Advisory Agreement between ICMI and
Vontobel.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The shares will be voted as directed. Penn Insurance will vote on any other
business that may properly come before the meeting, in the discretion of its
management. These voting instructions are solicited by Penn Insurance.
Please date, sign and return promptly.
Your signature(s) should be exactly as your name or names appear on this Voting
Instruction Form. If the shares are held jointly, each holder should sign. If
signing is by an attorney, executor, adminstrator, trustee or guardian, please
print your full title below your signature.
- -------------------------------------- Dated: , 1998
Signature --------------------
- --------------------------------------
Signature
<PAGE>
THE PENN MUTUAL LIFE INSURANCE COMPANY
Penn Mutual Variable Annuity Accounts I, II and III
Penn Mutual Variable Life Account I
Voting Instruction Form
NOTE:
The table below shows the shares of each Fund that are applicable to your
variable annuity contract(s) and/or variable life insurance policy(ies) and
the Proposals that are applicable to each Fund. Please provide voting
instructions with respect to Proposals that are applicable to shares of
Funds held under your contract(s) and/or policy(ies). Proposals 1 and 2 are
applicable to all contracts and policies.
- --------------------------------------------------------------------------------
FUND SHARES HELD APPLICABLE PROPOSALS
Growth Equity Fund
Value Equity Fund
Small Capitalization Fund
Emerging Growth Fund
Flexibly Managed Fund
International Equity Fund
Quality Bond Fund
High Yield Bond Fund
Money Market Fund
- --------------------------------------------------------------------------------
At the Special Meeting of Shareholders of Penn Series Funds, Inc. (the
"Company") scheduled to be held on April 16, 1998 and at any adjournments
thereof, the undersigned owner of a variable annuity contract(s) and/or variable
life insurance policy(ies) participating in the named separate accounts hereby
instructs The Penn Mutual Life Insurance Company ("Penn Mutual") to vote shares
of a Fund or Funds of the Company held under my contract(s) and/or policy(ies)
on the proposals set forth in the Notice of Special Meeting and Proxy Statement
that accompanied this Voting Instruction Form, and for any adjournments of the
Meeting, in accordance with the instructions below.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders scheduled to be held on April 16, 1998 and the accompanying Proxy
Statement.
[X] Please mark your choices below like this on the applicable Proposals and
sign and date below
If you wish to vote for or against all of the Proposals that are applicable
to your contract(s) or policy(ies), mark your choice in the appropriate
space immediately below in lieu of marking each applicable Proposal.
FOR [_] AGAINST [_]
PROPOSALS
---------
1. Elect a Board of Directors of the Company.
FOR [_] WITHHOLD ALL [_] WITHHOLD ALL EXCEPT [_]
Nominees: Eugene Bay, Robert E. Chappell, James S. Greene, William H. Loesche,
Jr., Larry L. Mast, Daniel J. Toran, M. Donald Wright
To withhold authority to vote for specific nominees, mark "Withhold
All Except" and write the nominees' name on the line below.
-----------------------------------------
2. Approve Ernst & Young L.L.P. as the Company's Independent Auditors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Continued, and to be signed and dated on reverse side.)
<PAGE>
PROPOSALS
---------
3. Approve changes to the investment policies of the Flexibly Managed Fund to
apply the Fund's 10% limit on ownership of voting securities of any issuer
to 75% of the total assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approve changes in the investment policies of the High Yield Bond Fund to
apply the Fund's 5% limit on assets invested in any one issuer and 10%
limit on ownership of voting securities of any issuer to 75% of the total
assets of the Fund, rather than 100% of total assets.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit each Fund to invest up to 15% of their
respective net assets in illiquid securities and change the policies from
fundamental to non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. Approve changes in the investment policies of the Flexibly Managed and High
Yield Bond Funds to remove each Fund's investment policy limiting
investments in securities of issuers which have been in operation for less
than three years to 5% of the total assets of the Fund.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
7. Approve changes to the investment policies of the Flexibly Managed and High
Yield Bond Funds to permit the Funds to invest in securities backed by real
estate or in securities of companies engaged in the real estate business.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
8. Approve changes in the investment policies of the High Yield Bond Fund to
permit the Fund to invest up to 10% of its assets in warrants to purchase
common stocks and change the policy regarding warrants from fundamental to
non-fundamental.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
9. Approve ICMI as investment adviser to the Value Equity, Small
Capitalization, Flexibly Managed, High Yield Bond, and International Equity
Funds and approve the proposed Investment Advisory Agreement between the
Company and ICMI.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
10. Approve OpCap as investment sub-adviser to the Value Equity Fund and Small
Capitalization Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and OpCap.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
11. Approve T. Rowe Price as investment sub-adviser to the Flexibly Managed and
High Yield Bond Funds, and approve the proposed Sub-Advisory Agreement
between ICMI and T. Rowe Price.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
12. Approve Vontobel as investment sub-adviser to the International Equity
Fund, and approve the proposed Sub-Advisory Agreement between ICMI and
Vontobel.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The shares will be voted as directed. Penn Mutual will vote on any other
business that may properly come before the meeting, in the discretion of its
management. These voting instructions are solicited by Penn Mutual.
Please date, sign and return promptly.
Your signature(s) should be exactly as your name or names appear on this Voting
Instruction Form. If the shares are held jointly, each holder should sign. If
signing is by an attorney, executor, adminstrator, trustee or guardian, please
print your full title below your signature.
Dated , 1998
- ------------------------------ ---------------
Signature
- ------------------------------
Signature
